IMPORTANT NOTICE NOT FOR DISTRIBUTION INTO THE UNITED STATES OR TO ANY PERSON OR ADDRESS IN THE UNITED STATES.

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1 IMPORTANT NOTICE NOT FOR DISTRIBUTION INTO THE UNITED STATES OR TO ANY PERSON OR ADDRESS IN THE UNITED STATES. IMPORTANT: You must read the following before continuing. The following applies to the offering circular (the Offering Circular) following this page, and you are therefore advised to read this carefully before reading, accessing or making any other use of the Offering Circular. In accessing the Offering Circular, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access. NOTHING IN THIS ELECTRONIC TRANSMISSION CONSTITUTES AN OFFER OF SECURITIES FOR SALE IN THE UNITED STATES OR ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO DO SO. THE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT), OR THE SECURITIES LAWS OF ANY STATE OF THE U.S. OR OTHER JURISDICTION AND THE SECURITIES MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE OR LOCAL SECURITIES LAWS. THE FOLLOWING OFFERING CIRCULAR MAY NOT BE FORWARDED OR DISTRIBUTED TO ANY OTHER PERSON AND MAY NOT BE REPRODUCED IN ANY MANNER WHATSOEVER, AND IN PARTICULAR, MAY NOT BE FORWARDED TO ANY U.S. ADDRESS. ANY FORWARDING, DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIES ACT OR THE APPLICABLE LAWS OF OTHER JURISDICTIONS. Confirmation of your Representation: This Offering Circular is being sent at your request and by accepting the and accessing this Offering Circular, you shall be deemed to have represented to us that you are outside the United States. In addition, you shall be deemed to have represented to us that the electronic mail address that you gave us and to which this has been delivered is not located in the United States and that you consent to delivery of such Offering Circular by electronic transmission. You are reminded that this Offering Circular has been delivered to you on the basis that you are a person into whose possession this Offering Circular may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorised to, deliver this Offering Circular to any other person. The materials relating to any offering of securities described in this Offering Circular do not constitute, and may not be used in connection with, an offer or solicitation in any place where offers or solicitations are not permitted by law. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the dealers or any affiliate of the dealers is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the dealers or such affiliate on behalf of the Issuer in such jurisdiction. This Offering Circular has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of the Dealers (as defined in this Offering Circular) or any person who controls each of them nor any director, officer, employee nor agent of each of them or affiliate of any such person accepts any liability or responsibility whatsoever in respect of any difference between the Offering Circular distributed to you in electronic format and the hard copy version available to you on request from any of the Dealers. You are responsible for protecting against viruses and other destructive items. Your use of this is at your own risk and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature HK:

2 OFFERING CIRCULAR Yes Bank Limited, acting through its IFSC Banking Unit or foreign branch (Public company incorporated under the Companies Act, 1956 and a scheduled commercial bank within the meaning of the Reserve Bank of India Act, 1934) U.S.$1,000,000,000 Medium Term Note Programme Under this U.S.$1,000,000,000 Medium Term Note Programme (the Programme), YES Bank Limited (the Bank or the Issuer) may from time to time issue notes (the Notes) denominated in any currency agreed between the Bank and the relevant Dealer (as defined below). Notes may be issued in bearer or registered form (respectively, Bearer Notes and Registered Notes). The maximum aggregate nominal amount of all Notes from time to time outstanding under the Programme will not exceed U.S.$1,000,000,000 (or its equivalent in other currencies calculated as described herein), subject to increase as described herein. The Notes may be issued on a continuing basis to one or more of the Dealers specified under Overview of the Programme and any additional Dealer appointed under the Programme from time to time by the Bank (each a Dealer and together the Dealers), which appointment may be for a specific issue or on an ongoing basis. References in this Offering Circular to the relevant Dealer shall, in the case of an issue of Notes being (or intended to be) subscribed by more than one Dealer, be to all Dealers agreeing to subscribe to such Notes. Application has been made to the London Stock Exchange for the Notes to be admitted to trading on the London Stock Exchange s International Securities Market (ISM). The ISM is not a regulated market for the purposes of Directive 2004/39/EC. The ISM is a market designated for professional investors. Notes admitted to trading on the ISM are not admitted to the Official List of the UKLA. The London Stock Exchange has not approved or verified the contents of this Offering Circular. Additionally, application has been made for the listing and quotation of Notes that may be issued pursuant to the Programme and which are agreed at or prior to the time of issue thereof to be so listed on the Singapore Exchange Securities Trading Limited (the SGX-ST). Such permission will be granted when such Notes have been admitted to the Official List of the SGX-ST (the Singapore Official List). The SGX-ST assumes no responsibility for the correctness of any of the statements made or opinions expressed or reports contained herein. Admission to the Singapore Official List and quotation of any Notes on the SGX-ST are not to be taken as an indication of our merits, the Programme or the Notes. Notice of the aggregate nominal amount of Notes, interest (if any) payable in respect of Notes, the issue price of Notes and any other terms and conditions not contained herein which are applicable to each Tranche (as defined under Terms and Conditions of the Notes ) of Notes will be set out in a final terms document (the Final Terms) or pricing supplement (in the case of Exempt Notes) (the Pricing Supplement) which, with respect to Notes to be listed on the SGX-ST, will be delivered to the SGX-ST on or before the date of issue of the Notes of such Tranche. The Programme provides that Notes may be listed on such other or further stock exchange(s) as may be agreed between us and the relevant Dealer. We may also issue unlisted Notes. We may agree with any Dealer and the Trustee (as defined herein) that Notes may be issued in a form not contemplated by the Terms and Conditions of the Notes herein, in which event (in the case of Notes intended to be listed on the SGX-ST) a supplementary Offering Circular, if appropriate, will be made available which will describe the effect of the agreement reached in relation to such Notes. Application has been made to the India International Exchange IFSC Limited (the India INX) for the Notes to be admitted to trading on the India INX. The India INX has not approved or verified the contents of the listing particulars. See Investment Considerations for a discussion of certain factors to be considered in connection with an investment in the Notes. Each Tranche of Bearer Notes of each series (as defined in Form of the Notes ) will initially be represented by either a temporary bearer global note (a Temporary Bearer Global Note) or a permanent bearer global note (a Permanent Bearer Global Note and, together with a Temporary Bearer Global Note, the Bearer Global Notes, and each a Bearer Global Note) as indicated in the applicable Final Terms in respect of any Notes (or applicable Pricing Supplement, in the case of Exempt Notes), which, in either case, will be delivered on or prior to the original issue date of the Tranche to a common depositary (the Common Depositary) for Euroclear Bank SA/NV (Euroclear) and Clearstream Banking S.A. (Clearstream, Luxembourg). On and after the date (the Exchange Date) which, for each Tranche in respect of which a Temporary Bearer Global Note is issued, is 40 days after the date on which the Temporary Bearer Global Note is issued, interests in such Temporary Bearer Global Note will be exchangeable (free of charge) upon a request as described therein either for (i) interests in a Permanent Bearer Global Note of the same Series or (ii) definitive Bearer Notes of the same Series. The applicable Final Terms in respect of any Notes (or applicable Pricing Supplement, in the case of Exempt Notes) will specify that a Permanent Bearer Global Note will be exchangeable for definitive Bearer Notes in certain limited circumstances. Registered Notes sold in an offshore transaction within the meaning of Regulation S (Regulation S) under the U.S. Securities Act of 1933, as amended (the Securities Act), which will be sold outside the United States (the U.S.) and only to non-u.s. persons (as defined in Regulation S), will initially be represented by a global note in registered form, without receipts or coupons, (a Registered Global Note) deposited with a common depositary for Euroclear and Clearstream, Luxembourg, and registered in the name of a nominee of such common depositary. The Notes have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the U.S. and are subject to U.S. tax law requirements. Subject to certain exceptions, the Notes may not be offered, sold or delivered within the U.S. This Offering Circular has not been and will not be registered, produced or published as an offer document (whether as a prospectus in respect of a public offer or an information memorandum or private placement offer letter or other offering material in respect of a private placement under the Companies Act, 1956, Companies Act, 2013 (each as amended, supplemented or reenacted from time to time) and the rules framed thereunder or any other applicable Indian laws for the time being in force) with the Registrar of Companies, the Securities and Exchange Board of India or any other statutory or regulatory body of like nature in India, save and except for any information from part of the Offering Circular which is mandatorily required to be disclosed or filed in India under any applicable Indian laws. The Notes will not be offered or sold and have not been offered or sold, in International Financial Services Centres or/and in India by means of this Offering Circular or any other offering document or material relating to the Notes and will not be circulated or distributed and have not been circulated or distributed, directly or indirectly, to any person or the public in India or otherwise generally distributed or circulated in India which would constitute an advertisement, invitation, offer, sale or solicitation of an offer to subscribe for or purchase any securities in violation of applicable Indian laws. If you purchase any of the Notes, you will be deemed to have acknowledged, HK:

3 represented and agreed that you are eligible to purchase the Notes under applicable laws and regulations and that you are not prohibited under any applicable law or regulation from acquiring, owning or selling the Notes. See Subscription and Sale. The Notes will not be offered or sold, directly or indirectly, in India or to, or for the account or benefit of, any resident in India. The Notes will not be offered in GIFT IFSC or to, or for the account or benefit of, any resident in International Financial Services Centres in India. This offering memorandum has not been and will not be approved or authorized by or filed with, and will not be registered as a prospectus with the Registrar of Companies, Securities Exchange Board of India or Reserve Bank of India or any other regulator in India. Neither the Bank nor the Dealers have circulated or distributed, nor will they circulate or distribute, this offering memorandum or any material relating thereto, directly or indirectly, to the public or any members of the public in India. The Programme is rated Baa3 by Moody s Investors Service Limited. These ratings are only correct as at the date of this Offering Circular. Tranches of Notes (as defined in Overview of the Programme ) to be issued under the Programme may be rated or unrated. Where a Tranche of Notes is to be rated, such rating will not necessarily be the same as the ratings assigned to the Programme. A rating is not a recommendation to buy, sell or hold securities and may be subject to suspension, reduction, revision or withdrawal at any time by the assigning rating agency. Arrangers and Dealers BofA Merrill Lynch J.P. Morgan Standard Chartered Bank YES Bank The date of this Offering Circular is 22 December HK:

4 The Issuer accepts responsibility for the information contained in this Offering Circular. To the best of the knowledge and belief of the Issuer (having taken all reasonable care to ensure that such is the case), the information contained in this Offering Circular is in accordance with the facts and contains no omission likely to affect its import. The Issuer, having made all reasonable enquiries, confirms that this Offering Circular contains or incorporates all information which is material in the context of the Programme and the Notes, that the information contained or incorporated in this Offering Circular is true and accurate in all material respects and is not misleading, that the opinions and intentions expressed in this Offering Circular are honestly held and that there are no other facts the omission of which would make this Offering Circular or any of such information or the expression of any such opinions or intentions misleading. The Issuer accepts responsibility accordingly. No person is or has been authorised by the Issuer to give any information or to make any representation other than those contained in this Offering Circular or any other information supplied in connection with the Programme or the Notes and, if given or made by any other person, such information or representations must not be relied upon as having been authorised by the Issuer, any of the Dealers, the Trustee (each as defined herein) or The Hongkong and Shanghai Bank as principal paying agent, transfer agent and registrar (the Agents). To the fullest extent permitted by law, none of the Dealers, the Trustee or any of them accept any responsibility for the contents of this Offering Circular or for any other statement made or purported to be made by the Dealers, the Trustee, the Agents or any of them in connection with the Issuer or the issue and offering of the Notes. Each of the Dealers, the Trustee and the Agents accordingly disclaims all and any liability whether arising in tort or contract or otherwise (save as referred to above) which it might otherwise have in respect of this Offering Circular or any such statement. Neither this Offering Circular nor any other information supplied in connection with the Programme or any Notes (i) is intended to provide the basis of any credit or other evaluation or (ii) should be considered as a recommendation by the Issuer, any of the Dealers or the Trustee or the Agents that any recipient of this Offering Circular or any other information supplied in connection with the Programme or any Notes should purchase any of the Notes. Each investor contemplating purchasing Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness, of the Issuer. Neither this Offering Circular nor any other information supplied in connection with the Programme or the issue of any Notes constitutes an offer or invitation by or on behalf of the Issuer, any of the Dealers, the Trustee or the Agents to any person to subscribe for or to purchase any Notes. Neither the delivery of this Offering Circular nor the offering, sale or delivery of any Notes shall in any circumstances imply that the information contained herein concerning the Issuer is correct at any time subsequent to the date hereof or that any other information supplied in connection with the Programme is correct as at any time subsequent to the date indicated in the document containing the same. The Dealers, the Trustee or the Agents expressly do not undertake to review the financial condition or affairs of the Issuer during the life of the Programme or to advise any investor in the Notes of any information coming to their attention. Investors should review, inter alia, the most recently published documents incorporated by reference into this Offering Circular when deciding whether or not to purchase any Notes. The Notes in bearer form are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to United States persons, except in certain transactions permitted by U.S. Treasury regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986, as amended and the Treasury regulations promulgated thereunder. This Offering Circular does not constitute an offer to sell or the solicitation of an offer to buy any Notes in any jurisdiction to any person to whom it is unlawful to make the offer or HK:

5 solicitation in such jurisdiction. The distribution of this Offering Circular and the offer or sale of Notes may be restricted by law in certain jurisdictions. The Issuer, the Dealers, the Trustee and the Agents do not represent that this Offering Circular may be lawfully distributed, or that any Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assume any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Issuer, any of the Dealers or the Trustee or the Agents which would permit a public offering of any Notes or distribution of this Offering Circular in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Offering Circular nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations. Persons into whose possession this Offering Circular or any Notes may come must inform themselves about, and observe, any such restrictions on the distribution of this Offering Circular and the offering and sale of Notes. In particular, there are restrictions on the distribution of this Offering Circular and the offer or sale of Notes in the United States, the European Economic Area (including the United Kingdom, Italy and the Netherlands), India (including International Financial Services Centres), Singapore, Hong Kong, Japan, Australia and Bahrain, see Subscription and Sale. None of the Issuer, the Dealers, the Trustee and the Agents makes any representation to any investor in the Notes regarding the legality of its investment under any applicable laws. Any investor in the Notes should be able to bear the economic risk of an investment in the Notes for an indefinite period of time. There are restrictions on the offer and sale of the Notes in the United Kingdom. All applicable provisions of the Financial Services and Market Act 2000 (FSMA) with respect to anything done by any person in relation to the Notes in, from or otherwise involving the United Kingdom must be complied with. See Subscription and Sale. This document is for distribution only to persons who (i) are outside the United Kingdom, (ii) have professional experience in matters relating to investments, (iii) are persons falling within Article 49(2)(a) to (d) ( high net worth companies, unincorporated associations etc. ) of the FSMA (Financial Promotion) Order 2005 (as amended) or (iv) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) in connection with the issue or sale of any Notes may otherwise lawfully be communicated or caused to be communicated (all such persons together being referred to as relevant persons). This document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons. In connection with the offering of any Series of Notes, each Dealer is acting or will act for the Issuer in connection with the offering and no one else, and will not be responsible to anyone other than the Issuer for providing the protections afforded to clients of that Dealer nor for providing advice in relation to any such offering. This Offering Circular has not been and will not be registered as a prospectus with the Monetary Authority of Singapore and the Notes will be offered pursuant to the exemptions under the Securities and Futures Act, Chapter 289 of Singapore (the SFA). Accordingly, this Offering Circular and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes may not be circulated or distributed, nor may the Notes be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor pursuant to Section 274 of the SFA, (ii) to a relevant person under Section 275(1) of the SFA, or to any person pursuant to Section 275(1A) of HK:

6 the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. PROHIBITION OF SALES TO EEA RETAIL INVESTORS The Notes are not intended, from 1 January 2018, to be offered, sold or otherwise made available to and, with effect from such date, should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (EEA). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (MiFID II); (ii) a customer within the meaning of Directive 2002/92/EC (IMD), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in Directive 2003/71/EC (as amended, the Prospectus Directive). Consequently no key information document required by Regulation (EU) No 1286/2014 (the PRIIPs Regulation) for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation. For a description of other restrictions, see Subscription and Sale. ENFORCEABILITY OF CIVIL LIABILITIES The Issuer is a limited liability company that has been incorporated under the laws of India. Substantially all of the directors and executive officers of the Issuer and certain experts named herein reside in India, and a substantial portion of the assets of the Issuer and the assets of such directors and executive officers and certain experts are located in India. As a result, it may be difficult for investors to effect service of process upon the Issuer or such directors and executive officers outside India or to enforce judgments against them obtained in courts outside India predicated upon civil liabilities of the Issuer or such directors and executive officers under laws other than Indian law. India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. The Issuer understands that in India the statutory basis for recognition of foreign judgments is found in Section 13 of the Indian Code of Civil Procedure 1908 (the Civil Code), which provides that a foreign judgment shall be conclusive as to any matter directly adjudicated upon between the same parties or between parties under whom they or any of them claim litigating under the same title except: (i) where the judgment has not been pronounced by a court of competent jurisdiction; (ii) where the judgment has not been given on the merits of the case; (iii) where the judgment appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise the law of India in cases where such law is applicable; (iv) where the proceedings in which the judgment was obtained were opposed to natural justice; (v) where the judgment has been obtained by fraud; or (vi) where the judgment sustains a claim founded on a breach of any law in force in India. Section 44A of the Civil Code provides that where a foreign judgment has been rendered by a superior court in any country or territory outside India which the government of India has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, Section 44A of the Civil Code is applicable only to monetary decrees not being in the same nature of amounts payable in respect of taxes, other charges of a like nature or in respect of a fine or other penalties. Since the United Kingdom has been declared by the government of India as a reciprocating territory and the High Courts in England as the relevant superior courts, a judgment of a superior court in the United Kingdom may be enforced by proceedings in execution and a judgment not of a superior court, by a fresh suit resulting in a judgment or order. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in HK:

7 India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with Indian practice. A party seeking to enforce a foreign judgment in India is required to obtain approval from the Reserve Bank of India under the Foreign Exchange Management Act, 1999 to execute such a judgment or to repatriate any amount recovered. PRESENTATION OF FINANCIAL AND OTHER INFORMATION Unless otherwise indicated or the context requires otherwise, the financial information in this Offering Circular, relating to the Issuer has been derived from (i) the audited standalone and consolidated financial statements of the Issuer for the fiscal year ended 2017 and 2016 and (ii) the unaudited and reviewed standalone financial results of the Issuer for the six months ended 30 September 2017 (together, the Financial Statements). The Issuer s fiscal year ends on 31 March, and references in this Offering Circular to any specific year are to the 12-month period ended on 31 March of such year. The Issuer maintains its financial books and records and prepares its financial statements in Rupees in accordance with generally accepted accounting principles as applicable to banks in the Republic of India (Indian GAAP) which differ in certain important respects from International Financial Reporting Standards (IFRS). For a discussion of the principal differences between IFRS and Indian GAAP as they relate to the Issuer, see Summary of Significant Differences between IFRS and Indian GAAP. Unless otherwise stated, all financial data relating to the Issuer contained herein is stated on a consolidated basis. Unless otherwise specified, where financial information as at and for the six months ended 30 September 2017 has been translated into U.S. dollars, it has been so translated for information purposes only at the rate of Rs equal to U.S.$1.00 (based on market rates prevailing as at 29 September 2017), and for financial information as at and for the year ended 31 March 2017, it has been so translated for information purposes only at the rate of Rs to U.S.$1.00 (based on market rates prevailing as of 31 March 2017). No representation is made that the Rupee or U.S. dollar amounts referred to herein could have been or could be converted into Rupees or U.S. dollars, as the case may be, at any particular rate or at all. CERTAIN DEFINITIONS Capitalised terms, which are used but not defined in any particular section of this Offering Circular will have the meaning attributed to them in Terms and Conditions of the Notes or any other section of this Offering Circular. In this Offering Circular, unless otherwise specified, all references to the Group are to the Bank and its consolidated subsidiaries and other consolidated entities. All references to India are to the Republic of India and all references to the Government are to the government of India. All references to fiscal or fiscal year are to the year starting from 1 April and ending on 31 March. All references in this document to U.S. dollars, U.S.$ and $ refer to United States dollars and to Rupee, INR, Rupees, and Rs. refer to Indian Rupees. In addition, references to Sterling, GBP and refer to pounds sterling and to euro, EUR and refer to the currency introduced at the start of the third stage of the European economic and monetary union pursuant to the Treaty on the Functioning of the European Union, as amended from time to time. References to lac, lakhs and crores in the Bank s consolidated and standalone financial statements are to the following: One lakh or lac ,000 (one hundred thousand) HK:

8 One crore... Ten crores... One hundred crores... 10,000,000 (ten million) 100,000,000 (one hundred million) 1,000,000,000 (one thousand million or one billion) Furthermore certain figures and percentages included in this Offering Circular have been subject to rounding adjustments; accordingly, figures shown in the same category presented in different tables may vary slightly and figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them HK:

9 INDUSTRY AND MARKET DATA Certain industry and market share data in this Offering Circular are derived from data of the Reserve Bank of India (the RBI) or the Director General of Commercial Intelligence and Statistics. Certain other information regarding market position, growth rates and other industry data pertaining to the Issuer s business contained in this Offering Circular consists of estimates based on data reports compiled by professional organisations and analysts, on data from other external sources and on the Issuer s knowledge of its markets. This data is subject to change and cannot be verified with complete certainty due to limits on the availability and reliability of the raw data and other limitations and uncertainties inherent in any statistical survey. In many cases, there is no readily available external information (whether from trade associations, government bodies or other organisations) to validate market-related analyses and estimates, so the Issuer relies on internally developed estimates. While the Issuer has compiled, extracted and reproduced market or other industry data from external sources, including third parties or industry or general publications, neither the Issuer, the Dealers, the Trustee nor the Agents has independently verified that data and neither the Issuer, the Dealers, the Trustee nor the Agents makes any representation regarding the accuracy of such data. Similarly, while the Issuer believes its internal estimates to be reasonable, such estimates have not been verified by any independent sources and neither the Issuer, the Dealers, the Trustee nor the Agents can assure potential investors as to their accuracy. FORWARD-LOOKING STATEMENTS The Issuer has included statements in this Offering Circular which contain words or phrases such as will, would, aim, is likely, are likely, believe, expect, expected to, will continue, estimate, intend, plan, seeking to, propose to, future, objective, goal, should, can, could, may 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 certain risks or uncertainties associated with the expectations of the Issuer with respect to, but not limited to, its ability to successfully implement its strategy, its ability to integrate future mergers or acquisitions into its operations, future levels of non-performing assets and restructured assets, its growth and expansion, the adequacy of its allowance for credit and investment losses, technological changes, investment income, its ability to market new products, cash flow projections, the outcome of any legal or regulatory proceedings it is or becomes a party to, the future impact of new accounting standards, its ability to implement its dividend policy, the impact of Indian banking regulations on its operations, which includes the assets and liabilities of the Issuer, its ability to roll over its short-term funding sources, its exposure to market risks and the market acceptance of and demand for internet banking services. In addition, other factors that could cause actual results to differ materially from those estimated by the forward-looking statements contained in this Offering Circular include, but are not limited to, general economic and political conditions in India, southeast Asia and the other countries which have an impact on the Issuer s business activities or investments, political or financial instability in India or any other country caused by any factor including any terrorist attacks in India, the U.S. or elsewhere or any other acts of terrorism worldwide, any anti-terrorist or other attacks by the U.S., a U.S.-led coalition or any other country, the monetary and interest rate policies of India, political or financial instability in India or any other country caused by tensions between India and Pakistan related to the Kashmir region or military armament or social unrest in any part of India, inflation, deflation, unanticipated turbulence in interest rates, changes in the value of the Rupee, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets and level of internet penetration in India and globally, changes in domestic and foreign laws, regulations and taxes, changes in competition and the pricing environment in India and regional or general changes in asset valuations. For a further discussion on the factors that could cause actual results to differ, see the discussion under Investment Considerations contained in this Offering Circular HK:

10 CONTENTS Documents Incorporated by Reference...8 General Description of the Programme...9 Summary of the Programme...10 Form of the Notes...16 Applicable Pricing Supplement...20 Terms and Conditions of the Notes...33 Use of Proceeds...67 Capitalisation...68 Selected Financial Information of the Bank...69 Investment Considerations...73 Description of the Bank Description of the Bank s Assets and Liabilities Description of the Bank s International Financial Services Centre Banking Unit (IBU) Management Principal Shareholders The Indian Financial Sector Supervision and Regulation Legal and Regulatory ProceedingS Taxation Subscription and Sale General Information Summary of Significant Differences between IFRS and Indian GAAP INDEX TO FINANCIAL STATEMENTS HK:

11 DOCUMENTS INCORPORATED BY REFERENCE The following documents published or issued from time to time after the date hereof shall be deemed to be incorporated in, and to form part of, this Offering Circular: (a) (b) the most recently published audited consolidated and standalone annual financial statements and, if published later, the most recently published audited or reviewed, as the case may be, interim consolidated and standalone financial results (if any) of the Issuer (see General Information for a description of the financial statements currently published by the Issuer and visit for future publications of financial statements); and all supplements to this Offering Circular circulated by the Issuer from time to time. Any statement contained herein or in a document which is deemed to be incorporated by reference herein shall be deemed to be modified or superseded for the purpose of this Offering Circular to the extent that a statement contained in any such subsequent document which is deemed to be incorporated by reference herein modifies or supersedes such earlier statement (whether expressly, by implication or otherwise). Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Offering Circular. The Issuer will provide, without charge, to each person to whom a copy of this Offering Circular has been delivered, upon the request of such person, a copy of any or all of the documents deemed to be incorporated herein by reference unless such documents have been modified or superseded as specified above. Requests for such documents should be directed to the Issuer at its office set out at the end of this Offering Circular. In addition, such documents will be available free of charge from the principal office of the Principal Paying Agent (which for the time being is Level 30, HSBC Main Building, 1 Queen s Road Central, Hong Kong (the Principal Paying Agent)). If the terms of the Programme are modified or amended in a manner which would make this Offering Circular, as so modified or amended, inaccurate or misleading, to an extent which is material in the context of the Programme, a new offering circular will be prepared HK:

12 GENERAL DESCRIPTION OF THE PROGRAMME Under the Programme, the Issuer may from time to time issue Notes denominated in any currency, subject as set out herein. A summary of the terms and conditions of the Programme and the Notes appears below. The applicable terms of any Notes will be agreed between the Issuer and the relevant Dealer prior to the issue of the Notes and will be set out in the Terms and Conditions of the Notes endorsed on, attached to, or incorporated by reference into, the Notes, as modified and supplemented by the applicable Pricing Supplement attached to, or endorsed on, such Notes, as more fully described under Form of the Notes. This Offering Circular and any supplement will only be valid for listing the Notes on the SGX-ST, the ISM and the INX in an aggregate nominal amount which, when added to the aggregate nominal amount then outstanding of all Notes previously or simultaneously issued under the Programme, does not exceed U.S.$1,000,000,000 or its equivalent in other currencies. For the purpose of calculating the U.S. dollar equivalent of the aggregate nominal amount of Notes issued under the Programme from time to time: (a) (b) (c) the U.S. dollar equivalent of Notes denominated in another Specified Currency (as specified in the applicable Pricing Supplement in relation to the relevant Notes, described under Form of the Notes ) shall be determined, at the discretion of the Issuer, either as at the date on which agreement is reached for the issue of Notes or on the preceding day on which commercial banks and foreign exchange markets are open for business in London, in each case on the basis of the spot rate for the sale of the U.S. dollar against the purchase of such Specified Currency in the London foreign exchange market quoted by any leading international bank selected by the Issuer on the relevant day of calculation; the U.S. dollar equivalent of Dual Currency Notes, Index Linked Notes and Partly Paid Notes (each as specified in the applicable Pricing Supplement in relation to the relevant Notes, described under Form of the Notes ) shall be calculated in the manner specified above by reference to the original nominal amount on issue of such Notes (in the case of Partly Paid Notes regardless of the subscription price paid); and the U.S. dollar equivalent of Zero Coupon Notes (as specified in the applicable Pricing Supplement in relation to the relevant Notes, described under Form of the Notes ) and other Notes issued at a discount or a premium shall be calculated in the manner specified above by reference to the net proceeds received by the Issuer for the relevant issue HK:

13 SUMMARY OF THE PROGRAMME The following summary does not purport to be complete and is taken from, and is qualified in its entirety by, the remainder of this Offering Circular and, in relation to the terms and conditions of any particular Tranche of Notes, the applicable Pricing Supplement. Words and expressions defined in Form of the Notes and Terms and Conditions of the Notes shall have the same meanings in this summary. Issuer... Description... Arrangers/Dealers... YES Bank Limited, acting through its International Financial Services Centre Banking Unit or foreign branch (as specified in the relevant Pricing Supplement). Medium Term Note Programme. Standard Chartered Bank Merrill Lynch International J.P. Morgan Securities plc YES Bank Limited, International Financial Services Centre Banking Unit and any other Dealers appointed in accordance with the Programme Agreement (as defined under Subscription and Sale ). Certain Restrictions... Each issue of Notes in respect of which particular laws, guidelines, regulations, restrictions or reporting requirements apply will only be issued in circumstances which comply with such laws, guidelines, regulations, restrictions or reporting requirements from time to time (see Subscription and Sale ) including the following restrictions applicable at the date of this Offering Circular. Notes having a maturity of less than one year. Notes having a maturity of less than one year will, if the proceeds of the issue are accepted in the United Kingdom, constitute deposits for the purposes of the prohibition on accepting deposits contained in section 19 of the Financial Services and Markets Act 2000 unless they are issued to a limited class of professional investors and have a denomination of at least 100,000 or its equivalent. See Subscription and Sale. Trustee... Principal Paying Agent and Transfer Agent... Registrar... Programme Size... The Hongkong and Shanghai Banking Corporation Limited. The Hongkong and Shanghai Banking Corporation Limited. The Hongkong and Shanghai Banking Corporation Limited. U.S.$1,000,000,000 (or its equivalent in other currencies calculated as described under General Description of the Programme ) in an aggregate nominal amount of Notes HK:

14 outstanding at any time. The Issuer may increase the amount of the Programme in accordance with the terms of the Programme Agreement. Investment Considerations... Distribution... Currencies... Maturities... Issue Price... Form of the Notes... Fixed Rate Notes... There are certain factors that may affect the Issuer s ability to fulfil its obligations under Notes issued under the Programme. These are set out under Investment Considerations below. In addition, there are certain factors which are material for the purpose of assessing the market risks associated with Notes issued under the Programme. These are set out under Investment Considerations and include certain risks relating to the structure of a particular Series of Notes and certain market risks. Notes may be distributed by way of private or public placement and in each case on a syndicated or non-syndicated basis. Subject to any applicable legal or regulatory restrictions, any currency agreed between the Issuer and the relevant Dealer. Such maturities as may be agreed between the Issuer and the relevant Dealer and indicated in the applicable Pricing Supplement, subject to such minimum or maximum maturities as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the Issuer or the relevant Specified Currency. Notes may be issued on a fully paid or a partly paid basis and at an issue price which is at par or at a discount to, or premium over, par. The Notes may be in bearer form and/or registered form. Bearer Notes will be in bearer form and will on issue be represented by a temporary bearer global note (a Temporary Bearer Global Note) or a permanent bearer global note (a Permanent Bearer Global Note and together with the Temporary Bearer Global Note, the Bearer Global Notes) as indicated in the applicable Pricing Supplement. Temporary Bearer Global Notes will be exchangeable either for (i) interests in a Permanent Bearer Global Note or (ii) Bearer Notes in definitive form (Definitive Bearer Notes) as indicated in the applicable Pricing Supplement. Permanent Bearer Global Notes will be exchangeable for Definitive Bearer Notes upon either (i) not less than 60 days written notice from Euroclear and/or Clearstream (acting on the instructions of any holder of an interest in such Permanent Bearer Global Note) to the Principal Paying Agent as described therein or (ii) only upon the occurrence of an Exchange Event as described under Form of the Notes. Registered Notes will not be exchangeable for Bearer Notes and vice versa. Fixed interest will be payable at such rate or rates in arrear and on such date or dates as may be agreed between the Issuer and the relevant Dealer and on redemption and will be calculated on the basis of such Day Count Fraction as may be agreed between the Issuer and the relevant Dealer HK:

15 Floating Rate Notes... Floating Rate Notes will bear interest at a rate determined: (i) (ii) (iii) on the same basis as the floating rate under a notional interest rate swap transaction in the relevant Specified Currency governed by an agreement incorporating the 2006 ISDA Definitions (as published by the International Swaps and Derivatives Association, Inc., and as amended and updated as at the issue date of the first Tranche of the Notes of the relevant Series); on the basis of a reference rate appearing on the agreed screen page of a commercial quotation service; or on such other basis as may be agreed between the Issuer and the relevant Dealer. The margin (if any) relating to such floating rate will be agreed between the Issuer and the relevant Dealer for each Series of Floating Rate Notes. Floating Rate Notes may also have a maximum interest rate, a minimum interest rate, or both. Index Linked Notes... Other Provisions in relation to Floating Rate Notes and Index Linked Interest Notes... Payments of principal in respect of Index Linked Redemption Notes or of interest in respect of Index Linked Interest Notes will be calculated by reference to such index and/or formula or to changes in the prices of securities or commodities or to such other factors as the Issuer and the relevant Dealer may agree. Floating Rate Notes and Index Linked Interest Notes may also have a maximum interest rate, a minimum interest rate or both. Interest on Floating Rate Notes and Index Linked Interest Notes in respect of each Interest Period, as agreed prior to issue by the Issuer and the relevant Dealer, will be payable on such Interest Payment Dates, and will be calculated on the basis of such Day Count Fraction, as may be agreed between the Issuer and the relevant Dealer. Dual Currency Notes... Partly Paid Notes... Zero Coupon Notes... Payments (whether in respect of principal or interest and whether at maturity or otherwise) in respect of Dual Currency Notes will be made in such currencies, and based on such rates of exchange, as the Issuer and the relevant Dealer may agree. The Issuer may issue Notes in respect of which the issue price is paid in separate instalments in such amounts and on such dates as the Issuer and the relevant Dealer may agree. Zero Coupon Notes will be offered and sold at a discount to their nominal amount and will not bear interest HK:

16 Other Notes... Redemption... The Issuer may agree with any Dealer and the Trustee that Notes may be issued in a form not contemplated by the Terms and Conditions of the Notes, in which event the relevant provisions will be included in the applicable Pricing Supplement. The applicable Pricing Supplement will indicate either that the relevant Notes cannot be redeemed prior to their stated maturity other than (i) in specified instalments, if applicable, or (ii) for taxation reasons, or (iii) following an Event of Default (as defined in Condition 10) (in accordance with the provisions of Condition 10), or that such Notes will be redeemable at the option of the Issuer and/or the Noteholders upon giving notice to the Noteholders or the Issuer, as the case may be, on a date or dates specified prior to such stated maturity and at a price or prices and on such other terms as set forth in the Terms and Conditions of the Notes or may be agreed between the Issuer and the relevant Dealer. The applicable Pricing Supplement may provide that Notes may be redeemable in separate instalments in such amounts and on such dates as are indicated in the applicable Pricing Supplement. Notes having a maturity of less than one year may be subject to restrictions on their denomination and distribution. See Certain Restrictions - Notes having a maturity of less than one year above. Denomination of Notes... Notes will be issued in such denominations as may be agreed between the Issuer and the relevant Dealer save that the minimum denomination of each Note will be such as may be allowed or required from time to time by the relevant central bank (or equivalent body) or any laws or regulations applicable to the relevant Specified Currency. See Certain Restrictions - Notes having a maturity of less than one year above. Taxation... All payments in respect of the Notes will be made without deduction for or on account of withholding taxes imposed by any Tax Jurisdiction (as defined in Condition 8.2), subject as provided in Condition 8. In the event that any such deduction is made, the Issuer will, save in certain limited circumstances provided in Condition 8, be required to pay additional amounts to cover the amounts so deducted. Without prejudice to the Issuer s obligation to pay additional amounts as described above, all payments in respect of the Notes will be made subject to any withholding or deduction required pursuant to FATCA, as provided in Condition 6.2. Negative Pledge... The terms of the Notes will contain a negative pledge provision as further described in Condition HK:

17 Cross Default... Status of the Notes... Listing... The terms of the Notes will contain a cross default provision as further described in Condition 10. The Notes will constitute direct, unconditional, unsubordinated and, subject to the provisions of Condition 4, unsecured obligations of the Issuer and will rank pari passu among themselves and (save for certain obligations required to be preferred by law) equally with all other unsubordinated and unsecured obligations (other than subordinated obligations, if any) of the Issuer, from time to time outstanding. Application has been made for the listing and quotation of Notes that may be issued pursuant to the Programme and which are agreed at or prior to the time of issue thereof to be so listed on the SGX-ST. Such permission will be granted when such Notes have been admitted to the Official List. The Notes may also be listed on such other or further stock exchange(s) as may be agreed between the Issuer and the relevant Dealer in relation to each Series. If the application to the SGX-ST to list a particular series of Notes is approved, such Notes listed on the SGX-ST will be traded on the SGX-ST in a minimum board lot size of at least U.S.$200,000 (or equivalent). Application has been made to the London Stock Exchange for the Notes to be admitted to trading on the ISM. The ISM is not a regulated market for the purposes of Directive 2004/39/EC. Application has been made to the India INX for the Notes to be admitted to trading on the India INX. Unlisted Notes may also be issued. The applicable Pricing Supplement will state whether or not the relevant Notes are to be listed and, if so, on which stock exchange(s). Governing Law... Clearing Systems... Selling Restrictions... The Notes and any non-contractual obligations arising out of or in connection with the Notes will be governed by, and shall be construed in accordance with, English law. Euroclear, Clearstream and/or any other clearing system, as specified in the applicable Pricing Supplement (see Form of the Notes ). There are restrictions on the offer, sale and transfer of the Notes in the United States, the European Economic Area (including the United Kingdom, Italy and the Netherlands), India (including International Financial Services Centres), Hong Kong, Singapore, Japan and Bahrain and such other restrictions as may be required in connection with the offering and sale of a particular Tranche of Notes (see Subscription and Sale ). United States Selling Restrictions HK:

18 ... Regulation S, Category 1 or 2 and TEFRA C or D, or TEFRA not applicable as specified in the applicable Pricing Supplement HK:

19 FORM OF THE NOTES Words and expressions defined in Terms and Conditions of the Notes shall have the same meanings in this section. The Notes of each Series will be in either bearer form, with or without interest coupons attached (Bearer Notes), or registered form, without interest coupons attached (Registered Notes). Bearer Notes will be issued outside the United States to non-u.s. persons in reliance on Regulation S. Registered Notes will be issued outside the United States in reliance on Regulation S. Notes to be listed on the SGX-ST, the ISM and the India INX will be accepted for clearance through Euroclear and/or Clearstream and/or any other clearing system as specified in the applicable Pricing Supplement. Bearer Notes Each Tranche of Bearer Notes will be initially issued in the form of either a temporary bearer global note (a Temporary Bearer Global Note) or a permanent bearer global note (a Permanent Bearer Global Note) as indicated in the applicable Pricing Supplement, which, in either case, will be delivered on or prior to the original issue date of the Tranche to a common depositary (the Common Depositary) for Euroclear and Clearstream. While any Bearer Note is represented by a Temporary Bearer Global Note, payments of principal, interest (if any) and any other amount payable in respect of the Notes due prior to the Exchange Date (as defined below) will be made against presentation of the Temporary Bearer Global Note only to the extent that certification (in a form to be provided) to the effect that the beneficial owners of interests in such Bearer Note are not U.S. persons or persons who have purchased for resale to any U.S. person, as required by U.S. Treasury regulations, has been received by Euroclear and/or Clearstream and Euroclear and/or Clearstream, as applicable, has given a like certification (based on the certifications it has received) to the Principal Paying Agent. On and after the date which is 40 days after a Temporary Bearer Global Note is issued (the Exchange Date), interests in such Temporary Bearer Global Note will be exchangeable (free of charge) upon a request as described therein either for (i) interests in a Permanent Bearer Global Note of the same Series without receipts, interest coupons and talons attached or (ii) for Definitive Bearer Notes of the same series with, where applicable, receipts, interest coupons and talons attached (as indicated in the applicable Pricing Supplement and subject, in the case of Definitive Bearer Notes, to such notice period as is specified in the applicable Pricing Supplement) in each case against certification of beneficial ownership as described above unless such certification has already been given, provided that purchasers in the United States and certain U.S. persons will not be able to receive Definitive Bearer Notes. The holder of a Temporary Bearer Global Note will not be entitled to collect any payment of interest, principal or other amount due on or after the Exchange Date unless, upon due certification, exchange of the Temporary Bearer Global Note for an interest in a Permanent Bearer Global Note or for Definitive Bearer Notes is improperly withheld or refused. Payments of principal, interest (if any) or any other amounts on a Permanent Bearer Global Note will be made through Euroclear and/or Clearstream against presentation or surrender (as the case may be) of the Permanent Bearer Global Note without any requirement for certification. The applicable Pricing Supplement will specify that a Permanent Bearer Global Note will be exchangeable (free of charge), in whole but not in part, for Definitive Bearer Notes with, where applicable, receipts, interest coupons and talons attached upon either (i) not less than 60 days written notice from Euroclear and/or Clearstream (acting on the instructions of any holder of an interest in such Permanent Bearer Global Note) to the Principal Paying Agent as described therein or (ii) upon the occurrence of an Exchange Event. For these purposes, Exchange Event means that (i) an Event of HK:

20 Default (as defined in Condition 10) has occurred and is continuing or (ii) the Issuer has been notified that both Euroclear and Clearstream have been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or have announced an intention permanently to cease business or have in fact done so and no alternative clearing system satisfactory to the Trustee is available. The Issuer will promptly give notice to the Noteholders and the Trustee in accordance with Condition 14 if an Exchange Event occurs. In the event of the occurrence of an Exchange Event, Euroclear and/or Clearstream (acting on the instructions of any holder of an interest in such Permanent Bearer Global Note) or the Trustee may give notice to the Principal Paying Agent requesting exchange. Any such exchange following an Exchange Event shall occur not later than 45 days after the date of receipt of the first relevant notice by the Principal Paying Agent. All Notes will be issued pursuant to the Trust Deed and the Agency Agreement (each as defined under Terms and Conditions of the Notes ). The following legend will appear on all Notes (other than Temporary Global Notes), receipts and interest coupons relating to such Notes where TEFRA D is specified in the applicable Pricing Supplement: ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE. Notes which are represented by a Bearer Global Note will only be transferable in accordance with the rules and procedures for the time being of Euroclear or Clearstream, as the case may be. Registered Notes The Registered Notes of each Tranche will initially be represented by a global note in registered form (a Registered Global Note). Registered Global Notes will be deposited with, and registered in the name of a nominee of, a common depositary for Euroclear and Clearstream, as specified in the applicable Pricing Supplement. Persons holding beneficial interests in Registered Global Notes will be entitled or required, as the case may be, under the circumstances described below, to receive physical delivery of definitive Notes in fully registered form (Definitive Registered Notes). Payments of principal, interest and any other amount in respect of the Registered Global Notes will, in the absence of provision to the contrary, be made to the person shown on the Register (as defined in Condition 6.4) as the registered holder of the Registered Global Notes. None of the Issuer, any Paying Agent or the Registrar (each as defined under Terms and Conditions of the Notes ) will have any responsibility or liability for any aspect of the records relating to or payments or deliveries made on account of beneficial ownership interests in the Registered Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Payments of principal, interest or any other amount in respect of the Definitive Registered Notes will, in the absence of provision to the contrary, be made to the persons shown on the Register on the at the close of business on the 15th day (whether or not such 15th day is a Business Day) before the relevant due date (the Record Date) immediately preceding the due date for payment in the manner provided in that Condition. Interests in a Registered Global Note will be exchangeable (free of charge), in whole but not in part, for Definitive Registered Notes without receipts, interest coupons or talons attached only upon the occurrence of an Exchange Event. For these purposes, Exchange Event means that (i) an Event of HK:

21 Default has occurred and is continuing or (ii) the Issuer has been notified that both Euroclear and Clearstream have been closed for business for a continuous period of 14 days (other than by reason of holiday, statutory or otherwise) or have announced an intention permanently to cease business or have in fact done so and, in any such case, no alternative clearing system satisfactory to the Trustee is available. The Issuer will promptly give notice to Noteholders and the Trustee in accordance with Condition 14 if an Exchange Event occurs. In the event of the occurrence of an Exchange Event, Euroclear and/or Clearstream or the Trustee (acting on the instructions of any holder of an interest in such Registered Global Note) may give notice to the Registrar requesting exchange. Any such exchange shall occur not later than ten days after the date of receipt of the first relevant notice by the Registrar. Transfer of Interests Interests in a Registered Global Note may, subject to compliance with all applicable restrictions, be transferred to a person who wishes to hold such interest in another Registered Global Note. No beneficial owner of an interest in a Registered Global Note will be able to transfer such interest, except in accordance with the applicable procedures of Euroclear and Clearstream, in each case to the extent applicable. General Pursuant to the Agency Agreement (as defined under Terms and Conditions of the Notes ), the Principal Paying Agent shall arrange that, where a further Tranche of Notes is issued in reliance on Category 1 of Regulation S which is intended to form a single Series with an existing Tranche of Notes at a point after the Issue Date of the further Tranche, the Notes of such further Tranche shall be assigned the same common code and ISIN. In the case of a further Tranche of Notes issued in reliance on Category 2 of Regulation S, the Principal Paying Agent shall arrange CUSIP and CINS numbers which are different from the common code, ISIN, CUSIP and CINS assigned to Notes of any other Tranche of the same Series until such time as the Tranches are consolidated and form a single series, which shall not be prior to the expiry of the Distribution Compliance Period applicable to the Notes of such Tranche. For so long as any of the Notes is represented by a Bearer Global Note or a Registered Global Note (each a Global Note) held on behalf of Euroclear and/or Clearstream, each person (other than Euroclear or Clearstream) who is for the time being shown in the records of Euroclear or of Clearstream as the holder of a particular nominal amount of such Notes (in which regard any certificate or other document issued by Euroclear or Clearstream as to the nominal amount of such Notes standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by the Issuer, its agents and the Trustee as the holder of such nominal amount of such Notes for all purposes other than with respect to the payment of principal or interest on such nominal amount of such Notes, for which purpose the bearer of the relevant Bearer Global Note or the registered holder of the relevant Registered Global Note shall be treated by the Issuer, its agents and the Trustee as the holder of such nominal amount of such Notes in accordance with and subject to the terms of the relevant Global Note and the Trust Deed and the expressions Noteholder and holder of Notes and related expressions shall be construed accordingly. Any reference herein to Euroclear and/or Clearstream shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in the applicable Pricing Supplement. So long as any Notes are listed on the SGX-ST and the rules of the SGX-ST so require, the Issuer shall appoint and maintain a paying agent in Singapore, where such Notes may be presented or surrendered for payment or redemption, in the event that the Global Note representing such Notes is exchanged for definitive Notes. In addition, an announcement of such exchange will be made through HK:

22 the SGX-ST, the ISM and the India INX. Such announcement will include all material information with respect to the delivery of the definitive Notes, including details of the paying agent in Singapore. No Noteholder, Receiptholder or Couponholder (each as defined in Terms and Conditions of the Notes ) shall be entitled to proceed directly against the Issuer unless the Trustee, having become bound so to proceed, fails so to do within a reasonable period and the failure shall be continuing. If the applicable Pricing Supplement specifies any modification to the Terms and Conditions of the Notes as described herein, it is envisaged that, to the extent that such modification relates only to Condition 1, 5, 6, 7 (except Condition 7.2), 11, 12, 13, 14 (insofar as such Notes are not listed or admitted to trade on any stock exchange) or 18, they will not necessitate the preparation of a supplement to this Offering Circular. If the Terms and Conditions of the Notes of any Series are to be modified in any other respect, a supplement to this Offering Circular will be prepared, if appropriate HK:

23 APPLICABLE PRICING SUPPLEMENT Set out below is the form of Pricing Supplement which will be completed for each Tranche of Notes issued under the Programme. [Date] YES Bank Limited acting through its [International Financial Services Centre Banking Unit]/ [specify foreign branch] Issue of [Aggregate Nominal Amount of Tranche] [Title of Notes] under the U.S.$1,000,000,000 Medium Term Note Programme This document constitutes the Pricing Supplement relating to the issue of Notes described herein. Terms used herein shall be deemed to be defined as such for the purposes of the Conditions set forth in the Offering Circular dated 22 December 2017 [and the supplement[s] to it dated [ ] and [ ]] (the Offering Circular). This Pricing Supplement constitutes the final terms of the Notes and must be read in conjunction with such Offering Circular. Full information on the Issuer and the offer of the Notes is only available on the basis of the combination of this Pricing Supplement and the Offering Circular. [PROHIBITION OF SALES TO EEA RETAIL INVESTORS The Notes are not intended, from 1 January 2018, to be offered, sold or otherwise made available to and, with effect from such date, should not be offered, sold or otherwise made available to any retail investor in the European Economic Area (EEA). For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (MiFID II); (ii) a customer within the meaning of Directive 2002/92/EC (IMD), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or (iii) not a qualified investor as defined in Directive 2003/71/EC (as amended, the Prospectus Directive). Consequently no key information document required by Regulation (EU) No 1286/2014 (the PRIIPs Regulation) for offering or selling the Notes or otherwise making them available to retail investors in the EEA has been prepared and therefore offering or selling the Notes or otherwise making them available to any retail investor in the EEA may be unlawful under the PRIIPs Regulation.] [The following alternative language applies if the first tranche of an issue which is being increased was issued under an Offering Circular with an earlier date] Terms used herein shall be deemed to be defined as such for the purposes of the Conditions (the Conditions) set forth in the Offering Circular dated [original date] [and the supplement dated [date]]. This Pricing Supplement constitutes the final terms of the Notes and must be read in conjunction with the Offering Circular dated [current date], save in respect of the Conditions which are extracted from the Offering Circular dated [original date] and are attached hereto. Full information on the Issuer and the offer of the Notes is only available on the basis of the combination of this Pricing Supplement and the Offering Circular. [Include whichever of the following apply or specify as Not Applicable (N/A). Note that the numbering should remain as set out below, even if Not Applicable is indicated for individual paragraphs or subparagraphs. Italics denote directions for completing the Pricing Supplement.] HK:

24 [If the Notes have a maturity of less than one year from the date of their issue, the minimum denomination may need to be 100,000 or its equivalent in any other currency.] 1. Issuer: YES Bank Limited, acting through its [International Financial Services Centre Banking Unit]/[specify foreign branch] 2. (a) Series Number: [ ] (b) Tranche Number: [ ] (If fungible with an existing Series, details of that Series, including the date on which the Notes become fungible) (c) Date on which the Notes will be consolidated and form a single Series: The Notes will be consolidated and form a single Series with [identify earlier Tranches] on [the Issue Date/exchange of the Temporary Global Note for interests in the Permanent Global Note, as referred to in paragraph [ ] below, which is expected to occur on or about [date]][not Applicable] 3. Specified Currency or Currencies: [ ] 4. Aggregate Nominal Amount: (a) Series: [ ] (b) Tranche: [ ] 5. (a) Issue Price: [ ] per cent. of the Aggregate Nominal Amount [plus accrued interest from [insert date] (if applicable)] (b) [Net proceeds: [ ]] 6. (a) Specified Denominations: [ ] (N.B. Notes must have a minimum denomination of 100,000 or equivalent unless the issue of Notes is: (i) NOT admitted to trading on a European Economic Area exchange; and (ii) only offered in the European Economic Area in circumstances where a prospectus is not required to be published under the Prospectus Directive) (NB Where Bearer Notes with multiple denominations above [ 100,000] or equivalent are being issued, with respect to Bearer Notes, the following sample wording should be followed: HK:

25 (b) Calculation Amount (in relation to calculation of interest in global form see Conditions): [ 100,000] and integral multiples of [ 1,000] in excess thereof, up to and including [ 199,000]. No notes in definitive form will be issued with a denomination above [ 199,000]. ) (In the case of Registered Notes, this means the minimum integral amount in which transfers can be made) [ ] (If only one Specified Denomination, insert the Specified Denomination. If more than one Specified Denomination, insert the highest common factor. Note: There must be a common factor in the case of two or more Specified Denominations) 7. (a) Issue Date: [ ] (b) Interest Commencement Date: [specify/issue Date/Not Applicable] (N.B. An Interest Commencement Date will not be relevant for certain Notes, for example Zero Coupon Notes) 8. Maturity Date: [Specify date or for Floating rate notes Interest Payment Date falling in or nearest to [specify month and year]] 9. Interest Basis: [[ ] per cent. Fixed Rate] (N.B.: The maturity date of the Notes will be subject to the guidelines issued by the RBI from time to time) [[Specify Reference Rate] +/- [ ] per cent. Floating Rate] [Zero Coupon] [Index Linked Interest] [Dual Currency Interest] [specify other] (further particulars specified below) 10. Redemption/Payment Basis: [Redemption at par] [Index Linked Redemption] HK:

26 [Dual Currency Redemption] [Partly Paid] [Instalment] [specify other] 11. Change of Interest Basis or Redemption/Payment Basis: [Applicable/Not Applicable] 12. Put/Call Options: [Investor Put] (If applicable, specify details of any provision for change of Notes into another Interest Basis or Redemption/Payment Basis) (N.B. Conditions related to the maturity, redemption, put/call and similar features of Notes qualifying as regulatory capital will be subject to the guidelines issued by the RBI from time to time.) [Issuer Call] 13. Status of the Notes: Senior (N.B. Conditions related to the maturity, redemption, put/call and similar features of Notes qualifying as regulatory capital will be subject to the guidelines issued by the RBI from time to time). [(further particulars specified below)] [Not Applicable] 14. (a) Date of [Board] approval for issuance of Notes obtained: [ ] [and [ ], respectively]/[none required] (b) Date of regulatory approval/consent for issuance of Notes obtained: (N.B. Only relevant where Board (or similar) authorisation is required for the particular tranche of Notes) [ ]/[None required] (N.B. Only relevant where regulatory (or similar) approval or consent is required for the particular tranche of Notes) 15. Listing: [Singapore/specify other/none] HK:

27 (N.B. Consider disclosure requirements under the EU Prospectus Directive applicable to securities admitted to an EU regulated market) 16. Method of Distribution: [Syndicated/Non-syndicated] PROVISIONS RELATING TO INTEREST (IF ANY) PAYABLE 17. Fixed Rate Note Provisions: [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph) (a) Rate(s) of Interest: [ ] per cent. per annum payable in arrear on each Interest Payment Date (b) Interest Payment Date(s): [ ] in each year up to and including the Maturity Date (Amend appropriately in the case of irregular coupons) (c) (d) Fixed Coupon Amount(s) for Notes in definitive form and in relation to Notes in global form, see Conditions: Broken Amount(s) for Notes in definitive form and in relation to Notes in global form, see Conditions: [ ] per Calculation Amount [[ ] per Calculation Amount, payable on the Interest Payment Date falling [in/on] [ ]]/[Not Applicable] (e) Day Count Fraction: [Actual/Actual (ICMA)] [30/360] [Actual/365 (Fixed)] or [specify other] (f) Determination Date(s): [[ ] in each year]/[not Applicable] (Only relevant where Day Count Fraction is Actual/Actual (ICMA). In such a case, insert regular interest payment dates, ignoring issue date or maturity date in the case of a long or short first or last coupon) (g) Other terms relating to the method of calculating interest for Fixed Rate Notes: [None/Give details] 18. Floating Rate Note Provisions: [Applicable/Not Applicable] (a) Specified Period(s)/Specified [ ] (If not applicable, delete the remaining subparagraphs of this paragraph) HK:

28 Interest Payment Dates: (b) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/specify other] [Not Applicable] (c) Additional Business Centre(s): [ ] (d) (e) Manner in which the Rates of Interest and Interest Amount are to be determined: Party responsible for calculating the Rate of Interest and Interest Amount (if not the Principal Paying Agent): [Screen Rate Determination/ISDA Determination/specify other] [ ] (f) Screen Rate Determination: [ ] Reference Rate: [ ] month [LIBOR/EURIBOR/specify other Reference Rate] (Either LIBOR, EURIBOR or other, although additional information is required if other, including fallback provisions in the Agency Agreement) Interest Determination Date(s): [ ] (Second London business day prior to the start of each Interest Period if LIBOR (other than Sterling or euro LIBOR), first day of each Interest Period if Sterling LIBOR and the second day on which the TARGET2 System is open prior to the start of each Interest Period if EURIBOR or euro LIBOR) Relevant Screen Page: [ ] (In the case of EURIBOR, if not Reuters EURIBOR01 ensure it is a page which shows a composite rate or amend the fallback provisions appropriately) (g) ISDA Determination: Floating Rate Option: [ ] Designated Maturity: [ ] Reset Date: [ ] HK:

29 (in the case of a LIBOR or EURIBOR based option, the first day of the Interest Period) (h) Linear Interpolation: [Not Applicable/Applicable the Rate of Interest for the [long/short] [first/last] Interest Period shall be calculated using Linear Interpolation (specify for each short or long interest period)] (i) Margin(s): [+/-] [ ] per cent. per annum (j) Minimum Rate of Interest: [ ] per cent. per annum (k) Maximum Rate of Interest: [ ] per cent. per annum (l) Day Count Fraction: [Actual/Actual (ISDA)] [Actual/Actual] [Actual/365 (Fixed)] [Actual/365 (Sterling)] [Actual/360] [30/360] [360/360] [Bond Basis] [30E/360] [Eurobond Basis] [30E/360 (ISDA)] [Other] 19. Zero Coupon Note Provisions: [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph) (a) Accrual Yield: [ ] per cent. per annum (b) Reference Price: [ ] (c) (d) Any other formula/basis of determining amount payable: Day Count Fraction in relation to Early Redemption Amounts: [ ] [30/360] [Actual/360] [Actual/365] [specify other] 20. Index Linked Interest Note Provisions: [Applicable/Not Applicable] (a) Index/Formula: [give or annex details] (b) Calculation Agent: [give name] (If not applicable, delete the remaining subparagraphs of this paragraph) HK:

30 (c) (d) (e) Party responsible for calculating the Rate of Interest (if not the Calculation Agent) and Interest Amount (if not the Principal Paying Agent): Provisions for determining Coupon where calculation by reference to Index and/or Formula is impossible or impracticable: Specified Period(s)/Specified Interest Payment Dates: [ ] [need to include a description of market disruption or settlement disruption events and adjustment provisions] [ ] (f) Business Day Convention: [Floating Rate Convention/Following Business Day Convention/Modified Following Business Day Convention/Preceding Business Day Convention/specify other] (g) Additional Business Centre(s): [ ] (h) Minimum Rate of Interest: [ ] per cent. per annum (i) Maximum Rate of Interest: [ ] per cent. per annum (j) Day Count Fraction: [ ] 21. Dual Currency Interest Note Provisions: [Applicable/Not Applicable] (If not applicable, delete the remaining subparagraphs of this paragraph) (a) (b) (c) (d) Rate of Exchange/method of calculating Rate of Exchange: Party, if any, responsible for calculating the principal and/or interest due (if not the Principal Paying Agent): Provisions applicable where calculation by reference to Rate of Exchange impossible or impracticable: Person at whose option Specified Currency(ies) is/are payable: [give or annex details] [ ] [need to include a description of market disruption or settlement disruption events and adjustment provisions] [ ] PROVISIONS RELATING TO REDEMPTION 22. Notice periods for Condition 7.2: Minimum period: [30] days HK:

31 Maximum period: [60] days 23. Issuer Call: [Applicable/Not Applicable] (a) Optional Redemption Date(s): [ ] (If not applicable, delete the remaining subparagraphs of this paragraph) (b) (c) Optional Redemption Amount and method, if any, of calculation of such amount(s): If redeemable in part: [[ ] per Calculation Amount/specify other/see Appendix] (i) (ii) Minimum Redemption Amount: Maximum Redemption Amount: [ ] [ ] (d) Notice period (if other than asset out in the Conditions): Minimum period: [15] days Maximum period: [30] days (N.B. If setting notice periods which are different to those provided in the Conditions, the Issuer is advised to consider the practicalities of distribution of information through intermediaries, for example, clearing systems (which require a minimum of 15 clearing system business days notice for a call) and custodians, as well as any other notice requirements which may apply, for example, as between the Issuer and the Principal Paying Agent or the Trustee) 24. Investor Put: [Applicable/Not Applicable] (a) Optional Redemption Date(s): [ ] (If not applicable, delete the remaining subparagraphs of this paragraph) (b) (c) Optional Redemption Amount and method, if any, of calculation of such amount(s): Notice period (if other than as set out in the Conditions): [[ ] per Calculation Amount/specify other/see Appendix] Minimum period: [15] days Maximum period: [30] days (N.B. If setting notice periods which are different HK:

32 to those provided in the Conditions, the Issuer is advised to consider the practicalities of distribution of information through intermediaries, for example, clearing systems (which require a minimum of 15 clearing system business days notice for a put) and custodians, as well as any other notice requirements which may apply, for example, as between the Issuer and the Principal Paying Agent or the Trustee) 25. Final Redemption Amount: [ ] per Calculation Amount/[specify other] 26. Early Redemption Amount payable on redemption for taxation or on event of default and/or the method of calculating the same (if required): [[ ] per Calculation Amount/specify other/see Appendix] (N.B. If the Final Redemption Amount is 100per cent. of the nominal value (i.e. par), the Early Redemption Amount is likely to be par (but consider). If, however, the Final Redemption Amount is other than 100 per cent. of the nominal value, consideration should be given as to what the Early Redemption Amount should be.) GENERAL PROVISIONS APPLICABLE TO THE NOTES 27. Form of Notes: [Bearer Notes: [Temporary Bearer Global Note exchangeable for a Permanent Bearer Global Note which is exchangeable for Definitive Notes [on 60 days notice given at any time/only upon an Exchange Event]]* [Temporary Bearer Global Note exchangeable for Definitive Notes on and after the Exchange Date]* [Permanent Bearer Global Note exchangeable for Definitive Notes [on 60 days notice given at any time/only upon an Exchange Event]]]* * (Ensure that this is consistent with the wording in the Form of the Notes section in the Offering Circular and the Notes themselves. N.B. The exchange upon notice option should not be expressed to be applicable if the Specified Denomination of the Notes in paragraph 6 includes language substantially to the following effect: [ 100,000] and integral multiples of [ 1,000] in excess thereof up to and including [ 199,000]. No Notes in definitive form will be issued with a denomination above [ 199,000]. Furthermore, such Specified Denomination construction is not permitted in relation to any HK:

33 issue of Notes which is to be represented on issue by a Temporary Bearer Global Note exchangeable for Definitive Bearer Notes.) [Registered Notes: Registered Global Note (U.S.$[ ] nominal amount) registered in the name of a nominee for a common depositary for Euroclear and Clearstream (specify nominal amounts)] (Ensure that this is consistent with the wording in the Form of the Notes section in the Offering Circular and the Notes themselves) 28. Additional Financial Centre(s) or other special provisions relating to Payment Dates: 29. Talons for future Coupons or Receipts to be attached to Definitive Notes in bearer form (and dates on which such Talons mature): 30. Details relating to Partly Paid Notes: amount of each payment comprising the Issue Price and date on which each payment is to be made and consequences (if any) of failure to pay, including any right of the Issuer to forfeit the Notes and interest due on late payment: [Not Applicable/give details] (Note that this paragraph relates to the date of payment and not the end dates of Interest Periods for the purposes of calculating the amount of interest, to which subparagraphs 18(i)(c) and 20(i)(g) relate) [Yes, as the Notes have more than 27 coupon payments, Talons may be required if, on exchange into definitive form, more than 27 coupon payments are still to be made/no] [Not Applicable/give details.] (N.B. a new form of Temporary Global Note and/or Permanent Global Note may be required for Partly Paid issues) 31. Details relating to Instalment Notes: [Applicable/Not Applicable] (a) Instalment Amount(s): [give details] (b) Instalment Date(s): [give details] (If not applicable, delete the remaining subparagraphs of this paragraph) 32. Redenomination applicable: Redenomination [not] applicable (If Redenomination is applicable, specify the applicable Day Count Fraction and any provisions necessary to deal with floating rate interest calculation (including alternative reference rates)) 33. Other terms or special conditions: [Not Applicable/give details] HK:

34 DISTRIBUTION 34. (a) If syndicated, names of Managers: [Not Applicable/give names] (b) Stabilising Manager(s) (if any): [Not Applicable/give name(s)] 35. If non-syndicated, name of relevant Dealer: 36. Whether TEFRA D or TEFRA C rules applicable or TEFRA rules not applicable: 37. Whether Category 1 or Category 2 applicable in respect of the Notes offered and sold in reliance on Regulation S: [Not Applicable/give name(s)] [TEFRA D/TEFRA C/TEFRA not applicable] [Category 1/Category 2] (Notes offered/sold in reliance on Category 1 must be in registered form) 38. Additional selling restrictions: [Not Applicable/give details] 39. Additional U.S. federal income tax considerations: [The Notes are [not] Specified Notes for purposes of Section 871(m) of the U.S. Internal Revenue Code of [Additional information regarding the application of Section 871(m) to the Notes will be available at [give name(s) and address(es) of Issuer contact].] (The Notes will not be Specified Notes if they (i) are issued prior to 1 January 2018 and provide a return that differs significantly from the return on an investment in the underlying or (ii) do not reference any U.S. equity or any index that contains any component U.S. equity or otherwise provide direct or indirect exposure to U.S. equities. If the Notes are issued on or after 1 January 2018 and reference a U.S. equity or an index that contains a component U.S. equity or otherwise provide direct or indirect exposure to U.S. equities, further analysis would be required. If the Notes are Specified Notes, include the Additional information sentence and provide the appropriate contact information at the Issuer.)] OPERATIONAL INFORMATION 40. Any clearing system(s) other than Euroclear and Clearstream and the relevant identification number(s): [Not Applicable/give name(s) and number(s)] 41. Delivery: Delivery [against/free of] payment 42. Additional Paying Agent(s) (if any): [ ] HK:

35 43. Address of the Issuer if the Issuer is an overseas branch of the Bank that is not the International Financial Services Centre Banking Unit: [ ] ISIN: [ ] Common Code: [ ] Financial Instrument Short Name: [ ] Classification of Financial Instruments Code: [ ] Legal Entity Identifier: [ ] (insert here any other relevant codes such as CUSIP and CINS codes) [LISTING APPLICATION This Pricing Supplement comprises the final terms required to list the issue of Notes described herein pursuant to the U.S.$1,000,000,000 Medium Term Note Programme of YES Bank Limited, [acting through its [International Financial Services Centre Banking Unit]/[specify foreign branch]].] [INVESTMENT CONSIDERATIONS There are significant risks associated with the Notes including, but not limited to, counterparty risk, country risk, price risk and liquidity risk. Investors should contact their own financial, legal, accounting and tax advisers about the risks associated with an investment in these Notes, the appropriate tools to analyse that investment, and the suitability of the investment in each investor s particular circumstances. No investor should purchase the Notes unless that investor understands and has sufficient financial resources to bear the price, market liquidity, structure and other risks associated with an investment in these Notes. Before entering into any transaction, investors should ensure that they fully understand the potential risks and rewards of that transaction and independently determine that the transaction is appropriate given their objectives, experience, financial and operational resources and other relevant circumstances. Investors should consider consulting with such advisers as they deem necessary to assist them in making these determinations.] RESPONSIBILITY The Issuer accepts responsibility for the information contained in this Pricing Supplement. Signed on behalf of the Issuer: By: Duly authorised HK:

36 TERMS AND CONDITIONS OF THE NOTES The following, subject to alteration and except for the paragraphs in italics, are the Terms and Conditions of the Notes which will be incorporated by reference into each Global Note and each definitive Note, in the latter case only if permitted by the relevant stock exchange or other relevant authority (if any) and agreed by the Issuer and the relevant Dealer at the time of issue but, if not so permitted and agreed, such definitive Note will have endorsed thereon or attached thereto such Terms and Conditions. The applicable Pricing Supplement in relation to any Tranche of Notes may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with the following Terms and Conditions, replace or modify the following Terms and Conditions for the purpose of such Notes. The applicable Pricing Supplement (or the relevant provisions thereof) will be endorsed upon, or attached to, each Global Note and definitive Note. Reference should be made to Form of the Notes for a description of the content of Pricing Supplements which will specify which of such terms are to apply in relation to the relevant Notes. This Note is one of a Series (as defined below) of Notes issued by YES Bank Limited (the Issuer), acting through its International Financial Services Centre Banking Unit Branch or a branch of the Issuer outside the Republic of India, as specified in the applicable Pricing Supplement, and constituted by a trust deed dated 22 December 2017, (such trust deed as modified and/or supplemented and/or restated from time to time, the Trust Deed) made between the Issuer and The Hongkong and Shanghai Banking Corporation Limited (the Trustee which expression shall include any successor as Trustee). References herein to the Notes shall be references to the Notes of this Series and shall mean: (i) (ii) (iii) (iv) (v) in relation to any Notes represented by a global Note (a Global Note), units of each Specified Denomination in the currency specified herein or, if none is specified, the currency in which the Notes are denominated (the Specified Currency); any Global Note in bearer form (a Bearer Global Note); any Global Note in registered form (a Registered Global Note); definitive Notes in bearer form (Definitive Bearer Notes, and together with Bearer Global Notes, the Bearer Notes) issued in exchange (or part exchange) for a Bearer Global Note; and definitive Notes in registered form (Definitive Registered Notes, and together with Registered Global Notes, the Registered Notes), whether or not issued in exchange for a Registered Global Note. The Notes, the Receipts (as defined below) and the Coupons (as defined below) have the benefit of an issue and paying agency agreement dated 22 December 2017 (such issue and paying agency agreement as amended and/or supplemented and/or restated from time to time, the Agency Agreement) made between the Issuer, the Trustee, The Hongkong and Shanghai Banking Corporation Limited as principal paying agent (the Principal Paying Agent, which expression shall include any successor principal paying agent, and, together with any additional paying agents appointed in accordance with the Agency Agreement, the Paying Agents, which expression shall, unless the context otherwise requires, include any successor paying agents) and as transfer agent (the Transfer Agent, which expression shall include any substitute or any additional transfer agents appointed in accordance with the Agency Agreement) and The Hongkong and Shanghai Banking Corporation Limited as registrar (the Registrar, which expression shall include any successor registrar). The Principal Paying Agent and the Paying Agents are together referred to as the Agents HK:

37 Interest bearing Definitive Bearer Notes (unless otherwise indicated in the applicable Pricing Supplement) have interest coupons (Coupons) and, in the case of Notes which, when issued in definitive form, have more than 27 interest payments remaining, talons for further Coupons (Talons) attached on issue. Any reference herein to Coupons or coupons shall, unless the context otherwise requires, be deemed to include a reference to Talons or talons. Definitive Bearer Notes repayable in instalments have receipts (Receipts) for the payment of the instalments of principal (other than the final instalment) attached on issue. Definitive Registered Notes do not have Receipts, Coupons or Talons attached on issue. The Pricing Supplement for this Note (or the relevant provisions thereof) is attached to or endorsed on this Note and supplements these Terms and Conditions (Conditions) and may specify other terms and conditions which shall, to the extent so specified or to the extent inconsistent with these Conditions, replace or modify these Conditions for the purposes of this Note. References to the applicable Pricing Supplement are to the Pricing Supplement (or the relevant provisions thereof) attached to or endorsed on this Note. Any reference to Noteholders or holders in relation to any Notes shall mean the holders of the Notes and shall, in relation to any Notes represented by a Global Note, be construed as provided below. Any reference herein to Receiptholders shall mean the holders of the Receipts and any reference herein to Couponholders shall mean the holders of the Coupons and shall, unless the context otherwise requires, include the holders of the Talons. The Trustee acts for the benefit of the Noteholders, the Receiptholders and the Couponholders, in accordance with the provisions of the Trust Deed. As used herein, Tranche means Notes which are identical in all respects (including as to listing) and Series means a Tranche of Notes together with any further Tranche or Tranches of Notes which (a) are expressed to be consolidated and form a single series and (b) have the same terms and conditions or terms and conditions which are the same in all respects save for the amount and date of the first payment of interest thereon and the date from which interest starts to accrue. Copies of the Trust Deed and the Agency Agreement are available for inspection during normal business hours at the registered office for the time being of the Trustee being as at the date of issue of the Notes at the specified office of the Principal Paying Agent with prior written notice. Copies of the applicable Pricing Supplement are obtainable during normal business hours at the specified office of Principal Paying Agent with prior written notice save that, if this Note is an unlisted Note of any Series, the applicable Pricing Supplement will only be obtainable by a Noteholder holding one or more unlisted Notes of that Series and such Noteholder must produce evidence satisfactory to the Principal Paying Agent, as the case may be, as to its holding of such Notes and identity. The Noteholders, the Receiptholders and the Couponholders are deemed to have notice of, and are entitled to the benefit of, and are bound by, all the provisions of the Trust Deed, the Agency Agreement and the applicable Pricing Supplement which are applicable to them. The statements in these Conditions include summaries of, and are subject to, the detailed provisions of the Trust Deed and the Agency Agreement. Words and expressions defined in the Trust Deed and the Agency Agreement or used in the applicable Pricing Supplement shall have the same meanings where used in these Conditions unless the context otherwise requires or unless otherwise stated and provided that, in the event of inconsistency between the Trust Deed and the Agency Agreement, the Trust Deed will prevail and, in the event of inconsistency between the Trust Deed or the Agency Agreement and the applicable Pricing Supplement, the applicable Pricing Supplement will prevail HK:

38 1. FORM, DENOMINATION AND TITLE The Notes may be in bearer form and/or in registered form and, in the case of definitive Notes, will be serially numbered, in the currency (the Specified Currency) and the denominations (the Specified Denomination(s)) specified in the applicable Pricing Supplement. Save as provided in Condition 2, Notes of one Specified Denomination may not be exchanged for Notes of another Specified Denomination. This Note may be a Fixed Rate Note, a Floating Rate Note, a Zero Coupon Note, an Index Linked Interest Note, a Dual Currency Interest Note or a combination of any of the foregoing, depending upon the Interest Basis shown in the applicable Pricing Supplement. This Note may be an Index Linked Redemption Note, an Instalment Note, a Dual Currency Redemption Note, a Partly Paid Note or a combination of any of the foregoing, depending upon the Redemption/Payment Basis shown in the applicable Pricing Supplement. Definitive Bearer Notes are issued with Coupons and (if applicable) Receipts and Talons attached, unless they are Zero Coupon Notes in which case references to Coupons and Couponholders in these Terms and Conditions are not applicable. Subject as set out below, title to Bearer Notes, Receipts and Coupons will pass by delivery. Title to Registered Notes will pass upon registration of transfers in the books of the Registrar in Hong Kong. The Issuer, the Trustee, the Principal Paying Agent, any Paying Agent, the Registrar and the Transfer Agent may deem and treat the bearer of any Bearer Note, Receipt or Coupon and any person in whose name a Registered Note is registered as the absolute owner thereof (whether or not overdue and notwithstanding any notice of ownership or writing thereon or notice of any previous loss or theft thereof) for all purposes but, in the case of any Global Note, without prejudice to the provisions set out in the next succeeding paragraph. For so long as any of the Notes is represented by a Global Note held by a common depositary on behalf of Euroclear Bank SA/NV (Euroclear) and/or Clearstream S.A. (Clearstream), each person (other than Euroclear or Clearstream) who is for the time being shown in the records of Euroclear or of Clearstream as the holder of a particular nominal amount of such Notes (in which regard any certificate or other document issued by Euroclear or Clearstream as to the nominal amount of such Notes standing to the account of any person shall be conclusive and binding for all purposes save in the case of manifest error) shall be treated by the Issuer, the Trustee, any Paying Agent, the Registrar and the Transfer Agent as the holder of such nominal amount of such Notes for all purposes other than with respect to the payment of principal or interest on such nominal amount of such Notes, for which purpose the bearer or registered holder of the relevant Global Note shall be treated by the Issuer, the Trustee, any Paying Agent, the Registrar and any Transfer Agent as the holder of such nominal amount of such Notes in accordance with and subject to the terms of the relevant Global Note and the expressions Noteholder and holder of Notes and related expressions shall be construed accordingly. Notes which are represented by a Global Note will be transferable only in accordance with the rules and procedures for the time being of Euroclear and Clearstream, as the case may be. References to Euroclear and/or Clearstream shall, whenever the context so permits, be deemed to include a reference to any additional or alternative clearing system specified in the applicable Pricing Supplement or as may otherwise be approved by the Issuer, the Trustee and the Principal Paying Agent HK:

39 2. TRANSFERS OF REGISTERED NOTES 2.1 Transfers of Interests in Registered Global Notes Transfers of beneficial interests in Registered Global Notes will be effected by Euroclear or Clearstream, as the case may be, and, in turn, by other participants and, if appropriate, indirect participants in such clearing systems acting on behalf of beneficial transferors and transferees of such interests. A beneficial interest in a Registered Global Note will, subject to compliance with all applicable legal and regulatory restrictions, be transferable for Registered Notes in definitive form or for a beneficial interest in another Registered Global Note only in the authorised denominations set out in the applicable Pricing Supplement and only in accordance with the rules and operating procedures for the time being of Euroclear or Clearstream, as the case may be, and in accordance with the terms and conditions specified in the Trust Deed and the Agency Agreement. 2.2 Transfers of Registered Notes Generally Registered Notes may not be exchanged for Bearer Notes and vice versa. Holders of Definitive Registered Notes may exchange such Definitive Registered Notes for interests in a Registered Global Note of the same type at any time. Upon the terms and subject to the conditions set forth in the Trust Deed and the Agency Agreement, a Definitive Registered Note may be transferred in whole or in part (in the authorised denominations set out in the applicable Pricing Supplement). In order to effect any such transfer: (i) the holder or holders must (a) surrender the Definitive Registered Note for registration of the transfer of the Definitive Registered Note (or the relevant part of the Definitive Registered Note) at the specified office of the Registrar or any Transfer Agent, with the form of transfer thereon duly executed by the holder or holders thereof or his or their attorney or attorneys duly authorised in writing and (b) complete and deposit such other certifications as may be required by the relevant Transfer Agent; and (ii) the Registrar or, as the case may be, the relevant Transfer Agent must, after due and careful enquiry, being satisfied with the documents of title and the identity of the person making the request and subject to such reasonable regulations as the Issuer, the Trustee, the Registrar, or as the case may be, the relevant Transfer Agent may prescribe (such initial regulations being set out in Schedule 3 to the Agency Agreement). Subject as provided above, the Registrar or, as the case may be, the relevant Transfer Agent will, within three business days (being for this purpose a day on which banks are open for business in the city where the specified office of the Registrar or, as the case may be, the relevant Transfer Agent is located) of the request (or such longer period as may be required to comply with any applicable fiscal or other laws or regulations) authenticate and deliver, or procure the authentication and delivery of, at its specified office to the transferee or (at the risk of the transferee) send by mail to such address as the transferee may request, a new Definitive Registered Note of a like aggregate nominal amount to the Definitive Registered Note (or the relevant part of the Definitive Registered Note) transferred. In the case of the transfer of part only of a Definitive Registered Note, a new Definitive Registered Note in respect of the balance of the Definitive Registered Note not transferred will be so authenticated and delivered or (at the risk of the transferor) sent to the transferor. 2.3 Registration of Transfer upon Partial Redemption In the event of a partial redemption of Notes under Condition 7.3, the Issuer shall not be required to register the transfer of any Registered Note, or part of a Registered Note, called for partial redemption. In the event of a partial redemption of Notes under Condition 7.3, unless so directed by the Issuer, no transfer of Definitive Registered Notes (or parts of Definitive Registered Notes) or HK:

40 exchanges of interests in Registered Global Notes for Definitive Global Notes will be registered or effected during the period beginning on the 45th day before the date of the partial redemption and ending on the day on which notice is given specifying the serial numbers of Notes called (in whole or in part) for redemption (both inclusive). 2.4 Costs of Registration Registration of transfers will be effected without charge by or on behalf of the Issuer, the Registrar or the relevant Transfer Agent, but upon payment (or the giving of such indemnity as the Registrar or the relevant Transfer Agent may reasonably require) in respect of any tax or other governmental charges which may be imposed in relation to it, provided that the Issuer shall not be responsible for any documentary stamp tax payable on the transfer of Notes effected in the Republic of India (India) unless the Issuer is the counterparty directly liable for that documentary stamp tax. 3. STATUS OF THE NOTES The Notes and any relative Receipts and Coupons are direct, unconditional, unsubordinated and (subject to the provisions of Condition 4) unsecured obligations of the Issuer and rank pari passu among themselves and (save for certain obligations required to be preferred by law) equally with all other unsubordinated and unsecured obligations (other than subordinated obligations, if any) of the Issuer, from time to time outstanding. 4. NEGATIVE PLEDGE So long as any of the Notes remains outstanding (as defined in the Trust Deed), the Issuer will not create or permit to be outstanding any mortgage, charge, pledge or other security interest upon the whole or any part of its present or future properties, assets or revenues to secure any External Obligations without according to the Notes and any relative Receipts and Coupons before or at the same time, to the satisfaction of the Trustee, the same security or such other security as the Trustee, in its absolute discretion, shall deem not materially less beneficial to the interests of the Noteholders or as shall be approved by an Extraordinary Resolution (as defined in the Trust Deed) of the Noteholders. For the purposes of these Conditions, External Obligations means all present or future obligations, including guarantees, of the Issuer in respect of bonds, debentures, notes or other debt securities which by their terms: (i) are payable in a currency other than Rupees or are denominated in Rupees and more than 50 per cent. of the aggregate principal amount of which is initially distributed outside India by or with the authorisation of the Issuer; and (ii) which are for the time being, or are capable of being, quoted, listed or ordinarily dealt in on any stock exchange or over-the-counter or other securities market outside India. 5. INTEREST 5.1 Interest on Fixed Rate Notes Each Fixed Rate Note bears interest on its outstanding nominal amount (or, if it is a Partly Paid Note, the nominal amount paid up) from (and including) the Interest Commencement Date at the rate(s) per annum equal to the Rate(s) of Interest. Interest will be payable in arrear on the Interest Payment Date(s) in each year up to (and including) the Maturity Date. If the Notes are in definitive form, except as provided in the applicable Pricing Supplement, the amount of interest payable on each Interest Payment Date in respect of the Fixed Interest Period ending on (but excluding) such date will amount to the Fixed Coupon Amount. Payments of interest HK:

41 on any Interest Payment Date will, if so specified in the applicable Pricing Supplement, amount to the Broken Amount so specified. As used in these Conditions, Fixed Interest Period means the period from (and including) an Interest Payment Date (or the Interest Commencement Date) to (but excluding) the next (or first) Interest Payment Date. Except in the case of Notes in definitive form where an applicable Fixed Coupon Amount or Broken Amount is specified in the applicable Pricing Supplement, interest shall be calculated in respect of any period by applying the Rate of Interest to: (A) (B) in the case of Fixed Rate Notes which are represented by a Global Note, the aggregate outstanding nominal amount of the Fixed Rate Notes represented by such Global Note (or, if they are Partly Paid Notes, the aggregate amount paid up); or in the case of Fixed Rate Notes in definitive form, the Calculation Amount; and in each case, multiplying such sum by the applicable Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention. Where the Specified Denomination of a Fixed Rate Note in definitive form comprises more than one Calculation Amount, the amount of interest payable in respect of such Fixed Rate Note shall be the product of the amount (determined in the manner provided above) for the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination, without any further rounding. Day Count Fraction means, in respect of the calculation of an amount of interest in accordance with this Condition 5.1: (a) if Actual/Actual (ICMA) is specified in the applicable Pricing Supplement: (i) (ii) in the case of Notes where the number of days in the relevant period from (and including) the most recent Interest Payment Date (or, if none, the Interest Commencement Date) to (but excluding) the relevant payment date (the Accrual Period) is equal to or shorter than the Determination Period during which the Accrual Period ends, the number of days in such Accrual Period divided by the product of (I) the number of days in such Determination Period and (II) the number of Determination Dates (as specified in the applicable Pricing Supplement) that would occur in one calendar year; or in the case of Notes where the Accrual Period is longer than the Determination Period during which the Accrual Period ends, the sum of: (A) (B) the number of days in such Accrual Period falling in the Determination Period in which the Accrual Period begins divided by the product of (x) the number of days in such Determination Period and (y) the number of Determination Dates that would occur in one calendar year; and the number of days in such Accrual Period falling in the next Determination Period divided by the product of (x) the number of days in such Determination Period and (y) the number of Determination Dates that would occur in one calendar year; or HK:

42 (b) if 30/360 is specified in the applicable Pricing Supplement, the number of days in the period from (and including) the most recent Interest Payment Date (or, if none, the Interest Commencement Date) to (but excluding) the relevant payment date (such number of days being calculated on the basis of a year of 360 days with day months) divided by 360. In these Conditions: Determination Period means each period from (and including) a Determination Date to (but excluding) the next Determination Date (including, where either the Interest Commencement Date or the final Interest Payment Date is not a Determination Date, the period commencing on the first Determination Date prior to, and ending on the first Determination Date falling after, such date); and sub-unit means, with respect to any currency other than euro, the lowest amount of such currency that is available as legal tender in the country of such currency and, with respect to euro, one cent. 5.2 Interest on Floating Rate Notes and Index Linked Interest Notes (a) Interest Payment Dates Each Floating Rate Note and Index Linked Interest Note bears interest on its outstanding nominal amount (or, if it is a Partly Paid Note, the amount paid up) from (and including) the Interest Commencement Date and such interest will be payable in arrear on either: (i) (ii) the Specified Interest Payment Date(s) in each year specified in the applicable Pricing Supplement; or if no Specified Interest Payment Date(s) is/are specified in the applicable Pricing Supplement, each date (each such date, together with each Specified Interest Payment Date, an Interest Payment Date) which falls the number of months or other period specified as the Specified Period in the applicable Pricing Supplement after the preceding Interest Payment Date or, in the case of the first Interest Payment Date, after the Interest Commencement Date. Such interest will be payable in respect of each Interest Period. In these Conditions, Interest Period means the period from (and including) an Interest Payment Date (or the Interest Commencement Date) to (but excluding) the next (or first) Interest Payment Date. (b) Rate of Interest The Rate of Interest payable from time to time in respect of Floating Rate Notes and Index Linked Interest Notes will be determined in the manner specified in the applicable Pricing Supplement. (i) ISDA Determination for Floating Rate Notes Where ISDA Determination is specified in the applicable Pricing Supplement as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Period will be the relevant ISDA Rate plus or minus (as indicated in the applicable Pricing Supplement) the Margin (if any). For the purposes of this subparagraph (i), ISDA Rate for an Interest Period means a rate equal to the Floating Rate that would be determined by the Principal Paying Agent or such other party HK:

43 specified in the applicable Pricing Supplement under an interest rate swap transaction if the Principal Paying Agent or such other party were acting as Calculation Agent for that swap transaction under the terms of an agreement incorporating the 2006 ISDA Definitions, as published by the International Swaps and Derivatives Association, Inc. and as amended and updated as at the Issue Date of the first Tranche of the Notes (the ISDA Definitions) and under which: (A) (B) (C) the Floating Rate Option is as specified in the applicable Pricing Supplement; the Designated Maturity is a period specified in the applicable Pricing Supplement; and the relevant Reset Date is the day specified in the applicable Pricing Supplement. For the purposes of this sub-paragraph (i), Floating Rate, Calculation Agent, Floating Rate Option, Designated Maturity and Reset Date have the meanings given to those terms in the ISDA Definitions. Unless otherwise stated in the applicable Pricing Supplement, the Minimum Rate of Interest shall be deemed to be zero. (ii) Screen Rate Determination for Floating Rate Notes Where Screen Rate Determination is specified in the applicable Pricing Supplement as the manner in which the Rate of Interest is to be determined, the Rate of Interest for each Interest Period will, subject as provided below, be either: (A) (B) the offered quotation; or the arithmetic mean (rounded if necessary to the fifth decimal place, with being rounded upwards) of the offered quotations, (expressed as a percentage rate per annum) for the Reference Rate (being either LIBOR or EURIBOR as specified in the applicable Pricing Supplement) which appears or appear, as the case may be, on the Relevant Screen Page (or such replacement page on that service which displays the information) as at a.m. (London time, in the case of LIBOR, or Brussels time, in the case of EURIBOR) on the Interest Determination Date in question plus or minus (as indicated in the applicable Pricing Supplement) the Margin (if any), all as determined by the Principal Paying Agent or such other party specified in the applicable Pricing Supplement. If five or more of such offered quotations are available on the Relevant Screen Page, the highest (or, if there is more than one such highest quotation, one only of such quotations) and the lowest (or, if there is more than one such lowest quotation, one only of such quotations) shall be disregarded by the Principal Paying Agent or such other party for the purpose of determining the arithmetic mean (rounded as provided above) of such offered quotations. The Agency Agreement contains provisions for determining the Rate of Interest in the event that the Relevant Screen Page is not available or if, in the case of (A) above, no such offered quotation appears or, in the case of (B) above, fewer than three such offered quotations appear, in each case as at the time specified in the preceding paragraph HK:

44 (c) Minimum and/or Maximum Rate of Interest If the applicable Pricing Supplement specifies a Minimum Rate of Interest for any Interest Period, then, in the event that the Rate of Interest in respect of such Interest Period determined in accordance with the provisions of paragraph (b) above is less than such Minimum Rate of Interest, the Rate of Interest for such Interest Period shall be such Minimum Rate of Interest. If the applicable Pricing Supplement specifies a Maximum Rate of Interest for any Interest Period, then, in the event that the Rate of Interest in respect of such Interest Period determined in accordance with the provisions of paragraph (b) above is greater than such Maximum Rate of Interest, the Rate of Interest for such Interest Period shall be such Maximum Rate of Interest. (d) Determination of Rate of Interest and Calculation of Interest Amounts The Principal Paying Agent, in the case of Floating Rate Notes, and the Calculation Agent, in the case of Index Linked Interest Notes, will at or as soon as practicable after each time at which the Rate of Interest is to be determined, but in no event later than the third Business Day thereafter, determine the Rate of Interest for the relevant Interest Period. In the case of Index Linked Interest Notes, the Calculation Agent will notify the Principal Paying Agent of the Rate of Interest for the relevant Interest Period as soon as practicable after calculating the same. The Principal Paying Agent will calculate the amount of interest (the Interest Amount) payable on the Floating Rate Notes or Index Linked Interest Notes for the relevant Interest Period by applying the Rate of Interest to: (A) (B) in the case of Floating Rate Notes or Index Linked Interest Notes which are represented by a Global Note, the aggregate outstanding nominal amount of the Notes represented by such Global Note (or, if they are Partly Paid Notes, the aggregate amount paid up); or in the case of Floating Rate Notes or Index Linked Interest Notes in definitive form, the Calculation Amount; and, in each case, multiplying such sum by the applicable Day Count Fraction, and rounding the resultant figure to the nearest sub-unit of the relevant Specified Currency, half of any such sub-unit being rounded upwards or otherwise in accordance with applicable market convention. Where the Specified Denomination of a Floating Rate Note or an Index Linked Interest Note in definitive form comprises more than one Calculation Amount, the Interest Amount payable in respect of such Note shall be the product of the amount (determined in the manner provided above) for the Calculation Amount and the amount by which the Calculation Amount is multiplied to reach the Specified Denomination, without any further rounding. Day Count Fraction means, in respect of the calculation of an amount of interest in accordance with this Condition 5.2: (i) if Actual/Actual (ISDA) or Actual/Actual is specified in the applicable Pricing Supplement, the actual number of days in the Interest Period divided by 365 (or, if any portion of that Interest Period falls in a leap year, the sum of (I) the actual number of days in that portion of the Interest Period falling in a leap year divided by 366 and (II) the actual number of days in that portion of the Interest Period falling in a non-leap year divided by 365); HK:

45 (ii) (iii) (iv) (v) if Actual/365 (Fixed) is specified in the applicable Pricing Supplement, the actual number of days in the Interest Period divided by 365; if Actual/365 (Sterling) is specified in the applicable Pricing Supplement, the actual number of days in the Interest Period divided by 365 or, in the case of an Interest Payment Date falling in a leap year, 366; if Actual/360 is specified in the applicable Pricing Supplement, the actual number of days in the Interest Period divided by 360; if 30/360, 360/360 or Bond Basis is specified in the applicable Pricing Supplement, the number of days in the Interest Period divided by 360, calculated on a formula basis as follows: Day Count Fraction = [360 (Y 2 Y 1 )] + [30 (M 2 M 1 )] + (D 2 D 1 ) 360 where: Y 1 is the year, expressed as a number, in which the first day of the Interest Period falls; Y 2 is the year, expressed as a number, in which the day immediately following the last day of the Interest Period falls; M 1 is the calendar month, expressed as a number, in which the first day of the Interest Period falls; M 2 is the calendar month, expressed as a number, in which the day immediately following the last day of the Interest Period falls; D 1 is the first calendar day, expressed as a number, of the Interest Period, unless such number is 31, in which case D 1 will be 30; and D 2 is the calendar day, expressed as a number, immediately following the last day included in the Interest Period, unless such number would be 31 and D 1 is greater than 29, in which case D 2 will be 30; (vi) if 30E/360 or Eurobond Basis is specified in the applicable Pricing Supplement, the number of days in the Interest Period divided by 360, calculated on a formula basis as follows: Day Count Fraction = [360 (Y 2 Y 1 )] + [30 (M 2 M 1 )] + (D 2 D 1 ) 360 where: Y 1 is the year, expressed as a number, in which the first day of the Interest Period falls; Y 2 is the year, expressed as a number, in which the day immediately following the last day of the Interest Period falls; M 1 is the calendar month, expressed as a number, in which the first day of the Interest Period falls; HK:

46 M 2 is the calendar month, expressed as a number, in which the day immediately following the last day of the Interest Period falls; D 1 is the first calendar day, expressed as a number, of the Interest Period, unless such number would be 31, in which case D 1 will be 30; and D 2 is the calendar day, expressed as a number, immediately following the last day included in the Interest Period, unless such number would be 31, in which case D 2 will be 30; (vii) if 30E/360 (ISDA) is specified in the applicable Pricing Supplement, the number of days in the Interest Period divided by 360, calculated on a formula basis as follows: Day Count Fraction = [360 (Y 2 Y 1 )] + [30 (M 2 M 1 )] + (D 2 D 1 ) 360 where: Y 1 is the year, expressed as a number, in which the first day of the Interest Period falls; Y 2 is the year, expressed as a number, in which the day immediately following the last day of the Interest Period falls; M 1 is the calendar month, expressed as a number, in which the first day of the Interest Period falls; M 2 is the calendar month, expressed as a number, in which the day immediately following the last day of the Interest Period falls; D 1 is the first calendar day, expressed as a number, of the Interest Period, unless (i) that day is the last day of February or (ii) such number would be 31, in which case D 1 will be 30; and D 2 is the calendar day, expressed as a number, immediately following the last day included in the Interest Period, unless (i) that day is the last day of February but not the Maturity Date or (ii) such number would be 31, in which case D 2 will be 30. (e) Linear Interpolation Where Linear Interpolation is specified as applicable in respect of an Interest Period in the applicable Pricing Supplement, the Rate of Interest for such Interest Period shall be calculated by the Agent by straight line linear interpolation by reference to two rates based on the relevant Reference Rate (where Screen Rate Determination is specified as applicable in the applicable Pricing Supplement) or the relevant Floating Rate Option (where ISDA Determination is specified as applicable in the applicable Pricing Supplement), one of which shall be determined as if the Designated Maturity were the period of time for which rates are available next shorter than the length of the relevant Interest Period and the other of which shall be determined as if the Designated Maturity were the period of time for which rates are available next longer than the length of the relevant Interest Period provided however that if there is no rate available for a period of time next shorter or, as the case may be, next longer, then the Agent shall determine such rate at such time and by reference to such sources as it determines appropriate HK:

47 (f) Notification of Rate of Interest and Interest Amounts The Principal Paying Agent will cause the Rate of Interest and each Interest Amount for each Interest Period and the relevant Interest Payment Date to be notified to the Issuer, the Trustee and any stock exchange on which the relevant Floating Rate Notes or Index Linked Interest Notes are for the time being listed and notice thereof to be published in accordance with Condition 14 as soon as possible after their determination but in no event later than the fourth Hong Kong Business Day thereafter. Each Interest Amount and Interest Payment Date so notified may subsequently be amended (or appropriate alternative arrangements made by way of adjustment) without prior notice in the event of an extension or shortening of the Interest Period. Any such amendment will be promptly notified to each stock exchange on which the relevant Floating Rate Notes or Index Linked Interest Notes are for the time being listed and to the Noteholders in accordance with Condition 14. For the purposes of this paragraph, the expression Hong Kong Business Day means a day (other than a Saturday or a Sunday) on which banks and foreign exchange markets are open for business in Hong Kong. (g) Determination or Calculation by Trustee If for any reason at any relevant time the Principal Paying Agent or, as the case may be, the Calculation Agent defaults in its obligation to determine the Rate of Interest or the Principal Paying Agent defaults in its obligation to calculate any Interest Amount in accordance with sub-paragraph (b)(i) or subparagraph (b)(ii) above or as otherwise specified in the applicable Pricing Supplement, as the case may be, and in each case in accordance with paragraph (d) above, the Trustee shall (or shall, at the expense of the Issuer, appoint an agent to) determine the Rate of Interest at such rate as, in its absolute discretion (having such regard as it shall think fit to the foregoing provisions of this Condition, but subject always to any Minimum Rate of Interest or Maximum Rate of Interest specified in the applicable Pricing Supplement), it shall deem fair and reasonable in all the circumstances or, as the case may be, the Trustee shall calculate the Interest Amount(s) in such manner as it shall deem fair and reasonable in all the circumstances and each such determination or calculation shall be deemed to have been made by the Principal Paying Agent or the Calculation Agent, as applicable. (h) Certificates to be Final All certificates, communications, opinions, determinations, calculations, quotations, notifications and decisions given, expressed, made or obtained for the purposes of the provisions of this Condition 5, whether by the Principal Paying Agent or, if applicable, the Calculation Agent or the Trustee (or its agent), shall (in the absence of wilful default, bad faith or manifest error) be binding on the Issuer, the Trustee, the Principal Paying Agent, the Registrar, the Calculation Agent (if applicable), the other Paying Agents and all Noteholders, Receiptholders and Couponholders and (in the absence of wilful default) no liability to the Issuer, the Noteholders, the Receiptholders or the Couponholders shall attach to the Principal Paying Agent or, if applicable, the Calculation Agent or the Trustee in connection with the exercise or non-exercise by it of its powers, duties and discretions pursuant to such provisions. 5.3 Interest on Dual Currency Interest Notes The rate or amount of interest payable in respect of Dual Currency Interest Notes shall be determined in the manner specified in the applicable Pricing Supplement HK:

48 5.4 Interest on Partly Paid Notes In the case of Partly Paid Notes (other than Partly Paid Notes which are Zero Coupon Notes), interest will accrue as aforesaid on the paid-up nominal amount of such Notes and otherwise as specified in the applicable Pricing Supplement. 5.5 Accrual of Interest Each Note (or in the case of the redemption of part only of a Note, that part only of such Note) will cease to bear interest (if any) from the date of its redemption unless, upon due presentation thereof, payment of principal is improperly withheld or refused. In such event, interest will continue to accrue until whichever is the earlier of: (a) (b) the date on which all amounts due in respect of such Note have been paid; and as provided in the Trust Deed. 5.6 Definitions In these Conditions, if a Business Day Convention is specified in the applicable Pricing Supplement and (x) if there is no numerically corresponding day on the calendar month in which an Interest Payment Date should occur or (y) if any Interest Payment Date would otherwise fall on a day which is not a Business Day, then, if the Business Day Convention specified is: (A) (B) (C) (D) in any case where Specified Periods are specified in accordance with Condition 5.2(a)(ii) above, the Floating Rate Convention, such Interest Payment Date (a) in the case of (x) above, shall be the last day that is a Business Day in the relevant month and the provisions of (ii) below shall apply mutatis mutandis or (b) in the case of (y) above, shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event (i) such Interest Payment Date shall be brought forward to the immediately preceding Business Day and (ii) each subsequent Interest Payment Date shall be the last Business Day in the month which falls the Specified Period after the preceding applicable Interest Payment Date occurred; or the Following Business Day Convention, such Interest Payment Date shall be postponed to the next day which is a Business Day; or the Modified Following Business Day Convention, such Interest Payment Date shall be postponed to the next day which is a Business Day unless it would thereby fall into the next calendar month, in which event such Interest Payment Date shall be brought forward to the immediately preceding Business Day; or the Preceding Business Day Convention, such Interest Payment Date shall be brought forward to the immediately preceding Business Day. In these Conditions, Business Day means a day which is: (a) a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in each Additional Business Centre (other than the TARGET2 System (as defined below)) specified in the applicable Pricing Supplement; HK:

49 (b) (c) if the TARGET2 System is specified as an Additional Business Centre in the applicable Pricing Supplement, a day on which the Trans-European Automated Real- Time Gross Settlement Express Transfer (TARGET2) System (the TARGET2 System) is open; and either (i) in relation to any sum payable in a Specified Currency other than euro, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in the principal financial centre of the country of the relevant Specified Currency (which, if the Specified Currency is Australian dollars or New Zealand dollars, shall be Sydney and Auckland, respectively) or (ii) in relation to any sum payable in euro, a day on which the Trans-European Automated Real-Time Gross Settlement Express Transfer (TARGET2) System or any successor system (the TARGET2 System) is open. 6. PAYMENTS 6.1 Method of Payment Subject as provided below: (a) (b) payments in a Specified Currency other than euro will be made by credit or transfer to an account in the relevant Specified Currency (which, in the case of a payment in Japanese yen to a non-resident of Japan, shall be a non-resident account) maintained by the payee with a bank in the principal financial centre of the country of such Specified Currency (which, if the Specified Currency is Australian dollars or New Zealand dollars, shall be Sydney and Auckland, respectively); and payments in euro will be made by credit or transfer to a euro account (or any other account to which euro may be credited or transferred) specified by the payee. 6.2 Payments Subject to Fiscal and Other Laws Payments will be subject in all cases, to (i) any fiscal or other laws and regulations applicable thereto in the place of payment, but without prejudice to the provisions of Condition 8, (ii) any withholding or deduction required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the Code) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, any regulations or agreements thereunder, official interpretations thereof, or (without prejudice to the provisions of Condition 8) law implementing an intergovernmental approach thereto (FATCA) and (iii) any withholding or deduction imposed pursuant to Section 871(m) of the Code. 6.3 Presentation of Bearer Notes, Receipts and Coupons Payments of principal in respect of Definitive Bearer Notes will (subject as provided below) be made in the manner provided in Condition 6.1 above only against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of Definitive Bearer Notes, and payments of interest in respect of Definitive Bearer Notes will (subject as provided below) be made as aforesaid only against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of Coupons, in each case at the specified office of any Paying Agent outside the United States (which expression, as used herein, means the United States of America and its possessions). Payments of instalments of principal (if any) in respect of Definitive Bearer Notes, other than the final instalment, will (subject as provided below) be made in the manner provided in Condition HK:

50 6.1 above against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of the relevant Receipt in accordance with the preceding paragraph. Payment of the final instalment will be made in the manner provided in Condition 6.1 above only against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of the relevant Bearer Note in accordance with the preceding paragraph. Each Receipt must be presented for payment of the relevant instalment together with the Definitive Bearer Note to which it appertains. Receipts presented without the Definitive Bearer Note to which they appertain do not constitute valid obligations of the Issuer. Upon the date on which any Definitive Bearer Note becomes due and repayable, unmatured Receipts (if any) relating thereto (whether or not attached) shall become void and no payment shall be made in respect thereof. Fixed Rate Notes in definitive bearer form (other than Dual Currency Notes, Index Linked Notes or Long Maturity Notes (as defined below)) should be presented for payment together with all unmatured Coupons appertaining thereto (which expression shall for this purpose include Coupons falling to be issued on exchange of matured Talons), failing which the amount of any missing unmatured Coupon (or, in the case of payment not being made in full, the same proportion of the amount of such missing unmatured Coupon as the sum so paid bears to the sum due) will be deducted from the sum due for payment. Each amount of principal so deducted will be paid in the manner mentioned above against presentation and surrender of the relative missing Coupon at any time before the expiry of ten years after the Relevant Date (as defined in Condition 8.2) in respect of such principal (whether or not such Coupon would otherwise have become void under Condition 9) or, if later, five years from the date on which such Coupon would otherwise have become due, but in no event thereafter. Upon any Fixed Rate Note in definitive bearer form becoming due and repayable prior to its Maturity Date, all unmatured Coupons and Talons (if any) appertaining thereto will become void and no further Coupons will be issued in respect thereof. Upon the date on which any Floating Rate Note, Dual Currency Note, Index Linked Note or Long Maturity Note in definitive form becomes due and repayable, unmatured Coupons and Talons (if any) relating thereto (whether or not attached) shall become void and no payment or, as the case may be, exchange for further Coupons shall be made in respect thereof. A Long Maturity Note is a Fixed Rate Note (other than a Fixed Rate Note which on issue had a Talon attached) whose nominal amount on issue is less than the aggregate interest payable thereon, provided that such Note shall cease to be a Long Maturity Note on the Interest Payment Date on which the aggregate amount of interest remaining to be paid after that date is less than the nominal amount of such Note. If the due date for redemption of any Definitive Bearer Note is not an Interest Payment Date, interest (if any) accrued in respect of such Note from (and including) the preceding Interest Payment Date or, as the case may be, the Interest Commencement Date shall be payable only against surrender of the relevant Definitive Bearer Note. 6.4 Payments in respect of Bearer Global Notes Payments of principal and interest (if any) in respect of Bearer Notes represented by any Bearer Global Note will (subject as provided below) be made in the manner specified above in relation to Definitive Bearer Notes and otherwise in the manner specified in the relevant Bearer Global Note against presentation or surrender of such Bearer Global Note at the specified office of any Paying Agent outside the United States. A record of each payment made against presentation or surrender of any Bearer Global Note, distinguishing between any payment of principal and any payment of interest, will be made on such Bearer Global Note by the Paying Agent to which it was presented HK:

51 6.5 Payments in respect of Registered Notes Payments of principal, interest and of instalments of principal in respect of each Registered Note (whether or not in global form) will be made against presentation and surrender (or, in the case of part payment of any sum due, endorsement) of the Registered Note at the specified office of the Registrar or any of the Paying Agents. Such payments will be made by transfer to the Designated Account (as defined below) of the holder (or the first named of joint holders) of the Registered Note appearing in the register of holders of the Registered Notes maintained by the Registrar (the Register) (i) where in global form, at the close of the business day (being for this purpose a day on which Euroclear and Clearstream are open for business) before the relevant due date and (ii) where in definitive form, at the close of business on the third business day (being for this purpose a day on which banks are open for business in the city where the specified office of the Registrar is located) before the relevant due date. For these purposes, Designated Account means the account (which, in the case of a payment in Japanese yen to a non-resident of Japan, shall be a non-resident account) maintained by a holder with a Designated Bank and identified as such in the Register and Designated Bank means (in the case of payment in a Specified Currency other than euro) a bank in the principal financial centre of the country of such Specified Currency (which, if the Specified Currency is Australian dollars or New Zealand dollars, shall be Sydney and Auckland, respectively) and (in the case of a payment in euro) any bank which processes payments in euro. None of the Issuer, the Trustee, the Registrar or any Paying Agent will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Registered Global Notes or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. 6.6 General Provisions Applicable to Payments The holder of a Global Note (or as provided in the Trust Deed, the Trustee) shall be the only person entitled to receive payments in respect of Notes represented by such Global Note and the Issuer will be discharged by payment to, or to the order of, the holder of such Global Note (or the Trustee, as the case may be) in respect of each amount so paid. Each of the persons shown in the records of Euroclear or Clearstream as the beneficial holder of a particular nominal amount of Notes represented by such Global Note must look solely to Euroclear or Clearstream, as the case may be, for his share of each payment so made by the Issuer in respect of such Global Note. So long as the Global Note is held on behalf of Euroclear, Clearstream or any other clearing system, each payment in respect of the Global Note will be made to the person shown as the Holder in the Register at the close of business of the relevant clearing system on the Clearing System Business Date before the due date for such payments, where Clearing System Business Day means a weekday (Monday to Friday, inclusive) except 25 December and 1 January. Notwithstanding the foregoing, if any amount of principal and/or interest in respect of any Bearer Notes is payable in U.S. dollars, such U.S. dollar payments of principal and/or interest in respect of the Bearer Notes will be made at the specified office of a Paying Agent in the United States if: (vi) (vii) the Issuer has appointed Paying Agents with specified offices outside the United States with the reasonable expectation that such Paying Agents would be able to make payment in U.S. dollars at such specified offices outside the United States of the full amount of principal and interest on the Bearer Notes in the manner provided above when due; payment of the full amount of such principal and interest at all such specified offices outside the United States is illegal or effectively precluded by exchange controls or HK:

52 other similar restrictions on the full payment or receipt of principal and interest in U.S. dollars; and (viii) such payment is then permitted under United States law without involving, in the opinion of the Issuer, adverse tax consequences to the Issuer. 6.7 Payment Day If the date for payment of any amount in respect of any Note, Receipt or Coupon is not a Payment Day, the holder thereof shall not be entitled to payment until the next following Payment Day in the relevant place and shall not be entitled to further interest or other payment in respect of such delay. For these purposes, Payment Day means any day which (subject to Condition 10) is: (a) a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in: (i) (ii) in the case of Notes in definitive form only, the relevant place of presentation; and each Additional Financial Centre (other than TARGET2 System) specified in the applicable Pricing Supplement; and (b) (c) if the TARGET2 System is specified as an Additional Financial Centre in the applicable Pricing Supplement, a day on which the TARGET2 System is open; and either (A) in relation to any sum payable in a Specified Currency other than euro, a day on which commercial banks and foreign exchange markets settle payments and are open for general business (including dealing in foreign exchange and foreign currency deposits) in the principal financial centre of the country of the relevant Specified Currency (which, if the Specified Currency is Australian dollars or New Zealand dollars, shall be Sydney and Auckland, respectively) or (B) in relation to any sum payable in euro, a day on which the TARGET System is open. 6.8 Interpretation of Principal and Interest Any reference in these Conditions to principal in respect of the Notes shall be deemed to include, as applicable: (a) (b) (c) (d) (e) (f) any additional amounts which may be payable with respect to principal under Condition 8 or under any undertaking or covenant given in addition thereto, or in substitution therefor, pursuant to the Trust Deed; the Final Redemption Amount of the Notes; the Early Redemption Amount of the Notes; the Optional Redemption Amount(s) (if any) of the Notes; in relation to Notes redeemable in instalments, the Instalment Amounts; in relation to Zero Coupon Notes, the Amortised Face Amount (as defined in Condition 7.5); and HK:

53 (g) any premium and any other amounts (other than interest) which may be payable by the Issuer under or in respect of the Notes. Any reference in these Conditions to interest in respect of the Notes shall be deemed to include, as applicable, any additional amounts which may be payable with respect to interest under Condition 8 or under any undertaking or covenant given in addition thereto, or in substitution therefor, pursuant to the Trust Deed. 7. REDEMPTION AND PURCHASE 7.1 Redemption at Maturity Unless previously redeemed or purchased and cancelled as specified below, each Note (including each Index Linked Redemption Note and Dual Currency Redemption Note) will be redeemed by the Issuer at its Final Redemption Amount specified in, or determined in the manner specified in, the applicable Pricing Supplement in the relevant Specified Currency on the Maturity Date. 7.2 Redemption for Tax Reasons At any time prior to the applicable Maturity Date, the Notes may be redeemed at the option of the Issuer in whole, but not in part, at any time (if this Note is neither a Floating Rate Note nor an Index Linked Interest Note) or on any Interest Payment Date (if this Note is either a Floating Rate Note or an Index Linked Interest Note), on giving not less than 30 nor more than 60 days notice to the Trustee and the Principal Paying Agent and, in accordance with Condition 14, the Noteholders (which notice shall be irrevocable), if the Issuer satisfies the Trustee (in its absolute discretion) immediately before the giving of such notice that: (a) (b) on the occasion of the next payment due under the Notes, the Issuer has or will become obliged to pay additional amounts as provided or referred to in Condition 8 as a result of any change in, or amendment to, the laws or regulations of a Tax Jurisdiction (as defined in Condition 8) or any change in the application or official interpretation of such laws or regulations, which change or amendment becomes effective on or after the date on which agreement is reached to issue the first Tranche of the Notes for such Series; and such obligation cannot be avoided by the Issuer taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Issuer would be obliged to pay such additional amounts were a payment in respect of the Notes then due. Prior to the publication of any notice of redemption pursuant to this Condition, the Issuer shall deliver to the Trustee to make available at its specified office to the Noteholders (1) a certificate signed by two directors of the Issuer stating that the Issuer is entitled to effect such redemption and setting forth a statement of facts showing that the conditions precedent to the right of the Issuer so to redeem have occurred and (2) an opinion of independent legal advisers of recognised standing to the effect that the Issuer has or will become obliged to pay such additional amounts as a result of such change or amendment and the Trustee shall be entitled to accept the certificate and the opinion as sufficient evidence of the satisfaction of the conditions precedent set out above, in which event they shall be conclusive and binding on the Noteholders, the Receiptholders and the Couponholders HK:

54 Notes redeemed pursuant to this Condition 7.2 will be redeemed at their Early Redemption Amount referred to in Condition 7.5 below together (if appropriate) with interest accrued to (but excluding) the date of redemption. 7.3 Redemption at the Option of the Issuer (Issuer Call) If Issuer Call is specified as being applicable in the applicable Pricing Supplement, the Issuer may, having given: (a) (b) not less than 15 nor more than 30 days notice to the Noteholders in accordance with Condition 14; and not less than 15 days before the giving of the notice referred to in (a) above, notice to the Trustee and the Principal Paying Agent and, in the case of a redemption of Registered Notes, the Registrar, (which notices shall be irrevocable and shall specify the date fixed for redemption), redeem all or some only of the Notes then outstanding on any Optional Redemption Date(s) and at the Optional Redemption Amount(s) specified in, or determined in the manner specified in, the applicable Pricing Supplement together, if appropriate, with interest accrued to (but excluding) the relevant Optional Redemption Date. Any such redemption must be of a nominal amount not less than the Minimum Redemption Amount and/or not more than the Maximum Redemption Amount, in each case as may be specified in the applicable Pricing Supplement. In the case of a partial redemption of Notes (or, as the case may be, parts of Registered Notes), the Notes to be redeemed (Redeemed Notes) will be selected individually by lot, in the case of Redeemed Notes represented by definitive Notes, and in accordance with the rules of Euroclear and/or Clearstream, and in the case of Redeemed Notes represented by a Global Note, not more than 30 days prior to the date fixed for redemption (such date of selection being hereinafter called the Selection Date). In the case of Redeemed Notes represented by definitive Notes, a list of the serial numbers of such Redeemed Notes will be published in accordance with Condition 14 not less than 15 days prior to the date fixed for redemption. The aggregate nominal amount of Redeemed Notes represented by definitive Notes shall in each case bear the same proportion to the aggregate nominal amount of all Redeemed Notes as the aggregate nominal amount of definitive Notes outstanding bears to the aggregate nominal amount of the Notes outstanding, in each case on the Selection Date, provided that such first mentioned nominal amount shall, if necessary, be rounded downwards to the nearest integral multiple of the Specified Denomination, and the aggregate nominal amount of Redeemed Notes represented by a Global Note shall be equal to the balance of the Redeemed Notes. No exchange of the relevant Global Note will be permitted during the period from (and including) the Selection Date to (and including) the date fixed for redemption pursuant to this Condition 7.3 and notice to that effect shall be given by the Issuer to the Noteholders in accordance with Condition 14 at least five days prior to the Selection Date. Any optional redemption of the Notes is subject to compliance with applicable regulatory requirements, including the prior approval of the RBI. The RBI, while considering the request of the Issuer to so redeem the securities, may take into consideration, among other things, the Issuer s capital adequacy position both at the time of the proposed redemption and thereafter. 7.4 Redemption of the Notes at the Option of the Noteholders (Investor Put) (a) If Investor Put is specified in the applicable Pricing Supplement If Investor Put is specified as being applicable in the relevant Pricing Supplement with respect to the Notes, upon the holder of any Note giving to the Issuer in accordance with Condition 14 not less than 30 nor more than 60 days notice (which notice shall be irrevocable), the Issuer will, upon the expiry of such notice, redeem, subject to, and in HK:

55 accordance with, the terms specified in the applicable Pricing Supplement, such Note on the Optional Redemption Date(s) and at the Optional Redemption Amount(s) together, if appropriate, with interest accrued to (but excluding) the relevant Optional Redemption Date. (b) Put Option Exercise Procedures To exercise the right to require redemption of a Note, the holder of such Note must: (i) (ii) if the Note is in definitive form, deliver a duly signed and completed notice of exercise in the form (for the time being current) obtainable from any specified office of any Paying Agent, Transfer Agent or the Registrar (a Put Notice) accompanied by the definitive Note, to the specified office of any Paying Agent in the case of Bearer Notes, or of any Transfer Agent or the Registrar in the case of Registered Notes; or if the Note is represented by a Global Note held on behalf of Euroclear or Clearstream, give a Put Notice in accordance with the standard procedures of Euroclear or Clearstream (which may include notice being given on the holders instruction by electronic means), at any time within the notice period during normal business hours of such Paying Agent, Transfer Agent or the Registrar. In the Put Notice the holder must specify a bank account to which payment is to be made under this Condition, and in the case of Registered Notes, the nominal amount thereof to be redeemed and, if less than the full nominal amount of the Registered Notes so surrendered is to be redeemed, an address to which a new Registered Note in respect of the balance of such Registered Notes is to be sent subject to and in accordance with the provisions of Condition 2. If this Note is in definitive bearer form, the Put Notice must be accompanied by this Note or evidence satisfactory to the Paying Agent concerned that this Note will, following delivery of the Put Notice, be held to its order or under its control. 7.5 Early Redemption Amounts For the purpose of Conditions 7.2 and 7.4 above and Condition 10: (a) (b) each Note (other than a Zero Coupon Note) will be redeemed at its Early Redemption Amount; and each Zero Coupon Note will be redeemed at an amount (the Amortised Face Amount) calculated in accordance with the following formula: Early Redemption Amount = RP x (1 + AY) y where: RP means the Reference Price; AY means the Accrual Yield expressed as a decimal; and y is the Day Count Fraction specified in the applicable Pricing Supplement which will be either (i) 30/360 (in which case the numerator will be equal to the number of days (calculated on the basis of a 360-day year consisting of 12 months of 30 days each) from (and including) the Issue Date of the first Tranche of the Notes to (but excluding) the date fixed for redemption or (as the case may be) the date upon which HK:

56 7.6 Instalments such Note becomes due and repayable and the denominator will be 360) or (ii) Actual/360 (in which case the numerator will be equal to the actual number of days from (and including) the Issue Date of the first Tranche of the Notes to (but excluding) the date fixed for redemption or (as the case may be) the date upon which such Note becomes due and repayable and the denominator will be 360) or (iii) Actual/365 (in which case the numerator will be equal to the actual number of days from (and including) the Issue Date of the first Tranche of the Notes to (but excluding) the date fixed for redemption or (as the case may be) the date upon which such Note becomes due and repayable and the denominator will be 365), or on such other calculation basis as may be specified in the applicable Pricing Supplement. Instalment Notes will be redeemed in the Instalment Amounts and on the Instalment Dates. In the case of early redemption, the Early Redemption Amount will be determined pursuant to Condition 7.5 above. 7.7 Partly Paid Notes Partly Paid Notes will be redeemed, whether at maturity, early redemption or otherwise, in accordance with the provisions of this Condition and the applicable Pricing Supplement. 7.8 Purchases The Issuer or any of its Subsidiaries (as defined in the Trust Deed) may at any time purchase Notes at any price in the open market or otherwise. Such Notes may be held, reissued, resold or, at the option of the Issuer, surrendered to any Paying Agent and/or the Registrar for cancellation. 7.9 Cancellation All Notes which are redeemed will forthwith be cancelled (together with all unmatured Receipts, Coupons and Talons attached thereto or surrendered therewith at the time of redemption). All Notes so cancelled and any Notes purchased and cancelled pursuant to Condition 7.8 above (together with all unmatured Receipts, Coupons and Talons cancelled therewith) shall be forwarded to the Principal Paying Agent (which shall notify the Registrar of such cancelled Notes in the case of Registered Notes) and may not be reissued or resold Late Payment on Zero Coupon Notes If the amount payable in respect of any Zero Coupon Note upon redemption of such Zero Coupon Note pursuant to Condition 7.1, 7.2, 7.3 or 7.4 above or upon its becoming due and repayable as provided in Condition 10 is improperly withheld or refused, the amount due and repayable in respect of such Zero Coupon Note shall be the amount calculated as provided in Condition 7.5(c) above as though the references therein to the date fixed for the redemption or the date upon which such Zero Coupon Note becomes due and payable were replaced by references to the date which is the earlier of: (i) (ii) the date on which all amounts due in respect of such Zero Coupon Note have been paid; and five days after the date on which the full amount of the moneys payable in respect of such Zero Coupon Note has been received by the Trustee or the Principal Paying HK:

57 Agent and notice to that effect has been given to the Noteholders in accordance with Condition No verification by Trustee Neither the Trustee nor any of the Agents shall be responsible for calculating or verifying the calculations of any amount payable under any notice of redemption and shall not be liable to the Noteholders or any other person for not doing so. 8. TAXATION 8.1 Payment without Withholding All payments of principal and interest in respect of the Notes, Receipts and Coupons by or on behalf of the Issuer will be made without withholding or deduction for or on account of any present or future taxes, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of any Tax Jurisdiction (as defined in Condition 8.2) unless such withholding or deduction is required by law. In such event, the Issuer will pay such additional amounts as shall be necessary in order that the net amounts received by the holders of the Notes, Receipts or Coupons after such withholding or deduction shall equal the respective amounts of principal and interest which would otherwise have been receivable in respect of the Notes, Receipts or Coupons, as the case may be, in the absence of such withholding or deduction (the Additional Amounts), except that no such Additional Amounts shall be payable with respect to any Note, Receipt or Coupon: (a) (b) (c) (d) presented for payment by or on behalf of a holder who is liable for such taxes or duties in respect of such Note, Receipt or Coupon by reason of the holder having some connection with a Tax Jurisdiction other than the mere holding of such Note, Receipt or Coupon; or presented for payment more than 30 days after the Relevant Date (as defined in Condition 8.2) except to the extent that the holder thereof would have been entitled to an additional amount on presenting the same for payment on such 30th day assuming that day to have been a Payment Day (as defined in Condition 6.6); or where such withholding or deduction is required pursuant to an agreement described in Section 1471(b) of the U.S. Internal Revenue Code of 1986 (the Code) or otherwise imposed pursuant to Sections 1471 through 1474 of the Code, any regulations or agreements thereunder or any official interpretations thereof, or any law implementing an intergovernmental approach thereto; or where such withholding or deduction is imposed pursuant to Section 871(m) of the Code. 8.2 Interpretation As used herein: (i) Tax Jurisdiction means: (A) where the Issuer is acting through its Registered Office in India, India or any political subdivision or any authority thereof or therein having power to tax payments made by the Issuer of principal or interest on the Notes, Receipts or Coupons; or HK:

58 (B) where the Issuer is acting through any other branch outside India as specified in the applicable Pricing Supplement, (x) India or any political subdivision or any authority thereof or therein having power to tax and (y) the tax jurisdiction applicable to such branch or any political subdivision or any authority thereof or therein having power to tax payments made by the Issuer of principal or interest on the Notes, Receipts or Coupons; and (ii) Relevant Date means the date on which such payment first becomes due, except that, if the full amount of the moneys payable has not been duly received by the Trustee or the Principal Paying Agent or, as the case may be, the Registrar on or prior to such due date, it means the date on which, the full amount of such moneys having been so received, notice to that effect is duly given to the Noteholders in accordance with Condition Transfers or Sales The Issuer has in the Trust Deed agreed, subject to receipt of written evidence reasonably satisfactory to the Issuer in respect thereof, to indemnify any transferor or transferee of a Note (or any beneficial interest therein), other than a transferor or transferee who is liable to Indian tax by reason of that transferor or transferee having a connection with India, apart from the mere holding of a Note, against any loss resulting from the imposition of Indian income, capital gains or gift tax on transfer or sale of a Note outside India, provided that (i) such indemnity shall not (a) extend to any penalty interest or tax incurred as a result of any delay or failure on the part of the relevant transferor or transferee in complying with the applicable tax laws and regulations and (b) be enforceable by any person other than the relevant transferor or transferee and (ii) the Issuer shall incur no liability in respect of this indemnity towards any person other than the relevant transferor or transferee. The foregoing indemnity will terminate upon the Issuer providing (a) certification signed by two directors of the Issuer to the Trustee and (b) a reasoned legal opinion in writing of a practising Indian taxation lawyer acceptable to the Trustee, that it is satisfied, on the basis of the Income Tax Act 1961 of India (as amended) that the Notes are not and are not deemed to be situated in India. For the avoidance of any doubt, the Trustee will not be responsible for investigating or verifying the contents of such certificate. In accordance with the prevailing RBI regulations, the Issuer would require the prior approval of RBI before making any payment under this indemnity. Such approval may or may not be forthcoming. 8.4 No Responsibility on Trustee for determinations Neither the Trustee nor any Agent shall be responsible for paying any tax, duty, charges, withholding or other payment referred to in this Condition 8 or for determining whether such amounts are payable or the amount thereof, and none of them shall be responsible or liable for any failure by the Issuer, any Noteholder or any third party to pay such tax, duty, charges, withholding or other payment in any jurisdiction or to provide any notice or information to the Trustee or any Agent that would permit, enable or facilitate the payment of any principal, premium (if any), interest or other amount under or in respect of the Notes without deduction or withholding for or on account of any tax, duty, charge, withholding or other payment imposed by or in any jurisdiction. 9. PRESCRIPTION The Notes (whether in bearer or registered form), Receipts and Coupons will become void unless presented for payment within a period of ten years (in the case of principal) and five years (in the case of interest) after the Relevant Date (as defined in Condition 8.2) therefor HK:

59 There shall not be included in any Coupon sheet issued on exchange of a Talon any Coupon the claim for payment in respect of which would be void pursuant to this Condition or Condition 6.2 or any Talon which would be void pursuant to Condition EVENTS OF DEFAULT AND ENFORCEMENT 10.1 Events of Default The Trustee at its discretion may, and if so requested in writing by the holders of at least onefifth in nominal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution of the Noteholders shall (subject in each case to being indemnified, secured and/or prefunded to its satisfaction), (but in the case of the happening of any of the events described in paragraphs (b), (c), (d) (in the case of the winding up or liquidation of any of the Issuer s Material Subsidiaries), (e), (h), (i) and (k) (in respect of any event which has an analogous effect to any of the events referred to in subparagraphs (d) and (e)) below, only if the Trustee shall have certified in writing to the Issuer that such event is, in its opinion, materially prejudicial to the interests of the holders of the Notes), give notice in writing to the Issuer that each Note is, and each Note shall thereupon immediately become, due and repayable at its Early Redemption Amount together with accrued interest as provided in the Trust Deed if any of the following events (each an Event of Default) shall occur: (a) (b) (c) (d) if default is made in the payment of any principal or interest due in respect of the Notes or any of them and, in the case of interest, the default continues for a period of three days; or if the Issuer fails to perform or observe any of its other obligations under the Conditions or the Trust Deed and (except in any case where, in the opinion of the Trustee, the failure is incapable of remedy when no such continuation or notice as is hereinafter mentioned will be required) the failure continues for the period of 30 days next following the service by the Trustee on the Issuer of notice requiring the same to be remedied; or if (i) any other present or future Indebtedness for Borrowed Money of the Issuer or any of its Material Subsidiaries becomes capable of being declared due and payable prior to its stated maturity otherwise than at the option of the Issuer or the relevant Material Subsidiary, or (ii) any such Indebtedness for Borrowed Money is not paid when due or, as the case may be, within any applicable grace period, or (iii) any security given by the Issuer or any of its Material Subsidiaries for any Indebtedness for Borrowed Money becomes enforceable or (iv) the Issuer or any of its Material Subsidiaries fails to pay when due any amount payable by it under any present or future guarantee for, or indemnity in respect of, any Indebtedness for Borrowed Money other than in circumstances where (A) the Issuer or the relevant Material Subsidiary is contesting in good faith in appropriate proceedings the fact that any such amount is due or (B) the Issuer or the relevant Material Subsidiary is prohibited from making payment of any such amount by the order of a court having appropriate jurisdiction, provided that the aggregate amount outstanding of the relevant Indebtedness for Borrowed Money or amounts payable under the guarantees and/or indemnities or subject to the security in respect of one or more events mentioned above in this subparagraph (c) exceeds U.S.$20,000,000 or its equivalent in other currencies; or if any order of a competent court or other authority is made for the winding up or liquidation of the Issuer or any of its Material Subsidiaries, save for the purposes of reorganisation on terms previously approved in writing by the Trustee or by an Extraordinary Resolution; or HK:

60 (e) (f) (g) (h) (i) (j) (k) if the Issuer or any of its Material Subsidiaries ceases or threatens to cease to carry on the whole or substantially all of its business, save for the purposes of reorganisation on terms previously approved in writing by the Trustee or by an Extraordinary Resolution, or the Issuer or any of its Material Subsidiaries stops or threatens to stop or suspends payment of, or is unable to, or admits inability to, pay its debts (or any class of its debts) as they fall due, or is deemed unable to pay its debts (or any class of its debts) pursuant to or for the purposes of any applicable law, or is adjudicated or found bankrupt or insolvent; or if the Issuer (or its directors) or any of its Material Subsidiaries initiates or consents to judicial proceedings relating to itself under any applicable liquidation, insolvency, composition, reorganisation or other similar laws or makes a conveyance or assignment for the benefit of, or enters into any composition or other arrangement with, its creditors generally (or any class of its creditors) or any meeting is convened to consider a proposal for an arrangement or composition with its creditors generally (or any class of its creditors); or if a moratorium is agreed or declared by the Issuer in respect of any Indebtedness for Borrowed Money (including any obligation arising under any guarantee) of the Issuer or any of its Material Subsidiaries; or if it is or will become unlawful for the Issuer to perform or comply with any one or more of its obligations under any of the Notes, the Receipts, the Coupons, the Agency Agreement or the Trust Deed; or if any governmental authority or agency condemns, seizes, compulsorily purchases or expropriates all or any material part of the assets or shares of the Issuer or any of its Material Subsidiaries without fair compensation, unless, and for so long as, that such compulsory purchase or expropriation is being contested in good faith and by appropriate proceedings; or if (i) proceedings are initiated against the Issuer or any of its Material Subsidiaries under any applicable liquidation, insolvency, composition, reorganisation or other similar laws or an application is made (or documents filed with a court) for the appointment of an administrative or other receiver, manager, administrator or other similar official, or an administrative or other receiver, manager, administrator or other similar official is appointed, in relation to the Issuer or any of its Material Subsidiaries or, as the case may be, in relation to the whole or any part of the undertaking or assets of any of them or an encumbrancer takes possession of the whole or any part of the undertaking or assets of any of them, or a distress, execution, attachment, sequestration or other process is levied, enforced upon, sued out or put in force against the whole or any part of the undertaking or assets of any of them and (ii) in any such case (other than the appointment of an administrator or an administrative receiver appointed following presentation of a petition for an administration order) unless initiated by the relevant company, is not discharged within 30 days; or if any event occurs, which has, in the Trustee s opinion, an analogous effect to any of the events referred to in subparagraphs (e) to (g) inclusive, (i) and (j). For the purposes of this Condition, (A) Indebtedness for Borrowed Money means (i) any indebtedness (whether being principal, premium, interest or other amounts) for or in respect of any notes, bonds, debentures, HK:

61 debenture stock, loan stock or other securities, or (ii) any borrowed money or (iii) any liability under or in respect of any acceptance or acceptance credit. (B) (i) Material Subsidiary means at any time a subsidiary of the Issuer: whose net profit before tax and extraordinary items (consolidated in the case of a Subsidiary which itself has Subsidiaries) or whose total assets (consolidated in the case of a Subsidiary which itself has Subsidiaries) represent in each case (or, in the case of a Subsidiary acquired after the end of the financial period to which the then latest audited consolidated accounts of the Issuer and its Subsidiaries relate, are equal to) not less than 5 per cent. of the consolidated net profit before tax and extraordinary items of the Issuer, or, as the case may be, consolidated total assets, of the Issuer and its Subsidiaries taken as a whole, all as calculated respectively by reference to the then latest audited accounts (consolidated or, as the case may be, unconsolidated) of such Subsidiary and the then latest audited consolidated accounts of the Issuer and its Subsidiaries, provided that: (A) (B) if the then latest audited consolidated accounts of the Issuer and its Subsidiaries show a net loss before tax and extraordinary items for the relevant financial period then there shall be substituted for the words net profit before tax and extraordinary items the words total income for the purposes of this definition; and in the case of a Subsidiary of the Issuer acquired after the end of the financial period to which the then latest audited consolidated accounts of the Issuer and its Subsidiaries relate, the reference to the then latest audited consolidated accounts of the Issuer and its Subsidiaries for the purposes of the calculation above shall, until consolidated accounts for the financial period in which the acquisition is made have been prepared and audited as aforesaid, be deemed to be a reference to such first-mentioned accounts as if such Subsidiary had been shown in such accounts by reference to its then latest relevant audited accounts, adjusted as deemed appropriate by the Issuer; (ii) (iii) to which is transferred the whole or substantially the whole of the undertaking and assets of a Subsidiary of the Issuer which immediately prior to such transfer is a Material Subsidiary, provided that the transferor Subsidiary shall upon such transfer forthwith cease to be a Material Subsidiary and the transferee Subsidiary shall cease to be a Material Subsidiary pursuant to this subparagraph (ii) on the date on which the consolidated accounts of the Issuer and its Subsidiaries for the financial period current at the date of such transfer have been prepared and audited as aforesaid but so that such transferor Subsidiary or such transferee Subsidiary may be a Material Subsidiary on or at any time after the date on which such consolidated accounts have been prepared and audited as aforesaid by virtue of the provisions of subparagraph (i) above or, prior to or after such date, by virtue of any other applicable provision of this definition; or to which is transferred an undertaking or assets which, taken together with the undertaking or assets of the transferee Subsidiary, generated (or, in the case of the transferee Subsidiary being acquired after the end of the financial period to which the then latest audited consolidated accounts of the Issuer and its Subsidiaries relate, generate net profit before tax and extraordinary items equal to) not less than 5 per cent. of the consolidated net profit before tax and extraordinary items of the Issuer, or represent (or, in the case aforesaid, are equal to) not less than 5 per cent. of the HK:

62 consolidated total assets of the Issuer and its Subsidiaries taken as a whole, all as calculated as referred to in subparagraph (i) above, provided that the transferor Subsidiary (if a Material Subsidiary) shall upon such transfer forthwith cease to be a Material Subsidiary unless immediately following such transfer its undertaking and assets generate (or, in the case aforesaid, generate net profit before tax and extraordinary items equal to) not less than 5 per cent. of the consolidated net profit before tax and extraordinary items of the Issuer, or its assets represent (or, in the case aforesaid, are equal to) not less than 5 per cent. of the consolidated total assets of the Issuer and its Subsidiaries taken as a whole, all as calculated as referred to in subparagraph (i) above, and the transferee Subsidiary shall cease to be a Material Subsidiary pursuant to this subparagraph (iii) on the date on which the consolidated accounts of the Issuer and its Subsidiaries for the financial period current at the date of such transfer have been prepared and audited but so that such transferor Subsidiary or such transferee Subsidiary may be a Material Subsidiary on or at any time after the date on which such consolidated accounts have been prepared and audited as aforesaid by virtue of the provisions of subparagraph (i) above or, prior to or after such date, by virtue of any other applicable provision of this definition, each as notified to the Trustee. For the purposes of this definition: (i) (ii) (iii) (iv) (v) (vi) if there shall not at any time be any relevant audited consolidated accounts of the Issuer and its Subsidiaries, references thereto herein shall be deemed to be references to a consolidation (which need not be audited) by the Issuer, Auditors or such other person as the Trustee may in its absolute discretion approve of the relevant audited accounts of the Issuer and its Subsidiaries; if, in the case of a Subsidiary which itself has Subsidiaries, no consolidated accounts are prepared and audited, its consolidated net profits and consolidated total assets shall be determined on the basis of pro forma consolidated accounts (which need not be audited) of the relevant Subsidiary and its Subsidiaries prepared for this purpose by the Issuer, Auditors or such other person as the Trustee may in its absolute discretion approve; if (A) any Subsidiary shall not in respect of any relevant financial period for whatever reason produce audited accounts or (B) any Subsidiary shall not have produced at the relevant time for the calculations required pursuant to this definition audited accounts for the same period as (or a period which the Trustee in its absolute discretion shall consider to be substantially comparable to) the period to which the latest audited accounts of the Issuer and its Subsidiaries relate, then there shall be substituted for the purposes of this definition the management accounts of such Subsidiary for such period, such accounts to be accompanied by a certificate addressed to the Trustee signed by an Authorised Signatory confirming that such accounts are the appropriate accounts to be used in making the calculations required by this definition; where any Subsidiary is not wholly owned by the Issuer there shall be excluded from all calculations all amounts attributable to minority interests; in calculating any amount all amounts owing by or to the Issuer and any Subsidiary to or by the Issuer and any Subsidiary shall be excluded; and in the event that accounts of any companies being compared are prepared on the basis of different generally accepted accounting principles, there shall be made such adjustments to any relevant financial items as two Authorised Signatories shall certify HK:

63 in writing to the Trustee as being necessary to achieve a true and fair comparison of such financial items. A report by an Authorised Signatory whether or not addressed to the Trustee that in their opinion a Subsidiary of the Issuer is or is not or was or was not at any particular time or throughout any specified period a Material Subsidiary may be relied upon by the Trustee without further enquiry or evidence and, if relied upon by the Trustee, shall (in the absence of manifest error or an error which is, in the opinion of the Trustee, proven), be conclusive and binding on all parties. Neither the Trustee nor any Agent shall be required to take any steps to ascertain whether any Event of Default or Potential Event of Default (as defined in the Trust Deed) has occurred and none of them shall be responsible or liable to the Noteholders, the Issuer, or any other person for any loss arising from any failure to do so Enforcement The Trustee may at any time, at its discretion and without notice, take such proceedings against the Issuer as it may think fit to enforce the provisions of the Trust Deed, the Notes, the Receipts and the Coupons, but it shall not be bound to take any such proceedings or any other action in relation to the Trust Deed, the Notes, the Receipts or the Coupons unless (i) it shall have been so directed by an Extraordinary Resolution of the Noteholders or so requested in writing by the holders of at least one-fifth in nominal amount of the Notes then outstanding and (ii) it shall have been indemnified, secured and/or prefunded to its satisfaction. No Noteholder, Receiptholder or Couponholder shall be entitled to proceed directly against the Issuer unless the Trustee, having become bound so to proceed, fails so to do within a reasonable period and the failure shall be continuing. The Trustee may refrain from taking any action in any jurisdiction if the taking of such action in that jurisdiction would, in its opinion based upon legal advice in the relevant jurisdiction, be contrary to any law of that jurisdiction. Furthermore, the Trustee may also refrain from taking such action if it would otherwise render it liable to any person in that jurisdiction or if, in its opinion based upon such legal advice, it would not have the power to do the relevant thing in that jurisdiction by virtue of any applicable law in that jurisdiction or if it is determined by any court or other competent authority in that jurisdiction that it does not have such power. 11. REPLACEMENT OF NOTES, RECEIPTS, COUPONS AND TALONS Should any Note, Receipt, Coupon or Talon be lost, stolen, mutilated, defaced or destroyed, it may be replaced subject to applicable laws, regulations and relevant stock exchange regulations at the specified office of the Principal Paying Agent or (where applicable) the Paying Agent in Singapore (in the case of Bearer Notes, Receipts, Coupons and Talons) or of the Registrar (in the case of Registered Notes) upon payment by the claimant of such costs and expenses as may be incurred in connection therewith and on such terms as to evidence and indemnity as the Issuer may reasonably require. Mutilated or defaced Notes, Receipts, Coupons or Talons must be surrendered before replacements will be issued. 12. PRINCIPAL PAYING AGENT, REGISTRAR, PAYING AND TRANSFER AGENTS The names of the initial Principal Paying Agent, the other initial Paying Agents, the initial Registrar and the other initial Transfer Agents and their initial specified offices are set out below. The Issuer is, with the prior written approval of the Trustee, entitled to vary or terminate the appointment of any Paying Agent, Registrar or Transfer Agent and/or appoint additional or other HK:

64 Paying Agents, Registrars or Transfer Agents and/or approve any change in the specified office through which any of the same acts, provided that: (i) (ii) (iii) so long as the Notes are listed on any stock exchange, there will at all times be a Paying Agent and, if appropriate, a Registrar and Transfer Agent with a specified office in such place as may be required by the rules and regulations of the relevant stock exchange; so long as the Notes are listed on the SGX-ST, if the Notes are issued in definitive form, there will at all times be a Paying Agent in Singapore unless the Issuer obtains an exemption from the SGX-ST; and there will at all times be a Principal Paying Agent and a Registrar. In addition, the Issuer shall forthwith appoint a Paying Agent having a specified office in New York City in the circumstances described in the second paragraph of Condition 6.2. Any appointment, variation, termination or change shall only take effect (other than in the case of insolvency or in the case of a Paying Agent, to the extent that it is an FFI, failing to become or ceasing to be, in respect of a payment due on or after the relevant implementation date of FATCA withholding on any Note to which FATCA withholding applies able to receive such payment without any withholding or deduction imposed pursuant to FATCA, when it shall be of immediate effect) after not less than 30 nor more than 45 days prior notice thereof shall have been given to the Noteholders in accordance with Condition 14. In acting under the Agency Agreement, the Principal Paying Agent, the Registrar, the Paying Agents and the Transfer Agents act solely as agents of the Issuer and, in certain limited circumstances, of the Trustee and do not assume any obligation or trust for or with any Noteholders. 13. EXCHANGE OF TALONS On and after the Interest Payment Date on which the final Coupon comprised in any Coupon sheet matures, the Talon (if any) forming part of such Coupon sheet may be surrendered at the specified office of the Principal Paying Agent or any other Paying Agent in exchange for a further Coupon sheet including (if such further Coupon sheet does not include Coupons to (and including) the final date for the payment of interest due in respect of the Note to which it appertains) a further Talon, subject to the provisions of Condition NOTICES Notices to holders of Registered Notes will be deemed to be validly given if sent by first class mail or (if posted to an overseas address) by air mail to them at their respective addresses as recorded in the Register and will be deemed to have been validly given on the fourth day after the date of such mailing and, in addition, for so long as any Registered Notes are listed on a stock exchange or are admitted to trading by another relevant authority and the rules of that stock exchange or relevant authority so require, such notice will be published in a daily newspaper of general circulation in the place or places required by those rules. All notices regarding the Bearer Notes will be deemed to be validly given if published in a leading daily newspaper of general circulation in Asia or such other English language daily newspaper with general circulation in Asia as the Trustee may approve. It is expected that such publication will be made in the Asian Wall Street Journal. The Issuer shall also ensure that notices are duly published in a manner which complies with the rules and regulations of any stock exchange (or any other relevant authority) on which the Notes are for the time being listed. Any such notice will be deemed to have been given on the date of the first publication or, where required to be published in HK:

65 more than one newspaper, on the date of the first publication in all required newspapers. If, in the opinion of the Trustee, publication as provided above is not practicable, a notice will be given in such other manner, and will be deemed to have been given on such date, as the Trustee shall approve. Until such time as any definitive Notes are issued, there may, so long as any Global Notes representing the Notes are held in their entirety on behalf of Euroclear and/or Clearstream, be substituted for such publication in such newspaper(s) or such mailing the delivery of the relevant notice to Euroclear and/or Clearstream for communication by them to the holders of the Notes and, in addition, for so long as any Notes are listed on a stock exchange and the rules of that stock exchange (or any other relevant authority) so require, such notice will be published in a daily newspaper of general circulation in the place or places required by the rules of that stock exchange (or any other relevant authority). Any such notice shall be deemed to have been given to the holders of the Notes on the first day after the day on which the said notice was given to Euroclear and/or Clearstream. Notices to be given by any Noteholder shall be in writing and given by lodging the same, together (in the case of any Note in definitive form) with the relative Note or Notes, with the Principal Paying Agent (in the case of Bearer Notes) or the Registrar (in the case of Registered Notes). While any of the Notes are represented by a Global Note, such notice may be given by any holder of a Note to the Principal Paying Agent through Euroclear and/or Clearstream, as the case may be, in such manner as the Principal Paying Agent, the Registrar and Euroclear and/or Clearstream, as the case may be, may approve for this purpose. Receiptholders and Couponholders will be deemed for all purposes to have notice of the contents of any notice given to Noteholders in accordance with this Condition MEETINGS OF NOTEHOLDERS, MODIFICATION, WAIVER AND SUBSTITUTION The Trust Deed contains provisions for convening meetings of the Noteholders to consider any matter affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of the Notes, the Receipts, the Coupons or any of the provisions of the Trust Deed. Such a meeting may be convened by the Issuer or the Trustee and shall be convened by the Issuer if required in writing by Noteholder holding not less than five per cent. In nominal amount of the Notes for the time being remaining outstanding. The quorum at any such meeting for passing an Extraordinary Resolution is one or more persons holding or representing more than 50 per cent. in nominal amount of the Notes for the time being outstanding, or at any adjourned meeting one or more persons being or representing Noteholders whatever the nominal amount of the Notes so held or represented, except that at any meeting the business of which includes the modification of certain provisions of the Notes, the Receipts, the Coupons or the Trust Deed (including, inter alia, modifying the date of maturity of the Notes or any date for payment of interest thereon, reducing or cancelling the amount of principal or the rate of interest payable in respect of the Notes or altering the currency of payment of the Notes, the Receipts or the Coupons), the quorum shall be one or more persons holding or representing not less than two-thirds in nominal amount of the Notes for the time being outstanding, or at any adjourned such meeting one or more persons holding or representing not less than one-third in nominal amount of the Notes for the time being outstanding. The Trust Deed provides that (i) a resolution passed at a meeting duly convened and held in accordance with the Trust Deed by a majority consisting of not less than three-fourths of the votes cast on such resolution, (ii) a resolution in writing signed by or on behalf of the holders of not less than three-fourths in nominal amount of the Notes for the time being outstanding or (iii) consent given by way of electronic consents through the relevant clearing system(s) (in a form satisfactory to the Trustee) by or on behalf of the holders of not less than three-fourths in nominal amount of the Notes for the time being outstanding, shall, in each case, be effective as an Extraordinary Resolution of the Noteholders. An Extraordinary Resolution passed by the Noteholders shall be binding on all the Noteholders, whether HK:

66 or not they are present at any meeting and whether or not they voted on the resolution, and on all Receiptholders and Couponholders. The Trustee may agree, without the consent of the Noteholders, Receiptholders or Couponholders, to any modification (except such modifications in respect of which an increased quorum is required as mentioned above) of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of the Notes or the Trust Deed, or determine, without any such consent as aforesaid, that any Event of Default or Potential Event of Default shall not be treated as such, where, in any such case, it is not, in the opinion of the Trustee, materially prejudicial to the interests of the Noteholders to do so or may agree, without any such consent as aforesaid, to any modification which is, in its opinion, of a formal, minor or technical nature or to correct a manifest error, an error which is, in the opinion of the Trustee, proven. Any such modification shall be binding on the Noteholders, the Receiptholders and the Couponholders and any such modification shall be notified to the Noteholders in accordance with Condition 14 as soon as practicable thereafter. The Trustee may, without the consent of the Noteholders, Couponholders or Receiptholders, agree with the Issuer to the substitution in place of the Issuer (or of any previous substitute under this Condition) as the principal debtor under the Notes, the Receipts, the Coupons and the Trust Deed of an entity owned or controlled by the Issuer, subject to (a) the Notes being unconditionally and irrevocably guaranteed by the Issuer, (b) the Trustee being satisfied, in its absolute discretion, that the interests of the Noteholders will not be materially prejudiced by the substitution and (c) certain other conditions set out in the Trust Deed being complied with. Further, the Trustee may, without the consent of the Noteholders, the Couponholders or the Receiptholders, agree with the Issuer to the substitution of one branch of the Issuer with another branch of the Issuer in connection with any payments to be made by such branch under the Notes, the Receipts, the Coupons and/or the Trust Deed, subject to the Trustee being satisfied, in its absolute discretion, that the interests of the Noteholders will not be materially prejudiced by such substitution. The Issuer may also redirect payments which are to be made under the Notes, the Receipts, the Coupons and/or the Trust Deed from one branch of the Issuer through another branch of the Issuer or through its Registered Office in India. Any such modification, waiver, authorisation, determination or substitution shall be binding on the Noteholders, the Receiptholders and the Couponholders and, unless the Trustee otherwise agrees, any such modification, waiver, authorisation, determination or substitution shall be promptly notified to Noteholders by the Issuer in accordance with Condition 14. Any modification, substitution or redirection undertaken in accordance with this Condition 15 may be subject to the prior approval of the RBI. 16. CONCERNING THE TRUSTEE AND AGENTS The Trust Deed contains provisions for the indemnification of the Trustee and for its relief from responsibility, including provisions relieving it from taking action unless indemnified, secured or prefunded to its satisfaction and provisions limiting or excluding its liability in certain circumstances. Notwithstanding anything to the contrary, the Notes, the Trust Deed and/or the Agency Agreement, whenever the Trustee is required or entitled by the terms or the conditions of the Notes, the Trust Deed and/or the Agency Agreement to exercise any discretion or power, take any action, make any decision or give any direction or certification, the Trustee is entitled, prior to exercising any such discretion or power, taking any such action, making any such decision, or giving any such direction or certification, to seek directions from the Noteholders by way of an Extraordinary HK:

67 Resolution and shall have been indemnified and/or provided with security and/or pre-funded to its satisfaction against all action, proceedings, claims and demands to which it may be or become liable and all costs, charges, damages expenses (including but not limited to legal expenses) and liabilities which may be incurred by it in connection therewith, and the Trustee is not responsible for any loss or liability incurred by any person as a result of any delay in it exercising such discretion or power, taking such action, making such decision, or giving such direction or certification where the Trustee is seeking such directions. The Trust Deed provides that, when determining whether an indemnity or any security or prefunding is satisfactory to it, the Trustee shall be entitled (i) to evaluate its risk in any given circumstance by considering the worst case scenario and (ii) to require that any indemnity or security given to it by the Noteholders or any of them be given on a joint and several basis and be supported by evidence satisfactory to it as to the financial standing and creditworthiness of each counterparty and/or as to the value of the security and an opinion as to the capacity, power and authority of each counterparty and/or the validity and effectiveness of the security. The Trust Deed also contains provisions pursuant to which the Trustee is entitled, inter alia, (a) to enter into business transactions with the Issuer and/or any of the Issuer s Subsidiaries and to act as trustee for the holders of any other securities issued or guaranteed by, or relating to, the Issuer, (b) to exercise and enforce its rights, comply with its obligations and perform its duties under or in relation to any such transactions or, as the case may be, any such trusteeship without regard to the interests of, or consequences for, the Noteholders, Receiptholders or Couponholders and (c) to retain and not be liable to account for any profit made or any other amount or benefit received thereby or in connection therewith. In connection with the exercise by it of any of its trusts, powers, authorities and discretions (including, without limitation, any modification, waiver, authorisation, determination or substitution), the Trustee shall have regard to the general interests of the Noteholders as a class but shall not have regard to any interests arising from circumstances particular to individual Noteholders, Receiptholders or Couponholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of any such exercise for individual Noteholders, Receiptholders or Couponholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or any political sub-division thereof and the Trustee shall not be entitled to require, nor shall any Noteholder, Receiptholder or Couponholder be entitled to claim, from the Issuer, the Trustee or any other person any indemnification or payment in respect of any tax consequences of any such exercise upon individual Noteholders, Receiptholders or Couponholders except to the extent already provided for in Condition 8 and/or any undertaking or covenant given in addition to, or in substitution for, Condition 8 pursuant to the Trust Deed. The Trustee may rely, without liability to Noteholders, on a report, confirmation, opinion or certificate or any advice of any lawyers, accountants, financial advisers, financial institution or any other expert, whether or not addressed to it and whether their liability in relation thereto is limited (by its terms or by any engagement letter relating thereto or in any other manner) by reference to a monetary cap, methodology or otherwise. The Trustee may accept and shall be entitled to rely (without further investigation or enquiry) on any such report, confirmation, opinion or certificate or advice and such report, confirmation or certificate or advice shall be binding on the Issuer, the Trustee and the Noteholders. Each Noteholder shall be solely responsible for making and continuing to make its own independent appraisal and investigation into the financial condition, creditworthiness, condition, affairs, status and nature of the Issuer, and the Trustee shall not at any time have any responsibility for the same and each Noteholder shall not rely on the Trustee in respect thereof HK:

68 17. FURTHER ISSUES The Issuer shall be at liberty from time to time without the consent of the Noteholders, the Receiptholders or the Couponholders to create and issue further notes having terms and conditions the same as the Notes or the same in all respects save for the amount and date of the first payment of interest thereon and the date from which interest starts to accrue and so that the same shall be consolidated and form a single Series with the outstanding Notes. 18. CONTRACTS (RIGHTS OF THIRD PARTIES) ACT 1999 No rights are conferred on any person under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Note, but this does not affect any right or remedy of any person which exists or is available apart from that Act. 19. GOVERNING LAW AND SUBMISSION TO JURISDICTION 19.1 Governing Law The Trust Deed, the Agency Agreement, the Notes, the Receipts and the Coupons and any non-contractual obligations arising out of or in connection with the Trust Deed, the Agency Agreement, the Notes, the Receipts and the Coupons are governed by, and shall be construed in accordance with, English law Submission to Jurisdiction (a) (b) (c) Subject to Condition 19.2(c) below, the English courts have exclusive jurisdiction to settle any dispute arising out of or in connection with the Trust Deed, the Notes, the Receipts and/or the Coupons, including any dispute as to their existence, validity, interpretation, performance, breach or termination or the consequences of their nullity and any dispute relating to any non-contractual obligations arising out of or in connection with the Trust Deed, the Notes, the Receipts and/or Coupons (a Dispute) and the Issuer in relation to any Dispute submits to the exclusive jurisdiction of the English courts. For the purposes of this Condition 19.2, the Issuer waives any objection to the courts of England on the grounds that they are an inconvenient or inappropriate forum to settle any Dispute. This Condition 19.2(c) is for the benefit of the Trustee, the Noteholders, the Receiptholders and the Couponholders only. To the extent allowed by law, the Trustee, the Noteholders, the Receiptholders and the Couponholders may, in respect of any Dispute or Disputes, take: (i) proceedings in any other court with jurisdiction; and (ii) concurrent proceedings in any number of jurisdictions Appointment of Process Agent The Issuer has irrevocably and unconditionally appointed Law Debenture Corporate Services Limited at its specified office for the time being in London as its agent for service of process in England in respect of any proceedings in relation to any Dispute, and agrees that, in the event of such agent being unable or unwilling for any reason so to act, it will immediately appoint another person as its agent for service of process in England in respect of any Dispute. The Issuer agrees that failure by a process agent to notify it of any process will not invalidate service. Nothing herein shall affect the right to serve process in any other manner permitted by law HK:

69 19.4 Waiver of immunity The Issuer irrevocably and unconditionally with respect to any Dispute (i) waives any right to claim sovereign or other immunity from jurisdiction, recognition or enforcement and any similar argument in any jurisdiction, (ii) submits to the jurisdiction of the English courts and the courts of any other jurisdiction in relation to the recognition of any judgment or order of the English courts or the courts of any competent jurisdiction in relation to any Dispute and (iii) consents to the giving of any relief (whether by way of injunction, attachment, specific performance or other relief) or the issue of any related process, in any jurisdiction, whether before or after final judgment, including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment in connection with any Dispute HK:

70 USE OF PROCEEDS The net proceeds from each issue of Notes will be used outside of India to: 1) meet the funding requirements of the Bank s International Financial Services Centre Banking Unit (IBU) at Gujarat International Finance Tec-City (GIFT City); and/or 2) develop and expand business in the IBU at GIFT city HK:

71 CAPITALISATION The following table sets forth the standalone indebtedness and capitalisation of the Bank as of 30 September This table should be read in conjunction with the Bank s unaudited standalone financial results as of 30 September 2017 and the notes presented elsewhere herein, which have been subjected to a limited review by the statutory auditors of the Bank. Indebtedness As of 30 September 2017 (Rs. in million) (U.S.$ in million) (1) Deposits (A)... 1,579, , Borrowings excluding Tier II & Innovative Perpetual Debt 291, , Instrument (B)... Tier II debt (C) , , Innovative Perpetual Debt Instrument (D)... 37, Total indebtedness (E = A+B+C+D)... 2,028, , Shareholders Funds Capital (X) (2)... 4, Reserves and surplus (Y) , , Total shareholders funds (Z=X+Y) , , Total Capitalisation (E+Z)... 2,262, , Capital Adequacy Ratio (percentage) Tier I % 12.39% Tier II % 4.62% Total % 17.01% (1) The U.S. dollar amounts herein have been translated using the exchange rate of U.S.$1.00 = Rs , as based on the exchange rate reported by the RBI as at 29 September (2) As of 30 September 2017, there were 2,290,699,637 equity shares of par value Rs. 2 each outstanding HK:

72 SELECTED FINANCIAL INFORMATION OF THE BANK The following summary financial information and other data should be read together with the Bank s standalone financial statements, including the notes thereto and the reports thereon which are included in this Offering Circular. The summary financial information set forth below is derived from the audited standalone financial statements as of and for the years ended 31 March 2016 and 2017, prepared in accordance with the generally accepted accounting principles as applicable to banks in the Republic of India (Indian GAAP) and from the reviewed standalone financial information as of and for the quarter and six months ended 30 September 2016 and 2017, based on the listing requirement of the exchanges where the equity shares of the Bank have been listed and other financial information recorded in the books of accounts by the company. The Bank has one operational subsidiary, YES Securities (India) Limited, incorporated in March This subsidiary had a loss of Rs million during fiscal year 2016, a profit of Rs million during fiscal year 2017 and a loss of Rs million for the six months ended 30 September Additionally, the Bank has made Rs million investment in YES Asset Management Company India limited (AMC) and Rs million in YES Trustee Limited, which are yet to commence operations. Accordingly, the Bank presents in this Offering Circular its standalone financial statements. The Bank s audited consolidated financial statements, which as of and for the years ended 31 March 2016 and 2017 have been provided for informational purposes only. The selected data set out below has been derived from the Bank s standalone financial statements. Solely for the convenience of the reader, Rupee amounts as of and for the year ended 31 March 2017 have been translated into U.S. dollars at the exchange rate as reported by the RBI on 31 March 2017, of Rs per U.S.$1.00 and Rupee amounts as of and for the six months ended 30 September 2017 have been translated into U.S. dollars at the exchange rate as reported by the RBI on 29 September 2017, of Rs per U.S.$1.00. The U.S. dollar equivalent information should not be construed to imply that the real amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. Summary Income Statement Information Fiscal Year (in Rs. million, expect per share data) (in U.S.$ million, except per share data) Interest earned 135, , , Other income 27, , Total 162, , , Expenditure Interest expended 89, , , Operating expenses 29, , Provision and contingencies 17, , Total 137, , , Net profit for the year 25, , Add: Profit brought forward 42, , Amount available for appropriation 67, , , Appropriations Transfer to (a) Statutory Reserve 6, , (b) Capital Reserve , HK:

73 Fiscal Year (in Rs. million, expect per share data) (in U.S.$ million, except per share data) (c) Investment Reserve (d) Dividend (proposed) 4, (e) Tax (including surcharge and education cess) on dividend (f) Dividend and tax thereon paid for last year Balance carried over to balance sheet 55, , , Total 67, , , Earnings per share (Rupees) ( 2) Basic Diluted Six months ended 30 September (in Rs. million, except per share data) (in U.S.$ million, except per share data) Interest earned 78, , , Other income 18, , Total Income 97, , , Expenditure Interest expended 51, , Operating expenses 18, , Provision and contingencies (including 11, , taxes) Total Expenditure 82, , , Net Profit 15, , Add: Profit brought forward from 55, , previous year 1, Amount available for appropriation 70, , , Appropriations Transfer to (a) Statutory Reserve (b) Capital Reserve (c) Investment Reserve (d) Dividend (proposed) (e) Tax (including surcharge and - - education cess) on dividend - (f) Dividend and tax thereon paid for , last year (1) Balance carried over to balance sheet 70, , , Total 70, , , Earnings per share (Rupees) (Non-annualised) (2) Basic Diluted HK:

74 (1) In terms of revised Accounting Standard (AS) 4 Contingencies and Events occurring after the Balance sheet date as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, dated 30 March 2016, the Bank had not accounted for a proposed dividend as a liability as of 31 March A Proposed Dividend was however accounted for as a liability as of 31 March 2016 in line with the existing accounting standard applicable at that time. (2) The shareholders of the Bank have approved the sub-division of each equity share having a face value of Rs. 10 into five equity shares having a face value of Rs. 2 each through postal ballot on 8 September The record date for the subdivision was 22 September The Bank appropriates net profit towards various reserves at year end. For the six months ended 30 September 2017, appropriations required by RBI guidelines was Rs. 4, million (compared to Rs. 3, million for the six months ended 30 September 2016) towards statutory reserves and Rs million (compared to Rs million for the six months ended 30 September 2016) towards capital reserve. Summary Balance Sheet Information As of 31 March As of 30 September (in Rs. million) (in Rs. million) (in U.S.$ million) Capital and liabilities Capital 4, , , Reserves and surplus 133, , , , Deposits 1,117, ,428, ,579, , Borrowings 316, , , , Other liabilities and 1, provisions 80, , , Total 1,652, ,150, ,373, , Assets Cash and balances with the Reserve Bank of India 57, , , , Balances with banks and 2, money at call and short notice 24, , , Investments 488, , , , Advances 982, ,322, ,486, , Fixed assets 4, , , Other assets 95, , , , Total 1,652, ,150, ,373, , Contingent liabilities 3,312, ,795, ,855, , Bills for collection 15, , , Summary cash flow information Fiscal Year (in Rs. million) Net cash flow generated from/(used in) operating activities (1) (3,631.49) 43, Net cash flow generated from/(used in) investing activities (40,352.75) (44,731.18) Net cash flow from financing activities (1) 50, , Cash and cash equivalents at the beginning of the year 75, , Cash and cash equivalents at the end of the year 82, , (1) In fiscal 2016 Foreign Currency Translation Reserve (FCTR) and revaluation loss on Tier I and Tier II instruments of Rs million is considered as cash ouflow in operating activities. In fiscal 2017 Foreign Currency Translation Reserve (FCTR) and revaluation loss on Tier I and Tier II instruments of Rs million is considered as cash outflow from financing activities HK:

75 Six months ended 30 September (in Rs. million) (in U.S.$ million) Cash flow generated from/(used in) operating activities 73, (3,042.10) (46.55) Cash flow generated from/(used in) investing activities (17,981.18) (12,569.58) (192.33) Cash flow from financing activities 24, , Cash and cash equivalents at the beginning of the half year 82, , , Cash and cash equivalents at the end of the half year 162, , , In accordance with RBI circular DBR.BP.BC.No.31/ / dated 16 July 2015, the Bank has classified deposits placed with NABARD/SIDBI/NHB for meeting any shortfall in Priority Sector Lending under Other Assets, which were earlier included under Investments. Accordingly, cash flow figures of such deposits for the previous period have been reclassified as Operating Activity from Investment Activity. Qualifications, Reservations and Adverse Remarks There are no reservations, qualifications or matters of emphasis highlighted by the auditors in their reports to the Bank s audited standalone and consolidated financial statements as of and for the fiscal years ended 31 March 2016 and 2017 and for financial results of the six months ended 30 September 2017, which were subjected to limited review HK:

76 INVESTMENT CONSIDERATIONS Investors should carefully consider the following investment considerations as well as the other information contained in this Offering Circular prior to making an investment in the Notes. In making an investment decision, each investor must rely on its own examination of the Bank and the terms of the offering of the Notes. The risks described below are not the only ones that may affect the Notes. Additional risks not currently known to the Bank or that the Bank currently deems immaterial may also impair the Bank s business operations. Risks Relating to the Bank s Business There is no assurance that the Bank s growth will continue at a rate similar to what the Bank has experienced in the past, or at all. The Bank s failure to manage growth effectively may adversely affect its business and it may be unable to sustain its recent level of financial performance and/or further improvements in its results of operations. The Bank has experienced growth in its business in the last few years, for example, its total assets have increased from Rs. 1,652, million as of 31 March 2016 to Rs. 2,373, million as of 30 September 2017 at a compound annual growth rate (CAGR) of per cent. Its total deposits have grown from Rs. 1,117, million as of 31 March 2016 to Rs. 1,579, million as of 30 September 2017 at a CAGR of per cent. Its demand deposits and savings deposits (CASA) increased from Rs. 313, million as of 31 March 2016 to Rs. 587, million as of 30 September 2017 at a CAGR of per cent. Similarly, its net profit increased from Rs. 25, million for fiscal year ended 31 March 2016 to Rs. 33, million for fiscal year ended 31 March 2017 at a CAGR of per cent. and its net profit increased from Rs. 15, million for the six months ended 30 September 2016 to Rs. 19, million for the six months ended 30 September 2017 at a CAGR of per cent. Certain other indicators of financial performance have also recorded growth or remained generally stable over the past few years. For instance, the CASA ratio (the ratio of its CASA deposits to total deposits, expressed as a percentage) was 37.17per cent. as of 30 September 2017, compared to per cent. as of 31 March 2017 and per cent. as of 31 March As part of its growth strategy, the Bank is in the process of transitioning from a corporate-commercial relationship-led bank to a bank with a more diversified corporate, commercial, business banking and retail banking portfolio. It aspires to gain market share in strategically-selected customer segments, knowledge sectors and geographies while improving its productivity, profitability and efficiency. The Bank will continue to develop products and services in order to become more competitive and develop a more balanced portfolio. Although its growth initiatives have contributed to its financial results in recent years, there can be no assurance that it will be able to continue to successfully implement this strategy. Any inability on its part to successfully diversify from a corporatecommercial bank to a diversified bank may increase the risk that it may face from corporate defaults or any increases in non-performing assets (NPAs) as a result of such industry concentration. The Bank has, in the past, set targets for its growth and will continue to do so in the future. However, there can be no assurance that The Bank has will meet its current targets or any future targets. While the Bank has enjoyed significant growth in recent years, there is no assurance that such growth will continue and, if it does continue, that it will continue at a similar rate. Its ability to execute its growth strategies and sustain its financial performance is influenced by market growth and depends primarily upon its ability to manage key issues such as selecting and retaining skilled personnel, establishing additional branches, raising adequate capital, maintaining a secure and efficient technology platform that can be regularly upgraded, developing a knowledge base to face emerging challenges and ensuring a high standard of customer service. In addition, its growth and financial performance is dependent upon the implementation of a successful risk management strategy. While the Bank has a HK:

77 Risk Monitoring Committee that seeks to establish policies, frameworks and systems to effectively manage various risks, there is no assurance that such policies, frameworks and systems will adequately address the risks that it may face in the future, or that new risks will not arise which have not been anticipated. Sustained growth may put pressure on its ability to effectively manage and control historical and new risks, and its potential inability to effectively manage any of these issues may materially and adversely affect its business growth and, as a result, impact its business, financial condition and results of operations. The Bank also intends to continue to increase and diversify its customer base and delivery channels. In recent years, it has significantly increased its branch network. Its number of branches has increased from 860 as of 31 March 2016 to 1,040 as of 30 September It intends to continue to add new branches and Automated Teller Machine (ATMs). Such expansion will increase the size of its business and the scope and complexity of its operations, and will involve significant capital expenditure. It may not be able to effectively manage this growth or achieve the desired profitability in the expected timeframe, or at all, or meet the expected increase in its CASA percentage or improvement in other indicators of financial performance from the expansion. Some of its newly added branches are currently operating at a lower efficiency level compared with its established branches, and achieving its benchmark level of efficiency and productivity will depend on various internal and external factors, some of which are not under the Bank s control. The Bank has opened a representative office in Abu Dhabi. In India, it established an IBU in GIFT City. Further, it has incorporated YES Asset Management (India) Limited (YAMIL) and YES Trustee Limited (YTL) as wholly-owned subsidiaries in YAMIL will offer the services of an investment manager and YTL will act as a Trustee to YAMIL. It is currently in the process of operationalising these new entities. Introducing these new businesses and expanding into new jurisdictions may expose the Bank to a number of risks and challenges, including incurring capital expenditure, hiring and retaining skilled personnel, and developing an adequate knowledge base. In particular, its International Finance Service Centre banking unit in the GIFT City is not a domestic banking branch and therefore is subject to different rules and regulations as compared to its domestic banking branches. Such businesses may not necessarily contribute to its business growth and profitability and may adversely impact its business, financial condition, results of operations and cash flow. Any increase in the Bank s portfolio of NPAs, RBI-mandated provisioning requirements or restructured advances could materially and adversely affect its business. For the fiscal years 2016 and 2017 and the first six months of fiscal year 2017, the Bank s gross nonperforming assets (Gross NPAs) represented 0.76 per cent., 1.52 per cent. and 1.82 per cent. of its total gross advances respectively, and NPAs (net of provisions) (Net NPAs) represented 0.29 per cent., 0.81 per cent. and 1.04 per cent. of its net advances, respectively. As of 31 March 2016 and 2017 and as of 30 September 2017, the Bank s provision coverage ratio was per cent., per cent. and per cent., respectively. See Supervision and Regulation - Loan Loss Provisions and Non-Performing Assets and Supervision and Regulation - Additional Provisions For Standard Advances At Higher Than The Prescribed Rates. If there is any deterioration in the quality of the Bank s security or further ageing of the assets after being classified as non-performing, an increase in provisions will be required. This increase in provisions may adversely impact the Bank s financial performance. While the Bank has already made provisions for NPAs with respect to per cent. and per cent. of its Gross NPAs as of 31 March 2017 and as of 30 September 2017, respectively, the Bank may need to make further provisions if recoveries with respect to such NPAs do not materialize in time or at all. The Bank may also need to make additional provisions if more assets are characterised as non-performing assets in the future. NPAs can be attributed to several factors affecting borrowers, including inconsistent industrial growth, the high level of debt in the financing of projects and capital structures of HK:

78 companies in India, exposure to stressed industries such as power, iron and steel, infrastructure and the high interest rates in the Indian economy. Volatility in industrial growth and/or increase in interest rates and any consequent deterioration in the financial conditions of the Bank s borrowers may exacerbate the level of NPAs in the Bank s corporate loan portfolio and may adversely affect the Bank s business and financial results. See The RBI has undertaken several initiatives with respect to recognition of NPAs resulting in more stringent guidelines for which the Bank has been fined due to non-compliance. The Bank s total outstanding standard restructured advances were Rs. 6, million, Rs. 5, million and Rs. 1, million as of 31 March 2016 and 2017 and as of 30 September 2017, respectively. The Bank restructures assets based on a borrower s potential to restore its financial health. However, there can be no assurance that borrowers will be able to meet their obligations under restructured advances and, even if they are able to do so, certain assets classified as restructured may have to be subsequently re-classified as delinquent according to regulatory requirements. Any resulting increase in delinquency levels may adversely impact the Bank s business, financial condition and results of operations. In relation to the process of restructuring, in January 2014, the RBI issued a framework and in March 2014, a corrective action plan for early identification and resolution of stressed assets. With effect from 1 April 2014, the guidelines introduced an asset classification category of special mention accounts, which comprises cases that are not yet restructured or classified as non-performing but which exhibit early signs of stress, as specified through various parameters. Banks in India are required to share data on certain categories of these special mention accounts with the regulators on those accounts. The data is subsequently shared by the regulators with all lenders of such special mention accounts. The purpose of sharing data with other lending banks, in particular with the bank acting as the lead banks on the accounts, is so that the respective banks can set up joint lenders forums (JLF) and formulate corrective action plans (CAP) for resolution of these accounts. The responsibility of forming the JLF lies with the lead or second lead banks. Failure to share this information with the regulators or form JLF or formulate CAP within the stipulated timeframe may result in accelerated provisioning for such cases which would adversely affect the Bank s profitability, financial conditions and results of operations. Furthermore, in terms of the available methods under the CAP, amongst others, the RBI has issued guidelines to facilitate the resolution of large stressed accounts in June 2016 through the Scheme for Sustainable Structuring of Stressed Assets (S4A). Its objective is to segregate the sustainable debt of the borrower to improve viability and resolve the remaining portion of the debt through, for example, extending the maturity of the debt or conversion into equity or equity-like securities, among other options available to the Bank as creditor. However, regardless of whether accounts are classified as S4A or, as an alternative category, Strategic Debt Restructuring (SDR) or other categories as applicable under various circulars of the RBI, the Bank still needs to make provision as stipulated under such RBI circulars. Alternatively, the Bank, as well as other lenders in India, can refer problem accounts to the National Company Law Tribunal (NCLT), which was established under the Companies Act 2013 and was constituted on 1 June The NCLT has the authority to pronounce insolvency resolution orders under the Insolvency and Bankruptcy Code, 2016 (IBC). When a lender refers a problem account to the NCLT for an insolvency resolution pursuant to the IBC, the referring bank must take provisions for that account accordingly. In addition, the eventual resolution as part of this process may result in significant portions of the debt being written off, or so-called debt haircuts, due to the fact it is unlikely to be repaid and thus impacting financial performance of the Banks. Any of the above-mentioned factors, including any increase in provisioning, could adversely impact the Bank s profitability, financial conditions and result of operations HK:

79 The RBI has undertaken several initiatives with respect to recognition of NPAs resulting in more stringent guidelines for which the Bank has been fined due to non-compliance. The Reserve Bank of India has articulated the objective of early and conservative recognition of stress and provisioning, and held discussions with a number of Indian banks, including the Bank itself, to review certain loan accounts and classification for position as on 31 March Further, the RBI assesses regulatory compliance by the banks with prudential standards on income recognition, asset classification and provisioning (IRACP) as part of its supervisory processes. As a part of such review, the RBI identified divergences in the Bank s asset classification and provisioning for fiscal year ended 31 March 2016 and 2017 as reported in financial statements for fiscal year ended 31 March 2017 and six months ended 30 September 2017 respectively. The gross non-performing loans as of 31 March 2017 and 30 September 2017 include the accounts highlighted in the RBI Risk Based Supervision (RBS) exercise for fiscal year ended 31 March 2016 and 2017, respectively. In connection with the divergences in asset classification for fiscal year ended 31 March 2016, the RBI issued a show cause notice to the Bank on 6 July 2017, followed by a supplementary notice on 24 August 2017 with respect to violations of various regulations issued by RBI in the assessment of NPAs and for delayed reporting of information security incident involving ATMs of the Bank. Based on the Bank s replies, oral submissions at personal hearings before RBI, the RBI imposed a monetary penalty of Rs. 60 million on the Bank on 23 October As part of the RBS exercise for fiscal 2016 and 2017 (concluded in October 2017), the RBI has pointed out certain retrospective divergence in Gross NPAs of Rs. 41,767.0 million and Rs. 63,552.0 million in the Bank s asset classification and provisioning as on 31 March 2016 and 31 March 2017, resprctively, for Gross NPAs. The net current impact of the aforementioned retrospective slippages due to divergence has been reflected in the annual financial statement for the year ended 31 March 2017 and in the results for the quarter and half year ended 30 September The Bank is required to disclose such divergence when the additional provisioning requirements assessed by RBI exceed per cent. of the published net profits after tax for the reference period or the additional Gross NPAs identified by the RBI exceed percent of the published incremental Gross NPAs for the reference period. Any such divergences identified by the RBI in its future review process, may lead to additional fines and an increase in the level of NPAs and provisions in the subsequent fiscal year. This may in turn adversely impact the Bank s business conditions, financial conditions and results of operations and may also materially adversely affect the trading price of the Notes. Any further review on asset quality by the regulator, during specific or general inspection, can result in additional classification of the Bank s loans as NPAs thus increasing its provisioning requirements and materially adversely impacting its business conditions, financial results and results of operations and cash flows in the future. The Bank are exposed to certain NPAs concentrations with respect to the size of its corporate loans, the nature of its micro, small and medium-sized enterprises loans, and its loans to priority sections, for example, resulting in increased risk of higher NPAs levels. As the average size of corporate loans in the Bank s loan portfolio is substantially larger than the average size of the Bank s retail loans, any major default in the Bank s corporate loan portfolio could significantly impact the Bank s overall portfolio of assets. Moreover, not only are corporate loans larger in size on average, but they also make up a larger portion of the Bank s overall loan portfolio than retail loans, meaning the potential risk is increased by large loans making up a large portion of the Bank s portfolio. Although the Bank is in the process of rebalancing its portfolio for less corporate loans in favor of more retail loans in order to diversify, there can be no assurance that the Bank will complete this process in a timely manner, or at all. Until such time, the Bank has a disproportional amount of exposure to corporate loans. If the Bank is unable to successfully monitor and manage its HK:

80 portfolio, in particular with respect to corporate loans, including during economic downturns, the Bank s asset quality and as a result, its financial condition and results of operation, could be materially and adversely affected. Further, the Bank s Retail Banking and Business Banking advances (to micro, small and mediumsized enterprises (MSME) and retail) portfolio has grown from Rs. 343, million as of 31 March 2016 to Rs. 426, million as of 31 March 2017 and Rs. 484, million as of 30 September Given the nature of the targeted borrowers, Retail Banking and Business Banking advances may carry a higher risk of delinquency if there is a prolonged recession or a sharp rise in interest rates. As a result, the Bank may be required to increase the Bank s provision for defaulted advances. In addition, the Bank is required by RBI regulations to extend a minimum aggregate of per cent. of its adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure, whichever is higher, to certain eligible priority sectors, such as agriculture, MSMEs, export credit, education, social infrastructure, renewable energy; housing and economic difficulties may affect borrowers in priority sectors more severely. Economic downturns experienced in priority sectors could further increase the Bank s level of NPAs. There can be no assurance that the percentage of NPAs that the Bank will be able to recover will be similar to its past experience of the recoveries of NPAs. Any deterioration or significant increase in the Bank s NPAs portfolio would adversely affect its business, financial condition, results of operations and cash flows. The Bank also has investments in security receipts arising from the sale of non-performing assets to asset reconstruction companies. There can be no assurance that asset reconstruction companies will be able to recover these assets and redeem its investments in security receipts and that there will be no reduction in the value of these investments. There can be no assurance that the amount of non-performing assets that the Bank will be able to recover within these concentrated categories will be similar to its past experience of recoveries of non-performing assets. If the Bank is not able to adequately control or reduce the level of concentration of the Bank s NPAs, the overall quality of the Bank s loan portfolio could deteriorate, which may have a material adverse effect on its business, financial condition and results of operations. See The RBI has undertaken several initiatives with respect to recognition of NPAs resulting in more stringent guidelines for which the Bank has been fined due to non-compliance. In the course of the Bank s business, it is exposed to loan concentrations with respect to specific borrowers and also corporate borrowers in general and defaults by them would adversely affect the Bank s business. As of 31 March 2016 and 2017, the Bank s top 20 advances totaled Rs. 276, million and Rs. 330, million, respectively, which represented per cent. and per cent., respectively, of its total advances. As of 30 September 2017, the Bank s top 20 advances totalled Rs. 355, million which represented per cent. of its total advances. For this purpose, advances are calculated pursuant to the definition of Credit Exposure in RBI Master Circular on Exposure Norms DBR.No.Dir.BC.12/ / dated 1 July The Bank s top 20 exposures totalled Rs. 287, million, Rs. 361, million and Rs. 359, million as of 31 March 2016, 2017 and 30 September 2017, respectively, which represented per cent., per cent. and per cent., respectively, of its total exposures. Any deterioration in the credit quality of these assets could have a significant adverse effect on the Bank s credit portfolio quality and future financial performance. In addition, as of 31 March 2016, 2017 and 30 September 2017, advances to the corporate sector totalled Rs. 638, million, Rs. 895, million and Rs. 1,002, million, respectively, which represented per cent., per cent. and per cent., respectively, of the Bank s HK:

81 total advances. Several of the Bank s corporate borrowers in the past suffered from low profitability because of subdued demand conditions, a sharp decline in commodity prices, high debt burden, loan concentration in a few sectors and high interest rates in the Indian economy at the time of their financing, among other things. An economic slowdown and a general decline in business, among other factors, could impose stress on these corporate borrowers financial soundness and profitability. Therefore this concentration of lending to the corporate sector exposes the Bank to increased credit risk to these borrowers in particular and may lead to an increase in the level of the Bank s NPAs, which could in turn adversely affect its business, including its ability to grow, the quality of its assets, its financial condition and its results of operations. See The RBI has undertaken several initiatives with respect to recognition of NPAs resulting in more stringent guidelines for which the Bank has been fined due to non-compliance. The Bank was subject to adverse publicity and regulatory queries in relation to its proposed fund raising in September The Bank s decision to defer its proposed fund raising in September 2016 had resulted in some adverse publicity and queries from SEBI, RBI, NSE and BSE, addressed to the Bank and its Managing Director and Chief Executive Officer as well as YES Securities (India) Limited (in its capacity as one of the book running lead managers to such fundraising), between September and December 2016, including in relation to the Bank s reasons for deferment of the proposed fund raising and volatility in its share price during that period; compliance with Regulation 29 (1) of the SEBI Listing Regulations, which requires two prior working days intimation of the meeting of the board of directors approving a qualified institutions placement; compliance with Regulations 4(f)(ii)(8) and 4(f)(iii)(3) of the SEBI Listing Regulations regarding the responsibilities of the Board to oversee disclosures and communications; the contents of various news reports in this relation; and a caution note from the NSE for ensuring future compliance. The Bank has received a Show Cause Notice dated 16 June 2017 issued by SEBI in respect of the deferred fund raising activity. The Bank has filed an application under the SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 (Settlement Regulations) with SEBI on 18 August 2017 to settle the proceedings initiated via the abovementioned Show Cause Notice. The settlement application is presently pending consideration by the SEBI and there has been no further correspondence with the regulators in this regard as of the date of this Offering Circular. Any such adverse publicity, investigation or action by a regulatory authority in relation to the proposed equity fund raising in September 2016, or otherwise in the future, may have a negative impact on the Bank s reputation, and may result in its being liable to some regulatory fines. The Bank may become subject to reputational risk, loss or regulatory scrutiny, investigation, penalty or other action in relation to complaints of data compromise by certain users of the Bank s ATM network. The Bank has appointed a third-party service provider (Shared Service Provider), also offering similar services to other banks/institutions, for the purpose of providing certain services in relation to the Bank s ATM network (such as providing switch services, managing the Bank s ATMs etc.). In 2016, Visa/MasterCard/NPCI informed the Bank that they have received complaints of data compromise by certain users of the Bank s ATM network. This included the Bank s customers as well as the customers of other banks, who have transacted using the Bank s ATM networks. Pursuant to the above, the Bank requested the Shared Service Provider to conduct a forensic audit of its systems and processes and, accordingly, the Shared Service Provider appointed a payments and information security audit firm to conduct a forensic audit of the Shared Service Provider s systems and processes. The security audit firm completed its final assessment report on the reported breach of security protocols, which revealed a compromise of debit cards between 21 May 2016 to 11 July The report inter alia indicated the presence of sophisticated malware in the systems of the Shared Service Provider, which compromised the security of the details available on the debit/credit cards HK:

82 Simultaneously, the Bank also conducted an internal examination of its own systems and processes and it was found that there are no lapses/breaches in the internal systems of the Bank. As soon as the breach was discovered, the Shared Service Provider immediately informed the RBI and National Payments Corporation of India (NPCI). The Shared Service Provider has further informed the Bank that it has enhanced its infrastructure and deployed containment measures so as to avoid any further compromise of data. Further, due to the abovementioned compromise of data at the Shared Service Provider s end, the Bank has suffered loss and may suffer further losses (which it is currently not in a position to assess or quantify), including reputational risk, or in the event of claims and proceedings initiated by other banks/card holders/card schemes. The Shared Service Provider, by a letter addressed to the Bank s senior management, has agreed to bear any direct losses as may be suffered by the Bank as a consequence of the system compromise that took place at its end. However, the Bank may not be able to enforce this arrangement in a timely manner, or at all, should such an eventuality arise, even though the Shared Service Provider is a reputed company. As appeared on the RBI s press release dated 24 October 2017, the RBI has imposed a penalty on the Bank in relation to the non-reporting of the above incident to the RBI pursuant to the Cyber Security Framework for Banks. The Bank cannot assure you that such incident will not have a negative impact on the digital initiative that the Bank may take in future. Any non-compliance with mandatory AML and KYC policies could expose the Bank to additional liability and harm its business and reputation. In accordance with the requirements applicable to banks, the Bank is mandated to comply with applicable anti-money laundering (AML) and know your client (KYC) regulations in India. These laws and regulations require the Bank, among other things, to adopt and enforce AML and KYC policies and procedures. For further details, see Supervision and Regulation - Regulations Relating to Know Your Customer and Anti-Money Laundering. While the Bank has adopted policies and procedures aimed at collecting and maintaining all AML and KYC related information from its customers in order to detect and prevent the use of its banking networks for illegal money-laundering activities, there may be instances where the Bank may be used by other parties in attempts to engage in money-laundering and other illegal or improper activities. For example, in July 2013, the RBI imposed a penalty of Rs million on the Bank for nonadherence to certain KYC policies and procedures, following a sting operation by an Indian online investigation website called Cobrapost. Further, the Director, Financial Intelligence Unit, India (Director FIU) under the Prevention of Money Laundering Act, 2002 (PMLA) and Prevention of Money Laundering (Maintenance of Records) Rules, 2005 also imposed a penalty of Rs million for non-compliance with the provisions of Section 12 of the PMLA for failure to file an attempted suspicious transaction report for attempted transactions in relation to the Cobrapost sting operation against which the Bank has filed an appeal. In July 2014, the RBI imposed a penalty of Rs million for failure to obtain a no objection certificate from the lending banks that had granted credit facilities to Deccan Chronicle Holdings Ltd. (Deccan Chronicle) and for failure to exchange information regarding the conduct of Deccan Chronicle s account with other banks in the prescribed form and stipulated frequency. Pursuant to an inspection by SEBI, the Bank received a letter dated 6 September 2016 in relation to certain non-compliances with SEBI regulations for depository participants, such as non-compliance with certain KYC procedures, and missing or incomplete documentation. While responses to such observations have been filed and there has been no further correspondence from SEBI in this regard, HK:

83 the Bank may become subject to regulatory scrutiny, investigation, penalty or other action in the future. Although the Bank believes that it has adequate internal policies, processes and controls in place to prevent and detect AML activity and ensure KYC compliance, and has taken the necessary corrective measures, there can be no assurance that it will be able to fully control instances of any potential or attempted violation by other parties and may accordingly be subject to regulatory actions including imposition of fines and other penalties by the relevant government agencies to whom it reports, including the FIU-IND. The Bank s business and reputation could suffer if any such parties use or attempt to use the Bank for money-laundering or illegal or improper purposes and such attempts are not detected or reported to the appropriate authorities in compliance with applicable regulatory requirements. The Bank is currently involved in legal proceedings in relation to the composition of its Board, which may adversely affect the Bank. Madhu Kapur and others (the Plaintiffs) filed a civil suit in 2013, and subsequently, several notices of motion have been issued against the Bank, several of the directors, and others (collectively, the Defendants) before the Bombay High Court, challenging the appointment of several directors on its Board, including the Managing Director and Chief Executive Officer, and the former non-executive non-independent part-time chairman/chairperson. Further, the Plaintiffs also sought reliefs to protect their alleged rights as Indian partner under the Articles of Association, their alleged right to nominate directors on the Bank s Board, damages of Rs. 50 million and certain other reliefs. The Bombay High Court passed a judgment dated 4 June 2015 (the Judgment) that, inter alia: (i) upheld the decision of the Board of Directors of the Bank in rejecting the nomination, by the Plaintiffs, of Shagun Kapur Gogia (daughter of Madhu Kapur) on the Board of the Bank and rejected their proposition to reserve a seat for the Plaintiffs and their family members on the Bank s Board; (ii) upheld the appointment of Rana Kapoor as the Managing Director and Chief Executive Officer of the Bank; (iii) observed certain procedural infirmities in the appointment of: (a) Diwan Arun Nanda; (b) Ajay Vohra; (c) M.R. Srinivasan; and (d) Ravish Chopra to the Bank s Board; (iv) observed that the proposed appointment of three Whole-time Directors, namely, Rajat Monga, Sanjay Palve and Pralay Mondal, was not in terms of the AoA of the Bank; (v) observed that the rights of the Indian partners under the AoA had to be jointly exercised by the Plaintiffs and Rana Kapoor; and (vi) restrained the Defendants from initiating, taking or continuing any steps for declassifying or changing the category of the Plaintiffs as promoter of the Bank. Aggrieved by the Judgment, the Plaintiffs and the Defendants have filed separate appeals before the division bench of the Bombay High Court, which have been admitted and are pending hearing. From among the current members of the Bank s Board, the appointments/reappointments, as applicable, of Rana Kapoor and Ajai Kumar form part of the subject matter of the above proceedings. This litigation is currently sub judice and in the event it is decided against the Bank, it may have to reconstitute its Board, or comply with any other directions issued by the courts. The Bank is currently involved and in the future may be involved in legal proceedings, which may materially and adversely affect the Bank. The Bank is, and may in the future be, a party to various legal proceedings incidental to its business and operations. For further details, see Legal and Regulatory Proceedings. The Bank cannot assure investors that these legal proceedings will be decided in its favour. Such litigation could divert management time and attention, and consume financial resources in their defence or prosecution. In addition, should any new developments arise, such as changes in Indian law or rulings against the Bank by the regulators, appellate courts or tribunals, the Bank may need to make provisions in its HK:

84 financial statements, which could increase its expenses and current liabilities. If the Bank fails to successfully defend its claims or if the Bank s provisions prove to be inadequate, its business, financial condition, reputation and results of operations could be adversely affected. The Bank faces maturity and interest rate mismatches between its assets and liabilities. The Bank meets its funding requirements in part through short and long-term deposits from retail and corporate depositors as well as inter-bank deposits; however, a significant portion of the Bank s assets (such as advances) have maturities with longer terms than the Bank s liabilities (such as deposits). As of 30 September 2017, the Bank had negative liquidity gaps for certain maturity periods up to one year. If a substantial number of the Bank s depositors do not roll over their funds upon maturity, or the Bank does not receive new deposits, its liquidity position could be adversely affected and it may be required to pay higher interest rates in order to attract or retain further deposits, which may have a material adverse effect on the Bank s business, financial condition and results of operations. As of 31 March 2016 and 2017 and 30 September 2017, a substantial portion of the Bank s advances had tenors exceeding one year. The long tenor of these advances may expose the Bank to risks arising out of economic cycles. In addition, some of these advances are project finance advances and there can be no assurance that these projects will perform as anticipated or that such projects will be able to generate sufficient cash flows to service commitments under the advances. The Bank is also exposed to infrastructure projects that are still under development and is open to risks arising out of delay in execution, the 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 Bank s projected cash flows. There can also be no assurance that these projects, once completed, will perform as anticipated. Risks arising out of a recession in the economy and/or a delay in project implementation or commissioning could lead to a rise in delinquency rates and, in turn, may materially and adversely affect the Bank s business, financial condition and results of operations. A significant portion of the Bank s loan book is floating rate in nature which allows the Bank to reprise the loan on the back of deposit rate repricing. The Bank, however, may not always be in a position to pass on the increased rates to the borrowers which may result in a decline in net interest income and could materially and adversely affect its business, financial condition and results of operations. Further, on 4 October 2017, the RBI published a report recommending referencing floating rate advances to external benchmarks. Should this be mandated, the Bank may be exposed to the risk of being unable to manage the gaps arising on account of repricing of assets and liabilities given differential underlying pricing variables. The Bank faces income volatility from its fixed income operations. The Bank s profit on sale of investments (net) comprised 3.58 per cent., 7.15 per cent. and 7.30 per cent. of its total net income, which comprises net interest income (interest earned less interest expended) plus other income for the fiscal years 2016, 2017 and the six months ended 30 September 2017, respectively. These figures include entering into trades for the Bank s own account, which exposes it to the risk that it may lose money on these trades and on account of corporate and Government securities held by it in the regular course of business. The Bank s income from these treasury operations is subject to volatility due to, among other things, changes in interest rates and foreign currency exchange rates as well as other market fluctuations. For example, an increase in interest rates may have a negative impact on the value of certain investments such as Government securities and corporate bonds. Although the Bank has risk and operational controls and procedures in place for its treasury operations, such as sensitivity limits, value at risk (VaR) limits, position limits, stop loss limits and exposure limits that are designed to mitigate the HK:

85 extent of such losses, there can be no assurance that the Bank will not lose money in the course of its proprietary trading on its fixed income book held for trading and available for sale portfolio. Any such losses could adversely affect its business, financial condition and results of operations. The Bank also has a Primary Dealership business which involves underwriting of government securities and therefore subjects it to interest rate risk. The Bank s financial performance may be materially and adversely affected by fluctuating interest rates. The Bank s results of operations depend, to a great extent, on its net interest income. Net interest income (which comprises of interest earned deducted by interest expended) amounted to per cent., per cent. and per cent. of the Bank s total net income for the fiscal years 2016, 2017 and the six months ended 30 September 2017, respectively, where total net income comprises the sum of the Bank s net interest income and other income. The Bank could be materially and adversely impacted by a rise in generally prevailing interest rates on deposits, especially if the rise were sudden or sharp. If such a rise in interest rates were to occur, the Bank s net interest margin could be adversely affected because the interest paid by the Bank on its deposits could increase at a higher rate than the interest received by the Bank on its advances and other investments. The requirement that the Bank maintain a portion of its assets in fixed income Government securities could also negatively impact its net interest income and net interest margin because the Bank typically earns interest on this portion of its assets at rates that are generally less favourable than those typically received on other interest-earning assets. If the yield on the Bank s interest-earning assets does not increase at the same time or to the same extent as its cost of funds, or if its cost of funds does not decline at the same time or to the same extent as the decrease in the yield on its interest-earning assets, the Bank s net interest income and net interest margin would be adversely impacted. Any systemic decline in low-cost funding available to banks in the form of current and savings account deposits would adversely impact the Bank s net interest margin. In December 2015, the Reserve Bank of India released guidelines on the computation of lending rates based on the marginal cost of funds methodology, which is applicable on incremental lending from 1 April This change in the methodology for calculating the cost of funds may lead to lower lending rates, and more frequent revisions in lending rates due to the prescribed monthly review of cost of funds. This may impact the yield on the Bank s interest-earning assets, its net interest income and its net interest margin. Interest rates are highly sensitive to factors beyond the Bank s control, including India s GDP growth, inflation, liquidity, the RBI s monetary policies and domestic and international economic and political conditions and other factors. The Bank s cost of funding is interest-rate sensitive and its ability to pass along any increase in interest rates depends on its borrowers willingness to pay higher rates and the competitive landscape in which the Bank operates. Volatility and changes in interest rates could affect the interest rates the Bank charges on its interest-earning assets in a manner different from the interest rates it pays on its interest-bearing liabilities because of the different maturity periods applying to its assets and liabilities and also because liabilities generally re-price faster than assets. An increase in interest rates applicable to the Bank s liabilities, without a corresponding increase in interest rates applicable to the Bank s assets, will result in a decline in net interest income. Furthermore, in the event of rising interest rates, the Bank s borrowers may not be willing to pay correspondingly higher interest rates on their borrowings and may choose to repay their advances with the Bank if they are able to switch to more competitively priced advances offered by other banks. In the event of falling interest rates, the Bank may face more challenges in retaining its customers if it is unable to switch to more competitive rates as compared to other banks in the market. In addition, any volatility or increase in interest rates may also adversely affect the rate of growth of certain sectors of HK:

86 the Indian economy. All these factors may have a material adverse effect on the Bank s business and financial condition and results of operations. The Bank s financial performance may be materially and adversely affected by an inability to generate and sustain other income. The Bank generated commission, exchange and brokerage income of Rs. 24, million, Rs. 31, million and Rs. 16, million for the fiscal years 2016, 2017 and the six months ended 30 September 2017, respectively. This represents per cent., per cent. and per cent. of the Bank s total income for the fiscal years 2016, 2017 and the six months ended 30 September 2017, respectively. The Bank earns fee-based income from corporate banking and advisory services, which include origination and syndication of loans, structured finance and loan processing fees, and are provided to large and medium-sized companies. The Bank s corporate banking activities are generally susceptible to sustained adverse economic conditions in India or abroad. The Bank also earns fee-based income from its foreign exchange and treasury operations business, which include origination and syndication of debt, management of foreign currency and interest rate exposure of its corporate and business banking customers. As part of the Bank s foreign exchange and treasury operations business, it may from time to time hold assets on its balance sheet which may subject it to market risk and credit risk. There can be no assurance that the Bank will be able to sustain current levels of income from, or effectively manage the risks associated with, these businesses in the future. Further, as part of the Bank s growth strategy, it has been diversifying and expanding its product and service offerings to retail customers in order to build a more balanced portfolio. New initiatives, products and services entail a number of risks and challenges, including risks relating to execution, the failure to identify new segments, the inability to attract customers and the inability to make competitive offerings. If the Bank is unable to successfully diversify its products and services while managing the related risks and challenges, returns on such products and services may be less than anticipated, which may materially and adversely affect the Bank s business, financial condition and results of operations. Financial instability in other countries may cause increased volatility in Indian financial markets. The Indian market and the Indian economy are influenced by economic and market conditions in other countries, particularly emerging market countries in Asia. Financial turmoil in Asia, Russia and elsewhere in the world in recent years has affected the Indian economy. Although economic conditions are different in each country, investors reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. A loss of investor confidence in the financial systems of other emerging markets may cause increased volatility in Indian financial markets and, indirectly, in the Indian economy in general. Any worldwide financial instability could also have a negative impact on the Indian economy. Financial disruptions may occur again and could harm the Bank s business, its future financial performance and the trading price of the Notes. The global credit and equity markets have experienced substantial dislocations, liquidity disruptions and market corrections in recent years. In particular, sub-prime mortgage loans in the United States have experienced increased rates of delinquency, foreclosure and loss. Since September 2008, liquidity and credit concerns and volatility in the global credit and financial markets increased significantly with the bankruptcy or acquisition of, and government assistance extended to, several major U.S. financial institutions. Developments in the Eurozone have exacerbated the ongoing global economic crisis. Large budget deficits and rising public debts in Europe have triggered sovereign debt finance crises that resulted in HK:

87 the bailouts of European economies and elevated the risk of government debt defaults, forcing governments to undertake aggressive budget cuts and austerity measures, in turn underscoring the risk of global economic and financial market volatility. Financial markets and the supply of credit could continue to be negatively impacted by ongoing concerns surrounding the sovereign debts and/or fiscal deficits of several countries in Europe, the possibility of further downgrades of, or defaults on, sovereign debt, concerns about a slowdown in growth in certain economies and uncertainties regarding the stability and overall standing of the European Monetary Union. On 23 June 2016, the United Kingdom held a referendum on its membership in the European Union and voted to leave (Brexit). There is significant uncertainty at this stage as to the impact of Brexit on general economic conditions in the United Kingdom and the European Union and any consequential impact on global financial markets. For example, Brexit could give rise to increased volatility in foreign exchange rate movements and the value of equity and debt investments. These and other related factors such as concerns over recession, inflation or deflation, energy costs, geopolitical issues, slowdown in economic growth in China and Renminbi devaluation, commodity prices and the availability and cost of credit have had a significant impact on the global credit and financial markets as a whole, including reduced liquidity, greater volatility, widening of credit spreads and a lack of price transparency in the United States, Europe and the global credit and financial markets. A lack of clarity over the process for managing the exit and uncertainties surrounding the economic impact could lead to a further slowdown and instability in financial markets. This and any prolonged financial crisis may have an adverse impact on the Indian economy, and in turn on the Bank s business, financial condition and results of operations. A loss of investor confidence in the financial systems of other emerging markets may cause increased volatility in the Indian financial markets and indirectly in the Indian economy in general. Any worldwide financial instability could influence the Indian economy. In response to such developments, legislators and financial regulators in the United States, Europe and other jurisdictions, including India, have implemented several policy measures designed to add stability to the financial markets. In addition, on 15 March 2017, the United States Federal Reserve increased interest rates from 0.75 per cent. to 1.00 per cent., and further to 1.25 per cent. on 14 June 2017, which will lead to an increase in the borrowing costs in the United States which may in turn impact global borrowing as well. Furthermore, in several parts of the world, there are signs of increasing retreat from globalisation of goods, services and people, as pressure for the introduction of a protectionist regime is building and such developments could adversely affect Indian exports. However, the overall impact of these and other legislative and regulatory efforts on the global financial markets is uncertain, and they may not have the intended stabilising effects. In the event that the current adverse conditions in the global credit markets continue or if there are any significant financial disruption, this could have an adverse effect on the Bank s business, future financial performance and the trading price of the Notes. Indian banking regulation is extensive, and any change in regulations could materially affect the Bank s business. The banking and financial sector in India is highly regulated and extensively supervised by authorities such as the RBI. For further details, see Supervision and Regulation. The Bank s business could be directly affected by any changes in laws, regulations and policies for banks. For example, in October 2011, the RBI deregulated interest rates on demand deposits and savings bank deposits, which resulted in certain banks increasing their interest rates, leading to increased competition in this area. Further, the Bank may be compelled to increase lending to certain sectors or increase its reserves. The Bank is also subject to regular financial inspection by the RBI. In the event that the Bank is unable to meet or adhere to the guidance or requirements of the RBI, the RBI may impose strict enforcement of its observations on the Bank, and it may be subject to monetary fines and other penalties which may have an adverse effect on its business, financial condition and results of operations. For example, in HK:

88 2011, the Bank was fined Rs. 1.5 million by the RBI for failing to comply with prescribed procedures for selling currency derivative products. The laws and regulations governing the banking sector in India, including those governing the products and services that the Bank provides or proposes to provide such as brokerage services, could change in the future. Such changes may also affect foreign investment limits in the banking industry or the Bank s ability to invest in certain businesses. Any such changes may require the Bank to modify its business, which may adversely affect its financial performance. The Bank is also required to obtain approvals from the RBI for undertaking certain activities. Failure to obtain such approvals may result in the incurrence of substantial compliance and monitoring costs and restrict the Bank s growth or the viability of its businesses. For instance, the Bank s applications for setting up an infrastructure debt fund as well as its application to set up a financial technology subsidiary were rejected by the RBI. The RBI guidelines and provisions of the Banking Regulation Act also restrict the Bank s ability to pay dividends. The RBI also requires banks to maintain certain CRR and SLR, and increases in such requirements could affect the Bank s ability to expand credit. Any requirements by the RBI that specify changes in risk weighting and capital adequacy may adversely affect the Bank s business, financial condition and results of operations. Further, any action by any regulator to curb fund inflows into India could negatively affect the Bank s business. The RBI specifies sub-allocation requirements, including a minimum of per cent. of the ANBC or equivalent credit amount of off-balance sheet exposure, whichever is higher, to the agriculture sector (8.00 per cent. to small and marginal farmers), 7.50 per cent. of the ANBC or equivalent credit amount of off-balance sheet exposure, whichever is higher, to micro enterprises and per cent. of the ANBC or equivalent credit amount of off-balance sheet exposure, whichever is higher, to weaker sections. In the case of any shortfall by the Bank in meeting lending requirements, the Bank is required to place the difference between the required lending level and the Bank s actual priority sector lending in an account with the National Bank for Agriculture and Rural Development under the Rural Infrastructure Development Fund Scheme, or funds with other financial institutions specified by the RBI, from which the Bank earns lower levels of interest as compared to loans made to the priority sector. The Bank is permitted to purchase priority sectors lending certificates (PSLC) up to per cent of its previous year s priority sectors lending (PSL) in lieu of directly lending to the priority sectors. Further, from 1 April 2016, banks in India are required to comply with priority sector lending requirements on a quarterly basis which can also result in lower levels of interest income and reduced profitability. Any requirements by the RBI that specify changes in priority sector lending may adversely affect the Bank s business, financial condition and results of operations. Further, the RBI is empowered to supersede any decision of the board of directors of a bank and appoint an administrator to manage the bank for a period of up to 12 months. The RBI may exercise such power where it is satisfied, in consultation with the Central Government, that it is in the public interest to do so, to prevent the affairs of any bank from being conducted in a manner that is detrimental to the interest of the depositors, or for securing the proper management of any bank. In November 2012, the RBI published guidelines in accordance with the Basel Committee on Banking Supervision s document on Principles for Sound Liquidity Risk Management and Supervision. These guidelines prescribe certain ratios to measure liquidity risk and are designed to measure, among other things, the extent to which volatile money supports a bank s basic earning assets, the extent to which assets are funded through a stable deposit base, the degree of illiquidity embedded in the balance sheet, and the extent of available liquid assets. Banks are also required to adhere to certain prescribed limits to reduce the extent of concentration of their liabilities. In June 2014, the RBI issued guidelines in relation to Liquidity Coverage Ratio (LCR), liquidity risk monitoring tools and LCR disclosure standards pursuant to the publication of the Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools in January 2013 and the Liquidity Coverage Ratio Disclosure Standards in January 2014 by the Basel Committee on Banking HK:

89 Supervision. The LCR is intended to ensure that banks maintain an adequate level of high quality liquid assets (HQLAs) to survive an acute stress scenario lasting for 30 days. Pursuant to the guidelines, banks are required to maintain an LCR of per cent., per cent., per cent., per cent. and per cent. with effect from 1 January 2015, 1 January 2016, 1 January 2017, 1 January 2018 and 1 January 2019, respectively. Such requirement to maintain HQLA has adversely affected the Bank s profitability and any increase in the requirement will further adversely affect the Bank s profitability. The RBI has issued draft guidelines on Net Stable Funding Ratio (NSFR) on 28 May 2015, which propose to make NSFR applicable to banks in India from 1 January For compliance with NSFR norms, the Bank may have to borrow long term to fund long-term assets resulting in an increase in interest expense. Compliance with regulations by the RBI including the new liquidity risk management guidelines may result in the incurrence of substantial compliance and monitoring costs and restrict the Bank s growth or the viability of certain businesses, and there can be no assurance that the Bank will be able to comply with such requirements or that any breach of applicable laws and regulations will not adversely affect its reputation or its business, operations and financial conditions. The Bank may not be able to renew or maintain its statutory and regulatory permits and approvals required to operate its business. The Bank has a licence from the RBI which requires the Bank to comply with certain terms and conditions for it to continue its banking operations. In the event that the Bank is unable to comply with any or all of these terms and conditions, or seek waivers or extensions of time for complying with these terms and conditions, it is possible that the RBI may revoke this licence or may place stringent restrictions on its operations. This may result in the interruption of all or some of the Bank operations and may have a material adverse effect on its business, financial condition, results and cash flow. The Bank also has other statutory licences including a licence from SEBI, held by one operational subsidiary, YES Securities (India) Limited, to operate in the securities market and to act as a Category I merchant banker, and a licence from the Insurance Regulatory and Development Authority of India to act as an agent to distribute life and general insurance products. The Bank has also received approval from the RBI and SEBI to sponsor a mutual fund and to set up an asset management company and a trustee company as subsidiaries. Failure to renew or maintain such statutory licences/approvals or comply with applicable regulations may result in the interruption of all or some of its operations, imposition of penalties and may have a material adverse effect on its business, financial results and results of operation. The Bank is required to maintain cash reserve ratios (CRRs) and statutory liquidity ratios (SLRs). Any increase in these requirements could adversely affect its business. Under RBI regulations, the Bank is subject to a CRR requirement. The CRR is a bank s balance held in a current account with the RBI calculated as a specified percentage of its net demand and time liabilities, excluding interbank deposits. The CRR currently applicable to banks in India is 4.00 per cent. and banks do not earn any interest on those reserves. In addition, under the Banking Regulation Act, all banks operating in India are required to maintain an SLR. The SLR is a specified percentage of a bank s net demand and time liabilities by way of liquid assets such as cash, gold or approved unencumbered securities. Approved unencumbered securities consist of unencumbered Government securities and other securities as may be approved from time to time by the RBI and would earn lower levels of interest as compared to advances to customers or investments made in other securities. In its monetary policy announcement on 4 October HK:

90 2017, as a part of a transition to comply with the LCR requirement of per cent. by 1 January 2019, the RBI reduced the SLR to per cent. from per cent. for the fortnight commencing 14 October The ceiling of securities to be held to maturity HTM presently stands at per cent. which will also be reduced to per cent. in a phased manner, i.e per cent. by 31 December 2017 and per cent. by 31 March For the fiscal year 2017, all Government securities held by the Bank comprised fixed income bonds. In an environment of rising interest rates, the value of Government securities and other fixed income securities may depreciate. The Bank s large portfolio of Government securities may limit its ability to deploy funds into higher yielding investments. Further, a decline in the valuation of its trading book as a result of rising interest rates may adversely affect its financial condition and results of operations. As a result of the statutory requirements imposed on the Bank, it may be more structurally exposed to interest rate risk as compared to banks in other countries. Further, the RBI may increase the CRR and SLR requirements to significantly higher proportions as a monetary policy measure. Any increases in the CRR from the current levels could affect the Bank s ability to deploy its funds or make investments, which could in turn have a negative impact on its results of operations. If it is unable to meet the requirements of the RBI, the RBI may impose penal interest or prohibit the Bank from receiving any further fresh deposits, which may have a material adverse effect on its business, financial condition and results of operations. The Bank is subject to capital adequacy norms and is required to maintain a CRAR at the minimum level required by the RBI for domestic banks. According to the terms and conditions of the Bank s banking licence, the RBI requires it to maintain a minimum CRAR of per cent. In addition, the RBI issued the RBI Basel III Capital Regulations on 2 May 2012 pursuant to the Bank for International Settlement s Basel III international regulatory framework and was implemented on 1 April The RBI Basel III Capital Regulations require, among other things, higher levels of Tier I capital and common equity, capital conservation buffers, maintenance of a minimum prescribed leverage ratio on a quarterly basis, higher deductions from common equity and Tier I capital for investments in subsidiaries and changes in the structure of non-equity instruments eligible for inclusion in Tier I capital. The RBI Basel III Capital Regulations also set out elements of regulatory capital and the scope of the capital adequacy framework, including disclosure requirements of components of capital and risk coverage. The transitional arrangements for the implementation of Basel III capital regulations in India began on 1 April 2013 and the guidelines are required to be fully implemented by 31 March In accordance with the Basel III capital regulations, the Bank is required to maintain a minimum CET-I capital ratio of 5.50 per cent., a minimum Tier I CRAR of 7.00 per cent. and a capital conservation buffer of 2.50 per cent. of its risk weighted assets. For a description of the RBI s capital adequacy guidelines, see Supervision and Regulation and Indian Financial Sector - Developments in the Banking Sector - Implementation of the Basel III capital regulations. As of 30 September 2017, the Bank s capital adequacy ratio under the RBI Basel III Capital Regulations was per cent., with a Tier I capital adequacy ratio of per cent., a Tier II capital adequacy ratio of 4.62 per cent. and CET I capital adequacy ratio of per cent. Its capital adequacy ratio under the RBI Basel III Capital Regulations as of 31 March 2016 and 2017 were per cent. and per cent., with a Tier I capital adequacy ratio of per cent. and per cent., a Tier II capital adequacy ratio of 5.75 per cent. and 3.71 per cent. and CET I capital adequacy ratio of per cent. and per cent., respectively. Although the Bank currently exceeds the applicable capital adequacy requirements, certain adverse developments could affect its ability to satisfy these requirements in the future, including deterioration in its asset quality, decline in the value of its investments and its inability to meet any regulatory requirements or changes. The Bank is exposed to the risk of the RBI increasing the applicable risk weight for different asset classes from time to time. In addition, with the approval of the RBI, banks in India may migrate to HK:

91 advanced approaches for calculating risk-based capital requirements in the medium term. If the Bank fails to meet capital adequacy requirements, the RBI may take certain actions, including restricting the Bank s lending and investment activities, and the payment of dividends by it. Further, continued compliance requirements with Basel III or other capital adequacy requirements imposed by the RBI may result in the incurrence of substantial compliance and monitoring costs. Moreover, if the Basel Committee releases additional or more stringent guidance on capital adequacy norms which are given the effect of law in India in the future, the Bank may be forced to raise or maintain additional capital in a manner which could materially adversely affect its business, financial condition and results of operations. There can be no assurance that the Bank will be able to comply with such requirements or that any breach of applicable laws and regulations will not have a material adverse effect on its business, financial condition and results of operations. There can be no assurance that the Bank will be able to access capital as and when it needs it for growth. Unless the Bank is able to access the necessary amounts of additional capital, any incremental capital requirement may adversely impact its ability to grow its business and may even require it to curtail or withdraw from some of its current business operations. There can also be no assurance that the Bank will be able to raise adequate additional capital in the future on terms favorable to it, or at all, and this may hamper its growth plans, apart from those that can be funded by internal accruals. Availability of funding and increases in funding costs could adversely affect the Bank s financial performance. The Bank s current sources of funding (other than equity share capital and share premium) are primarily institutional and retail customer deposits, long-term Tier II debt, inter-bank borrowing and perpetual debt instruments. Failure to obtain these sources of funding or replace them with fresh borrowings or deposits may materially and adversely affect its business, financial condition and results of operations. The Bank s cost of funds is sensitive to interest rate fluctuations, which exposes it to the risk of reduction in spreads, which is the difference between the returns that it earns on its advances as well as its investments and the amounts that it must pay to fund them, on account of changing interest rates. The pricing on the Bank s issuances of debt will also be negatively impacted by any downgrade or potential downgrade in its credit ratings. This would increase its financing costs, and adversely affect its future issuances of debt and its ability to raise new capital on a competitive basis. In addition, any adverse revisions to India s credit ratings for domestic and international debt by international rating agencies may have a similar effect on its ability to raise additional financing and the terms at which such financing is available. This could have an adverse effect on its business, profitability and the ability to fund its growth. In addition, attracting customer deposits in the Indian market is competitive. If the Bank fails to sustain or achieve the growth rate of its deposit base, including its CASA base, its business may be adversely affected. The rates that the Bank must pay to attract deposits are determined by numerous factors, such as the prevailing interest rate structure, competitive landscape, Indian monetary policy and inflation. For example, in October 2011, the RBI deregulated interest rates on demand deposits and savings bank deposits, which resulted in certain banks increasing their interest rates, leading to increased competition in this area. In the event that the Bank s spreads decrease, it may have a material adverse effect on its business, financial condition, results of operations and cash flow HK:

92 The Bank s business and financial performance are dependent on maintaining and building a successful branch network. As part of the Bank s growth strategy, it seeks to transition from a corporate-commercial relationshipled bank to a bank with a diversified corporate, commercial, business banking and retail portfolio. As a result, the Bank has increased its branch network from 860 as of 31 March 2016 to 1,040 as of 30 September The expansion and effectiveness of the Bank s retail banking business is dependent on further building its branch network. Pursuant to changes in the RBI s licensing requirements, banks are now able to open branches in Tier 1 to Tier 6 cities without obtaining prior licensing approval from the RBI, subject to reporting requirements. Banks are required to open 25 per cent. of their proposed branches during a particular year in unbanked rural (Tier 5 and Tier 6) centres. See Supervision and Regulation - Regulations Relating to the Opening of Branches. The opening of branches is subject to the delays and risks associated with obtaining suitable real estate in the appropriate locations and setting up relevant infrastructure, including fitting-out premises. The Bank s inability to open branches or a significant delay in opening additional branches, or its inability to optimise the operating performance of existing branches, may materially and adversely affect its branch banking business and consequently its business, financial condition and results of operations. The Bank faces significant challenges in developing new products and services. As part of the Bank s growth strategy, it has been diversifying and expanding its products and services for retail and small and medium-sized enterprises (SMEs) to include retail asset products, prepaid cards, travel cards, gold distribution and a remittance platform. In addition, the Bank has expanded its network into semi-urban and rural areas. Such new initiatives and products and services entail a number of risks and challenges, including but not limited to the following: cost overhead including start-up expenditure; insufficient knowledge of and expertise applicable to the new businesses, which may differ from those required in the Bank s current operations, including management skills, risk management procedures, guidelines and systems, credit appraisal, monitoring and recovery systems; lower growth or profitability potential than the Bank anticipates; failure to identify new segments and offer attractive new products and services in a timely fashion, putting the Bank at a disadvantage to its competitors; competition from similar offerings or products and services by the Bank s competitors in the banking and non-banking financial services sectors; inability to attract customers from the Bank s competitors in its new businesses, as they may have substantially greater experience and resources in such businesses; failure to appropriately value collateral, including property and infrastructure assets, in order to lend on a secured basis; failure to attain requisite approvals from any regulatory authority; failure to accurately determine and monitor the creditworthiness of borrowers in the Bank s newer businesses and increases in the rate of defaults, including in its unsecured loans businesses; HK:

93 changes in regulations or Government policies that may restrict or cap the interest rates or fees and commissions that the Bank may charge customers in any of its new businesses or compel changes to its business models that threaten the viability of its businesses; any negative publicity arising due to regulatory or other actions against third parties with whom the Bank is associated and over whom it has no control; inability to enhance the Bank s risk management, internal controls and information technology systems to support a broader range of products and services, a higher scale of operations and an increased retail customer base; inability to attract and retain personnel who are able to implement, supervise and conduct the new business activities on commercially reasonable terms; and inability to respond promptly to new technology developments and be in a position to dedicate resources to upgrade the Bank s systems and compete with new players entering the market. Even if the Bank is able to successfully diversify its products and services while managing the associated risks and challenges, its returns on such products and services may be less than anticipated. In addition, if the Bank s competitors are able to better anticipate the needs of customers within its target market, its market share could decrease. There will also be increased expenditure as a result of the Bank s strategy to expand into new geographies, including those planned for its branch network expansion, and newer businesses, such as retail assets, where its brand is not well known in the market. There is no assurance that the Bank will be able to increase awareness of its brand and even if it is successful in its branding efforts, such efforts may not be cost-effective. If the Bank is unable to maintain or increase awareness of or otherwise enhance its brand in a cost-effective manner, this could negatively impact its ability to expand its business or compete effectively, which may materially and adversely affect its business, financial condition and results of operations. The Bank is vulnerable to deterioration in the performance of any industry sector in which it has significant exposure. The Bank calculates customer and sector exposure, as required by the RBI. The Bank s exposure to corporate borrowers is dispersed throughout various industry sectors, the most significant sectors include electricity (generation/transportation and distribution), construction, social and commercial infrastructure, gems and jewellery, and vehicles, vehicle parts and transport equipment, which represented per cent., 5.45 per cent., 3.52 per cent., 3.22 per cent. and 2.61 per cent., respectively, of its outstanding total balances as of 30 September Further to the Bank s exposures, see Description of the Bank - Asset Quality and Composition. Despite monitoring the Bank s level of exposure to sectors and borrowers, any significant deterioration in the performance of a particular sector driven by events not within its control, such as natural calamities, regulatory action or policy announcements by central or state government authorities, or a slowdown in a particular sector, would adversely impact the ability of borrowers within that industry to service their debt obligations to it. As a result, the Bank would experience increased delinquency risk which may have a material adverse effect on its business, financial condition, results of operations and cash flow. Any decrease in the value of the collateral securing the Bank s advances to borrowers or its inability to foreclose on collateral in the event of default may result in a failure to recover the expected value of the collateral HK:

94 As of 30 September 2017, per cent. of the Bank s advances were secured by tangible assets, including advances secured by fixed deposits and book debts and 0.60 per cent. of its advances were secured by standby letters of credit or bank guarantees; in addition, for 9.44 per cent. of its advances, security creation was in progress as of the same date. In certain cases, the Bank obtains security by way of a first or second charge on fixed assets, such as real property, moveable assets, and financial assets, such as marketable securities, corporate guarantees and personal guarantees. In addition, project advances or long-term advances to corporate customers are secured by a charge on fixed assets and other security. The value of the collateral securing the Bank s loans may significantly fluctuate or decline due to factors beyond its control. Any decrease in the value of collateral at the time of recovery will have an adverse impact on the amounts the Bank recovers. In India, foreclosure on collateral generally requires filing a suit or an application in a court or tribunal. Although special tribunals have been set up for expeditious recovery of debts due to banks, any proceedings brought may be subject to delays and administrative requirements that may result in, or be accompanied by, a decrease in the value of the collateral. The SARFAESI Act, the Recovery of Debts Due to Banks and Financial Institutions Act 1993, as amended, and the RBI s corporate debt restructuring mechanism have strengthened the ability of lenders to recover NPAs by granting them greater rights to enforce security and recover amounts owed from secured borrowers. However, there can be no assurance that this legislation will have a favourable impact on the Bank s efforts to recover NPAs as the full effect of such legislation is yet to be determined in practice. Any failure to recover the expected value of collateral would expose the Bank to potential loss. See The RBI has undertaken several initiatives with respect to recognition of NPAs resulting in more stringent guidelines for which the Bank has been fined due to non-compliance. In addition, pursuant to RBI prudential guidelines on restructuring of advances by banks, the Bank may not be allowed to initiate recovery proceedings against a corporate borrower where the borrower s aggregate total debt is Rs. 100 million or more and per cent. of the lenders by number and holding at least per cent. or more of the borrower s debt by value decide to restructure their advances. In such a situation, the Bank is restricted to a restructuring process only as approved by the majority lenders. If the Bank owns per cent. or less of the debt of a borrower, it could be forced to agree to an extended restructuring of debt which may not be in its interests. In addition, the Bank may not be able to realise the full value of the collateral as a result of, among other factors: defects or deficiencies in the perfection of collateral (including obtaining required approvals from third parties); fraud by borrowers; depreciation in the value of the collateral, illiquid market for the disposal of and volatility in the market prices of the collateral; and current legislative provisions or changes thereto and future judicial pronouncements. Such difficulties in realising the Bank s collateral fully or at all, including if it is compelled to restructure its loans, may have a material adverse effect on its business, financial condition, results of operations and cash flow. The level of restructured advances in the Bank s portfolio may increase and the failure of such restructured advances to perform as expected could affect its business, financial condition and results of operations HK:

95 The Bank s standard assets include total outstanding standard restructured advances. The Bank s total outstanding standard restructured advances amount to Rs. 1, million, or 0.08 per cent. of gross advances, as of 30 September 2017 and Rs. 5, million, Rs. 6, million, or 0.43 per cent., 0.62 per cent. of gross advances, as of 31 March 2017 and 31 March 2016, respectively. The quality of the Bank s long-term project finance loan portfolio could be adversely impacted by several factors. Economic and project implementation challenges, in India and overseas, could result in additions to restructured advances and the Bank may not be able to control or reduce the level of restructured advances in its project and corporate finance portfolio. In November 2012, the RBI increased the general provisioning on restructured standard accounts from 2.00 per cent. to 2.75 per cent. The RBI, through a notification issued on 31 January 2013, has mandated banks to disclose further details on accounts restructured in their annual reports. This includes disclosing accounts restructured on a cumulative basis, excluding the standard restructured accounts, which cease to attract higher provision and/or higher risk weight, the provisions made on restructured accounts under various categories, and details of movement of restructured accounts. Further, in May 2013, the RBI issued guidelines on the restructuring of advances. Pursuant to those guidelines, from 1 April 2015, advances that are restructured (other than certain exceptions) would be immediately classified as substandard on restructuring and the non-performing assets, upon restructuring, would continue to have the same asset classification as prior to restructuring and slip into further lower asset classification categories as per the extant asset classification norms with reference to the pre-restructuring repayment schedule. The general provision required on restructured standard accounts stands at 5.00 per cent. The guidelines also prescribe measures with respect to the terms of restructuring that may be approved for borrowers. The combination of changes in regulations regarding restructured advances, provisioning, and any substantial increase in the level of restructured assets and the failure of these structured advances to perform as expected could adversely affect the Bank s business and future financial performance. The Bank is exposed to fluctuations in foreign exchange rates. As a financial intermediary, the Bank is exposed to exchange rate risk in its foreign exchange transactions and related derivative transactions. As of 31 March 2016 and 2017 and 30 September 2017, the Bank s credit exposure on account of outstanding gross forward exchange contracts amounted to Rs. 54, million, Rs. 66, million and Rs. 74, million, respectively. Further, as of 30 September 2017, the Bank has foreign currency borrowings of Rs. 189, million, which constitutes 8.00 per cent. of its total liabilities, thereby resulting in foreign currency risk in respect of its ability to service such debt. The Bank s hedges these liabilities to mitigate the impact of fluctuations in foreign currency rates. However, the Bank may maintain unhedged foreign currency exposure up to the net overnight position limit that is exposed to foreign currency rate fluctuations. Further, hedged exposures where the relevant counterparty fails to perform its obligations are also exposed to foreign currency fluctuations. Volatility in foreign exchange rates may be further accentuated due to other global and domestic macroeconomic developments. Adverse movements in foreign exchange rates may also affect the Bank s borrowers negatively, which may in turn affect the quality of its exposure to these borrowers. Volatility in foreign exchange rates may materially and adversely affect the Bank s business, financial condition and results of operations. The Bank operates in a highly competitive environment and its ability to grow depends on its ability to compete effectively. The grant of new banking licences to private sector entities may materially and adversely affect the Bank s business, financial condition and results of operations. The Indian banking industry is highly competitive. The Bank faces strong competition in all its lines of business from much larger Indian and foreign commercial banks, non-banking financial companies, HK:

96 insurance companies, mutual funds, financial service firms and other entities operating in the Indian financial sector. The Bank competes directly with large Government-controlled public sector banks, major private sector banks and foreign banks with branches in India. As of 31 March 2017, there were 93 scheduled commercial banks in India, including 27 public sector banks, 23 private sector banks (including the Bank) and 43 foreign banks with branches in India. Public sector banks, which generally have a much larger customer and deposit base, larger branch networks and Government support for capital augmentation, pose strong competition to the Bank. Mergers among public sector banks may result in enhanced competitive strengths in pricing and delivery channels for the merged entities. Further, a number of the private sector banks in India have a larger customer base and greater financial resources than the Bank, giving them a substantial advantage by enabling economies of scale and improving organisational efficiencies. The RBI has liberalised the licensing regime and intends to issue licences on an ongoing basis, subject to the RBI s qualification criteria. In April 2014, the RBI issued in-principle banking licences to two non-banking finance companies, IDFC Limited and Bandhan Financial Services Private Limited. Both of these non-banking finance companies began operations during fiscal year On 19 August 2015 the RBI granted in-principle approval to 11 applicants to set up payment banks. In September 2015, the RBI granted in-principle licences to ten applicants for small finance banks, most of which are microfinance non-banking finance companies. The RBI has also released guidelines with respect to a continuous licensing policy for universal banks in August As at 31 March 2017, two payment banks of those applicants who obtained in-principle approval from the RBI had commenced their operations and four entities had approvals from the RBI to set up payment banks. In addition, six entities had functioning small finance bank operations and one entity had approval to set up a small finance bank. The Bank also competes with foreign banks with operations in India. These competitors include a number of large multinational banks and financial institutions as well as non-banking financial companies and housing finance companies. In November 2013, the RBI released a framework for the setting up of wholly-owned subsidiaries in India by foreign banks. The framework encourages foreign banks to establish a presence in India by granting rights similar to those received by Indian banks, subject to certain restrictions and safeguards. Under the current framework, wholly-owned subsidiaries of foreign banks are allowed to raise Rupee resources through issue of non-equity capital instruments. Further, wholly-owned subsidiaries of foreign banks may be allowed to open branches in Tier 1 to Tier 6 centres (except at a few locations considered sensitive on security considerations) without having the need for prior permission from the RBI in each case, subject to certain reporting requirements. Further, technology innovations in mobilisation and digitisation of financial services require banks to continuously develop new and simplified models for offering banking products and services. This could increase competitive pressures on banks, including the Bank, to adapt to new operating models and upgrade back-end infrastructure on an ongoing basis. There is no assurance that the Bank will be able to continue to respond promptly to new technology developments, and be in a position to dedicate resources to upgrade its systems and compete with new players entering the market. Please see Investment Consideration The Bank relies extensively on its information technology systems and the telecommunications network in India which require significant investment and expenditure for regular maintenance, upgrades and improvements. In addition, the Bank may face attrition and difficulties in hiring at senior management and other levels due to competition from existing Indian and foreign banks, as well as new banks entering the market. Due to such intense competition, the Bank may be unable to execute its growth strategy successfully and offer competitive products and services HK:

97 All of the foregoing factors may result in a material adverse effect on the Bank s business, financial condition and results of operations. Any downgrade of the Bank s debt ratings or of India s debt rating by international rating agencies could adversely affect its business. The Bank s debt is rated by various agencies. Any downgrade in the Bank s credit ratings may increase interest rates for refinancing its outstanding debt, which would increase its financing costs, and adversely affect its future issuances of debt and its ability to raise new capital on a competitive basis, which may adversely affect its profitability and future growth. While Standard and Poor s (S&P), Moody s Investors Service Limited (Moody s) and Fitch Ratings, Inc. (Fitch) currently have stable outlooks on their sovereign rating for India, they may lower their sovereign ratings for India or the outlook on such ratings, which would also impact the Bank s ratings. Further, rating agencies may change their methodology for rating banks, which may impact the Bank. In September 2014, S&P, affirmed the BBB minus sovereign credit rating on India and revised the outlook on India s long-term rating from negative to stable, citing improvement in the Government s ability to implement reforms and encourage growth, which in turn would lead to improving the country s fiscal performance. At the same time, S&P revised the rating outlooks on 11 Indian banks, including the Bank and other financial institutions, from negative to stable. In April 2015, Moody s revised India s sovereign rating outlook from stable to positive and retained the long-term rating at Baa3 as it expected actions of policymakers to enhance India s economic strength in the medium term. In line with the revision in outlook, Moody s revised the outlook for 12 government-owned financial institutions from stable to positive. The foreign currency deposit ratings of three private sector banks, including the Bank, were affirmed at Baa3 and the outlook on the long-term ratings changed from stable to positive, while the local currency and senior unsecured rating of three private sector banks, including the Bank, were downgraded to Baa3 with a positive outlook. In July 2016, Fitch revised its outlook for the Indian banking sector to Negative from Stable due to the increase in non-performing loans. However, in November 2017, Moody s upgraded India s credit rating to Baa2 from Baa3 and changed its India rating outlook to stable from positive citing reforms such as GST, demonetisation, the inflation-targeting monetary policy framework, the Bankruptcy Act, bank recapitalisation, Aadhaar and the Direct Benefits Transfer system. There can be no assurance that these ratings will not be further revised or changed by S&P, Fitch or Moody s or that any of the other global rating agencies will not downgrade India s credit rating. As the Bank s foreign currency ratings are pegged to India s sovereign ceiling, any adverse revision to India s credit rating for international debt will have a corresponding effect on the Bank s ratings. Therefore, 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 financing is available. Any of these developments may materially and adversely affect the Bank s business, financial condition and results of operations. The Bank s off-balance sheet liabilities could adversely affect its financial condition. As of 30 September 2017, the Bank had total contingent liabilities of Rs. 4,855, million, amounting to an equivalent credit exposure of Rs. 606, million. The Bank s off-balance sheet liabilities consist of, among other things, liability on account of forward exchange and derivative contracts, guarantees and documentary credits given by it. In case of derivative contracts, the notional principal amounts are significantly greater than the actual profit and loss, mark-to-market impact on HK:

98 the Bank. If any of these contingent liabilities materialise, the Bank s business, financial condition and results of operations may be materially and adversely affected. Regulations in India require the Bank to extend a minimum level of advances to certain sectors, including agriculture. These may subject the Bank to higher delinquency rates. The Bank s inability to comply with Indian priority sector lending requirements may require it to invest in funds with a lower return than it would otherwise obtain in the market. The RBI mandates all banks that are operating in India to direct a certain portion of their lending to specified Priority Sectors such as agriculture, MSEs, housing and education, and has specified a target for domestic banks as a percentage of their previous fiscal year s ANBC. For further details, see Description of the Bank Priority Sector Lending and Supervision and Regulation Directed Lending Priority Sector Lending. RBI regulations specify that priority sector requirements should be met on the basis of the credit equivalent of off-balance sheet exposure rather than ANBC, if such off-balance sheet exposure by a bank is higher than its ANBC. For the fiscal year 2016, the Bank s priority sector lending accounted for per cent. of its ANBC and for the fiscal year 2017, the Bank s priority sector lending accounted for per cent. of its ANBC. These percentages comprise the Bank s direct lending to priority sectors and the purchase of PSLCs in lieu of the lending, as permitted by the RBI. In the case of any shortfall by the Bank in meeting priority sector lending requirements, it would subsequently be required to place the difference between the required lending level and its actual priority sector lending in an account with the National Bank for Agriculture and Rural Development under the Rural Infrastructure Development Fund Scheme, or with other financial institutions specified by the RBI, from which the Bank would earn lower levels of interest compared to advances made to the priority sector. Further, subsequent deposits placed by banks on account of non-achievement of priority sector lending targets or sub-targets are not eligible for classification as indirect finance to agriculture or MSEs, as the case may be. Moreover, the RBI is required to take into account any shortfall in meeting specific priority sector lending targets, at the time of granting any approvals sought by a bank, from time to time. Such circumstances could materially and adversely affect the Bank s business, financial condition and results of operations. Any change in RBI regulations may require the Bank to increase its lending to relatively higher risk segments, which may result in an increase in the Bank s NPAs under its directed lending portfolio. Any increase in the Bank s direct lending to certain sectors will result in an increase in its exposure to the payment risks inherent in such sectors, which could materially and adversely impact its business, financial condition and results of operations. Any requirements by the RBI that specify changes in priority sector lending may adversely affect the Bank s business, financial condition and results of operations. See Supervision and Regulation Directed Lending Priority Sector Lending. The Bank may face greater credit risks than banks in more developed countries. The Bank s principal business is to provide financing to its customers. The Bank is subject to the credit risk that its borrowers may not pay in a timely fashion or at all. In addition, India s system for gathering and publishing statistical information relating to the Indian economy and the financial performance of companies is not as comprehensive as those of established market economies. Although India has a credit bureau industry, adequate information regarding loan servicing histories, particularly in respect of individuals and small businesses, is limited. As a result, the Bank s credit risk exposure is higher compared with banks operating in advanced markets. Since the Bank s lending operations to the aforesaid categories are limited to India, the Bank may be exposed to a greater potential for loss compared with banks with lending operations in more developed countries. The Bank relies on accuracy and completeness of information about customers and counterparties and such information can be inaccurate or materially misleading HK:

99 The Bank relies on accuracy and completeness of information about customers and counterparties while carrying out transactions with them or on their behalf. The Bank may also rely on representations as to the accuracy and completeness of such information. For example, the Bank may rely on reports of independent auditors with respect to financial statements, and decide to extend credit based on the assumption that the 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 Bank s financial condition and results of operations could be negatively impacted by such reliance on information that is inaccurate or materially misleading. This may affect the quality of information available to it about the credit history of its borrowers, especially individuals and small businesses. As a consequence, the Bank s ability to effectively manage its credit risk may be adversely affected. The Bank is highly dependent on its management team and key managerial personnel and its inability to retain or replace key and talented personnel may have an adverse effect on its business. The Bank s future success is highly dependent on the services of its management team, including its Managing Director and Chief Executive Officer, Rana Kapoor, as well as other key personnel. The Bank s ability to maintain its strategic direction, manage its current operations and meet future business challenges depends, among other things, on their continued employment and the Bank s ability to attract and recruit talented and skilled personnel in key managerial positions throughout is organisation. The Bank s employment agreements with these personnel do not obligate them to work for the Bank for any specified period and do not contain non-compete or non-solicitation clauses in the event of termination of employment. Further, the Bank does not maintain any key man insurance. If one or more of these key personnel are unwilling or unable to continue in their present positions, the Bank may not be able to replace them promptly with persons of comparable skills and expertise. Additionally, should the banking industry move towards incentive-based pay schemes, the Bank may not be as competitive as other banks. This may increase the possibility of the Bank s skilled personnel moving to more attractive employment opportunities. There is no assurance that the Bank will be able to continue its successful hiring of talented and key personnel in the future. The loss of key personnel or the Bank s inability to replace such personnel effectively may materially and adversely affect its ability to grow and operate its various business functions in an efficient manner. The Bank has purchased securitised pools of retail assets and any deterioration of a pool s performance may adversely impact the Bank s financial performance. The Bank has purchased securitised pools of retail assets, which are mostly credit enhanced and have been rated by external rating agencies using pre-selection criteria. Any deterioration in the quality of these pools could trigger an increase in the Bank s provisioning requirements and thus may materially and adversely affect its business, financial condition and results of operations. The Bank is currently not in compliance with the RBI s guidelines on ownership in private sector banks. As per the Reserve Bank of India (Ownership in Private Sector Banks) Directions, 2016 (Directions on Ownership) dated 12 May 2016, the shareholding of the promoter/promoter group in a private sector bank cannot be higher than per cent. of its paid-up share capital. As of 30 September 2017, the promoter/promoter group s shareholding in the Bank was per cent. Rana Kapoor, together with Yes Capital (India) Private Limited and Morgan Credits Private Limited (companies controlled by him), held per cent. of the Bank s paid-up share capital and Madhu Kapur, together with Mags Finvest Private Limited, held 9.38 per cent. of the Bank s paid-up share capital. While the Bank has correspondence with the RBI in the past, in relation to bringing the shareholding HK:

100 of the promoter/promoter group down as per the previously applicable guidelines, there can be no assurance that there will not be future regulatory directions to reduce such shareholding. Any such directives from the RBI under the Directions on Ownership may have an adverse effect on the market price of the Notes. In addition, in such event, the RBI may require the aforementioned reduction in shareholding as a prerequisite for any future RBI approvals related to the Bank s business activities. Any failure to comply with the Directions on Ownership or RBI directives may adversely affect the Bank s business, financial condition and results of operations. Further, it is to be noted that the Bank has been in compliance with the RBI Master Directions dated 19 November 2015 on Prior Approval for Acquisition of Shares or Voting Rights in Private Sector Banks: Directions, 2015, furnished the Board of Directors assessment to RBI on the fit and proper status of all its three major shareholders, i.e., Rana Kapoor Group (comprising Rana Kapoor, Yes Capital (India) Private Limited and Morgan Credits Private Limited), Life Insurance Corporation of India and Madhu Kapur Group (comprising Madhu Kapur, together with Mags Finvest Private Limited). The Bank could be adversely affected by operational risks, including cyber threats, which may disrupt its businesses. The Bank businesses are highly dependent on its ability to process, on a daily basis, a large number of transactions across numerous and diverse markets and the Bank s transactions and processes have become increasingly complex. Consequently, the Bank relies heavily on its financial, accounting and other data processing systems. The Bank is therefore directly and indirectly exposed to operational risks arising from errors made in the confirmation or settlement of transactions not being properly recorded, evaluated or accounted for. For example, in January 2014, the RBI imposed a penalty of Rs. 500,000 (which has been recorded in the Bank s books of account during fiscal year 2014) for a shortfall of security in the Bank s principal subsidiary general ledger (SGL) account. The shortfall was due to operational errors during settlement. While the Bank has tightened operational controls in response to this incident, there can be no guarantee that such operational errors will not occur in the future. The potential inability of the Bank s systems to accommodate an increasing volume of transactions could also constrain the Bank s ability to expand its businesses. If any of the Bank s systems do not operate properly or are disabled, it could suffer financial loss, a disruption of businesses, liability to clients, regulatory intervention or damage to reputation, which may materially and adversely affect its business, financial condition and results of operations. Further, the Bank offers internet banking and other services to its customers. The Bank is therefore directly and indirectly exposed to various cyber-threats such as phishing and trojans (targeting the Bank s customers, where fraudsters send unsolicited mails to its customers seeking account-sensitive information or to infect customer machines to search and attempt exfiltration of account-sensitive information), hacking (where attackers seek to hack into the Bank s website with the primary intention of causing reputational damage to the Bank by disrupting services) and data theft (where cyber-criminals may attempt to intrude into the Bank s network with the intention of stealing its data or information). There is also the risk of the Bank s customers blaming it and terminating their accounts with the Bank for a cyber-incident that might have occurred on the Bank s own system or with that of an unrelated third party. The RBI has, on 2 June 2016, issued a framework for cybersecurity for banks, prescribing measures to be adopted by banks to address security risks including putting in place a cyber-security policy and requiring banks to report all unusual cyber-security incidents to the RBI. Any cyber-security breach could also subject the Bank to additional regulatory scrutiny and expose it to civil litigation and related financial liability. The Bank s risk management policies and procedures may not adequately address unidentified or unanticipated risks HK:

101 The Bank has devoted significant resources to develop its risk management policies and procedures and aims to continue to do so in the future. Despite this, the Bank s policies and procedures to identify, monitor and manage risks may not be fully effective. Some of the Bank s methods of managing risks 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 those indicated by the historical measures. Management of operations, legal and regulatory risks requires, among other things, policies and procedures to properly record and verify a large number of transactions and events, and these policies and procedures may not be fully effective. As the Bank seeks to expand the scope of its operations, it also faces the risk that it will be unable to develop risk management policies and procedures that are properly designed for new business areas or to manage the risks associated with the growth of its existing businesses effectively. Implementation and monitoring may prove particularly challenging with respect to businesses that the Bank plans on developing, such as retail banking. An inability to develop and implement effective risk management policies may materially and adversely affect the Bank s business, financial condition and results of operations. The Bank relies extensively on its information technology systems and the telecommunications network in India, which require significant investment and expenditure for regular maintenance, upgrades and improvements. The Bank s information technology systems are a critical part of its business that help it manage, among other things, its risk management, deposit servicing and loan origination functions, as well as its increasing portfolio of products and services. The Bank is heavily reliant on its technology systems in connection with financial controls, risk management and transaction processing. In addition, the Bank s delivery channels include ATMs, a call centre and the internet. The Bank s offline and online business channel networks are dependent on a dense, comprehensive telecommunications network in India. While deregulation and liberalisation of telecommunications laws have prompted the steady improvement in local and long-distance telephone services, telephone network coverage and accessibility is still intermittent in many parts of India. Failure by the Indian telecommunications industry to improve network coverage to meet the demands of the rapidly growing economy may affect the Bank s ability to expand its customer base, acquire new customers or service existing customers by limiting access to its services and products. This may materially and adversely affect the Bank s business, financial condition and results of operations. The Bank s success will depend, in part, on its ability to respond to new technological advances and emerging banking, capital markets, and other financial services 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 implement new technologies or adapt its transaction processing systems to customer requirements or improving market standards. The Bank uses its information systems and the internet to deliver services to, and perform transactions on behalf of, its customers and it may need to regularly upgrade its systems, including its software, back-up systems and disaster recovery operations, at substantial cost so that it remains competitive. The Bank s hardware and software systems are also subject to damage or incapacitation by human error, natural disasters, power loss, sabotage, computer viruses and similar events or the loss of support services from third parties such as internet backbone providers. There is no warranty under the Bank s information technology licence agreements that the relevant software or system is free of interruptions, will meet the Bank s requirements or be suitable for use in any particular condition. So far, the Bank has not experienced widespread disruptions of service to its customers, but there can be no assurance that it will not encounter disruptions in the future due to substantially increased numbers of customers and transactions, or for other reasons. Any inability to maintain the reliability and efficiency of the Bank s systems could adversely affect its reputation, and its ability to attract and HK:

102 retain customers. In the event that the Bank experiences system interruptions, errors or downtime (which could result from a variety of causes, including changes in customer use patterns, technological failure, changes to systems, linkages with third-party systems and power failures), the Bank is unable to develop necessary technology or any other failure occurs in its systems, this may materially and adversely affect its business, financial condition and results of operations. Major fraud, lapses of control, system failures, security breaches or calamities could adversely affect its business. The Bank is vulnerable to risks arising from the failure of its employees to adhere to approved procedures and system controls, fraud, system failures, information system disruptions, communication systems failures, computer break-ins, power disruptions and data interception during transmission through external communication channels and networks. While the Bank employs security systems, uses encrypted password-based protections and firewalls and establishes operational procedures to prevent break-ins, damages and failures, there can be no assurance that such measures are adequate to prevent fraud, security breaches or the invasion or breach of the network by intruders and theft of data. Failure to protect against fraud or breaches in security may adversely affect the Bank s operations and future financial performance. The Bank s reputation could be adversely affected by significant fraud committed by its employees, agents, customers or third parties. The Bank maintains a disaster recovery centre for its core banking applications at Bengaluru in the event that its main computer centre at Mumbai shuts down for any reason. The system in Bengaluru is configured to come into operation if the Mumbai system is no longer operational. However, if for any reason the switch over to the back-up system does not take place or if a calamity occurs in both Mumbai and Bengaluru such that the Bank s business is compromised at both centres, its operations would be adversely affected. Employee misconduct could harm the Bank and is difficult to detect and deter. There have been a number of highly publicised cases involving fraud, money laundering or other misconduct by employees and executives in the financial services industry, including those in connection with the Bank, in recent years. Although the Bank has a committee in place dedicated to monitoring fraud, it runs the risk that such misconduct could occur. Misconduct by employees or executives could include binding the Bank to transactions that exceed authorised limits or present unacceptable risks or hiding unauthorised or unlawful activities from it, which may result in substantial financial losses and damage to its reputation. Employee or executive misconduct could also involve the improper use or disclosure of confidential information, which could result in regulatory sanctions and serious reputational or financial harm, including harm to the Bank s brand. It is not always possible to deter employee or executive misconduct and the precautions taken and systems put in place to prevent and detect such activities may not be effective in all cases. Any instances of such misconduct could adversely affect the Bank s reputation. Certain terms contained in the Bank s business agreements may be onerous and commercially restrictive. Some of the Bank s agreements contain covenants that may be onerous and commercially restrictive in nature. For example, some of the Bank s borrowing agreements impose a condition on it to inform the respective counterparties in the case of any change in control or amalgamation, demerger/merger or payment of dividends. In addition, certain of the Bank s borrowing agreements impose restrictive financial covenants. Further, some of the Bank s borrowing agreements also require it to obtain prior written consent for certain acts such as amendments to constitutional documents or to create any security. Violation of any of these covenants may amount to events of default, which may result in HK:

103 breach of contract causing claims to be brought against the Bank or termination of the agreements as well as prepayment obligations. The Bank may breach third-party intellectual property rights or be required to initiate claims against others infringing the Bank s intellectual property rights. The Bank may be subject to claims by third parties, both inside and outside India, if it breaches its intellectual property rights by using slogans, names, designs, software or other such subjects, which are of a similar nature to the intellectual property these third parties may have registered. Any legal proceedings that result in a finding that the Bank has breached third parties intellectual property rights, or any settlements concerning such claims, may require the Bank to provide financial compensation to such third parties or make changes to its marketing strategies or to the brand names of its products, which may have a materially adverse effect on its brand, business, prospects, financial condition and results of operations. The Bank s customers may engage in certain transactions in or with countries or persons that are subject to U.S. and other sanctions. U.S. law generally prohibits U.S. persons from directly or indirectly investing or otherwise doing business in or with certain countries (such as Iran, Myanmar, North Korea, Sudan, Syria and the Crimea region) and with certain persons or businesses that have been specially designated by the OFAC or other U.S. government agencies. Other governments and international or regional organisations also administer similar economic sanctions. The Bank provides transfer, settlement and other services to customers doing business with, or located in, countries to which certain OFAC-administered and other sanctions apply, such as Iran. Although the Bank believes it has compliance systems in place that are sufficient to block prohibited transactions, there can be no assurance that it will be able to fully monitor all of its transactions for any potential violation. Although the Bank does not believe that it is in violation of any applicable sanctions, if it were determined that transactions in which the Bank participates violate U.S. or other sanctions, the Bank could be subject to U.S. or other penalties, and its reputation and future business prospects in the United States or with U.S. persons, or in other jurisdictions, could be adversely affected. If more stringent labour laws become applicable to the Bank or if its employees unionise, its profitability may be adversely affected. India has stringent labour legislation that protects employee interests, including legislation that prescribes detailed procedures for dispute resolution and employee removal and imposes financial obligations on employers upon retrenchment. If these labour laws become applicable to the Bank s employees or if its employees unionise, it may become difficult for the Bank to maintain flexible human resource policies and attract and employ the numbers of sufficiently qualified candidates that it requires. Equally, it may become difficult for the Bank to discharge employees and it may be required to raise wage levels or grant other benefits that could result in a significant increase in its operating expenses, which may have a materially adverse effect on its business, financial condition and results of operations. The Bank s offices are located on leased premises and the non-renewal or premature termination of the existing lease agreements, or their renewal on unfavourable terms, could adversely affect its business and results of operations. The Bank s registered office, corporate headquarters and all of its branches, ATMs and marketing outlets are located on premises leased from third parties, which require renewal from time to time. If the Bank is unable to renew the relevant lease agreements, or if such agreements are renewed on HK:

104 unfavorable terms and conditions, the Bank may be required to relocate operations. The Bank may also face the risk of being evicted in the event that its landlords allege a breach on the Bank s part of any terms under these lease agreements. This may cause a disruption in the Bank s operations or result in increased costs, or both, which may materially and adversely affect its business, financial condition and results of operations. The Bank depends on brand recognition, and failure to maintain and enhance awareness of its brand would adversely affect its ability to retain and expand its base of customers. The Bank has invested significantly in developing and promoting its brand, and the Bank expects to continue maintaining and increasing its brand awareness among its current and prospective customers. The Bank believes that, as the market becomes increasingly competitive, maintaining and enhancing its brand, in a cost-effective manner, will become more important for its business. Further, The Bank believes that continuing to develop awareness of its brand, through focused and consistent branding and marketing initiatives, among customers is important in order to establish its leadership in select markets. If the Bank is unable to consistently manage its time and costs on brand-building initiatives, its ability to compete in the financial services sector may be negatively impacted and have a material adverse effect on its business. Negative publicity could damage the Bank s reputation and adversely impact its business and financial results. Reputational risk, or the risk to the Bank s business, earnings and capital from negative publicity, is inherent in the Bank s business. The reputation of the financial services industry in general has been closely monitored as a result of the financial crisis and other matters affecting the financial services industry. Negative public opinion about the financial services industry generally or the Bank specifically, could adversely affect its ability to attract and retain customers, and may expose it to litigation and regulatory action. Negative publicity can result from the Bank s actual or alleged conduct in any number of activities, including lending practices, foreclosure practices, corporate governance, regulatory compliance, mergers and acquisitions, and related disclosure, sharing or inadequate protection of customer information, and actions taken by government regulators and community organisations in response to that conduct. The Bank distributes several third-party products, including life insurance, health insurance and general insurance. The Bank also works in partnership with third parties, including business correspondents in the micro-finance sector. The Bank has no control over the actions of such third parties. Any failure on the part of such third parties, including any failure to comply with applicable regulatory norms, any regulatory action taken against such parties or any adverse publicity relating to such party could, in turn, result in negative publicity about the Bank and adversely impact its brand and reputation. The Bank may continue to incur significant expenditure as a result of significant increases in hiring and branch infrastructure expansion to support its growth strategy recently. In the fiscal year 2017, the number of the Bank s employees increased by per cent., or 5,125 employees, over the prior fiscal year 2016, mainly due to increased hiring to support the retail banking expansion strategy. In the same period, the Bank s payments to and provisions for employees increased by per cent. from Rs. 12, million to Rs. 18, million. Further, the Bank s branches increased by per cent. or 140 branches in fiscal year 2017 to 1,000 branches and further to 1,040 as of 30 September The Bank s planned growth will require it to continue to significantly increase the number of employees at various levels and branches and effectively implement and improve training programmes. Such increasing activities and investments in the Bank s employees, branches and other associated infrastructure will require substantial expenditure and management effort and attention. If the Bank is unable to manage the efficiency of its employees and branches effectively, the Bank s operating expenses could increase disproportionately, which may have a material adverse effect on its business, financial condition, results of operations and cash flow HK:

105 The bank s internal financial controls may be insufficient or may leave the Bank exposed to unidentified or unanticipated risks, which could negatively affect its business or result in losses. Our management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by it while taking into account the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls over Financial Reporting issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal financial controls to ensure the orderly and efficient conduct of its business, including adherence to the Bank s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, The proper functioning of the Bank s internal financial control, risk management, accounting or other data collection and processing systems is critical to its businesses and its ability to compete effectively. If the Bank s internal financial controls are insufficient, its business, financial condition and results of operations could be materially and adversely affected. The implementation of the RBI Basel III Capital Regulations may adversely affect the Bank and the position of the noteholders. On 17 December 2009, the Basel Committee proposed a number of fundamental reforms to the regulatory capital framework in its consultative document entitled Strengthening the Resilience of the Banking Sector. On 16 December 2010 and on 13 January 2011, the Basel Committee issued its final guidance on Basel III and minimum requirements, respectively. The Basel Committee proposed that the guidelines be implemented from 1 January These guidelines have been implemented in India through the RBI Basel III Capital Regulations, which came into effect on 1 April 2013, and are subject to a series of transitional arrangements to be phased in over a period of time and will be fully implemented on 31 March The RBI has indicated that the capital requirements for the implementation of the RBI Basel III Capital Regulations may be lower during the initial period and higher in later years. The RBI Basel III Capital Regulations require, among other things, higher levels of Tier I capital, including common equity, capital conservation buffers, deductions from common equity Tier I capital for investments in subsidiaries (with minority interest), changes in the structure of debt instruments eligible for inclusion in Tier I and Tier II capital and preference shares in Tier II capital, criteria for classification as common shares, methods to deal with credit risk and reputational risk, capital charges for credit risks, introduction of a leverage ratio and criteria for investments in capital of banks, financial and insurance entities (including where ownership is less than per cent.). The RBI Basel III Capital Regulations also stipulate that non-equity Tier I and Tier II capital should have loss absorbency characteristics, which require them to be written down or be converted into common equity upon the occurrence of a pre-specified trigger event. In addition, the Basel Committee published a guidance report titled Principles for Sound Liquidity Risk Management and Supervision in September 2008 to address the deficiencies that were witnessed in liquidity risk management during the recent global financial crisis. This was followed by the publication of Basel III: International framework for liquidity risk measurement, standards and monitoring in December 2010 which introduced two minimum global regulatory standards, namely the LCR and the NSFR and a set of monitoring tools. The LCR promotes short-term resilience of banks to potential liquidity disruptions by ensuring that they have sufficient high quality liquid assets to survive an acute stress scenario lasting for 30 days. The NSFR promotes resilience over longerterm time horizons by creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing structural basis. In June 2014, the RBI issued guidelines in relation to LCR, liquidity risk monitoring tools and LCR disclosure standards pursuant to the publication of Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools in January 2013 and the Liquidity Coverage Ratio Disclosure HK:

106 Standards in January 2014 by the Basel Committee on Banking Supervision. The LCR is intended to ensure that banks maintain an adequate level of HQLAs to survive an acute stress scenario lasting for 30 days. Pursuant to the guidelines, banks are required to maintain an LCR of per cent., per cent., per cent., per cent. and per cent. with effect from 1 January 2015, 1 January 2016, 1 January 2017, 1 January 2018 and 1 January 2019, respectively. Such requirement to maintain HQLA has adversely affected the Bank s profitability and any increase in the requirement will further adversely affect its profitability. The RBI has issued draft guidelines on NSFR on 28 May 2015, which proposes to make NSFR applicable to banks in India from 1 January For compliance towards NSFR norms, the Bank may have to borrow long term to fund long-term assets resulting in an increase in interest expense. The RBI or any other relevant authority may implement the package of reforms, including the terms which capital securities are required to have, in a manner that is different from that which is currently envisaged, or may impose more onerous requirements. There can be no assurance that the Bank will be able to comply with such requirements or that any breach of applicable laws and regulations will not adversely affect its reputation, business, financial condition and results of operations. Risks Relating to India The Bank s risk profile is linked to the Indian economy and the banking and financial markets in India. The credit risk the Bank is exposed to may be higher than the credit risk of banks in some developed economies. The absence of reliable information, including audited financial statements, recognised debt rating reports and credit histories relating to the Bank s present and prospective corporate borrowers or other customers, makes the assessment of credit risk, including the valuation of collateral, more difficult, especially for individuals and small businesses. In addition, the credit risk of the Bank s borrowers, particularly small and middle market companies, is higher than borrowers in more developed economies due to the evolving Indian regulatory, political, economic and industrial environment. The directed lending norms of the RBI require the Bank to lend a certain proportion of its advances to priority sectors, including agriculture and small enterprises, where the Bank s ability to control the portfolio quality is limited and where economic difficulties are likely to affect its borrowers more severely. Any shortfall may be required to be allocated to investments yielding submarket returns. In addition to credit risks, the Bank also faces additional risks in comparison to banks operating in developed economies. The Bank pursues its activities in India, a developing economy with all of the risks that come with such an economy. The Bank s activities in India are widespread and diverse and involve employees, contractors, counterparties and customers with widely varying levels of education, financial sophistication and wealth. Although the Bank seeks to implement policies and procedures to reduce and manage marketplace risks as well as risks within its own organisation, some risks remain inherent in doing business in a large, developing country. The Bank cannot eliminate these marketplace and operational risks, which may lead to legal or regulatory actions, negative publicity or other developments that could reduce its profitability. In the aftermath of the financial crisis, regulatory scrutiny of these risks is increasing. Increased volatility or inflation of commodity prices in India could adversely affect the Bank s business. Any increased volatility or rate of inflation of global commodity prices, particularly oil and steel prices, could adversely affect the Bank s borrowers and contractual counterparties. Although the RBI has enacted certain policy measures designed to curb inflation, these policies may not be successful HK:

107 Any slowdown in the growth of the manufacturing services or agricultural sectors could adversely impact the Bank s business, financial condition and results of operations. Financial difficulty and other problems in certain long-term lending institutions and investment institutions in India could have a negative impact on the Bank s business. The Bank are exposed to the risks prevailing in the Indian financial system which, in turn, may be affected by financial difficulties and other problems faced by certain Indian financial institutions. As an emerging market economy, the Indian economy faces risks not typically faced in developing countries, including the risk of deposit runs, despite the existence of a national deposit insurance scheme. Certain Indian financial institutions have experienced difficulties during recent years. Some cooperative banks have also faced serious financial and liquidity crises. The problems faced by individual Indian financial institutions and any instability in or difficulties faced by the Indian financial system generally could create adverse market perception about financial institutions and banks in India. This, in turn, could adversely affect the Bank s business, financial condition and results of operations. A decline in India s foreign exchange reserves may affect liquidity and interest rates in the Indian economy, which could have an adverse impact on the Bank. A rapid decrease in reserves would also create a risk of higher interest rates and a consequent slowdown in growth. Flows to foreign exchange reserves can be volatile, and past declines may have adversely affected the valuation of the Rupee. There can be no assurance that India s foreign exchange reserves will not decrease again in the future. Further decline in foreign exchange reserves, as well as other factors, could adversely affect the valuation of the Rupee and could result in reduced liquidity and higher interest rates that could adversely affect the Bank s business, financial condition and results of operations. The Bank is subject to risks relating to macroeconomic conditions in India. According to the RBI s financial stability report, June 2017, global economy seems poised for a turnaround. However, unlike past business cycles wherein credit growth acceleration preceded an uptick in GDP growth, growth in private credit to non-financial corporations is muted. Geopolitical risks are elevated and a real concern is the perceived weakening of international institutional mechanisms to deal with them. In India, macroeconomic conditions remained stable and the expectations of accelerated reforms and political stability further reinforced the overall positive business sentiment. Moreover, reforms in foreign direct investment, implementation of goods and services tax (GST), and revival in external demand are likely to contribute to a better growth outlook. However, concerns arise over States fiscal position and the stretched debt capacities of some parastatals. While the overall risks to the corporate sector moderated in , concerns remain over its recovery. The RBI Financial Stability Report noted that among financial institutions, asset quality of public sector banks (PSBs), scheduled urban cooperative banks and non-banking financial companies has deteriorated. Though the soundness of banks reflected improved capital positioning, continuous deterioration in their asset quality, low profitability and liquidity contributed to the high level of overall risk. The gross non-performing advances (GNPAs) ratio of scheduled commercial banks (SCBs) increased to 9.60 per cent. in September 2017 from 9.20 per cent. in March However, overall stressed advances ratio declined to per cent. from per cent. The Bank has little or no control over any of these risks or trends and may be unable to anticipate changes in economic conditions. Adverse effects on the Indian banking system could impact the Bank s funding and adversely affect its business, financial condition and results of operations HK:

108 Acts of terrorism and other similar threats to security could adversely affect the Bank s business, cash flows, results of operations and financial condition. Increased political instability, evidenced by the threat or occurrence of terrorist attacks, enhanced national security measures, conflicts in several regions in which the Bank operates, strained relations arising from these conflicts and the related decline in customer confidence may hinder its ability to do business. For example, in November 2008, several coordinated shooting and bombing attacks occurred across Mumbai, India s financial capital. In June 2011, a series of three coordinated bomb explosions occurred at different locations in Mumbai. Both attacks resulted in loss of life, property and business. Any escalation in these events or similar future events may disrupt the Bank s operations or those of its customers. These events have had, and may continue to have, an adverse impact on the global economy and customer confidence, which could, in turn, adversely affect the Bank s revenue, operating results and financial condition. The impact of these events on the volatility of global financial markets could increase the volatility of the market price of the Bank s securities and may limit the capital resources available to it and to its customers. Natural disasters could have a negative impact on the Indian economy and damage the Bank s facilities. Natural disasters such as floods, earthquakes or famines have in the past had a negative impact on the Indian economy. If any such event were to occur, the Bank s business could be affected due to the event itself or due to the inability to effectively manage the effects of the particular event. Potential effects include the damage to infrastructure and the loss of business continuity or business information. In the event that the Bank s facilities are affected by any of these factors, its operations may be significantly interrupted, which may materially and adversely affect its business, financial condition and results of operations. Political instability or significant changes in the economic liberalisation and deregulation policies of the Government or in the government of the States where the Bank operates, could disrupt its business. The Bank is incorporated in India and derives a significant portion of its revenues in India. In addition, a significant portion of the Bank s assets are located in India. Consequently, the Bank s performance and liquidity of the Notes may be affected by changes in exchange rates and controls, interest rates, Government policies, taxation, social and ethnic instability and other political and economic developments affecting India. The Indian Government has traditionally exercised and continues to exercise a significant influence over many aspects of the Indian economy. The Bank s businesses, and the market price and liquidity of its securities, may be affected by changes in exchange rates and controls, interest rates, Government policies, taxation, social and ethnic instability and other political and economic developments in or affecting India. In recent years, India has been following a course of economic liberalisation and the Bank s business could be significantly influenced by economic policies followed by the Government. Further, the Bank s businesses are also impacted by regulation and conditions in the various states in India where it operates. On 17 May 2014, the Indian Election Commission released the results of the 2014 General Election and the Bharatiya Janata Party won 282 districts out of 543, and will hold a majority of seats in the Lok Sabha, the lower house of the Parliament of India. However, there is no majority government in the Rajya Sabha, the upper house of the Parliament of India, which may impede the passing of key legislation. There can be no assurance as to the policies the new government will follow or that it will continue the policies of the outgoing government. Government corruption, scandals and protests against certain economic reforms, which have occurred in the past, could slow the pace of liberalisation and deregulation HK:

109 All this has impacted sentiments and the economy, the rate of economic liberalisation could change, and specific laws and policies affecting foreign investment, currency exchange rates and other matters affecting investment in India could change as well. A significant change in India s economic liberalisation and deregulation policies, in particular, those relating to the businesses in which the Bank operates, could disrupt business and economic conditions in India generally and its business in particular. Significant differences exist between Indian GAAP and other accounting principles, such as U.S. GAAP and IFRS, with which investors may be more familiar and may consider material to their assessment of the Bank s financial condition. The Bank s financial statements for the two fiscal years ended 31 March 2016, 2017 and six months ended 30 September 2017, respectively, are prepared and presented in conformity with Indian GAAP. No attempt has been made to reconcile any of the information given in this Offering Circular to any other principles or to base it on any other standards. Indian GAAP differs in certain significant respects from IFRS, U.S. GAAP and other accounting principles with which prospective investors may be familiar in other countries. If the Bank s financial statements were to be prepared in accordance with such other accounting principles, its results of operations, cash flows and financial position may be substantially different. Prospective investors should review the accounting policies applied in the preparation of the Bank s financial statements, and consult their own professional advisers for an understanding of the differences between these accounting principles and those with which they may be more familiar. Investors in the Notes may not be able to enforce a judgment of a foreign court against the Bank, its directors or executive officers. The Bank is a limited liability company incorporated under the laws of India. Substantially all of the Bank s Directors and executive officers and key managerial personnel are residents of India, and a substantial portion of its assets and such persons are located in India. As a result, it may not be possible for investors to effect service of process upon the Bank or such persons outside India, or to enforce judgments obtained against such parties in courts outside of India. Recognition and enforcement of foreign judgments are provided for under Section 13 and Section 44A of the Civil Procedure Code on a statutory basis. Section 13 of the Civil Procedure Code provides that foreign judgments shall be conclusive as to any matter thereby directly adjudicated between the same parties or between parties under whom they or any of them claim litigating under the same title except: (a) where it has not been pronounced by a court of competent jurisdiction; (b) where it has not been given on the merits of the case; (c) where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognise the law of India in cases in which such law is applicable; (d) where the proceedings in which the judgment was obtained are opposed to natural justice; (e) where it has been obtained by fraud; and (f) where it sustains a claim founded on a breach of any law in force in India. Under the Civil Procedure Code, a court in India shall presume, upon the production of any document purporting to be a certified copy of a foreign judgment, that such judgment was pronounced by a court of competent jurisdiction, unless the contrary appears on the record; but such presumption may be displaced by proving want of jurisdiction. India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. However, Section 44A of the Civil Procedure Code provides that where a foreign judgment has been rendered by a superior court, within the meaning of that Section, in any country or territory outside India which the Government has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, Section 44A of the Civil Procedure Code is HK:

110 applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty and does not include arbitration awards. The United Kingdom, Singapore and Hong Kong, among others, have been declared by the Government of India to be reciprocating territories for the purposes of Section 44A of the Civil Procedure Code, but the United States has not been so declared. A judgment of a court of a country which is not a reciprocating territory may be enforced only by a fresh suit resulting in a judgment or order and not by proceedings in execution. Such a suit has to be filed in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. A judgment of a superior court of a country which is a reciprocating territory may be enforced by proceedings in execution, and a judgment not of a superior court, by a fresh suit resulting in a judgment or order. The latter suit has to be filed in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. Execution of a judgment or repatriation outside India of any amounts received is subject to the approval of the RBI, wherever required. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action were to be brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if that court was of the view that the amount of damages awarded was excessive or inconsistent with public policy, and is uncertain whether an Indian court would enforce foreign judgments that would contravene or violate Indian law. Public companies in India, including the Bank, will be required to prepare financial statements under Indian Accounting Standards (Ind-AS). The Bank has not determined with any degree of certainty the impact of such adoption on its financial reporting. The Bank s financial statements for the fiscal years ended 31 March 2016 and 2017 are prepared and presented in conformity with Indian GAAP. The Institute of Chartered Accountants of India has issued Ind-AS (a revised set of accounting standards) which converges with the Indian accounting standards with International Financial Reporting Standards. The Ministry of Corporate Affairs has confirmed the Ind-AS for adoption. The Ministry of Corporate Affairs, in its press release dated 18 January 2016, issued a roadmap for implementation of Ind-AS converged with IFRS for scheduled commercial banks, insurers, insurance companies and non-banking financial companies. This roadmap requires these institutions to prepare Ind-AS based financial statements for the accounting periods beginning from 1 April 2018 onwards with comparatives for the periods ending 31 March The RBI, by its circular dated 11 February 2016, requires all scheduled commercial banks to comply with Ind-AS for financial statements for the periods stated above. The RBI does not permit banks to adopt Ind-AS earlier than the above timeline and the guidelines also state that the RBI shall issue necessary instruction, guidance and clarification on the relevant aspects for implementation of the Ind-AS as and when required. While the Bank has been discussing, including with the RBI, the possible impact of Ind-AS on its financial reporting, the nature and extent of such impact is still uncertain. Further, the new accounting standards will change, among other things, the Bank s methodology for estimating allowances for expected loan losses and for classifying and valuing its investment portfolio and its revenue recognition policy. For estimation of expected loan losses, the new accounting standards may require the Bank to calculate the present value of the expected future cash flows realisable from its advances, including the possible liquidation of collateral (discounted at the loan s effective interest rate). This may result in the Bank recognising allowances for expected loan losses in the future which may be higher or lower than under current Indian GAAP. There can be no assurance, therefore, that the Bank s financial condition, results of operations, cash flows or changes in shareholders equity will not appear materially worse under Ind-AS than under Indian GAAP. In the Bank s transition to Ind- AS reporting, it may encounter difficulties in the ongoing process of implementing and enhancing its management information systems. Moreover, there is increasing competition for the small number of HK:

111 IFRS-experienced accounting personnel available as more Indian companies begin to prepare Ind-AS financial statements. Further, there is no significant body of established practice on which to draw in forming judgments regarding the new system s implementation and application. There can be no assurance that the Bank s adoption of Ind-AS will not adversely affect its reported results of operations or financial condition and any failure to successfully adopt Ind-AS could adversely affect its business, financial condition and results of operations. The Companies Act, 2013 has effected significant changes to the existing Indian company law framework, which may subject the Bank to higher compliance requirements and increase its compliance costs. A majority of the provisions and rules under the Companies Act, 2013 have recently been notified and have come into effect from the date of their respective notifications, resulting in the corresponding provisions of the Companies Act, 1956 ceasing to have effect. The Companies Act, 2013 has brought into effect significant changes to the Indian company law framework, such as in the provisions related to the issue of capital, disclosures, corporate governance norms, audit matters, and related party transactions. Further, the Companies Act, 2013 has also introduced additional requirements which do not have corresponding equivalents under the Companies Act, 1956, including the introduction of a provision allowing the initiation of class action suits in India against companies by shareholders or depositors, a restriction on investment by an Indian company through more than two layers of subsidiary investment companies (subject to certain permitted exceptions), and prohibitions on advances to directors. The Bank is also required to spend 2.00 per cent. of its average net profits during three immediately preceding fiscal years on corporate social responsibility activities. Further, the Companies Act, 2013 imposes greater monetary and other liability on Directors and officers in default for any non-compliance. To ensure compliance with the requirements of the Companies Act, 2013, the Bank may need to allocate additional resources, which may increase its regulatory compliance costs and divert management attention. The Bank may face challenges in anticipating the changes required by interpreting and complying with such provisions due to limited jurisprudence on them. In the event the Bank s interpretation of such provisions of the Companies Act, 2013 differs from, or contradicts with, any judicial pronouncements or clarifications issued by the Government in the future, the Bank may face regulatory actions or it may be required to undertake remedial steps. Additionally, some of the provisions of the Companies Act, 2013 overlap with other existing laws and regulations (such as the corporate governance norms and insider trading regulations). The Bank may face difficulties in complying with any such overlapping requirements. Further, the Bank cannot currently determine the impact of provisions of the Companies Act, 2013 which are yet to come in force. Any increase in the Bank s compliance requirements or in its compliance costs may have an adverse effect on its business and results of operations. The Bank s business and activities may be further regulated by the Competition Act and any adverse application or interpretation of the Competition Act could materially and adversely affect its business, financial condition and results of operations. The Competition Act seeks to prevent business practices that have or are likely to have an appreciable adverse effect on competition in India and has established the Competition Commission of India (the CCI). Under the Competition Act, any arrangement, understanding or action, whether formal or informal, which has or is likely to have an appreciable adverse effect on competition is void and attracts substantial penalties. Any agreement among competitors which, directly or indirectly, determines purchase or sale prices, results in bid rigging or collusive bidding, limits or controls the production, supply or distribution of goods and services, or shares the market or source of production or providing of services by way of allocation of geographical area or type of goods or services or number of customers in the relevant market or in any other similar way, is presumed to have an appreciable adverse effect on competition and shall be void. Further, the Competition Act prohibits HK:

112 the abuse of a dominant position by any enterprise. If it is proven that a breach of the Competition Act committed by a company took place with the consent or connivance or is attributable to any neglect on the part of any director, manager, secretary or other officer of such company, that person shall be guilty of the breach themselves and may be punished as an individual. If the Bank, or any of its employees, are penalised under the Competition Act, its business may be adversely affected. Further, the Competition Act also regulates combinations and requires approval of the CCI for effecting any acquisition of shares, voting rights, assets or control or mergers or amalgamations above the prescribed asset and turnover based thresholds. It is difficult to predict the impact of the Competition Act on the Bank s growth and expansion strategies in the future. If the Bank is affected, directly or indirectly, by the application or interpretation of any provision of the Competition Act or any enforcement proceedings initiated by the CCI or any adverse publicity that may be generated due to scrutiny or prosecution by the CCI, it may adversely affect the Bank s business, financial condition and results of operations. The proposed new taxation system in India could adversely affect the Bank s business and the trading price of the Notes. The Government has proposed two major reforms in Indian tax laws, namely the goods and services tax, and provisions relating to the General Anti-Avoidance Rule (the GAAR). The goods and service tax is implemented from 1 July 2017 and replaced the indirect taxes on goods and services such as central excise duty, service tax, central sales tax, state VAT and surcharge currently being collected by the central and state governments. The GST is expected to increase tax incidence and administrative compliance for Banks. As regards GAAR, the provisions have been introduced in the Finance Act, 2012 to come into effect from 1 April The GAAR provisions intend to catch arrangements declared as impermissible avoidance arrangements, which is any arrangement, the main purpose or one of the main purposes of which is to obtain a tax benefit and which satisfy at least one of the following tests: (i) creates rights or obligations which are not ordinarily created between persons dealing at arm s length; (ii) results, directly or indirectly, in misuse, or abuse, of the provisions of the Income Tax Act, 1961; (iii) lacks commercial substance or is deemed to lack commercial substance, in whole or in part; or (iv) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes. If GAAR provisions are invoked, then the tax authorities have wide powers, including denial of tax benefits or a benefit under a tax treaty. As the taxation system is intended to undergo significant overhaul, its consequent effects on the banking system cannot be determined at present and there can be no assurance that such effects would not adversely affect the Bank s business, future financial performance, lead to an increased tax outflow and the trading price of the Notes. Statistical, industry and external financial data in this Offering Circular may be incomplete or unreliable. The Bank has not independently verified data obtained from industry publications and other external industry sources referred to in this Offering Circular and, therefore, while it believes them to be true, it cannot assure you that they are complete or reliable. Such data may also be produced on different bases from those used in the industry publications the Bank has referenced. Discussions of matters, therefore, relating to India, its economy and the industries in which the Bank currently operates, are subject to the caveat that the statistical and other data upon which such discussions are based may be incomplete or unreliable. See Indian Financial Sector HK:

113 Risk Related to Notes There are certain restrictions under the Banking Regulation Act, 1949 (the Banking Regulation Act ) which may affect or restrict the rights of investors in the Notes. Under Sections 35A and 36 of the Banking Regulation Act (which apply to the Bank), RBI is empowered to give directions to the Bank, prohibit the Bank from entering into any transactions, and advise the Bank generally. Consequently, the performance of obligations by the Bank under the Programme Agreement, the Trust Deed, the Agency Agreement and the Notes may be restricted by the directions or advice given by RBI under the aforesaid provision. Under Section 50 of the Banking Regulation Act (which also applies to the Bank), no person shall have a right, whether in contract or otherwise, to any compensation for any loss incurred by reason of the operation of certain provisions of such Act, including Sections 35A and 36 of the Banking Regulation Act. Therefore, holders of the Notes may not be able to claim any compensation for a failure by the Bank to perform its obligations under the Programme Agreement, the Trust Deed, the Agency Agreement and the Notes, consequent to the operation of the aforesaid provisions. If the Bank is unable to make payments on the Notes from its IBU or other overseas branches and must make payments from India, including any additional amounts, it may experience delays in obtaining or be unable to obtain the necessary approvals from RBI. The IBU is required to maintain an LCR of 90 per cent. (effective from 1 January 2018 and at 100 per cent. Effective from 1 January 2019). However, if payment under the Notes is requested directly from the Bank in India (whether by reason of a lack of liquidity of its IBU, as applicable, acceleration, enforcement of a judgment or imposition of any restriction under the law of its IBU, as applicable), and payment thereunder, including any additional amounts, is to be made from India, approval from RBI will be required for the remittance of funds outside India. Any such approval is within the discretion of RBI and the Bank can provide no assurance that it would in fact be able to obtain such approval upon its request. In addition, there could be significant delays in obtaining RBI approval. In the event that no approvals are obtained or obtainable for the payment by the Bank of amounts owed and payable by its IBU through remittances from India, it may have to seek other mechanisms permitted under applicable laws to effect payment of amounts due under the Notes. However, the Bank cannot assure you that other remittance mechanics permitted by applicable law will be available in the future, and even if they are available in the future, the Bank cannot assure you that the payments due under the Notes would be possible through such mechanisms. If the Bank does not satisfy its obligations under the Notes, Noteholders remedies will be limited. Payment of principal due under the Notes may be accelerated only in the event of certain events involving the Bank s bankruptcy, winding up or dissolution or similar events or otherwise if certain conditions have been satisfied. See Terms and Conditions of the Notes Events of Default and Enforcement. The book-entry registration system of the Notes may reduce the liquidity of any secondary market for the Notes and may limit the receipt of payments by the beneficial owners of the Notes. Because transfers of interests in the global notes can be effected only through book entries at Clearstream, Luxembourg and Euroclear, for the accounts of their respective participants, the liquidity of any secondary market for global notes may be reduced to the extent that some investors are unwilling to hold Notes in book-entry form in the name of a Clearstream or Euroclear participant. The ability to pledge interests in the global notes may be limited due to the lack of a physical certificate. Beneficial owners of global notes may, in certain cases, experience delay in the receipt of payments of principal and interest since such payments will be forwarded by the paying agent to Clearstream or Euroclear, who will then forward payment to their respective participants, who (if not themselves the HK:

114 beneficial owners) will thereafter forward payments to the beneficial owners of the interests in the global notes. In the event of the insolvency of Clearstream or Euroclear or any of their respective participants in whose name interests in the global notes are recorded, the ability of beneficial owners to obtain timely or ultimate payment of principal and interest on global notes may be impaired. Payments under the Notes may be subject to RBI guidelines regarding remittances of funds outside India. If the Bank is unable to make payments with respect to the Notes from the IBU or its overseas branches and instead makes payments from India, such payments shall be subject to RBI regulations governing the remittance of funds outside India. Any approval, if and when required, for the remittance of funds outside India is at the discretion of RBI and the Bank can give no assurance that it will be able to obtain such approvals. If the Bank substitutes the issuing office, branch or unit with another office, branch or unit, the interests of the Noteholders may be materially prejudiced as a result. The Bank may elect to substitute the Head Office, the IBU or its foreign branch, through which the Bank originally acted when the Notes were issued provided that certain conditions are met. See Terms and Conditions of the Notes Meetings of Noteholders, Modification, Waiver and Substitution. However, there is no assurance that the interests of the Noteholders may not be materially prejudiced as a result of the substitution. A substitution may in certain circumstances, among other things, have undesirable taxation consequences for the Noteholders. Notes may not be a suitable investment for all investors. Each potential investor in any Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: have sufficient knowledge and experience to make a meaningful evaluation of the relevant Notes, the merits and risks of investing in the relevant Notes and the information contained or incorporated by reference in this Offering Circular or any applicable supplement; have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the relevant Notes and the impact such investment will have on its overall investment portfolio; have sufficient financial resources and liquidity to bear all of the risks of an investment in the relevant notes, including where principal or interest is payable in one or more currencies, or where the currency for principal or interest payments is different from the potential investor s currency; understand thoroughly the terms of the relevant Notes and be familiar with the behaviour of any relevant indices and financial markets; and be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks. Some Notes are complex financial instruments and such instruments may be purchased as a way to reduce risk or enhance yield with an understood, measured, appropriate addition of risk to their overall portfolios. A potential investor should not invest in Notes which are complex financial instruments unless it has the expertise (either alone or with the help of a financial adviser) to evaluate how the Notes will perform under changing conditions, the resulting effects on the value of such HK:

115 Notes and the impact this investment will have on the potential investor s overall investment portfolio. The Notes may have limited liquidity. The Notes constitute a new issue of securities for which there is no existing market. Applications have been made to list the Notes on the SGX-ST, the ISM and the India INX. The offer and sale of the Notes is not conditional upon obtaining a listing of the Notes on the SGX-ST or the ISM or any other exchange. The Dealers are not obligated to make a market in the Notes issued under the Programme, and any market-making activity with respect to the Notes, if commenced, may be discontinued at any time without notice in their sole discretion. No assurance can be given as to the liquidity of, or the development and continuation of an active trading market for, the Notes. If an active trading market for the Notes does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected. If such a market were to develop, the Notes could trade at prices that may be higher or lower than the price at which the Notes are issued depending on many factors, including: prevailing interest rates; the Bank s results of operations and financial condition; political and economic developments in and affecting India; the market conditions for similar securities; and the financial condition and stability of the Indian financial sector. Noteholders rights to receive payments on the Notes are junior to certain tax and other liabilities preferred by law. The Notes will be subordinated to certain liabilities preferred by law such as claims of the Government on account of taxes, and certain liabilities incurred in the ordinary course of the Bank s trading or banking transactions. In particular, in the event of bankruptcy, liquidation or winding up, the Bank s assets will be available to pay obligations on the Notes only after all of those of its liabilities that rank senior to such Notes have been paid. In the event of bankruptcy, liquidation or winding up, there may not be sufficient assets remaining, after paying amounts relating to these proceedings, to pay amounts due on the Notes. The Notes are subject to transfer restrictions. The Notes will not be registered under the Securities Act or any state securities laws and may not be offered or sold within the United States and may be offered and sold only to certain persons in offshore transactions in reliance on Regulation S, or pursuant to another exemption from, or in another transaction not subject to, the registration requirements of the Securities Act and in accordance with applicable state securities laws. For a further discussion of the transfer restrictions applicable to the Notes, see Subscription and Sale. The Notes do not restrict the Bank s ability to incur additional debt, repurchase the Notes or to take other actions which could negatively impact holders of the Notes. The Bank is not restricted under the terms of the Notes from incurring additional debt, including secured debt, or from repurchasing the Notes. In addition, the covenants applicable to the Notes do HK:

116 not require the Bank to achieve or maintain any minimum financial results relating to its financial position or results of operations. The Bank s ability to recapitalise, incur additional debt and take other actions are not limited by the terms of the Notes and could have the effect of diminishing its ability to make payments on the Notes when due. Decisions may be made on behalf of all Noteholders that may be adverse to the interests of individual Noteholders. The Terms and Conditions of the Notes contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all Noteholders, including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority. The Terms and Conditions of the Notes also provide that the Trustee may, without the consent of Noteholders, agree to (i) any modification of, or to the waiver or authorisation of any breach or proposed breach of, any of the provisions of Notes or (ii) determine without the consent of the Noteholders that any Event of Default or Notification Event shall not be treated as such. U.S. Foreign Account Tax Compliance Act withholding may affect payments on the Notes. While the Notes are in global form and held within Euroclear Bank SA/NV or Clearstream Banking, S.A. (together the ICSDs), in all but the most remote circumstances, it is not expected that the new reporting regime and potential withholding tax imposed by sections 1471 to 1474 of the U.S. Internal Revenue Code of 1986 (FATCA) will affect the amount of any payment received by the ICSDs (see Taxation Foreign Account Tax Compliance Act ). However, FATCA may affect payments made to custodians or intermediaries in the subsequent payment chain leading to the ultimate investor if any such custodian or intermediary generally is unable to receive payments free of FATCA withholding. It also may affect payment to any ultimate investor that is a financial institution that is not entitled to receive payments free of withholding under FATCA, or an ultimate investor that fails to provide its broker (or other custodian or intermediary from which it receives payment) with any information, forms, other documentation or consents that may be necessary for the payments to be made free of FATCA withholding. Investors should choose the custodians or intermediaries with care (to ensure each is compliant with FATCA or other laws or agreements related to FATCA) and provide each custodian or intermediary with any information, forms, other documentation or consents that may be necessary for such custodian or intermediary to make a payment free of FATCA withholding. Investors should consult their own tax adviser to obtain a more detailed explanation of FATCA and how FATCA may affect them. The Bank's obligations under the Notes are discharged once it has made payments to, or to the order of, the ICSDs and The Bank has therefore no responsibility for any amount thereafter transmitted through the ICSDs and custodians or intermediaries. Further, foreign financial institutions in a jurisdiction which has entered into an intergovernmental agreement with the United States (an IGA) are generally not expected to be required to withhold under FATCA or an IGA (or any law implementing an IGA) from payments they make. Risks Related to the Structure of a Particular Issue of Notes A wide range of Notes may be issued under the Programme Agreement. A number of these Notes may have features which contain particular risks for potential investors. Set out below is a description of certain such features: Notes subject to optional redemption by the Bank An optional redemption feature is likely to limit the market value of Notes. During any period when the Bank may elect to redeem Notes, the market value of those Notes generally will not rise substantially above the price at which they can be redeemed. This also may be true prior to any HK:

117 redemption period. The Bank may be expected to redeem Notes when its cost of borrowing is lower than the interest rate on the Notes. At those times, an investor generally would not be able to reinvest the redemption proceeds at an effective interest rate as high as the interest rate on the Notes being redeemed and may only be able to do so at a significantly lower rate. Potential investors should consider reinvestment risk in light of other investments available at that time. Index Linked Notes and Dual Currency Notes The Bank may issue Notes with principal or interest determined by reference to an index or formula, to changes in the prices of securities or commodities, to movements in currency exchange rates or other factors (each, a Relevant Factor). In addition, the Bank may issue Notes with principal or interest payable in one or more currencies which may be different from the currency in which the Notes are denominated. Potential investors should be aware that: the market price of such Notes may be volatile; they may receive no interest; payment of principal or interest may occur at a different time or in a different currency than expected; the amount of principal payable at redemption may be less than the nominal amount of such Notes or even zero; a Relevant Factor may be subject to significant fluctuations that may not correlate with changes in interest rates, currencies or other indices; if a Relevant Factor is applied to Notes in conjunction with a multiplier greater than one or contains some other leverage factor, the effect of changes in the Relevant Factor on principal or interest payable likely will be magnified; and the timing of changes in a Relevant Factor may affect the actual yield to investors, even if the average level is consistent with their expectations. In general, the earlier the change in the Relevant Factor, the greater the effect on yield. Partly-paid Notes The Bank may issue Notes where the issue price is payable in more than one instalment. Failure to pay any subsequent instalment could result in an investor losing all of its investment. Variable rate Notes with a multiplier or other leverage factor Notes with variable interest rates can be volatile investments. If they are structured to include multipliers or other leverage factors, or caps or floors, or any combination of those features or other similar related features, their market values may be even more volatile than those for securities that do not include those features. Inverse Floating Rate Notes Inverse Floating Rate Notes have an interest rate equal to a fixed rate minus a rate based upon a reference rate such as LIBOR. The market values of such Notes typically are more volatile than market values of other conventional floating rate debt securities based on the same reference rate (and HK:

118 with otherwise comparable terms). Inverse floating Rate Notes are more volatile because an increase in the reference rate not only decreases the interest rate of the Notes, but may also reflect an increase in prevailing interest rates, which further adversely affects the market value of these Notes. Fixed/Floating Rate Notes Fixed/Floating Rate Notes may bear interest at a rate that the Bank may elect to convert from a fixed rate to a floating rate, or from a floating rate to a fixed rate. The Bank s ability to convert the interest rate will affect the secondary market and the market value of such Notes since the Bank may be expected to convert the rate when it is likely to produce a lower overall cost of borrowing. If the Bank converts from a fixed rate to a floating rate, the spread on the Fixed/Floating Rate Notes may be less favourable than then prevailing spreads on comparable Floating Rate Notes tied to the same reference rate. In addition, the new floating rate at any time may be lower than the rates on other Notes. If the Bank converts from a floating rate to a fixed rate, the fixed rate may be lower than then prevailing rates on its Notes. Notes issued at a substantial discount or premium The market values of securities issued at a substantial discount or premium to their nominal amount tend to fluctuate more in relation to general changes in interest rates than do prices for conventional interest-bearing securities. Generally, the longer the remaining term of the securities, the greater the price volatility as compared to conventional interest-bearing securities with comparable maturities. In addition, set out below is a brief description of certain risks relating to the certain provisions in the Terms and Conditions of the Notes: Change of law Except for Condition 2.2, the Terms and Conditions of the Notes are based on English law in effect as at the date of issue of the relevant Notes. No assurance can be given as to the impact of any possible judicial decision or change to English law or administrative practice after the date of issue of the relevant Notes. Integral multiples of less than the minimum Specified Denomination In relation to any issue of Notes which have a denomination consisting of the minimum Specified Denomination (for example, U.S.$200,000) plus a higher integral multiple of another smaller amount, it is possible that such Notes may be traded in amounts in excess of the minimum Specified Denomination that are not integral multiples of the minimum Specified Denomination (or its equivalent). In such a case a Noteholder who, as a result of trading such amounts, holds a principal amount of less than the minimum Specified Denomination will not receive a definitive Note in respect of such holding (should definitive Notes be printed) and would need to purchase a principal amount of Notes such that it holds an amount equal to one or more Specified Denominations. If definitive Notes are issued, holders should be aware that definitive Notes which have a denomination that is not an integral multiple of the minimum Specified Denomination may be illiquid and difficult to trade. Third Parties The Bank may be a party to contracts with a number of other third parties that have agreed to perform services in relation to the Notes. For example, the paying agent has agreed to provide payment and calculation services in connection with the Notes. In the event that any relevant third party fails to perform its obligations under the respective agreements to which it is a party, the Noteholders may be HK:

119 adversely affected. The Bank s obligation to pay additional amounts in respect of any withholding taxes is subject to limitations; the Bank will not be required to pay additional amounts with respect to U.S. or FATCA withholding taxes. The Bank s obligations to pay additional amounts in respect of any withholding taxes is subject to certain limitations described in Terms and Conditions of the Notes Taxation HK:

120 DESCRIPTION OF THE BANK Overview The Bank is a new generation private sector bank in India founded by Rana Kapoor and the late Ashok Kapur. The Bank was incorporated as a public limited company in November 2003 and obtained its certificate of commencement of business in In May 2004, it was granted a licence by the RBI under Section 22(1) of the Banking Regulation Act to commence banking operations in India. The Bank s presence covers all 29 states and 7 union territories. The Bank has been recognised in India, as well as globally, with certain awards and recognitions, such as World Class in the large organisation service category by the Asia Pacific Quality Organization in 2014, the IMC Ramakrishna Bajaj National Quality Award in the services category in 2014, the Best Mid-Sized Bank in the 21st edition of the Business Today KPMG India s Best Banks study, the Golden Peacock National Quality Award in 2016 under the category Financial Sector (Banking), Transaction Bank of the Year APAC and Global Winner Supply Chain Finance during the Transaction Banking Awards 2017, by The Banker, and the Best Trade Finance Bank in India by The Asian Banker for three consecutive years in 2015, 2016 and In October 2015, the Bank commenced operation of its IBU at GIFT City. The IBU at the International Financial Services Centre (IFSC) is, for most regulatory purposes, treated as a foreign branch. Further, the IBU will also allow the Bank to raise foreign currency funding through off-shore bond issuances and bilateral loans, among others. The Issuer provides a knowledge-based approach to banking that it believes adds value for its customers by allowing them to capitalise on its knowledge in specific business sectors as well as across products. The Issuer believes that this approach also strengthens its relationships with its customers, by allowing it to develop those existing relationships to cross-sell its full range of product and service offerings. The Bank s total assets have increased from Rs. 1,652, million as of 31 March 2016 to Rs. 2,373, million as of 30 September 2017 at a CAGR of per cent. The Bank s total deposits have grown from Rs. 1,117, million as of 31 March 2016 to Rs. 1,579, million as of 30 September 2017 at a CAGR of per cent. The Bank s CASA deposits increased from Rs. 313, million as of 31 March 2016 to Rs. 587, million as of 30 September 2017 at a CAGR of per cent. The Bank s advances have grown from Rs. 982, million as of 31 March 2016 to Rs. 1,486, million as of 30 September 2017 at a CAGR of per cent. The Bank s net profit increased from Rs. 25, million for the fiscal year 2016 to Rs. 33, million for the fiscal year 2017 at a CAGR of per cent. and its net profit increased from Rs. 15, million for the six months ended 30 September 2016 to Rs. 19, million for the six months ended 30 September 2017 at a CAGR of per cent. In addition, the Bank s number of branches has increased from 860 as of 31 March 2016 to 1,040 as of 30 September Competitive Strengths The Bank s competitive strengths include the following: Diverse revenue streams and strong execution capabilities The Issuer offers a wide range of products that generate both interest and non-interest income, and both sources of income have demonstrated sustained growth. The Issuer provides diversified solutions to the financial and banking needs of its customers, with a focus on cross-selling multiple products to them. The Issuer believes that its combination of diverse product offerings and a relationship-driven approach has enabled it to structure solutions to meet its customers needs, resulting in sustained HK:

121 revenue generation. Non-interest income has broadly grown in line with the growth in its total net income and accounted for per cent. and per cent. of its total net income for the fiscal years 2016 and 2017, respectively, and per cent. of its total net income for the six months ended 30 September The tables below present the Issuer s net interest income (which comprises of interest earned deducted by interest expended) and non-interest income and the corresponding growth for each of the periods indicated: Income 31 March 2016 Increase (1) 31 March 2017 Increase (1) Statement (in Rs. million, except percentages) Net interest income(a) 45, % 57, % Non-interest income (other income)(b) 27, % 41, % Total net income(a+b) 72, % 99, % (1) Year-on-year comparison Income Statement 30 September 2016 Increase (1) 30 September 2017 Increase (1) (in Rs. million, except percentages) Net interest 26, % 36, % income(a) Non-interest income 18, % 23, % (other income) (B) Total net income (A+B) 45, % 60, % (1) Six months ended 30 September 2017 compared with corresponding period in previous fiscal year The Bank believes that its execution capabilities are reflected in the growth of its business across its various business streams, including the increase in the proportion of its CASA and retail term deposits. Implementation of its growth strategies with risk management has resulted in a return on assets (which is calculated by dividing profit for the reporting period by the average of total assets as reported in form X to the RBI under section 27 of the Banking Regulation Act, 1949), of 1.78 per cent. and 1.81 per cent. for the years ended 31 March 2016 and 2017 and 1.81 per cent. (annualised) for the half year ended 30 September The Bank s net interest margin (the ratio of interest earned less interest expended to daily average interest-earning assets which include daily average balances of advances, investments, balances with the Bank s and money at call and short noticeand contribution made to Rural Infrastructure Development Fund (RIDF) by the Bank) has expanded from 3.36 per cent. in the fiscal year 2016 to 3.41 per cent. in the fiscal year 2017 and further to 3.65 per cent. in the six months ended 30 September Robust risk management practices and healthy asset quality The Bank believes that it has an independent risk management function covering enterprise risk management, credit risk, market risk and operational risk that contributes to preserving its asset quality among other risk objectives. The Bank s risk management function is overseen by the Risk Monitoring Committee, an independent board-level sub-committee that strives to put in place specific policies, frameworks and systems for effectively managing the various risks. These policies and procedures are constantly reviewed and updated. The Bank has a dedicated independent risk management department that comprises various units responsible for evaluating and underwriting credit; formulating independent ratings and reviewing monitoring and reporting of all risk control HK:

122 parameters, and recommending appropriate corrective actions where necessary; and ensuring compliance with internal policies and regulatory guidelines. The Bank believes that the success of its risk management systems is reflected in the level of its gross and net NPAs, which as of 30 September 2017 amounted to Rs. 27, million, or 1.82 per cent. of total gross advances, and Rs. 15, million, or 1.04 per cent. of its total net advances, respectively. In addition, the Bank s total outstanding standard restructured advances amounted to Rs. 1, million, or 0.08 per cent. of gross advances, as of 30 September Further, as part of the Risk Based Supervision (RBS) exercise for fiscal 2017 concluded in October 2017, the RBI has pointed out a certain retrospective divergence of Rs. 63,552.0 million in the Bank's asset classification and provisioning as on 31 March 2017 for NPAs. The net current impact of the aforementioned retrospective slippages due to divergence has been duly reflected in the results for the three months ended 30 June 2017 and six months ended 30 September 2017, respectively. Knowledge-based approach to banking enabling cross-selling The Bank utilises a knowledge-based approach to banking that it believes differentiates the Bank from its competitors and enables it to provide its customers with well-informed, customised and riskmitigated solutions. The Bank delivers sector-focused advice, products and services using teams of professionals with sector-specific knowledge, which the Bank believes has helped it to develop its corporate banking franchise. The Bank believes that this approach also solidifies its relationships with its customers, by allowing the Bank to develop those existing relationships to cross-sell its full range of product and service offerings. Technology infrastructure The Bank s information technology (IT) strategy is divided into two parts: the first being Run the Bank, which focuses on initiatives aimed at ensuring efficient and effective operations, and the second strategy entitled Build the Bank, which focuses on transformative technologies that could further enhance its business. For additional details on the Bank s IT achievements see Description of the Bank Information Technology. As a new generation bank unencumbered by legacy systems, the Bank has been able to invest in technology infrastructure and applications to enhance customer experience across all service delivery channels, including digital banking. For example, the Bank offers online payment solutions supported by a reliable internet security framework. Experienced and well-regarded leadership supported by high-quality personnel Prior to joining the Bank, certain members of its senior management held key positions at leading Indian private sector and foreign banks. For additional details see Management. The Bank also believes that its management is supported by well-trained and qualified staff. The Bank offers its employees career growth opportunities in an entrepreneurial environment, along with suitable training programmes. In recent years, the Bank has hired a number of experienced professionals from other private sector banks that have strengthened its retail banking team leadership. As a result of investment and commitment to its employees, the Bank believes it has good relationships with its workforce, which numbered more than 20,000 as of 30 September For further details, see Description of the Bank Human Resources HK:

123 Award-winning quality of service The Bank aims to regularly monitor current processes, benchmark them against its competitors and incorporate best practices. The Bank also seeks to disseminate knowledge across its workforce and to introduce robust mechanisms for process improvement. The process management function seeks to facilitate the ease of execution of transactions through the automation of manual processes, and is also responsible for ensuring the effectiveness of training for the Bank's employees. The Bank has been recognised as World Class organisation in the large service organization category by the Asia Pacific Quality Organization in The Bank has also won IMC Ramakrishna Bajaj National Quality Award 2013 in the service category. In 2017, the Bank was conferred Award for Active Customer Engagement for large business organisations in the service sector at the CII Customer Obsession Award. At the same event, the Bank was also recognised for leveraging digital transformation to deliver superior customer experience. The Bank has have also received Qimpro Qualtech Award 2016 for its efficiency in the lending process and Golden Peacock National Quality Award 2016 at the Institute of Directors World Congress on Leadership for Business Excellence & Innovation in Additionally, the Bank s internal functions have earned various ISO certifications as follows, demonstrating the Bank s commitment to quality and service excellence: 1) ISO Environment Management System 2) ISO Bank-wide Enterprise Risk Management System Framework 3) ISO Learning Services in Non-formal Education and Training 4) ISO Information Security Management System 5) ISO Quality Management System Business Strategy The Bank continuously evaluates its growth strategy, with the aim of expanding its operations, including the number of branches, ATMs, employees, deposit base, loan book and balance sheet. The objectives that form its near-to medium-term business strategies are described below: Liabilities generation The Bank is committed to increasing the volume of its CASA and granular term deposits. Key elements of this objective are the identification of current account corporate customers and offering them a range of customised products, including wealth products targeted at their owners, promoters and directors, salary accounts and cash management and liquidity management solutions. Other steps that the Bank has taken include: expanding its distribution network to provide better access to customers, evidenced by an increase in its number of branches from 860 as of 31 March 2016 to 1,040 as of 30 September 2017 and an increase in its number of ATMs (including Bunch Note Acceptors) from 1,609 as of 31 March 2016 to 1,823 as of 30 September 2017; HK:

124 offering a higher savings rate to customers, following the RBI s deregulation of savings bank deposits rates in October 2011, which has led to a significant improvement in its savings bank deposits balances and new account openings; offering targeted products such as 3-in-1 accounts, family accounts, salary accounts and specialised accounts for senior citizens and women with select privileges and relationship pricing on certain types of banking offerings; and leveraging digital channels with overlay of CRM and analytics to enhance productivity and servicing. Optimal risk management The Bank is actively focused on evaluating its enterprise, credit, market and operational risks and it intends to optimise its capital needs for growth to achieve high returns on capital while managing and mitigating risks appropriately. Sustainable and diversified revenue generation The Bank intends to increase its customer base in its Corporate Banking and Branch Banking segments through a focused customer relationship management approach. In order to develop its retail liabilities business, the Bank incorporated a brokerage subsidiary, YES Securities (India) Limited, in March The brokerage business complements the Bank s retail offering and wealth management proposition. The Bank has also launched a full suite of retail asset products, comprising car loans, commercial vehicle loans, inventory finance, personal loans, loans against securities, education loans, gold loans and construction equipment loans and tractor finance loans. Further, pursuant to the in-principle approval from SEBI, the Bank has incorporated YAMIL and YTL as wholly-owned subsidiaries. YAMIL will offer the services of an investment manager and YTL will act as a Trustee to YAMIL. The Bank is currently in the process of operationalising these new entities which, along with YES Securities, will allow the Bank to provide more holistic wealth management service in its private banking sector. The goal is to increase the amount of business the Bank does with its existing customers by building on the existing customer relationships and cross-selling its banking and advisory products. The Bank expects that these initiatives will further diversify its sources of revenue. Enhancing brand value The Bank has built its brand around six key values: trust, growth, knowledge-driven human capital, technology, transparency and responsible banking. The Bank intends to develop its brand further and focus on improving customer sentiment by engaging in various activities such as advertising across print media, radio, television and the internet, domestically and abroad. The Bank s marketing initiative abroad focuses on capturing market share from the NRI market. The Bank has been one of the co-sponsors of the Indian Premier League The Bank also rose 129 places to the world s 271st largest bank in The Banker 1000 Rankings in 2017 and rose 493 places to the World s 1,239th largest company in the Forbes Global 2000 List. Human capital management The Bank intends to continue hiring high-quality talent from leading financial institutions and business schools in India and to focus on retaining its employees by offering career growth opportunities in an entrepreneurial environment, along with suitable training programmes. For further details, see Description of the Bank Human Resources HK:

125 Effective cost management The Bank maintains a relatively low cost-to-income ratio compared to its peers in the Indian private banking sector. The Bank will continue to focus on effective cost management through the efficient use of resources, achieving economies of scale, continuous benchmarking of its rate contracts, evaluating various cost-effective solutions and implementing cost-effective technology solutions to increase productivity and eliminate costs. However, the Bank plans to continue investing in key strategic investment and expansion opportunities in retail assets and liabilities. Strengthening of systems, controls, processes and procedures The Bank intends to continue developing technology-based solutions in conjunction with robust processes and controls through centralised operations and investment in risk management. This is a key focus area in light of its growth plans and the potential challenges in achieving them. The Bank s Business Segments The Issuer has two separate business divisions organised by customer type and product offers. Each of these divisions is managed by dedicated relationship teams that focus on serving specific needs of the customer types under it. These two major divisions are: Corporate Banking, which focuses on large corporate clients; and Branch Banking, which focuses on MSME and Retail Banking. The table below provides the total amount of advances made by the Issuer s Corporate Banking and Branch Banking divisions as of 31 March 2016 and 2017 and as of 30 September As of 31 March As of 30 September (in Rs. million, except percentages) Advances % Advances % Advances % Corporate Banking 638, , ,002, Branch Banking 343, , , Medium Enterprises* Small and Miro Enterprises** 109, , , , , , Retail Banking 105, , , Total Advances 982, ,322, ,486, * Includes Comercial Business Banking HK:

126 ** Includes Emerging Business Banking and Small Business Banking Set out below is a description of each of the Issuer s two business divisions. Corporate Banking The Issuer s relationship teams in this division provide comprehensive financial and risk management solutions to corporates within a highly competitive market. The Issuer believes that, over time, its relationship teams have built long-term relationships with its clients by offering appropriate industryspecific products in a timely manner, developing a thorough understanding of clients business models and the market conditions they operate in, and by tracking developments in their industry. The Issuer s Corporate Banking advances increased from Rs. 638, million as of 31 March 2016 to Rs. 1,002, million as of 30 September 2017 at a CAGR of per cent. Currently, the Issuer enjoys strong relationships with customers in several sectors, including renewable energy, life sciences and healthcare, information technology, food and agribusiness, manufacturing, infrastructure, media and entertainment, hospitality and education. These companies vary from multinational corporates, Indian financial institutions, and government-owned entities. The Issuer has divided its Corporate Banking business into eight specialised and dedicated relationship units to deliver innovative, structured and comprehensive financial solutions through its specialised knowledgebanking approach. The eight dedicated corporate relationship segments include the following: Corporate Finance Infrastructure Banking: offers a combination of advisory services and customised products to assist clients in the infrastructure sector; Corporate Finance Urban Infrastructure Banking: provides diversified product offerings including structured finance, realty banking, project advisory and syndication and private equity to the realty, hospitality, healthcare and education sectors; Corporate Banking: caters to large corporates with annual revenue of over Rs billion; Emerging Corporates Banking: caters exclusively to the requirements of emerging corporates with annual revenue between Rs billion to Rs billion; Government Banking: caters to banking requirements of the Government, public sector undertakings and other government affiliates; International Banking: offers debt, trade finance, treasury services, investment banking solutions, financial advisory and global Indian banking to international customers; Multinational Corporate Banking: caters to the financial needs of multinational corporations that seek to increase their footprint in the Indian market; and Indian Financial Institution Banking: spearheads relationship development with various banks and financial institutions nationally. Branch banking The Issuer s Branch Banking division serves two key segments through its branch network, which are business banking (Business Banking) and retail banking (Retail Banking). Business Banking caters to the banking requirements of SMEs in identified sectors with annual revenue of up to Rs HK:

127 billion, while Retail Banking caters to the requirements of small businesses (including proprietorship/partnerships) and individual customers. The Issuer s Branch Banking advances increased from Rs. 343, million as of 31 March 2016 to Rs. 484, million as of 30 September 2017 at a CAGR of per cent. As of 30 September 2017, the Issuer s total number of branches was 1,040. A summary of the Issuer s branches as categorised by region and by the type of branch as of 30 September 2017 is set out below. As of 30 September 2017 As of 30 September 2017 Type of Branch Number of Branches (1) Region in India Number of Branches Metropolitan 325 North 409 Urban 232 South 126 Semi-urban 309 East 66 Rural 174 West 439 Total 1,040 Total 1,040 (1) Classification as on the date of the opening of branches at the respective locations. Business Banking The Issuer s Business Banking operation provides banking and advisory services to MSMEs in sectors such as infrastructure services, food and agribusiness, life sciences, logistics, education, traders, auto ancillary, electrical and electronic goods manufacturers and other engineering product manufacturers. The Business Banking operation comprises the following three business units based on factors such as revenue, sector and geography, among others: Commercial Business Banking: provides comprehensive banking solutions to medium-sized enterprises with annual revenue generally between Rs billion to Rs billion; Emerging Business Banking: caters to small enterprises with annual revenue generally between Rs billion to Rs billion; and Small Business Banking: focuses on loans to micro-enterprises. These groups offer a range of services, including fund-based lending (working capital and term financing), inventory financing, healthcare equipment financing, crop lending, cash management, collections and payment solutions, direct banking (phone and internet), trade and treasury services, advisory services and specialised credit underwriting. The Issuer believes that the success of its Branch Business Banking is due to the concentration of its branch network across significant SME clusters within India. Retail Banking The Issuer s Retail Banking operation serves the retail banking and wealth management needs of individual customers, including Indian residents and NRIs as well as small businesses. The Issuer believes that its Retail Banking operation delivers long-term value to its customers through effective relationship management, customised product solutions, premium touch points direct access, research, investment advisory and wealth management services. The Issuer offers a comprehensive retail product suite including secured business loans, cars loans, super bike loans, commercial vehicle loans, construction equipment loans, loans against securities, gold loans, personal loans, home loans and credit cards, among others. The Issuer s Retail Banking customers comprise the following three business units: HK:

128 YES Prosperity: provides value-added services to customers by offering them a combination of high-service standards and expertise in wealth management; YES First: offers a combination of high-service standards, expertise in wealth management, value-added services, concierge solutions and premium lifestyle privileges to high net worth individuals; and Global Indian Banking: provides customised service experience to NRIs, by offering a comprehensive suite of basic banking facilities, online remittances, differentiated wealth management and investments in alternate asset classes. The representative office in Abu Dhabi is part of the Issuer s Global Indian Banking product; see Description of the Bank International Footprint for additional details. In addition, in order to facilitate convenient, direct access and high quality service for its retail customers, the Issuer has created various direct access points that have been branded as YES TOUCH. These access points operate 24 hours a day, seven days a week. The following table sets out the number of branches and ATMs in the Issuer s network as of 31 March 2016 and 2017 and as of 30 September 2017, respectively. As of 31 March As of 30 September Branches 860 1,000 1,040 ATMs 1,609 1,785 1,823 International Footprint The Issuer began its international operations by establishing a representative office in Abu Dhabi, United Arab Emirates in April 2015 which has promoted its brand and visibility among NRIs in the region. In October 2015, the Issuer commenced operations of its IBU at GIFT City. The IBU at the IFSC is, for most regulatory purposes, treated as a foreign branch. Further, the IBU will also allow the Issuer to raise foreign currency funding through off-shore bond issuances and bilateral loans, among others. Product Capital Product capital is the Issuer s selection of various products and services that suit the needs of its customers which includes the following: Transaction Banking The Issuer s Transaction Banking product, YES Transact, has won several international awards and recognitions in the past. The Issuer was awarded Transaction Bank of the Year APAC and Global Winner Supply Chain Finance during Transaction Banking Awards 2017, by The Banker, the Best Trade Finance Bank in India by The Asian Banker for three consecutive years in 2015, 2016 and 2017 and the Global winner in Payments Category by The Banker magazine, London during The Banker Transaction Banking Awards Further, the Issuer s YES BANK Snapdeal application programming interface banking solution was awarded Best Corporate Payment Project in India during The Asian Banker Leadership Achievement Awards, 2016 held in Vietnam. The Issuer was also awarded the India Domestic Cash Management Bank of the Year and India Domestic Trade Finance Bank of the Year awards during the ABF Wholesale Banking Awards HK:

129 Transaction Banking comprises core banking offerings such as corporate current accounts, cash management services, capital markets, escrow services, trade finance and services, and bullion (gold and silver) trading. These services are provided under the YES Transact brand. The Transaction Banking team interacts with customers to understand, address and service their strategic, financial and operating needs in the following areas: working capital and liquidity management; treasury integration; exposure and risk management; inbound and outbound remittances; state of the art integration with client-end ERP system to provide seamless receivables and payables solutions; innovative technological solutions for process automation and for integration of customers and inter-bank systems; regulatory and international trade advisory; and bullion (gold and silver) purchase and gold on loan to fulfil working capital requirements. The Issuer has also started offering API banking services, which provides an instant banking facility for its corporate clients. Financial Markets Backed by experienced professionals, the Issuer offers a competitive and comprehensive line of financial market products and services. The Issuer provides effective risk management solutions relating to foreign currency and interest rate exposures faced by its corporate clients. The Issuer proactively assist clients by making them aware of the risks they face with respect to capital raising, investments, exports, imports and other market-related issues. The Issuer has a Debt Capital Markets team with knowledge of the underlying market dynamics, coupled with strong distribution and structuring capabilities. Since its inception, its Debt Capital Markets team has originated and efficiently executed numerous transactions, across the product line, for clients including corporates, PSUs, Government entities and NBFCs. The Issuer has also received the Primary Dealership Licence for underwriting and bidding of Government securities. The Issuer actively trades and distributes dated securities, treasury bills and Government bonds, which cover the sovereign debt product needs of its clients. The Issuer also engages in proprietary trading to maximise returns by investing in key fixed income, equities and global foreign exchange markets. In addition, the Issuer provides balance sheet management, liquidity management, maintenance of cash and statutory reserve requirements, day-to-day fund management and subordinated and hybrid debt capital solutions. Loan Syndications The Issuer has invested in establishing a strong loan syndication franchise over several years. Its Loan Syndication team has strong credit appraisal and structuring capabilities, deep sector-specific knowledge, and strong relationship management skills. The Loan Syndication team has syndicated HK:

130 several medium-and long-term projects and other term loans. The Issuer believes it has built strong brand equity with other banks, NBFCs and other financial institutions in this product category. Structured Credits Group An ongoing challenge faced by the Indian banking industry is a decline in asset quality. The Issuer has a team of qualified and experienced professionals specialising in distressed asset management. The Issuer provides effective solutions for distressed assets by leveraging its regulatory and legal understanding. The Issuer employs multi-pronged resolution strategies, which includes operational and financial restructuring, identifying strategic investors for the takeover of distressed assets, negotiating with borrowers for one-off settlement, recovering through the enforcement of security interest under the Securitisation Act 2002 and selling NPAs to asset reconstruction companies. YES Securities YES Securities (India) Limited (YSIL) is the Issuer s brokerage and investment banking subsidiary. YSIL is a well-integrated financial services firm offering a range of services, such as investment banking (including equity capital markets and sustainable investment banking), institutional sales and trading and equity research to the Bank s clients. The firm is a registered securities broker with SEBI and is also a member of NSE and BSE. The following are descriptions of YSIL s primary business functions: Investment Banking: provides advisory and capital-raising services to large and midmarket corporate and financial sponsor clients through key products such as mergers and acquisition advisory, private equity fund-raising and equity capital markets. The investment banking team offers expertise across a variety of sectors including food and agribusiness, media and entertainment, internet and e-commerce, consumer markets, infrastructure, banking, financial services and insurance, industrials and logistics. Sustainable Investment Banking: focuses on providing advisory services exclusively in the areas of clean technology, renewable energy, environmental services and education. Institutional Sales and Trading: caters to domestic institutional investors and foreign institutional investors. Equity Research: provides clients with research reports, to enhance portfolio performance and to minimise risk. The Equity Research team comprises experienced fundamental and technical research analysts covering companies across diverse sectors. YES Asset Management (India) Limited (YAMIL) and YES Trustee Limited (YTL) Pursuant to the in-principle approval from the SEBI, the Bank has incorporated YAMIL and YTL as wholly-owned subsidiaries. YAMIL will offer the services of an investment manager and YTL will act as a Trustee to YAMIL. The Bank is currently in the process of operationalising these new entities which, along with YES Securities, will allow the Bank to provide more holistic wealth management service in its private banking sector. Investments As of 31 March 2017, the Issuer s investments (net of provision) were Rs. 500, million and the average yield on investments (which is the amount of interest income, including dividend in case of HK:

131 equity investments, divided by the amount of average investments value) was 7.96 per cent. for the fiscal year The following table sets out details of the investments as of 31 March 2016 and 2017 and as of 30 September Investment Investments in India As of 31 March As of 30 September (in Rs.million, except percentages) Government securities 351, % 354, % 456, % Shares % 2, % 2, % Debentures and bonds 95, % 110, % 45, % Subsidiaries, joint ventures & other approved securities % % 1, % Others 40, % 30, % 25, % Total Investments in India 488, % 498, % 531, % Investments outside India Government securities % % Other investments - - 1, % 6, % Total Investments outside India - - 1, % 7, % Total Investments 488, % 500, , Funding Funding operations are designed to ensure the availability of liquidity to all its businesses, while minimising cost. The Issuer has also implemented a funds transfer pricing policy for efficient management of the sourcing and the application of funds. The Issuer raises funds through deposits (current, savings and time), domestic market borrowings and the issuance of certificates of deposit. The table below sets out details of the Issuer s deposits as of 31 March 2016 and 2017 and as of 30 September Deposit Type As of 31 March As of 30 September (in Rs. million, except percentages) Demand 109, % 190, % 197, % Savings 204, % 327, % 390, % Term 803, % 910, % 992, % Total 1,117, % 1,428, % 1,579, % The Issuer also has the ability to raise borrowings from overseas sources, as well as in the form of Innovative Perpetual Debt Instruments (IPDI) and Tier II capital through the issuance of subordinated bonds. The following table sets out details of the capital-raising amounts for the periods indicated. Year ended IPDI Tier II March 31, (in ` million) , , , , , , , , HK:

132 Year ended IPDI Tier II March 31, (in ` million) , , , , , , , Six Months ended 30 September , October , , The Issuer predominantly obtains current account balances from its Corporate Banking and Branch Banking customers, savings deposits from the balances maintained by its individual customers and certain types of non-individual customers like trusts and associations, among others, and time deposits from both individual and corporate customers. In addition, the Issuer borrows call money (overnight), notice money (2 to 14 days) and term money (14 to 365 days) from Indian financial market participants, including both domestic and foreign banks. For the fiscal year 2016, the Issuer issued 2,795,543 shares pursuant to the exercise of stock options, from which it received Rs million in net proceeds. During the fiscal year 2017, the Bank has issued 32,711,000 equity shares of face value of 10 each for cash in a qualified institutions placement (QIP) at a price of Rs. 1, per share aggregating Rs. 49, million. The Bank accreted Rs. 48, million (net of expenses of Rs million) from the QIP transaction. Operating Information Capital adequacy Indian banks have to comply with the regulatory limits and requirements as prescribed under the RBI Basel III Capital Regulations, on an ongoing basis, with full implementation of such regulations by 31 March For a description of the RBI s capital adequacy guidelines, see Supervision and Regulation Capital Adequacy Requirements. As of 30 September 2017, the Bank s capital adequacy ratio under the RBI Basel III Capital Regulations was per cent. Tier I capital adequacy ratio, Tier II capital adequacy ratio and CET I ratio stood at per cent., 4.62 per cent. and per cent, respectively. As of 31 March 2017, the Bank s capital adequacy ratio under the RBI Basel III Capital Regulations was per cent. Tier I capital adequacy ratio, Tier II capital adequacy ratio and CET I ratio stood at per cent., 3.71 per cent. and per cent, respectively. As of 31 March 2016, the Bank s capital adequacy ratio under the RBI Basel III Capital Regulations was per cent. Tier I capital adequacy ratio, Tier II capital adequacy ratio and CET I ratio stood at per cent., 5.75 per cent. and per cent, respectively.for further details regarding Basel III capital regulations, see Indian Financial Sector Developments in the Banking Sector rimplementation of the Basel III capital regulations. The following table sets out the capital adequacy ratios: Ratio As of 31 March As of 30 September (in Rs. million, except percentages) HK:

133 Common Equity Tier I 137, , , Additional Tier I capital 5, , , Tier I capital 142, , , Tier II capital 76, , , Total Capital 218, , , Credit Risk RWA 1,151, ,624, ,754, Market Risk RWA 95, , , Operational Risk RWA 83, , , Total RWA 1,329, ,863, ,001, Common Equity Capital Adequacy Ratio (%) Capital Adequacy Ratio Tier I capital (%) Capital Adequacy Ratio Tier II capital (%) Total Capital Adequacy Ratio (%) Asset Quality and Composition Loan portfolio The RBI s exposure limit for a single borrower is per cent. of total capital and for a group of borrowers is per cent. of total capital for domestic operations. Further, in the case of financing for infrastructure projects, the exposure limit may be extended to per cent. and per cent. of total capital for a single borrower and a group of borrowers, respectively. Total capital comprises Tier I and Tier II capital for determining capital adequacy. However, the single borrower exposure limit is conservatively linked to the rating profile of the borrower. Limits for the Bank s exposure in IBU are consistent with the RBI guidelines. The following table sets out the Bank s total outstanding exposure by industry, including advances, investments, guarantees, acceptances, endorsements and other obligations, as of 30 September Industry Exposure (in Rs. million) (%) All Engineering 67, % Basic Metal and Metal Products 110, % Beverages (excluding Tea and Coffee) and Tobacco 11, % Cement and Cement Products 40, % Chemicals and Chemical Products (Dyes, Paints etc.) 85, % Construction 171, % Food Processing 62, % Gems and Jewellery 50, % Glass and Glassware 1, % Infrastructure 406, % Leather and Leather Products % Mining and Quarrying 13, % Other Industries 819, % Paper and Paper Products 6, % Petroleum (non-infra), Coal Products (non-mining) and Nuclear Fuels 41, % Residuary other advances 675, % Rubber, Plastic and their Products 19, % Textiles 28, % Vehicles, Vehicle Parts and Transport Equipment 63, % Wood and Wood Products 2, % Grand Total 2,679, % Priority sector lending Commercial banks in India are required by the RBI to lend, through advances or investments, per cent. of their ANBC or credit equivalent amount of off-balance sheet exposures, whichever is HK:

134 higher, to specified sectors known as priority sectors, subject to certain exemptions permitted by RBI from time to time. Priority sector advances include advances to the agriculture sector, micro and small enterprises, vulnerable groups of society, housing and education finance. Any shortfall in the amount required to be lent to the priority sectors may be required to be deposited with the Rural Infrastructure Development Fund established by NABARD or funds with other financial institutions as specified by the RBI. In addition, the Government of India through the notification dated 4 February 2016 has specified Dealing in Priority Sector Lending Certificates (PSLCs) in accordance with the Guidelines issued by Reserve Bank of India as a form of business under Section 6 (1)(o) of the Banking Regulation Act, The RBI through the circular FIDD.CO.Plan.BC.23/ / allows the Bank to purchase PSLCs instruments to achieve priority sector lending targets and sub targets in the event of shortfall. The following table sets out a breakdown of the Bank s priority sector lending (advances) for the periods indicated. As of 31 March As of 30 September, (1) Advances % of total Advances % of total Advances % of total (in Rs. million, except percentages) Agricultural advances (1) 139, % 129, % 167, % Micro and Small Enterprises (2) (3) 147, , % 49.98% 177, % Other priority sector (4) 33, % 49, % 54, % Total priority sector 320, , , % (1) Includes deposits with NABARD and PSLCs purchased in relation to credit extended to small and marginal farmers. (2) Include deposits with SIDBI and the Micro Units Development and Refinance Agency Limited. (3) Pertains to SME business of the Bank. (4) Other priority sectors include deposits with NHB. Non-performing assets and provisioning As of 30 September 2017, gross NPAs amounted to Rs. 27, million, or 1.82 per cent. of the gross advances, and net NPAs amounted to Rs. 15, million, or 1.04 per cent. of the net advances. The Bank maintained provisions of per cent. of gross NPAs as of 30 September In addition, the total outstanding standard restructured advances amounted to Rs. 1, million, or 0.08 per cent. of gross advances, as of 30 September The Bank had non-performing investments of Rs million as of 30 September 2017, with provisions of Rs million as of the same date. Sector-wide Non-Performing Advances The following table set out the gross NPAs and corresponding provisions in each sector as of 31 March 2016 and As of March 31 As of September Gross NPAs Gross NPAs Gross NPAs (in Rs. million) Priority Sector Agriculture and Allied activities 2, , Industry Services HK:

135 As of March 31 As of September Gross NPAs Gross NPAs Gross NPAs (in Rs. million) Personal Loans Others Sub-Total (A) 2, , Non Priority Sector Agriculture and Allied activities Industry , Services 4, , Personal Loans Others Sub-Total (B) 4, , , Total (A+B) 7, , , Service and Technology Processes The Bank believes that its back-end operations and technology infrastructure are critical to ensuring that it delivers effective customer service and seamless operations. These critical back-end functions include key business functions such as quality assurance, technology solutions, risk management, internal audit and human capital. Business processes The Bank incorporates sustainable practices into its business processes to achieve added efficiencies and generate long-term growth. The Bank believes that this ensures an effective maintenance mechanism through ongoing feedback as well as resolution of complaints raised by employees and customers. Ongoing business processes initiatives that it is implementing include: two national operating centres (NOCs) based in Mumbai and Gurgaon established with a focus on providing an immediate response to customer requests and to provide business continuity planning. The NOCs house the centralised back-office functions of various businesses including the YES TOUCH Contact Centre, which is located at the NOC in Gurgaon; the establishment of the largest operations management and services delivery facility in Ambattur, Chennai; adhering to business excellence frameworks and quality practices such as the ISO 9001:2008 Standard; ensuring its business continuity management system is certified under ISO 22301; ensuring its information security management systems are certified under ISO 27001; evaluating all critical-to-quality parameters, including an end-to-end review/analysis of all critical business processes; HK:

136 putting in place a framework for the measurement of customer experience, including customer complaint registers, customer satisfaction surveys, telephone surveys and employee feedback and ensuring customer feedback is collected, analysed and acted upon in a timely and consistent manner; digitising transaction processing to enable paperless transactions; and leveraging social media as a new channel for customer service to address questions and complaints, receive feedback, share relevant content about products and services and build its brand. Quality Assurance The Bank endeavours to provide a consistent and superior banking experience to its customers. The Bank believes in adopting a focused, knowledge-based approach to establish long-term partnerships, thereby enabling it to create and share value that extends beyond the traditional realm of banking. The Bank strives to ingrain a culture of continuous improvement across all its departments. The Bank utilises the Voice of Customer process, a process used to capture feedback from customers. The Bank also uses branch service committee meetings, transactional turnaround time and customer satisfaction surveys to complement the Voice of Customer process. Service metrics for assessing its customer service are monitored and analysed. Certain operations of the Bank s branch banking business and of its NOCs located at Mumbai and Gurgaon have been certified as complaint with ISO 9001:2008. The Bank s other ISO standards include ISO (Information Security Management) and ISO (Business Continuity Management System). Information Technology As a new generation bank, it has deployed technology that the Bank believes will help it gain a competitive advantage over its competitors and achieve high standards of customer service. The Bank s IT strategy is divided into two parts, the first being Run the Bank, which focuses on initiatives aimed at ensuring efficient and effective operations and the second being Build the Bank, which focuses on transformative technologies that could further enhance its business. An example of the Run the Bank strategy includes, the launch of Deliverable Management Solution, a programme the Bank developed in-house, that helps automate the tracking and reporting of various physical deliverables across its multiple business units. An example of the Build the Bank strategy was the implementation of API banking, which enabled the launch of the Bank s digital wallet, YES PAY, a simple user-friendly mobile application that allows users across India to pay for a wide range of services. The Bank undertook several IT and digital initiatives that are expected to contribute to its business in the near future. These initiatives include upgrading its core banking system to ensure that the information technology infrastructure can meet the growing demand. The Bank has also launched YES Mobile 2.0 application, which is enabled with BharatQR, to enable payments at merchant locations by scanning QR code. Further, the Bank s strong focus on merchant use cases has resulted in accelerated growth in momentum in digital payments and increasing market share in India s Digital ecosystem. For example, the Bank has per cent. market share in UPI merchant payment and IMPS transactions in India, which grew exponentially by per cent. year on year from September 2016 (1.44 million transactions) to September 2017 (6.27 million transactions). The Bank s BHIM YES PAY HK:

137 application is now powered with India Stack Application Program Interface and National Payments Corporation of India. The Bank also has technology-enabled services such as Bharat Bill Payment System, Bharat Interface for Money, RuPay card, Immediate Payment Service, Unified Payment Interface and Aadhaar Know Your Customer. The Bank is leveraging technology and digitisation to enhance customer experience and deepen engagement while increasing productivity and efficiency. For example, the Bank has launched M-Bot for its analysis on acquisition of consumer retail asset using property algorithm. The Bank also has launched RuPay Classic Kisan debit card for disbursement of agricultural loans for farmer segment. The Bank has received many awards in recent years for its innovations, such as Banking Frontiers Finnoviti 2016 awards for its API banking platform and its Bank in a box concept. Responsible Banking The Responsible Banking team focuses on providing banking services to untapped markets and underserved sections of society, and provides services underpinned by a focus on sustainability and socially responsible banking initiatives for marginalised communities. These services include positive impact financing such as climate finance, inclusive banking, nurturing talent, social outcome-based initiatives, contribution to national goals of inclusivity, skill development and participating in the global public discourse on sustainable development. The Bank continues to be a member of the World Business Council for Sustainable Development, and the Integrated Reporting Lab India, a collaborative effort between the CII ITC Centre of Excellence for Sustainable Development and the International Integrated Reporting Council to advance the adoption of integrated reporting by Indian companies. The Bank is also the only one to be featured in the U.N. Secretary General s Climate Finance report, which was launched at the Climate Finance Ministerial Meeting held in October Further the Bank s MSCI ESG (Environmental, Social and Governance) rating is AA. As a result of its efforts in these areas, the Bank received the Best Innovation and Sustainable Financial Products & Services Award at Karlsruhe Sustainable Finance Award in 2017 and has been included in FTSE4 Good Emergying Index in June The Bank has also continued to be the first and only Indian Bank to be listed on DJSI-Emerging Markets Index for three consecutive years from 2015 to The Bank is also included in FTSE4Good Emerging Index in June Internal Audit The internal audit department performs independent and objective assessments of all business groups and other functions, to monitor adequate implementation of, effectiveness of and adherence to the internal controls, processes and procedures instituted by management. The Bank has adopted a riskbased approach to its internal audit. The primary focus of the audit is on key risk areas, which are of importance to the Bank. The approach has been structured to comply with the RBI s guidelines and international best practices. The internal audit department reports to the Managing Director and Chief Executive Officer for regular activities and to the Audit Committee for audit planning and reporting. In addition, the Bank subjects its operations to a concurrent audit by independent, third-party audit firms to complement its internal audits. The concurrent audit covers core activities such as credit portfolio, treasury operations, operations and branches. All audit reports are circulated to the relevant management teams and the Audit Committee of the Board. Compliance HK:

138 The Bank has a dedicated compliance department that is tasked with ensuring regulatory compliance across all its businesses and operations. The key functions of this department include the dissemination of key regulatory updates affecting the various businesses, the review of new products and processes from a regulatory compliance perspective, providing guidance on compliance-related matters, and providing training to employees on compliance-related aspects of its business. The Bank has also put in place KYC and AML policies approved by its board of directors in accordance with applicable RBI guidelines. The Bank has been rated among the top three by the Banking Codes and Standards Board of India (BCSBI) for compliance with the BCSBI s objectives to set minimum standards, promote good banking practices, achieve higher operating standards, increase transparency and promote a cordial banker-customer relationship. Human Resources The Bank has implemented initiatives such as executive engagement, improving workplace health, wellness and promoting learning and development. As a result of its investment and commitment to its employees, the Bank believes it has good relationships with its workforce, which numbered more than 20,000 as of 30 September At the executive levels, professional entrepreneurship is the cornerstone of the Bank s human capital philosophy, which it believes encourages executives to take ownership and responsibility. To further foster the ethos of owner-partner-manager, two stock option schemes have been implemented: Joining stock option plan: stock options are awarded to key executives at the time of joining, of which per cent. of the stock options granted vest after 36 months from the date of grant and the remaining per cent. after 60 months. Performance stock option plan: stock options are selectively awarded to top-performing executives, of which per cent. of options granted vest after 36 months from the date of grant, per cent. after 48 months and the remaining per cent. after 60 months. The Bank is committed to increasing the value of its human resources by offering its employees growth and educational opportunities. The Bank has received various recognitions for its commitment to its employees including from the World HRD Congress in the category Dream Companies to Work For Private Banks, 1st Best Employer of the Year and Best Employer Brand of the Year (Banking Sector) in the 10th Employer Branding Awards. Competition The Bank faces competition in all the principal lines of its business. The Bank s primary competitors are some of the public sector banks, private sector banks, foreign banks, cooperative banks and, for some products, NBFCs, mutual funds, insurance companies and investment banks. The Bank believes that its principal competitive advantage over its competitors is due to its knowledge-focused approach, application of technology and selective outsourcing and the quality of its human resources. The Bank evaluates its competitive position separately along its business lines. The RBI has liberalised its licensing regime and intends to issue licences on an ongoing basis, subject to the RBI s qualification criteria. In September 2015, the RBI issued licences to two new private sector banks, 11 payment banks and ten small finance banks. In August 2016, the RBI also issued guidelines with respect to a continuous licensing policy for universal banks. The expansion of existing competitors or the entry of new players could increase competition HK:

139 The principal competitors for Corporate Banking customers, including the emerging corporate banking (ECB) customers, are public sector banks, private sector banks, foreign banks and financial institutions. The large public sector banks have traditionally been market leaders in both these segments, though new private sector banks also compete in the corporate banking market on the basis of efficiency, service delivery and technology. Foreign banks have generally served the needs of multinational companies and larger Indian corporations. The Bank believes its top managementfocused relationship approach together with its technological edge and the One Bank model has kept it competitive. For its ECB customers, as well as its Business Banking customers, the Bank believes its emphasis on quality service and a knowledge-focused banking approach has helped it compete effectively in the market. As per capita income levels continue to increase, the Bank expects continued growth in retail lending, which will create opportunities for newer banks like itself. However, the Bank faces competition from private sector banks, foreign banks, public sector banks and NBFCs in this segment. The Bank believes that its customer service focus, use of technology to provide a customer-friendly banking experience, product and service offerings, and competitive interest rates will help it continue to remain competitive within an increasingly competitive landscape. Mutual funds are another source of competition. Mutual funds offer tax advantages, have the capacity to earn competitive returns and have increasingly become a viable alternative to bank deposits. In mutual fund sales and other investment-related products, the Bank s principal competitors are brokerage houses, foreign banks and private sector banks. It competes with banks, brokers, corporate agents, financial consultants and advisers with respect to sales of life and non-life insurance products. The Bank believes that its commitment to knowledge capital gives it a competitive edge in advisory and planning-related products and services. Subsidiary As of 31 March 2017, the Bank has one subsidiary, YES Securities (India) Limited, whose registered address is Indiabulls Finance Centre, Tower II, 19th Floor, Senapati Bapat Marg, Elphinstone Road, Mumbai , engaged in the business of investment banking, institutional sales and trading and equity research. Pursuant to the in-principle approval from SEBI, the Bank has incorporated YAMIL and YTL as wholly-owned subsidiaries. YAMIL will offer the services of an investment manager and YTL will act as a Trustee to YAMIL. The Bank is currently in the process of operationalising these new entities which, along with YES Securities, will allow the Bank to provide more holistic wealth management service in its private banking sector. Branches As of 30 September 2017, the Bank has a network of 1,040 branches and 1,823 ATMs. The table below sets out a summary of the branches by state: State Number of branches Andaman and Nicobar Islands 1 Andhra Pradesh 16 Arunachal Pradesh 1 Assam 11 Bihar 3 Chandigarh 11 Chattisgarh 6 Dadra and Nagar Haveli 1 Daman and Diu 1 Delhi 94 Goa HK:

140 State Number of branches Gujarat 82 Haryana 121 Himachal Pradesh 9 Jammu and Kashmir 7 Jharkhand 5 Karnataka 67 Kerala 15 Lakshadweep 1 Madhya Pradesh 56 Maharashtra 177 Manipur 1 Meghalaya 1 Mizoram 1 Nagaland 1 Odisha 6 Puducherry 1 Punjab 93 Rajasthan 96 Sikkim 1 Tamil Nadu 34 Telangana 17 Tripura 1 Uttar Pradesh 57 Uttarakhand 11 West Bengal 26 Total 1,040 Properties The Bank s registered and corporate office is located at Nehru Centre, 9th Floor, Discovery of India Building, Dr. Annie Besant Road, Worli, Mumbai , India. As of 30 September 2017, all its NOCs, 1,040 branches and its corporate office are under lease. Also, all 1,823 of its ATM locations are under lease. Insurance The Bank maintains ongoing insurance policies in respect of its premises, office automation, furniture and fixtures, electronic equipment, employee fidelity, cash in premises, cash in transit, public liability and other valuables and documents. These assets are insured against burglary, theft and fire. The Bank also maintains director and officer liability insurance and stock broker indemnity insurance as well as insurance policies for its employees including group term insurance, group medical claim policies and group personal accident policies. The Bank believes that it maintains all material insurance policies commonly required for a bank in India. Intellectual Property The Bank is the registered proprietor of the trademark YES BANK and various other trademarks. The Bank is also the owner of copyright in the artistic work in the YES BANK logo, which has been duly registered with the Registrar of Copyrights HK:

141 DESCRIPTION OF THE BANK S ASSETS AND LIABILITIES Overview The total assets of the Bank increased from Rs. 1, billion as of 31 March 2016 to Rs. 2, billion as of 31 March 2017, an increase of per cent. During fiscal year ended 31 March 2017, the Bank s advances increased by per cent. from Rs billion as of 31 March 2016 to Rs. 1, billion as of 31 March 2017 and investments increased by 2.44 per cent. from Rs billion as of 31 March 2016 to Rs billion as of 31 March As of 30 September 2017, the Bank s total assets amounted to Rs billion, loan portfolio amounted to Rs. 1, billion and investments amounted to Rs billion. The following table sets out the assets of the Bank as at the dates indicated below. Assets As of 31 March (Rs. in million) As of 30 September 2017 Cash and balance with the RBI... 57, , , Balances with banks and money at 24, , , call and short notice... Investments , , , Advances , ,322, ,486, Fixed assets... 4, , , Other assets... 95, , , Total assets... 1,652, ,150, ,373, The following table sets out the advances of the Bank as at the dates indicated below. As of 31 March As of 30 September (Rs. in million) Bills purchased and discounted... 13, , , Cash credits, overdrafts and loans payable on demand , , , Term loans , ,021, ,174, Sub-total , ,322, ,486, Secured by tangible assets , , ,123, Covered by bank/government guarantees... 3, , , Unsecured (1) , , , Sub-total , ,322, ,486, Advances in India Priority sector , , , Public sector , Banks... 2, , , Others , , ,112, Sub-total , ,262, ,406, Advances outside India (2) Due from banks , Due from others: Bills purchased and discounted Syndicated loans , , Others Sub-total , , Grand total , ,322, ,486, HK:

142 (1) Includes advances of Rs. 194, million for 31 March 2017 and Rs. 131, million for 31 March 2016 for which security documentation is either being obtained or being registered. (2) For fiscal year ending 31 March 2016, advances pertaining to the Bank s IBU amounting to Rs. 14, million have been reported as advances in India. Loan Portfolio The Bank aims to have a diversified loan portfolio and to limit its exposure to particular sectors or borrowers. The Bank monitors the concentration of exposures to individual industries as a proportion of funded exposures. Funded exposures consist of loans and advances including lending, margins and investments (excluding investments in government securities). The table below sets out the Bank s loan portfolio as at the dates indicated below. As of 31 March As of September 2017 (Rs. in million) Gross advances (A) , ,332, ,498, Specific loan loss provision (1) (B) 4, , , Net advances (A) (B) , ,322, ,486, (1) Refers to provision for non-performing advances. The table below sets out the Bank s industry concentration of advances as at the dates indicated. As of 31 March Industry As of 30 September 2017 Rs. in million Rs. in million Percentages Electronics 10, , , % Others (All Engg) 10, , , % Iron & Steel 12, , , % Other Metal & Metal Products 10, , , % Beverages (excluding Tea & Coffee) & Tobacco 4, , , % Cement & Cement Products 11, , , % Drugs & Pharmaceuticals 16, , , % Fertilisers 14, , , % Others (Chemical & Chemical Products) 6, , , % Petro-chemicals (excluding under Infrastructure) 1, , , % Construction 30, , , % Coffee 7, , , % Edible Oils & Vanaspati 2, , , % Others (Food Processing) 25, , , % Sugar 2, , , % Tea 1, , , % Gems & Jewellery 26, , , % Glass & Glassware 1, , % Airports 1, , , % Electricity (generationtransmission & distribution) 80, , , % Oil/Gas/Liquefied Natural Gas (LNG) storage facility % Oil (storage & pipeline) % Railways , % Roadways 12, , , % HK:

143 As of 31 March Industry As of 30 September 2017 Rs. in million Rs. in million Percentages Social & Commercial Infrastructure 31, , , % Telecommunication 10, , % Water Sanitation 1, % Shipyard , , % Gas Pipelines % Waterways 3, , , % Inland Waterways % Leather & Leather Products % Coal (Mining & Quarrying) 1, , , % Others (Mining & Quarrying) % Other Industries 449, , , % Paper & Paper Products 9, , , % Coal Products (non-mining) 4, , , % Petroleum (non-infra) & Nuclear Fuels 27, , , % Aviation , , % Residuary other advances 109, , , % Plastics & Plastic Products 2, , , % Rubber & Rubber Products % Cotton 1, , , % Jute % Other Textiles 8, , , % Silk % Woolen % Vehicles, Vehicle Parts & Transport Equipments 24, , , % Wood & Wood Products 1, , , % Total , ,322, ,486, % Pursuant to the guidelines of the RBI, the Bank s exposure to individual borrowers is limited to per cent. of its capital funds (Tier I and Tier II capital), and the Bank s exposure to a group of companies under the same management is limited to per cent. of its capital funds. In the case of infrastructure projects, such as power, telecommunications, road and port projects, an additional exposure of up to 5.00 per cent. of capital funds is allowed in respect of individual borrowers and up to per cent. in respect of group borrowers. The Bank may, in exceptional circumstances, with the approval of its board of directors, consider enhancement of exposure to a borrower by a further 5.00 per cent. of capital funds. The largest single borrower of the Bank as of 30 September 2017 accounted for per cent. of the Bank s capital fund. As at the same date, the ten largest individual borrowers accounted for per cent. of the Bank s capital fund (Tier I and Tier II capital as defined by the RBI) HK:

144 Directed Lending Commercial banks in India are required by the RBI to lend, through advances or investments, per cent. of their ANBC or credit equivalent amount of off-balance sheet exposures, whichever is higher, to specified sectors known as priority sectors, subject to certain exemptions permitted by the RBI from time to time. Priority sector advances include advances to the agriculture sector, micro and small enterprises, vulnerable groups of society, housing and the education finance sector. Any shortfall in the amount required to be lent to the priority sectors may be required to be deposited with the Rural Infrastructure Development Fund established by National Bank for Agriculture and Rural Development (NABARD) or funds with other financial institutions as specified by the RBI. In addition, the Government of India through the notification dated 4 February 2016 has specified Dealing in Priority Sector Lending Certificates (PSLCs) in accordance with the Guidelines issued by Reserve Bank of India as a form of business under Section 6 (1)(o) of the Banking Regulation Act, The RBI through the circular FIDD.CO.Plan.BC.23/ / allows banks to purchase PSLCs instruments to achieve priority sector lending targets and sub-targets in the event of shortfall. The following table sets forth, for the periods indicated, the Bank s directed lending broken down by sector: For the year ended 31 March (Rs. in million) Directed lending: Agriculture (1) , , Micro and Small Enterprises (2) (3) , , Other priority sectors (4)... 33, , Total directed lending , , (1) Includes deposits with NABARD and Rs. 22, million of PSLCs purchased in relation to credit extended to small and marginal farmers. (2) Includes deposits with SIDBI and the Micro Units Development and Refinance Agency Limited. (3) Pertains to SME business of the Bank. (4) Includes deposits with National Housing Bank. Non-Performing Assets Recognition of Non-Performing Assets The RBI has issued guidelines on income recognition, asset classification, provisioning standards and the valuation of investments applicable to banks, which are revised from time to time. The principal features of the RBI guidelines are set forth below. An asset, including a leased asset, becomes non-performing once it ceases to generate income for the bank. The RBI guidelines stipulate the criteria for determining and classifying a non-performing asset (NPAs). A NPAs is a loan or an advance where: interest and/or an instalment of principal remains overdue (as defined below) for a period of more than 90 days in respect of a term loan; the account remains out-of-order (as defined below) in respect of an overdraft or cash credit for more than 90 days; HK:

145 the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted; in the case of a loan granted for short duration crops, the instalments of principal or interest thereon remain overdue for two crop seasons; in the case of a loan granted for long duration crops, the instalments of principal or interest thereon remain overdue for one crop season; the amount of a liquidity facility remains outstanding for more than 90 days, in respect of securitisation transactions undertaken in accordance with the RBI guidelines on securitisation; or in respect of derivative transactions, the overdue receivables representing the positive mark-tomarket value of a derivative contract remain unpaid for a period of 90 days from the specified due date for payment. Banks should classify an account as a NPAs if the interest imposed during any quarter is not fully repaid within 90 days from the end of the relevant quarter. For additional information on classification of NPAs, please refer to the section Supervision and Regulation and The RBI has undertaken several initiatives with respect to recognition of NPAs resulting in more stringent guidelines for which the Bank has been fined due to noncompliance. Overdue Any amount due to the bank under any credit facility is overdue if it is not paid on the due date fixed by the bank. Out-of-Order Status An account should be treated as out-of-order if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In circumstances where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but (i) there are no credits continuously for a period of 90 days as on the date of the balance sheet of the bank or (ii) the credits are not sufficient to cover the interest debited during the same period, these accounts should be treated as out-of-order. The following table sets forth, for the periods indicated, information about the Bank s NPAs: As of 31 March As of September 2017 (Rs. in million, except percentages) Gross NPAs... 7, , , Provisions for NPAs (A)... 4, , , Net NPAs... 2, , , Gross advances (B) , ,332, ,498, Net advances(b-a) , ,322, ,486, Gross NPAs as a percentage of gross advances % 1.52% 1.82% Net NPAs as a percentage of net advances % 0.81% 1.04% Provisions for NPAs as a percentage of gross NPAs % 46.88% 43.27% Classification of Non-Performing Assets As per RBI guidelines, banks are required to classify their NPAs into substandard, doubtful and loss asset categories HK:

146 Substandard assets A substandard asset is one which has remained a NPAs for a period less than or equal to 12 months. In such cases, the current net worth of the borrower/guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the banks in full. In other words, such an asset will have well defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that banks will sustain some loss, if deficiencies are not corrected. Doubtful assets A doubtful asset is one which has remained a NPAs for a period exceeding 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that were classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. Loss assets A loss asset is one where loss has been identified by the Bank or internal or external auditors or the RBI inspection but the amount has not been written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. The following table sets forth, for the periods indicated, the classification of the Bank s gross NPAs in accordance with the RBI guidelines: At 30 At 31 March September (Rs. in million) Substandard , , Doubtful... 6, , , Loss Gross NPAs... 7, , , Restructured Assets A fully secured standard asset can be restructured by rescheduling principal repayments and/or the interest element, subject to compliance with certain conditions, but must be separately disclosed as a restructured asset. The amount of cut, if any, in the element of interest, measured in present value terms, is either written off or is required to be provided for. Similar guidelines apply to substandard assets and to doubtful assets, in the case of restructuring of assets under the corporate debt restructuring mechanism. The substandard accounts which have been subjected to restructuring, whether in respect of principal instalment or interest amount, are eligible to be upgraded to the standard category only after the specified period, i.e. a period of one year after the date when the first payment of interest or of principal falls due, subject to satisfactory performance during the period. Provisioning Policy for Non-Performing Assets Specific loan loss provisions in respect of non-performing advances are made based on management s assessment of the degree of impairment of wholesale and retail advances, subject to the minimum provisioning level prescribed by the RBI. The specific provision levels for retail NPAs are also based on the nature of product and delinquency levels. In relation to non-performing derivative contracts, as per the extant RBI guidelines, the Bank makes provision for the entire amount of overdue and future receivables relating to positive marked-tomarket value of the said derivative contracts HK:

147 Provisions for substandard, doubtful and loss asset categories are required to be made as per the RBI guidelines described below. These provisioning requirements are the minimum provisions that have to be made in accordance with the RBI guidelines. Substandard assets In addition to a provision of per cent. on the total outstanding secured substandard advances, unsecured substandard advances attract an additional provision of per cent., i.e., a total of per cent. on the outstanding balance. However, in view of certain safeguards such as escrow accounts available in respect of infrastructure lending and infrastructure loan accounts which are classified as substandard, a provisioning of per cent. instead of the aforesaid prescription of per cent is requied. Doubtful assets A per cent. provision is made against the unsecured portion of the doubtful asset. The value assigned to the collateral securing a loan is the realisable value determined by third-party appraisers. In case where there is a secured portion of the asset, depending upon the period for which the asset remains doubtful, a per cent. to per cent. provision is required to be made against the secured asset as follows: Up to one year: 25.00per cent. provision. One to three years: per cent. provision. More than three years: per cent. provision. Loss assets The entire asset is required to be written off or per cent. of the outstanding amount is required to be provided for. Remediation Strategy for Non-Performing Loans The Bank focuses on early problem recognition and active remedial management efforts in relation to its non-performing loans. Because the Bank is involved primarily in working capital finance with respect to wholesale loans, it tracks its borrowers performance and liquidity on an ongoing basis. This enables the Bank to define remedial strategies proactively and manage its exposures to industries or customers that it believes are displaying deteriorating credit trends. Relationship managers lead the recovery effort together with strong support from the credit group in the corporate office in Mumbai. Recovery is pursued through, among others, legal process, enforcement of collateral, negotiated one-time settlements and other similar strategies. The particular strategy pursued depends upon the level of cooperation of the borrower, the Bank s assessment of the borrower s management integrity and long-term viability, the credit structure and the role of other creditors. Restructured Assets The RBI has issued prudential guidelines on the restructuring of assets by banks. The guidelines essentially deal with the norms/conditions, the fulfilment of which is required to maintain the category of the restructured account as a standard asset. Similar guidelines apply to assets categorised as substandard. Substandard accounts which have been subjected to restructuring, whether in respect of principal instalment or interest amount, are eligible to be upgraded to the standard category only after the specified period, i.e. a period of one year after the date when the first payment of interest or principal, whichever is earlier, falls due, subject to satisfactory performance during the period. If there is a failure to meet payment or other terms of a restructured loan, it may be considered a failed restructuring, in which case it is no longer classified as a restructured loan HK:

148 The Bank restructures assets on a case-by-case basis after its management has determined that restructuring is the best means of maximising realisation of the asset. The Bank s restructured assets (including applications received and under process for restructuring) aggregated to Rs. 1, million and were 0.08 per cent. of gross advances as of 30 September Funding The Bank s primary interest-bearing liability is its deposit base. To continue to source low-cost funding through customer deposits, the Bank must, among other things, further rapidly expand the branch network, increase brand recall and develop products and services to distinguish itself in an increasingly competitive industry. However, increasing customer sophistication and heightened competition for funding coupled with sharp increases in prevailing interest rates and changes to the RBI s liquidity and reserve requirements may compel the Bank to increase the rates that it pays on deposits. In addition to a larger proportion of deposits in the Bank s portfolio, the Bank has issued and may continue to issue Tier 1 and Tier 2 subordinated debt securities to further enhance its capital adequacy ratios and build long-term stable funding. As of 31 March 2017, the Bank had Rs billion of Tier 1 and Tier 2 debt instrument outstanding, which constituted 6.21 per cent. of its total liabilities, and as of 30 September 2017, the Bank had Rs billion of Tier 1 and Tier 2 debt outstanding, amounting to 6.58 per cent. of its total liabilities. Further, in October 2017, the Bank issued Rs billion of Basel III compliant Addition Tier 1 and Tier 2 instruments. Total Deposits The following table sets forth, for the periods indicated, the Bank s outstanding deposits and the percentage composition by each category of deposits. The outstanding deposits for the periods set forth are as follows: At 31 March At 30 September Amount % of total Amount % of total Amount % of total (Rs. in million, except percentages) Demand deposits , % 190, % 197, % Savings deposits , % 327, % 390, % Term deposits , % 910, % 992, % Total... 1,117, % 1,428, % 1,579, % Borrowings The following table sets forth, for the periods indicated, information related to the Bank s borrowed funding, which comprises primarily money market borrowings. At 31 March At 30 September Amount % of total Amount % of total Amount % of total (Rs. in million, except percentages) I. Borrowings in India Reserve Bank of India... 10, % - 0.0% - 0.0% Other banks... 19, % 21, % 27, % Other institutions and agencies... 84, % 81, % 86, % Upper and lower tier II capital 96, % 122, % 144, % HK:

149 At 31 March At 30 September Amount % of total Amount % of total Amount % of total (Rs. in million, except percentages) and innovative perpetual debts... Bonds and Debentures (excluding subordinated debt) % % % II. Borrowings outside 0.00% 0.00% 0.00% India , % 160, % 189, % Total , % 386, % 448, % The Bank also obtains funds from the issuance of unsecured non-convertible subordinated debt securities, which qualify as Tier 1 or Tier 2 risk-based capital under the RBI s guidelines for assessing capital adequacy. Tier 2 capital and innovative perpetual debt instruments outstanding as of 30 September 2017 are Rs billion (as of 31 March 2017: Rs billion), and Rs (as of 31 March 2017: Rs billion), respectively. The break-up of the same is shown in the following table: Particulars Nature of security Date of Issue Coupon rate (%) Tenure As per financials As per capital adequacy(1) Qualified as Capital (Basel III) (per cent.) (in Rs. Million) Upper Tier II Debentures 8 November % 15 years Upper Tier II Bonds 27 June BPS over JPY LIBOR 15 Years 5, , , Upper Tier II Debentures 15 September % 15 Years 2, , , Lower Tier II Debentures 30 September % 10 years and 7 months 2, , years (Call option with YBL after 10 years from Date Upper Tier II Bonds of Issue) 1, Lower Tier II Upper Tier II Upper Tier II Lower Tier II Debentures Debentrues Debentrues Debentrues 6M 30 September 2009 EURIBOR +3.80% 22 January % 10 years 3, , August % 15 Years 4, , , September % 15 Years 2, , , September % 9 Years & 7 Months 3, , Lower Tier II Debentures 25 July % 10 Years 3, , Lower Tier II Debentures 28 October % 10 Years 2, , Lower Tier II Debentures 28 March % 10 Years 3, , , Upper Tier II Debentures 30 March M USD LIBOR % 15 Years 4, , , Unsecured, Redeemable, Non Convertible, Upper Tier II Bonds Lower Tier II Lower Tier II Upper Tier II Promissory Note 29 June % 15 Years August Debentures % 10 Years 3, , , September Debentures % 10 Years 3, , , Promissory 28 September Notes % 15 Years 2, , , Unsecured Redeemable Non Convertible Lower Tier II Subordinated Bonds Unsecured Redeemable Non Convertible Lower Tier II Subordinated Bonds Promissory Notes Debentures 16 October % 10 years 2, , , October % 10 years 2, , , HK:

150 Particulars Nature of security Date of Issue Coupon rate (%) Tenure As per financials As per capital adequacy(1) Qualified as Capital (Basel III) Unsecured Redeemable Non Convertible Upper Tier II Subordinated Bonds Unsecured Redeemable Non Convertible Upper Tier II Subordinated Bonds Debentures Promissory Notes 10 November % 15 years 2, , , December % 15 years 1, , Non-convertible, Redeemable, Unsecured, Basel III compliant Tier 2 Bonds in the nature of debentures Debentures 29 June % 10 years 5, , , % Non-convertible, Redeemable, Unsecured, Basel III compliant Tier 2 Bonds in the nature of debentures Debentures 31 December % 10 years 15, , , % Non-convertible, Redeemable, Unsecured, Basel III compliant Tier 2 Bonds in the nature of debentures Debentures 15 January % 10 Years 8, , , % Non-convertible, Redeemable, Unsecured, Basel III compliant Tier 2 Bonds in the nature of debentures Debentures 20 January % 10 Years 5, , , % Non-convertible, Redeemable, Unsecured, Basel III compliant Tier 2 Bonds in the nature of debentures Debentures 31 March % 10 Years 5, , , % Unsecured, Non Convertible, Tier II Subordinated Perpetual Basel III Compliant Bonds Debentures 29 September % 10 Years 25, , , (1) Borrowings in foreign currency converted at the rate prevalent on the date of borrowing for the purpose of capital adequacy. Particulars Tier I Perpetual Subscription Tier I Perpetual Tier I Perpetual Nature of security Date of Issue Coupon rate (%) (per cent.) Bonds 27 June BPS over applicable LIBOR Promissory Notes Promissory Notes Tenure Perpetual 21 February 10.25% Perpetual March % Perpetual As per financials As per capital adequacy(1) (in Rs. mllion) Qualified as Capital (Basel III) , , Unsecured, Non Convertible, Additional Tier I Subordinated Perpetual Basel III Compliant Bonds 9.5% Unsecured, Non Convertible, Additional Tier I Subordinated Perpetual Basel III Compliant Bonds Tier I Perpetual Debentures 31 December % Perpetual Perpetual (Call option excercisable after end of 5 years) Debentures 23 December % Promisory Notes 21 August % Perpetual Perpetual (Call option excercisable after end of 10 years) 2, , , , , , , , , Tier I Perpetual Promissory Note 5 March % (1) Borrowings in foreign currency converted at the rate prevalent on the date of borrowing for the purpose of capital adequacy. Classification of Investments Investments in India As of 31 March 2017, the Bank had total investments of Rs billion in India, of which Rs billion (71.17 per cent.) was held in approved securities, in accordance with the SLR requirements. The Bank s investments are classified as held-to-maturity, available-for-sale and held-for-trading in accordance with regulation stipulations. While the Bank cannot hold securities classified as HFT for more than 90 days, there are HK:

151 no such restrictions on the holding period or monetary limits for AFS. In respect of HTM securities, the Bank cannot hold SLR securities classified as HTM in excess of per cent. of its demand and time deposits. As of 30 September 2017, the Bank had aggregate investments of Rs billion in India of which Rs billion (85.92 per cent.) was held in approved securities, in accordance with the SLR requirements. Out of investments in approved securities, per cent. were classified as HTM investments, per cent. were classified as AFS investments and the remaining 6.71 per cent. were classified as HFT investments. Investments outside India The book value of the Bank s net investments outside India amounted to Rs. 7, million as of 30 September The table below describes the Bank s investments outside of India by category as at the dates indicated. As of 31 March As of 30 September Investments (Rs. in million) Percentage (Rs. in million) Percentage (Rs. in million) Percentage Held-to-maturity... Available-for-sale... 1, % 7, % Total , % 7, % The table below describes the book value of the Bank s total investment portfolio as at the dates indicated: As of 30 As of 31 March September Investments (Rs. in million) Investments in India (net) Government securities , , , Other approved securities Shares , , Debentures and bonds , , , Investments in associates , Others (1)... 40, , , Total investments in India , , , Investments outside India (net) Government securities Other investments , , Total investments outside India , , Total investments , , , (1) Includes certificates of deposit, commercial paper and pass-through certificates. Capital Adequacy The following table sets forth, for the periods indicated, the Bank s capital adequacy ratios computed as per applicable RBI guidelines: At 30 At 31 March September (Rs. in million, except percentages) Common Equity Tier I (CET I) , , , Additional Tier I capital... 5, , , Tier I capital , , , Tier II capital... 76, , , HK:

152 At 30 At 31 March September (Rs. in million, except percentages) Total capital , , , Total RWA... 1,329, ,863, ,001, Common Equity Capital Adequacy Ratio % 11.43% 10.63% Capital Adequacy Ratio Tier I capital % 13.32% 12.39% Capital Adequacy Ratio Tier II capital % 3.71% 4.62% Total Capital Adequacy Ratio % 17.03% 17.01% HK:

153 DESCRIPTION OF THE BANK S INTERNATIONAL FINANCIAL SERVICES CENTRE BANKING UNIT (IBU) Background The Bank s IBU started operations in Gujarat International Finance Tec-City, Gujarat (GIFT City) in October The IBU conducts its operations under the framework announced by the Government of India for IFSCs and, in particular, guidelines issued by the RBI as amended from time to time. The Bank is the first bank in India to commence operations at the GIFT City. Key objectives of the IBU The IBU is, for most regulatory purposes, treated as a foreign branch and is a significant development in the overall augmentation of the Bank s business model whereby the Bank provides comprehensive solutions for its clients foreign currency banking requirements. The key objectives of the IBU are as summarised below: to offer foreign currency fundings to eligible non-resident corporates and Indian Corporates, including their joint ventures and wholly-owned subsidiaries registerered abroad; to offer foreign exchange and hedging facilities to eligible non-resident entities and joint ventures and wholly-owned subsidiaries of Indian corporates registered abroad; to invest in debt instruments in international markets; to extend bilateral or trade loans to correspondent banks globally at competitive pricing; and to support banking requirements of players in the capital markets and insurance segment and other customers established at the GIFT IFSC as permitted by the regulators from time to time, supplementing the granular business profile of the Bank. Business activities of the IBU The IBU offers the following primary products: Trade Finance Trade Credits: The IBU facilitates finance of import payables in the form of buyers credit and suppliers credit. Risk Participation on Obligor Banks: The IBU underwrites the risk of customers who are obligor banks on a funded and non-funded basis. External Commercial Borrowings: The IBU extends commercial loans to Indian corporates in the form of bank loans and trade credits as permitted by the Reserve Bank of India from time to time. Reimbursing Financing: The IBU undertakes to provide reimbursement under letters of credit to issuing banks. Lending HK:

154 IBU s targeted clientele are primarily joint ventures and wholly-owned subsidiaries of Indian companies and any other eligible non-resident entities with strong direct or indirect India linkage. Forfaiting The IBU finances export receivables by purchasing future payment obligations under documentary credits. Trade Loans to Correspondent Banks The IBU extends loans to correspondent banks in India and overseas by refinancing their export or import book on a portfolio basis. Financial Markets The IBU provides the service of underwriting and arranging of debt instrument issuances, including rupee denominated Masala Bonds issued by Indian Companies. The IBU provides derivatives and foreign exchange hedging services primarily to joint ventures and wholly-owned subsidiaries of Indian companies and any other eligible non-resident entities with strong direct or indirect India linkage. Business Update During fiscal year 2017, IBU s business gained significant momentum as a specialised unit of the Bank and has reached the milestone of U.S.$ 1 billion balance sheet size as on 31 March Further, as on 30 September 2017, the balance sheet size of the IBU has grown to over USS 1.4 billion HK:

155 MANAGEMENT The composition of the Bank s Board is governed by the provisions of the Companies Act, the Banking Regulation Act, the SEBI Listing Regulations and the Bank s Articles of Association. The Board presently consists of eight Directors comprising one executive Director seven Nonexecutive Directors which include six Independent Directors. As per the Bank s Articles of Association, it shall not have less than three Directors and not more than 15 Directors unless otherwise determined by the Bank s members in a general meeting. The quorum for meetings of the Board is one-third of the total number of Directors or two Directors, whichever is higher. Where the number of interested Directors exceeds or is equal to two-thirds of the total number of remaining Directors present at such meeting, the number of remaining Directors who are not interested and are present at the meeting, not being less than two, shall be the quorum during such time. The Banking Regulation Act requires that at least per cent. of Directors have specialised knowledge or practical experience in one or more of the following areas: accountancy, agriculture and rural economy, banking, cooperation, economics, finance, law, small-scale industry, information technology, payment and settlement systems, human resources, risk management and business management and any other matter the RBI may specify. Out of the aforesaid number of Directors, not less than two Directors are required to have specialised knowledge or practical experience in agriculture and rural economy, cooperation or small-scale industry. As on the date of this Offering Circular, all of the Bank s Directors are professionals with the prescribed special knowledge or practical experience and meet the conditions specified in the Banking Regulation Act. Further, under the Banking Regulation Act, the appointment of whole-time Directors requires the approval of the RBI. The RBI has also prescribed fit and proper criteria to be considered when appointing directors of banks, with the Bank s Directors being required to make declarations confirming their ongoing compliance with such criteria. Pursuant to the provisions of the Companies Act, at least two-thirds of the total number of Directors, excluding the Independent Directors, are liable to retire by rotation, with one-third of such number retiring at each annual general meeting. A retiring Director is eligible for re-election. Further, the Independent Directors may be appointed for a maximum of two terms of up to five consecutive years each. Any reappointment of Independent Directors shall, inter alia, be on the basis of the performance evaluation report and approved by the shareholders by way of special resolution. Pursuant to the provisions of the Banking Regulation Act, none of the Directors other than whole-time Directors may hold office continuously for a period of eight years. The Board presently does not have the requisite number of directors liable to retire by rotation to strictly comply with the Companies Act. The following table sets forth details regarding the Board of Directors as at the date of this Offering Circular: HK:

156 Sr. Name, Address, Occupation, DIN, Term and No. Nationality 1 Rana Kapoor (1) Address: , 27th Floor, Samudra Mahal, Dr. A.B. Road, Worli Mumbai Maharashtra, India Occupation: Banker DIN: Term: From 1 September 2015 to 31 August 2018 Nationality: Indian 2 Lt. General (Dr.) Mukesh Sabharwal (Retd.) Address: P 381 ATS Green Sector 93A Noida Uttar Pradesh, India Occupation: Former Lt. General in Indian Army DIN: Term: From 14 June 2014 to 13 June 2019 Nationality: Indian 3 Brahm Dutt Address: CII/2282 Vasant Kunj New Delhi India Occupation: Former Secretary, Ministry of Road Transport and Highways, Government of India DIN: Term: From 14 June 2014 to 13 June 2019 Nationality: Indian 4 Saurabh Srivastava (2) Address: C- 482, Defence Colony New Delhi India Age Designation (in years) 60 Managing Director and Chief Executive Officer 66 Non-executive Independent Director 67 Non-executive Independent Director 71 Non-executive Independent Director Occupation: Entrepreneur DIN: Term: From 14 June 2014 to 13 June 2019 Nationality: Indian 5 Vasant V. Gujarathi Address: 66 Non-executive Independent Director HK:

157 Sr. No. Name, Address, Occupation, DIN, Term and Nationality A - 901, Vivarea building Sane Guruji Marg, 9th floor Mahalakshmi, Saat Rasta Mumbai Maharashtra, India Occupation: Chartered Accountant, ex-partner of PricewaterhouseCoopers DIN: Term: From 14 June 2014 to 13 June 2019 Nationality: Indian Age (in years) Designation 6 Ajai Kumar (1) Address: C- 2601, Ashok Tower Dr. S.S. Rao Marg Opposite Mahatma Gandhi Hospital, Parel (East), Mumbai Maharashtra, India Occupation: Former Chairman and Managing Director of Corporation Bank DIN: Term: From 6 June 2017 till the next AGM Nationality: Indian 7 Ashok Chawla (3) Address: E-11, Mehrauli - Badarpur Road Saket, New Delhi India Occupation: IAS (Retd.), Ex-Chairman of Competition Commission of India DIN: Term: From 7 June 2016 to 6 June 2021 Nationality: Indian 8 Debjani Ghosh Address: H2- E084, Westend Heights DLF Phase 5, Gurgaon Occupation: Former Managing Director, Intel South Asia DIN: Term: From 6 June 2017 to 5 June 2022 Nationality: Indian 64 Non-executive Non-Independent Director 66 Non-executive Part-time (Independent) Chairman 51 Non-executive Independent Director (1) From among the current members of the Bank s Board, the appointments/reappointments, as applicable, of Rana Kapoor and Ajai Kumar are currently being challenged by Madhu Kapur and others before the Bombay High Court. For further details, see Legal and Regulatory Proceedings. (2) The RBI has, pursuant to its letter dated 28 January 2016, permitted the continuation of the directorship of Saurabh Srivastava beyond the age of 70 till he completes a term of four years from the date of his appointment on the Board. (3) The RBI via, vide letter dated 12 August 2016, has approved the appointment of Ashok Chawla as the Non-executive Part-time Chairman for a period of three years from the date of his taking charge. (4) The Term mentioned above is the current terms of appointment as approved by the Shareholders in the Annual General Meetings HK:

158 Brief Biographies of the Directors Rana Kapoor is the founder, Managing Director and Chief Executive Officer of the Bank. He holds a bachelor s degree in economics from the University of Delhi and a master s degree in business administration from Rutgers University, United States of America. Rana Kapoor has over 37 years of experience spanning across various areas of commercial and investment banking. Prior to joining the Bank, he worked with Rabo India Finance Private Limited as the CEO and Managing Director and the main managing partner, ANZ Grindlays Investment Bank as the general manager and country head, and Bank of America where he headed the bank s wholesale banking businesses and held several positions of increasing responsibility, including assignments in Asian countries. He was presented the Eagle Pin in 1990, among several other enterprising achievements. His term of appointment as the Managing Director and Chief Executive Officer of the Bank has been renewed for a period of three years, i.e., from 1 September 2015 to 31 August Lt. General (Dr.) Mukesh Sabharwal (Retd.) is a Non-executive Independent Director of the Bank. He holds a master s degree in defence studies from Madras University, a master s degree in management studies from Osmania University, Hyderabad and a master s of military arts and science from CGSC University, Kansas. He also holds a master s degree in strategic studies from U.S. Army War College, Pennsylvania. He has 40 years of experience in the Indian army. He is a recipient of the Param Vishisht Seva Medal for distinguished services of an exceptional order, the Vishisht Seva Medal, and the Ati Vishisht Seva Medal. Lt. Gen. (Retd.) Mukesh Sabharwal has been on the Board since 25 April Brahm Dutt is a Non-executive Independent Director of the Bank. He holds a bachelor s degree in law and holds master s degrees in science (physics) and arts (economics). He is a retired Indian Administrative Service officer. He has 37 years of experience as an Indian Administrative Service officer and has previously held several positions of responsibility in the State Government of Karnataka as well as the Central Government including the position of the secretary in the cabinet secretariat and in the Ministry of Road Transport and Highways and was an adviser (energy and highways) to the Government of Karnataka from May 2011 to September 2013, besides advising several private companies on issues related to small and medium enterprises, FDI, infrastructure, highways and power. He was also associated with several government committees and task forces. Brahm Dutt has been on the Board since 24 July Saurabh Srivastava is a Non-executive Independent Director of the Bank. He holds a bachelor s degree in technology from the Indian Institute of Technology, Kanpur and holds a master s degree from Harvard University. He is a recipient of the distinguished alumnus award from the Indian Institute of Technology, Kanpur, and an honorary Doctorate in technology from University of Wolverhampton, United Kingdom. He holds a Data Quest Lifetime Achievement Award. He is also a recipient of the Padma Shri award. He is the co-founder and has previously held the position of chairman of the National Association of Software and Services Companies. He has previously also been on the advisory board of Imperial College Business School, London and several other Indian universities. He has served on several committees set up by the government, such as the National Innovation Council, SEBI Committee on Alternate Investment Funds, Railway Expert Committee, etc. Saurabh Srivastava has been on the Board since 23 April Vasant V. Gujarathi is a Non-executive Independent Director of the Bank. He holds a bachelor s degree in commerce from Poona University. He is also a Chartered Accountant. He has over 35 years of post-qualification experience in PricewaterhouseCoopers, being a partner with PricewaterhouseCoopers India for 22 years. He has over three decades of audit experience working with large multinational and domestic companies. Vasant V. Gujarathi has been on the Board since 23 April HK:

159 Ajai Kumar is a Non-executive Non-independent Director of the Bank. Prior to this, he has been acting as Senior Strategic Adviser of the Bank since He holds a master s degree in physics from the University of Allahabad. He also holds a degree in law. He is a Certified Associate of the Indian Institute of Bankers. Ajai Kumar has more than 40 years of experience in the public sector banking industry holding leadership positions in India and overseas (New York, USA) such as the chairman and managing director of Corporation Bank, executive director of UCO Bank, and general manager and head of technology and retail banking at Bank of Baroda. As chairman and managing director of Corporation Bank, he launched SME loan centres, agriculture business development cells, and several gold loan shops. Ajai Kumar has been on the Board since 29 January Ashok Chawla has been appointed as a Non-executive Part-time (Independent) Chairman of the Bank. Prior to joining the Bank, he was the Chairman of the Competition Commission of India. He has been an officer in the Indian Administrative Service. He holds a master s degree in Economics from the Delhi School of Economics. Prior to joining the Bank, he headed the Sardar Sarovar Narmada multi-purpose project, and was the Economic Counselor in the Indian Embassy at Washington DC, USA. He has been a permanent secretary in several ministries of the Government of India such as Finance, Economic Affairs, and Civil Aviation. He is also the Chairman of the Governing Council of The Energy and Research Institute, and the National Stock Exchange of India Limited. Ashok Chawla has been on the Board since 5 March Debjani Ghosh has been appointed as a Non-executive Independent Director of the Bank. Prior to joining the Bank, she was Vice President, Sales & Marketing Group (SMG), Intel, and Managing Director, Intel South Asia. For the last five years in India, she has successfully driven a complete reset of the country strategy to shift the focus to market creation and strong ecosystem partnerships, positively impacting Intel s business growth in the country. Passionate about Digital India, she has been instrumental in designing and creating Intel s programs to support India s transformation to a Digital Nation, with focus on digital literacy, grounds up tech innovation and strong partnerships across the ecosystem. She was the first female Intel India Country Head and the first female President of MAIT. She has been ranked by Fortune India as one of the top 20 Most Powerful Women in Business in India for five consecutive years since In 2017 Fortune India ranked her the 11th Most Powerful Woman in Business in India. Debjani Ghosh has been on the Board since 15 May Relationship with other Directors None of the Directors is related to each other. Borrowing Powers of the Bank s Board of Directors Pursuant to a resolution passed by the Bank s members in the AGM dated 6 June 2017, the Board of Directors of the Bank is authorised to borrow moneys as and when required in excess of the paid-up capital and free reserves of the Bank, such that the aggregate borrowings of the Bank shall not at any time exceed Rs. 700,000 million. Interest of Directors of the Bank The Bank s Managing Director and Chief Executive Officer and its Non-Executive Part-time (Independent) Chairman may be deemed to be interested to the extent of remuneration paid to them by the Bank. All Directors may be deemed to be interested to the extent of fees, payable to them for attending meetings of the Board or a committee thereof, other reimbursement of expenses payable to them, as well as to the extent of the profit-based commission being paid to them, not exceeding in aggregate 1.00 per cent. of the net profits of the Bank or a maximum of Rs. 1 million to each director, whichever is lower HK:

160 Shareholding of Directors The following table sets forth the shareholding of the Directors as on 17 November 2017: Name Number of Equity Shares Percentage Rana Kapoor 100,000, Saurabh Srivastava (1) 8,050 Negligible Vasant V. Gujarathi (2) 14,500 Negligible Ajai Kumar 1,775 Negligible (1) Held jointly with Lekha Srivastava. (2) Held jointly with Prafulla V. Gujarathi Corporate Governance The Bank is in compliance with the corporate governance requirements under the SEBI Listing Regulations, and under the Companies Act. Committees of the Board of Directors The Bank s Board has constituted committees in accordance with the relevant provisions of the Companies Act, directions from the RBI, Securities and Exchange Board of India (Share Based Employment Benefits) Regulations, 2014 and the SEBI Listing Regulations including: (i) Audit Committee; (ii) Risk Monitoring Committee; (iii) Nomination and Remuneration Committee; (iv) Stakeholders Relationship Committee; (v) Fraud Monitoring Committee; (vi) Service Excellence, Branding and Marketing Committee; (vii) Capital Raising Committee; (viii) Corporate Social Responsibility Committee; (ix) IT Strategy Committee; (x) Board Credit Committee; (xi) Committee of Independent Directors; and (xii) Board Committee on Wilful Defaulters and Non Cooperative Borrowers. The following table sets forth the members of the aforesaid committees as of the date of this Offering Circular: Committee Members Audit Committee Vasant V. Gujarathi (Chairman), Brahm Dutt, Saurabh Srivastava, Ajai Kumar and Ashok Chawla. Risk Monitoring Committee Ajai Kumar (Chairman), Rana Kapoor (Vice Chairman), Brahm Dutt, and Ashok Chawla. Nomination and Remuneration Committee Brahm Dutt (Chairman), Ajai Kumar, and Lt. Gen. (Dr.) Mukesh Sabharwal (Retd.). Stakeholders Relationship Committee Ashok Chawla (Chairman) and Saurabh Srivastava. Fraud Monitoring Committee Rana Kapoor (Chairman), Lt. Gen. (Dr.) Mukesh Sabharwal (Retd.), Ajai Kumar, and Vasant V. Gujarati. Service Excellence, Branding and Marketing Lt. Gen. (Dr.) Mukesh Sabharwal (Retd.) (Chairman), Committee Ajai Kumar, Brahm Dutt, Saurabh Srivatava, and Rana Kapoor. Capital Raising Committee Rana Kapoor (Chairman), Ajai Kumar, and Vasant V. Gujarathi. Corporate Social Responsibility Committee Ashok Chawla (Chairman), Brahm Dutt and Rana Kapoor. IT Strategy Committee Saurabh Srivastava (Chairman), Ajai Kumar, and Vasant V. Gujarathi HK:

161 Board Credit Committee Committee of Independent Directors Board Committee on Wilful Defaulters and Non Cooperative Borrowers Ajai Kumar (Chairman), Lt. Gen. (Dr.) Mukesh Sabharwal (Retd.), and Ashok Chawla. Lt. Gen. (Dr.) Mukesh Sabharwal (Retd.) (Chairman), Brahm Dutt, Vasant V. Gujarathi, Saurabh Srivastava, Ashok Chawla and Debjani Ghosh. Rana Kapoor (Chairman), Vasant V. Gujarathi, Lt. Gen. (Dr.) Mukesh Sabharwal (Retd.) and Ajai Kumar. Policy on disclosures and internal procedure for prevention of insider trading Regulation 9 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 applies to the Bank and its Subsidiaries including their Directors, employees and their immediate relatives and requires the Bank to implement a code of internal procedures and conduct for the prevention of insider trading. The Bank has implemented a code of conduct for prevention of insider trading in accordance with the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, Other confirmations Except as otherwise stated in this Offering Circular, neither the Bank s Directors nor any Key Managerial Personnel of the Bank have any financial or other material interest in the Issue. Neither the Bank, nor Rana Kapoor, nor the Bank s directors have been identified as wilful defaulters by any bank or financial institution or consortium thereof, in accordance with the guidelines on wilful defaulters issued by the RBI. Related Party Transactions For details in relation to related party transactions entered into by the Bank during the last two fiscal years, as per the requirements under Accounting Standard 18 issued by the Institute of Chartered Accountants in India read with the circular dated 29 March 2003 issued by the RBI on Guidance on Compliance with the Accounting Standards by Banks, please refer to the financial statements of the Bank. Key Managerial Personnel of the Bank In addition to the Managing Director and Chief Executive Officer, the following table sets forth the details of the Key Managerial Personnel of the Bank: Name of the Key Managerial Personnel Rajat Monga Padmanabhan Kumar Ashish Agarwal Sanjay Palve Pralay Mondal Arun Agrawal Amit Sanan Punit Malik Designation Senior Group President Financial Markets and Chief Financial Officer (1) Chief Operating Officer and Senior Group President Senior Group President and Chief Risk Officer Senior Group President and Global Head, Corporate Finance Infrastructure Banking Senior Group President Retail and Business Banking Group President, International Banking Group President Emerging Corporate Banking & Commercial BB Group President and Global Head, Corporate Finance Urban Infrastructure Banking HK:

162 Namita Vikas Group President and Global Head Climate Strategy & RESP Shubhada Rao Group President and Chief Economist Devamalya Dey Group President, Audit and Management Governance Deodutta Kurane Group President, Human Capital Management Neeraj Dhawan Group President and National Head Credit RM Retail & BB Amit Kumar Group President and Country Head, Corporate & Commercial Banking Vinod Bahety Group President and National Head, Corporate Finance Infrastructure Banking Rajiv Anand Group President and Global Head, Corporate Finance Urban Infrastructure Banking Nikhil Sahni Group President GB and National Head Branch Banking Sumit Gupta Group President and National Head Business and Rural Banking Rajan Pental Group Head Retail Lending, Retail Banking Sanjay Nambiar Group President and General Counsel Aseem Gandhi Senior President and Global Head YES Accelerator Amit Shah Senior President Marketing & Corporate Communication Rajat Mehta Senior President Marketing & Corporate Communication Rajanish Prabhu Credit Card Business Head K. Somasundaram Senior President and Head of Compliance Anup Purohit Senior President and Chief Information Officer Ritesh Pai Senior President and Chief Digital Officer Shivanand Shettigar Senior President and Company Secretary 1 Vivek Bansal Senior President and Chief Financial Controller Rajesh Thapar Senior President and Chief Information Security Officer (1) Also, key managerial personnel as per the definition under the Companies Act, 2013, along with Rana Kapoor, the Bank s Managing Director and Chief Executive Officer. Biographies of the Bank s Key Managerial Personnel Rajat Monga is the Senior Group President and Chief Financial Officer of the Bank. He has a bachelors degree in technology from the Indian Institute of Technology, Delhi and a post graduate diploma in management from the Indian Institute of Management, Ahmedabad. He is responsible for Financial Markets, Transaction Banking Group covering Cash Management & Trade Finance and Liabilities Product Management covering CA Retail Trade & Forex Product and Programme Management and Saving Account Product Management. He is also responsible for institutionalising best practices in all aspects of financial accounting, taxation, technology based management information systems and expense management and ensuring the integrity of all aspects of financial management in fullest compliance with the Bank s accounting standards and corporate governance policies. Rajat has experience in the areas of balance sheet management, treasury management, financial markets and product development. He joined the Bank on 24 April Padmanabhan Kumar is the Chief Operating Officer and Senior Group President, Operations and Service Delivery at the Bank. He joined the Bank on 2 November 2015, but had earlier worked with the Bank as Country Head for over three years. He is experienced in the area of Operations and Business Solutioning. He has an overall 28 years of experience in Operations and Service Delivery HK:

163 Ashish Agarwal is the Group President and Chief Risk Officer at the Bank. He has a bachelor s degree in technology from the Indian Institute of Technology, Kanpur, and a post graduate diploma in computer aided management from the Indian Institute of Management, Calcutta. He has experience in the areas of commercial and investment banking in financial services, including structured and project finance, syndications and underwriting, high yield and distress asset investments, credit ratings, credit research and risk management. He joined the Bank on 17 March Sanjay Palve is the Senior Group President and Global Head Infrastructure Banking and Corporate Banking at the Bank. He has a bachelor s degree in engineering and Master of Management Studies from JBIMS, Mumbai. He has extensive banking experience with a demonstrated track record in leading large financial business such as corporate banking, project finance, structured finance and financial restructuring. He joined the Bank on 1 December Pralay Mondal is the Senior Group President, Retail and Business Banking at the Bank. He has a bachelor s degree in technology from the Indian Institute of Technology, Kharagpur and post graduate diploma in management from the Indian Institute of management, Calcutta. He has experience in the areas of marketing, sales, product, business profit and loss management in the fast moving consumer goods, office automation and banking. He joined the Bank on 20 June Arun Agrawal is the Group President and Global Head, International Banking, Indian Financial Institutions Banking, Loan Syndication and IFSC Banking at the Bank. He has a bachelor s degree in engineering from the University of Delhi and a master s degree in management studies from the University of Mumbai. He has experience in the areas of business development, credit ratings and market analytics. He joined the Bank on 27 October Amit Sanan is the Group President Emerging Corporate Banking & Commercial Business Banking at the Bank. He has a bachelor s degree in engineering (production) from Punjab University and a post graduate diploma in management from the Indian Institute of Management, Ahmedabad. He has experience in corporate finance, wholesale lending and relationship management. He joined the Bank on 22 August Punit Malik is the Group President and Global Head Urban Infrastructure Banking at the Bank. He has a bachelor s degree in engineering from the Indian Institute of Technology, Delhi and a post graduate diploma in Management from the Faculty of Management Studies, Delhi. He is a seasoned banking professional with extensive project finance experience. He has a total experience of 21 years. He joined the Bank on 24 January Namita Vikas is the Group President and Global Head Climate Strategy & Responsible Banking at the Bank. She has a diploma from the Swedish Institute Management Programme. She has experience in areas of corporate social responsibility, public affairs, communication and policy advocacy. She joined the Bank on 10 May Shubhada Rao is the Group President and Chief Economist at the Bank. She has a bachelor s and master s degree in arts from the University of Bombay. She also has a Doctor of Philosophy (Arts) degree from the University of Bombay. She joined the Bank on 6 February Devamalya Dey is the Group President, Audit and Management Governance at the Bank. He has a bachelor s degree in commerce from the University of Calcutta and he is a Chartered Accountant registered with the ICAI. He has experience in areas of operations, audit, compliance and fraud investigation. He joined the Bank on 1 November Deodutta Kurane is the Group President, Human Capital Management. He has a bachelor s degree in commerce from the University of Poona and a post graduate diploma in industrial relations HK:

164 and welfare (personnel management) from the Xavier Labour Relations Institute. He is experienced in the area of human resources. He joined the Bank on 1 March Neeraj Dhawan is the Group President and Chief Risk Officer Retail and Business Banking. He has a bachelor s degree in commerce from the University of Calcutta. He is a Chartered Accountant registered with the ICAI and a Company Secretary registered with the ICSI. He has also passed the final examination held by the Institute of Cost and Works Accountants of India. He joined the Bank on 2 November Amit Kumar is the Group President and Country Head Corporate Banking at the Bank. He has a bachelor s degree in engineering from Birla Institute of Technology and Science, and a post graduate diploma on management from the Indian Institute of Management, Ahmedabad. He has been a part of the Bank s founding team since 2004 and is responsible for building the wholesale banking business of the Bank since its inception. He has experience in areas of corporate and investment banking. He joined the Bank on 5 July Vinod Bahety is the Group President for Corporate Finance Infrastructure Banking at the Bank. He is a Chartered Accountant. He has experience in the areas of infrastructure and projects financing, structured financing, origination, client relationship, credit appraisal, client negotiations and exposure monitoring. He joined the Bank on 25 September Rajiv Anand is the Group President at the Bank. He is leading the Multinational Business Vertical Pan India as well as managing the Real Estate, Healthcare, Hospitality and Education vertical for North and East. He is responsible for Project Finance, New Business Development/Origination, mainstreaming through cross-selling of Working Capital, Transaction Banking Products and Investment Banking etc. Rajiv has over 23 years of work experience in various organisations in the fields of Infrastructure, Real Estate Construction, Commercial Planning and Project Management. Rajiv holds a B.Sc in Civil Engineering and an MBA, Finance from Missouri University, Columbia, USA. He joined the Bank on 27 September Nikhil Sahni is the Group President, Government Banking and National Head, Branch Banking at the Bank. Nikhil has over 17 years of experience across Investment Banking, Wholesale Banking, Commercial Banking, Retail and Branch Banking, Business Banking, Corporate Sales and Corporate Strategy. Prior to handling these key functions, he was the Head of the Branch Banking at YES Bank where he led the entire Retail Banking Operations of the organisation. Before joining YES Bank, Nikhil was responsible for managing and executing strategic initiatives at Rabo India Finance. Nikhil has obtained an MBA from the Indian Institute of Management, Ahmedabad and a bachelors degree in Electrical Engineering from Punjab Engineering College, Chandigarh. He joined the Bank on 10 January Sumit Gupta is the Group President and National Head Business and Rural Banking at the Bank. He holds an MBA Degree in Finance from IIM Calcutta and a B.Tech (Mechanical) from IIT Delhi. He is a seasoned banking professional and has extensive banking experience with a demonstrated track record in leading financial businesses such as Commercial Banking, Business Banking, Microfinance and Rural Banking. He has also been responsible for developing YES Bank s Knowledge Management practice for some of the key sectors like Gems & Jewellery, Autocomponents, Media and Entertainment and Logistics. He has a total experience of 24 years. He joined the Bank on 22 July Rajan Pental is the Group Head Retail Lending at the Bank. He has a post graduate diploma in management from the Indian Institute of Business Management, Patna. He joined the Bank on 2 November HK:

165 Sanjay Nambiar is the Group President and General Counsel, Legal Risk Management at the Bank. He has a bachelors degree and masters degree in law from the University of Calicut. He has over 23 years of experience in legal. He joined the Bank on 15 December Aseem Gandhi is Senior President and Global Head YES ACELLERATOR (Y-ACE). He has a bachelor s degree in Commerce from Shriram College of Commerce and a post graduate diploma in management from XLRI Jamshedpur. He has around 17 years of experience in the fields of corporate strategy, development finance, investment banking, micro finance and consulting. His major assignments include the setting up of a Greenfield bank and transformation of an existing bank to a contemporary financial institution. Prior to rejoining YES Bank on 3 November 2014, Aseem worked with ONGC, Deutsche Bank, Rabo India Finance Private Ltd, YES Bank and Ratnakar Bank Ltd. Amit Shah is Senior President and Country Head, Corporate Strategy, Marketing & Communications at the Bank. He has a bachelor s degree in engineering from the National Institute of Technology and a masters degree in Strategy & Finance from the National Institute of Industrial Engineering (NITIE). In his current stint in Strategy & Marketing, he is responsible for leading corporate strategy to deliver ROI focused corporate branding, marketing and communications programmes. He is also responsible for reinforcing YES Bank s pillars of Knowledge Banking, Responsible Banking, Innovation, Trust and Transparency, and differentiated and balanced business growth across various segments. He drives strategic communications across media i.e. print/tv/digital/social-atl/btl/editorial, conceptualisation and implementation of multiple business development focused knowledge events and media properties, media relations and PR. He also works extensively on public and social policy advocacy platforms (World Economic Forum, USIBC, IBA, BoT, IICA, Chambers- NASSCOM/ASSOCHAM/FICCI etc.) and Cause Marketing YES Bank s CSR Strategy/Responsible Banking initiatives. He joined the Bank on 21 February Rajat Mehta is Senior President, Marketing & Corporate Communications Branch, Retail and Business Banking. He is a BE and holds a post graduate degree from SIMSREE. He has over 13 years of extensive experience across all facets of marketing, branding and communications. He joined the Bank on 30 November 2012, which is his second stint with YES Bank, prior to which he was with the Bank from 2004 to Prior to joining the Bank in November 2012, he was with First Rand Bank Limited as CMO from January 2012 to November Rajanish Prabhu is the Senior President and Head, Credit Cards at the Bank. He has a bachelor s degree in science from the University of Bombay and a master s degree in marketing management from the University of Mumbai. He joined the Bank on 2 May K. Somasundaram is the Senior President and Chief Compliance Officer at the Bank. He has a bachelor s degree in engineering from BITS Pilani and a post graduate diploma in Management from IIM Bangalore. He has over 21 years of experience in risk management and compliance. He joined the Bank on 10 July Anup Purohit is the Senior President and Chief Information Officer, Technology and Solutions Group. He has a bachelor s degree in engineering (electronics engineering) from the University of Bombay. He joined the Bank on 8 January Ritesh Pai is the Senior President and Chief Digital Officer, Digital Banking. He has a bachelor s degree in commerce from Bhavans College and a master s in financial management studies from NMIS, Mumbai. He is a banking professional having more than 19 years of rich experience in project management, system solutions, implementing and managing digitally evolving products such as cards, ATMs, EDC, internet and mobile banking, IVR, call Centre and customer service, payments solutions etc. and building distribution channels. He joined the Bank on 23 March HK:

166 Shivanand Shettigar is the Senior President and Company Secretary at the Bank. He is a fellow member of the Institute of Company Secretaries of India. He has a bachelor s degree in commerce and a bachelor s degree in law from the University of Bombay. He has experience in the areas of law, compliance, internal audit and risk identification, fund raising, contracts management, IPR management, corporate restructuring and labour law matters. He joined the Bank on 20 May Vivek Bansal is the Senior President and Chief Financial Controller at the Bank. He has a bachelor s degree in Commerce from the University of Rajasthan. He is a Chartered Accountant registered with the ICAI, Company Secretary registered with the ICSI and CFA. He has over 19 years of experience in strategic planning, financial analysis and reporting, budgeting, commercial and statutory compliance. He joined the Bank on 11 April Rajesh Thapar is the Senior President and Chief Information Security Officer at the Bank. He has a bachelor s degree in Computer Science and Engineering and a master s degree in information technology. He has over 21 years of experience in information technology and security. He joined the Bank on 1 January HK:

167 PRINCIPAL SHAREHOLDERS The Bank has an issued, subscribed and paid-up share capital of Rs. 4,581,399,274 divided into 2,290,699,637 equity shares. The equity shares are listed and traded on the Stock Exchanges. Equity Shareholding Pattern The shareholding pattern of the Bank as of 30 September 2017 is as follows: Category Category of Shareholder No of Shareholders No of fully paid up equity shares held No of Partly paid-up equity shares held No of Shares Underlying Depository Receipts Total No of Shares Held (VII) = (IV)+(V)+(VI) Shareholding as a % of total no of shares (calculated as per SCRR, 1957) as a % of (A+B+C2) Number of Voting Rights held in each class of securities No of Voting Rights Total as a % of (A+B+C) No of Shares Underlying Outstanding convertible securities (Including Warrants) Shareholding as a % assuming full conversion of convertible Securities (as a percentage of diluted share capital) (XI)=(VII)+(X) as a % of (A+B+C2) Number of Locked in Shares No. As a % of total Shares held Number of Shares pledged or otherwise encumbered Class X Class Y Total (I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX) (X) (XI) (XII) (XIII) (XIV) (A) Promoter & Promoter Group (B) Public NA NA (C) Non Promoter-Non Public (C1) Shares underlying DRs NA NA NA NA 0 (C2) Shares held by Employes Trusts NA NA 0 Total: No. As a % of total Shares held Number of equity shares held in dematerialised form HK:

168 The following table sets forth the shareholding of the promoter and promoter group as of 30 September 2017: Category & Name of the Shareholder No of Shareholders No of fully paid up equity shares held No of Partly paid-up equity shares held No of Shares Underlying Depository Receipts Total No of Shares Held (IV+V+VI) Shareholding as Number of Voting Rights held in each class of a % of total no of securities shares (calculated as per SCRR, 1957 (VIII) as a % of (A+B+C2) No of Voting Rights Total as a % of (A+B+C) No of Shares Underlying Outstanding convertible securities (Including Warrants) Shareholding as a % assuming full conversion of convertible Securities (as a percentage of diluted share capital) (VII)+(X) As a % of (A+B+C2) Number of Locked in Shares No. As a % of total Shares held Number of Shares pledged or otherwise encumbered No. As a % of total Shares held Class X Class Y Total (I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX) (X) (XI) (XII) (XIII) Indian Individuals/Hindu undivided Family RANA KAPOOR MADHU KAPUR Central Government/State Government(s) Financial Institutions/Banks Any Other YES CAPITAL (INDIA) PRIVATE LIMITED MORGAN CREDITS PRIVATE LIMITED MAGS FINVEST PRIVATE LTD Sub-Total (A)(1) Foreign Individuals (Non-Resident Individuals/Foreign Individuals) Government Institutions Foreign Portfolio Investor Any Other Sub-Total (A)(2) Total Shareholding of Promoter and Promoter Group (A)=(A)(1)+(A)(2) Number of equity shares held in dematerialised form HK:

169 The following table sets forth the shareholding of persons belonging to the category Public as of 30 September 2017: Category Category & Name of the Shareholder No of Shareholders No of fully paid up equity shares held No of Partly paid-up equity shares held No of Shares Underlyin g Depository Receipts Total No of Shares Held (IV+V+VI) Sharehold ing % calculated as per SCRR, 1957 As a % of total no of shares (A+B+C2) Number of Voting Rights held in each class of securities No of Voting Rights Total as a % of Total Voting Rights (A+B+ C) No of Shares Underlying Outstanding convertible securities (Including Warrants) Shareholdin g as a % assuming full conversion of convertible Securities (as a percentage of diluted share capital) Number of Locked in Shares No. As a % of total Shares held Number of Shares pledged or otherwise encumbered No. As a % of total Shares held Number of equity shares held in dematerialized form Class X Class Y Total (I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX) (X) (XI) (XII) (XIII) (1) Institutions (a) Mutual Funds NA NA DSP BLACKROCK MIP FUND ALONG WITH ITS VARIOUS SCHEMES NA NA BIRLA SUN LIFE TRUSTEE COMPANY PRIVATE LIMITED ALONG WITH ITS VARIOUS SCHEMES NA NA FRANKLIN TEMPLETON MUTUAL FUND ALONG WITH ITS VARIOUS SCHEMES NA NA (b) Venture Capital Funds NA NA 0 (c) Alternate Investment Funds NA NA (d) Foreign Venture Capital Investors NA NA 0 (e) Foreign Portfolio Investors NA NA NOMURA INDIA INVESTMENT FUND MOTHER FUND NA NA ABU DHABI INVESTMENT AUTHORITY UNDER ITS VARIOUS ACCOUNTS NA NA VANGUARD EMERGING MARKETS STOCK INDEX FUND, A SERIES OF VANGUARD INTERNATIONAL EQUITY INDEX FUND NA NA FRANKLIN TEMPLETON INVESTMENT FUNDS NA NA (f) Financial Institutions/Banks NA NA (g) Insurance Companies NA NA LIFE INSURANCE CORPORATION OF INDIA ALONG WITH ITS VARIOUS SCHEMES NA NA (h) Provident Funds/Pension Funds NA NA 0 (i) Any Other Sub Total (B)(1) NA NA (2) Central Government/State Government(s)/President of India NA NA 0 Sub Total (B)(2) NA NA 0 (3) Non-Institutions (a) i.individual shareholders holding nominal NA NA HK:

170 Category Category & Name of the Shareholder No of Shareholders No of fully paid up equity shares held No of Partly paid-up equity shares held No of Shares Underlyin g Depository Receipts Total No of Shares Held (IV+V+VI) Sharehold ing % calculated as per SCRR, 1957 As a % of total no of shares (A+B+C2) Number of Voting Rights held in each class of securities No of Voting Rights Total as a % of Total Voting Rights (A+B+ C) No of Shares Underlying Outstanding convertible securities (Including Warrants) Shareholdin g as a % assuming full conversion of convertible Securities (as a percentage of diluted share capital) Number of Locked in Shares No. As a % of total Shares held Number of Shares pledged or otherwise encumbered No. As a % of total Shares held Class X Class Y Total (I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX) (X) (XI) (XII) (XIII) share capital up to Rs. 2 lakhs ii.individual shareholders holding nominal share capital in excess of Rs. 2 Lakhs NA NA Number of equity shares held in dematerialized form (b) NBFCs Registered with RBI NA NA (c) Employee Trusts NA NA 0 (d) Overseas Depositories (Holding DRs) (Balancing figure) NA NA 0 (e) Any Other FOREIGN NATIONALS NA NA 3815 BODIES CORPORATES NA NA NON-RESIDENT INDIAN NON-REPATRIABLE NA NA CLEARING MEMBERS NA NA H U F NA NA NON-RESIDENT INDIANS NA NA TRUSTS NA NA Sub Total (B)(3) Total Public Shareholding (B) = (B)(1)+(B)(2)+(B)(3) As on the date of this Offering Circular, other than the options outstanding under the employee stock option plans instituted by the Bank, there are no outstanding convertible securities, including warrants, which would entitle any person any option to receive equity shares HK:

171 THE INDIAN FINANCIAL SECTOR The information presented in this section has been extracted from publicly available documents from various sources, including officially prepared materials from the Government and its various ministries, the RBI and the Indian Banks Association, and has not been prepared or independently verified by the Bank the Dealers, the Trustee, the Agents or any of their affiliates or advisers. Introduction The RBI, the central banking and monetary authority of India, is the central regulatory and supervisory authority for Indian banks and non-banking finance companies. A variety of financial intermediaries in the public and private sectors participate in India s financial sector, including the following: commercial banks; small banks and payment banks; long-term lending institutions; non-banking financial companies, including housing finance companies; other specialised financial institutions and state-level financial institutions; insurance companies; and mutual funds. Until the 1990s, the Indian financial system was strictly controlled. Interest rates were administered by the Government. Formal and informal parameters governed asset allocation and strict controls limited entry into and expansion within the financial sector. Bank profitability was low, NPAs were comparatively high, capital adequacy was diminished and operational flexibility was hindered. The Government s economic reform programme, which began in 1991, encompassed the financial sector. The first phase of the reform process began with the implementation of the recommendations of the Committee on the Financial System, namely the Narasimham Committee I. Following that, reports were submitted in 1997 and 1998 by other committees, such as the second Committee on Banking Sector Reform, namely the Narasimham Committee II, and the Tarapore Committee on Capital Account Convertibility. This, in turn, led to the second phase of reforms relating to capital adequacy requirements, asset classification and provisioning, risk management and merger policies. The deregulation of interest rates, the emergence of a liberalised domestic capital market and the entry of new private sector banks have progressively intensified the competition among banks. Banks in India may be categorised as scheduled banks and non-scheduled banks, where the former are banks which are included in the second schedule to the RBI Act as amended. These banks comprise scheduled commercial banks and scheduled cooperative banks. This discussion presents an overview of the role and activities of the RBI and of each of the major participants in the Indian financial system, with a focus on commercial banks. This is followed by a brief summary of the banking reform process along with the recommendations of various committees that have played a key role in the reform process. A brief discussion on the impact of the liberalisation process on long-term lending institutions and commercial banks is then presented. Finally, reforms in the non-banking financial sector are briefly reviewed HK:

172 The Reserve Bank of India The RBI, established in 1935, is the central banking and monetary authority in India. The RBI manages the country s money supply and foreign exchange and also serves as a bank for the Government and for the country s commercial banks. In addition to these traditional central banking roles, the RBI undertakes certain developmental and promotional roles. The RBI issues guidelines on exposure limits, income recognition, asset classification, provisioning for non-performing and restructured assets, investment valuation and capital adequacy for commercial banks, long-term lending institutions and non-banking financial companies. The RBI requires these institutions to furnish information relating to their businesses to it on a regular basis. For further discussion regarding the RBI s role as the regulatory and supervisory authority of India s financial system and its impact on the Bank, see Supervision and Regulation. Commercial Banks Commercial banks in India have traditionally focused on meeting the short-term financial needs of industry, trade and agriculture. In recent years they have also focused on increasing longterm financing to sectors such as infrastructure. As of 31 December 2016, there were 148 scheduled commercial banks in the country, including 56 regional rural banks (RRBs). Scheduled commercial banks are banks that are listed in the schedule to the Reserve Bank of India Act, 1934 (the RBI Act) and are further categorised as public sector banks, private sector banks and foreign banks. Scheduled commercial banks have a presence throughout India with a network of 136,412 branches, and approximately per cent. of these branches were located in rural or semi-urban areas of the country as of 31 December A large number of these branches belong to the public sector banks. Public Sector Banks Public sector banks make up the largest category in the Indian banking system. They include the State Bank of India and its five associate banks, 20 nationalised banks (including IDBI Bank) and 56 RRBs. Excluding the RRBs, the remaining public sector banks have 91,760 branches and accounted for per cent. of gross bank credit and per cent. of the aggregate deposits of the scheduled commercial banks as of 31 December The public sector banks large network of branches enables them to fund themselves out of low cost savings and current accounts. RRBs were established from 1976 to 1987 by the Government, state governments and sponsoring commercial banks jointly with a view to develop the rural economy. RRBs provide credit to small farmers, artisans, small entrepreneurs and agricultural labourers. The National Bank for Agriculture and Rural Development (NABARD) is responsible for supervising the functions of the RRBs. In 1986, the Kelkar Committee made comprehensive recommendations covering both the organisational and operational aspects of RRBs, several of which were adopted as amendments to the Regional Rural Bank Act, As part of a comprehensive restructuring programme, recapitalisation of the RRBs was initiated in fiscal 1995, a process which continued until fiscal 2000 and covered 187 RRBs, with aggregate financial support of Rs billion from the stakeholders. Simultaneously, prudential norms on income recognition, asset classification and provisioning for loan losses following customary banking benchmarks were introduced. As of 31 December 2016, there were 20,968 branches of RRBs. As of 31 December 2016, RRBs accounted for 3.48 per cent. of aggregate deposits and 2.86 per cent. of gross bank credit outstanding of scheduled commercial banks HK:

173 Private Sector Banks Most large banks in India were nationalised in 1969, resulting in public sector banks making up the largest portion of Indian banking. The Government s focus on public sector banks was maintained throughout the 1970s and 1980s. In addition, existing private sector banks that showed signs of an eventual default were merged with state-owned banks. In July 1993, as part of the banking reform process and as a measure to induce competition in the banking sector, the RBI permitted entry of the private sector into the banking system. This resulted in the introduction of private sector banks. These banks are collectively known as the new private sector banks. As of 31 December 2016, there were a total of 26 private banks. The Sangli Bank Limited, an unlisted old private sector bank, merged with ICICI Bank with effect from 19 April The Centurion Bank of Punjab merged with HDFC Bank in May The Bank of Rajasthan Limited, an old private sector bank, merged with ICICI Bank with effect from the close of business on 12 August On 1 April 2015, the RBI approved the merger of Kotak Mahindra Bank and ING Vysya Bank. As of 31 December 2016, private sector banks accounted for approximately per cent. of aggregate deposits and per cent. of gross bank credit outstanding of the scheduled commercial banks. As of 31 December 2016, their network of 23,392 branches accounted for per cent. of the total branch network of scheduled commercial banks in the country. In February 2013, the RBI issued guidelines on the entry of new private sector banks into the banking industry, specifying that select entities or groups in the private sector, entities in the public sector or non-banking financial companies with a successful track record of at least ten years and not receiving over 10 per cent. of income from real estate, construction and/or broking activities are eligible to promote banks. The initial minimum capital requirement for these entities is Rs. 5.0 billion, with foreign shareholding not exceeding 49.0 per cent. for the first five years, and the new banks could be set up only through a wholly-owned non-operative financial holding company registered with the RBI. The business plan for the bank should cover a realistic plan for achieving financial inclusion. On 2 April 2014, the RBI granted in-principle approval to two applicants (IDFC Limited and Bandhan Financial Services Private Limited) to set up banks under the New Banks Licensing Guidelines. As at the date of this Offering Circular, these two banks had started functioning. In the future, the RBI intends to issue licences on an ongoing basis, subject to the RBI s qualification criteria. The RBI also issued guidelines in November 2014 on the entry of Small Finance Banks and Payments Banks into the private sector in the banking industry, including the eligibility criteria, structure, capital requirements, shareholding structure and corporate governance practices applicable to such proposed entities. During fiscal 2016, the RBI issued new bank licences to Small Finance Banks and Payments Banks in the private sector, which, apart from providing an impetus to financial inclusion, is expected to intensify competition in the banking sector in the medium term. As of 31 March 2017, two entities had functioning payment banks and four entities had approvals from the RBI for the setting up of payment banks. In addition, six entities had a functioning small finance bank and one entity had approval to set up a small finance bank. Foreign Banks As of 31 December 2016, there were over 43 foreign banks operating in India with a combined total of 292 branches. As of 31 December 2016, they accounted for per cent. of aggregate deposits and per cent. of outstanding gross bank credit of scheduled commercial banks. In 2009, as part of the liberalisation process that accompanied the second phase of the reform process that began in 2005, the RBI began permitting foreign banks to operate more freely, subject to requirements largely similar to those imposed on domestic banks. The primary activity of most HK:

174 foreign banks in India has been in the corporate segment. However, some of the larger foreign banks have made retail banking a significant part of their portfolios. Most foreign banks operate in India through branches of the parent bank. Certain foreign banks also have wholly owned non-banking financial company subsidiaries or joint ventures for both corporate and retail lending. In 2004, the RBI stipulated that banks, including foreign banks operating in India, should not acquire any fresh stake in another bank s equity shares if, by such acquisition, the investing bank s holding would exceed 5.0 per cent. of the investee bank s equity capital. In February 2005, the Government and the RBI released the Roadmap for Presence of Foreign Banks in India, which laid out a two-track, gradual approach aimed at increasing the efficiency and stability of the banking sector in India. The first track was the consolidation of the domestic banking system, both in the private and public sectors; the second track was the gradual enhancement of the presence of foreign banks in a synchronised manner. The roadmap was divided into two phases, the first phase spanning the period from March 2005 to March 2009, and the second phase beginning in April However, the second phase was delayed due to the global financial crisis in In January 2011, the RBI released a draft discussion paper on the mode of presence of foreign banks in India. The paper indicates a preference for a wholly owned subsidiary model of presence over a branch model. Based on the comments received, the RBI in its annual policy statement for fiscal 2012 stated that it was in the process of framing comprehensive guidelines in this regard. On 20 July 2012, the RBI revised priority sector lending guidelines for foreign banks. The RBI now requires foreign banks with 20 or more branches to achieve the same priority sector lending targets as domestic banks within the five-year period commencing on 1 April All other foreign banks will continue to be subject to the existing overall target of 32 per cent. On 6 November 2013, the RBI issued a framework for the establishment of wholly-owned subsidiaries (WOS) by foreign banks in India. The framework requires that foreign banks must establish a WOS to operate in India if they (i) have complicated holding structures, (ii) do not provide adequate disclosure in their home jurisdiction, or (iii) are from jurisdictions that give a preferential claim to depositors of its home country in a winding up proceeding. Banks not fitting these criteria may operate as either a branch or a WOS. The framework does not require existing foreign banks (which established a presence in India before 31 August 2010) to convert into a WOS. However, foreign banks are incentivised to convert into a WOS because the regulatory regime for a WOS is similar to that for local banks. For example, a foreign bank WOS would benefit from policies such as the lifting of nearly all branch expansion restrictions. However, foreign banks converting into a WOS would have to abide by the RBI s 40 per cent. priority sector lending requirement and increase their involvement in the financing of sectors such as agriculture and small-scale industries, following an adequate transition period. Cooperative Banks Cooperative banks cater to the financing needs of agriculture, small industry and self-employed businessmen in urban and semi-urban areas of India. The state land development banks and the primary land development banks provide long-term credit for agriculture. In response to liquidity and insolvency problems experienced by some cooperative banks in fiscal 2001, the RBI undertook several interim measures, pending formal legislative changes, including measures relating to lending against shares, borrowing in the call market and term deposits placed with other urban cooperative banks. Currently, the RBI is responsible for the supervision and regulation of urban cooperative banks, and NABARD for state cooperative banks and district central cooperative banks. In its annual policy statement for fiscal 2010, the RBI proposed expanding the area of operation of Tier II urban cooperative banks in Grade I to the entire state of registration with the prior approval of the RBI. It also proposed reviewing the existing instructions and issuing appropriate HK:

175 guidelines to urban cooperative banks on internal controls, risk management systems, asset liability management and disclosure norms and applying a capital charge for market risks in respect of large-sized and systemically important urban cooperative banks with effect from 1 April Urban cooperative banks that fulfil certain eligibility criteria are allowed direct access to the negotiated dealing system (NDS) order matching (OM), subject to obtaining prior approval from the RBI. This helps deepen the bond market by increasing the number of participants. Long-Term Lending Institutions The long-term lending institutions were established to provide medium-term and long-term financial assistance to various industries for setting up new projects and for the expansion and modernisation of existing facilities. These institutions provided fund-based and non-fund-based assistance to industries in the form of loans, underwriting, direct subscription to shares, debentures and guarantees. The primary long-term lending institutions included Industrial Development Bank of India (now IDBI Bank), IFCI Limited, the Industrial Investment Bank of India and ICICI prior to its amalgamation with ICICI Bank Limited. The long-term lending institutions were expected to play a critical role in Indian industrial growth and, accordingly, had access to concessional Government funding. However, in recent years, the operating environment of the long-term lending institutions has changed substantially. Although the initial role of these institutions was largely limited to providing a channel for Government funding to industry, the reform process required such institutions to expand the scope of their business activities, including into: fee-based activities such as investment banking and advisory services; and short-term lending activity, including making corporate finance and working capital loans. Pursuant to the recommendations of the Narasimham Committee II and the Khan Working Group in 1998, a working group was created in 1999 to harmonise the role and operations of longterm lending institutions and banks. The RBI, in its mid-term review of monetary and credit policy for fiscal 2000, announced that long-term lending institutions would have the option of transforming themselves into banks subject to compliance with the prudential norms applicable to banks. Several mergers resulted from this reform effort. In April 2002, ICICI merged with ICICI Bank. The Industrial Development Bank (Transfer of Undertaking and Repeal) Act, 2003 converted the Industrial Development Bank of India into a banking company incorporated under the Companies Act, 1956 on 27 September 2004, with exemptions from certain statutory and regulatory norms applicable to banks, including an exemption for a certain period of time from the statutory liquidity ratio (SLR). IDBI Bank Limited, a public sector bank that was a subsidiary of the Industrial Development Bank of India, was merged with the Industrial Development Bank of India in April The long-term funding needs of Indian companies are now primarily met by banks, Life Insurance Corporation of India and specialised non-banking financial companies such as Infrastructure Development Finance Corporation. Indian banking companies also make bond issuances to institutional and retail investors. Non-Banking Financial Companies There were about 11,612 non-banking financial companies in India as at 28 February 2017, mostly in the private sector. All non-banking financial companies are required to register with the RBI. The non-banking financial companies may be categorised into entities which take public deposits and those which do not. The companies which take public deposits are subject to strict supervision and the capital adequacy requirements of the RBI. The RBI classifies non-banking HK:

176 financial companies into three categories: asset finance companies, loan companies and investment companies. In February 2010, the RBI introduced a fourth category of non-banking financial company called infrastructure finance companies, and followed up in December 2011 with the announcement of a separate category of non-banking financial company microfinance institutions. The primary activities of the non-banking financial companies are providing consumer credit, including automobile finance, home finance and consumer durable products finance, wholesale finance products such as bill discounting for small and medium companies and infrastructure finance, and fee-based services such as investment banking and underwriting. In 2003, Kotak Mahindra Finance Limited, a large non-banking financial company, was granted a banking licence by the RBI and converted itself into Kotak Mahindra Bank. During fiscal 2006, the RBI issued guidelines on the financial regulation of systemically important non-banking financial companies and banks relationships with them with a view to removing the possibility of regulatory arbitrage leading to an uneven playing field and potential systemic risk. Within non-deposit taking non-banking financial companies, the guidelines classify those with an asset size above Rs. 1.0 billion as per the last audited balance sheet as systemically important. These non-banking financial companies were required to maintain a minimum capital to riskweighted assets ratio of 10.0 per cent., in addition to conforming to single and group exposure norms. In August 2008, the RBI issued draft guidelines covering non-deposit taking non-banking financial companies. It was proposed that non-deposit taking non-banking financial companies with an asset size of Rs. 1.0 billion and above would have to maintain a capital to risk-weighted assets ratio of 12.0 per cent. instead of the current minimum of 10.0 per cent. The capital adequacy ratio was proposed to be increased to 15.0 per cent. from April In its 2009 annual policy statement, the RBI deferred the implementation of the capital to risk-weighted assets ratio of 12.0 per cent. requirement to 31 March 2010 and of 15.0 per cent. to 31 March In February 2011, the RBI issued guidelines mandating deposit taking non-banking financial companies to maintain a capital to risk-weighted assets ratio of 15.0 per cent. against the current minimum of 12.0 per cent. With the purpose of enhancing the flow of funds to infrastructure projects, the RBI issued guidelines in November 2011 for the establishment of infrastructure debt funds. An infrastructure debt fund may be set up either as a trust or as a company. A trust-based infrastructure debt fund would be a mutual fund which would be regulated by SEBI, while a company-based infrastructure debt fund would be a non-banking financial company which would be regulated by the RBI. All non-banking financial companies, including infrastructure finance companies, may sponsor infrastructure debt funds set up as mutual funds. However, only infrastructure finance companies can sponsor infrastructure debt funds set up as non-banking financial companies. Banks are allowed to sponsor infrastructure debt funds in the form of mutual funds and non-banking financial companies with investments by the bank not exceeding 10 per cent. of the bank s paid-up capital. In August 2011, the RBI released a working group report on issues and concerns in the non-banking financial companies sector. Some key recommendations of the report included a minimum asset size of Rs. 500 million with a minimum net owned fund of Rs. 20 million for registering as a non-banking financial company, a minimum Tier I capital of 12 per cent. to be achieved in three years, the introduction of liquidity ratios, more stringent asset classification norms and provisioning norms, and limits on exposure to real estate. In December 2012, the RBI issued draft guidelines on the regulatory framework for non-banking financial companies based on the recommendations of the working group. The guidelines relate to entry norms, principal business criteria, prudential regulations, liquidity requirements and corporate governance of non-banking financial companies. On 1 April 2014, the RBI temporarily suspended, for a period of one year, the issue of certificates of registration to companies proposing to conduct the business of non-banking financial HK:

177 institutions (NBFI) under the terms of Section 45IA of the RBI Act. The report submitted by the Committee on Comprehensive Financial Services for Small Businesses and Low Income Households made several recommendations pertaining to NBFCs. In view of the recommendation, the RBI felt the need to review the regulatory framework and streamline the sector before allowing more entities into the sector. On 10 November 2014, the RBI revised the regulatory framework for NBFCs by raising the capital adequacy requirement and the net owned fund limit, among others, with an objective to mitigating risks in the sector and revoked, with immediate effect, its temporary suspension on issuance of a Certificate of Registration to companies proposing to conduct the business of a NBFI. The minimum Tier I capital requirement for non-deposit taking NBFCs having an asset size of Rs. 5,000 million and above and all deposit taking NBFCs was raised to 10 per cent. from 7.5 per cent. in a gradual manner (8.5 per cent. by the end of March 2016 and per cent. by the end of March 2017). The net owned fund requirement would be required to be raised in a phased manner from Rs. 2.5 million to Rs. 10 million by March 2016, and then further to Rs. 20 million by The RBI circular on Systemically Important Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions dated 1 July 2016 and the master direction Non-Banking Financial Company Non-Systemically Important Non- Deposit taking Company (Reserve Bank) Directions, 2016 dated 1 September 2016 states that the minimum capital ratio consisting of Tier I and Tier II capital shall not be less than 15 per cent. of its aggregated risk-weighted assets on-balance sheet and of risk adjusted value of off-balance sheet items. The total of Tier I capital, at any time, shall not be less than 8.5 per cent. as of 31 March 2016 and 10 per cent. as of 31 March Housing Finance Companies Housing finance companies form a distinct sub-group of non-banking financial companies. As a result of the various incentives given by the Government for investing in the housing sector in recent years, the scope of this business has grown substantially. Housing Development Finance Corporation Limited is a leading provider of housing finance in India. In recent years, several other players, including banks, have entered the housing finance industry. The National Housing Bank and Housing and Urban Development Corporation Limited are the two major financial institutions instituted through acts of Parliament to improve the availability of housing finance in India. The National Housing Bank Act provides for securitisation of housing loans, foreclosure of mortgages and setting up of the Mortgage Credit Guarantee Scheme. In August 2013, the IRDA relaxed the investment regulations of housing finance companies (HFCs), as specified in the IRDA (Investment) Regulations, 2000, as follows: investments in debt instruments issued by the HFCs as specified in the Investment Regulations shall be treated as exposure to the housing sector instead of exposure to Financial and Insurance Activities ; and the single investee debt exposure limits in the HFCs was increased to 20 per cent. of equity plus free reserves from the existing 10 per cent. limit, with a further option of an increase by an additional 5 per cent. on the 20 per cent. limit, with prior approval from the board of the company HK:

178 Other Financial Institutions Specialised Financial Institutions In addition to the long-term lending institutions, there are various specialised financial institutions which cater to the specific needs of different sectors. These include NABARD, Export Import Bank of India, Small Industries Development Bank of India, Risk Capital and Technology Finance Corporation Limited, Tourism Finance Corporation of India Limited, National Housing Bank, Power Finance Corporation Limited, Infrastructure Development Finance Corporation Limited, Industrial Investment Bank of India, North Eastern Development Finance Corporation and India Infrastructure Finance Company. State-level Financial Institutions State financial corporations operate at the state level and form an integral part of the institutional financing system. State financial corporations were set up to finance and promote SMEs. The state financial institutions are expected to achieve balanced regional socio-economic growth by generating employment opportunities and widening the ownership base of industry. At the state level, there are also state industrial development corporations, which provide finance primarily to mediumsized and large enterprises. Insurance Companies As at 17 December 2016, there were 54 insurance companies in India, of which 24 are life insurance companies, 30 are general insurance companies and one is a re-insurance company. Of the 24 life insurance companies, 23 are in the private sector and one is in the public sector. Among the general insurance companies, 23 are in the private sector and seven (including the Export Credit Guarantee Corporation of India Limited and the Agriculture Insurance Company of India Limited) are in the public sector. The re-insurance company General Insurance Corporation of India is in the public sector. Life Insurance Corporation of India, General Insurance Corporation of India and public sector general insurance companies also provide long-term financial assistance to the industrial sector. The insurance sector in India is regulated by the Insurance Regulatory and Development Authority. In December 1999, the Indian Parliament passed the Insurance Regulatory and Development Authority Act, 1999, which amended the Insurance Act, 1938 and opened up the Indian insurance sector for foreign and private investors. The Insurance Act allows foreign equity participation in new insurance companies of up to 26.0 per cent. A new company should have minimum paid-up equity capital of Rs. 1.0 billion to carry on the business of life insurance or general insurance or Rs. 2.0 billion to carry on exclusively the business of re-insurance. In its monetary and credit policy for fiscal 2001, the RBI issued guidelines governing the entry of banks and financial institutions into the insurance business. The guidelines permit banks and financial institutions to enter the business of insurance underwriting through joint ventures provided they meet stipulated criteria relating to their net worth, capital adequacy ratios, profitability track record, level of non-performing loans and the performance of their existing subsidiary companies. The promoters of insurance companies have to divest in a phased manner their shareholding in excess of 26.0 per cent. (or such other percentage as may be prescribed) after a period of ten years from the date of commencement of business or within such period as may be prescribed by Government. In December 2014, the Indian government raised the limit on foreign equity participation in private sector insurance companies from 26.1 per cent. to 49.0 per cent. Gross direct premium of general insurance companies grew by 32 per cent. to Rs trillion in fiscal year 17, as per Insurance Regulatory and Development Authority of India (IRDAI). The Pradhan Mantri Fasal Bima Yojana (PMFBY) is likely to have played a role in the growth of the non HK:

179 life insurance industry. Premiums worth Rs billion have been collected through PMFBY during the year. Over the past few years, health and motor insurance were the largest contributors to the growth of the non-life insurance industry. However, since the introduction of crop insurance in fical year 2016, the share of crop insurance has surged to per cent. in the non-life insurance industry. Crop insurance comes third in terms of premium received after motor and health insurance. The data from IRDAI also showed that 18 private sector general insurers saw their gross direct premium at Rs. 53,663 crore up by per cent. in the last fiscal year. While four public sector insurers grew slower than private insurers at per cent. getting gross direct premiums of Rs. 59,358 crore in However, the four public sector insurers continued their dominant position with market shares of 46.7 per cent. as compared to 42.2 per cent. of private insurers as in March The industry believes that in the current fiscal year the sector might cross Rs. 1.5 trillion in premiums and growth will continue to come from segments like motor, health and crop insurance. Indian non-life insurance sector GDPI grew at a CAGR of 17.4 per cent. between fiscal 2001 and fiscal According to Swiss Re, India is among the fastest growing non-life insurance markets. Despite its size and growth profile, India continues to be an underpenetrated market with a low non-life insurance penetration. Furthermore, insurance density also remains significantly lower as compared to other developed and emerging market economies. India, armed with pro-growth structural reforms, including increased spending on infrastructure, promises to boost demand for non-life insurance products. General insurance players believe the industry will break out over the next few years. The companies are likely to consider a segmented or specialist approach based on their strengths, and offer products accordingly. For instance, some may primarily function online, some companies may specialise in area or industry specific products, and some others may be boutique companies. The smaller companies or new entrants having a specialist approach would help in gaining market share. The Insurance Laws (Amendment) Bill has lowered the minimum capital required for a health insurer to Rs. 50 crore from Rs. 100 crore earlier, this should result in many regional health insurance players coming up. As per industry expectations, FDI relaxation has resulted in infusion of foreign capital and IPOs which is aiding insurance penetration. Further, IRDA has also pitched for involving small and payment banks to help deepen the insurance penetration. The majority of growth still continues to be driven by motor and health insurance, although other segments such as marine and engineering are seeing some uptick. It is expected that the Engineering segment is likely to perform better as new projects are expected to come up with the revival of India s economy. Mutual Funds The mutual fund industry in India started in 1963 with the formation of Unit Trust of India at the initiative of the Government and the RBI. From 1963 to 1987, Unit Trust of India was the only mutual fund operating in India. From 1987 onwards, several other public sector mutual funds entered this sector. These mutual funds were established by public sector banks, LIC and General Insurance Corporation of India. The mutual funds industry was opened up to the private sector in The industry is regulated by the SEBI (Mutual Fund) Regulation, As of 31 March 2017, there were 42 mutual funds in India with average total assets under management of Rs. 18,295 billion, an increase of 27 per cent. from Rs. 14,410 billion as of 30 June In June 2009, SEBI removed the entry load for all mutual fund schemes and directed that upfront commissions to distributors be paid directly by the investors. To enhance the reach and marketability of mutual fund schemes, in November 2009, SEBI permitted the use of stock exchange terminals to facilitate transactions in mutual fund schemes. As a result, mutual fund units can now be traded on recognised stock exchanges. In February 2010, SEBI introduced guidelines for the valuation of money market and debt securities with a view to ensuring that the value of the money market and debt securities in the portfolio of mutual funds schemes reflect the current market scenario. The valuation guidelines are effective from 1 August Further, the Union Budget for fiscal HK:

180 allowed mutual fund distributors to become members of the mutual fund segment of stock exchanges to enable them to leverage the stock exchange network to improve the reach and distribution of mutual fund products. Banking Sector Reform Most large banks in India were nationalised in 1969 and thereafter were subject to a high degree of control until reform began in In addition to controlling interest rates and entry into the banking sector, these Government regulations also channelled lending into priority sectors. Banks were required to fund the public sector through the mandatory acquisition of low interest-bearing Government securities or SLR bonds to fulfil statutory liquidity requirements. As a result, bank profitability was low, non-performing assets were comparatively high, capital adequacy was diminished, and operational flexibility was hindered. Committee on the Financial System (Narasimham Committee I) The Committee on the Financial System (Narasimham Committee I) was set up in August 1991 to recommend measures for reforming the financial sector. Many of the recommendations made by the committee, which addressed organisational issues, accounting practices and operating procedures, were implemented by the Government. The major recommendations that were implemented included the following: with fiscal stabilisation and the Government increasingly resorting to market borrowing to raise resources, the SLR or the proportion of banks net demand and time liabilities that was required to be invested in Government securities was reduced from 38.5 per cent. in the pre-reform period to 25.0 per cent. in October The RBI currently requires banking companies to maintain a liquidity ratio of per cent. with effect from 7 January 2017; similarly, the cash reserve ratio (CRR) or the proportion of a bank s net demand and time liabilities that was required to be deposited with the RBI was reduced from 15.0 per cent. in the pre-reform period to a low of 4.5 per cent. The CRR effective from 9 February 2013 is 4.00 per cent.; special tribunals were created to resolve bad debt problems; most of the restrictions on interest rates for deposits were removed. Commercial banks were allowed to set their own level of interest rates for all deposits except savings bank deposits. Subsequently, on 25 October 2011, the RBI deregulated the savings bank deposit rate, after which commercial banks were also allowed to determine their savings bank deposit rate; and substantial capital infusion to several state-owned banks was approved in order to bring their capital adequacy closer to internationally accepted standards. By the end of fiscal 2002, aggregate re-capitalisation amounted to Rs billion. Stronger public sector banks were given permission to issue equity to further increase capital. Committee on Banking Sector Reform (Narasimham Committee II) The second Committee on Banking Sector Reform (Narasimham Committee II) submitted its report in April The major recommendations of the committee were in respect of capital adequacy requirements, asset classification and provisioning, risk management and merger policies. The RBI accepted and began implementing many of these recommendations in October HK:

181 Banks have implemented new prudential accounting norms for the classification of assets, income recognition and loan loss provisioning. Following the Bank for International Settlements guidelines, capital adequacy norms have also been prescribed. To meet additional capital requirements, public sector banks have been allowed to access the market for funds. Interest rates have been deregulated, while the rate of directed lending has been progressively reduced. Commercial Banking Trends Credit For fiscal 2017, credit to agriculture and allied activities grew by 12.4 per cent. as compared to 15.3 per cent. in fiscal For the industry sector, the credit contracted by 1.9 per cent. in fiscal 2017 in contrast with an increase of 2.7 per cent. in fiscal The slowdown within the industry sector was mainly seen in infrastructure, basic metal and metal products, textiles and food processing sub-sectors. Credit to the services sector increased by 19.5 per cent. during fiscal 2017, as compared to 9.1 per cent. during fiscal Personal loans increased by 16.7 per cent. during fiscal 2017 as compared with an increase of 19.4 per cent. during fiscal Growth expectation for fiscal year 18 is likely to be at ~ 7 per cent. to 9 per cent., largely supported by strong retail credit demand. During , aided by a demonetisation exercise by the government, deposit growth of scheduled commercial banks (SCBs) picked up to ~11 per cent. year-over-year growth. Inflation Inflation picked up during the first four months of , driven by an upsurge in food prices, outweighing favourable base effects. With the monsoon gaining momentum, however, inflation reversed into a declining trajectory beginning August 2016, which was accentuated by falling food prices, especially those of vegetables, in the wake of demonetisation in November Rapid disinflation in the food group drove down headline inflation month after month barring February and March to a low of 1.5 per cent. in June Eventually, the year ended with a subdued inflation of 3.6 per cent. in Q4, undershooting the RBI s projection of 5.0 per cent. Asset quality and capital position The asset quality of the banking sector continued to be a concern during 2016 and In the aftermath of the asset quality review (AQR) undertaken by the Reserve Bank beginning July 2015 and concomitantly with better recognition of NPAs, the asset quality of banks, particularly the PSBs, deteriorated sharply. As of end of March 2017, 12.1 per cent. of the advances of the banking system were stressed (sum of gross NPAs and restructured standard advances). PSU banks reported average stressed asset levels of ~15 per cent. and private banks average was sub 5 per cent. A sharp increase in provisioning for NPAs adversely impacted the profitability of banks, with the PSBs as a whole continuing to incur net losses during While agriculture, retail and the services sector witnessed a decline in stressed assets, stressed assets in the industry sector rose to 23 per cent. as at March 2017 (22 per cent. as at September 2016). This has been primarily on account of sectors like cement, mining and metals. Further, it is estimated that around 7.7 per cent. of advances is under various resolution schemes of which ~5.8 per cent. is still classified as standard. Hence, overall vulnerable portfolio (GNPAs+Standard restructured+advances under SDR/S4A and 5:25 schemes) is ~18 per cent. of total outstanding bank credit. The capital position of many banks also witnessed erosion even though the total capital to total risk-weighted assets ratio, i.e., total capital adequacy ratio (CRAR) for the banking system as a whole marginally increased and continued to be above the regulatory minimum under the Basel III framework. Overall, CRAR stood at 13.4 per cent. as at March 2017 as compared to the regulatory required level of per cent. The large amount of bad loans circumscribed the ability of banks to HK:

182 lend, as reflected in the declining credit growth in recent years. Large NPAs also led to risk aversion on the part of banks as apprehension of loans turning into NPAs intensified. Furthermore, banks engaged in diversifying their credit portfolios, reducing their exposure from large industries and shifting towards the relatively less stressed categories of housing, personal loans and services. Income and profitability PSUs earning profile is weak on account of decline in earning assets, pressure on NIMs with decline in yields and higher NPAs and provisions. Private Banks remained comfortable on the back of operating profits growth. Average ROAs for PSUs were negative, while private banks reported ROAs of ~1.5 per cent. Overall banking sector average stood at sub 0.5 per cent. ROE for the sector stood at 4.3 per cent. with private banks reporting ROEs of 12 per cent. while PSUs were reporting negative 2.4 per cent. Recent Structural Reforms Amendments to the Banking Regulation Act In order to provide greater operational flexibility to the RBI, as the regulator and the authority vested with the powers to conduct monetary policy through the stipulation of the holding of liquid instruments by banks, the Government promulgated the Banking Regulation (Amendment) Ordinance, 2007 (the Ordinance) on 23 January 2007, enabling the RBI to specify the SLR without any floor rate. The Ordinance facilitated the removal of the then existing SLR floor of per cent., while leaving the ceiling of per cent. intact. On 9 March 2007, the Banking Regulation (Amendment) Bill, 2007 was introduced in Parliament seeking to replace the Ordinance and to amend Section 24 of the Banking Regulation Act to enable the RBI to specify the SLR without any floor rate. Changes were also proposed to Section 53 of the Banking Regulation Act to make it mandatory to present draft notification before the Indian Parliament in cases of exemptions being granted to institutions, banks or branches located in special economic zones. The Ordinance has subsequently been repealed and replaced by the Banking Regulation (Amendment) Act, 2007, which received the assent of the President on 26 March 2007 and is deemed to have come into force on 23 January In December 2012, the Indian Parliament further amended the laws governing the banking sector by way of the Banking Laws (Amendment Act), This Act seeks to strengthen the regulatory powers of the RBI and to further develop the banking sector in India. The main amendments are as follows: permit all private banking companies to issue preference shares that will not carry any voting rights, subject to RBI guidelines; make prior approval of the RBI mandatory for the acquisition of more than 5.00 per cent. of a banking company s paid-up capital or voting rights by any individual, firm or group, and empower the RBI to impose conditions while granting approval for such acquisitions; empower the RBI, after consultations with the Government, to supersede the board of a private sector bank for a total period not exceeding 12 months, during which time the RBI will have the power to appoint an administrator to manage the bank; give the RBI the right to inspect affiliates of enterprises or banking entities (affiliates include subsidiaries, holding companies or any joint ventures of banks); and HK:

183 restrict the maximum voting power exercisable by a shareholder in a private banking company to per cent. irrespective of its total shareholding and raise the ceiling for voting rights of shareholders of a nationalised bank from 1.00 per cent. to per cent. The Banking Laws (Amendment) Act, 2012 was notified in January Legislative Framework for Recovery of Debts due to Banks In fiscal 2003, the Indian Parliament passed the SARFAESI Act. The SARFAESI Act provides that a secured creditor may, in respect of loans classified as non-performing in accordance with RBI guidelines, give notice in writing to the borrower requiring it to discharge its liabilities within 60 days, failing which the secured creditor may take possession of the assets constituting the security for the loan and exercise management rights in relation thereto, including the right to sell or otherwise dispose of the assets. The SARFAESI Act also provides for the setting up of asset reconstruction companies regulated by the RBI to acquire assets from banks and financial institutions. The RBI has issued guidelines for asset reconstruction companies in respect of their establishment, registration and licensing by the RBI, and operations. Asset Reconstruction Company (India) Limited, set up by the Industrial Development Bank of India, State Bank of India and certain other banks and institutions, received registration from the RBI and commenced operation in August Foreign direct investment is now permitted in the equity capital of asset reconstruction companies and investment in security receipts issued by asset reconstruction companies by foreign institutional investors registered with SEBI is permitted, subject to certain conditions and restrictions. Several petitions challenging the constitutional validity of the SARFAESI Act were filed before the Indian Supreme Court. The Supreme Court, in April 2004, upheld the constitutionality of the SARFAESI Act, other than the requirement originally included in the Act that the borrower deposit 75.0 per cent. of the dues with the debt recovery tribunal as a pre-condition for appeal by the borrower against the enforcement measures. In November 2004, the Government issued an ordinance amending the SARFAESI Act. The Indian Parliament has subsequently passed this ordinance as an Act. This Act, as amended, now provides that a borrower may make an objection or representation to a secured creditor after a notice is issued by the secured creditor to the borrower under the Act demanding payment of dues. The secured creditor must give reasons to the borrower for not accepting the objection or representation. The Act also introduces a deposit requirement for borrowers if they wish to appeal the decision of the debt recovery tribunal. Further, the Act permits a lender to take over the business of a borrower under the SARFAESI Act under certain circumstances (unlike the earlier provisions under which only assets could be taken over). See also Supervision and Regulation Regulations Relating to Sale of Assets to Asset Reconstruction Companies. Earlier, following the recommendations of the Narasimham Committee, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was enacted. This legislation provides for the establishment of a tribunal for speedy resolution of litigation and recovery of debts owed to banks or financial institutions. The Act created tribunals before which banks or financial institutions can file a suit for recovery of the amounts due to them. However, if a scheme of reconstruction is pending before the Board for Industrial and Financial Reconstruction, under the Sick Industrial Companies (Special Provision) Act, 1985, no proceeding for recovery can be initiated or continued before the tribunals. This protection from creditor action ceases if the secured creditor takes action under the SARFAESI Act. While presenting its budget for fiscal 2002, the Government announced measures to set up additional debt recovery tribunals and the eventual repeal of the Sick Industrial Companies (Special Provision) Act, While the Indian Parliament has repealed this Act, the notification to make the repeal effective has not yet been issued. The Central Registry of Securitisation Asset Reconstruction and Security Interest of India, a Government company licensed under the Companies Act, has been incorporated to operate and HK:

184 maintain the central registry under the provisions of the SARFAESI Act. With the existence of a central registry, it would be very difficult for a borrower to raise loans twice against the same property, or to raise loans using forged documents, since the central registry holds details of all properties against which loans have been taken. Corporate Debt Restructuring Mechanism In order to put in place an institutional mechanism for restructuring of corporate debt, the RBI devised the corporate debt restructuring (CDR) system guidelines, which were notified through a circular dated 23 August Detailed guidelines in this regard were issued on 5 February The objective of this framework is to ensure a timely and transparent mechanism for the restructuring of corporate debts of viable entities facing problems, outside the purview of the Board for Industrial and Financial Reconstruction, debt recovery tribunals and other legal proceedings. In particular, the framework aims to preserve viable corporates that are affected by certain internal and external factors and to minimise the losses to the creditors and other stakeholders through an orderly and coordinated restructuring programme. The CDR system is a non-statutory mechanism and a voluntary system based on debtor-creditor and inter-creditor agreements. Any lender with an exposure of more than per cent. by value, or by a corporate concerned with support of the lender(s) with exposure of more than per cent. by value, either in term loan or working capital, may make a reference to the CDR forum. Evolution of restructuring under CDR During February 2003, based on the recommendation of the High Level Group under the Chairmanship of Mr. Vepa Kamesam (the then Deputy Governor of the RBI), the RBI issued new guidelines for the review of the CDR mechanism which provided for two categories of restructuring, namely: (i) standard and substandard accounts under Category I; and (ii) doubtful accounts under Category II. The new guidelines also provided that additional exposure as a part of the restructuring process was not to be binding on lenders in the case of Category II accounts and furthermore, for the first time, a debt to equity conversion provision was also introduced. In Category I CDR cases, if a creditor who is outside the minimum per cent. of value and per cent. in number threshold for any internal reason does not wish to commit additional finance, then that creditor can either: (a) arrange for its share of additional finance to be provided by a new or existing creditor; or (b) agree to the deferment of the first year s interest due to it after the CDR package becomes effective. The first year s deferred interest, without compounding, will be payable with the last instalment of the principal due to the creditor. Thereafter the guidelines were further reviewed by a special group under the Chairmanship of Mrs. S. Gopinath (the then Deputy Governor of the RBI) and revised guidelines were issued in November The revised guidelines lowered the eligibility ceiling of accounts in terms of exposure, from the then existing limit of Rs. 200 million to Rs. 100 million. Other major changes included: (i) providing for the concept of super majority, by which decisions could be taken only if per cent. of the lenders by value, and per cent. of the lenders by number, agreed to a proposition; (ii) the concept of asset classification prevailing on the date of reference was linked to the implementation of a package within a period of four months from the date of approval of such package; and (iii) a mandate that additional finance requirements be shared by both term lenders and working capital lenders, on a pro rata basis. Furthermore, the revised guidelines provided that borrowers classified as wilful defaulters may be restructured with the approval of the Core Group. In addition, the guidelines also delegated the authority of the approval of CDR packages to the CDR Empowered Group and the RBI retained the authority to issue broad guidelines. During August 2008, based on the recommendations of the working group constituted to review and align the existing guidelines on restructuring of advances (other than under a CDR mechanism) in line with the provisions under the revised CDR mechanism, new guidelines were HK:

185 issued. These guidelines prescribed that accounts of borrowers engaged in important business activities and classified as standard assets may retain their standard asset classification on restructuring subject to certain conditions. Based on the recommendations of the working group constituted by the RBI in January 2012, under the chairmanship of Mr. B. Mahapatra (the then Executive Director of the RBI), the RBI by its letter dated 18 February 2013 withdrew the special dispensation provision in relation to the second restructuring of CDR accounts, such that if any account is further rescheduled or rephased, it would not result in a reduction in the present value of principal plus interest cash flows and would not be treated as a second restructuring, provided the existing credit facilities continue to be fully secured. On 30 May 2013, based on the recommendations of the Mahapatra Committee, the prudential guidelines on the restructuring of advances by banks and FIs were revised, the major changes being: the extant asset classification benefits available on restructuring on fulfilment of certain conditions will be withdrawn for all restructurings effective from 1 April 2015, with the exception of provisions relating to changes in the date of commencement of commercial operation in respect of infrastructure as well as non-infrastructure projects; an increase in general provision on restructured standard advances from 2.00 per cent. to 5.00 per cent. in a phased manner; to upgrade a restructured account, the specified period will be redefined as a period of one year from the commencement of the first payment of interest or principal, whichever is later, on the credit facility with the longest period of moratorium under the terms of the restructuring package; a unit designated for restructuring should achieve viability in eight years, if it is engaged in infrastructure activities, and in five years in all other cases; promoters sacrifice and additional funds brought by them should be a minimum of per cent. of the bank s sacrifice or 2.00 per cent. of the restructured debt, whichever is higher. The promoters sacrifice should invariably be brought upfront while extending the restructuring benefits to the borrowers; the conversion of debt into preference shares should be made as a last resort and such conversion of debt into equity or preference shares should, in any case, be restricted to a cap (for example, per cent. of the restructured debt). Conversion of debt into equity should be done only in the case of listed companies; promoters personal guarantee should be obtained in all cases of restructuring and corporate guarantee cannot be accepted as a substitute for personal guarantee; and all restructuring packages must incorporate a right to recompense clause and it should be based on certain performance criteria of the borrower. In any case, a minimum of per cent. of the recompense amount should be recovered by the lenders and in cases where some facility under restructuring has been extended below base rate, per cent. of the recompense amount should be recovered. Recent CDR Initiatives In a continuous process of streamlining and updating the CDR procedures and giving clarity to various issues, CDR has recently issued the following guidelines after approval from the Core Group: HK:

186 for the reckoning of restructured debt for the purposes of calculating promoter contribution, the total outstanding amount under fund-based and non-fund-based facilities as on a cut-off date (COD) should be considered. The term upfront in relation to promoter contribution shall mean within a period of 120 days from the date of approval of the package by the Empowered Group; the minimum promoters contribution in all cases would be per cent. of lenders sacrifice or 2.00 per cent. of the restructured debt, whichever is higher. However, since regulatory guidelines state a contribution of per cent. of lenders sacrifice or 2.00 per cent. of restructured debt, a contribution beyond this amount may be permitted within a period of one year from the date of approval of the package; a per cent. cap for conversion of debt to equity introduced by the RBI on 30 May 2013 applies to upfront conversion only. Existing conditions regarding the right to future conversion, namely: (i) the right to convert the entire amount of the funded interest term loan/working capital term loan at any time during the currency of the CDR package; and (ii) the right to convert into equity up to per cent. of the term debt outstanding beyond seven years, is beyond this cap of per cent.; flash reports should invariably contain complete details of the promoters shareholding and the names of all promoters and should specify the promoters whose personal or corporate guarantees are stipulated; lenders need to ensure a pledge of promoters shareholding and the execution of personal and corporate guarantees before the implementation of an approved package. As regards the creation of other security, since it is not a condition precedent to the implementation of a package, lenders need not approach the CDR for an extension of time but should be guided by their internal guidelines; a holistic view of the borrower group should be taken in all cases where the borrower has more than one company. The flash report should indicate the exposure to group/associate companies, strength of management, financial position of the group, total group net worth, equity commitments and cash flows; corporate guarantees given by corporate borrowers in favour of their subsidiaries or group companies are to be mentioned and discussed and their likely impact to be explored in the final package; final reports should clearly indicate whether or not the amounts paid by the borrower post-cod towards the servicing of debt would be refunded and lenders should invariably adhere to the treatment indicated for such amounts; lenders should not levy any charges other than those specified in the CDR Master Circular issued by the CDR cell on 9 January A processing fee may be levied only on additional exposure by way of a term loan or working capital. In the case of working capital facilities, additional exposure for the purposes of a processing fee would be any amount assessed in excess of sanctioned limits as on the COD; all lenders to send clear mandates well in time so that minutes may be finalised within seven working days from the date of any meeting; all lenders to implement the CDR package once it is approved and all legal cases to be withdrawn; HK:

187 monitoring institutions (MIs) to review all cases where terms of approval have not been complied with beyond a period of 120 days from the date of approval and accordingly to inform the Empowered Group; and MIs to review compliance of the condition regarding the publication of the recompense amount by the borrowers in their audited financials and accordingly to inform the Empowered Group. Framework for Recognition of Financial Distress In February 2014, the RBI announced the Framework for Revitalising Distressed Assets in the Economy. The framework outlines a corrective action plan to incentivise the following: early identification of problem cases; timely restructuring of accounts to be viable; prompt steps for recovery or sale of unviable accounts; centralised reporting and dissemination of information on large credits; early formation of lenders committee, with timelines to agree to a plan for resolution in relation to distressed assets; better regulatory treatment of stressed assets if a resolution plan is underway; accelerated provision if no agreements can be reached; improvement in current restructuring process: independent evaluation of large-value restructuring mandated, with a focus on viable plans and a fair sharing of losses (and future possible upside) between promoters and creditors; and making future borrowing more expensive for borrowers who do not cooperate with lenders in resolution. 5/25 Scheme for Infrastructure Sector In a big boost for the infrastructure sector, in July 2014, the RBI introduced a long-term flexible refinancing and repayment option scheme where the exposure of a lender is more than Rs. 5 billion. The scheme allows banks to extend long-term loans of years to match the cash flow of infrastructure projects, with an option of refinancing them every five to seven years. Strategic Debt Restructuring Scheme by Joint Lenders Forum (JLF) In June 2015, the RBI introduced the Strategic Debt Restructuring Scheme by converting loans due to equity shares by JLFs. The main features of this scheme were as follows: the possibility of transferring equity of the company by promoters to the lenders to compensate for their losses; promoters infusing more equity into their companies; transfer of the promoter s holding to a security trustee or an escrow arrangement until turnaround of the company; HK:

188 during the initial restructuring, the JLF must include conditions to the restructured loan agreed with the borrower, an option to convert the entire loan (including unpaid interest) or part thereof into shares into the company in the event the borrower is not able to achieve the liability milestone and/or adhere to critical conditions as stipulated in the restructuring package; and the decision should be documented and approved by the majority of the JLF members (a minimum of 75 per cent. of creditors by value and 60 per cent. of creditors by number). Universal Banking Guidelines Universal banking in the Indian context means the transformation of long-term lending institutions into banks. Pursuant to the recommendations of the Narasimham Committee II and the Khan Working Group, the RBI, in its mid-term review of monetary and credit policy for fiscal 2000, announced that long-term lending institutions would have the option of transforming themselves into banks subject to compliance with the prudential norms as applicable to banks. If a long-term lending institution chose to exercise the option available to it and formally decided to convert itself into a universal bank, it could formulate a plan for the transition path and a strategy for smooth conversion into a universal bank over a specified time frame. In May 2001, the RBI issued guidelines on several operational and regulatory issues which were required to be addressed in evolving the path for transition of a long-term lending institution into a universal bank. Revised Prompt Corrective Action (PCA) Framework The RBI released a revised PCA framework in April The provisions of the revised PCA framework will be effective from 1 April 2017 based on the financials of the banks for the year ended 31 March The framework would be reviewed after three years. Capital, asset quality and profitability continue to be the key areas for monitoring in the revised framework. Indicators to be tracked for Capital, asset quality and profitability would be CRAR/Common Equity Tier I ratio, Net NPAs ratio and Return on Assets respectively. Each of these parameters would have three levels of thresholds with appropriate action for the level of breach. Leverage would be monitored additionally as part of the PCA framework. Breach of any risk threshold (as detailed below) would result in invocation of PCA. Parameter Indicator Threshold 1 Threshold 2 Threshold 3 Capital Breach of either of the below to trigger PCA CAR (10.25% as at Mar'17) upto 250bps lower >250bps-400bps lower - CET1 (6.75% as at Mar'17) upto 162.5bps lower >162.5bps to 312.5bps lower < 3.625% # Asset quality NNPA (earlier norm- 10%) > 6% but <9% > 9% but <12% >=12% Profitabilty ROA (earlier norm- below 0.25%) -ve for 2 yrs -ve for 3 yrs -ve for 4 yrs Leverage Tier 1 leverage ratio <=4.0% but > = 3.5% < 3.5% # Breach of Risk Threshold 3 of CET1 by a bank would identify a bank as a likely candidate for resolution through tools like amalgamation, reconstruction, winding up, etc. Actions by the RBI under the framework Action steps Threshold 1 Threshold 2 Threshold 3 Mandatory Actions Restriction on dividend distribution In addition to actions under threshold 1, In addition to actions under threshold 1, Additional capital from parent restriction on branch expansion restriction on branch expansion higher provision requirement Restriction on management compensation/director fees These would include a) supervisory monitoring meetings/audit b) strategy/governance related actions c) credit/market risk related action d) Discretionary Actions operations related actions HK:

189 Impact on the sector All banks are expected to be compliant with Total CAR and leverage levels stipulated under the framework. Given that NPL ratios are already elevated on the back of AQR in FY2016 and continued stress in the sector, the Bank expect invocation of PCA on banks (primarily public sector banks) on the back of breach of NPAs and RoA thresholds. However, the intent of the framework is to facilitate banks to take corrective measures including those prescribed by the RBI in a timely manner to restore its financial health. Insolvency and Bankruptcy Code As the banking sector struggled with the sizeable volume of NPAs, the Reserve Bank continued its efforts to fortify the regulatory framework through significant policy interventions for improving the banking system s ability to deal with distress. Pursuant to the promulgation of the Banking Regulation (Amendment) Ordinance, 2017, the Reserve Bank constituted an Internal Advisory Committee (IAC) to recommend cases that might be considered for reference under the Insolvency and Bankruptcy Code (IBC), On the recommendation of the IAC, the Reserve Bank directed banks to file proceedings under the IBC in respect of 12 accounts comprising about 25 per cent. of the current gross NPAs of the banking system. The Reserve Bank also brought the Overseeing Committee under its aegis and strengthened it by adding three more members and by expanding its mandate to review the resolution of cases other than those under the Scheme for Sustainable Structuring of Stressed Assets (S4A scheme). Final guidelines on large exposure frameworks and enhancing credit supply for large borrowers through market mechanisms were also issued in order to align the exposure norms for Indian banks with the Basel Committee on Banking Supervision (BCBS) standards and to further diversify the lending base of banks. Base Rate System The benchmark prime lending (the BPLR) system, introduced in 2003, fell short of its original objective of bringing transparency to lending rates. This was mainly because, under the BPLR system, banks could lend below the BPLR. For the same reason, it was also difficult to assess the transmission of policy rates of the RBI to lending rates of the bank. The base rate system replaced the BPLR with effect from 1 July The base rate system is aimed at enhancing transparency in lending rates of banks and enabling better assessments of the transmission of monetary policies. Base rate includes all those elements of the lending rate that are common across all categories of borrowers. Banks may choose any benchmark to arrive at the base rate for a specific tenor that is required to be disclosed transparently. Banks are free to use any methodology in computing the base rate, provided it is consistent and is made available for supervisory review and scrutiny, as and when required. Banks may determine their actual lending rates on loans and advances with reference to the base rate and by including such other customer specific charges as considered appropriate. In order to give banks some time to stabilise the system of base rate calculation, banks were permitted to change the benchmark and methodology until 30 June On 17 December 2015, the RBI released the final guidelines on computing interest rates on advances based on the marginal cost of funds. The guidelines came into effect on 1 April Apart from helping improve the transmission of policy rates into the lending rates of banks, these measures are expected to improve transparency in the methodology followed by banks for determining interest rates on advances. The guidelines are also expected to ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks. Further, marginal cost pricing of loans will help the banks become more competitive and enhance their long-run value and contribution to economic growth HK:

190 The highlights of the guidelines are as follows: 1. all rupee loans sanctioned and credit limits renewed with effect from 1 April 2016 will be priced with reference to the marginal cost of funds-based lending rates (MCLR) which will be the internal benchmark for such purposes; 2. the MCLR will be a tenor linked internal benchmark; 3. actual lending rates will be determined by adding the components of spread to the MCLR; 4. banks will review and publish their MCLR of different maturities every month on a preannounced date; 5. banks may specify interest reset dates on their floating rate loans. They will have the option to offer loans with reset dates linked either to the date of sanction of the loan/credit limits or to the date of review of the MCLR; 6. the periodicity of reset shall be one year or lower; 7. the MCLR prevailing on the day the loan is sanctioned will be applicable until the next reset date, irrespective of the changes in the benchmark during the interim period; 8. existing loans and credit limits linked to the Base Rate may continue until repayment or renewal, as the case may be. Existing borrowers will also have the option to move to the MCLR linked loan on mutually acceptable terms; and 9. banks will continue to review and publish the Base Rate as hitherto. Bank Recapitalisation The government proposed a total recapitalisation package for the public sector banks of Rs trillion (USD 32.4 billion) over the next two years, comprising the following: 1. Recapitalisation bonds of Rs trillion (USD 20.7 billion); 2. Capital raising by banks, by diluting government equity of Rs. 580 billion (USD 8.9 billion); and 3. Budgetary provisions worth Rs billion (USD 2.8 billion). The government had used recapitalisation bonds to provide capital to banks from the 1990s until the early 2000s. Those were initially issued at a fixed interest rate and fixed tenor. In the early 2000s, the coupon was linked to T-bills and the bonds were converted into perpetual securities. At first, the bonds were neither tradable nor eligible for SLR (although they carried zero-risk weight), in order to avoid negatively affecting government bond markets or banking-sector liquidity. In the mid 2000s, the recapitalisation bonds were converted to marketable securities in tranches and made SLReligible, which helped enhance liquidity of the recapitalisations bonds portfolio. Implementation of Ind AS Guidance on the Expected Credit Loss Framework The implementation of Ind AS will mark a major shift from the current accounting framework followed by banks in India which is based on a melange of accounting standards and regulatory guidelines, especially in certain key areas such as classification and measurement of financial instruments, and impairment of financial assets. Recent developments in the banking system HK:

191 underscore the continued importance of adequate provisioning, commensurate with the increase in credit risk. Applying an incurred loss provisioning framework can result in impairments that are recognised after the loss event has occurred, when the probability of default is close to 100 per cent. Provisions are not made as credit risk increases significantly (although short of default) even where bank management has information about stress/future likely losses. Ind AS 109 expresses the view that delinquency is a lagging indicator of significant increase in credit risk. Banks are, therefore, expected to have credit risk assessment and measurement processes in place to ensure that credit risk increases are detected ahead of exposures becoming past due or delinquent, for timely transfer to lifetime expected credit losses. The standard differentiates between the three stages of credit risk: The financial assets in Stage 1 are those with no significant increase in credit risk since initial recognition, or financial instruments that have low credit risk at the reporting date. For these assets, 12-month expected credit losses (ECLs) are recognised in profit or loss. The financial instruments in Stage 2 are those which have experienced a significant increase in credit risk since initial recognition, but with no objective evidence of impairment. For such assets, lifetime ECLs are recognised. This accounting treatment is based on the rationale that an economic loss arises when ECLs significantly exceed initial expectations. By recognising lifetime ECLs following a significant increase in credit risk, this economic loss is reflected in the financial statements. The financial instruments in Stage 3 comprise those for which objective evidence indicates impairment at the reporting date. These are typically non-performing loans where the bank considers that the borrower is unlikely to pay the existing debt. Lifetime ECLs are recognised for these exposures. The estimated overall impact of Ind AS on regulatory capital is likely to be adverse mainly due to the impairment requirements under it. In view of the capital constraints already faced by many banks, particularly public sector banks, the Reserve Bank believes that it may be appropriate to introduce transitional arrangements for the impact of accounting changes on regulatory capital. The primary objective of a transitional arrangement is to avoid a capital shock, by giving banks time to rebuild their capital resources following a potentially significant negative impact arising from the introduction of ECL accounting. The Reserve Bank is also considering the introduction of regulatory floor for provisioning in the regulatory capital calculation, i.e., when a bank makes lower accounting provisions than the standardised regulatory floor amounts, the shortfall would be deducted from the bank s Common Equity Tier 1 (CET) capital, which would incentivise robust provisioning. Credit Policy Measures The RBI issues an annual policy statement setting out its monetary policy stance and announcing various regulatory measures. The RBI issues a review of the annual policy statement on a bi-monthly basis. Monetary Policy Statement for Bi-Monthly Monetary Policy Statement for Fiscal 2018 held in April 2017 Monetary and Liquidity Measures Reduced the policy repo rate under the LAF by 25 basis points from 6.75 per cent. to 6.5 per cent HK:

192 CRR remained unchanged at 4 per cent. Reduced the minimum daily cash maintenance of CRR from 95 per cent. to 90 per cent. with effect from the fortnight beginning 16 April Narrowed the policy rate corridor from +/-100 basis points to +/-50 basis points by reducing the MSF rate by 75 basis points and increasing the reverse repo rate by 25 basis points. The MSF rate stood adjusted at 7 per cent., the Bank Rate at 7 per cent. and the reverse repo rate under the LAF at 6 per cent. The liquidity provided under term repos of seven-day and 14-day tenor remained unchanged at 0.75 per cent. of NDTL of the banking system while liquidity provided under overnight repos remained unchanged at 0.25 per cent. of bank-wise NDTL. Reduced the SLR by 25 basis points from 21.5 per cent. to 21 per cent. of NDTL. Introduced MCLR for improving monetary policy transmission. Second Bi-Monthly Monetary Policy Statement for Fiscal 2017 held on 7 June 2016 Monetary and Liquidity Measures The policy repo rate under the LAF remained unchanged at 6.5 per cent. The MSF rate, Bank Rate and reverse repo rate remained unchanged at 7 per cent., 7 per cent. and 6 per cent., respectively. The liquidity provided under term repos of 7-day and 14-day tenor remained unchanged at 0.75 per cent. of NDTL of the banking system while liquidity provided under overnight repos remained unchanged at 0.25 per cent. of bank-wise NDTL. Third Bi-Monthly Monetary Policy Statement for Fiscal 2017 held on 9 August 2016 Monetary and Liquidity Measures The policy repo rate under the LAF remained unchanged at 6.5 per cent. The MSF rate remained unchanged at 7 per cent., the Bank Rate at 7 per cent. and the reverse repo rate under the LAF at 6 per cent. The liquidity provided under term repos of seven-day and 14-day tenor remained unchanged at 0.75 per cent. of NDTL of the banking system while liquidity provided under overnight repos remained unchanged at 0.25 per cent. of bank-wise NDTL. Bi-Monthly Monetary Policy Statement for Fiscal 2017 held on 4 October 2016 Monetary and Liquidity Measures Reduced the policy repo rate under the LAF by 25 basis points from 6.5 per cent. to 6.25 per cent. with immediate effect. CRR of scheduled banks remained unchanged at 4.0 per cent. of NDTL HK:

193 Continued to provide liquidity under overnight repos at 0.25 per cent. of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as allowed longer term repos of up to 0.75 per cent. of NDTL of the banking system through auctions. Continued with daily variable rate repos and reverse repos to smoothen the liquidity. The reverse repo rate under the LAF stands adjusted to 5.75 per cent., and the MSF rate and the Bank Rate to 6.75 per cent. SLR adjusted to per cent. from 21 per cent. with effect from 1 October Fifth Bi-Monthly Monetary Policy Statement for Fiscal 2017 held on 7 December 2016 Monetary and Liquidity Measures Policy repo rate under the LAF unchanged at 6.25 per cent. CRR of scheduled banks unchanged at 4.0 per cent. of NDTL. Continued to provide liquidity under overnight repos at 0.25 per cent. of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as allowed longer term repos of up to 0.75 per cent. of NDTL of the banking system through auctions. Continued with daily variable rate repos and reverse repos to smoothen the liquidity. The reverse repo rate under the LAF remained unchanged at 5.75 per cent., and the MSF rate and the Bank Rate at 6.75 per cent. Withdrew the incremental CRR of 100 per cent. of increase in NDTL which was introduced between 16 September 2016 and 11 November 2016 to absorb excess liquidity in the system due to withdrawal of legal tender status of Rs. 500 and Rs. 1,000. Sixth Bi-Monthly Monetary Policy Statement for Fiscal 2017 held on 8 February 2017 Monetary and Liquidity Measures Policy repo rate under the LAF unchanged at 6.25 per cent. CRR of scheduled banks unchanged at 4.0 per cent. of NDTL. Continue to provide liquidity under overnight repos at 0.25 per cent. of bank-wise NDTL at the LAF repo rate and liquidity under 14-day term repos as well as longer term repos of up to 0.75 per cent. of NDTL of the banking system through auctions. Continue with daily variable rate repos and reverse repos to smooth liquidity. The reverse repo rate under the LAF remained unchanged at 5.75 per cent., and the MSF rate and the Bank Rate at 6.75 per cent. Monetary Policy Statement for Bi-Monetary Policy Statement for Fiscal 2018 held in April HK:

194 Monetary and Liquidity Measures Policy repo rate under the LAF unchanged at 6.25 per cent. CRR of scheduled banks unchanged at 4.0 per cent. of NDTL. Continued with daily variable rate repos and reverse repos for smooth liquidity. Reverse repo rate under the LAF increased by 25 bps to 6.00 per cent. and the MSF rate and Bank Rate have been reduced by 25 bps to 6.50 per cent. Bi-Monthly Monetary Policy Statement for Fiscal 2018 held in October 2017 Monetary and Liquidity Measures Policy repo rate unchanged at 6 per cent and reverse repo rate at 5.75 per cent. CRR of scheduled banks unchanged at 4.0 per cent. of NDTL. The MSF rate and the Bank Rate at 6.25 per cent. Reforms of the Non-Banking Financial Companies Standards relating to income recognition, provisioning and capital adequacy were prescribed for non-banking financial companies in June Registered non-banking financial companies were required to achieve a minimum capital adequacy of 6.0 per cent. by the end of fiscal 1995 and 8.0 per cent. by the end of fiscal year 1996 and to obtain a minimum credit rating. To encourage companies to comply with the regulatory framework, the RBI announced in July 1996 certain liberalisation measures under which the non-banking financial companies registered with it and complying with the prudential norms and credit rating requirements were granted freedom from the ceiling on interest rates on deposits and amount of deposits. Other measures introduced include requiring non-banking financial companies to maintain a certain percentage of liquid assets and to create a reserve fund. The percentage of liquid assets to be maintained by non-banking financial companies has been revised uniformly upwards to 15.0 per cent. of public deposits since April From 1 January 2000, the requirement should not be less than 10.0 per cent. in approved securities and the remaining in unencumbered term deposits in any scheduled commercial bank, the aggregate of which shall not be less than 15.0 per cent. of the public deposit outstanding at the close of business on the last working day of the second preceding quarter. The maximum rate of interest that non-banking financial companies could pay on their public deposits was reduced from 12.5 per cent. per annum to 11.0 per cent. per annum effective 4 March Effective 24 April 2007, the maximum rate of interest on public deposits accepted by non-banking financial companies was increased to 12.5 per cent. per annum. Efforts have also been made to integrate non-banking financial companies into the mainstream financial sector. The first phase of this integration covered measures relating to registrations and standards. The focus of supervision has now shifted to non-banking financial companies accepting public deposits. This is because companies accepting public deposits are required to comply with all the directions relating to public deposits, prudential norms and liquid assets. A task force on non-banking financial companies set up by the Government submitted its report in October 1998, and recommended several steps to rationalise the regulation of non-banking financial companies. Accepting these recommendations, the RBI issued new guidelines for nonbanking financial companies in December 1998, which were as follows: HK:

195 a minimum net owned fund of Rs. 2.5 million is mandatory before existing non-banking financial companies may accept public deposits; a minimum investment grade rating is compulsory for loan and investment companies accepting public deposits, even if they have the minimum net owned funds; permission to accept public deposits was also linked to the level of capital to risk assets ratio. Different capital to risk assets ratio levels for non-banking financial companies with different ratings were specified; and non-banking financial companies were advised to restrict their investments in real estate to 10.0 per cent. of their net owned funds. In the monetary and credit policy for fiscal 2000, the RBI stipulated a minimum capital base of Rs. 20 million for all new non-banking financial companies. This measure was implemented by a notification dated 21 April In this regard, draft guidelines were introduced on 21 May 2007 whereby the requirement of a minimum net owned fund of Rs. 20 million was proposed to be extended to all NBFCs. Subsequent to the Government s budget for fiscal 2002, the procedures for foreign direct investment in NBFCs were substantially liberalised. During fiscal 2003, the RBI introduced a number of measures to enhance the regulatory and supervisory standards of non-banking financial companies, especially in order to bring them in line with commercial banks, in select operations, over a period of time. Other regulatory measures adopted and subsequently revised in November 2004 included aligning interest rates in this sector with the rates prevalent in the rest of the economy, tightening prudential norms and harmonising supervisory directions with the requirements of the Companies Act, 1956, procedural changes in nomination facilities, issuance of a Know Your Customer policy and allowing non-banking financial companies to enter the insurance agency business. In 2005, the RBI introduced stricter regulatory measures for non-banking financial companies, including stringent reporting requirements and revised Know Your Customer guidelines. On 11 May 2010, the RBI decided to modify the extant ECB policy in respect of IFCs. As per the extant norms, IFCs have been permitted to avail of ECBs for on-lending to the infrastructure sector, as defined in the extant ECB policy, under the approval route. As a measure of liberalisation of the existing procedures, it was decided to permit the IFCs to avail of ECBs, including the outstanding ECBs, up to 50.0 per cent. of their owned funds under the automatic route, subject to their compliance with the prudential guidelines already in place. ECBs incurred by IFCs in excess of 50.0 per cent. of their owned funds would require the approval of the RBI and would, therefore, be considered under the approval route. All the other aspects of the ECB policy remained unchanged. In February 2011, the RBI decided to align the minimum capital ratio of all deposit taking as well as systemically important non-deposit-taking NBFCs to 15 per cent. Accordingly, all deposit taking NBFCs were required to maintain a minimum capital ratio consisting of Tier I and Tier II capital, which shall not be less than 15 per cent. of its aggregate risk-weighted assets on balance sheet and risk adjusted value of off-balance sheet items with effect from 31 March In March 2011, the RBI decided to prohibit NBFCs from contributing capital to any partnership firm or to be partners in partnership firms in view of the risks involved in NBFCs associating themselves with partnership firms. In the case of existing partnerships, NBFCs may seek early retirement from the partnership firms. In November 2014, the RBI introduced a revised regulatory framework for NBFCs in view of the increasing complexities of services offered by NBFCs, making it mandatory for all NBFCs to HK:

196 attain a minimum net-owned fund (NOF) of Rs. 20 million by the end of March 2017 in a phased manner, with a minimum NOF of Rs. 10 million by March 2016 and Rs. 20 million by March The RBI amended disclosure requirements in the financial statements applicable to all NBFCs and all non-deposit taking NBFCs. In addition, the RBI made changes to the prudential norms, board committees of the NBFCs, criteria for the appointment of directors, offsite reporting and exemptions. Guidelines on Liquidity Risk Management and Basel III Framework on Liquidity Standards To address the deficiencies witnessed in liquidity risk management in the recent crisis and to strengthen liquidity risk management in banks, the Basel Committee on Banking Supervision (BCBS) published Principles for Sound Liquidity Risk Management and Supervision in September This was followed by the publication of Basel III: International Framework for Liquidity Risk Measurement, Standards and Monitoring in December 2010, i.e. the Basel III rules text on liquidity prescribing two minimum global regulatory standards, namely the liquidity coverage ratio (LCR) and the net stable funding ratio for liquidity risk and a set of five monitoring tools. In accordance with this, the RBI, being a member of the BCBS, released draft guidelines Liquidity Risk Management and Basel III Framework on Liquidity Standards in February The final guidelines on Basel III capital regulations were issued on 2 May These guidelines were scheduled to be implemented on 1 January 2013 in a phased manner and were scheduled to be fully implemented on 31 March Subsequently, the implementation date for Basel III capital regulations was changed to 1 April 2013 from 1 January 2013 to align the implementation date with the Indian fiscal year. Compliance with Basel II and Basel III Requirements In April 2011, the RBI issued guidelines to banks in relation to moving towards the Advanced Measurement Approach (AMA) for computing capital for operational risk. According to the AMA guidelines, banks are required to submit their letter of intent to migrate to the AMA followed by a detailed application to the RBI for migrating to the advanced measurement approach. The Bank had submitted its letter of intent for migration to the AMA in September On the basis of the RBI s permission, the Bank had made its final application for moving to the AMA in September The RBI had undertaken an offsite and onsite assessment of the Bank s preparedness and had granted approval to the Bank to migrate to the AMA on a parallel run basis in June In April 2010 and March 2012, the RBI issued guidelines relating to switching over to (i) the Internal Model Approach for computing capital for market risk and (ii) the Internal Ratings-Based Approach (IRB) for computing capital for credit risk, respectively. The Bank has constituted a Basel Credit Risk Committee which comprises the deputy managing director, the chief risk officer and the group head of finance and audit functions, which meets on a quarterly basis to oversee the progress of the preparation for the IRB. The committee is also responsible for approving various IRB-related policies which are presented to it from time to time. Further, the committee also reviews the capital impact as per the IRB approach and provides guidance on reviews of the methodology used from time to time. The Bank had completed a self-assessment of its preparation to migrate to the IRB approach and, with the approval of the Risk Policy and Monitoring Committee of the Board, submitted a letter of intent to RBI for migrating to the IRB approach. Following the submission of additional information and further interaction with RBI officials, the Bank has been allowed by RBI to participate in the parallel run process for the Foundation IRB approach for regulatory capital calculation for credit risk, subject to certain conditions. During the parallel run period, the Bank is required to provide data and/or information as per prescribed returns to RBI on a quarterly basis. Quantitative disclosures in line with pillar 3 disclosures under the Basel III guidelines as mandated by HK:

197 the RBI for commercial banks are disclosed in the Regulatory Disclosure Section of the Bank s website on a quarterly basis. With regards to market risk capital charge, the Bank currently follows the standardised approach (being the standardised measurement methodology (SMM)) prescribed by the regulator and has further put in place a risk analytics system towards developing capability for adopting an internal model approach. The Basel III guidelines have been introduced with a view to improve the banking sector s ability to absorb shocks arising from any financial and economic stress from whatever source and with the aim of supplementing the risk-based capital requirement with a leverage ratio that requires capital for all on and off balance sheet items, thus shifting the focus towards common equity capital. During fiscal 2014, the Bank made concurrent qualified institutional placements and a public offering of American depositary shares each representing three equity shares. The aggregate funds received from these issuances was Rs. 97,661 million. Furthermore, the Bank continuously takes measures to be in compliance with the phasing in of capital and leverage ratio requirements under the Basel III guidelines as per the schedule prescribed by the RBI. Small Finance Banks and Payment Banks RBI on 17 July 2014 issued draft guidelines for the licensing of payment banks and on 27 November 2014 issued guidelines for small finance banks in the private sector. The primary objective of setting up the payment banks and small finance banks was to further financial inclusion by providing (i) small savings accounts and (ii) payments/remittance services to a migrant labour workforce, low income households, small businesses, other unorganised sector entities and other users, by enabling high-volume low-value transactions in deposits and payments/remittance services in a secured technology driven environment. The RBI received 72 applications for small finance banks and 41 applications for payment banks. In August 2015, 11 entities were granted in-principle approval from the RBI for the setting up of payment banks while ten entities were provided inprinciple approval for the setting up of small finance banks. However, as at the date of this Offering Circular, of the 11 payment banks, three applicants had surrendered their payment bank licences. Key features of the Small Finance Bank guidelines are as follows: Eligible promoters: Resident individuals/professionals with ten years experience in banking and finance and companies and societies owned and controlled by residents will be eligible to set up small finance banks. Existing NBFCs, micro finance institutions, and local area banks that are owned and controlled by residents can also opt for conversion into small finance banks. Promoter/promoter groups should be fit and proper, with a sound track record of professional experience or of running their businesses for a period of at least five years in order to be eligible to promote small finance banks. Scope of activities: The small finance banks shall primarily undertake basic banking activities of acceptance of deposits and lending to unserved and underserved sections, including small business units, small and marginal farmers, micro and small industries and unorganised sector entities. There will not be any restriction in the area of operations of small finance banks HK:

198 Capital requirement: The minimum paid-up equity capital for small finance banks shall be Rs. 100 million. Promoter s contribution: The promoter s minimum initial contribution to the paid-up equity capital of such small finance bank shall be at least 40 per cent. and shall gradually be brought down to 26 per cent. within 12 years from the date of commencement of business of the bank. Foreign shareholding: The foreign shareholding in small finance banks would be as per the Foreign Direct Investment (FDI) policy for private sector banks as amended from time to time. Prudential norms: The small finance banks will be subject to all prudential norms and regulations of the RBI as applicable to existing commercial banks, including the requirement of maintenance of CRR and SLR. No forbearance would be provided for complying with the statutory provisions. The small finance banks will be required to extend 75 per cent. of their ANBC to the sectors eligible for classification as PSL by the RBI. At least 50 per cent. of their loan portfolio should constitute loans and advances of up to Rs. 2.5 million. Transition path: If a small finance bank aspires to transit into a universal bank, such transition will not be automatic, but would be subject to fulfilling the minimum paid-up capital/net worth requirement as applicable to universal banks, its satisfactory track record of performance as a small finance bank and the outcome of the RBI s due diligence exercise. Key features of the Payments Banks guidelines are as follows: Eligible promoters: Existing non-bank pre-paid payment instrument issuers and other entities such as individuals/professionals, NBFCs, corporate Business Correspondents (BCs), mobile telephone companies, supermarket chains, companies, real sector cooperatives that are owned and controlled by residents, and public sector entities may apply to set up payments banks. A promoter/promoter group can have a joint venture with an existing scheduled commercial bank to set up a payments bank. However, a scheduled commercial bank can take an equity stake in a payments bank to the extent permitted under Section 19 (2) of the Banking Regulation Act, Promoter/promoter groups should be fit and proper, with a sound track record of professional experience or of running their businesses for a period of at least five years in order to be eligible to promote payments banks HK:

199 Scope of activities: Acceptance of demand deposits. Payments banks will initially be restricted to holding a maximum balance of Rs. 100,000 per individual customer. Issuance of ATM/debit cards. Payments banks, however, cannot issue credit cards. Payments and remittance services through various channels. BC of another bank, subject to the RBI guidelines on BCs. Distribution of non-risk sharing simple financial products such as mutual fund units and insurance products, etc. Deployment of funds: The payments banks cannot undertake lending activities. Apart from amounts maintained as CRR with the RBI on its outside demand and time liabilities, payments banks will be required to invest a minimum of 75 per cent. of their demand deposit balances in SLR eligible Government securities/treasury bills with a maturity of up to one year and to hold a maximum 25 per cent. in current and time/fixed deposits with other scheduled commercial banks for operational purposes and liquidity management. Capital requirement: The minimum paid-up equity capital for payments banks shall be Rs. 100 million. The payments banks should have a leverage ratio of not less than 3 per cent., i.e. their outside liabilities should not exceed times their net worth (paid-up capital and reserves). Promoter s contribution: The promoter s minimum initial contribution to the paid-up equity capital of such payments bank shall be at least 40 per cent. for the first five years from the commencement of its business. Foreign shareholding: The foreign shareholding in the payments banks would be as per the FDI policy for private sector banks as amended from time to time. Other conditions: The operations of the banks should be fully networked and technology driven from the beginning, conforming to generally accepted standards and norms. The banks should have a high-powered customer grievances cell to handle customer complaints. Developments in the Banking Sector Implementation of the Basel III capital regulations HK:

200 In December 2010, the BCBS issued a comprehensive reform package of capital regulations, known as Basel III. The objective of the reform package is to improve the banking sector s ability to absorb shocks arising from financial and economic stress, thus reducing the risk of spillover from the financial sector to the real economy. The RBI issued the RBI Basel III Capital Regulations and the guidelines became operational from 1 April However, the reform package and guidelines will be implemented in a phased manner. On 31 December 2013, the RBI further extended the implementation of credit valuation adjustment risk to 1 April 2014, and, on 27 March 2014, extended the deadline for full implementation of Basel III requirements to 31 March (Source: RBI Circular DBOD.No.BP.BC.81/ / dated 31 December 2013 and RBI Circular DBOD.No.BP.BC.102/ / dated 27 March 2013). Under Basel III, the total capital of a bank in India must be at least 9.00 per cent. of RWAs (8.00 per cent. as specified by the BCBS), Tier I capital must be at least 7.00 per cent. of RWAs (6.00 per cent. as specified by the BCBS) and Common Equity Tier I capital must be at least 5.50 per cent. of RWAs (4.50 per cent. as specified by the BCBS). Due to the transitional arrangements, the capital requirements of banks may be lower during the initial periods and higher during later years. Therefore, banks have been advised to do their capital planning accordingly. In addition to the minimum requirements as indicated above, banks are required to maintain a capital conservation buffer (CCB) in the form of common equity of 2.50 per cent. of RWAs. Under the RBI Basel III Guidelines, total capital with CCB has been fixed at per cent. of RWAs. In July 2014, the RBI released the Final Report of the Internal Working Group on Implementation of Counter-cyclical Capital Buffer (CCCB), which requires banks to maintain a buffer of up to 2.5 per cent. of RWAs in periods of high credit growth as a precaution for downturn. Furthermore, under Basel III, a simple, transparent, non-risk-based leverage ratio has been introduced. The BCBS will test a minimum Tier I leverage ratio of 3.00 per cent. during a parallel run period from 1 January 2013 to 1 January The RBI has prescribed that during this parallel run period banks should strive to maintain their existing leverage ratios, but in no case should a bank s leverage ratio fall below 4.50 per cent. Banks whose leverage is below 4.50 per cent. have been advised to achieve this target as early as possible. This leverage ratio requirement is yet to be finalised and will be finalised taking into account the final proposals of the BCBS (Source: RBI Annual Report ). Additionally, in June 2014, the RBI released guidelines for a LCR as part of the Basel III framework on liquidity standards, which will require minimum LCRs starting at 60 per cent. as at 1 January 2015, increasing in equal annual steps to 100 per cent. by 1 January Furthermore, Additional Tier I non-equity capital instruments under Basel III are expected to provide additional features such as full coupon discretion, and principal loss absorption when the common equity ratio of a bank falls below per cent. of its risk-weighted assets. In the case of Tier II non-equity capital instruments, the distinction between Upper Tier II and Lower Tier II instruments under Basel II is removed and a single class of Tier II instrument eligibility criteria has been prescribed. Additionally, under Basel III, loss absorption features have been included in the event of the occurrence of the Point of Non-Viability trigger. The RBI has also fixed the base at the nominal amount of capital instruments outstanding on 1 January 2013, and their recognition will be capped at per cent. from 1 April 2013, with the cap reducing by per cent. points in each subsequent year. On 31 August 2015, the Reserve Bank of India designated the State Bank of India and ICICI Bank Ltd. as domestic systematically important banks (D-SIB). Based on the methodology provided in the D-SIB framework and data collected from banks as on 31 March 2015, the State Bank of India and ICICI Bank Ltd. will have to provide Additional Common Equity Tier 1 (CET1) requirements as a percentage of risk weighted assets of 0.6 per cent. and 0.2 per cent. respectively. The CET1 requirements applicable to D-SIBs will be applicable from 1 April 2016 in a phased manner and HK:

201 would become fully effective from 1 April The additional CET1 requirements will be in addition to the capital conservation buffer. Dynamic provisioning guidelines At present, banks generally make two types of provisions; general provisions on standard assets, and specific provisions on NPAs. Since the level of NPAs varies through the economic cycle, the resultant level of specific provisions also behaves cyclically. Consequently, lower provisions during upturns and higher provisions during downturns have a pro-cyclical effect on the real economy. To address the pro-cyclicality of capital and provisioning, efforts at an international level are being made to introduce countercyclical capital and provisioning buffers. The RBI has prepared a discussion paper on a countercyclical (dynamic) provisioning (DP) framework. The DP framework is based on the concept of expected loss (EL), which is the average level of losses a bank can reasonably expect to experience, and is considered the cost of doing business. It is generally covered by provisioning and pricing. The objective of DP is to soften the impact of incurred losses on the results of operations through the economic cycle, and not to provide a general provisioning cushion for EL. More specifically, the DP created during a year will be the difference between the long run average EL of the portfolio for one year and the incremental specific provisions made during the year. The parameters of the model suggested in the discussion paper are calibrated based on the data of Indian banks. Banks that have the capability to calibrate their own parameters may, with the prior approval of the RBI, introduce a DP framework using the theoretical model indicated by the RBI. Other banks will have to use the standardised calibration provided by the RBI. (Source: RBI Annual Report and Discussion Paper on Introduction of Dynamic Loan Loss Provisioning Framework for Banks in India dated 30 March 2012.) The RBI, in its circular dated 30 March 2015, has decided that, as a countercyclical measure, a bank may utilise up to 50 per cent. of the countercyclical provisioning buffer/floating provisions held by it as of 31 December 2014 for making specific provisions for non-performing assets, as per the policy approved by the bank s Board of Directors. The RBI further clarified that the use of the countercyclical provisioning buffer/floating provisions under this measure may be over and above the use of the countercyclical provisioning buffer/floating provisions as proposed in the RBI s circular of 26 February 2014 on Framework for Revitalising Distressed Assets in the Economy Refinancing of Project Loans, Sale of NPAs and Other Regulatory Measures. The February 2014 circular also emphasises that all banks should develop the necessary capabilities to have a dynamic loan loss provisioning framework in place which would enable them to build up a DP account during good times and utilise the same during a downturn. The Master Direction issued by the RBI on 12 May 2016 titled Master Direction Ownership in Private Sector Banks, Directions, 2016 provides the applicable shareholding ceilings in private sector banks to various categories of shareholders. It states that the ownership limits for all shareholders in the long run shall be based on categorisation of the shareholders under two broad categories, namely (i) natural persons (individuals) and (ii) legal persons (entities or institutions). Further, non-financial and financial institutions and, among financial institutions, diversified and nondiversified financial institutions shall have separate limits for shareholding, as below: in the case of individuals and non-financial entities (other than promoters or promoter groups), the limit shall be 10 per cent. of the paid-up capital. However, in the case of promoters being individuals and non-financial entities in existing banks, the permitted promoter or promoter group shareholding shall be in line with the permitted level in the 22 February 2013 guidelines on the licensing of universal banks at 15 per cent.; HK:

202 in the case of entities from the financial sector, other than regulated or diversified or listed, the limit shall be 15 per cent. of the paid-up capital; in the case of regulated, well diversified, listed entities from the financial sector and shareholding by supranational institutions or public sector undertakings or Government, a uniform limit of up to 40 per cent. of the paid-up capital is permitted for promoters, promoter groups and non-promoters; and higher stake or strategic investment by promoters, non-promoters through capital infusion by domestic or foreign entities or institutions shall be permitted on a case-by-case basis under circumstances, among others, such as relinquishment by existing promoters, rehabilitation, restructuring of problems, weak banks, entrenchment of existing promoters, or if it is in the interests of the bank or in the interests of consolidation in the banking sector. Future Outlook and Key Trends Going forward, banks will need to move towards the mandated higher capital standards, stricter liquidity and leverage ratios and a more cautious approach to risk. This implies that Indian banks will need to improve efficiency even as their costs of doing business increase. They will need to refine their risk management skills for enterprise-wide risk management. In addition, banks need to have in place a fair and differentiated risk pricing of products and services, since capital comes at a cost. This involves costing, a quantitative assessment of revenue streams from each product and service and an efficient transfer-pricing mechanism that would determine capital allocation. Banks need to not only utilise effectively the various measures put in place by the RBI and the Government for the resolution and recovery of bad loans, but also strengthen their due diligence, credit appraisal and post-sanction loan monitoring systems to minimise and mitigate the problem of increasing NPAs. Furthermore, the Government has cleared an ordinance to amend the Banking Regulation Act to empower the RBI to push banks to drive insolvency against defaulters and to set up oversight committees to approve various loan resolution packages. This is an important first-step in the resolution of stressed loans by leveraging the RBI s position and offering bankers immunity against investigations. The prescription of stringent penalties by the Reserve Bank for breaching the risk thresholds under the revised Prompt Corrective Action (PCA) framework restrictions on dividend payments, remittance of profits and branch expansion; higher provisions; and restriction on management compensation are expected to help restore the health of banks currently under PCA. The Reserve Bank s instructions to banks to put in place a Board-approved policy for making provisions for standard assets at rates higher than the regulatory minimum, based on evaluation of risk and stress in various sectors, will help control build-up of fresh stressed assets in a pre-emptive manner. The finetuning of macro-prudential measures in the form of reduction in risk weights and provisioning on standard assets on certain categories of individual housing loans will provide a boost to the flow of credit to the housing sector. Implementation of Indian Accounting Standard (Ind AS) and the Basel III framework will remain the areas of focus during HK:

203 SUPERVISION AND REGULATION The following description is a summary of certain sector specific laws and regulations in India, which are applicable to the Bank. The information detailed in this chapter has been taken from publications available in the public domain. The regulations set out below may not be exhaustive, and are only intended to provide general information to the investors and are neither designated nor intended to substitute for professional legal advice or a detailed review of the relevant laws and regulations. The main legislation governing commercial banks in India is the Banking Regulation Act, 1949 (Banking Regulation Act). The provisions of the Banking Regulation Act are in addition to and not, save as expressly provided in the Banking Regulation Act, in derogation of the Companies Act, 2013 and any other law for the time being in force. Other important laws include the Reserve Bank of India Act, 1934 (RBI Act), the Negotiable Instruments Act, 1881, the Foreign Exchange Management Act, 1999, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), Recovery of Debts Due and Bankruptcy Act, 1993 (RDDB) (formerly titled as Recovery of Debts Due to Banks and Financial Institutions Act, 1993) and Banker s Books Evidence Act, 1891, as amended from time to time. Additionally, the RBI, from time to time, issues guidelines to be followed by the Bank, under the various provisions of the Banking Regulation Act. Compliance with all regulatory requirements is evaluated with respect to financial statements under Indian GAAP and Indian Accounting Standards (IND-AS) according to the implementation roadmap drawn up by the Indian Ministry of Corporate Affairs as applicable. Banks listed on a stock exchange in India are also subject to various regulations of the Securities and Exchange Board of India (SEBI). The RBI Regulations Commercial banks in India are required under the Banking Regulation Act to obtain a licence from the RBI to carry on banking business in India. Before granting the licence, the RBI must be satisfied that certain conditions are complied with, including, but not limited to, (i) the bank has the ability to pay its present and future depositors in full as their claims accrue; (ii) the affairs of the bank will not be or are not likely to be conducted in a manner detrimental to the interests of present or future depositors; (iii) the bank has adequate capital and earnings prospects; and (iv) the public interest will be served if such licence is granted to the bank. The RBI can cancel the licence if the bank, at any point, fails to meet the above conditions or if the bank ceases to carry on banking operations in India. The Bank, being licensed by the RBI, is regulated and supervised by the RBI. The RBI requires the Bank to furnish statements, information and certain details relating to its business. It has issued guidelines for commercial banks on recognition of income, classification of assets, exposure norms on concentration risk, valuation of investments, maintenance of capital adequacy and provisioning for non-performing and restructured assets. The RBI has set up a Board for Financial Supervision (the BFS), under the chairmanship of the Governor of the RBI. The BFS is assisted by the Department of Banking Supervision of the RBI in supervising commercial banks and financial institutions. The appointment of the statutory auditors of the banks is subject to the approval of the RBI. The RBI can direct a special audit in the interest of the depositors or in the public interest. Regulations Relating to the Opening of Branches On 18 May 2017, the RBI released the revised guidelines in relation to the rationalisation of its branch authorisation policy, the opening of new places of business and transfer of existing places of business (Section 23 of the Banking Regulation Act, 1949) Revised Guidelines (Revised Branch HK:

204 Authorisation Guidelines). Salient features of the Revised Branch Authorisation Guidelines are as follows: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Banking Outlets/Other Outlets: Instead of a branch, the Branch Authorisation Guidelines define a banking outlet (which includes a branch as well as a business correspondent outlet, amongst others) as follows: A Banking Outlet for a domestic scheduled commercial bank, a payment bank or a small finance bank is a fixed point service delivery unit, manned by either the bank s staff or its business correspondent where services of acceptance of deposits, encashment of cheques/cash withdrawal or lending of money are provided for a minimum of four hours per day for at least five days a week. Part time Banking Outlets have been defined to include any fixed point service delivery unit of the bank which does not comply with the prescription regarding minimum working hours/days. Unbanked rural centre redefined: An unbanked rural centre has been redefined as a rural (Tier 5 and 6) centre that does not have a CBS-enabled Banking Outlet of a scheduled commercial bank, a payment bank, a small finance bank or a regional rural bank nor a branch of a local area bank or licensed co-operative bank for carrying out customer based banking transactions. Condition for opening of 25 per cent. branches: At least 25 per cent. of the total number of Banking Outlets opened during a fiscal year must be opened in unbanked rural centres (Tier 5 and Tier 6). Pro-rata benefit for part-time banking outlets will be given. Restriction on Tier 1 branches removed, simplifying the regulations obviating the need to provide the lists of underbanked districts/underbanked States: Incentive for opening banking outlets in North Eastern States and Sikkim (as well as left-wing extremism (LWE) districts) has been modified. The opening of a Banking Outlet/part-time Banking Outlet in any Tier 3 to Tier 6 centre of North Eastern States and Sikkim as well as in any Tier 3 to 6 centres of LWE affected districts, notified by the Government of India, will be considered as equivalent to opening a Banking Outlet / part-time Banking Outlet, as the case may be, in an unbanked rural centre. A bank opening a brick and mortar branch in a rural (Tier 5 and 6) centre which owing to the presence of a business correspondent outlet by another bank may not be defined as an unbanked rural centre, will also be eligible for the same incentive. Similar treatment shall be given for opening a Banking Outlet in a rural centre which is served only by a Banking Outlet of a payment bank. Front loading of branches in Unbanked Rural Centres: Banks may avail of the incentive for front loading of Banking Outlets, if any Banking Outlets are opened in the unbanked rural centres/tier 3 to 6 centres of North Eastern States, Sikkim and LWE affected districts in excess of minimum 25 per cent Banking Outlets requirement for a maximum period of next two years. Back Offices (central processing centres/service branches): No customer interface shall be allowed. Banks which currently have specific permission to allow limited customer interface at central processing centres will be given a period of one year to align with the requirements of the Revised Branch Authorisation Guidelines. Guidelines on satellite offices, part shifting of branches, extension counters, ultra small branches, specialised branches subsumed: No separate guidelines required as all these outlets will be considered as Banking Outlets or part-time Banking Outlets, as the case may be. Role of Board of Directors: Financial Inclusion being the overarching objective and the operational flexibility being given to banks, the board of directors has been given overall HK:

205 responsibility to ensure that arrangements are in place for strict compliance with the Revised Branch Authorisation Guidelines, in letter and spirit. Guidelines for on tap Licensing of Universal Banks in the Private Sector RBI released the new framework for granting licences for private sector universal banks on a continuous basis and released the Guidelines for on-tap Licensing of Universal Banks in the Private Sector on 1 August 2016 (On-tap Licensing Guidelines). The salient features of the On-tap Licensing Guidelines are as follows: (i) resident individuals and professionals having ten years of experience in banking and finance would be eligible to promote universal banks; (ii) entities/groups in the private sector that are owned and controlled by residents and have a successful track record for at least ten years, provided if such entity/group has total assets of 50 billion or more, and the nonfinancial business of the group does not account for 40 per cent. or more in terms of total assets or gross income, would be recognized as eligible promoters; (iii) large industrial or business houses have been permitted to invest in the banks to the extent of up to per cent. and shall not have a controlling interest in the bank; (iv) the Non-Operative Financial Holding Company (NOFHC) has now been made non-mandatory in case of promoters being individuals or standalone promoting/ converting entities who/which do not have other group entities; (v) the NOFHC is now required to be at least per cent. owned by the promoter/promoter group instead of the requirement to be wholly owned by the promoter group; and (vi) existing specialised activities have been permitted to be continued from a separate entity proposed to be held under the NOFHC subject to prior approval from the RBI and subject to it being assured that similar activities are not conducted through the bank as well. Financial Services Guidelines The RBI had released the Master Directions on Reserve Bank of India (Financial Services Provided by Banks) on 26 May 2016, which were further revised on 25 September These master directions set out the permissible financial services that may be undertaken by scheduled commercial banks in India. Various basic conditionalities have also been imposed for undertaking such financial services, including but not limited to: (a) board approved policy for the permitted activities and risk mitigation; (b) compliance with KYC/AML/CFT norms applicable to banks; and (c) prudential regulations (including minimal capital requirements and investment limits) for the financial services conducted by banks in India. Capital Adequacy Requirements On 2 May 2012, the RBI issued guidelines based on the Basel III reforms on capital regulation to the extent applicable to banks operating in India. The Basel III capital regulation has been implemented from 1 April 2013 in India and the transitional period for the full implementation of the Basel III capital regulations is up to 31 March Banks have to comply with the regulatory limits and minima as prescribed under Basel III capital regulations, on an ongoing basis. The Basel III Guidelines impose a minimum common Equity Tier 1 risk-based capital ratio of 5.50 per cent. and require banks to maintain a minimum capital to risk-weighted asset ratio of 9.00 per cent. on an ongoing basis, of which a minimum of 7.00 per cent. must be Tier 1 capital. The Basel III Guidelines focus on enhancing quality and quantity of capital, introduction of capital conservation buffer, and leverage ratio. The Guideline also enhance the risk coverage by increasing capital requirement for certain asset classes (e.g. claims on banks, securitisation etc.) and introducing credit value adjustment on the derivatives portfolio. The Basel III Guidelines require, among other things, higher levels of Tier 1 capital, including common equity, deductions from common equity Tier 1 capital for investments in subsidiaries (with minority interest), changes in the structure of debt instruments and preference shares eligible for inclusion in Tier 1 and Tier 2 capital, criteria for classification as common shares, methods to deal with credit risk and reputational risk, capital charges HK:

206 for credit risks, introduction of a leverage ratio and criteria for investments in capital of banks, financial and insurance entities (including where ownership is less than per cent.). The Basel III Guidelines also stipulate that non-equity Tier 1 and Tier 2 capital should have loss- absorbency characteristics, which require them to be written down or be converted into common equity upon the occurrence of a pre-specified trigger event. It also provides for more limited recognition of minority interests in the regulatory capital of a consolidated banking group and imposes a 4.50 per cent. Basel III leverage ratio of Tier 1 capital-to-exposure measure. India: The below table summarises the capital requirements under Basel III Guidelines for banks in To ensure a smooth transition to Basel III, transitional arrangements have been provided for meeting the minimum Basel III capital ratios, full regulatory adjustments to the components of capital etc. Consequently, Basel III capital regulations would be fully implemented as of 31 March In view of the gradual phase-in of regulatory adjustments to the common equity component of Tier I capital under Basel III, certain specific prescriptions of the Basel II capital adequacy framework (e.g. rules relating to deductions from regulatory capital, risk-weighting of investments in other financial entities etc.) applied until 31 March 2017 on the remainder of regulatory adjustments not treated in terms of Basel III rules. The phase-in arrangements for capital requirements for banks operating in India are indicated in the following table: HK:

207 To improve the quality and quantity of regulatory capital, the Basel III Guidelines provide for common equity to be the predominant part of Tier 1 capital (Common Equity Tier 1 Capital), while additional Tier 1 capital (Additional Tier 1 Capital) and Tier 2 capital continue to form part of the regulatory capital. Common Equity is recognised as the highest quality component of capital and is the primary form of funding that ensures that a bank remains solvent. It comprises paid-up capital and reserves consisting of any statutory reserves, free reserves and capital reserve, as reduced by regulatory adjustments/deductions applied in the calculation of Common Equity Tier 1 capital. Additional Tier I capital comprises perpetual debt and any other instrument generally notified by the Reserve Bank from time to time for inclusion in Additional Tier 1 capital as reduced by regulatory adjustments/deductions applied in the calculation of Tier 1 capital. Tier II capital consists of undisclosed reserves, revaluation reserves (at a discount of 55 per cent.), general provisions and loss reserves (allowed up to a maximum of 1.25 per cent. of weighted risk assets), hybrid debt capital instruments (which combine features of both equity and debt securities), cumulative perpetual preference shares (which should be fully paid-up and should not contain clauses that permit redemption by the holder) and subordinated debt with an initial maturity of not less than five years. The Banking Regulation Act does not allow banks established on or after 15 January 1937 to issue preferred equity. Risk adjusted assets and off-balance sheet items considered for determining the capital adequacy ratio are the risk-weighted total of certain funded and non-funded exposures. Degrees of credit risk expressed as risk-weights have been assigned to various balance sheet asset items and conversion factors to off-balance sheet items. The value of each item is multiplied by the relevant risk-weight and conversion factor to produce risk-adjusted values of assets and off-balance sheet items. These risk weights are applied to various balance sheet items based on the rating distribution, assigned by various credit rating agencies. Standby letters of credit and guarantees are treated as similar to funded exposure and are subject to a 100 per cent. credit conversion factor. The credit conversion factor for certain off-balance sheet items such as performance bonds, bid bonds and standby letters of credit related to particular transactions is 50 per cent. while that for short-term, selfliquidating, trade-related contingencies such as documentary credits collateralised by the underlying shipments is 20 per cent. The credit conversion factor for undrawn commitments is either 20 per cent, or 50 per cent., as based on the original maturity of the facility. Unconditionally cancellable undrawn commitments have a credit conversion factor of 0 per cent. Currently, residential mortgages are riskweighted on the basis of loan-to-value ratio and amount of loan. Claims on non-deposit-taking systematically important NBFCs are risk-weighted at 100 per cent. Consumer credit and advances included in capital market exposure at 125 per cent., exposure to venture capital funds at 150 per cent. Other loans/credit exposures are risk-weighted based on their ratings or turnover. The RBI issued revised guidelines on securitisation of standard assets on 7 May The guidelines define a true sale, the criteria to be met by special purpose vehicles set up for securitisation, the policy on provision of credit enhancement facilities, liquidity facilities, underwriting facilities and provision of services. The guidelines also cover capital requirements on securitisation, prudential norms for investment in securities issued by special purpose vehicles, accounting treatment of the securitisation transactions and disclosure requirements. On 22 July 2014 the RBI released the final framework for dealing with domestic systemically important banks (D-SIBs). The banks with systemic importance above a threshold will be designated as D-SIBs, which are segregated into five different buckets based on their systemic importance scores and are subject to loss absorbency capital surcharge in a graded manner depending on their respective HK:

208 buckets. D-SIBs will also be subjected to differentiated supervisory requirements and a higher intensity of supervision based on the risks they pose to the financial system. The higher capital requirements applicable to D-SIBs became applicable from 1 April 2016 in a phased manner and would become fully effective from 1 April The RBI also released a draft report of the Internal Working Group on the implementation of a countercyclical capital buffer (CCCB). On 21 July 2014, the RBI released the final report of the Internal Working Group on implementation of CCCB. The final guidelines for the implementation of CCCB in India were released on 5 February The key recommendations are (i) usage of the credit-to-gdp gap (a 3 per cent. to 15 per cent. range) and gross non-performing assets growth for CCCB decisions in India; (ii) increase of the CCCB from 0.00 per cent. to 2.50 per cent. of the riskweighted assets of the bank, (iii) the RBI discretion in terms of the use of indicators when activating or adjusting the buffer; and (iv) CCCB maintenance on an unconsolidated and consolidated basis in India. In addition, the Basel Committee published a guidance report titled Principles for Sound Liquidity Risk Management and Supervision in September 2008, which was followed by the publication of Basel III: International framework for liquidity risk measurement, standards and monitoring in December 2010, which introduced two minimum global regulatory standards; namely, the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). The LCR promotes shortterm resilience of banks to potential liquidity disruptions by ensuring that they have sufficient highquality liquid assets to survive an acute stress scenario lasting 30 days. The NSFR promotes resilience over longer-term time horizons by creating additional incentives for banks to fund their activities with more stable sources of funding on an ongoing structural basis. On 7 November 2012, the RBI issued guidelines on liquidity risk management in line with the Principles for Sound Liquidity Risk Management and Supervision as well as the Basel III Guidelines. This included enhanced guidance on liquidity risk governance, the measurement, monitoring and reporting of liquidity positions to the RBI. On 9 June 2014, the RBI issued final guidelines on LCR, Liquidity Risk Monitoring Tools and LCR Disclosure Standards. Accordingly, the LCR has been introduced in a phased manner starting with a minimum requirement of 60 per cent. from 1 January 2015 and reaching a minimum 100 per cent. on 1 January The draft guidelines on NSFR were issued by the RBI by its circular dated 28 May The RBI has yet to issue final guidelines on NSFR, which will be binding on banks effective on 1 January Until then, banks will have to comply with Basel III on a best efforts basis. On 1 March 2016 the RBI, by way of a circular, revised the Basel III norms for the treatment of certain balance sheet items for the purposes of determining banks regulatory capital. The salient features of the circular are: (a) (b) (c) Revaluation reserves arising from change in the carrying amount of a bank s property consequent upon its revaluation would be considered as common equity tier 1 capital (CET1) instead of Tier 2 capital as hitherto. These would continue to be reckoned at a discount of 55 per cent. Foreign currency translation reserves arising due to translation of financial statements of a bank s foreign operations to the reporting currency may be considered as CET1 capital. These will be reckoned at a discount of 25 per cent. Deferred tax assets arising due to timing differences may be recognised as CET1 capital up to 10 per cent. of a bank s CET1 capital. Loan Loss Provisions and Non-Performing Assets HK:

209 The RBI annually issues consolidated instructions and guidelines relating to income recognition, asset classification and provisioning standards in the Master Circular Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances which is issued annually, the latest one being dated 1 July These guidelines are revised from time to time. Similarly, the RBI annually issues consolidated instructions and guidelines relating to the valuation of investments in Master Circular Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks which is issued annually, the latest one being dated 1 July These guidelines are also revised from time to time. Non-Performing Assets Stressed Assets The stressed assets of the Bank are classified into the following two main categories: i. The Non-Performing Assets (NPAs); and ii. The Special Mention Accounts (SMAs). Non-Performing Assets: NPAs are defined as assets, including leased assets, which become non-performing when they cease to generate income for a bank. The RBI has stated the following criterion for recognising an NPAs: i. There being a default in payment of interest and/or instalment of principal, or amounts due remain irregular for a period of more than 90 days in respect of a term loans, cash credits, overdrafts, bill discounting products, securitisation transactions or derivative transactions; or ii. The instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops and the instalment of principal or interest thereon remains overdue for one crop season for long duration crops. Special Mention Accounts: In January 2014, the RBI introduced new concept of SMAs. The RBI has stated the following criterion for recognising SMAs: Out-of-Order Status An account should be treated as out-of-order if the outstanding balance remains continuously in excess of the sanctioned drawing limit for 90 days. In circumstances where the outstanding balance in the principal operating account is less than the sanctioned drawing limit, but (i) there are no credits continuously for a period of 90 days as at the date of the balance sheet of the Bank or (ii) the credits are not sufficient to cover the interest debited during the same period, these accounts should be treated as out-of-order HK:

210 Non-Performing Asset (NPAs) Classification NPAs are classified as described below: Sub-Standard Assets. Assets that are NPAs for a period not exceeding 12 months. In such cases, the current net worth of the borrower/guarantor or the current market value of the security charged is not enough to ensure recovery of dues to the banks in full. Such an asset has well-defined credit weaknesses that jeopardise the liquidation of the debt and are characterised by the distinct possibility that the bank will sustain some loss, if deficiencies are not corrected. Doubtful Assets. An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months. A loan classified as doubtful has all the weaknesses inherent in assets that are classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable. Loss Assets. These are assets on which losses have been identified by the bank or internal or statutory auditors or the RBI inspection but the amount has not been written off fully. There are separate guidelines for projects under implementation that are based on the achievement of financial closure, Date of Commencement of Commercial Operations (DCCO) and the date of approval of the project financing. The RBI also has separate guidelines for restructured loans. A fully secured standard asset can be restructured by rescheduling principal repayments and/or the interest element, but must be separately disclosed as a restructured asset. The amount of sacrifice, if any, in the element of interest, measured in present value terms, is either written off or a provision is made to the extent of the sacrifice involved. The total provisions required against an account are capped at 100 per cent. of the outstanding debt amount. Similar guidelines apply to sub-standard assets. The sub-standard accounts that have been subjected to restructuring, whether in respect of principal instalment or interest amount, by whatever modality, are eligible to be upgraded to the standard category only after the specified period, i.e. a period of one year from the commencement of the first payment of interest or of principal, whichever is later, on the credit facility with the longest period of moratorium under the terms of the restructuring package subject to satisfactory performance during the period. For project loans, the RBI issued norms pertaining to advances for infrastructure and noninfrastructure projects. In case of infrastructure projects, a loan would be classified as non-performing if it failed to commence commercial operations within two years from the original DCCO stipulated at the time of financial closure and all other terms and conditions of the loan remain unchanged. Any extension of the date of commencement beyond this period would also be treated as restructuring of the account. To put in place an institutional mechanism for the restructuring of corporate debt, the RBI has devised a corporate debt restructuring system. See The Indian Financial Sector Recent Structural Reforms. According to the RBI guidelines, loans that are restructured (other than due to delays in project implementation under certain conditions and up to specified periods) from 1 April 2015 onwards would be classified as non-performing. According to these guidelines the general provision required on restructured standard accounts would be increased to 3.50 per cent. from 31 March 2014, and further to 4.25 per cent. from 31 March 2015 and 5.00 per cent. from 31 March General provisions on standard accounts restructured after 1 June 2013 were increased to 5.00 per cent. The guidelines also prescribe measures with respect to the terms of restructuring that may be approved for borrowers HK:

211 Disclosures in Notes to Accounts to the Financial Statements Divergence in the asset classification and provisioning As a part of its supervisory process, the RBI assesses compliance by banks with extant prudential norms on income recognition, asset classification and provisioning (IRACP). In order to bring in greater transparency, better discipline with respect to compliance with IRACP norms as well as to involve other stakeholders, the RBI has by way of its circular on 18 April 2017 mandated certain disclosures to be made in the notes to accounts to the financial statements of banks. The disclosure is required where the additional provisioning requirements assessed by the RBI exceed per cent. of the published net profits after tax for the reference period or the additional Gross NPAs identified by the RBI exceed 15 per cent. of the published incremental Gross NPAs for the reference period. See The RBI has undertaken several initiatives with respect to recognition of NPAs resulting in more stringent guidelines for which the Bank has been fined due to non-compliance. These disclosures are required to be made in the notes to accounts in the ensuing annual financial statements published immediately following communication of any such divergence by the RBI to a bank. The first such disclosure with respect to the divergences observed by RBI for fiscal 2016 is required to be made in the notes to accounts of financial statements for the year ended 31 March The RBI Framework for Revitalising Distressed Assets In February 2014, the RBI has introduced guidelines entitled Framework for Revitalising Distressed Assets in the Economy Refinancing of Project Loans, Sale of NPAs and Other Regulatory Measures that outline a corrective action plan to incentivise early identification of problem cases, timely restructuring of accounts that are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts. Some of the relevant features of these guidelines are: i. before a loan account turns into an NPAs, banks are required to identify incipient stress in the account by creating three sub-categories under the Special Mention Account (SMA) category; namely, SMA-0 (Principal or interest payment not overdue for more than 30 days but account showing signs of incipient stress), SMA-1 (Principal or interest payment overdue between days) and SMA-2 (Principal or interest payment overdue between days); ii. iii. iv. centralised reporting and dissemination of information on large credit to a Central Repository for Information on Large Credit being set up by the RBI to collect, store and disseminate credit dates to lenders; early formation of a lenders committee called a Joint Lenders Forum with timelines to agree to a plan for resolution; incentives for lenders to agree collectively and quickly to a resolution plan in relation to distressed assets and better regulatory treatment of stressed assets if a resolution plan is underway with accelerated provisioning if no agreement can be reached; v. improvement in the current restructuring process, independent evaluation of large value restructurings mandated, with a focus on viable plans and a fair sharing of losses (and possible future upside) between promoters and creditors; vi. making future borrowing more expensive for borrowers who do not cooperate with lenders in resolution; and HK:

212 vii. liberal regulatory treatment such as ability to spread loss on loan assets sales over two years provided the loss is fully disclosed and take-out financing or refinancing is permitted over a longer period without being a restructuring. Corporate Debt Restructuring Mechanism The institutional mechanism for restructuring has been set up through establishment of the corporate debt restructuring (CDR) system in It is a joint forum of all banks and financial institutions and operates as a non-judicial body. The CDR system operates on the principle of supermajority among the participating banks and financial institutions for a particular advance. The CDR system is a non-statutory mechanism and is a voluntary system based on debtor-creditor and intercreditor agreements. The Bank has signed the inter-se agreement (among the banks and financial institutions) and is accordingly a member of the CDR system. The Prudential Norms as mentioned above equally apply to the accounts restructured under the CDR system. The RBI has also issued a separate set of prudential guidelines on restructuring of advances by banks in relation to the norms/conditions, which must be fulfilled in order to maintain the category of the restructured account as a standard asset. The earlier guidelines issued by the RBI on the restructuring of advances specified that standard advances should be re-classified as sub-standard immediately on restructuring. Since August 2008 the RBI has issued a series of circulars on special regulatory treatment on restructuring of advances by banks. The RBI has specified that during the pendency of the application for restructuring of the advance, the usual asset classification norms continue to apply. However, as an incentive for quick implementation of the package, if the approved package is implemented by the bank according to the specified time schedule (within 120 days from the date of approval under the CDR mechanism or within 120 days from the date of receipt of application by the bank in cases other than those restructured under the CDR mechanism) and conditions mentioned in para of the RBI Master Circular on Income Recognition, Asset Classification and Provisioning pertaining to Advances are complied with, the asset classification status may be restored to the position that existed when the reference was made to the CDR cell in respect of cases covered under the CDR mechanism or when the restructuring application was received by the bank in non-cdr cases. This special regulatory treatment is not applicable to consumer and personal advances, advances classified as capital market exposures and advances classified as commercial real estate exposures, However, the extant incentive for quick implementation of restructuring package and asset classification benefits available on restructuring on fulfilling the conditions have been withdrawn for all restructurings effective from 1 April 2015 with the exception of provisions related to changes in DCCO in respect of infrastructure as well as noninfrastructure project loans. Strategic Debt Restructuring The RBI through a circular dated 8 June 2015, has given the banks the power to acquire control of borrower companies who fail to achieve projected viability milestones, as part of their restructuring. Under the aforementioned circular, the Joint Lenders Forum (JLF) formed for the purpose of addressing distressed assets may convert the whole or part of the loan and interest outstanding into equity shares of the borrower company, so as to acquire majority shareholding in the company. Therefore, the lenders have the right to collectively acquire control of the borrower company by being able to control the board of directors, by obtaining a majority of equity shares in the borrower company. The mechanism for determining the price of conversion of the loan into equity has been provided in the aforementioned circular. In addition to the above, the SEBI through an amendment dated 5 May 2015 has amended the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 and the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 to allow smooth conversion of such debt to equity HK:

213 Sustainable Structuring of Stressed Assets On 13 June 2016, the RBI issued a circular on Scheme for Sustainable Structuring of Stressed Assets (S4A), as may be amended from time to time, as an optional framework for the resolution of large stressed accounts. The S4A envisages determination of the sustainable debt level for a stressed borrower and bifurcation of the outstanding debt into sustainable debt and equity or quasi-equity instruments which are expected to provide a higher return to lenders when the borrower has restructured its operations and financial structure. The sustainable debt level will be determined on an independent techno-economic viability criteria which shows that debt of that principal value along with current funded or non-funded liabilities owed to institutional lenders can be serviced. For this scheme to apply, sustainable debt shall not be less than per cent. of current funded liabilities. Other conditions are that the project has commenced commercial operation, the aggregate debt (including accrued interest) of all institutional lenders in rupees and foreign currency is more than Rs. 5,000 million, and the debt meets the sustainability test in the framework. In this context sustainable debt means the level of debt that, as it falls due for payment, can be serviced from free cash. The remaining portion of the debt will be converted into equity or redeemable cumulative preference shares. However, in cases where the resolution plan does not involve a change in the promoter, banks can at their discretion, also convert a portion of this into optionally convertible debentures. Furthermore, additional Guidelines on Sale of Stressed Assets by Banks, as may be amended from time to time, were released on 1 September 2016, according to which banks are now required to lay down detailed policies on the sale of their stressed assets to securitisation companies or reconstruction companies. According to the new guidelines, doubtful assets above a certain amount will have to be periodically reviewed by the boards of the banks and banks can offer assets to other banks or financial institutions that have the requisite capital. The cost of the asset valuation exercise shall be borne by the banks and such banks will need to have clear policies with regard to the proposed valuation. Also, if exposure is above Rs. 500 million then banks will be required to obtain two external valuation reports. This means any valuation by one external agency will have to be ratified by a second one. To make the process more transparent, the RBI has guided that the discount rate used in the valuation exercise will have to be spelled out in the policy. The RBI circular on Prudential Norms on Change in Ownership of Borrowing Entities (Outside Strategic Debt Restructuring Scheme) dated 24 September 2015, as may be amended from time to time (Change in Ownership of Borrowing Entities Guidelines), aims to enhance the ability of banks to change the ownership of borrowing entities which are under stress primarily due to operational or managerial inefficiencies, despite substantial sacrifices made by the lending banks. The RBI has permitted a standstill on asset classification and provisioning norms for 12 to 18 months to assist banks. Interest income payable but unpaid on any loans during this period should be recognised on cash basis. Floating Provisions The RBI issued prudential norms on the creation and utilisation of floating provisions (i.e. provisions that are not made in respect of specific non-performing assets or are made in excess of regulatory requirements for provisions for standard assets). The norms state that floating provisions can be used only for contingencies under extraordinary circumstances for making specific provisions against non-performing accounts after obtaining approval from the board of directors and with the prior permission of the RBI. Floating provisions for advances and investments must be held separately and cannot be reversed by credit to the profit and loss account. Until utilisation of such provisions, they can be netted off from gross non-performing assets to compute the net non-performing assets. Alternatively, floating provisions could be treated as part of Tier II capital within the overall ceiling of 1.25 per cent. of total risk-weighted assets. Floating provisions do not include specific voluntary HK:

214 provisions made by banks for advances that are higher than the minimum provision stipulated by the RBI guidelines. The banks have a choice between deducting their existing floating provisions from gross non-performing assets to arrive at net non-performing assets or reckon it as part of Tier II capital subject to the overall ceiling of 1.25 per cent. of total risk-weighted assets. In October 2009, the RBI advised Indian banks to increase their total provisioning coverage ratio, including floating provisions, to 70 per cent. by 30 September In April 2011, the RBI stipulated that banks would be required to maintain their provisioning coverage ratios with reference to their gross non-performing assets position at 30 September 2010 and not on an ongoing basis. The RBI further clarified that any surplus provisioning should not be written back but should be segregated into a countercyclical provisioning buffer and that banks will be allowed to use this buffer to make specific provisions for non-performing assets during a system-wide downturn. To limit the volatility of loan loss provisioning over the course of an economic cycle, the RBI released a discussion paper on a dynamic loan loss provisioning framework in March Under the proposed framework, banks are expected to either compute parameters such as probability of default, loss given default, etc. for different asset classes to arrive at long-term average annual expected loss or use the standardised parameters prescribed by the RBI towards computation of a dynamic provisioning requirement. A dynamic loan loss provisioning framework is expected to be designed to make improvements to the system. Meanwhile, banks have been asked to develop the necessary capabilities to compute their long-term average annual expected loss for different asset classes, for inclusion and improvement to the dynamic provisioning framework. In November 2012, the RBI released draft guidelines on liquidity risk management and the Basel III liquidity standards. The RBI has proposed the monitoring and reporting of the Basel III liquidity coverage ratio, which is designed to ensure that a bank maintains an adequate level of liquid assets to survive an acute liquidity stress scenario lasting one month. It has also proposed a Basel III net stable funding ratio designed to ensure a minimum amount of funding that is expected to be stable over a one-year time horizon. Additional Provisions For Standard Advances At Higher Than The Prescribed Rates Pursuant to a notification issued on 18 April 2017 RBI prescribed that the provisioning rates prescribed in the Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances are the regulatory minimum and banks are encouraged to make provisions at higher rates in respect of advances to stressed sectors of the economy. With a view to ensure that banks have adequate provisions for loans and advances at all times, RBI advised as under: i) Banks shall put in place a Board approved policy for making provisions for standard assets at rates higher than the regulatory minimum, based on evaluation of risk and stress in various sectors. ii) iii) The policy shall require a review, at least on a quarterly basis, of the performance of various sectors of the economy to which the bank has an exposure to evaluate the present and emerging risks and stress therein. The review may include quantitative and qualitative aspects like debt-equity ratio, interest coverage ratio, profit margins, ratings upgrade to downgrade ratio, sectoral non-performing assets/stressed assets, industry performance and outlook, legal/ regulatory issues faced by the sector, etc. The reviews may also include sector specific parameters. More immediately, as the telecom sector is reporting stressed financial conditions, and presently interest coverage ratio for the sector is less than one, Board of Directors of the banks may review the telecom sector latest by 30 June 2017, and consider making provisions for standard assets in this sector at higher rates so that necessary resilience is built in the HK:

215 balance sheets should the stress reflect on the quality of exposure to the sector at a future date. Besides, banks should also subject the exposure to the sector to closer monitoring Provisioning for Investment in Security Receipts When banks / FIs invest in the SRs / Pass-Through Certificates (PTCs) issued by SCs / RCs, in respect of the financial assets sold by them to the SCs / RCs, the sale shall be recognised in books of the banks / FIs at the lower of: the redemption value of the SRs /PTCs, and the Net Book Value (NBV) (i.e. Book value less provisions held), of the financial asset. The above investment should be carried in the books of the bank / FI at the price as determined above until its sale or realisation, and on such sale or realisation, the loss or gain must be dealt with as under: (i) If the sale to SC/ RC is at a price below the net book value (NBV) (i.e., book value less provisions held), the shortfall should be debited to the profit and loss account of that year. Banks can also use countercyclical / floating provisions for meeting any shortfall on sale of NPAs i.e., when the sale is at a price below the net book value (NBV). However, for assets sold on or after 26 February 2014 and upto 31 March 2016, as an incentive for early sale of NPAs, banks can spread over any shortfall, if the sale value is lower than the NBV, over a period of two years. This facility of spreading over the shortfall will be subject to necessary disclosures in the Notes to Account in Annual Financial Statements of the banks. (ii) Banks may reverse the excess provision on sale of NPAs, if the sale value is for a value higher than the NBV, to its profit and loss account in the year the amounts are received. However, banks can reverse excess provision arising out of sale of NPAs only when the cash received (by way of initial consideration and / or redemption of SRs / PTCs) is higher than the net book value (NBV) of the asset. Further, reversal of excess provision will be limited to the extent to which cash received exceeds the NBV of the asset. With regard to assets sold before 26 February 2014, the quantum of excess provision reversed to the profit and loss account on account of sale of NPAs shall be disclosed in the financial statements of the bank under Notes to Accounts. All instruments received by banks / FIs from SC / RC as sale consideration for financial assets sold to them and also other instruments issued by SC / RC in which banks / FIs invest will be in the nature of non-slr securities. Accordingly, the valuation, classification and other norms applicable to investment in non-slr instruments prescribed by the Reserve Bank from time to time would be applicable to bank s / FI s investment in debentures / bonds / security receipts / PTCs issued by SC / RC. However, if any of the above instruments issued by SC / RC is limited to the actual realisation of the financial assets assigned to the instruments in the concerned scheme the bank / FI shall reckon the Net Asset Value (NAV), obtained from SC / RC from time to time, for valuation of such investments. Investment in Preference Shares & NPI The valuation of preference shares should be on YTM basis. The preference shares will be issued by companies with different ratings. These will be valued with appropriate mark-up over the YTM rates for Central Government Securities put out by the PDAI/FIMMDA periodically. The mark HK:

216 up will be graded according to the ratings assigned to the preference shares by the rating agencies subject to the following: (a) (b) (c) (d) (e) (f) (g) The YTM rate should not be lower than the coupon rate/ YTM for a GoI loan of equivalent maturity. The rate used for the YTM for unrated preference shares should not be less than the rate applicable to rated preference shares of equivalent maturity. The mark-up for the unrated preference shares should appropriately reflect the credit risk borne by the bank. Investments in preference shares as part of the project finance may be valued at par for a period of two years after commencement of production or five years after subscription whichever is earlier. Where investment in preference shares is as part of rehabilitation, the YTM rate should not be lower than 1.5 per cent. above the coupon rate/ YTM for GoI loan of equivalent maturity. Where preference dividends are in arrears, no credit should be taken for accrued dividends and the value determined on YTM should be discounted by at least 15 per cent if arrears are for one year, and more if arrears are for more than one year. The depreciation/provision requirement arrived at in the above manner in respect of non performing shares where dividends are in arrears shall not be allowed to be set-off against appreciation on other performing preference shares. The preference share should not be valued above its redemption value. When a preference share has been traded on stock exchange within 15 days prior to the valuation date, the value should not be higher than the price at which the share was traded. Non Performing Investment In respect of securities included in any of the three categories where interest/ principal is in arrears, banks should not reckon income on the securities and should also make appropriate provisions for the depreciation in the value of the investment. The banks should not set-off the depreciation requirement in respect of these non-performing securities against the appreciation in respect of other performing securities. An NPI, similar to a non performing advance (NPA), is one where: (i) Interest/ installment (including maturity proceeds) is due and remains unpaid for more than 90 days. (ii) (iii) The above would apply mutatis-mutandis to preference shares where the fixed dividend is not paid. If the dividend on preference shares (cumulative or non-cumulative) is not declared/paid in any year it would be treated as due/unpaid in arrears and the date of balance sheet of the issuer for that particular year would be reckoned as due date for the purpose of asset classification. In the case of equity shares, in the event the investment in the shares of any company is valued at Re.1 per company on account of the non-availability of the latest balance sheet in accordance with the instructions contained in paragraph 28 of the Annex to the circular DBOD.BP.BC.32/ / dated 16 October 2000, those equity shares would also be reckoned as NPI HK:

217 (iv) (v) (vi) If any credit facility availed by the issuer is NPA in the books of the bank, investment in any of the securities, including preference shares issued by the same issuer would also be treated as NPI and vice versa. However, if only the preference shares are classified as NPI, the investment in any of the other performing securities issued by the same issuer may not be classified as NPI and any performing credit facilities granted to that borrower need not be treated as NPA. The investments in debentures/bonds, which are deemed to be in the nature of advance, would also be subjected to NPI norms as applicable to investments. In case of conversion of principal and/or interest into equity, debentures, bonds, etc., such instruments should be treated as NPA ab initio in the same asset classification category as the loan if the loan's classification is substandard or doubtful on implementation of the restructuring package and provision should be made as per the norms. Provisioning and Write-Offs Provisions are based on guidelines specific to the classification of the assets. The following guidelines apply to the various asset classifications: Standard Assets. A general provision of 0.25 per cent. in case of farm credit to agricultural activities and SME sectors, 1.00 per cent. in respect of advances classified as commercial real estate, 0.75 per cent. in respect of advances to Commercial Real Estate Residential Housing Sector and 0.40 per cent. for all other advances. Sub-Standard Assets. A general provision of 15 per cent. on total outstanding without making any allowance for ECGC guarantee cover and securities available. If the sub-standard asset is unsecured ab initio then a provision of 25 per cent. is to be made. However infrastructure loan accounts that are classified as sub-standard are provisioned at 20 per cent. Doubtful Assets. A provision of 100 per cent. to the extent to which the advance is not covered by the realisable value, estimated on a realistic basis, of the security to which the Bank has a valid recourse In case where there is a secured portion of the asset, depending upon the period for which the asset remains doubtful, a 25 per cent. to 100 per cent. provision is required to be taken against the secured asset as follows: Up to one year: 25 per cent. provision One to three years: 40 per cent. provision More than three years: 100 per cent. provision Loss Assets. The entire asset is required to be written off. Restructured Assets. Apart from the provisions mentioned above, a provision is made equal to the net present value of the reduction in the rate of interest on the loan over its maturity. The RBI also has separate guidelines for restructured loans. A fully secured standard asset can be restructured by rescheduling principal repayments and/or the interest element, but must be separately disclosed as a restructured asset. The amount of sacrifice, if any, in the element of interest, measured in present value terms, is either written off or a provision is made to the extent of the sacrifice involved. Similar guidelines apply to sub-standard assets. The sub-standard accounts that have been subjected to restructuring, whether in respect of principal instalment or interest amount, by HK:

218 whatever modality, are eligible to be upgraded to the standard category only after the specified period, i.e. a period of one year from the commencement of the first payment of interest or of principal, whichever is later, on the credit facility with longest period of moratorium under the terms of the restructuring package, subject to satisfactory performance during the period. In its circular dated 30 May 2013, the RBI has decided, with effect from 1 April 2015, to withdraw the asset classification benefits which were previously available on restructured assets subject to certain conditions. Under the revised guidelines, a standard account on restructuring would immediately be classified as substandard and the NPAs, upon restructuring, would continue to have the same asset classification as prior to restructuring and slip into further lower asset classification categories according to the extant asset classification norms with reference to the pre-restructuring repayment schedule. These new regulations do not apply to loans that are restructured due to a change in the date of commencement of commercial operations up to a specified period in the infrastructure sector and non-infrastructure sector. The provisioning requirement for restructured standard advances has also been further increased to 5.00 per cent. with effect from 1 June This requirement was implemented in a phased manner, and became fully effective from 31 March Legal and Regulatory Framework with respect to NPAs in India As part of the financial sector reforms, the Government introduced the following legal and regulatory provisions. (a) Recovery Mechanism i. Recovery of Debts Due and Bankruptcy Act, 1993 (RDDB) (formerly titled as Recovery of Debts Due to Banks and Financial Institutions Act, 1993): The RDDB Act provides for the establishment of debt recovery tribunals (DRTs) for adjudication and recovery of debts due to any bank or public financial institution or to a consortium of banks and public financial institutions, for an amount of 0.1 million or more. Under RDDB Act, the procedures for recoveries of debt have been simplified and timeframes been fixed for speedy disposal of cases. Upon establishment of the DRT, no court or other authority can exercise jurisdiction in relation to matters covered by the RDDB Act, except the higher courts in India in certain circumstances. Appeals against orders passed by the DRT lie before the DRAT. ii. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI Act): The SARFAESI Act, empowers the banks to enforce their security interest over secured assets without the intervention of the courts or tribunals. iii. Negotiable Instruments Act, 1881: Section 138 Negotiable Instruments Act, allows banks to file a criminal case against the drawer of an instrument, if the instrument tendered towards discharge of the amounts due is not honoured. iv. Insolvency and Bankruptcy Code, 2016: The Government enacted the Insolvency and Bankruptcy Code, 2016 to provide a consolidated framework to address the concerns of lenders and to provide corporate debtors with an exit mechanism. The Banking Regulation (Amendment) Ordinance, 2017 promulgated on 4 May 2017 states that the Central Government may by order authorise the RBI to issue directions to banking companies to initiate insolvency proceedings under the Insolvency and Bankruptcy Code, Further, the RBI may issue directions to banking companies for the resolution of stressed assets HK:

219 (b) Revival/Rehabilitation i. Corporate Debt Restructuring (CDR) : The CDR mechanism is a voluntary, non-statutory mechanism based on debtor-creditor and inter-creditor agreements and operates outside the authority of the BIFR, DRTs or legal proceedings. Restructuring debt under the CDR includes rescheduling the loan in question, aligning interest rates to sustainable rates, converting the loan or overdue interest into equity to correct debt-equity ratio imbalances, or waiving penalty interest or liquidated damages. In certain cases, additional assistance to meet minimum capital expenditures or pay pressing creditors, or to assist the borrower in maintaining its operations, may also be considered as part of the restructuring process. ii. Scheme for Sustainable Structuring of Stressed Assets (Scheme for Stressed Assets) The RBI has formulated the Scheme for Stressed Assets as an optional framework for the resolution of large stressed accounts. The Scheme for Stressed Assets envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt based on a maturity profile and the level of debt which can be serviced. iii. Strategic Debt Restructuring In June 2015, the RBI gave banks power to acquire control of borrowers who fail to achieve projected viability milestones as part of their restructuring. The joint lenders forum formed for the purpose of addressing distressed assets may convert the whole or part of the loan and outstanding interest into equity shares of a borrower, and acquire majority shareholding in the company. Lenders collectively can acquire control of a borrower by being able to control the board of directors and obtaining a majority of equity shares of the borrower company. The mechanism for determining the price of conversion of the loan into equity has been provided. SEBI has issued circulars to assist the conversion of such debt to equity. iv. Arrangement under Companies Act, 2013 Section 230 of the Companies Act, 2013 addresses the rights of a company to enter into a compromise or arrangement (i) between itself and its creditors or any class of them, and (ii) between itself or its members or any class of them. The section also applies to compromises entered into by a company under winding up. The arrangements contemplated by the section include a reorganisation of the share capital of a company by consolidation of its shares into shares of different classes. Ownership in Private Sector Banks On 12 May 2016, the RBI issued master directions to govern ownership in private sector banks. These directions classify shareholders into different categories on the basis of which, limits are stipulated for their shareholding in the Bank. The limit of shareholding of both promoters and nonpromoters may be exceeded subject to conditions provided in these directions. These master directions supersede the 28 October 2005 RBI circular on Ownership and Governance in Private sector Banks and the 5 February 2007 RBI circular on Issue of American Depository Receipts/Global Depository Receipts Depository Agreements. Guidelines relating to use of Recovery Agents by Banks HK:

220 In April 2008, the RBI issued guidelines for banks engaging recovery agents. These guidelines are consolidated in the master circular on Loans and Advances Statutory and Other Restrictions issued by the RBI annually, the latest one dated 1 July The RBI has asked banks to put in place a due diligence process for engagement of recovery agents, structured to cover individuals involved in the recovery process. Banks are expected to communicate details of recovery agents to borrowers and have in place a grievance redress mechanism pertaining to the recovery process. The RBI has advised banks to initiate a training course for current and prospective recovery agents to ensure prudent recovery practices. Regulations Relating to Sale of Assets to Asset Reconstruction Companies The SARFAESI Act provides for the sale of financial assets by banks and financial institutions to asset reconstruction companies. The RBI has issued guidelines to banks on the process to be followed, which provides that a bank may sell financial assets to an asset reconstruction company provided the asset is a NPAs. These assets are to be sold on a without recourse basis only. A bank may sell a standard asset only if the borrower has a consortium or multiple banking arrangement, at least 75 per cent. by value of the total loans to the borrower are classified as nonperforming and holding at least 75 per cent. in value of the borrower s debt agree to the sale. The banks selling financial assets should ensure that there is no known liability devolving on them and that they do not assume any operational, legal or any other type of risks relating to the financial assets sold. Furthermore, banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realisation. However, banks may sell specific financial assets with an agreement to share in any surplus realised by the asset reconstruction company in the future. Whilst each bank is required to make its own assessment of the value offered in the sale before accepting or rejecting an offer for purchase of financial assets by an asset reconstruction company, in consortium or multiple banking arrangements, where more than 75 per cent. by value of the banks or financial institutions accept the offer, the remaining banks or financial institutions are obliged to accept the offer. Consideration for the sale may be in the form of cash, bonds or debentures or security receipts or pass-through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets. The RBI has issued guidelines on Securitisation of Standard Assets with effect from 1 February The guidelines provide that for a transaction to be treated as a securitisation, a twostage process must be followed. In the first stage there should be pooling and transferring of assets to a bankruptcy remote vehicle (SPV) and in the second stage repackaging and selling the security interests representing claims on incoming cash flows from the pool of assets to the third party investors should be effected. Furthermore, to enable the transferred assets to be removed from the balance sheet of the seller in a securitisation structure, the isolation of assets or true sale from the seller or originator to the SPV is an essential prerequisite. Also, an arm s length relationship shall be maintained between the originator and seller and the SPV. Certain regulatory norms for capital adequacy, valuation, profit and loss on sale of assets, income recognition and prudential norms for investment in securities issued by an SPV, provisioning for originators and service providers like credit enhancers, liquidity support providers, underwriters, as well as investors and also the accounting treatment for securitisation transactions and disclosure norms have been prescribed. Quarterly reporting to the audit sub-committee of the Board by originating banks of the securitisation transactions has also been prescribed. Apart from banks, these guidelines are also applicable to financial institutions and NBFCs. The RBI, in its circular dated 7 May 2012, revised the guidelines applicable to securitisation of standard assets. The revised guidelines are applicable to on-balance sheet standard assets, subject to certain exceptions. Among other things, the circular introduced minimum holding and retention requirements applicable to HK:

221 securitisation transactions and expressly laid down requirements applicable to direct assignment transactions. Some of the key provisions of the circular are as follows: (i) (ii) (iii) Banks can securitise loans only after a Minimum Holding Period (MHP) counted from the date of full disbursement of the loans. The MHP varies depending on the number of instalments to be paid prior to securitisation and the tenor and repayment frequency of the loan, so that greater the frequency of repayment of a loan, the greater the numbers of instalments before which the loan can be securitised. The originating banks are required to adhere to the Minimum Retention Requirements (MRR) prescribed in the circular depending on the type of loan and the maturity date. The MRR are designed to ensure that the originating banks continue to hold a stake in the performance of the securitised assets. MRR varies between per cent. depending on the tenure of the loan and is required to be satisfied by the entity securitising the loans (and not by other group entities of the actual originator). The total exposure of banks to the loans securitised in the following forms should not exceed per cent. of the total securitised instruments issued: a) investments in equity/subordinate/senior tranches of securities issued by the SPV including through underwriting commitments; b) credit enhancements including cash and other forms of collaterals including overcollateralisation, but excluding the credit-enhancing interest-only strip; and c) liquidity support. (iv) If a bank exceeds the above limit, the excess amount would be risk-weighted at 1, per cent. In case of direct assignments, the revised guidelines introduce certain criteria around up-front booking of profits, disclosure requirements, loan origination standards, standards of due diligence and requirements to be met by the banks purchasing portfolios under the direct assignment route. The guidelines also lay down that in case of a true sale, the selling bank shall transfer all risks or rewards and rights or obligations pertaining to the asset and shall not hold any beneficial interest in the asset after its sale except those specifically permitted under the guidelines. The buyer should have the unfettered right to pledge, sell, transfer or exchange or otherwise dispose of the assets free of any restraining condition. The buyer shall not have any recourse to the selling bank for any expenses or losses except those specifically permitted under the guidelines. The RBI, on 21 August 2012, extended the application of these guidelines to NBFCs with certain modifications. On 1 July 2013, the RBI has issued guidelines on the reset of credit enhancement in securitisation transactions, which provide conditions subject to which the amount of the external credit enhancement provided can be reset and the excess amount of credit enhancement can be released. The original amount of external credit enhancements provided at the time of initiation of securitisation transaction can be reset by the credit enhancement provider if it fulfils certain conditions including the rating of any of the tranches has not deteriorated, consent of all the trustees has been obtained, reset of credit enhancement is provided for in the contractual terms of the transaction and the initial rating of the transaction takes into account the likelihood of resets, and the pool of underlying loans has demonstrated satisfactory performance before reset is permitted. The excess credit enhancement can be released subject to certain conditions, which include that credit enhancement provided should not go below a reserve floor (which is a percentage of the initial credit enhancement) and in no event should be less than per cent. of the initial credit enhancement and HK:

222 the release cannot cause the exposures retained by originators along with credit enhancements offered by them to fall below the prescribed level of MRR. Guidelines on Sale and Purchase of NPAs In July 2005, the RBI issued guidelines on the sales and purchases of NPAs between banks, financial institutions and NBFCs. These guidelines require that the Board of Directors of banks must establish a policy for purchases and sales of NPAs. Purchases and sales of NPAs must be without recourse to the seller and on a cash basis, with the entire consideration being paid up-front. An asset must have been classified as non-performing for at least two years by the seller to be eligible for sale. The purchasing bank must hold the NPAs on its books for at least 15 months before it can sell the asset to another bank. The asset cannot be sold back to the original seller. Financial Literacy Guidelines For promoting financial literacy and financial inclusion in India, the RBI had, by way of a circular on 2 March 2017, released revised guidelines on financial literacy centres. Financial Literacy Centres (FLCs) of scheduled commercial banks in India have been advised to conduct special camps for a period of one year beginning 1 April 2017 on Going digital, and the tailored camps for the different target groups viz. farmers, micro and small entrepreneurs, school children, SHGs, senior citizens, etc. Rural branches of banks are required to conduct only one camp per month (on the third Friday of each month after branch hours), as per the model approach recommended by RBI. Both FLCs and rural branches of banks are eligible for funding support for the financial literacy camps to the extent of 60 per cent. of the expenditure of the camp subject to a maximum of Rs. 15,000/- per camp. Directed Lending Priority Sector Lending (a) (b) The RBI has linked the priority sector lending targets to adjusted net bank credit (ANBC) or credit equivalent amount of off-balance sheet exposure, whichever is higher. Commercial banks are required to lend a certain percentage of their adjusted net bank credit to specific sectors (the priority sectors), such as agriculture, Micro Small & Medium Enterprises, Export Credit, Education, Housing, Social Infrastructure and Renewable Energy. Total priority sector advances should be 40 per cent. of adjusted net bank credit or credit equivalent amount of offbalance sheet exposure, whichever is higher, with agricultural advances required to be 18 per cent. of adjusted net bank credit or credit equivalent amount of off-balance sheet exposure, whichever is higher (within the 18 per cent. target for agriculture, a target of 8 per cent. of ANBC or credit equivalent amount of off-balance sheet exposure, whichever is higher is prescribed for Small and Marginal Farmers, to be achieved in a phased manner i.e., 7 per cent. by March 2016 and 8 per cent. by March 2017), advances to Micro enterprises 7.5 per cent. of ANBC or credit equivalent amount of off-balance sheet advances, whichever is higher, and advances to weaker sections required to be 10 per cent. of adjusted net bank credit or credit equivalent amount of off-balance sheet exposure, whichever is higher. The currently applicable RBI guidelines specify that housing loans to individuals of up to Rs. 2.8 million in metropolitan centres with a population above one million and housing loans of up to Rs. 2 million in other centres for purchase/construction of a dwelling unit per family (provided the overall cost of the dwelling unit in the metropolitan centre and at other centres should not exceed 3.5 million and 2.5 million, respectively) are treated as a priority sector. Housing loans for construction of housing projects are applicable to economically weaker sections and low income groups. The total cost of the dwelling unit should not exceed Rs. 1 million and the family income should be limited to Rs million. The guidelines have HK:

223 removed the distinction between direct and indirect agriculture. The indirect agri sub-target has been removed and lending to small and marginal farmers included in a phased manner. (c) (d) (e) (f) (g) The incremental export credit over the corresponding date of the preceding year will be reckoned up to 2 per cent. of ANBC or credit equivalent amount of off-balance sheet exposure, whichever is higher. Educational loans eligible for classification under PSL has been capped at Rs. 1 million. A new category has been introduced entitled Social Infrastructure. Loans up to a limit of Rs. 50 million per borrower for building social infrastructure may be made. Loans to renewable energy have been introduced, up to a limit of Rs. 150 million for solar based power generators, biomass power generators, wind mills etc. For individuals a limit of Rs. 1 million has been set as a limit for setting up off-grid solar and other off-grid renewable energy solutions for households. Lending to microfinance institutions for on-lending, must ensure that the microfinance institutions comply with the cap on individual loans and margin caps according to the RBI guidelines, in order to classify these loans under a priority sector. The loans extended by MFI to Individuals and SHG/JLG would be eligible to be classified under priority sector lending and not medium enterprises. Any shortfall in the amount required to be lent to the priority sectors may be required to be allocated to the Rural Infrastructure Development Fund established with the NABARD or other funds with the NABARD or NHB or SIDBI or MUDRA Ltd, as may be decided by the RBI from time to time. For fiscal 2016, the shortfall in achieving priority sector target/sub-targets was assessed based on the position as of 31 March From fiscal 2017 onwards, the achievement is being arrived at the end of fiscal year based on the average of priority sector target/sub-target achievement as at the end of each quarter. The interest rates on banks contribution to RIDF or any other funds, tenure of deposits, etc. are required to be fixed by the RBI from time to time. The Bank had a portfolio of Rs. 1, billion in priority sector lending, as of 31 March Priority Sector Lending Certificates Government of India vide Notification dated 4 February 2016 has specified Dealing in Priority Sector Lending Certificates (PSLCs) in accordance with the Guidelines issued by Reserve Bank of India as a form of business under Section 6 (1)(o) of the Banking Regulation Act, Pursuant thereto RBI on 7 April 2016 released the Priority Sector Lending Certificates Scheme. i) Purpose: To enable banks to achieve the priority sector lending target and sub-targets by purchase of these instruments in the event of shortfall and at the same time incentivize the surplus banks; thereby enhancing lending to the categories under priority sector. ii) iii) iv) Nature of the Instruments: The seller will be selling fulfillment of priority sector obligation and the buyer would be buying the same. There will be no transfer of risks or loan assets. Modalities: The PSLCs will be traded through the CBS portal (e-kuber) of RBI. The detailed operational instructions for carrying out the trades are available through the e-kuber portal. Sellers/Buyers: Scheduled Commercial Banks (SCBs), Regional Rural Banks (RRBs), Local Area Banks (LABs), Small Finance Banks (when they become operational) and Urban Cooperative Banks who have originated PSL eligible category loans subject to such regulations as may be issued by the Bank HK:

224 v) Types of PSLCs: There would be four kinds of PSLCs : PSLC Agriculture: Counting for achievement towards the total agriculture lending target. PSLC SF/MF: Counting for achievement towards the sub-target for lending to Small and Marginal Farmers. PSLC Micro Enterprises: Counting for achievement towards the sub target for lending to Micro Enterprises. PSLC General: Counting for achievement towards the overall priority sector target. As stated in the Master Circular on Priority Sector Lending - Targets and Classifications dated 1 July 2015, Priority Sector comprises several categories, including Agriculture and Micro Enterprises. In addition to the overall target and sectoral targets for lending to agriculture and micro enterprises, banks are required to achieve specified sub-target for lending to Small and Marginal Farmers. Accordingly, to avoid computational issues in assessing the achievement/shortfall of PSL targets, it is advised that the above four types of certificates will represent specific loans and count for specific sub-targets/targets as indicated hereunder: S.No. Type of PSLCs Representing Counting for 1. PSLC - Agriculture All eligible Agriculture loans except Achievement of agriculture target and loans to SF/MF for which separate overall PSL target certificates are available 2. PSLC - SF/MF All eligible loans to small/marginal Achievement of SF/MF sub-target, farmers agriculture target and overall PSL target 3. PSLC - Micro All PSL Loans to Micro Enterprises Achievement of micro-enterprise subtarget Enterprises and overall PSL target 4. PSLC - General The residual priority sector loans i.e. Achievement of overall PSL target other than loans to agriculture and micro enterprises for which separate certificates are available Thus, a bank having shortfall in achievement of any sub-target (e.g. SF/MF, Micro), will have to buy the specific PSLC to achieve the target. However, if a bank is having shortfall in achievement of the overall target only, as applicable to it, may buy any of the available PSLCs. vi) vii) viii) Computation of PSL achievement: A bank s PSL achievement would be computed as the sum of outstanding priority sector loans, and the net nominal value of the PSLCs issued and purchased. Such computation will be done separately where sub targets are prescribed as on the reporting date. Amount eligible for issue: Normally PSLCs will be issued against the underlying assets. However, with the objective of developing a strong and vibrant market for PSLCs, a bank is permitted to issue PSLCs upto 50 per cent. of previous year s PSL achievement without having the underlying in its books. However, as on the reporting date, the bank must have met the priority sector target by way of the sum of outstanding priority sector lending portfolio and net of PSLCs issued and purchased. To the extent of shortfall in the achievement of target, banks may be required to invest in RIDF/other funds as hitherto. Credit Risk: There will be no transfer of credit risk on the underlying as there is no transfer of tangible assets or cash flow HK:

225 ix) Expiry date: All PSLCs will expire by March 31st and will not be valid beyond the reporting date (March 31st), irrespective of the date it was first sold. x) Settlement: The settlement of funds will be done through the platform as explained in the e- Kuber portal. xi) xii) xiii) xiv) Value and Fee: The nominal value of PSLC would represent the equivalent of the PSL that would get deducted from the PSL portfolio of the seller and added to the PSL portfolio of the buyer. The buyer would pay a fee to the seller which will be market determined. Lot Size: The PSLCs would have a standard lot size of 25 lakh and multiples thereof. Accounting: The fee paid for purchase of the PSLC would be treated as an Expense and the fee received for the sale of PSLCs would be treated as Miscellaneous Income. Disclosures: Both seller and buyer shall report the amount of PSLCs (category-wise) sold and purchased during the year in the Disclosures to the Balance Sheet. Guidelines on Relief Measures for Natural Calamities On 3 July 2017, the RBI released the Master Directions on Relief Measures by banks in areas affected by Natural Calamities (Relief Measures), under which banks (including Small Finance Banks (SFBs)) have been recommended to provide various relief measures, in the eventuality of natural calamities, through rescheduling existing loans and sanctioning fresh loans as per the emerging requirements of the borrowers. Export Credit The Reserve Bank of India also requires commercial banks to make loans to exporters at concessional rates of interest. This enables exporters to have access to an internationally competitive financing option. Credit Exposure Limits As a prudent measure aimed at better risk management and avoidance of concentration of credit risk, the RBI has prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual borrowers and to all companies in a single group (or sponsor group). The limits set by the RBI are as follows: (i) Exposure ceiling for a single borrower is 15 per cent. of capital funds and group exposure limit is 40 per cent. of capital funds. In case of financing for infrastructure projects, the single borrower exposure limit is extendable by another 5 per cent., i.e. up to 20 per cent. of capital funds and the group exposure limit is extendable by another 10 per cent. i.e. up to 50 per cent. of capital funds. With effect from 29 May 2008, the exposure limit in respect of a single borrower, in respect of borrowers which are oil companies who have been issued oil bonds by the Government of India, was raised to 25 per cent. of capital funds. Banks may, in exceptional circumstances, with the approval of their board of directors, consider enhancement of the exposure to a borrower up to a maximum of a further 5 per cent. of capital funds, subject to the borrower (single or group) consenting to the banks making appropriate disclosures in their annual reports HK:

226 (ii) (iii) (iv) Capital funds are the total capital as defined under capital adequacy standards (Tier I and Tier II capital). The infusion of capital under Tier I and Tier II, either through domestic or overseas issue, after the published balance sheet date will also be taken into account for determining the exposure ceiling. Other accretion to capital funds by way of quarterly profits would not be eligible to be taken into account for determining the exposure ceiling. Exposure shall include credit exposure (funded and non-funded credit limits) and investment exposure (including underwriting and similar commitments). Non-fund-based exposures are calculated at 100 per cent. For the purpose of exposure norms, banks compute their credit exposures arising on account of the interest rate and foreign exchange derivative transactions and gold by using the Current Exposure Method. In computing credit exposure, banks may exclude sold options, provided that the entire premium or fee or any other form of income is received or realised in accordance with the Prudential Norms for Off-Balance Sheet Exposures of Banks published on 8 August Exposures to public sector undertakings are exempt from group exposure limits, and only single borrower exposure limits apply to them. To ensure that exposures are evenly spread, the RBI requires banks to fix internal limits of exposure to specific sectors. These limits are subject to periodical review by the banks. Limits on exposure to Non-Banking Finance Companies The exposure (both lending and investment, including off-balance sheet exposures) of a bank to a single NBFC predominantly engaged in lending against collateral of gold jewellery, and NBFC- Asset Financing Company (NBFC-AFC) should not exceed per cent. and per cent. respectively, of the bank s capital funds according to its last audited balance sheet. Banks may, however, assume exposures on a single NBFC or NBFC-AFC up to per cent. and per cent. respectively, of their capital funds provided the exposure in excess of per cent. and per cent. respectively, is on account of funds on-lent by the NBFC or NBFC-AFC to the infrastructure sector. Exposure of a bank to Infrastructure Finance Companies (IFCs) should not exceed per cent. of its capital funds according to its last audited balance sheet, with a provision to increase it to per cent. if the same is on account of funds on-lent by the IFCs to the infrastructure sector. Furthermore, banks can also consider fixing internal limits for their aggregate exposure to all NBFCs considered together. Regulation Relating to Country Risk Management The RBI has issued detailed guidelines on country risk management that cover banks exposure to those countries to which they have a net funded exposure of 2 per cent. or more of their total assets and no provision is maintained on such country exposure. The countries are categorised into seven risk categories; namely, insignificant, low, moderate, high, very high, restricted and offcredit and provisioning based on exposures exceeding 180 days on a graded scale ranging from 0.25 per cent. to 100 per cent. Banks may make a lower level of provisioning of 25 per cent. of the requirement in respect of exposures with contractual maturity of less than 180 days. Regulations Relating to Investments and Capital Market Exposure Limits Pursuant to the RBI guidelines, the aggregate exposure of banks to capital markets (both fund- based and non-fund-based), should not exceed 40 per cent. of its net worth on a standalone and consolidated basis. Within this limit, direct investments in shares, convertible bond/debentures and units of equity-oriented mutual funds should not exceed 20 per cent. of its net worth HK:

227 In November 2003, the RBI issued guidelines on investments by banks in non-slr securities issued by companies, banks, financial institutions, central and State Government-sponsored institutions and special purpose vehicles. These guidelines apply to primary market subscriptions and secondary market purchases. Pursuant to these guidelines, banks are prohibited from investing in non-slr securities with an original maturity of less than one year, other than commercial paper and certificates of deposits. Banks are also prohibited from investing in unrated non-slr securities, except unlisted bonds of companies engaged in infrastructure activities. A bank s investment in unlisted non-slr securities may not exceed 10 per cent. of its total investment in non-slr securities as at the end of the preceding fiscal year. These guidelines do not apply to investments in security receipts issued by securitisation or reconstruction companies registered with the RBI and asset-backed securities and mortgage-backed securities with a minimum investment grade credit rating. The RBI requires that any investment by a bank in capital eligible instruments (e.g. equity shares, perpetual non-cumulative preference shares, innovative perpetual debt instruments, upper Tier II bonds/preference shares, subordinated debt instruments etc.), representing capital, issued by other banks and financial institutions should not exceed 10 per cent. of the investing bank s capital funds (Tier I plus Tier II after adjustments). Any investment in excess of this limit shall be deducted at 50 per cent. from Tier I capital and 50 per cent. from Tier II capital investments in the instruments, which are not deducted from Tier I capital of the investing bank or financial institution, are subject to a 100 per cent. risk weight (or such other percentage as applicable to the ratings assigned to the relevant instruments, whichever is higher) for credit risk for capital adequacy purposes. The risk weight for credit risk exposure in capital markets was increased to 125 per cent. (or a higher percentage if warranted by any external rating) from 100 per cent. in July Furthermore, banks and financial institutions cannot acquire any fresh stake in a bank s equity shares, if by such acquisition, the investing bank s or financial institution s holding exceeds 5 per cent. of the investee bank s equity capital. Banks with investments in excess of the prescribed limits are required to apply to the RBI with a roadmap for a reduction of the exposure. RBI by way of a circular dated 16 September 2015 has permitted banks to invest in equities of financial service ventures including stock exchanges and depositories without any prior approval. This investment flexibility will be limited to banks that have CRAR of 10 per cent. or more and also have made a net profit in the previous fiscal. Tri-Party Repo Directions On 10 August 2017, the RBI issued the Tri-Party Repo (Reserve Bank) Directions, 2017 (Tri- Party Repo Directions). These Tri-Party Repo Directions pertain to guidelines on eligibility, trading, documenting / reporting and settling of repo and reverse repo contracts where a third party Tri-Party Agent acts as an intermediary between the borrower and the lender to the repo/ reverse repo, to facilitate services like collateral selection, payment and settlement, custody and management during the life of the transaction. Further on 2 August 2017, the RBI reduced the repo rates under the Liquidity Adjustment Facility (LAF) by 25 basis points from 6.25 per cent to 6.0 per cent, and the reverse repo rate to 5.75 per cent with immediate effect. Consolidated Supervision Guidelines In fiscal 2003, the RBI issued guidelines for consolidated accounting and consolidated supervision for banks. These guidelines became effective 1 April The principal features of these guidelines are: Consolidated Financial Statements. Banks are required to prepare consolidated financial statements intended for public disclosure HK:

228 Consolidated Prudential Returns. Banks are required to submit to the RBI consolidated prudential returns reporting their compliance with various prudential norms on a consolidated basis, excluding insurance subsidiaries. Compliance on a consolidated basis is required in respect of the following main prudential norms: Single borrower exposure limit of 15 per cent. of capital funds (20 per cent. of capital funds provided the additional exposure of up to 5 per cent. is for the purpose of financing infrastructure projects); Borrower group exposure limit of 40 per cent. of capital funds (50 per cent. of capital funds provided the additional exposure of up to 10 per cent. is for the purpose of financing infrastructure projects); and Deduction from Tier I capital of the bank of any shortfall in capital adequacy of a subsidiary for which capital adequacy norms are specified. Banks Investment Classification and Valuation Norms Based on the comments to the Report of the Informal Group on Banks Investment Portfolio, the RBI finalised its guidelines on categorisation and valuation of banks investment portfolio. These guidelines took effect from 30 September The guidelines issued by the RBI are consolidated under the master circular on Prudential Norms for classification, Valuation and Operation of Investment Portfolio by Banks, the latest one dated 1 July The salient features of the guidelines are given below: The entire investment portfolio is required to be classified under three categories: (a) HTM, (b) HFT and (c) AFS. Banks should decide the category of investment at the time of acquisition. HTM investments include (a) recapitalisation bonds received from the Government, (b) investments in the equity of subsidiaries and joint ventures, (c) investments in long-term bonds issued by companies engaged in infrastructure activities and (d) investment in RIDF, SIDBI and Rural Housing Development Fund deposits. HTM investments also include any other investment identified for inclusion in this category subject to the condition that such investments cannot exceed 25 per cent. of the total investment excluding recapitalisation bonds. Banks can exceed the limit of 25 per cent. of investments for HTM category provided the excess comprises only SLR investments, and the total SLR securities in the HTM category is not more than per cent. with effect from 11 July 2015 and 22.0 per cent. with effect from 19 September 2015 of their DTL as on the last Friday of the second preceding fortnight. Profit on the sale of investments in the HTM category is appropriated to the capital reserve account after being taken in the profit and loss account. Loss on any sale is recognised in the profit and loss account. The market price of the security available from the stock exchange or prices declared by the PDAI jointly with the FIMMDA serves as the market value for investments in AFS and HFT securities. Subject to required approvals from the board or the ALCO of the bank, investments under the HFT category should be sold within 90 days; in the event of inability to sell due to adverse factors including tight liquidity, extreme volatility or a unidirectional movement in the market, the unsold securities should be shifted to the AFS category. The securities need not be re-valued on the date of transfer and the provisions for the accumulated depreciation, if any, held are to be transferred to the provisions for depreciation against the AFS securities HK:

229 Profit or loss on the sale of investments in both HFT and AFS categories is taken in the profit and loss account. Shifting of investments from or to the HTM category may be done with the approval of the board of directors once a year, normally at the beginning of the accounting year. No further shifting to/from HTM is allowed during the remaining part of that accounting year, except when explicitly permitted by the RBI. Shifting of investments from AFS to HFT may be done with the approval of the board of directors, the ALCO or the investment committee; shifting from HFT to AFS is generally not permitted. The one-time transfer of securities to/from HTM category with the approval of board of directors is permitted to be undertaken by banks at the beginning of the accounting year. Additionally, in order to enable banks to shift their excess SLR securities and direct sale from the HTM category to AFS/HFT for the purposes of complying with the extant SLR requirements, the RBI by way of a circular dated 4 October 2017, has permitted such shifting as per specified timelines in addition to the shifting permitted at the beginning of the accounting year. Furthermore, such additional shifting of securities explicitly permitted by the RBI from time to time, direct sales from HTM for bringing down SLR holdings in HTM category, sales to the RBI under pre-announced OMO auctions and repurchase of Government securities by the Government of India from banks will be excluded from the 5 per cent. cap prescribed for value of sales and transfers of securities to/from HTM category under para 2.3(ii) of the master circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks. HTM securities are not marked-to-market and are carried at acquisition cost or at an amortised cost if acquired at a premium over the face value. AFS and HFT securities are valued at market or fair value as at the balance sheet date. Depreciation or appreciation for each basket within the AFS and HFT categories is aggregated. Net appreciation in each basket, if any, that is not realised is ignored, whilst net depreciation is provided for. Investments in security receipts or pass-through certificates issued by asset reconstruction companies or trusts set up by asset reconstruction companies should be valued at the net asset value announced periodically by the asset reconstruction company based on the valuation of the underlying assets. Restrictions on Investments in a Single Company No bank may hold shares in any company exceeding 30 per cent. of the paid-up share capital of that company or 30 per cent. of its own paid-up share capital and reserves, whichever is less. In addition, the investment by a bank in a subsidiary company, financial services company, financial institution, stock and other exchanges should not exceed 10 per cent. of the bank s paid-up share capital and reserves, and the investments in all such companies, financial institutions, stock and other exchanges, collectively, should not exceed 20 per cent. of the bank s paid-up share capital and reserves. However, a bank may hold shares in a subsidiary company in accordance with the provisions of the Banking Regulations. Cap on Investments in Debt Oriented Mutual Funds The RBI Monetary Policy Statement of provides that the investment in liquid/shortterm debt schemes of Debt Oriented Mutual Funds (DoMFs) by banks will be subject to a prudential cap of 10 per cent. of their net worth as of 31 March of the previous year. Limit on Transactions through Individual Brokers HK:

230 Guidelines issued by the RBI require banks to empanel brokers for transactions in securities. These guidelines also require that a disproportionate part of the bank s business should not be transacted only through one broker or a few brokers. The RBI specifies that not more than 5 per cent. of the total transactions through empanelled brokers can be transacted through one broker. If for any reason this limit is breached, the RBI has stipulated that the board of directors of the bank should be informed of this, post facto. Limits on Intra-Group Transactions and Exposures On 11 February 2014, the RBI issued guidelines titled Guidelines on Management of Intra- Group Transactions and Exposures regarding banks transactions and exposures to the entities belonging to the bank s own group (Group entities). The guidelines contain both quantitative limits for the financial Intra-Group Transactions and Exposures (ITEs) and prudential measures for the nonfinancial ITEs to ensure that the banks engage in the ITEs in a safe and sound manner in order to contain the concentration and contagion risk arising out of ITEs. These measures are aimed at ensuring that banks at all times maintain arm s length relationships in their dealings with Group entities, meet minimum requirements with respect to group risk management and group-wide oversight, and adhere to prudential limits on intra-group exposures. The guidelines prescribe an exposure limit of 5.00 per cent. of paid-up capital and reserves for non-financial services companies and unregulated financial services companies at a standalone level, and a per cent. limit at a group level for these companies. For regulated financial companies, the limit is set at per cent. of paid-up capital and reserves on a standalone basis and per cent. at the aggregate group level. These guidelines have been effective from 1 October Prohibition on Short-Selling The RBI does not permit short-selling of securities by banks, excluding short-selling in Government securities. The RBI has permitted banks to sell Government securities already contracted for purchase provided the purchase contract is confirmed and the contract is guaranteed by Clearing Corporation of India Limited or the security is contracted for purchase from the RBI. Each security is deliverable or receivable on a net basis for a particular settlement cycle. In February 2006, the RBI introduced intra-day short-selling in Government securities as a measure to develop the Government securities market. In its Annual Policy Statement for fiscal 2007, the RBI proposed to introduce a when issued market in Government securities in order to further strengthen the debt management framework. In January 2007, the RBI permitted Scheduled Commercial Banks and Primary Dealers to undertake short sales of Government-dated securities, subject to the short position being covered within a maximum period of five trading days, including the day of trade. In December 2011, the RBI has extended the period of short sale from five trading days to a maximum period of three months (including the day of trade), effective from 1 February The short positions have to be covered by outright purchase of an equivalent amount of the same security or through a long position in the When Issued (WI) market or allotment in the primary auction. Introduction of credit default swaps for corporate bonds On 23 May 2011, the RBI issued guidelines on credit default swaps (CDSs) for corporate bonds (the CDS Guidelines). The CDS Guidelines became effective from 24 October 2011 and Banks were eligible to act both as users and market-makers. Commercial banks who intend to act as market-makers shall fulfil the following criteria: a) minimum CRAR of per cent. with core CRAR (Tier I) of at least 7 per cent.; and b) net NPAs of less than 3.00 per cent HK:

231 Banks are required to submit their Board-approved policy and the date of commencement of CDS trading as market-makers to the RBI. By a circular dated 7 January 2013, the RBI revised the CDS Guidelines to introduce, among others, the following changes: (i) (ii) CDS have been permitted on unlisted but rated corporate bonds even for issues other than infrastructure companies; and CDS have been permitted on securities with an original maturity up to one year such as commercial papers, certificates of deposit and non-convertible debentures with original maturity less than one year as reference/deliverable obligations. The CDS Guidelines also prescribe the risk management framework to be followed. Regulations Relating to Making Loans The provisions of the Banking Regulation Act govern the making of loans by banks in India. These directions and guidelines issued by the RBI are consolidated in the master circular on Loans and Advances-Statutory and Other Restrictions issued by the RBI from time to time, the latest one (as of the date of this Offering Circular) being dated 1 July Some of the important provisions of the Banking Regulation Act and guidelines of the RBI, which are now in effect, which are now in effect, are as follows: (i) (ii) (iii) (iv) The RBI has prescribed standards for bank lending to non-bank financial companies and financing of public sector disinvestment. Prior to 1 July 2010, lending rates were linked to the prime lending rate which was determined and disclosed by each bank. Banks were given the freedom to lend at a rate below the prime lending rate in respect of creditworthy borrowers and exposures. From 1 July 2010, the benchmark prime lending rate (BPLR) had been replaced by the base rate, which takes into consideration all elements of lending rates that are common across borrowers. The base rate is the minimum rate for all loans; banks are not permitted to lend below the base rate except for the Differential Rate of Interest advances, loans to banks own employees and loans to banks depositors against their own deposits. Banks have been permitted to arrive at the base rate for a specific tenor that would be needed to be disclosed transparently. Further, banks have been permitted to determine their final lending rates on loans and advances with reference to the base rate and by including such other customer specific charges as they consider appropriate. Until such time that loans linked to the benchmark prime lending rate exists, both the benchmark prime lending rate and the base rate will have to be announced by banks. The base rate and BPLR are now replaced by the Marginal Cost of Funds based Lending Rate (MCLR). As per the RBI master direction on Interest Rate On Advances dated 3 March 2016, banks have to prepare a MCLR which will be the internal benchmark lending rates. Based upon the MCLR, interest rates for different types of customers should be fixed in accordance with their associated risk. The base rate is determined on the basis of the MCLR calculation. The MCLR will be revised monthly based on the consideration of certain new factors including the repo rate and other borrowing rates. The MCLR is automatically applicable to any loans availed after the notification of the abovementioned master direction. As per the master direction, banks have to set five benchmark rates for different tenures or time periods ranging from one day to one year HK:

232 (v) (vi) Under the master directions, existing loans provided on the basis of the BPLR shall be allowed to run to maturity. Existing borrowers who wish to switch to the new MCLR system shall be given an option before the expiry of their existing contracts with the relevant banks to convert to the new MCLR on mutually agreed terms with the bank. Section 20(1) of the Banking Regulation Act provides that a bank cannot grant any loans and advances against the security of its own shares, a banking company is prohibited from entering into any commitment for granting any loans or advances to or on behalf of any of its directors, or any firm in which any of its directors is interested as partner, manager, employee or guarantor, or any company (not being a subsidiary of the banking company or a company registered under Section 8 of the Companies Act) of which, or the subsidiary or the holding company of which any of the directors of the bank is a director, managing agent, manager, employee or guarantor or in which he holds substantial interest, or any individual in respect of whom any of its directors is a partner or guarantor. There are certain exemptions in this regard as the explanation to the section provides that loans or advances shall not include any transaction which the RBI may specify by general or special order as not being a loan or advance for the purpose of such section. There are also guidelines on loans against equity shares in respect of amount, margin requirement and purpose. The RBI has prohibited banks from granting any loan or advance for subscription to Indian Depository Receipts (IDRs). Banks are also prohibited from granting any loan or advance against security or collateral of IDRs. Regulations Relating to Deposits The RBI has permitted banks to independently determine rates of interest offered on term deposits. However, banks are not permitted to pay interest on current account deposits. The RBI has deregulated savings bank deposit interest rate with effect from 25 October Banks are free to determine their interest rates on savings account deposits subject to two conditions: a bank must offer a uniform interest rate on savings bank deposits up to INR 100,000, irrespective of the amount in the account within this limit; and banks may provide different interest rates on deposits greater than INR 100,000, but must use similar rates for similar amounts of deposit, accepted on the same date at any of its offices. Currently, the Bank is offering savings bank interest rate of 4 per cent. p.a. across all deposit amounts. The RBI deregulated the interest rates on NRE deposits and NRO deposit accounts from 28 December However, interest rates offered by banks on NRE and NRO deposits cannot be higher than those offered by them on comparable domestic Rupee deposits. The RBI through its circular dated 16 April 2015 has provided banks with the discretion to offer differential interest rates based on whether the term deposits are with or without premature withdrawal facility, subject to the following guidelines: All term deposits of individuals (held singly or jointly) of Rs. 1.5 million and below should, necessarily, have a premature withdrawal facility. For all term deposits above Rs. 1.5 million, banks can offer deposits without the option of premature withdrawal and are free to offer higher rates for the same HK:

233 All customers should have an option to choose between term deposits either with or without a premature withdrawal facility. Banks should disclose in advance the schedule of interest rates payable on deposits i.e. all deposits mobilised by banks should be strictly in conformity with the published schedule. The banks should have a board approved policy with regard to interest rates on deposits, including deposits with differential rates of interest, and ensure that the interest rates offered are reasonable, consistent, transparent and available for supervisory review/scrutiny as and when required. For customer convenience and to provide benefit of the higher differential rate of interest on term deposit, the Bank offers a fixed deposit called the Fixed Deposit Plus product for term deposits above Rs. 10 million, which provides a higher differential rate of interest without a premature withdrawal option. The RBI on 3 March 2016 issued the Master Direction on Interest Rates on Deposits. The master direction is applicable to all Scheduled Commercial Banks accepting deposits in rupee and foreign currency. This master direction consolidates instructions on rules and regulations framed by the RBI under various acts including banking issues and foreign exchange transactions. On 6 July 2017, the RBI released guidelines titled Customer Protection Limiting Liability of Customers in Unauthorised Electronic Banking Transactions, for customer protection by limiting the liability of customers in unauthorised electronic banking transactions. Under these guidelines, banks have been directed to (i) put in place appropriate internal control systems and procedures to ensure safety and security of electronic banking transactions carried out by customers; and (ii) facilitate ease of reporting and monitoring of unauthorised transactions by customers to banks. Further, indicators have been informed by the RBI to banks on situations where liability may or may not be accorded to the customers in case of unauthorised transactions, and the limits on and timelines for such liability of customers for third party breaches. Deposit Insurance Demand and time deposits of up to Rs. 100,000 accepted by Indian banks have to be mandatorily insured with the Deposit Insurance and Credit Guarantee Corporation, a wholly owned subsidiary of the RBI. Banks are required to pay the insurance premium for the eligible amount to the Deposit Insurance and Credit Guarantee Corporation on a semi-annual basis. The cost of the insurance premium cannot be passed onto the customer. Regulations Relating to Know Your Customer and Anti-Money Laundering The RBI issued a notification dated 29 November 2004 prescribing guidelines for KYC and AML standards, which have been revised from time to time. Banks are required to formulate a customer acceptance policy, customer identification procedures and risk parameters to categorise customers into low, medium and high risk, according to risk perceived. For the purpose of KYC Norms, the RBI has defined a customer as a person who is engaged in a financial transaction or activity with a regulated entity and includes a person on whose behalf the person who is engaged in the transaction or activity is acting. Accordingly, all customers of the bank have been subjected to KYC documentation, transaction monitoring and risk categorisation. On 15 February 2006, the RBI issued guidelines on the obligations of banks under the Prevention of Money Laundering Act, 2002 (PMLA). The RBI subsequently also issued anti-money laundering guidelines applicable to other entities such as NBFCs and authorised money changers HK:

234 All instructions and guidelines issued by the RBI on KYC norms, AML standards and obligations under the PMLA to be followed by banks are consolidated under the master direction on Know Your Customer (KYC) Direction, 2016 issued by the RBI on 25 February The RBI master direction is a compendium of all instructions on customer identification and due diligence, covering opening of accounts, wire transfers, non-face-to-face customers, correspondent banking, foreign funding of non-government organisations and non-profit organisations, politically exposed persons and multilevel marketing firms. The guidelines also include the periodic updating of customer identification data based upon risk assessment, screening of customers against negative lists, mandatory reporting to the Financial Intelligence Unit (the national agency responsible for receiving, processing, analysing and disseminating information relating to suspicious financial transactions to enforcement agencies and foreign financial intelligence units), which includes reporting of cash transactions, suspicious transactions, counterfeit currency, cross-border wire transfers and transactions involving receipts by non-profit organisations. In an amendment to section 13(2) of the PMLA, banks have been advised to nominate a director on their boards as designated director to ensure compliance with the obligations mentioned thereunder. Additional guidelines were also issued by the RBI on 20 July 2017 on detection, reporting, monitoring and impounding of counterfeit notes by banks in India. The PMLA and the rules made thereunder stipulates that banking companies, financial institutions and intermediaries (together, the Institutions) shall maintain a comprehensive record of all their transactions, including the nature and value of such transactions. Further, it mandates verification of the identity of all their clients and also requires the Institutions to maintain records of their respective clients. These details are to be provided to the authority established by the PMLA, who is empowered to order confiscation of property where the authority is of the opinion that a crime as recognised under the PMLA has been committed. The Bank s AML/KYC policy has been reviewed to reflect the amendments on the Prevention of Money Laundering Act, 2002 and the RBI instructions on AML standards and KYC norms for fiscal The revised policy was approved by the Bank s board of directors on 25 April Apart from AML/KYC policy, AML/KYC/CFT-related guidelines are detailed in procedural manuals, which are accessible by branches/departments for compliance. Legal Reserve Requirements Cash Reserve Ratio A bank is required to maintain a specified percentage of its NDTL, excluding inter-bank deposits, by way of a balance in a current account with the RBI. Following the enactment of the RBI (Amendment) Act 2006, the floor and ceiling rates (3.0 per cent. and 20.0 per cent. respectively) on the CRR were removed. The following liabilities are excluded from the calculation of the demand and time liabilities to determine the CRR: inter-bank liabilities; liabilities to primary dealers; refinancing from the RBI and other institutions permitted to offer refinancing to banks; and perpetual debt qualifying for Tier I capital treatment. The CRR is 4.0 per cent., effective 9 February The RBI does not pay any interest on CRR balances HK:

235 The master circular issued annually by the RBI on Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), the latest one being dated 1 July 2015, requires that the CRR is to be maintained on an average basis for a fortnightly period and should not fall below 95 per cent. of the required CRR on any day of the fortnight. Statutory Liquidity Ratio In addition to the CRR, a bank is required to maintain a specified percentage of its NDTL by way of liquid assets like cash, gold or approved unencumbered securities. Consequent upon amendment to section 24 of the Banking Regulation Act, 1949 through the Banking Regulation (Amendment) Act, 2007 replacing the Regulation (Amendment) Ordinance, 2007, effective 23 January 2007, the RBI can prescribe the Statutory Liquidity Ratio (SLR) for scheduled commercial banks in specified assets. The value of such assets of a scheduled commercial banks shall not be less than such percentage not exceeding 40 per cent. of its total DTL in India as on the last Friday of the second preceding fortnight as the RBI may, by notification in the Official Gazette, specify from time to time. The percentage of this liquidity ratio is fixed by the RBI from time to time, pursuant to section 23 of the Banking Regulation Act. At present, the RBI requires banks to maintain a liquidity ratio of per cent. with effect from the fortnight beginning 14 October On 10 December 2015, RBI issued a notification reducing the SLR in the phased manner as provided below (as read in conjunction with the RBI notification dated October ): (a) per cent. from 2 April 2016; (b) per cent. from 9 July 2016; (c) per cent. from 1 October 2016; (d) (e) per cent. from 7 January 2017; and per cent. from 31 December 2017; and (f) per cent. from 31 March Revisions in Constitution of Bank Assets The capital regulations with respect to Liquidity Standards under the Basel III framework (Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards) were revised by the RBI by way of a circular dated 2 August 2017 to re-define the Level 1 of bank assets as comprising of the following: i. Cash including cash reserves in excess of required CRR. ii. For banks incorporated in India, Reserves held with foreign Central Banks in excess of the reserve requirement, where a foreign sovereign has been assigned a 0 per cent. risk weight as per rating by an international rating agency. Reserves held with foreign Central Banks in excess of the reserve requirement, to the extent these balances cover the bank s stressed net cash outflows in that specific currency, in cases where a foreign sovereign has been assigned a non-0 per cent. risk weight as per rating by an international rating agency, but a 0 per cent. risk weight has been assigned at national discretion under Basel II Framework HK:

236 iii. iv. Government securities in excess of the minimum SLR requirement. Within the mandatory SLR requirement, Government securities to the extent allowed by the RBI, under Marginal Standing Facility (MSF). v. Marketable securities issued or guaranteed by foreign sovereigns satisfying all the following conditions: (a) (b) (c) assigned a 0 per cent. risk weight under the Basel II standardized approach for credit risk; traded in large, deep and active repo or cash markets characterised by a low level of concentration; and proven record as a reliable source of liquidity in the markets (repo or sale) even during stressed market conditions; and not issued by a bank/financial institution/nbfc or any of its affiliated entities. Regulations on Asset Liability Management At present, the RBI s regulations for asset liability management require banks to draw up asset- liability gap statements separately for the Rupee and for four major foreign currencies. These gap statements are prepared by scheduling all assets and liabilities according to the stated and anticipated re-pricing date, or maturity date. These statements for the domestic assets and liabilities have to be submitted to the RBI fortnightly. The RBI has advised banks to actively monitor the difference in the amount of assets and liabilities maturing or being re-priced in a particular period and place internal prudential limits on the gaps in each time period, as a risk control mechanism. Additionally, the RBI has asked banks to manage their asset-liability structure such that the negative liquidity gap in the 1-14 day and day time periods does not exceed 20 per cent. of cash outflows in these time periods. This 20 per cent. limit on negative gaps was made mandatory with effect from 1 April In respect of other time periods, up to one year, the RBI has directed banks to lay down internal norms in respect of negative liquidity gaps. It is not mandatory for banks to lay down internal norms in respect of negative liquidity gaps for time periods greater than one year. With effect from 1 January 2008, the RBI has directed banks to split the first maturity buckets up to 14 days into day 1, 2-7 days, 8-14 days and days with gap limits set at 5 per cent., 10 per cent., 15 per cent. and 20 per cent. of the cumulative cash outflows in the respective time buckets in order to recognise the cumulative impact on liquidity. With effect from April 2013, these limits have been extended to each of the overseas geographies of banks with the respective limits according to time buckets being applicable to each individual overseas branch as well as for consolidated overseas operations. While banks may undertake dynamic liquidity management and should prepare the statement of structural liquidity on a daily basis, such statements should be reported to the RBI on the 15th and last date of every month. The statement of structural liquidity for overseas operations would have to be submitted on a monthly basis, with the reporting date being the last working day of the month. Furthermore, the RBI has mandated banks to monitor stock ratios for liquidity risk at the individual bank level for the four major currencies: U.S. dollars, euros, British Pounds and Japanese Yen. The RBI mandates banks to adopt the Basel III framework on liquidity standards as prescribed by the RBI for computation and reporting of the Liquidity Coverage Ratio (LCR). Foreign Currency Dealership HK:

237 The RBI has granted the Bank a full-fledged authorised dealers licence to deal in foreign exchange through its designated branches. Under this licence, the Bank has been granted permission to: engage in foreign exchange transactions in all currencies; open and maintain foreign currency accounts abroad; raise foreign currency and Rupee-denominated deposits from NRIs; grant foreign currency loans to on-shore and off-shore corporations; open documentary credits; grant import and export loans; handle collection of bills and funds transfer services; issue guarantees; and enter into derivative transactions and risk management activities that are incidental to its normal functions authorised under its organisational documents. The Bank s foreign exchange operations are subject to the guidelines specified by the RBI in the exchange control manual. As an authorised dealer, the Bank is required to enrol as a member of the Foreign Exchange Dealers Association of India, which prescribes the rules relating to foreign exchange business in India. Authorised dealers, like the Bank, are required to determine their limits on open positions and maturity gaps in accordance with the RBI s guidelines and these limits are approved by the RBI. Furthermore, the Bank is permitted to hedge foreign currency loan exposures of Indian corporations in the form of interest rate swaps, currency swaps and forward rate agreements, subject to certain conditions. Moreover, the RBI from time to time has simplified the reporting requirements for holdings of and dealings in all foreign currencies by authorised dealers, like the Bank; the last such rationalisation was made by the RBI by way of a circular dated 10 August Simplified hedging facility guidelines were issued by the RBI by way of a circular dated 9 November 2017, to simplify the process for hedging exchange rate risk by reducing documentation requirements, avoiding prescriptive stipulations regarding products, purpose and hedging flexibility, and to encourage a more dynamic and efficient hedging culture. These guidelines stipulate operational mechanism and guidelines for resident and non-resident entities, other than individuals, for hedging exchange rate risk on transactions, contracted or anticipated, with respect to any Over the Counter (OTC) derivative or Exchange Traded Currency Derivative (ETCD) permitted under the Foreign Exchange Management Act, 1999 (FEMA). Additionally, different facilities have been provided for hedging trade exposures (i.e. currency risks arising out of genuine trade transactions involving exports from and imports to India), invoiced in Indian Rupees in India, by way of the RBI Circular dated 12 October Interest Rate Futures The RBI issued the Interest Rate Futures (Reserve Bank) Directions, 2013 (the IRF Guidelines) on 5 December 2013, superseding the previous Interest Rate Futures (Reserve Bank) Directions, 2009, to regulate the trading in interest rate futures. Under the IRF Guidelines (as amended on 12 June 2015), the RBI has permitted interest rate futures on 91-Day Treasury Bills, and on two-year, five-year and ten-year coupon-bearing notional Government securities, and couponbearing Government of India securities with residual maturity between four and eight years, eight and HK:

238 11 years and 11 and 15 years. No scheduled bank can participate in the interest rate futures market without the permission of the RBI. The RBI has permitted commercial banks to participate in interest rate futures both for the purpose of hedging the risk in the underlying investment portfolio, and also to take trading positions. However, banks are not allowed to undertake transactions in interest rate futures on behalf of their clients. Statutes Governing Foreign Exchange and Cross-Border Business Transactions The foreign exchange and cross-border transactions undertaken by banks are subject to the provisions of the Foreign Exchange Management Act. All branches should monitor all non-resident accounts to prevent money laundering. The RBI has issued guidelines stating that no financial intermediary, including banks, will be permitted to raise ECBs or provide guarantees in favour of overseas lenders for ECBs. The overseas branches are not affected by these guidelines since Regulation 4(2)(iii) of the Foreign Exchange Management (Borrowing or Lending in Foreign Exchange) Regulations, 2000 provides that foreign branches of authorised dealers who are banks incorporated or constituted in India (including the Bank) are permitted to borrow in foreign currency in the normal course of their banking business outside India. The Bank plans for the proceeds of any Notes issued under the Programme to be used as follows: (i) (ii) meet the funding requirements of the Bank s IBU at GIFT City; and/or develop and expand business in the IBU at GIFT city. All the regulations and guidelines issued by the RBI, as amended from time to time, in connection with foreign currency borrowings by banks in India have been consolidated in the master direction on Risk Management and Inter-Bank Dealings dated 5 July 2016 and further as updated on 9 November 2017 (Inter-Bank Dealings Guidelines). According to the Inter-Bank Dealings Guidelines, overseas foreign currency borrowings of AD category I banks cannot exceed per cent. of unimpaired Tier I capital or U.S.$10 million (or its equivalent), whichever is higher. The following borrowings would continue to be outside the limit of 100 per cent of unimpaired Tier I capital or USD 10 million (or its equivalent), whichever is higher: (i) (ii) (iii) (iv) Overseas borrowings by AD Category I banks for the purpose of financing export credit subject to the conditions prescribed in DBOD Master Circular dated 2 July 2015 on Rupee / Foreign Currency Export Credit & Customer Service To Exporters. Subordinated debt placed by head offices of foreign banks with their branches in India as Tier II capital. Capital funds raised/augmented by the issue of Innovative Perpetual Debt Instruments and Debt Capital Instruments, in foreign currency, in terms of Circulars DBOD. No. BP.BC.57/ / dated 25 January 2006, DBOD. No. BP.BC.23/ / dated 21 July 2006 and Perpetual Debt Instruments and Debt Capital Instruments in foreign currency issued in terms of circular DBOD.No.BP.BC.98/ / dated 2 May Any other overseas borrowing with the specific approval of the RBI. Under the Inter-Bank Dealing Guidelines, AD category I banks are permitted to borrow from international/multilateral FIs without approaching the RBI on a case-by-case approval. Such FIs shall include: (i) international/multilateral FIs of which the Government is a shareholding member; (ii) FIs which have been established by more than one government; or (iii) FIs which have HK:

239 shareholding by more than one government and other international organisations. However, all such borrowings should be for the purpose of general banking business and not for capital augmentation. Special Provisions of the Banking Regulation Act Under sections 35A and 36 of the Banking Regulation Act (which apply to the Bank), the RBI is empowered to give directions to, prohibit from entering into any transactions, and advise generally the Bank. Consequently, the performance of obligations by the Bank under the Programme Agreement, the Trust Deed, the Agency Agreement and the Notes, may be restricted by the directions or advice given by the RBI under the aforesaid provision. Under section 50 of the Banking Regulation Act (which also applies to the Bank), no person shall have a right, whether in contract or otherwise, to any compensation for any loss incurred by reason of operation of certain provisions of the Act, including sections 35A and 36. Therefore, a party may not be able to claim any compensation for a failure by the Bank to perform its obligations under the Programme Agreement, the Trust Deed, the Agency Agreement and the Notes, consequent to the operation of the aforesaid provisions. Prohibited Business The Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited from engaging in business activities other than the specified activities. Reserve Fund Any bank incorporated in India is required to create a reserve fund to which it must transfer not less than 20 per cent. of its profits of each year before dividends. If there is an appropriation from this account, the Bank is required to report the same to the RBI within 21 days, explaining the circumstances leading to such appropriation. The Government may, on the recommendation of the RBI and having regard to the adequacy of the paid-up capital and reserves of a bank in relation to its deposit liabilities, exempt a bank from requirements relating to its reserve fund. Restrictions on Payment of Dividends Pursuant to the provisions of the Banking Regulation Act, a bank can pay dividends on its shares only after all of its capitalised expenses (including preliminary expenses, organisation expenses, share- selling commission, brokerage, amounts of losses and any other item of expenditure not represented by tangible assets) have been completely written off. The Government may exempt banks from this provision by issuing a notification on the recommendation of the RBI. Furthermore, according to the RBI guidelines issued in May 2005 on payment of dividends, only banks which comply with the following minimum prudential requirements, are eligible to declare dividends with the prior approval of the RBI: CRAR of at least 9 per cent. for the preceding two completed years and for the accounting year for which it proposes to declare a dividend. Net NPAs of less than 7 per cent. In the event a bank does not meet the above CRAR norm, but has a CRAR of at least 9 per cent. for the accounting year for which it proposes to declare a dividend, it would be eligible to declare a dividend, provided its Net NPAs ratio is less than 5 per cent HK:

240 The bank should comply with the provisions of sections 15 and 17 of the Banking Regulation Act. The bank should comply with the prevailing regulations/guidelines issued by the RBI, including creating adequate provisions for impairment of assets and staff retirement benefits and transfer of profits to statutory reserves. The proposed dividend should be payable out of the current year s profit. The RBI should not have placed any explicit restrictions on the bank for declaration of dividends. The dividend payout ratio shall not exceed 40.0 per cent. and shall be calculated as a percentage of dividend payable in a year (excluding dividend tax) to net profit during the year. In case the profit for the relevant period includes any extraordinary profits/income, the payout ratio shall be computed after excluding such extraordinary items for reckoning compliance with the prudential payout ratio. The financial statements pertaining to the fiscal year for which the bank is declaring a dividend should be free of any qualifications by the statutory auditors that have an adverse bearing on the profit during that year. In case of any qualification to that effect, the net profit should be suitably adjusted while computing the dividend payout ratio. In the event that the Bank fulfils the conditions stated above, it can declare dividends without the consent of the RBI. Restriction on Share Capital and Voting Rights The share capital of the banks can consist of (i) equity shares only or (ii) equity shares and preference shares, provided the issuance of preference shares shall be in accordance with the guidelines framed by the RBI specifying the class of preference shares, the extent of issue of each class of such preference shares (whether perpetual or irredeemable or redeemable) and the terms and conditions subject to which each class of preference shares may be issued. According to the Banking Regulation Act, section 13, banks are not allowed to pay directly or indirectly any commission, brokerage, discount or remuneration in respect of any shares issued, any discount exceeding 2.50 per cent. of the paid-up value of the said shares. The Banking Regulation Act specifies that no shareholder in a bank can exercise voting rights on poll in excess of 10 per cent. of total voting rights of all the shareholders of the bank. According to the amendment to the Banking Regulation Act that came into effect on 18 January 2013, the ceiling of voting rights of the shareholders in a banking company will increase from 10 per cent. to 26 per cent. in a phased manner. Regulatory Reporting and Examination Procedures The RBI is empowered under the Banking Regulation Act to inspect a bank. The RBI monitors prudential parameters at quarterly intervals. To this end and to enable offsite monitoring and surveillance by the RBI, banks are required to report to the RBI on aspects such as: assets, liabilities and off-balance sheet exposures; the risk-weighting of these exposures, the capital base and the capital adequacy ratio; the unaudited operating results for each quarter; asset quality; concentration of exposures; HK:

241 connected and related lending and the profile of ownership, control and management; and other prudential parameters. The RBI also conducts annual onsite inspections on matters relating to the bank s portfolio, risk management systems, internal controls, credit allocation and regulatory compliance. The Bank is subject to risk based supervision by the RBI at yearly intervals. The inspection report, along with the report on actions taken by the Bank, has to be placed before the board of directors. Necessary action has to be initiated by the Bank to rectify the deficiencies brought out in the report, and the status of compliance has to be submitted to the RBI with the approval of the Board. The RBI also discusses the report with the management team including the Chairman, the Managing Director and CEO during the course of supervisory discussions. The RBI also conducts onsite supervision of selected branches of the Bank with respect to their general operations and foreign exchange-related transactions. Appointment and Remuneration of the Chairman and Other Directors The Bank requires the prior approval of the RBI to appoint the Chairman and any other Whole- Time Directors and to fix their remuneration. The RBI is empowered to remove the appointee on the grounds of public interest or the interest of depositors or to ensure the proper management of the Bank. Furthermore, the RBI may order meetings of the Bank s board of directors to discuss any matter in relation to the affairs of the Bank, appoint observers to these meetings who will send report of proceedings of meetings to the RBI and order the Bank to make changes in its management as it may deem necessary and can also order the convening of a general meeting of the Bank to elect new directors. Penalties The RBI may impose penalties on banks and its employees in case of infringement of regulations under the Banking Regulation Act. The penalty may be a fixed amount or may be related to the amount involved in any contravention of the regulations. By way of a circular dated 12 October 2017, the RBI specifically levied penal interest for delayed reporting/ wrong reporting/ non-reporting of currency chest transactions and inclusion of ineligible amounts in currency chest balances. The intention behind the levy of penal interest is to inculcate discipline among banks so as to ensure prompt/ correct reporting, and so that pleas by banks for waiver of penal interest on grounds that delayed/wrong/non-reporting does not result in utilization of RBI s funds or shortfall in the maintenance of CRR or SLR. On similar lines, by way of an additional circular dated 12 October 2017, the RBI has revised the scheme of penalties for bank branches based on performance in rendering customer service to the members of public, to ensure that all bank branches provide better customer service to members of public with regard to exchange of notes and coins. Assets to be Maintained in India Every bank is required to ensure that its assets in India (including import-export bills drawn in India and the RBI-approved securities, even if the bills and the securities are held outside India) at the close of business on the last Friday of every quarter or, if that Friday is a public holiday under the Negotiable Instruments Act, 1881 (26 of 1881), at the close of the business on the preceding working day are not less than 75 per cent. of its demand and time liabilities in India. Subsidiaries and Other Investments The Bank is required to maintain an arm s length relationship in respect of its subsidiaries and in respect of mutual funds sponsored by it in regard to business parameters such as taking undue HK:

242 advantage in borrowing/lending funds, transferring/selling/buying of securities at rates other than market rates, giving special consideration for securities transactions, in supporting/financing the subsidiary and financing its clients through them when it itself is not able or is not permitted to do so. The Bank must observe the prudential norms stipulated by the RBI, from time to time, in respect of its underwriting commitments. Pursuant to such prudential norms, the Bank s underwriting commitment under any single obligation shall not exceed 15 per cent. of an issue. The Bank also requires the prior specific approval of the RBI to participate in the equity of financial services ventures including stock exchanges and depositories notwithstanding the fact that such investments may be within the ceiling prescribed under section 19(2) of the Banking Regulation Act (See Supervision and Regulation - Restrictions on Investments in a Single Company ). Further investment by the Bank in a subsidiary, financial services company or financial institution cannot exceed 10 per cent. of its paid-up capital and reserves and its aggregate investments in all such companies and financial institutions put together cannot exceed 20 per cent. of its paid-up capital and reserves. Setting up of Wholly Owned Subsidiaries by Foreign Banks On 6 November 2013, the RBI published the Scheme for Setting up of Wholly Owned Subsidiaries by foreign banks in India (the WOS Scheme). The main objective of the WOS Scheme is to ensure that there is a clear delineation between the assets and liabilities of the domestic bank and those of its foreign parent, and ring fencing of capital and assets within India. The WOS Scheme does not make it mandatory for all foreign banks in India to adopt the wholly owned subsidiary structure. However, the WOS Scheme mandates that a foreign bank can only operate in India through a single mode of presence, i.e. either through a WOS or through branches. In order to incentivise foreign banks to adopt the WOS structure, the biggest incentive being offered by the RBI under the WOS Scheme is the near national treatment with respect to branch expansion plans of foreign banks which adopt the WOS structure. Under the WOS Scheme, the RBI will follow the procedure prescribed under section 44A of the Banking Regulation Act, which contains provisions regarding bank mergers. A foreign bank that either (i) commenced business in India after August 2010 or (ii) applies to the RBI for a new licence is required to mandatorily adopt the WOS structure based on certain criteria, such as giving domestic depositors a preferential claim on liquidation or does not require adequate disclosures to regulators, or if it has a complex structure or is not widely held, or is incorporated in a jurisdiction with unsatisfactory supervisory arrangements (including disclosure requirements) and market discipline, or if it is considered systemically important by the RBI due to the size of its business or for any other reason as determined by the RBI. Restriction on Creation of Floating Charge Prior approval of the RBI is required for creating a floating charge on the Bank s undertaking or its property. As at the date of this Offering Circular, all the Bank s borrowings including bonds are unsecured, except for collateralised borrowing and lending obligations, which are secured. Maintenance of Records The Bank is required to maintain books, records and registers. The Banking Regulation Act specifically requires banks to maintain books and records in a particular manner and file the same with the Registrar of Companies on a periodic basis. The provisions for production of documents and availability of records for inspection by shareholders would apply to the Bank as any company. Under the PMLA, records of a transaction are to be preserved for five years from the date when the transaction between the customer and the bank is completed. Secrecy Obligations HK:

243 The Bank s obligations relating to maintaining secrecy arise out of section 13 of the Bank Nationalisation Act and common law principles governing its relationship with its customers. The Bank cannot disclose any information to third parties except under clearly defined circumstances. The following are the exceptions to this general rule: where disclosure is required to be made under any law; where there is an obligation to disclose to the public; where the Bank needs to disclose information in its interest; and where disclosure is made with the express or implied consent of the customer. The Bank is required to comply with the above in furnishing any information to any parties. The Bank is also required to disclose information if ordered to do so by a court. The RBI may, in the public interest, publish the information obtained from the Bank. Under the provisions of the Banker s Books Evidence Act, a copy of any entry in a banker s book, such as ledgers, day books, cash books and account books certified by an officer of the bank may be treated as prima facie evidence of the transaction in any legal proceedings. Introduction of Legal Entity Identifier for Large Corporate Borrowers Pursuant to the Statement on Developmental and Regulatory Policies dated 2 November 2017, the RBI decided to introduce the that Legal Entity Identifier (LEI) system for all borrowers of banks having total fund based and non-fund based exposure of Rs. 5 crore and above in a phased manner (and for their parent entity, as well as all subsidiaries and associates). The LEI is a 20-digit unique code to identify parties to financial transactions worldwide. Borrowers who do not obtain LEI as per the schedule are not to be granted renewal / enhancement of credit facilities. A separate roadmap for borrowers having exposure between Rs. 5 crore and upto Rs. 50 crore is also proposed to be issued by RBI. The RBI Restriction on Offshore Payments Any offshore payments to be made under the Notes by the Head Office of the Bank would require prior approval of the RBI. Scheme to set up IFSC Banking Units (IBUs) RBI in its notification on Foreign Exchange Management (International Financial Services Centre) Regulations, 2015 dated 2 March 2015 set out the regulations relating to financial institutions set up in IFSC. Pursuant thereto, RBI has formulated a scheme for the setting up of IBUs by banks in IFSCs. The broad contours of the scheme for Indian banks and foreign banks already having presence in India are detailed is RBI s directions on Setting up of IFSC Banking Units (IBUs) dated 1 April 2015 as amended and modified from time to time. The regulatory and supervisory framework governing IBUs set up in IFSCs by Indian banks is detailed below. Eligibility criteria: Indian banks viz. banks in the public sector and the private sector authorised to deal in foreign exchange will be eligible to set up IBUs. Each of the eligible banks would be permitted to establish only one IBU in each IFSC. Licensing : Eligible banks interested in setting up IBUs will be required to obtain prior permission of the Reserve Bank for opening an IBU under Section 23 (1)(a) of the Banking Regulation Act, For most regulatory purposes, an IBU will be treated on par with a foreign branch of an Indian bank HK:

244 Capital: With a view to enabling IBUs to start their operations, the parent bank will be required to provide a minimum capital of US$ 20 million or equivalent in any foreign currency to its IBU. The IBU should maintain the minimum prescribed regulatory capital on an on-going basis as per regulations amended from time to time. Reserve requirements: The liabilities of the IBU are exempt from both CRR and SLR requirements of Reserve Bank of India. Resources and deployment: The sources for raising funds, including borrowing in foreign currency, will be persons not resident in India and overseas branches of Indian banks.the deployment of funds can be with both persons resident in India as well as persons not resident in India. However, deployment of funds with persons resident in India shall be subject to the provisions of FEMA, Permissible activities of IBUs: The IBUs will be permitted to engage in the form of business mentioned in Section 6(1) of the BR Act as given below, subject to the conditions, if any, of the licence issued to them. i. IBUs can undertake transactions with resident (for deployment of funds) and non-resident (for both raising of resources and deployment of funds) entities other than individuals including high net worth individuals / retail customers as indicated in Resources and deployment above. ii. iii. iv. All transactions of IBUs shall be in currency other than INR. IBUs can deal with the Wholly Owned Subsidiaries / Joint Ventures of Indian companies registered abroad. IBUs are allowed to have liabilities including borrowing in foreign currency only with original maturity period greater than one year. It is provided that RBI will not prescribe any limit for raising short-term liabilities from banks. However, the IBUs must maintain LCR as applicable to Indian banks on a stand-alone basis and strictly follow the liquidity risk management guidelines issued by RBI to banks. Further, NSFR will also be applicable to IBUs as and when it is applied to Indian banks. v. IBUs are not allowed to open any current or savings accounts. IBUs can open foreign currency current accounts of units operating in IFSCs and of non-resident institutional investors to facilitate their investment transactions. However, IBUs cannot raise liabilities from retail customers including high net worth individuals. Also, no cheque facility will be available for holders of current accounts in the IBUs. All transactions through these accounts must be undertaken via bank transfers. vi. vii. viii. IBUs are permitted to undertake factoring / forfaiting of export receivables. With the prior approval of their board of directors, IBUs may undertake derivative transactions including structured products that the banks operating in India have been allowed to undertake as per the extant RBI directions. However, IBUs shall obtain RBI s prior approval for offering any other derivative products. Before seeking RBI s approval, banks shall ensure that their IBUs have necessary expertise to price, value and compute the capital charge and manage the risks associated with the products / transactions intended to be offered and should also obtain their Board s approval for undertaking such transactions. IBUs are allowed to open foreign currency escrow account of Indian resident entities to temporally hold subscriptions to the GDR/ADR issues until issuance of the Receipts. After GDRs/ADRs are issued, the funds should immediately be transferred to the client s account HK:

245 outside the IBU and cannot be retained by the bank in any form including in long term deposits. ix. IBUs are allowed to act as underwriter / arranger of Indian Rupee (INR) denominated overseas bonds issued by Indian entities in overseas market in terms of extant RBI instructions. However, in cases where part of the issuance underwritten by an IBU devolves on it, efforts must be made to sell the underwritten holdings and after 6 months of the issue date these holdings must not exceed 5 per cent. of the issue size. x. The fixed deposits accepted from non-banks by the IBUs cannot be repaid pre-maturely within the first year. However, fixed deposits accepted as collateral from non-banks for availing credit facilities from IBUs or deposited as margin in favour of an exchange, can be adjusted prematurely in the event of default in repayment of the loan or meeting a margin call. xi. An IBU can be a Trading Member of an exchange in the IFSC for trading in interest rate and currency derivatives segments that the banks operating in India have been allowed to undertake as per the extant RBI directions. xii. An IBU can become a Professional Clearing Member (PCM) of the exchange in the IFSC for clearing and settlements in any derivatives segments subject to conditions stipulated therein. Prudential regulations : All prudential norms applicable to overseas branches of Indian banks would apply to IBUs. Specifically, these units would be required to follow the 90 days payment delinquency norm for income recognition, asset classification and provisioning as applicable to Indian banks. The bank s board may set out appropriate credit risk management policy and exposure limits for their IBUs consistent with the regulatory prescriptions of the RBI. The IBUs would be required to adopt liquidity and interest rate risk management policies prescribed by the Reserve Bank in respect of overseas branches of Indian banks and function within the overall risk management and ALM framework of the bank subject to monitoring by the board at prescribed intervals.the bank s board would be required to set comprehensive overnight limits for each currency for these Units, which would be separate from the open position limit of the parent bank. Exposure ceiling for IBUs shall be 5 per cent. of the parent bank s Tier 1 capital in case of a single borrower and 10 per cent. of parent bank s Tier 1 capital in the case of a borrower group. Anti-Money Laundering measures: The IBUs will be required to scrupulously follow Know Your Customer (KYC), Combating of Financing of Terrorism (CFT) and other anti-money laundering instructions issued by the RBI from time to time. IBUs are prohibited from undertaking cash transactions. Regulation and Supervision : The IBUs will be regulated and supervised by the Reserve Bank of India. Reporting requirements: The IBUs will be required to furnish information relating to their operations as prescribed by the Reserve Bank from time to time. These may take the form of offsite reporting, audited financial statements for IBUs, etc. Ring fencing the activities of IFSC Banking Units: The IBUs would operate and maintain balance sheet only in foreign currency and will not be allowed to deal in Indian Rupees except for having a Special Rupee account out of convertible fund to defray their administrative and statutory expenses. Such operations/transactions of these units in INR would be through the Authorised Dealers (distinct from IBU) which would be subject to the extant Foreign Exchange regulations. IBUs are not allowed to participate in the domestic call, notice, term, forex, money and other onshore markets and domestic payment systems. The IBUs will be required to maintain separate nostro accounts with correspondent banks which would be distinct from nostro accounts maintained by other branches of HK:

246 the same bank. A financial institution or a branch of a financial institution set up in the IFSC and permitted/recognised as such by the Government of India or a Regulatory Authority shall be treated as a person resident outside India. Priority sector lending : The loans and advances of IBUs would not be reckoned as part of the Net Bank Credit of the parent bank for computing priority sector lending obligations. Deposit insurance: Deposits of IBUs will not be covered by deposit insurance. Lender of Last Resort (LOLR): No liquidity support or LOLR support will be available to IBUs from the RBI. The Insolvency and Bankruptcy Code, 2016 The Insolvency and Bankruptcy Code, 2016 (the Code) was passed by the Parliament on 11 May 2016, with the aim of creating a unified framework for resolving insolvency and bankruptcy in India. The Code seeks to repeal the Presidency Towns Insolvency Act, 1909, and Provincial Insolvency Act, The Code also amends 11 other laws, including, the Companies Act, the RDDB Act and the Sick Industrial Companies (Special Provisions) Repeal Act, The Code aims to consolidate the laws relating to the insolvency of companies and limited liability entities (including limited liability partnerships and other entities with limited liability), unlimited liability partnerships and individuals, currently contained in a number of legislations, into a single legislation. The Code classifies creditors into financial creditors and operational creditors which includes financial loans for interest and loans arising from the operational nature of the debtor, respectively. According to the Code, the insolvency resolution process may be initiated by the debtor or the creditors or corporate applicant itself. Some of the new concepts introduced by this Code include, the Insolvency and Bankruptcy Board of India, the Insolvency and Bankruptcy Fund and two separate tribunals, namely the National Company Law Tribunal (which shall have jurisdiction over companies and limited liability partnerships) and the DRT (which shall have jurisdiction over individuals and partnership firms). The Code provides a 180- day timeline, which may be extended by 90 days, for dealing with insolvency resolution applications. Subsequently, the insolvency resolution plan prepared by the resolution professional has to be approved by per cent. of the creditors and, if rejected, the adjudicating authority will order the liquidation. Additionally, the order of priority of repayment of outstanding dues from liquidated assets of the insolvent company is proposed to be changed via suitable amendments in tax laws. In a bid to boost the sentiment among lenders, even repayment of dues to unsecured creditors has been given a higher priority as against payment of taxes to the Government. Banking Regulation (Amendment) Ordinance, 2017 The Banking Regulation (Amendment) Ordinance, 2017 promulgated on 4 May 2017 states that the Government may by order authorise the RBI to issue directions to banking companies to initiate insolvency proceedings under the Insolvency and Bankruptcy Code, Furthermore, the RBI may issue directions to banking companies for the resolution of stressed assets. Regulations and Guidelines of the Securities and Exchange Board of India The SEBI was established to protect the interests of public investors in securities and to promote the development of, and to regulate, the Indian securities market. The Bank is subject to SEBI regulations for its capital issuances, as well as its underwriting, custodial, depositary participant, investment banking, registrar and transfer agents, brokering and debenture trusteeship activities. These regulations provide for its registration with the SEBI for each of these activities, functions and responsibilities. The Bank has been adhering to the regulations and guidelines issued by SEBI for various activities HK:

247 The Bank s equity shares are listed on the BSE and NSE. As a result, the Bank is required to comply with the requirements of the Securities Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations). The Listing Regulations provide for continuing disclosure by all listed companies, which are required to inform the stock exchanges of all events immediately, which will have a bearing on the performance or appraisal of the company as well as price sensitive information. Listing Regulations also help in implementing better corporate governance in listed companies and are an important instrument of investor protection. The Listing Regulations were made to complement the corporate governance provisions of the New Companies Act. SEBI (IFSC) Guidelines, 2015 The SEBI (IFSC) guidelines were promulgated to regulate financial services relating to securities market in an international financial services centre (IFSC) created under Section 18(1) of the Special Economic Zones Act, The guidelines apply to any entity desirous of operating in an IFSC for rendering financial services relating to securities market and prescribe the eligibility and shareholding limit for stock exchanges, clearing corporations and depositories. The guidelines also prescribe conditions to be complied with for issuing capital in an IFSC. The Bank will undertake the issuance subject to the SEBI (IFSC) Guidelines. Foreign Ownership Restriction The Government of India regulates foreign ownership in private sector banks. The total foreign ownership in a private sector bank cannot exceed 74 per cent. of the paid-up capital. Shares held by foreign institutional investors under portfolio investment schemes through stock exchanges cannot exceed 49 per cent. of the paid-up capital. The RBI on 28 February 2005 released a Roadmap for Presence of Foreign Banks in India and Guidelines on Ownership and Governance in Private Sector Banks (the Roadmap). The Roadmap envisages two phases. During the first phase, between March 2005 and March 2009, foreign banks were permitted to establish their presence in India by setting up a wholly owned subsidiary or converting their existing branches into wholly owned subsidiaries. The wholly owned subsidiary would have a minimum capital requirements of 300 crore (i.e. 3 billion) and would have to ensure sound corporate governance. Initially, equity participation by foreign banks was permitted only in the private sector banks that were identified for restructuring by the RBI. On an application made by a foreign bank for acquisition of 5 per cent. or more in any private bank, the RBI would consider the standing and reputation of the foreign bank and would permit such acquisition only if it was satisfied that the investment by such foreign bank was in the long-term interest of all the stakeholders of the investee bank. The second phase was commenced in April 2009 after a review of the experience gained in the first phase and after due consultation with all the stakeholders in the banking sector. On completion of a minimum prescribed period, foreign banks were allowed to list and dilute their stakes in their wholly owned subsidiary so that resident Indians held at least 26 per cent. of its paid-up capital. Foreign banks were also able to enter into merger and acquisition transactions with any private sector bank in India, subject to the overall investment limit of 74 per cent. and other regulatory approvals. The RBI s acknowledgement is required for the acquisition or transfer of a bank s shares, which will take the aggregate holding (both direct and indirect, beneficial or otherwise) of an individual or a group to the equivalent of 5 per cent. or more of its total paid-up capital. The RBI, HK:

248 while granting acknowledgement, may take into account all matters that it considers relevant to the application, including ensuring that shareholders whose aggregate holdings are above specified thresholds meet fitness and propriety tests. In determining whether the acquirer or transferee is fit and proper to be a shareholder, the RBI may take into account various factors including, but not limited to, the acquirer or transferee s integrity, reputation and track record in financial matters and compliance with tax laws, proceedings of a serious disciplinary or criminal nature against the acquirer or transferee and the source of funds for the investment. While granting acknowledgement for acquisition or transfer of shares that takes the acquirer s shareholding to 10 per cent. or more and up to 30 per cent. of a private sector bank s paid-up capital, the RBI may consider additional factors, including but not limited to: the source and stability of funds for the acquisition and ability to access financial markets as a source of continuing financial support for the bank; the business record and experience of the applicant including any experience of acquisition of companies; the extent to which the acquirer s corporate structure is in consonance with effective supervision and regulation of its operations; and in case the applicant is a financial entity, whether the applicant is a widely held entity, publicly listed and a well-established regulated financial entity in good standing in the financial community. While granting acknowledgement for acquisition or transfer of shares that takes the acquirer s shareholding to 30 per cent. or more of a private sector bank s paid-up capital, the RBI may consider additional factors, including but not limited to whether or not the acquisition is in the public interest, and shareholder agreements and their impact on the control and management of the bank s operations. Investments in Indian companies can be made both by non-resident as well as resident Indian entities. Any investment by a non-resident entity in an Indian company is considered a direct foreign investment. Investment by resident Indian entities could comprise both resident and non-resident investment. An Indian company would be considered to have indirect foreign investment if the Indian investing company has foreign investment in it. Indirect cascading investment through a multilayered structure will also be taken into account. The Ministry of Commerce & Industry, Department of Industrial Policy & Promotion has in Press Note No. 2 (2009 Series) dated 13 February 2009 issued Guidelines for the calculation of total direct and indirect foreign investment in Indian companies. Guidelines for Merger and Amalgamation of Private Sector Banks On 21 April 2016, the RBI issued the Master Directions on the Amalgamation of Private Banks Directions The master directions relate to: (i) an amalgamation of two banks and (ii) an amalgamation of a NBFC with a bank. In the case of an amalgamation of two banks, section 44A of the Banking Regulation Act requires that a draft scheme of amalgamation be approved by the shareholders of each bank, by passing a resolution with a majority in number representing two-thirds in value of the shareholders. Before convening the meeting for the purposes of obtaining the shareholders approval, the draft scheme of amalgamation shall be approved by the Boards of Directors of the two banking companies separately. Additionally, the draft scheme must also be submitted to the RBI for sanction HK:

249 Where an NBFC is proposed to be amalgamated into a bank, the bank should obtain the approval of the RBI after the scheme of amalgamation is approved by its Board and the Board of NBFC before it submits an application to the National Company Law Tribunal. Similar provisions apply in the rare case where a bank is amalgamated into an NBFC. In either case, the decision of merger should be approved by a two-thirds majority of the total Board members and not just the members present. The RBI has issued a policy on ownership and governance in private sector banks. The key provisions of the policy on ownership of banks are: no single entity or group of related entities would be permitted to directly or indirectly hold more than 10 per cent. of the equity capital of a private sector bank and any higher level of acquisition would require the RBI s prior approval; any private sector bank will be allowed to hold shares in any other private sector bank only up to 5.0 per cent. of the paid-up capital of the investee bank; banks with shareholders of holdings in excess of the prescribed limit would have to indicate a plan for compliance; in respect of corporate shareholders, the objective would be to ensure that no entity or group of related entities has a shareholding in excess of 10 per cent. in the corporate shareholder. In case of shareholders that are financial entities, the objective will be to ensure that it is widely held, publicly listed and well regulated; and banks would be responsible for the fit and proper criteria for shareholders (with a shareholding of 5.0 per cent. and above) on an ongoing basis. Credit Information Bureaus The Parliament of India has enacted the Credit Information Companies (Regulation) Act, 2005, pursuant to which every credit institution, including banks, has to become a member of a credit information bureau and furnish to it such credit information as may be required by the credit information bureau about persons who enjoy a credit relationship with the credit institution. Other credit institutions, credit information bureaus and such other persons as the RBI specifies may access such disclosed credit information. Furthermore, in January 2015, the RBI directed all credit institutions to become members of all credit information companies (CICs) and submit data (including historical data) to it. Later, on 2 August 2017, the RBI directed the CICs to ensure that the credit information report (CIR) generated in respect of a borrower and furnished to the credit institutions, incorporates all the consolidated credit information available in all applicable modules, (e.g. consumer, commercial and MFI, etc.) in respect of the borrower. Presently, four CICs Credit Information Bureau (India) Limited, Equifax Credit Information Services Private Limited, Experian Credit Information Company of India Private Limited and CRIF High Mark Credit Information Services Private Limited have been granted certificates of registration by the RBI. Special Status of Banks in India The special status of banks is recognised under various statutes including the Recovery of Debts Due and Bankruptcy Act, 1993 (formerly titled as Recovery of Debts Due to Banks and Financial Institutions Act, 1993) and the SARFAESI Act. The Bank is entitled to certain benefits under the Recovery of Debts Due and Bankruptcy Act, 1993 (formerly titled as Recovery of Debts Due to Banks and Financial Institutions Act, 1993), which provides for the establishment of DRTs for expeditious adjudication and recovery of debts due to any bank or public financial institution or to a HK:

250 consortium of banks and public financial institutions. Under this Act, the procedures for recoveries of debt have been simplified and timeframes been fixed for speedy disposal of cases. Upon establishment of the DRT, no court or other authority can exercise jurisdiction in relation to matters covered by this Act, except the higher courts in India in certain circumstances. Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012 Historically, banks and financial institutions in India faced numerous obstacles to the recovery of defaulted loans, mainly due to delays in the disposal of recovery proceedings. The RDDB Act and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) were enacted to expedite the recovery of NPAs, whilst banks have presented further suggestions for strengthening rights of the secured creditors, which has led to the enactment of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Act, 2012, which has amended the RDDB Act and the SARFAESI Act. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (UFIA). The UFIA came into effect on 26 May It applies to Indian residents and seeks to replace the Income Tax Act, 1961 for the taxation of foreign income. It penalises the concealment of foreign income, and provides for criminal liability on attempts to evade tax in relation to foreign income. The UFIA also imposes liability on persons who abet or induce another to wilfully attempt to evade tax to make false statements/declarations in relation to foreign income and assets. Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (the Amendment Act) The Amendment Act was passed by both houses of Parliament on 9 August 2016 and received the assent of the President on 12 August The Amendment Act shall come into force as and when notified by the central government. The Amendment Act amends four laws: (i) the SARFAESI Act; (ii) the RDDB Act; (iii) the Indian Stamp Act, 1899; and (iv) the Depositories Act, Under the SARFAESI Act, secured creditors can take possession of a collateral, against which a loan had been provided, upon a default in repayment which can also be done with the assistance of the district magistrate. The Amendment Act provides that this process will have to be completed within 30 days by the district magistrate. In addition, it: (i) empowers a district magistrate to assist banks in taking over the management of a company, (ii) in the case where the company is unable to repay loans, by converting debt into equity shares; (iii) creates a central database to integrate records of property registered under various registration systems with this central registry and secured creditors will not be able to take possession over the collateral unless it is registered with the central registry; and (iv) provides that stamp duty will not be charged on transactions for transfer of financial assets in favour of asset reconstruction companies. In relation to the RDDB Act, the Amendment Act: (a) allows banks to file cases with tribunals having jurisdiction over the bank branch and where the debt is pending; and (b) provides further details of procedures that the tribunals will follow in case of debt recovery proceedings. ECB Policy on issuance of rupee denominated bonds overseas On 1 January 2016, the RBI issued the Master Direction on External Commercial Borrowings, Trade Credits, Borrowing and Lending in Foreign Currency by Authorised Dealers and Persons other than Authorised Dealers (the ECB Master Direction), which established the framework for offshore issuance of Rupee denominated bonds. Pursuant to the ECB Master Direction, any company or body corporate, including real estate investment trusts and infrastructure investments trusts, can issue plain vanilla Rupee denominated bonds overseas subject to compliance with the applicable minimum maturity period. These issuances can be listed or unlisted and can only be made HK:

251 inter alia in financial action task force (FATF) compliant jurisdictions and any investor (not a related party to the Issuer) from such FATF compliant jurisdiction can invest in such rupee denominated bonds if they are also compliant with other restrictions under the ECB Master Directions. In November 2016, the RBI, with a view to develop the market for Rupee denominated bonds overseas, allowed Indian banks to issue perpetual debt instruments qualifying for inclusion as additional Tier 1 capital, debt capital instruments qualifying for inclusion as Tier 2 capital and longterm bonds for financing infrastructure and affordable housing pursuant to the RBI circular on Guidelines on Issue of Long Term Bonds by Banks Financing of Infrastructure and Affordable Housing dated 15 July 2014, as amended, by way of issuance of Rupee denominated bonds overseas and additionally allowed Indian banks to issue Rupee denominated bonds for purposes of financing infrastructure and affordable housing. Furthermore, banks incorporated in India are permitted to act as arrangers and underwriters for such Rupee denominated issuances; however, its holding cannot be more than 5 per cent. of the issue size after six months of the issue. Further, underwriting by overseas branches or subsidiaries of Indian banks for such issuances has not been allowed. The all-in-cost ceiling for such bonds will be 300 basis points over the prevailing yield of the Government of India securities of corresponding maturity. Issuers can raise up to U.S. $750 million under the automatic route, beyond which they will require RBI approval. The proceeds of such issuance can be used for all purposes except: (a) real estate projects other than development of integrated township or affordable housing projects; (b) investment in capital markets and equity investments domestically; (c) prohibited activities under the FDI guidelines; (d) land acquisition; and (e) on-lending to other entities for any of the above objectives. On 22 September 2017, the RBI notified that issuance of Rupee denominated bonds overseas by resident entities would no longer be considered as part of the limit on investments by Foreign Portfolio Investors (FPIs) in corporate debt securities / bonds, but instead would form part of ECB only and would be monitored accordingly. The foreign currency to Rupee conversion will be at the market rate on the date of settlement. Further, investors are allowed to hedge their Rupee exposure through permitted derivative products with: (i) an AD Bank in India; (ii) the offshore branches or subsidiaries of Indian banks; or (iii) branches of foreign banks with a presence in India. Further, in June 2017, the RBI, with a view to harmonise various elements of the ECB framework, decided that any proposal of borrowing by eligible Indian entities by issuance of Rupee denominated bonds will be examined at the Foreign Exchange Department, Central Office, Mumbai. Revised ECB Framework Pursuant to the ECB Master Direction, eligible resident entities can raise ECBs. The new ECB framework brings in more resident entities as eligible borrowers, recognising more entities as lenders, expanding end-uses, etc. as well as periodic reviews of all-in-cost ceilings for such borrowings. Special carve-outs were also made to take care of sector specific needs. International Operations The Bank s international operations are governed by regulations in the countries in which the Bank has a presence. The Bank has one representative office, in Abu Dhabi, UAE which was set up in April 2015 and which is regulated by Central Bank of the United Arab Emirates. The representative office is permitted to carry out marketing and promotion of permitted products, providing banking, financial and investment consultation services along with other representational activities HK:

252 The Bank obtained a license from the RBI in September 2015 for establishing an IBU at the GIFT City in accordance with the IFSC guidelines. The IBU at the IFSC is, for most regulatory purposes, treated as a foreign branch. The IBU commenced its operations in October Income Tax Benefits The Bank is entitled to certain tax benefits under the Income Tax Act, 1961 including but not limited to an entitlement to a tax deduction on the provisioning towards bad and doubtful debts equal to 8.5 per cent. of the Bank s business income, computed before making any deductions prescribed under section 36(1)(viia) and Chapter VI-A of the Income Tax Act, 1961, and to the extent of 10 per cent. of the aggregate average advances made by its rural branches computed in the manner prescribed. Taxation The Government has introduced two major reforms to Indian tax laws, namely the Goods and Services Tax and the provisions relating to General Anti-Avoidance Rule (the GAAR ). Under the Goods and Services Tax reforms, unified goods and services tax structures to expand the tax base, rationalise the input tax credit and harmonise the current multiple taxation laws in India has been introduced. The Goods and Services Tax is implemented from 1 July 2017 and replaced the indirect taxes on goods and services such as central excise duty, service tax, central sales tax, state VAT and surcharge which were collected by the central and state governments The GAAR provisions have come into effect from 1 April The GAAR provisions intend to catch arrangements declared as impermissible avoidance arrangements, which is any arrangement, the main purpose or one of the main purposes of which is to obtain a tax benefit and which satisfy at least one of the following tests (i) creates rights or obligations which are not ordinarily created between persons dealing at arm s length; (ii) results, directly or indirectly, in misuse, or abuse, of the provisions of the Income Tax Act, 1961; (iii) lacks commercial substance or is deemed to lack commercial substance, in whole or in part; or (iv) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes. If GAAR provisions are invoked, then the tax authorities have wide powers, including denial of tax benefit or a benefit under a tax treaty. Further, pursuant to the circulars dated 25 May 2017 and 30 May 2017, the RBI simplified the reporting guidelines for Banks for submission of Annual Information Returns relating to the issuance of Savings Bonds for Rs. 5 Lakhs or more, as contemplated under Section 285 BA of Income Tax Act, HK:

253 LEGAL AND REGULATORY PROCEEDINGS Except as disclosed below, the Bank is also from time to time involved in various litigation proceedings in the ordinary course of its business. These proceedings are primarily in the nature of recovery proceedings initiated by the Bank in respect of advances made pending before civil courts or the debts recovery tribunal(s), as the case may be, criminal cases filed by the Bank in cases of dishonor of cheques or fraud cases, claims against the Bank in relation to improper or fraudulent debit from customer accounts, criminal and labour-related proceedings against the Bank, claims for refund of business losses and damages, consumer claims for deficiency in service, claims involving forgery of demand draft, claim for increased rent, suits claiming compensation and damages for termination from service, and suits for setting aside recovery proceedings initiated by the Bank, and tax matters. Legal Proceedings 1. Madhu Kapur and others (the Plaintiffs ) filed a civil suit in 2013, and subsequently, several notices of motion against the Bank, several of the directors, and others (collectively, the Defendants ) before the Bombay High Court, challenging the appointment of several directors on the Board, including the Managing Director and Chief Executive Officer, and the erstwhile non-executive non-independent part-time chairman/ chairperson. Further, the Plaintiffs also sought relief to protect their alleged rights as Indian partner under the Articles of Association, their alleged right to nominate directors on the Board, damages of Rs. 50 million and certain other reliefs. The Bombay High Court passed a judgment dated 4 June 2015 (the Judgment ) that, inter alia, (i) upheld the decision of the Board of Directors of the Bank in rejecting the nomination, by the Plaintiffs, of Shagun Kapur Gogia (daughter of Madhu Kapur) on the Board of the Bank and rejected their proposition to reserve a seat for the Plaintiffs and their family members on the Board; (ii) upheld the appointment of Rana Kapoor as the Managing Director and Chief Executive Officer of the Bank; (iii) observed certain procedural infirmities in the appointment of (a) Diwan Arun Nanda; (b) Ajay Vohra; (c) M.R. Srinivasan and (d) Ravish Chopra to the Board; (iv) observed that the proposed appointment of three Whole-time Directors, namely, Rajat Monga, Sanjay Palve and Pralay Mondal, was not in terms of the AoA of the Bank; (v) observed that the rights of the Indian partners under the AoA had to be jointly exercised by the Plaintiffs and Rana Kapoor; and (vi) restrained the Defendants from initiating, taking, continuing any steps for declassifying or changing the category of the Plaintiffs as promoter of the Bank. Aggrieved by the Judgement, the Plaintiffs and the Defendants have filed separate appeals before the division bench of the Bombay High Court, which are admitted and pending hearing. From among the current members of the Board, the appointments/reappointments, as applicable, of Rana Kapoor and Ajai Kumar form part of the subject matter of the above proceedings. These appeals against the Judgment are currently pending. Regulatory Proceedings 1. The RBI issued a show cause notice to the Bank on 6 July 2017, followed by a supplementary notice on 24 August 2017, with respect to non-compliance by the Bank with the RBI directions on Income Recognition Asset Classification (IRAC) norms and for delayed reporting of information security incident involving ATMs of the Bank. Based on the Bank s replies, oral submissions at personal hearings before RBI, the RBI imposed a monetary penalty of Rs. 60 million on the Bank on 23October 2017 in accordance with Sections 46(4)(i) and 47A(1)(c) of the Banking Regulation Act, However, the RBI has stated that such penal action on the Bank is not intended to pronounce upon the validity of any HK:

254 transaction or agreement entered into by the Bank with its customers. The imposition of this penalty has been intimated to the Stock Exchanges by the Bank vide a letter dated 25 October SEBI issued a show cause notice dated 16 June 2017 to the Bank and Goldman Sachs (SEBI Notice) under Rule 4(1) of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 read with Section 15I of SEBI Act, 1992 and under Rule 4 of the Securities Contracts (Regulation) (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 2005 read with Section 23I of the Securities Contracts (Regulation) Act, 1956, in respect of the withdrawn QIP in September SEBI appointed an Adjudicating Officer to inquire into and adjudge certain alleged violations on the part of the Bank and Goldman Sachs. The allegations against the Bank were primarily that: (i) the Bank failed to intimate the Stock Exchanges about the proposed fund raising by way of QIP, at least two working days prior to its Board Meeting held on 27 April 2016 and thus, violated the provisions of Regulation 29(1) and 29(2) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR); and (ii) the Bank made two misleading announcements to Stock Exchanges on 8 September 2016 (one at 15:41 and other at 16:53 pm,) and thus, violated Regulation 4(1)(c) of SEBI LODR. The Bank filed an application under SEBI (Settlement of Administrative and Civil Proceedings) Regulations, 2014 with SEBI on 18 August 2017 to settle the proceedings initiated vide the above mentioned SEBI Notice, in order to avoid prolonged litigation. The settlement application is presently pending consideration by SEBI HK:

255 TAXATION The information provided below does not purport to be a comprehensive description of all tax considerations which may be relevant to a decision to purchase Notes. In particular, the information does not consider any specific facts of circumstances that may apply to a particular purchaser. Neither these statements nor any other statements in this Offering Circular are to be regarded as advice on the tax position of any holder of the Notes or of any person acquiring, selling or otherwise dealing with the Notes or on any tax implications arising from the acquisition, sale or other dealings in respect of the Notes. The statements do not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase, own or dispose of the Notes and do not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as dealers in securities) may be subject to special rules. Prospective purchasers of Notes are advised to consult their own tax advisers as to the tax consequences of the purchase, ownership and disposition of Notes, including the effect of any state or local taxes, under the tax laws applicable in India and each country of which they are residents. Additionally, in view of the number of different jurisdictions where local laws may apply, this Offering Circular does not discuss the local tax consequences applicable to a potential investor arising from the acquisition, holding or disposal of the Notes. Prospective investors must, therefore, inform themselves as to any tax, exchange control legislation or other laws and regulations in force relating to the subscription, holding or disposal of the Notes at their place of residence and in the countries of which they are citizens, or the countries of purchase, holding or disposition of the Notes. Indian Taxation The following is a summary of the existing principal Indian tax consequences for investors who are not resident (Non-resident Investors) in India and are subscribing to the Notes issued by the Issuer from any offshore branch. The summary is based on Indian taxation law and practice in force as at the date of this Offering Circular and is subject to change, possibly with retrospective effect. The summary does not constitute legal or tax advice and is not intended to represent a complete analysis of the tax consequences under Indian law of the acquisition, ownership or disposal of the Notes. Prospective investors should, therefore, consult their own tax advisers regarding the Indian tax consequences, as well as the tax consequences under any applicable taxing jurisdiction, of acquiring, owning and disposing of the Notes. Taxation of Interest Interest on foreign currency denominated Notes will not be subject to taxes in India if the proceeds of the issuance of such Notes are used for the purposes of business carried on by the Issuer outside India. If the proceeds are utilised for the purposes of the business of the Issuer in India and the event the tax authorities in India decide that exemption from tax is not available under the Income Tax Act, 1961, Non-resident investors are liable to pay income tax on the interest paid at the rate of 20 per cent. under Section 115A of the IT Act (plus applicable surcharge, education cess and secondary and higher education cess), in accordance with conditions of the IT Act. The rate of tax will stand reduced under the beneficial provisions of a Tax Treaty, subject to fulfilment of the conditions prescribed therein read with the Income Tax Act, A Non-resident Investor is obliged to pay such income tax on an amount equal to, or would be entitled to a refund of, as the case may be, any difference between amounts withheld in respect of interest paid on the foreign currency denominated Notes and its ultimate Indian tax liability for such interest, subject to the conditions of the IT Act. The Non-resident Investors shall be obliged to provide all HK:

256 necessary information and documents as may be required by the Issuer and/or the tax authorities in India. Withholding of Taxes There is no requirement to withhold tax under Indian law on interest payments that are made on the Notes issued by any offshore branch, if the proceeds of Notes are utilised outside India (except monies borrowed by IBUs of Indian Bank). If the proceeds raised are utilised in India, there may be a requirement to withhold tax upto 20 per cent. (plus applicable surcharge, education tax and secondary and higher education cess) on interest payments made on the foreign currency denominated Notes, subject to the conditions contained in the IT Act and also subject to any lower rate of tax provided for by an applicable Tax Treaty. An applicable Tax Treaty may reduce such tax liability, subject to fulfilment of the conditions prescribed therein read with the Income Tax Act, Pursuant to the Terms and Conditions of the Notes, all payments of, or in respect of, principal and interest on the Notes, will be made free and clear of and without withholding or deduction on account of any present or future taxes within India unless it is required by law, in which case pursuant to Condition 8, the Issuer will pay an additional amount as may be necessary in order that the net amount received by the Noteholders after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Notes in the absence of the withholding or the deduction, subject to certain exceptions. Taxation of gains arising on disposal of Notes Given below is a summary of taxation of capital gains arising upon disposal of Notes. Any gains arising to a Non-resident Investor from disposal of the Notes held (or deemed to be held) as a capital asset will generally be chargeable to income tax in India if the Notes are regarded as property situated in India. A Non-resident Investor will generally not be chargeable with income tax in India from a disposition of Notes held as a capital asset provided the Notes are regarded as being situated outside India. The issue as to where the Notes should properly be regarded as being situated is not free from doubt. The ultimate decision, however, will depend upon the view taken by the Indian tax authorities on the position with respect to the situs of the rights being offered in respect of the Notes. There is a possibility that the Indian tax authorities may treat the Notes as being situated in India as the Issuer is a company incorporated in India. If the Notes are regarded as situated in India by the Indian tax authorities, upon disposition of a Note: (a) (b) a Non-resident Investor, who has held the Notes for a period of more than 36 months immediately preceding the date of their disposition, would be liable to pay long-term capital gains tax at the rate up to 20 per cent. of the capital gains (plus applicable surcharge, education cess and secondary and higher education cess) in accordance with the provisions of the IT Act; a Non-resident Investor who has held the Notes for 36 months or less would be liable to pay capital gains tax at rates ranging up to 40.0 per cent. of the capital gains (plus applicable surcharge, education cess and secondary and higher education cess), depending on the legal status of the Non-resident Investor, and his taxable income in India; Further, taxation of capital gains would also depend upon the provisions/benefits available under the relevant Tax Treaty, subject to fulfilment of the conditions prescribed under the relevant Tax Treaty as well as the IT Act; and HK:

257 (c) any surplus realised by a Non-resident Investor from a disposition of the Notes held as stock-in-trade would be subject to income tax in India to the extent, if any, that the surplus is attributable to a business connection in India or, where a Tax Treaty applies, to a permanent establishment of the Non-resident Investor in India. A Nonresident Investor would be liable to pay Indian tax on the profits which are so attributable to such business connection or permanent establishment at a rate of tax ranging up to 40.0 per cent. (plus applicable surcharge, education cess and secondary and higher education cess), depending on the legal status of the Nonresident Investor and his taxable income in India. If applicable, under the tax law, tax shall be withheld by the person making any payment to a Nonresident Investor on long-term capital gains up to 20 per cent. (plus applicable surcharge, education cess and secondary and higher education cess) and short-term capital gains at 30 per cent. or 40 per cent. (plus applicable surcharge, education cess and secondary and higher education cess), depending on the legal status of the recipient of income, subject to any lower rate provided for by a Tax Treaty. Tax payable shall be computed as set out in the IT Act. For the purpose of tax withholding, the Nonresident Investor shall be obliged to provide the prescribed information or documents, including a tax residency certificate (issued by the tax authorities of the country in which the investor is resident), to claim Tax Treaty benefits. Potential investors should, in any event, consult their own tax advisers on the tax consequences of transfer of the Notes. Estate Duty No estate duty is payable at present in relation to the Notes in India. There are no inheritance taxes or succession duties currently imposed in respect of the Notes held outside India. Gift Tax No gift tax is payable at present in relation to the Notes held outside India. Stamp Duty A transfer of the Notes outside India will not give rise to any Indian stamp duty liability unless the Notes are brought into India. In the event that the Notes are brought into India for enforcement or for any other purpose, the same will attract stamp duty as payable in the relevant state. This stamp duty will have to be paid within a period of three months from the date the Notes are first received in India. The proposed financial transactions tax (FTT) On 14 February 2013, the European Commission published a proposal (the Commission s Proposal) for a Directive for a common FTT in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, Slovenia and Slovakia (the participating Member States). However, Estonia has since stated that it will not participate. The Commission s Proposal has a very broad scope and could, if introduced, apply to certain dealings in the Notes (including secondary market transactions) in certain circumstances. Primary market transactions referred to in Article 5(c) of Regulation (EC) 1287/2006 are expected to be exempt. Under the Commission s Proposal, the FTT could apply in certain circumstances to persons both within and outside of the participating Member States. Generally, it would apply to certain dealings in the Notes where at least one party is a financial institution, and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, established in a HK:

258 participating Member State in a broad range of circumstances, including (a) by transacting with a person established in a participating Member State or (b) where the financial instrument which is subject to the dealings is issued in a participating Member State. However, the FTT proposal remains subject to negotiation between participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate. Prospective holders of the Notes are advised to seek their own professional advice in relation to the FTT. Foreign Account Tax Compliance Act Sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986 (FATCA) imposes a new reporting regime and potentially a 30 per cent. withholding tax with respect to certain payments to (i) any non-u.s. financial institution (a foreign financial institution, or FFI (as defined by FATCA)) that does not become a Participating FFI by entering into an agreement with the U.S. Internal Revenue Service (the IRS) to provide the IRS with certain information in respect of its account holders and investors or is not otherwise exempt from or in deemed compliance with FATCA and (ii) any investor (unless otherwise exempt from FATCA) that does not provide information sufficient to determine whether the investor is a U.S. person or should otherwise be treated as holding a United States account of the Issuer (a Recalcitrant Holder). The Issuer is classified as an FFI. The new withholding regime is now in effect for payments from sources within the United States and will apply to foreign passthru payments (a term not yet defined) no earlier than 1 January This withholding would potentially apply to payments in respect of (i) any Notes characterised as debt (or which are not otherwise characterised as equity and have a fixed term) for U.S. federal tax purposes that are issued after the grandfathering date, which is (A) with respect to Notes that give rise solely to foreign passthru payments, the date that is six months after the date on which final U.S. Treasury regulations defining the term foreign passthru payment are filed with the Federal Register and (B) with respect to Notes that give rise to a dividend equivalent pursuant to section 871(m) of the U.S. Internal Revenue Code of 1986, 1 July 2017, or which are materially modified after the grandfathering date and (ii) any Notes characterised as equity or which do not have a fixed term for U.S. federal tax purposes, whenever issued. If Notes are issued on or before the grandfathering date, and additional Notes of the same series are issued after that date, the additional Notes may not be treated as grandfathered, which may have negative consequences for the existing Notes, including a negative impact on market price. The United States and a number of other jurisdictions have entered into intergovernmental agreements to facilitate the implementation of FATCA (each, an IGA). Pursuant to FATCA and the Model 1 and Model 2 IGAs released by the United States, an FFI in an IGA signatory country could be treated as a Reporting FI not subject to withholding under FATCA on any payments it receives. Further, an FFI in an IGA jurisdiction would generally not be required to withhold under FATCA or an IGA (or any law implementing an IGA) (any such withholding being FATCA Withholding) from payments it makes. Under each Model IGA, a Reporting FI would still be required to report certain information in respect of its account holders and investors to its home government or to the IRS. The United States has entered into an agreement with India based largely on the Model 1 IGA (the U.S.- India IGA). If the Issuer is treated as a Reporting FI pursuant to the U.S.-India IGA, it does not anticipate that it will be obliged to deduct any FATCA Withholding on payments it makes. There can be no assurance, however, that the Issuer will be treated as a Reporting FI, or that it would in the future not be required to deduct FATCA Withholding from payments it makes. The Issuer and financial institutions through which payments on the Notes are made may be required to withhold FATCA Withholding if (i) any FFI through or to which payment on such Notes is made is not a Participating FFI, a Reporting FI, or HK:

259 otherwise exempt from or in deemed compliance with FATCA or (ii) an investor is a Recalcitrant Holder. While the Notes are in global form and held within the clearing systems, it is expected that FATCA will not affect the amount of any payments made under, or in respect of, the Notes by the Issuer, any paying agent and the common depositary, given that each of the entities in the payment chain between the Issuer and the participants in the ICSDs is a major financial institution whose business is dependent on compliance with FATCA and that any alternative approach introduced under an IGA will be unlikely to affect the Notes. The documentation expressly contemplates the possibility that the Notes may go into definitive form and therefore that they may be taken out of the ICSDs. If this were to happen, then a non-fatca compliant holder could be subject to FATCA Withholding. However, definitive Notes will only be printed in remote circumstances. FATCA is particularly complex and its application is uncertain at this time. The above description is based in part on regulations, official guidance and model IGAs, all of which are subject to change or may be implemented in a materially different form. Prospective investors should consult their tax advisers on how these rules may apply to the Issuer and to payments they may receive in connection with the Notes. Hiring Incentives to Restore Employment Act The U.S. Hiring Incentives to Restore Employment Act introduced Section 871(m) of the U.S. Internal Revenue Code of 1986, which treats a dividend equivalent payment as a dividend from sources within the United States. Under Section 871(m), such payments generally would be subject to a 30 per cent. U.S. withholding tax that may be reduced by an applicable tax treaty, eligible for credit against other U.S. tax liabilities or refunded, provided that the beneficial owner timely claims a credit or refund from the IRS. A dividend equivalent payment is (i) a substitute dividend payment made pursuant to a securities lending or a sale-repurchase transaction that (directly or indirectly) is contingent upon, or determined by reference to, the payment of a dividend from sources within the United States, (ii) a payment made pursuant to a specified notional principal contract that (directly or indirectly) is contingent upon, or determined by reference to, the payment of a dividend from sources within the United States and (iii) any other payment determined by the IRS to be substantially similar to a payment described in (i) and (ii). Recently published final U.S. Treasury regulations issued under Section 871(m) (the Section 871(m) Regulations) will, when effective, require withholding on certain non-u.s. holders of the Notes with respect to amounts treated as attributable to dividends from certain U.S. securities. Under Section 871(m) Regulations, only a Note that has an expected economic return sufficiently similar to that of the underlying U.S. security, as determined on the Note s issue date based on tests set forth in the Section 871(m) Regulations, will be subject to the Section 871(m) withholding regime (making such Note a Specified Note). The Section 871(m) Regulations provide certain exceptions to this withholding requirement, in particular for instruments linked to certain broad-based indices. Withholding in respect of dividend equivalents will generally be required when cash payments are made on a Specified Note or upon the date of maturity, lapse or other disposition by the non-u.s. holder of the Specified Note. If the underlying U.S. security or securities are expected to pay dividends during the term of the Specified Note, withholding generally will still be required even if the Specified Note does not provide for payments explicitly linked to dividends. If the Issuer or any withholding agent determines that withholding is required, neither the Issuer nor any withholding agent will be required to pay any additional amounts with respect to amounts so withheld. The Section 871(m) Regulations will generally apply to Specified Notes issued on or after 1 January If the terms of a Note are subject to a significant modification (as defined for U.S. tax purposes), the Note generally would be treated as retired and reissued on the date of such modification for purposes of determining, based on economic conditions in effect at that time, whether such Note is HK:

260 a Specified Note. Similarly, if additional Notes of the same series are issued (or deemed issued for U.S. tax purposes, such as certain sales of Notes out of inventory) after the original issue date, the IRS could treat the issue date for determining whether the existing Notes are Specified Notes as the date of such subsequent sale or issuance. Consequently, a previously grandfathered Note, or otherwise out of scope Note, might become a Specified Note following such modification or further issuance. The applicable Final Terms will indicate whether the Issuer has determined that the Notes are Specified Notes and will specify contact details for obtaining additional information regarding the application of Section 871(m) to the Notes. If the Notes are Specified Notes, a non-u.s. holder of such Notes should expect to be subject to withholding in respect of any dividend-paying U.S. securities underlying those Notes. The Issuer s determination is binding on non-u.s. holders of Notes, but it is not binding on the IRS. The Section 871(m) Regulations require complex calculations to be made with respect to Notes linked to U.S. securities and their application to a specific issue of Notes may be uncertain. Prospective investors should consult their tax advisers regarding the potential application of Section 871(m) to the Notes HK:

261 SUBSCRIPTION AND SALE The Dealers have, in the programme agreement dated 22 December 2017 (such programme agreement as amended and/or supplemented and/or restated from time to time, the Programme Agreement) agreed with the Issuer a basis upon which they or any of them may from time to time agree to purchase Notes. Any such agreement will extend to those matters stated under Form of the Notes and Terms and Conditions of the Notes. In the Programme Agreement, the Issuer has agreed to reimburse the Dealers for certain of their expenses in connection with the establishment of the Programme and the issue of Notes under the Programme and to indemnify the Dealers against certain liabilities incurred by them in connection therewith. The Programme Agreement entitles the Dealers to terminate any agreement that they make to subscribe for Notes in certain circumstances prior to payment for such Notes being made to the Issuer. United States of America In respect of Notes offered or sold in reliance on Category 1 as specified in the applicable Pricing Supplement, the Notes have not been and will not be registered under the Securities Act, and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Each Dealer has represented and agreed that it has not offered or sold, and will not offer or sell, any Notes constituting part of its allotment except in accordance with Rule 903 of Regulation S under the Securities Act. In respect of Notes offered or sold in reliance on Category 2 as specified in the applicable Pricing Supplement, the Notes have not been and will not be registered under the Securities Act, and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in the Securities Act) except in accordance with Regulation S under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. Each Dealer has represented and agreed that it has offered and sold any Notes, and will offer and sell any Notes (i) as part of their distribution at any time and (ii) otherwise until 40 days after the completion of the distribution of all Notes of the Tranche of which such Notes are a part, as determined and certified as provided below, only in accordance with Rule 903 of Regulation S under the Securities Act. Each Dealer who has purchased Notes of a Tranche hereunder (or in the case of a sale of a Tranche of Notes issued to or through more than one Dealer, each of such Dealers as to the Notes of such Tranche purchased by or through it or, in the case of a syndicated issue, the relevant Lead Manager) shall determine and certify to the Principal Paying Agent the completion of the distribution of the Notes of such Tranche. On the basis of such notification or notifications, the Principal Paying Agent has agreed to notify such Dealer/Lead Manager of the end of the distribution compliance period with respect to such Tranche. Each Dealer also agreed that, at or prior to confirmation of the sale of Notes, it will have sent to each distributor, dealer or person receiving a selling concession, fee or other remuneration that purchases Notes from it during the distribution compliance period a confirmation or notice to substantially the following effect: The Securities covered hereby have not been registered under the U.S. Securities Act of 1933, as amended (the Securities Act), and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the completion of the distribution of the Securities as determined and certified by the relevant Dealer, in the case of a non-syndicated issue, or the Lead Manager, in the case of a syndicated issue, and except in either case in accordance with Regulation S under the Securities Act. Terms used above have the meanings given to them by Regulation S. Terms used in this paragraph Error! Reference source not found. have the meanings given to them by Regulation S HK:

262 Each Dealer has represented and agreed that it, its affiliates or any persons acting on its or their behalf have not engaged and will not engage in any directed selling efforts with respect to any Note, and it and they have complied and will comply with the offering restrictions requirement of Regulation S. The Bearer Notes are subject to U.S. tax law requirements and may not be offered, sold or delivered within the United States or its possessions or to United States persons, except in certain transactions permitted by U.S. Treasury regulations. Terms used in this paragraph have the meanings given to them by the U.S. Internal Revenue Code of 1986 and Treasury regulations promulgated thereunder. Each issue of Index Linked Notes or Dual Currency Notes shall be subject to such additional U.S. selling restrictions as the Issuer and the relevant Dealer may agree as a term of the issue and purchase of such Notes, which additional selling restrictions shall be set out in the applicable Pricing Supplement. The relevant Dealer agrees that it shall offer, sell and deliver such Notes only in compliance with such additional U.S. selling restrictions. Prohibition of Sales to European Economic Area Retail Investors From 1 January 2018, unless the Pricing Supplement in respect of any Instruments specifies the Prohibition of Sales to European Economic Area Retail Investors as Not Applicable, each Dealer represents and agrees, that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Instruments which are the subject of the offering contemplated by the Information Memorandum as completed by the Pricing Supplement in relation thereto to any retail investor in the European Economic Area. For the purposes of this provision: (a) the expression retail investor means a person who is one (or more) of the following: (i) (ii) (iii) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, MiFID II); or a customer within the meaning of Directive 2002/92/EC (as amended, the Insurance Mediation Directive), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II; or not a qualified investor as defined in Directive 2003/71/EC (as amended, the Prospectus Directive); and (b) the expression an offer includes the communication in any form and by any means of sufficient information on the terms of the offer and the Instruments to be offered so as to enable an investor to decide to purchase or subscribe the Instruments. Prior to 1 January 2018, and from that date if the Pricing Supplement in respect of any Instruments specifies Prohibition of Sales to European Economic Area Retail Investors as Not Applicable, in relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a Relevant Member State), each Dealer represents and agrees that with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the Relevant Implementation Date) it has not made and will not make an offer of Instruments which are the subject of the offering contemplated by the Information Memorandum as completed by the Pricing Supplement in relation thereto to the public in that Relevant Member State except that it may, with effect from and including the Relevant Implementation Date, make an offer of such Instruments to the public in that Relevant Member State: HK:

263 (a) (b) (c) (d) if the Pricing Supplement in relation to the Instruments specify that an offer of those Instruments may be made other than pursuant to Article 3(2) of the Prospectus Directive in that Relevant Member State (a Non-exempt Offer), following the date of publication of a prospectus in relation to such Instruments which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, provided that any such prospectus has subsequently been completed by the Pricing Supplement contemplating such Non-exempt Offer, in accordance with the Prospectus Directive, in the period beginning and ending on the dates specified in such prospectus or Pricing Supplement, as applicable and the Issuer has consented in writing to its use for the purpose of that Non-exempt Offer; at any time to any legal entity which is a qualified investor as defined in the Prospectus Directive; at any time to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the relevant Dealer or Dealers nominated by the Issuer for any such offer; or at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive. provided that no such offer of Instruments referred to in (b) to (d) above shall require the Issuer or any Dealer to publish a prospectus pursuant to Article 3 of the Prospectus Directive or supplement a prospectus pursuant to Article 16 of the Prospectus Directive. For the purposes of this provision, the expression an offer of Instruments to the public in relation to any Instruments in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Instruments to be offered so as to enable an investor to decide to purchase or subscribe the Instruments, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC (as amended, including by Directive 2010/73/EU) and includes any relevant implementing measure in each Relevant Member State. United Kingdom Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: (a) (b) in relation to any Notes which have a maturity of less than one year, (i) it is a person whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business and (ii) it has not offered or sold and will not offer or sell any Notes other than to persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or as agent) for the purposes of their businesses or who it is reasonable to expect will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the Notes would otherwise constitute a contravention of Section 19 of the Financial Services and Markets Act 2000 (FSMA) by the Issuer; it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by it in connection HK:

264 with the issue or sale of any Notes in circumstances in which Section 21(1) of the FSMA does not apply to the Issuer; and (c) it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to such Notes in, from or otherwise involving the United Kingdom. Italy Each Dealer has represented, warranted and undertaken, and each further Dealer appointed under the Programme will be required to represent, warrant and undertake, that the offering of the Notes has not been registered pursuant to Italian securities legislation and, accordingly, no Notes may be offered, sold or delivered, nor may copies of the Offering Circular or of any other document relating to the Notes be distributed in the Republic of Italy, except: (i) (ii) to qualified investors (investitori qualificati), as defined pursuant to Article 100 of Legislative Decree No. 58 of 24 February 1998, as amended (the Financial Services Act) and Article 34-ter, first paragraph, letter (b) of CONSOB Regulation No of 14 May 1999, as amended from time to time (Regulation No ); or in other circumstances which are exempted from the rules on public offerings pursuant to Article 100 of the Financial Services Act and Article 34-ter of Regulation No Any offer, sale or delivery of the Notes or distribution of copies of the Offering Circular or any other document relating to the Notes in the Republic of Italy under (i) or (ii) above must be: (a) (b) (c) made by an investment firm, bank or financial intermediary permitted to conduct such activities in the Republic of Italy in accordance with the Financial Services Act, CONSOB Regulation No of 29 October 2007 (as amended from time to time) and Legislative Decree No. 385 of 1 September 1993, as amended (the Banking Act); in compliance with Article 129 of the Banking Act, as amended, and the implementing guidelines of the Bank of Italy, as amended from time to time, pursuant to which the Bank of Italy may request information on the issue or the offer of securities in the Republic of Italy; and in compliance with any other applicable laws and regulations or requirement imposed by CONSOB or other Italian authority. Please note that in accordance with Article 100-bis of the Financial Services Act, where no exemption from the rules on public offerings applies under (i) and (ii) above, the subsequent distribution of the Notes on the secondary market in Italy must be made in compliance with the public offer and the prospectus requirement rules provided under the Financial Services Act and Regulation No Failure to comply with such rules may result in the sale of such Notes being declared null and void and in the liability of the intermediary transferring the financial instruments for any damages suffered by the investors. The Netherlands Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that any Notes will only be offered in the Netherlands to Qualified HK:

265 Investors (as defined in the EU Prospectus Directive), unless such offer is made in accordance with the Dutch Financial Supervision Act (Wet op het financieel toezicht). India Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: (a) this Offering Circular has not been and will not be registered, produced or published as an offer document (whether a prospectus in respect of a public offer or information memorandum or other offering material in respect of any private placement under the Companies Act, 1956 (as amended and repealed by the Companies Act, 2013 and the rules framed thereunder or any other applicable Indian laws)), with the Registrar of Companies, the SEBI or any other statutory or regulatory body of like nature in India, save and except for any information from any part of this Offering Circular mandatorily required to be disclosed or filed in India under applicable Indian laws; (b) the Notes have not been and will not be offered or sold to any person in India by means of any document and this Offering Circular or any other offering document or material relating to the Notes have not been and will not be circulated or distributed, directly or indirectly, to any person or to the public in India (including International Financial Services Centres) which would constitute an advertisement, invitation, offer, sale or solicitation of an offer to subscribe for or purchase any securities in violation of Indian laws. Singapore Each Dealer has acknowledged, and each further Dealer appointed under the Programme will be required to acknowledge, that this Offering Circular has not been registered as a prospectus with the Monetary Authority of Singapore (the MAS). Accordingly, each Dealer has represented, warranted and agreed, and each further Dealer appointed under the Programme will be required to represent, warrant and agree, that it has not offered or sold any Notes or caused the Notes to be made the subject of an invitation for subscription or purchase and will not offer or sell any Notes or cause the Notes to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this Offering Circular or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the Notes, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor (as defined in Section 4A of the Securities and Futures Act (Chapter 289 of Singapore) (the SFA)) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is: (a) (b) a corporation, (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, HK:

266 Hong Kong securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the SFA except: (1) to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; (2) where no consideration is or will be given for the transfer; (3) where the transfer is by operation of law; (4) as specified in Section 276(7) of the SFA; or (5) as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that: (a) (b) it has not offered or sold, and will not offer or sell, in Hong Kong Special Administrative Region of the People s Republic of China (Hong Kong), by means of any document, any Notes (except for Notes which are a structured product as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong) (the SFO) other than: (i) to professional investors as defined in the SFO and any rules made under the SFO; or (ii) in other circumstances which do not result in the document being a prospectus as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong (the C(WUMP)O) or which do not constitute an offer to the public within the meaning of the C(WUMP)O; and it has not issued, or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Notes, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to professional investors as defined in the SFO and any rules made under the SFO. Japan The Notes have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948, as amended; the FIEA) and each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it will not offer or sell any Notes, directly or indirectly, in Japan or to, or for the benefit of, any resident of Japan (as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange and Foreign Trade Act (Act No. 228 of 1949, as amended)), or to others for re-offering or resale, directly or indirectly, in Japan or to, or for the benefit of, a resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEA and any other applicable laws, regulations and ministerial guidelines of Japan HK:

267 Bahrain Each Dealer has represented and agreed, and each further Dealer appointed under the Programme will be required to represent and agree, that it will not make any invitation to the public in the Kingdom of Bahrain to subscribe for the Notes and that the Offering Circular will not be issued, passed to, or made available to the public generally in the Kingdom of Bahrain. Australia No prospectus or other disclosure document (as defined in the Corporations Act 2001 of Australia (Corporations Act)) in relation to the Programme or any Notes has been or will be lodged with the Australian Securities and Investments Commission (ASIC). Each Dealer has represented and agreed and each further Dealer appointed under the Programme will be required to represent and agree that it: (a) (b) has not (directly or indirectly) offered, and will not offer for issue or sale and has not invited, and will not invite, applications for issue, or offers to purchase, the Notes in, to or from Australia (including an offer or invitation which is received by a person in Australia); and has not distributed or published, and will not distribute or publish, any information memorandum, advertisement or other offering material relating to the Notes in Australia, unless (1) the aggregate consideration payable by each offeree or invitee is at least AUD500,000 (or its equivalent in other currencies, disregarding moneys lent by the offeror or its associates) or the offer or invitation otherwise does not require disclosure to investors in accordance with Part 6D.2 of the Corporations Act, (2) such action complies with all applicable laws, regulations and directives and (3) such action does not require any document to be lodged with ASIC. General Each Dealer has represented, warranted and undertaken and each further Dealer appointed under the Programme will be required to represent, warrant and undertake that it will (to the best of its knowledge and belief) comply with all applicable securities laws and regulations in force in any jurisdiction in which it purchases, offers, sells or delivers Notes or possesses or distributes this Offering Circular and will obtain any consent, approval or permission required by it for the purchase, offer, sale or delivery by it of Notes under the laws and regulations in force in any jurisdiction to which it is subject or in which it makes such purchases, offers, sales or deliveries and neither the Issuer, the Trustee, the Agents nor any of the other Dealers shall have any responsibility therefor. None of the Issuer, the Trustee, the Agents and the Dealers represents that Notes may at any time lawfully be sold in compliance with any applicable registration or other requirements in any jurisdiction, or pursuant to any exemption available thereunder, or assumes any responsibility for facilitating such sale. With regard to each Tranche, the relevant Dealer will be required to comply with such other restrictions as the Issuer and the relevant Dealer shall agree and as shall be set out in the applicable Pricing Supplement. Other Relationships The Dealers and their affiliates are full service financial institutions engaged in various activities which may include securities trading, commercial and investment banking, financial advice, HK:

268 investment management, principal investment, hedging, financing and brokerage activities. Each of the Dealers may have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with the Issuer or its subsidiaries, jointly controlled entities or associated companies and may be paid fees in connection with such services from time to time. In the ordinary course of their various business activities, the Dealers and their affiliates may make or hold (on their own account, on behalf of clients or in their capacity of investment advisers) a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments and enter into other transactions, including credit derivatives (such as asset swaps, repackaging and credit default swaps) in relation thereto. Such transactions, investments and securities activities may involve securities and instruments of the Issuer or its subsidiaries, jointly controlled entities or associated companies, including Notes issued under the Programme, may be entered into at the same time or proximate to offers and sales of Notes or at other times in the secondary market and be carried out with counterparties that are also purchasers, holders or sellers of Notes. Notes issued under the Programme may, subject to the selling restrictions described above, be purchased by or be allocated to any Dealer or an affiliate for asset management and/or proprietary purposes but not with a view to distribution. Broker-dealer Affiliates If a jurisdiction requires that such offering be made by a licensed broker or dealer and the underwriters or any affiliate of the underwriters is a licensed broker or dealer in that jurisdiction, such offering shall be deemed to be made by the underwriters or such affiliate on behalf of the Issuer (as defined in this Offering Circular) in such jurisdiction HK:

269 GENERAL INFORMATION Authorisation 1. The establishment of the Programme and the issue of Notes have been duly authorised by a resolution of the Capital Raising Committee of the Board of Directors of the Issuer dated 29 November Currently the issuance of Notes by the Issuer acting through its IFSC Banking Unit or any foreign branch for borrowings in foreign currency for the purpose of funding its foreign offices in the normal course of banking business outside India, does not require any approval from the RBI and/or the Ministry of Finance. The Issuer is, however, required to (i) comply with reporting requirements specified under the guidelines issued by the RBI (by its FED Master Direction No.18/ updated as on 15 May 2017) and (ii) report the issue of Notes as part of the overseas liabilities and DSBO Returns I and II with respect to the operation of foreign branches of Indian banks, as amended, modified or supplemented from time to time. Any payments under the Notes by the Issuer from its Registered Office or any branch in India will require prior RBI approval. No Potential Conflicts of Interest 3. As at the date of this offering Circular, there are no potential conflicts of interest between any duties owed to the Issuer by the Directors and the private interests and/or other duties owed by these individuals. Listing 4. Approval in principle has been granted from the SGX-ST for the listing and quotation of Notes that may be issued pursuant to the Programme and which are agreed at or prior to the time of issue thereof to be so listed on the SGX-ST. Such permission will be granted when such Notes have been admitted to the Official List. Admission to the Official List and quotation of any Notes on the SGX-ST are not to be taken as an indication of the merits of the Issuer, the Programme or the Notes. So long as the Notes are listed on the SGX-ST and the rules of the SGX-ST so require, the Issuer shall appoint and maintain a paying agent in Singapore, where the Notes may be presented or surrendered for payment or redemption, in the event that the Global Notes is exchanged for definitive Notes. In addition, in the event that the Global Notes is exchanged for definitive Notes, announcement of such exchange shall be made through the SGX-ST and such announcement will include all material information with respect to the delivery of the definitive Notes, including details of the paying agent in Singapore. Application has been made to the London Stock Exchange for the listing and quotation of Notes on the ISM that may be issued pursuant to the Programme and which are agreed at or prior to the time of issue thereof to be listed on the ISM. Notes so admitted to trading on the ISM are not admitted to the Official List of the UKLA. The London Stock Exchange has not approved or verified the contents of this Offering Circular. Application has been made to the India INX for the listing and quotation of Notes on the INX that may be issued pursuant to the Programme HK:

270 Delisting of Notes 5. The Trust Deed provides that if the applicable Pricing Supplement indicates that the Notes are listed on a stock exchange (the relevant Stock Exchange), the Issuer will use its best endeavours to maintain the listing on the relevant Stock Exchange of those of the Notes which are listed on the relevant Stock Exchange or, if it is unable to do so having used its best endeavours or if the Trustee considers that the maintenance of such listings is unduly onerous whether as a result of the implementation of the EU Transparency Directive (directive 2004/109/EC of the European Parliament and of the Council on the Harmonisation of Transparency Requirements in relation to information about issuers whose securities are admitted to trading on a regulated market) or otherwise, it may cease to maintain such listing provided that it shall use its best endeavours promptly to obtain and maintain a quotation or listing of such Notes on such other stock exchange or exchanges or securities market or markets on which it is then accepted in the sphere of international issues of debt securities to list securities such as the Notes as it may (with the approval of the relevant Dealer(s) in respect of such Notes that such other stock exchange or exchanges or securities market or markets is so accepted (such approval to be communicated to the Trustee) decide and shall also upon obtaining a quotation or listing of such Notes issued by it on such other stock exchange or exchanges or securities market or markets enter into a trust deed supplemental to the Trust Deed to effect such consequential amendments to the Trust Deed as the Trustee may require or as shall be requisite to comply with the requirements of any such stock exchange or securities market. Clearing Systems 6. The Notes to be issued under the Programme have been accepted for clearance through Euroclear and Clearstream. The appropriate common code and ISIN for each Tranche of Notes allocated by Euroclear and Clearstream will be specified in the applicable Pricing Supplement. The appropriate common code and ISIN for each Tranche of Notes allocated by Euroclear and Clearstream will be specified in the applicable Pricing Supplement. If the Notes are to clear through an additional or alternative clearing system, the appropriate information will be specified in the applicable Pricing Supplement. No Significant Change 7. Save as disclosed in this Offering Circular, there has been no significant in the financial or trading position of the Bank since 30 September 2017 and no material adverse change in the prospects of the Bank since 31 March Litigation 8. The Bank is not involved in any legal or arbitration proceedings (including any proceedings which are pending or threatened of which the Bank is aware) which may have or have had in the 12 months preceding the date of this document a significant effect on the financial position of the Bank. Accounts 9. The auditors of the Issuer in respect of the audited standalone and consolidated financial statements as at and for the years ended 31 March 2017 and the reviewed standalone financial results as at and for the six months ended 30 September 2017 are BSR & Co. LLP. The auditors of the Issuer in respect of the audited standalone and consolidated financial statements as at and for the years ended 31 March 2016 were S.R. Batliboi & Co. LLP., Chartered Accountants. Both auditors have issued audit opinions in connection with their HK:

271 respective audits and BSR & Co. LLP has issued a review opinion for the respective periods without any qualification. 10. The Trust Deed provides that the Trustee may rely on certificates or reports from the Auditors (as defined in the Trust Deed) or any other person in accordance with the provisions of the Trust Deed as sufficient evidence of the facts stated therein whether or not called for by or addressed to the Trustee and whether or not any such certificate or report or engagement letter or other document entered into by the Trustee and the Auditors or such other person in connection therewith contains a monetary or other limit on the liability of the Auditors or such other person. However, the Trustee will have no recourse to the Auditors or such other person in respect of such certificates or reports unless the Auditors or such other person have agreed to address such certificates or reports to the Trustee. Documents Available 11. So long as Notes are capable of being issued under the Programme, copies of the following documents will, when published, be available from the corporate office of the Issuer and from the specified office of the Principal Paying Agent: (a) (b) (c) (d) (e) the audited financial statements of the Bank and the Group in respect of the fiscal years ended 31 March 2016 and 2017; the most recently published audited annual financial statements of the Bank and the most recently published audited or unaudited standalone interim financial results of the Bank (the Bank currently prepares unaudited standalone interim results on a quarterly basis under Indian regulatory requirements); the Programme Agreement, the Trust Deed, the Agency Agreement and the forms of the Temporary Global Notes, the Permanent Global Notes, the Definitive Bearer Notes, the Receipts, the Coupons, the Talons, the Restricted Global Notes and the Definitive Registered Notes; a copy of this Offering Circular; and any future offering circulars, prospectuses, information memoranda and supplements including Pricing Supplements (save that a Pricing Supplement relating to an unlisted Note will only be available for inspection by a holder of such Note and such holder must produce evidence satisfactory to the Issuer and the Paying Agent as to its holding of Notes and identity) to this Offering Circular and any other documents incorporated herein or therein by reference HK:

272 SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN IFRS AND INDIAN GAAP The financial statements of the Issuer included in this Offering Circular have been prepared in accordance with the accounting policies followed by the Issuer, which conform to Indian GAAP, as applicable, to the Issuer. Significant differences exist between Indian GAAP and IFRS which might be material to the financial information herein. The following is a general summary of certain principal differences between Indian GAAP as applicable to the Issuer and IFRS. The differences identified below are limited to those significant differences that are appropriate to the Issuer s financial statements and consider the provisions of International Accounting Standard (IAS) 39. However, they should not be construed as being exhaustive, and no attempt has been made to identify possible future differences between Indian GAAP and IFRS as a result of prescribed changes in accounting standards nor to identify future differences that may affect the Issuer s financial statements as a result of transactions or events that may occur in the future. 1. Contents of financial statements general IFRS A complete set of financial statements comprises a balance sheet, income statement, cash flow statement, a statement showing changes in equity and other comprehensive income as at and for the last two fiscal years, accounting policies and other explanatory notes to financial statements with corresponding figures from the previous year. INDIAN GAAP As per the Companies Act, financial statement in relation to a company, includes: (a) a balance sheet as at the end of the financial year; (b) a profit and loss account; (c) a cash flow statement for the financial year; (d) a statement of changes in equity, if applicable; and (e) any explanatory note annexed to, or forming part of, any document referred to above. Comparative (corresponding) figures are presented for one year. The presentation of these financial statements differs in certain respects compared to IFRS. Separate financial statements are required to be presented by all companies. The Companies Act, subject to certain relaxations, requires a company having one or more subsidiaries to prepare a consolidated financial statement of the company and of all its subsidiaries in the same form and manner as that of its own. The term subsidiary includes an associate company and a joint venture HK:

273 2. Contents of financial statements disclosures 3. Correction of errors comparative amounts for the prior year period(s) presented in which errors have occurred 4. Changes in accounting policies IFRS No particular format is prescribed for the income statement. However, an analysis of expenses must be presented in one of two formats (function or nature). Certain items must be presented on the face of the income statement. Similarly, no particular format is prescribed for the balance sheet; an entity may use a liquidity presentation of assets and liabilities, instead of a current/non-current presentation, only when a liquidity presentation provides more relevant and reliable information. Certain items must be presented on the face of the balance sheet. However, banks should present an income statement which groups income and expenses by nature and discloses the amounts of principal types of income and expenses. Further, banks should present a balance sheet that groups assets and liabilities by nature and lists them in the order that reflects their relative liquidity. Mandatory restatement of comparative amounts for the prior year period(s) presented in which errors have occurred. Any change in accounting policies are required to be applied retrospectively, INDIAN GAAP The Companies Act prescribes the balance sheet format and the prescribed format for the profit and loss account. In the case of banks, the format of the balance sheet and the profit and loss account is prescribed in Schedule 3 to the Banking Regulations Act. Further, the RBI prescribes various disclosures from time to time. Restatement is not required. The nature and amount of prior period items should be separately disclosed in the current year s profit and loss and the effect of the error must also be disclosed. The SEBI may, in the case of publicly listed companies, take such necessary action as it deems fit, including mandating restatement of books of accounts on the scrutiny of audit reports that qualify the accounts of a company. The impact of and adjustments resulting from the change in accounting policies are required HK:

274 IFRS requiring entities to adjust each affected component of equity for the earliest period presented, except where impracticable to do so. INDIAN GAAP to be shown in the income statement for the period in which the change is made, except as specified in the transitional provisions of certain standards where the changes resulting from the adoption of such standards have to be shown by an adjustment in the opening retained earnings HK:

275 5. Statement of recognised gains and losses IFRS The total of gains and losses recognised in a period is comprised of net income together with the following gains and losses which are recognised directly in equity: revaluation increases/decreases; fair value gains/(losses) on land and buildings, available-for-sale, investments and certain financial instruments; foreign exchange translation differences; INDIAN GAAP Accounting standards, statute and industry practices allow for the recognition of certain adjustments directly in reserves. The RBI specifically requires gains on the sale of held-tomaturity securities to be appropriated from the profit/loss account to the capital reserves. Revaluation gains on fixed assets are directly shown as part of reserves whereas revaluation losses, if any, are charged to revenue. the cumulative effect of changes in accounting policy; changes in the fair values of certain financial instruments if designated as cash flow hedges, net of tax, and cash flow hedges reclassified to income and/or the relevant hedged asset/liability; equity dividends; and 6. Statement of changes in shareholders equity dividends of subsidiaries (minority interests). Recognised gains and losses can be presented either in the notes to financial statements or highlighted separately within the primary statement of changes in shareholders equity. The statement must be presented as a primary statement. The statement must show capital transactions with owners, the movement in A statement of changes in shareholders equity is currently not presented. However, any adjustments to the equity and reserve account must be shown HK:

276 7. Consolidation of subsidiaries 8. Consolidation of subsidiaries uniform accounting policies 9. Consolidation of subsidiaries reporting period IFRS accumulated profit and a reconciliation of all other components of equity. The consolidated financial statements include all subsidiaries and foreign/domestic branches of the parent. IFRS focus on the concept of the power to control in determining whether a parent-subsidiary relationship exists. An investor, regardless of the nature of its involvement with the investee, is required to determine whether it is a parent by assessing whether it controls the investee. An investor controls an investee if and only if the investor has all the following: (a) power over the investee; (b) (c) exposure, or rights, to variable returns from its involvement with the investee; and the ability to use its power over the investee to affect the amount of the investor s return. Consolidated financial statements are prepared using uniform accounting policies for all the entities in a group. The consolidated financial statements of the parent and the subsidiary are usually drawn up at the same reporting date. However, the consolidated financial statements can be drawn up using different reporting dates provided that INDIAN GAAP in the schedules that accompany the financial statements. The Companies Act, subject to certain relaxations, requires a company having one or more subsidiaries to prepare a consolidated financial statement of the company and of all its subsidiaries in the same form and manner as that of its own. The term subsidiary includes an associate company and a joint venture. The reasons for not consolidating a subsidiary should be disclosed in the consolidated financial statements. In the separate financial statements of banks, investments in such subsidiaries should be accounted for in accordance with guidelines prescribed by the RBI. As per the RBI guidelines, such investments are required to be accounted at cost less any permanent diminution in the value of such investments. Similar to IFRS. However, if it is not practical to use uniform accounting policies that fact should be disclosed together with the proportions of the items to which different accounting policies have been applied. Similar to IFRS. However, the difference between the reporting dates should not be more than six months HK:

277 10. Accounting for jointly controlled entities IFRS the difference between the reporting date of the subsidiary and that of the parent is no more than three months. Adjustments are made for significant transactions that occur in the gap period. IFRS 11 joint arrangements which became effective from January 2013 are required to be classified either as joint operations or joint ventures. A joint operator shall account for its interest in a jointly controlled operation by using proportionate consolidation and a joint venturer in a joint venture by using the equity method. INDIAN GAAP Accounting for jointly controlled entities is required to be done using the proportionate consolidation method (the equity method is not permitted), except when an interest in a jointly controlled entity: is acquired and held exclusively with a view to its subsequent disposal in the near future; and operates under severe long-term restrictions which significantly impair its ability to transfer funds to the investor. 11. Jointly controlled entities reporting period 12. Presentation of jointly controlled entities (joint ventures) 13. Presentation of associate results The consolidated financial statements of the joint venturers are usually drawn up at the same reporting date. However, the consolidated financial statements can be drawn up using different reporting dates provided the difference between the reporting dates of the joint venture and that of the venture is no more than three months. Adjustments are made for significant transactions that occur in the gap period. In standalone financials, in accordance with IAS 27 Separate Financial Statements, investment in joint ventures is carried at cost or at fair value. Even if consolidated financial statements are not prepared Similar to IFRS. However, the difference between the reporting dates should not be more than six months. In standalone financials, investment in joint ventures is carried at cost less impairment. Pursuant to the Companies Act 2013, even if the investor has HK:

278 14. Employee benefits recognition of actuarial gains and losses IFRS (e.g. because the investor has no subsidiary), the equity method of accounting must be used. The presentation must show the share of post-tax results. Actuarial gains or losses resulting from remeasurements of the net defined liability should be recognised in other comprehensive income and not reclassified to the profit and loss account in a subsequent period. INDIAN GAAP no subsidiary, consolidated financial statements should be prepared consolidating the associate and using the equity method of accounting. The equity method of accounting is not required in the separate/standalone financial statements of the investor. Actuarial gains or losses should be recognised immediately in the profit and loss account. Any difference between expected returns and actual returns would form part of actuarial gains/losses on assets and is recognised in the profit and loss account. 15. Depreciation Depreciation is allocated on a systematic basis to each accounting period over the useful economic life of the asset, reflecting the pattern in which the entity consumes the asset s benefits. The Companies Act sets out the useful lives based on the nature of the assets and the useful life should not ordinarily be different from that specified by the Companies Act. However, a different useful life may be used if such a difference is disclosed and if a justification, backed by technical advice, is provided on its behalf. 16. Discounting of provisions 17. Provision for constructive obligation Discounting is required for provisions if the effect is material. IAS 37 deals with a constructive obligation in the context of the creation of a provision. The effect of recognising a provision on the basis of constructive obligation is that, in some cases, that provision will be required to be recognised at an early stage. Discounting of provisions is not permitted. No provision is required to be made for a constructive obligation HK:

279 18. Financial assets classification IFRS Financial assets are to be classified as one of the following four categories depending on certain conditions to be satisfied for each category: financial assets at fair value through profit or loss; held-to-maturity investments; loans and receivables; and INDIAN GAAP AS 13, Accounting for Investments, is not applicable to banks. The RBI has given guidelines for the classification of investments into: held-to-maturity; available-for-sale; and held-for-trading. Loans and advances are classified on the basis of RBI guidelines. available-for-sale financial assets. 19. Financial assets measurement Initially, a financial asset is measured at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Subsequent measurement depends on the classification of the financial asset; if held-tomaturity investments and loan receivables, they should be measured at amortised cost using an effective interest method, while other financial assets should be measured at fair value without any deduction for transaction costs. Unrealised gains and losses on fair value through profit or loss classification (including trading securities) are recognised in the income statement. Unrealised gains and losses on availablefor-sale investments are recognised in equity. Investments in equity instruments that do not have a quoted price in an active market and whose fair value cannot be Investments are measured and valued on the basis of the guidelines issued by the RBI from time to time. Loans and advances are measured in accordance with the Income Recognition and Asset Classification norms of the RBI. Investments classified as available-for-sale or held-fortrading are measured at lower of cost or market value, unrealised loss on such investments is accounted through the profit and loss account and those classified as held-to-maturity are measured at weighted average acquisition cost less the amortisation of premium amount, if any, over the remaining period of maturity HK:

280 20. Discounts on the purchase of held-tomaturity securities 21. Financial liabilities classification IFRS reliably measured shall be measured at cost. Discounts on the purchase of held-to-maturity securities are required to be adjusted in the effective interest rate of the security and recognised over the life of the security. There are two categories of financial liability: INDIAN GAAP Based on RBI guidelines, discount is not accreted. The same will be recognised in the profit and loss accounts at the time of sale of the security. There are no classification guidelines for financial liabilities. financial liability at fair value through the profit and loss account; and 22. Financial liabilities measurement financial liability carried at amortised cost. Initially, a financial liability is measured at its fair value plus, in the case of a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the issue of the financial liability. After initial recognition, an entity shall measure all financial liabilities at amortised cost using the effective interest method, except for: Liabilities are recognised based on the legal obligation of the entity. financial liabilities at fair value through profit or loss. Such liabilities, including derivatives that are liabilities, shall be measured at fair value except for a derivative liability that is linked to and must be settled by delivery of an unquoted equity instrument of which the fair value cannot be reliably measured, which shall be measured at cost; and HK:

281 IFRS INDIAN GAAP financial liabilities that arise: i. when a transfer of a financial asset does not qualify for derecognition financial liability is recognised for the consideration received; or ii. when there is a continuing involvement accounted for using the continuing involvement approach. Financial liabilities that are designated as hedged items are subject to measurement under the hedge accounting requirements HK:

282 23. Financial assets reclassification IFRS For Fair Value Through Profit & Loss (FVTPL), reclassification into and out of FVTPL on initial recognition and reclassification of derivatives is prohibited. Held for trading may be reclassified into AFS, HTM and L&R in certain rare circumstances. If a significant amount of HTM is reclassified or sold, the remaining investments in the HTM category are to be reclassified into AFS and no investment can be classified as HTM for a period of two years (also known as tainting ). AFS which would have met the definition of loans and receivables if it had not been designated as AFS, may be transferred into loans and receivables if the entity has the intention and ability to hold the financial asset for the foreseeable future or until maturity. INDIAN GAAP As per the RBI Guidelines, banks may reclassify investments into and out of HTM once a year. Banks may reclassify investments from AFS to HFT. Reclassification of investments from HFT to AFS is allowed in exceptional circumstances. Transfer of investments from one category to another, under all circumstances, should be done at the acquisition cost/book value/market value on the date of transfer, whichever is the least, and the depreciation, if any, on such transfer should be fully provided for. Banks may apply the values as on the date of transfer and, in the event that there are practical difficulties in applying the values as on the date of transfer, banks have the option of applying the values as on the previous working day, in order to arrive at the depreciation requirement on the shifting of securities. 24. Impairment of loans Impairment losses on loans and receivables are recognised when there is a loss event on the basis of individual or collective assessment. Impairment losses are not allowed to be provided for future expected losses. 25. Hedge accounting IAS 39 recognises three types of hedges, namely the fair value hedge, cash flow hedge and net Impairment losses on loans are recognised on the basis of the RBI guidelines. The guidelines prescribe minimum losses to be provided based on the number of days past due of an asset. Losses above the minimum prescribed levels can be provided on the basis of the management estimates. General provisions for standard advances are recognised in accordance with the RBI guidelines. Accounting for interest rate hedges using interest rate derivatives is prescribed by the HK:

283 IFRS investment hedge. Under the fair value hedge, both the hedged instrument and the hedging instrument are carried at fair value through the profit and loss account. For the cash flow hedge and net investment hedge, the effective portion of the fair value movement of the hedged instrument is recognised in Other Comprehensive Income (OCI) with an ineffective portion recognised in the profit and loss account. The fair value movement recorded in OCI is subsequently released to the profit and loss account concurrently with the earnings recognition pattern of the hedged item. 26. Revenue interest Interest income is recognised using the effective interest method. INDIAN GAAP RBI. Hedge accounting for foreign currency risk using forward contracts on recognised assets and liabilities is prescribed under AS 11 (Revised). In the case of interest rate hedges, interest rate swaps are not fair valued. The net interest accrued on the swaps is recognised in the profit and loss account. In the case of forward contracts, the premium paid on the forward contract is amortised over the contract period. Forward contracts are valued using the closing exchange rate. Interest is recognised on a time proportion basis, taking into account the amount outstanding and the rate applicable. However, the interest is recognised on a receipt basis for NPAs as per RBI guidelines. 27. Revenue financial service fees Fees that are an integral part of the effective interest rate of the instrument, for example loan origination, arrangement fees and direct selling agents fees, are deferred and recognised as an adjustment to the effective interest rate. However, when financial instruments are valued at fair value, with changes in fair value being recognised in profit and loss, the fees are recognised as revenue when the instrument is initially recognised. Fees earned from services provided are recognised over the period for which the services are provided. For example, fees charged for servicing a loan are recognised Financial service fees are recognised as revenue depending on whether the service has been provided once for all or is on a continuing basis. Loan origination and arrangement fees are recognised as revenue when the loan has been originated HK:

284 IFRS over the period of the loan. INDIAN GAAP Fees that are earned on the execution of a significant act are recognised when such an act is completed. For example, placement fees for arranging a loan and an investor are recognised when the loan has been arranged. 28. Dividends paid Dividends are recorded as liabilities when declared. 29. Deferred income taxes The balance sheet approach must be used (with some exceptions), by which deferred tax is required to be created for all temporary differences between the tax base and the carrying value of the assets and liabilities. Deferred tax assets are recognised only if their recovery is probable. Further, deferred tax is required to be recognised in the consolidated financial statements for undistributed profits earned from the subsidiaries. Deferred tax is also required to be recognised for unrealised intercompany profits in the consolidated financial statements. Dividends are recorded as liabilities when proposed. Deferred tax is accounted using the income statement approach, which focuses on timing differences. Deferred tax assets and liabilities should be recognised for all timing differences subject to the consideration of prudence in respect of deferred tax assets. For other than specified situations, deferred tax assets are recognised and carried forward only to the extent that there is a reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. No deferred tax is recognised for undistributed profits earned from the subsidiaries or on unrealised profits from intergroup transactions in the consolidated financial statements. 30. Interim financial reporting Not mandatory to prepare interim financial statements but IAS 34 must be used if an entity is required or elects to publish an interim financial report. The basis should be consistent with the full-year statements and should include comparatives. Publicly traded companies are encouraged to provide interim The recognition and measurement principles laid down in Accounting Standard 25 (AS 25 Interim Financial Reporting) are mandatory only for listed companies HK:

285 31. Related party disclosures 32. Employee stock options 33. Business combinations IFRS financial reports. The definition of related parties includes non-executive directors and the remuneration paid to such non-executive directors is required to be disclosed. The grant date fair value of the option is recognised as the employee cost over the vesting period. Business combinations are required to be accounted using the purchase method. The pooling of interest method is prohibited. INDIAN GAAP The definition of related party is narrower. Key managerial persons do not include nonexecutive directors. There is an option to recognise the intrinsic value or the fair value of the option as an employee cost over the vesting period. The pooling of interest method is allowed for amalgamations when certain conditions are met. 34. Securitisation As per IAS 39, securitised loans can be derecognised from the books of account only if substantial risks and rewards have been transferred. Where substantial risks and rewards have neither been transferred substantially nor retained substantially, then the entity should evaluate whether control has been transferred over the asset. Securitised loans are derecognised from the books of account if they meet the true sale criteria as per the RBI guidelines. 35. Qualitative and quantitative disclosures of related to risks IFRS 7 requires both qualitative and quantitative disclosures relating to risks. The RBI guidelines require certain risk-related information to be disclosed as part of Basel III disclosures. Such disclosures are not part of audited financial statements. 36. Segment reporting Operating segments are identified on the basis of the financial information that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Indian GAAP requires an enterprise to identify two sets of segments (namely business and geographical) based on the risks and rewards approach, with the enterprise s system of internal reporting to the key management personnel. This serves as the starting point for the identification of reportable segments. Reporting segments HK:

286 IFRS INDIAN GAAP are identified on the basis of parameters such as revenue, net income, assets and liabilities as prescribed in AS 17 Segment Reporting HK:

287 INDEX TO FINANCIAL STATEMENTS Financial Statements Page Six months ended 30 September 2017 Review Report. F-2 Unaudited Financial Results.. F-3 Summarised Balance Sheet.. F-4 Segmental Results F-6 Financial Statements for the year ended 31 March 2017 Standalone financial statements Independent Auditors Report F-7 Balance Sheet. F-11 Profit and Loss Accounts... F-12 Cash Flow Statement. F-13 Schedules F-15 Consolidated Financial Statements Consolidated Independent Auditors Report. F-77 Consolidated Balance Sheet... F-81 Consolidated Profit and Loss Accounts. F-82 Consolidated Cash Flow Statement F-83 Schedules F-85 Financial Statements for the year ended 31 March 2016 Standalone financial statements Independent Auditors Report F-119 Balance Sheet. F-124 Profit and Loss Accounts... F-125 Cash Flow Statement. F-126 Schedules F-128 Consolidated Financial Statements Consolidated Independent Auditors Report. F-175 Consolidated Balance Sheet... F-179 Consolidated Profit and Loss Accounts. F-180 Consolidated Cash Flow Statement F-181 Schedules F HK:

288 Review Report To the Board of Directors of YES Bank Limited We have reviewed the accompanying Unaudited Standalone Financial Results ('the Statement') of YES Bank Limited ('the Bank') for the quarter and half year ended 30 September 2017, attached herewith, being submitted by the Bank pursuant to the requirement of Regulation 33 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 ( the SEBI Regulations ). Further the disclosures relating to Pillar 3 under Basel III Capital Regulations and those relating to Leverage Ratio, Liquidity Coverage Ratio under Capital Adequacy and Liquidity Standards issued by Reserve Bank of India ( RBI ) as have been disclosed on the Bank's website and in respect of which a link has been provided in the aforesaid Statement have not been reviewed by us. This Statement is the responsibility of the Bank's management and has been approved by the Board of Directors of the Bank in their meeting held on 26 October Our responsibility is to issue a report on the Statement based on our review. We conducted our review in accordance with the Standard on Review Engagement ('SRE') 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Institute of Chartered Accountants of India. This Standard requires that we plan and perform the review to obtain moderate assurance as to whether the Statement is free of material misstatement. A review is limited primarily to inquiries of Bank's personnel and analytical procedures applied to financial data and thus provides less assurance than an audit. We have not performed an audit and accordingly, we do not express an audit opinion. Based on our review conducted as mentioned above, nothing has come to our attention that causes us to believe that the accompanying Statement prepared in accordance with applicable accounting standards specified under Section 133 of the Companies Act 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014 and other recognized accounting practices and policies has not disclosed the information required to be disclosed in terms of Regulation 33 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 including the manner in which it is to be disclosed, or that it contains any material misstatement or that it has not been prepared in accordance with the relevant prudential norms prescribed by the RBI in respect of income recognition, asset classification, provisioning and other related matters. For B S R & Co. LLP Chartered Accountants Firm's Registration No: W/W Manoj Kumar Vijai Mumbai Partner 26 October 2017 Membership No: F-2

289 Sr No. FOR THE QUARTER ENDED FOR THE QUARTER ENDED FOR THE QUARTER ENDED FOR THE HALF YEAR ENDED FOR THE HALF YEAR ENDED (` in Lakhs) FOR THE YEAR ENDED (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) 1 Interest earned (a)+(b)+(c)+(d) 480, , , , ,221 1,642,464 (a) Interest/discount on advances/bills 369, , , , ,133 1,220,977 (b) Income on investments 92,267 90,272 93, , , ,684 (c) Interest on balances with Reserve Bank of India and other inter-bank funds 14,466 17,936 4,863 32,402 7,640 25,782 (d) Others 3,981 3,724 4,861 7,705 8,412 16,021 2 Other Income (Refer Note 6) 124, ,216 92, , , ,676 3 TOTAL INCOME (1+2) 604, , ,223 1,183, ,506 2,058,140 4 Interest Expended 291, , , , ,394 1,062,734 5 Operating Expenses (i)+(ii) 122, ,689 94, , , ,654 (i) Payments to and provisions for employees 56,276 54,611 43, ,887 84, ,504 (ii) Other operating expenses 66,410 69,078 51, , , ,150 6 Total Expenditure (4+5) (excluding provisions and contingencies) 414, , , , ,233 1,474, , , , , , ,752 44,706 28,578 16,167 73,284 36,830 79,341 9 Exceptional Items Profit from ordinary activities before tax ( , , , , , ,411 9) 11 Tax Expense 45,688 45,290 42,275 90,978 79, , Net profit from Ordinary Activities after tax (10-11) 100,273 96,552 80, , , , Extraordinary Items (Net of tax) NET PROFIT (12-13) 100,273 96,552 80, , , , Paid-up equity Share Capital (Face value of ` 2 each) 45,814 45,749 42,166 45,814 42,166 45, (i) Operating Profit (before Provisions and Contingencies)(3-6) Provisions (other than Tax expense) and Contingencies (net) Analytical ratios : Percentage of Shares held by Government of India 2,159,757 Nil Nil Nil Nil Nil Nil (ii) Capital Adequacy ratio - Basel III 17.0% 17.1% 14.1% 17.0% 14.1% 17.0% (iii) Earning per share for the period / year (before and after extraordinary items) - Basic ` - Diluted ` YES BANK Limited Regd. Office : Nehru Centre, 9th Floor, Discovery of India Building, Dr. A. B. Road, Worli, Mumbai , India. Website: UNAUDITED FINANCIAL RESULTS FOR THE QUARTER AND HALF YEAR ENDED SEPTEMBER 30, 2017 PARTICULARS Reserves & Surplus excluding revaluation reserves Not Annualized Not Annualized Not Annualized Not Annualized Not Annualized Annualized (iv) NPA ratios- (a) Gross NPA 272, ,438 91, ,034 91, ,856 (b) Net NPA 154,326 54,531 32, ,326 32, ,227 (c) % of Gross NPA 1.82% 0.97% 0.83% 1.82% 0.83% 1.52% (d) % of Net NPA 1.04% 0.39% 0.29% 1.04% 0.29% 0.81% (v) Return on assets (average) (annualized) 1.7% 1.8% 1.8% 1.7% 1.7% 1.8% F-3

290 PARTICULARS SUMMARISED BALANCE SHEET (` in Lakhs) At At At (Unaudited) (Unaudited) (Audited) CAPITAL AND LIABILITIES Capital Reserves and surplus Deposits Borrowings Other liabilities and provisions Total 45,814 42,166 45,649 2,295,604 1,494,854 2,159,757 15,798,982 12,802,376 14,287,386 4,482,996 3,458,852 3,860,667 1,116, ,626 1,152,533 23,739,408 18,730,875 21,505,992 ASSETS Cash and balances with Reserve Bank of India 763, , ,207 Balances with banks and money at call and short notice 1,351, ,315 1,259,737 Investments 5,390,776 4,957,385 5,003,180 Advances 14,867,528 11,021,623 13,226,268 Fixed assets 72,663 54,519 68,354 Other assets 1,293,454 1,072,058 1,253,246 Total 23,739,408 18,730,875 21,505,992 Notes: 1. The results have been taken on record by the Board of Directors of the Bank at its meeting held in Mumbai today. The results have been subject to Limited Review by the Statutory Auditors of the Bank. There are no qualifications in the auditor's review report for the quarter and half year ended September 30, The shareholders of the Bank have approved the sub-division of each equity share having a face value of 10 into five equity shares having a face value of 2 each through postal ballot on September 8, The record date for the sub-division was September 22, All shares and per share information in the financial results reflect the effect of sub-division for each of period presented. During the quarter ended September 30, 2017, the Bank allotted 32,27,187 shares and 82,70,572 shares respectively, pursuant to the exercise of stock options by employees. During the quarter ended September 30, 2017, the Bank has raised ` 250,000 Lakhs of Basel III Compliant Additional Tier-2 Bonds. During the quarter ended September 30, 2017, the Bank has made ` 5,500 Lakhs investment in Yes Asset Management Company India limited (AMC) and ` 50 Lakhs in Yes Trustee Limited Other income includes fees and commission earned from guarantees/letters of credit, loans, financial advisory fees, selling of third party products, earnings from foreign exchange transactions and profit/loss from sale of securities. Return on assets is computed using a simple average of total assets at the beginning and at the end of the relevant period. During the quarter ended June 30, 2017, the Bank has made certain modifications to its Master Rating scale and Credit Labeling mechanism for establishing additional general provision on standard advances and has fully adopted the requirements of RBI s circular dated April 18, 2017 Ref no RBI/ /282-DBR.No.BP.BC.64/ / that requires banks to make provisions at higher rates in respect of standard advances to stressed sectors of the economy. Also, the Bank has made provision on accounts under the Insolvency and Bankruptcy Code (IBC) as identified by RBI, ahead of schedule. The above changes have resulted in incremental one time general provision of Rs. 10,053 lakhs. 9 The disclosures for NPA referred to in point 17(iv) above correspond to Non Performing Advances. 10 In accordance with RBI circular DBR.No.BP.BC.1/ / dated July 1, 2015 on 'Basel III Capital Regulations' read together with RBI circular DBR.No.BP.BC80/ / dated March 31, 2015 on 'Prudential Guidelines on Capital Adequacy and Liquidity Standards - Amendments' requires banks to make applicable Pillar 3 disclosures including leverage ratio and liquidity coverage ratio under Basel III Framework. The Pillar III disclosures have not been subjected to review by the statutory auditors. The Bank has made these disclosures which are available on its website at the following link. F-4

291 11 Divergence in Asset Classification and Provisioning for NPAs The Bank classifies performing and non-performing advances (NPAs) as per the RBI's Prudential Norms on Income recognition, Asset Classification and Provisioning. Based on application of RBI's prudential norms as stated above, the Bank classified and made the prescribed provisions against the NPAs as at the end of 31st March, As part of the Risk Based Supervision (RBS) exercise for FY concluded in October 2017, the RBI has pointed out certain retrospective divergence in the Bank's asset classification and provisioning as on 31st March 2017, for NPAs. In conformity with the RBI circulars DBR.BP.BC.NO.63/ / issued on April 18, 2017, SEBI circular issued on July 18, 2017 and as per approval from the Board of Directors at its Board Meeting held on October 26, 2017, the below table outlines divergences in asset classification and provisioning. Sr. Particulars (` in Crores) 1 Gross NPAs as on March 31, 2017 as reported by the Bank 2, Gross NPAs as on March 31, 2017 as assessed by RBI 8, Divergence in Gross NPAs (2-1) 6, Net NPAs as on March 31, 2017 as reported by the Bank 1, Net NPAs as on March 31, 2017 as assessed by RBI 5, Divergence in Net NPAs (5-4) 4, Provision for NPAs as on March 31, 2017 as reported by the Bank Provision for NPAs as on March 31, 2017 as assessed by RBI 2, Divergence in provisioning (8-7) 1, Reported Net Profit after Tax (PAT) for the year ended March 31, , Adjusted (notional) Net Profit after Tax (PAT) for the year ended March 31, 2017 after taking into account the divergence in provisioning 2,316.1 The net current impact of the aforementioned retrospective slippages due to divergence noted by RBI in October 2017 has been duly reflected in the results for the quarter and half year ended September 30, Out of the total divergence current position as on September 30, 2017 is as under: Particulars Net Repayments (In full / partial) Resolution on account of Sale to an Asset Reconstruction Company Outstanding as on September 30, 2017: a) Upgraded as Standard on account of satisfactory account conduct b) Classified as NPA Total (` in Crores) % 1, % % 2, % 1, % 6, As the business of the Bank is concentrated in India; the segment disclosures made pertain to domestic segment. 13 The Bank has followed the same significant accounting policies in the preparation of these financial results as those followed in the annual financial statement for the year ended March 31, 2017, other than the change specified in point Previous period figures have been regrouped /reclassified wherever necessary to conform to current period classification. F-5

292 Sr No PARTICULARS FOR THE QUARTER ENDED SEGMENTAL RESULTS FOR THE QUARTER ENDED FOR THE QUARTER ENDED FOR THE HALF YEAR ENDED FOR THE HALF YEAR ENDED (` in Lakhs) FOR THE YEAR ENDED (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) 1 (a) Segment revenue Treasury 160, , , , , ,757 (b) Corporate Banking 391, , , , ,563 1,321,538 (c) Retail Banking 66,577 63,504 49, ,081 91, ,508 (d) Other Banking Operations 4,021 4,111 3,023 8,132 5,152 16,498 (e) Unallocated (65) 13 (12) (52) (6) 7 TOTAL 622, , ,666 1,218, ,885 2,071,308 Add / (Less): Inter Segment Revenue (17,517) (17,796) (443) (35,313) 1,621 (13,168) Income from Operations 604, , ,223 1,183, ,506 2,058,140 2 (a) Segmental Results Treasury 77,035 89,970 66, , , ,038 (b) Corporate Banking 114, ,448 84, , , ,483 (c) Retail Banking (15,979) (23,002) (12,871) (38,981) (33,442) (67,143) (d) Other Banking Operations 1,804 2,498 1,664 4,302 2,693 11,141 (e) Unallocated (30,952) (38,072) (17,269) (69,024) (41,150) (101,108) Profit before Tax 145, , , , , ,411 3 (a) Segment Assets Treasury 8,274,681 7,700,565 7,307,369 8,274,681 7,307,369 7,817,700 (b) Corporate Banking 12,685,648 12,053,012 9,695,723 12,685,648 9,695,723 11,677,318 (c) Retail Banking 2,633,683 2,336,527 1,647,756 2,633,683 1,647,756 1,909,124 (d) Other Banking Operations 2, , ,638 (e) Unallocated 142, ,439 79, ,926 79,062 99,212 Total 23,739,408 22,214,517 18,730,875 23,739,408 18,730,875 21,505,992 4 (a) Segment Liabilities Treasury 4,798,078 4,331,505 4,180,700 4,798,078 4,180,700 4,370,902 (b) Corporate Banking 9,623,642 9,126,398 7,994,990 9,623,642 7,994,990 8,732,631 (c) Retail Banking 6,524,583 6,068,835 4,895,379 6,524,583 4,895,379 5,773,999 (d) Other Banking Operations 12,858 10,308 16,976 12,858 16,976 11,677 (e) Unallocated 438, , , , , ,377 Capital and Reserves 2,341,418 2,238,742 1,537,020 2,341,418 1,537,020 2,205,406 Total 23,739,408 22,214,517 18,730,875 23,739,408 18,730,875 21,505,992 SEGMENT Treasury Corporate Banking Retail Banking Other Banking Operations PRINCIPAL ACTIVITIES Includes investments, all financial markets activities undertaken on behalf of the Bank's customers, proprietary trading, maintenance of reserve requirements and resource mobilisation from other banks and financial institutions. Includes lending, deposit taking and other services offered to corporate customers. Includes lending, deposit taking and other services offered to retail customers. Includes para banking activities like third party product distribution, merchant banking etc. Place: Mumbai Date: October 26, 2017 For YES BANK Limited Rana Kapoor Managing Director & CEO F-6

293 INDEPENDENT AUDITORS REPORT To, The Members of Yes Bank Limited REPORT ON THE STANDALONE FINANCIAL STATEMENTS We have audited the accompanying standalone financial statements of YES BANK LIMITED ( the Bank ), which comprise the Balance Sheet as at March 31, 2017, the Profit and Loss Account, the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information. MANAGEMENT S RESPONSIBILITY FOR THE STANDALONE FINANCIAL STATEMENTS The Bank s Board of Directors is responsible for the matters stated in Section 134 (5) of the Companies Act, 2013 ( the Act ) with respect to the preparation of these standalone financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Bank in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014, provisions of Section 29 of the Banking Regulation Act, 1949 and the circulars, guidelines and directions issued by the Reserve Bank of India ( RBI ) from time to time. This responsibility also includes maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Bank and for preventing and detecting frauds and other irregularities; selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and the design, implementation and maintenance of internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on these standalone financial statements based on our audit. We have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act, and the Rules, made thereunder. We conducted our audit in accordance with the Standards on Auditing ( the Standards ) specified under Section 143 (10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risk of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Bank s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Bank s Directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the standalone financial statements. OPINION In our opinion and to the best of our information and according to the explanations given to us, the aforesaid standalone financial statements give the information required by the Banking Regulation Act, 1949 as well F-7

294 as the relevant requirements of the Companies Act, 2013, in the manner so required for banking companies and give a true and fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of the Bank as at 31 March 2017, its profit and its cash flows for the year then ended on that date. OTHER MATTERS The standalone financial statements of the Bank for the year ended March 31, 2016 were audited by another auditor who expressed an unmodified opinion on those statements on 27 April REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS The Balance Sheet and Profit and Loss Account have been drawn up in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949 read with Section 133 of the Companies Act, 2013 read with the Rule 7 of the Companies (Accounts) Rules, As required by sub section (3) of Section 30 of the Banking Regulation Act, 1949, we report that: (a) we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purpose of our audit and have found them to be satisfactory; (b) (c) the transactions of the Bank, which have come to our notice, have been within the powers of the Bank; and since the key operations of the Bank are automated with the key applications integrated to the core banking systems, the audit is carried out centrally as all the necessary records and data required for the purposes of our audit are available therein. During the course of our audit we have visited 22 branches. The disclosure required on holdings as well as dealings in Specified Bank Notes during the period from November 08, 2016 to December 30, 2016 as envisaged in notification GSR 308(E) dated March 30, 2017 issued by the Ministry of Corporate Affairs, is not applicable to the Bank. Refer note to the financial statements. Further, as required by Section 143 (3) of the Companies Act, 2013, we further report that: (a) we have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; (b) in our opinion, proper books of account as required by law have been kept by the Bank so far as it appears from our examination of those books; (c) the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in agreement with the books of account; (d) in our opinion, the aforesaid standalone financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, (e) on the basis of the written representations received from the directors as on March 31, 2017 taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2017 from being appointed as a director in terms of Section 164 (2) of the Act. (f) with respect to the adequacy of the internal financial controls over financial reporting of the Bank and the operating effectiveness of such controls, refer to our separate Report in Annexure A ; F-8

295 (g) with respect to the other matters to be included in the Auditor s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us: (i) The Bank has disclosed the impact of pending litigations on its financial position in its financial statements - Refer Note to the financial statements; (ii) The Bank has made provision, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer Note to the financial statements; and (iii) there has been no delay in transferring amounts, required to be transferred, to the Investor Education and Protection Fund by the Bank. For B S R & Co. LLP Chartered Accountants Firm s Registration No W/W Manoj Kumar Vijai Mumbai Partner April 19, 2017 Membership No ANNEXURE A TO THE INDEPENDENT AUDITOR S REPORT OF EVEN DATE ON THE STANDALONE FINANCIAL STATEMENTS OF YES BANK LIMITED Report on the Internal Financial Controls under clause (i) of sub-section 3 of Section 143 of the Companies Act, 2013 We have audited the internal financial controls over financial reporting of YES Bank Limited ( the Bank ) as at March 31, 2017 in conjunction with our audit of the standalone financial statements of the Bank for the year ended on that date. MANAGEMENT S RESPONSIBILITY FOR INTERNAL FINANCIAL CONTROLS The Bank s Board of Directors is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Bank considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting ( the Guidance Note ) issued by the Institute of Chartered Accountants of India ( the ICAI ). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to Bank s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013 ( the Act ). AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on the Bank s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note and the Standards on Auditing ( the Standards ), issued by the ICAI and deemed to be prescribed under section 143(10) of the Act, to the extent applicable to an audit of internal financial controls, both issued by the ICAI. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects. F-9

296 ANNEXURE A TO THE INDEPENDENT AUDITOR S REPORT OF EVEN DATE ON THE STANDALONE FINANCIAL STATEMENTS OF YES BANK LIMITED Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Bank s internal financial controls system over financial reporting. MEANING OF INTERNAL FINANCIAL CONTROLS OVER FINANCIAL REPORTING A Bank s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A Bank s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the bank; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the bank are being made only in accordance with authorizations of management and directors of the Bank; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Bank s assets that could have a material effect on the financial statements. INHERENT LIMITATION OF INTERNAL FINANCIAL CONTROL OVER FINANCIAL REPORTING Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. OPINION In our opinion, the Bank has, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31, 2017, based on the internal control over financial reporting criteria established by the Bank considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the ICAI. For B S R & Co. LLP Chartered Accountants Firm s Registration No W/W Manoj Kumar Vijai Mumbai Partner April 19, 2017 Membership No F-10

297 BALANCE SHEET AS AT MARCH 31, 2017 ( ` in thousands) Schedule As at As at March 31, 2017 March 31, 2016 CAPITAL AND LIABILITIES Capital 1 4,564,858 4,205,316 Reserves and surplus 2 215,975, ,660,671 Deposits 3 1,428,738,567 1,117,195,331 Borrowings 4 386,066, ,589,769 Other liabilities and provisions 5 115,253,287 80,983,031 ASSETS TOTAL 2,150,599,177 1,652,634,118 Cash and balances with Reserve Bank of India 6 69,520,697 57,761,643 Balances with banks and money at call and short notice 7 125,973,744 24,422,604 Investments 8 500,317, ,384,656 Advances 9 1,322,626, ,099,270 Fixed assets 10 6,835,385 4,707,177 Other assets ,324,599 95,258,768 TOTAL 2,150,599,177 1,652,634,118 Contingent liabilities 12 3,795,641,601 3,312,391,973 Bills for collection 13,900,033 15,588,740 Significant Accounting Policies and Notes to Accounts forming 18 part of financial statements As per our report of even date attached. For B S R & Co. LLP Chartered Accountants ICAI Firm Registration No: W/W For and on behalf of the Board of Directors YES BANK Limited Manoj Kumar Vijai Rana Kapoor Ashok Chawla Ajai Kumar Partner Managing Director & CEO Non-Executive Director Independent Chairman Membership No (DIN: ) (DIN: ) (DIN: ) Vasant V. Gujarathi Rajat Monga Shivanand R. Shettigar Mumbai Director Chief Financial Officer Company Secretary April 19, 2017 (DIN: ) F-11

298 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2017 (` in thousands) For the year For the year Schedule ended ended March 31, 2017 March 31, 2016 I. INCOME Interest earned ,246, ,334,419 Other income 14 41,567,569 27,121,472 II. TOTAL 205,814, ,455,891 EXPENDITURE Interest expended ,273,367 89,667,193 Operating expenses 16 41,165,410 29,763,714 Provisions and contingencies 17 25,074,265 17,630,518 TOTAL 172,513, ,061,425 III. PROFIT Net profit for the year 33,300,964 25,394,466 Profit brought forward 55,446,801 42,200,505 TOTAL 88,747,765 67,594,971 IV. APPROPRIATIONS Transfer to Statutory Reserve 8,325,241 6,348,617 Transfer to Capital Reserve 1,082, ,827 Transfer to Investment Reserve - - Dividend paid for previous year 4,665 2,740 Tax on Dividend paid for previous year Proposed Dividend (refer note ) - 4,205,316 Tax (including surcharge and education cess) on - 856,202 Dividend (refer note ) Balance carried over to balance sheet 79,333,915 55,446,801 TOTAL 88,747,765 67,594,971 Significant Accounting Policies and Notes to 18 Accounts forming part of financial statements Earning per share (Refer Sch ) Basic (`) Diluted (`) (Face Value of Equity Share is ` 10/-) As per our report of even date attached. For B S R & Co. LLP Chartered Accountants ICAI Firm Registration No: W/W For and on behalf of the Board of Directors YES BANK Limited Manoj Kumar Vijai Rana Kapoor Ashok Chawla Ajai Kumar Partner Managing Director & CEO Non-Executive Director Independent Chairman Membership No (DIN: ) (DIN: ) (DIN: ) Vasant V. Gujarathi Rajat Monga Shivanand R. Shettigar Mumbai Director Chief Financial Officer Company Secretary April 19, 2017 (DIN: ) F-12

299 CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2017 CASH FLOW FROM OPERATING ACTIVITIES (` in thousands) Year ended Year ended March 31,2017 March 31,2016 NET PROFIT BEFORE TAXES 50,441,173 37,661,977 ADJUSTMENT FOR Depreciation for the year 1,712,519 1,105,553 Amortization of premium on investments 789, ,580 Provision for investments 522,117 25,337 Provision for standard advances 831, ,558 Provision/write off of non performing advances 6,634,414 4,979,020 Other provisions (176,774) (19,826) (Profit) / Loss from sale of fixed assets (182) (944) 60,754,249 44,654,255 ADJUSTMENTS FOR : Increase / (Decrease) in Deposits 311,543, ,436,849 Increase/(Decrease) in Other Liabilities 39,828,371 11,185,814 (Increase)/Decrease in Investments 27,645,612 (18,915,997) (Increase)/Decrease in Advances (347,161,913) (231,580,128) (Increase)/Decrease in Other assets (30,073,864) (114,305) 1,781,442 (33,987,767) Payment of direct taxes (18,749,191) (13,585,376) Net cash generated from / used in operating activities (A) 43,786,500 (2,918,888) CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets (3,876,000) (2,644,183) Proceeds from sale of fixed assets 35,459 22,075 (Increase) / Decrease in Held To Maturity (HTM) securities (40,890,641) (37,730,647) Net cash generated / used in from investing activities (B) (44,731,182) (40,352,755) F-13

300 CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2017 CASH FLOW FROM FINANCING ACTIVITIES (` in thousands) Year ended Year ended March 31,2017 March 31,2016 Increase in Borrowings 43,568,618 14,684,240 Tier II Debt raised - 38,992,000 Innovative Perpetual Debt raised 30,000,000 - Tier II Debt repaid during the year (3,786,000) - Proceeds from issuance of Equity Shares (net of share issue expense) 49,576, ,511 Dividend paid during the year (4,209,981) (3,762,365) Tax on dividend (857,152) (765,928) Net cash generated from / used in financing activities (C) 114,292,110 49,887,457 Effect of exchange fluctuation on translation reserve (D) (37,234) (3,083) Net increase in cash and cash equivalents (A+B+C+D) 113,310,194 6,612,731 Cash and cash equivalents as at April 1 82,184,247 75,571,516 Cash and cash equivalents as at Mar ,494,441 82,184,247 NOTES TO THE CASH FLOW STATEMENT: Cash and cash equivalents includes the following Cash and Balances with Reserve Bank of India 69,520,697 57,761,643 Balances with Banks and Money at Call and Short Notice 125,973,744 24,422,604 Cash and cash equivalents as at March ,494,441 82,184,247 As per our report of even date attached. For B S R & Co. LLP Chartered Accountants ICAI Firm Registration No: W/W For and on behalf of the Board of Directors YES BANK Limited Manoj Kumar Vijai Rana Kapoor Ashok Chawla Ajai Kumar Partner Managing Director & CEO Non-Executive Director Independent Chairman Membership No (DIN: ) (DIN: ) (DIN: ) Vasant V. Gujarathi Rajat Monga Shivanand R. Shettigar Mumbai Director Chief Financial Officer Company Secretary April 19, 2017 (DIN: ) F-14

301 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS SCHEDULE 1 - CAPITAL AUTHORIZED CAPITAL (` in thousands) As at As at March 31, 2017 March 31, ,000,000 equity shares of ` 10/- each 6,000,000 6,000,000 20,000,000 preference shares of ` 100/- each 2,000,000 - ISSUED, SUBSCRIBED AND PAID-UP CAPITAL 456,485,813 equity shares of ` 10/- each 4,564,858 4,205,316 (March 31, 2016 : 420,531,641 equity shares of ` 10/- each) [Refer Sch ] TOTAL 4,564,858 4,205,316 (` in thousands) As at As at March 31, 2017 March 31, 2016 SCHEDULE 2 - RESERVES AND SURPLUS I. STATUTORY RESERVES Opening balance 25,746,753 19,398,136 Additions during the year 8,325,241 6,348,617 Deductions during the year - - Closing balance 34,071,994 25,746,753 II. SHARE PREMIUM Opening balance 49,462,165 48,750,609 Additions during the year [Refer Sch ] 49,717, ,556 Deductions during the year [Refer Sch ] 500,000 - Closing balance 98,679,248 49,462,165 III. CAPITAL RESERVE Opening balance 2,781,838 2,047,011 Additions during the year [Refer Sch ] 1,082, ,827 Deductions during the year - - Closing balance 3,864,833 2,781,838 IV. INVESTMENT RESERVE Opening balance 226, ,197 Additions during the year - - Deductions during the year - - Closing balance 226, ,197 V. FOREIGN CURRENCY TRANSLATION RESERVE Opening balance (3,083) - Additions during the year (37,234) (3,083) Deductions during the year - - Closing balance (40,317) (3,083) F-15

302 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS (` in thousands) As at As at March 31, 2017 March 31, 2016 VI. CASH FLOW HEDGE RESERVE Opening balance - - Additions during the year [Refer Sch ] (160,135) - Deductions during the year - - Closing balance (160,135) - VII. BALANCE IN PROFIT AND LOSS ACCOUNT 79,333,915 55,446,801 TOTAL 215,975, ,660,671 (` in thousands) As at As at March 31, 2017 March 31, 2016 SCHEDULE 3 - DEPOSITS A. I. DEMAND DEPOSITS i) From Banks 10,543,996 8,430,375 ii) From Others 180,334, ,820,390 II. SAVINGS BANK DEPOSIT 327,818, ,176,990 III. TERM DEPOSITS i) From banks 78,421,060 65,233,073 ii) From others 831,621, ,534,503 TOTAL 1,428,738,567 1,117,195,331 B. I. DEPOSITS OF BRANCHES IN INDIA 1,428,635,283 1,117,195,331 II. DEPOSITS OF BRANCHES OUTSIDE INDIA 103,284 - TOTAL 1,428,738,567 1,117,195,331 F-16

303 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS SCHEDULE 4 - BORROWINGS I. INNOVATIVE PERPETUAL DEBT INSTRUMENTS (IPDI) AND TIER II DEBT A. BORROWING IN INDIA (` in thousands) As at As at March 31, 2017 March 31, 2016 i) IPDI 37,410,000 7,410,000 ii) Tier II Borrowings 84,828,000 88,614,000 B. BORROWINGS OUTSIDE INDIA II. TOTAL (A) 122,238,000 96,024,000 i) IPDI 324, ,275 ii) Tier II Borrowings 10,969,876 11,268,509 OTHER BORROWINGS* A. BORROWINGS IN INDIA TOTAL (B) 11,294,126 11,599,784 TOTAL (A+B) 133,532, ,623,784 i) Reserve Bank of India - 10,000,000 ii) Other banks 21,818,909 19,520,000 iii) Other institutions and agencies ** 81,117,555 84,915,827 TOTAL (A) 102,936, ,435,827 B. BORROWINGS OUTSIDE INDIA 149,598,140 94,530,158 *Secured borrowings are ` 14,198,629 (March 31, 2016 : ` 17,994,327 thousands). **Including refinance borrowing. TOTAL (A+B) 252,534, ,965,985 TOTAL (I+II) 386,066, ,589,769 ( ` in thousands) As at As at March 31, 2017 March 31, 2016 SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS I. BILLS PAYABLE 5,925,696 3,169,468 II. INTER-OFFICE ADJUSTMENTS (NET) - - III. INTEREST ACCRUED 14,787,213 13,064,990 IV. OTHERS (INCLUDING PROVISIONS) -Provision for standard advances 7,806,482 6,975,086 - Country risk provision Others 86,733,896 57,773,487 TOTAL 115,253,287 80,983,031 F-17

304 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA (` in thousands) As at As at March 31, 2017 March 31, 2016 I. Cash in hand 5,705,440 4,124,093 II. Balances with Reserve Bank of India - In current account 63,815,257 53,637,550 - In other account - - TOTAL 69,520,697 57,761,643 SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE I. IN INDIA BALANCES WITH BANKS- II. (` in thousands) As at As at March 31, 2017 March 31, 2016 i) In current accounts 615, ,996 ii) In other deposit accounts MONEY AT CALL AND SHORT NOTICE i) With Banks 6,400,000 - ii) With other institutions - - iii) Lending under reverse repo (RBI & Banks) 77,533,403 4,253,505 TOTAL (I) 84,548,581 4,809,572 OUTSIDE INDIA i) In current account 22,618,582 17,294,107 ii) In other deposit account - - iii) Money at call and short notice 18,806,581 2,318,925 TOTAL (II) 41,425,163 19,613,032 TOTAL (I+II) 125,973,744 24,422,604 F-18

305 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS SCHEDULE 8 - INVESTMENTS (NET OF PROVISIONS) A. INVESTMENTS IN INDIA (` in thousands) As at As at March 31, 2017 March 31, 2016 i) Government Securities 354,804, ,862,551 ii) Other approved securities - - iii) Shares 2,369, ,162 iv) Debentures and bonds 110,453,002 95,154,141 v) Subsidiaries and/or joint ventures 500, ,000 vi) Others (CPs, CDs, Pass through certificates etc) 30,438,101 40,239,802 B. INVESTMENTS OUTSIDE INDIA TOTAL (I) 498,565, ,384,656 i) Government Securities 322,750 - ii) Debentures and bonds 1,430,000 - TOTAL (II) 1,752,750 - TOTAL (I+II) 500,317, ,384,656 (` in thousands) As at As at March 31, 2017 March 31, 2016 SCHEDULE 9 - ADVANCES A. i) Bills purchased and discounted 15,592,229 13,618,402 ii) Cash credit, overdrafts and loans payable on demand 285,619, ,961,280 iii) Term loans 1,021,415, ,519,588 TOTAL 1,322,626, ,099,270 B. i) Secured by tangible assets (includes advances secured by fixed deposits and book debt) 971,727, ,383,226 ii) Covered by Bank/Government guarantees 9,982,743 3,162,345 iii) Unsecured (Note 1 and 2) 340,916, ,553,699 TOTAL 1,322,626, ,099,270 1 Includes advances of ` 194,674,665 thousands (March 31, 2016 ` 131,205,302 thousands) for which security documentation is either being obtained or being registered. 2 There are no outstanding advances as at March 31, 2017 and March 31, 2016 for which only intangible securities such as charge over the rights, licenses, authority, etc has been taken. C. I. ADVANCES IN INDIA i) Priority sectors 291,727, ,143,459 ii) Public sector 611,812 47,396 iii) Banks 1,336, ,657 iv) Others 968,611, ,038,944 TOTAL (I) 1,262,286, ,109,456 F-19

306 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS (` in thousands) As at As at March 31, 2017 March 31, 2016 II. ADVANCES OUTSIDE INDIA i) Due from Banks 803,409 1,977,769 ii) Due from Others (a) Bills purchased and discounted - - (b) Syndicated loans 59,536,596 13,012,045 (c) others - - TOTAL (II) 60,340,005 14,989,814 TOTAL (I+II) 1,322,626, ,099,270 SCHEDULE 10 - FIXED ASSETS (` in thousands) As at As at March 31, 2017 March 31, 2016 I. Premises At cost as on March 31st of preceding year - - Additions during the year 378,031 - Deductions during the year - - Accumulated depreciation to date (2,101) - TOTAL (I) 375,930 - II. Other Fixed Assets (including furniture and fixtures and software) At cost as on March 31st of preceding year 8,509,222 6,279,886 Additions during the year 3,338,916 2,312,161 Deductions during the year (102,425) (82,825) Accumulated depreciation to date (6,033,004) (4,389,738) TOTAL (II) 5,712,709 4,119,484 TOTAL (I+II) 6,088,639 4,119,484 Capital work-in-progress 746, ,693 TOTAL 6,835,385 4,707,177 F-20

307 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS SCHEDULE 11 - OTHER ASSETS (` in thousands) As at As at March 31, 2017 March 31, 2016 I. Interest Accrued 20,753,822 18,767,567 II. Advance tax and tax deducted at source (net of provision) 1,170, ,824 III. Deferred tax asset [Refer Sch ] 6,029,821 4,774,497 IV. Non-Banking assets aquired in satisfaction of claims 427, ,030 V. Others 96,943,245 70,447,850 Total 125,324,599 95,258,768 SCHEDULE 12 - CONTINGENT LIABILITIES (` in thousands) As at As at March 31, 2017 March 31, 2016 I. Claims against the bank not acknowledged as debts 59,375 9,867 II. Liability for partly paid investments - - III. Liability on account of outstanding forward exchange contracts 1,633,440,599 1,765,909,841 IV. Liability on account of outstanding derivative contracts - Single currency Interest Rate Swap 900,717, ,202,393 - Others 557,600, ,521,505 V. Guarantees given on behalf on constituents - In India 238,664, ,664,535 - Outside India - - VI. Acceptances, endorsement and other obligations 319,204, ,500,743 VII. Other items for which the bank is contingently liable - Value dated purchase of securities 2,375, ,714 - Capital commitment 1,664, ,221 -Amount deposited with RBI under Depositor Education and Awareness Fund (DEAF) 4, Foreign exchange contracts (Tom & Spot) 141,909, ,389,795 TOTAL 3,795,641,601 3,312,391,973 Liability on account of outstanding forward exchange contracts as on March 31, 2017 includes notional amount of ` 1,168,538, thousands (Previous year: ` 1,352,010, thousands) guarnteed by CCIL representing 71.54% (Previous year: 76.56%) of total outstanding forward exchange contracts. F-21

308 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS SCHEDULE 13 - INTEREST EARNED (` in thousands) For the year For the year ended ended March 31, 2017 March 31, 2016 I. Interest/discount on advances/bills 122,097,659 97,114,786 II. Income on investments 37,968,422 35,082,091 III. Interest on balances with Reserve Bank of India and other inter-bank funds 2,578,210 1,125,449 IV. Others 1,602,146 2,012,093 TOTAL 164,246, ,334,419 SCHEDULE 14 - OTHER INCOME (` in thousands) For the year For the year ended ended March 31, 2017 March 31, 2016 I. Commission, exchange and brokerage 31,399,553 24,591,689 II. Profit on the sale of investments (net) 7,112,679 2,606,392 III. Profit/(Loss) on the revaluation of investments (net) - - IV. Profit/(Loss) on sale of land, building and other assets V. Profit on exchange transactions (net) 1,018,902 (175,559) VI. Income earned by way of dividends etc. from subsidiaries, companies - - and/or joint ventures abroad/in India VII. Miscellaneous income 2,036,253 98,006 TOTAL 41,567,569 27,121,472 SCHEDULE 15 - INTEREST EXPENDED (` in thousands) For the year For the year ended ended March 31, 2017 March 31, 2016 I. Interest on deposits 82,040,497 71,784,174 II. Interest on Reserve Bank of India / inter-bank borrowings / Tier I and 22,242,771 16,456,711 Tier II debt instruments III. Others 1,990,099 1,426,308 TOTAL 106,273,367 89,667,193 F-22

309 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS SCHEDULE 16 - OPERATING EXPENSES (` in thousands) For the year For the year ended ended March 31, 2017 March 31, 2016 I. Payments to and provisions for employees 18,050,433 12,968,018 II. Rent, taxes and lighting 3,791,818 3,047,480 III. Printing and stationery 271, ,157 IV. Advertisement and publicity 1,004, ,453 V. Depreciation on Bank's property 1,712,519 1,105,553 VI. Directors' fees, allowances and expenses 29,152 12,373 VII. Auditors' fees and expenses 13,000 9,292 VIII. Law charges 36,745 21,958 IX. Postage, telegrams, telephones, etc. 485, ,093 X. Repairs and maintenance 202, ,767 XI. Insurance 1,196, ,260 XII. Other expenditure 14,371,123 10,125,310 TOTAL 41,165,410 29,763,714 SCHEDULE 17 - PROVISIONS & CONTINGENCIES (` in thousands) For the year For the year ended ended March 31, 2017 March 31, 2016 I. Provision for taxation [Refer Sch ] 17,140,211 12,267,511 II. Provision for investments 522,117 25,337 III. Provision for standard advances 831, ,558 IV. Provision/write off for non performing advances 6,634,414 4,979,020 V. Other Provisions (53,873) (22,908) TOTAL 25,074,265 17,630,518 F-23

310 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS 18. SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, BACKGROUND YES BANK Limited (the Bank or YES BANK ) is a private sector bank promoted by the late Mr. Ashok Kapur and Mr. Rana Kapoor. YES BANK is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK is a banking company governed by the Banking Regulation Act, The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, The Bank received the licence to commence banking operations from the Reserve Bank of India ( RBI ) on May 24, Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, BASIS OF PREPARATION The financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, The accounting and reporting policies of the Bank used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 and Companies (Accounting Standards) Amendment Rules, 2016 to the extent applicable and practices generally prevalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention, except in the case of interest income on non-performing assets (NPAs), loans under strategic debt restructuring (SDR) and Sustainable Structuring of Stressed Assets (S4A) scheme of RBI where it is recognized upon realization USE OF ESTIMATES The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods SIGNIFICANT ACCOUNTING POLICIES SIGNIFICANT CHANGES IN ACCOUNTING POLICY PROPOSED DIVIDEND: In terms of revised Accounting Standard (AS) 4 Contingencies and Events occurring after the Balance sheet date as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, dated March 30, 2016, Bank has not accounted for proposed dividend as a liability as at March 31, Proposed Dividend was however accounted for as a liability as at March 31, 2016 in line with the existing accounting standard applicable at that time. The Board of Directors of the Bank has recommended a dividend of ` 12 per equity share for approval by shareholders at the 13th Annual General Meeting. If approved the total liability arising to the Bank would be ` 6, millions, including dividend tax (previous year ` 5, millions). The actual dividend payout may however change due to equity shares exercised by employees between the end of the financial year and the dividend declaration date. ACCOUNTING FOR CASH FLOW HEDGE RESERVE: The Bank has applied the Guidance Note on Accounting for Derivative Contracts ( Guidance Note ) issued by the Institute of Chartered Accountants of India effective from April 01, 2016 in respect of derivative contracts which are not covered by existing accounting standards or RBI guidelines. For the Bank, this impacts the accounting for cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges under the Guidance F-24

311 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS Note. The adoption of the Guidance Note resulted in the recognition of derivative assets of ` millions, derivative liabilities of ` millions and a cash flow hedge reserve of (` ) millions as at March 31, The application of the Guidance Note has no impact on the net profit for the year ended March 31, 2017 as compared to the previous accounting policy followed by the Bank. Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered. Other fees and commission income are recognized on accrual basis REVENUE RECOGNITION Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. Interest income is recognized in the profit and loss account on accrual basis, except in the case of nonperforming assets and accounts under SDR / S4A. Interest on non-performing assets and accounts under SDR / S4A is recognized upon realization as per the prudential norms of the RBI. Loan processing fee is recognized when it becomes due and realizable. Dividend income is recognized when the right to receive payment is established. Commission on guarantees issued by the Bank is recognized as income over the period of the guarantee Commission on Letters of Credit ( LC ) issued by the Bank is recognized as income at the time of issue of the LC. Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis. In case of Bonds and Pass Through Certificates, premium on redemption, if any, is amortized over the tenure of the instrument on a yield basis INVESTMENTS Classification and valuation of the Bank s investments are carried out in accordance with RBI Circular DBR. No.BP.BC.6/ / dated July 01, 2015 and Fixed Income Money Market and Derivative Association (FIMMDA) guidelines FIMCIR/ /001/April 03, ACCOUNTING AND CLASSIFICATION Investments are recognized using the value date basis of accounting. In compliance with RBI guidelines, all investments, are categorized as Held for trading ( HFT ), Available for sale ( AFS ) or Held to maturity ( HTM ) at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 ( Investments ) under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others. A) COST OF ACQUISITION Costs such as brokerage pertaining to investments, paid at the time of acquisition are charged to the profit and loss account as per the RBI guidelines. B) BASIS OF CLASSIFICATION Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category. C) TRANSFER BETWEEN CATEGORIES Reclassification of investments from one category to the other, if done, is in accordance with RBI F-25

312 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS guidelines. Transfer of scripts from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS/ HFT at the amortized cost. Transfer of investments from AFS to HFT or vice-aversa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another. D) VALUATION Investments categorized under AFS and HFT categories are marked to market (MTM) on a periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 ( Investments ) is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments. Investments received in lieu of restructured advances/under Strategic Debt Restructuring (SDR) scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Bank under SDR scheme is provided as per RBI guidelines. category is deducted from interest income in accordance with RBI Circular DBR.No.BP. BC.6/ / dated July 01, Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made. Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost. Pass Through Certificates purchase for priority sector lending requirements are valued at Book Value in accordance with FIMMDA guidelines FIMCIR/ /001/April 03, The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/ quotes on the stock exchanges and for Subsidiary General Ledger ( SGL ) account transactions, the prices as periodically declared by Primary Dealers Association of India jointly with FIMMDA. The market/fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FIMMDA. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity ( YTM ) rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA. Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortized on a straight line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, F-26

313 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS if any, is ignored. Profit / Loss on settlement of the short position is recognized in the Profit and Loss account. Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at ` 1 per VCF. Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability. Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India ( GOI ) is valued based on FIMMDA valuation. Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at ` 1 per company, as per relevant RBI guidelines. At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date. Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in unquoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme. Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability. Non-performing investments are identified and depreciation / provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Bank may additionally create provision over and above the RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit and Loss account until received. E) PROFIT/LOSS ON SALE OF INVESTMENTS Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account. F) ACCOUNTING FOR REPOS / REVERSE REPOS Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI master circular No. DBR.No.BP. BC.6/ / dated 1 July The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and F-27

314 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction. Bank also undertakes Repo and Reverse repo transactions from IFSC Banking Unit in GIFT City in Foreign currency Sovereign Securities and accounting is similar to the domestic repo transactions ADVANCES ACCOUNTING AND CLASSIFICATION Advances are classified as performing and nonperforming based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued and bills rediscounted. PROVISIONING Provisions in respect of non-performing advances are made based on management s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of nonperforming advances are charged to the Profit and Loss account and included under Provisions and Contingencies. country exposure). Countries are categorized into risk categories as per Export Credit Guarantee Corporation of India Ltd. ( ECGC ) guidelines and provisioning is done in respect of that country where the net funded exposure is one percent or more of the Bank s total assets. In respect of restructured standard and non-performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines. Accounts are written-off in accordance with the Bank s policies. Recoveries from bad debts written-off are recognized in the Profit and Loss account and included under other income. In case of loans sold to asset reconstruction company and consideration is more than net book value, the Bank records the security receipts at Net Book Value as per RBI guidelines TRANSACTIONS INVOLVING FOREIGN EXCHANGE Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations (representative offices) are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates. As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unhedged foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. The Bank also maintains additional general provisions on standard exposure based on the internal credit rating matrix as approved by the Board of the Bank. These provisions are included in Schedule 5 - Other liabilities & provisions - Others. Further to the provisions required to be held according to the asset classification status, provisions are held for individual country exposures (other than for home Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and liabilities, are amortized over the life of the swap. Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers Association of India ( FEDAI ). Foreign exchange contracts are stated at net present value using LIBOR/SWAP curves of the respective currencies. The resulting profits or losses are recognized in the profit and loss account. F-28

315 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS In accordance with AS 11 The Effects of changes in Foreign Exchange Rates, contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date. Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit / loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until remittance or the disposal of the net investment in the non-integral foreign operations in accordance with AS EARNINGS PER SHARE The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, Earnings per Share notified under Section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules, Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive ACCOUNTING FOR DERIVATIVE TRANSACTIONS Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/ trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly and the resultant unrealized gains/losses are recognized in the profit and loss account. Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability. The Bank follows the option premium accounting framework prescribed by FEDAI SPL- circular dated December 14, Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under Other Income. The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/ expense on the date of cancellation/ termination under Other Income. The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines. As per the RBI guidelines on Prudential Norms for Offbalance Sheet Exposures of Banks a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions. Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges and are measured at fair value. The corresponding gain or loss is recognized as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account FIXED ASSETS Fixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price F-29

316 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit /functioning capability from / of such assets. Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset s recoverable amount is the higher of an asset s net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognized by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets DEPRECIATION Depreciation on fixed assets is provided on straight-line method, overestimated useful lives, as determined by the management, at the rates mentioned below- Class of asset Useful life of Assets as per Companies Act, 2013 Useful life of Assets as per Bank's Accounting Policy Owned Premises 60 years 60 years Office equipment 5 years 5 years Computer hardware1 6 years 3 years Computer software * 6 years 4 years Vehicles1 8 years 5 years Furniture and Fixtures 10 years 10 years Automated Teller 15 years 10 years Machines ( ATMs )1 Leasehold improvements Over the lease period or 9 to premises years whichever is less. *As per RBI Guidelines. 1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act, Assets costing up to ` 5,000 are fully depreciated in the year of purchase. For assets purchased/sold during the year, depreciation is being provided on pro rata basis by the Bank. Improvements to leasehold assets are depreciated over the remaining period of lease Reimbursement, if any, is recognized on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset Whenever there is a revision in the estimated useful life of the asset, the unamortized depreciable amount is charged over the revised remaining useful life of the said asset The useful life of assets is based on historical experience of the Bank, which is different from the useful life as prescribed in Schedule II to the Companies Act, IMPAIRMENT OF ASSETS The Bank assesses at each balance sheet date whether there is any indication that an asset may be impaired. Impairment loss, if any, is provided in the Profit and Loss account to the extent the carrying amount of assets exceeds their estimated recoverable amount EMPLOYEE BENEFITS EMPLOYEE STOCK OPTION SCHEME ( ESOS ) The Employee Stock Option Scheme ( the Scheme ) provides for the grant of options to acquire equity shares of the Bank to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within a specified period. Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, The Bank measures compensation F-30

317 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Bank s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method. LEAVE SALARY The employees of the Bank are entitled to carry forward a part of their unavailed/unutilized leave subject to a maximum limit. The employees cannot encash unavailed/unutilized leave. The Bank provides for leave encashment / compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilization. GRATUITY The Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation. The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognized in the Profit and Loss account. PROVIDENT FUND In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a pre-determined rate. Contribution to provident fund are recognized as expense as and when the services are rendered. The Bank has no liability for future provident fund benefits other than its annual contribution. NEW PENSION SCHEME The National Pension System (NPS) is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Bank has no liability for future fund benefits other than its annual contribution for the employees who agree to contribute to the scheme LEASES Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases INCOME TAXES Tax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date. F-31

318 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized PROVISIONS AND CONTINGENT ASSETS/LIABILITIES A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Bank does not recognize a contingent liability but discloses its existence in the financial statements In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Bank creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed. Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs CASH AND CASH EQUIVALENT Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice CORPORATE SOCIAL RESPONSIBILITY Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognized in the Profit and Loss account DEBIT AND CREDIT CARDS REWARD POINTS The Bank estimates the probable redemption of debit and credit card reward points and cost per point using actuarial valuation method by employing an independent actuary, which includes assumptions such as mortality, redemption and spends. Provisions for liabilities on said reward points are made based on the actuarial valuation report as furnished by the said independent actuary and included in other liabilities BULLION The Bank imports bullion including precious metal bars on a consignment basis for selling to its customers. The imports are typically on a back-to-back basis and are priced to the customer based on a price quoted by the supplier. The Bank earns a fee on such bullion transactions. The fee is classified in other income. The Bank also deals in bullion on a borrowing and lending basis and the interest paid / received thereon is classified as interest expense / income respectively SHARE ISSUE EXPENSES Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the C o m p a n i e s Act, SEGMENT INFORMATION The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI. F-32

319 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS PRIORITY SECTOR LENDING CERTIFICATES (PSLC) The Bank vide RBI circular FIDD.CO.Plan.BC.23/ / dated April 7, 2016 trades in priority sector portfolio by selling or buying PSLC. There is no transfer of risks or loan assets in these transactions. The fee paid for purchase of the PSLC is treated as an Expense and the fee received from the sale of PSLCs is treated as Other Income CAPITAL EQUITY ISSUE During the financial year ended March 31, 2017, the Bank has issued 32,711,000 equity shares of ` 10 each for cash pursuant to a Qualified Institutions Placement (QIP) at ` 1,500 per share aggregating to ` 49, millions. The Bank accreted ` 48, millions (net of share issue expenses of ` 500 millions) as premium, on account of QIP. Provision on share issue expenses created by debiting to share premium account is on estimated basis. Adjustments, if any required, to share premium shall be made upon final settlement of these expenses. The Bank also issued 32,43,172 shares pursuant to the exercise of stock option aggregating to ` 1, millions. During the financial year ended March 31, 2016, the Bank has issued 2,795,543 shares pursuant to the exercise of stock option aggregating to ` millions. Movement in Share Capital ` in millions Share Capital As at As at March 31, 2017 March 31, 2016 Opening Share Capital 4, , Addition due to exercise of Stock Option Addition due to shares issued to QIP Closing Share Capital 4, , CAPITAL RESERVE Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year ` 1, millions (previous year: ` millions) was transferred to Capital Reserve INVESTMENT RESERVE The Bank has transferred ` Nil to Investment Reserve (Previous year: ` Nil transferred to Investment Reserve) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for depreciation on investments credited to Profit and Loss Account CASH FLOW HEDGE RESERVE The Bank has debited ` millions to Cash Flow Hedge Reserve (Previous year: ` Nil) on cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings and have been designated as cash flow hedges and are measured at fair value. F-33

320 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS CAPITAL ADEQUACY RATIO Capital Adequacy Ratio as per RBI guidelines (Basel III Capital Regulations dated July 01, 2015) as at March 31, 2017 is given below: ` in millions As at As at March 31, 2017 March 31, 2016 Common Equity Tier I 212, , Additional Tier I Capital 35, , Tier-1 capital 248, , Tier-2 capital 69, , Total capital 317, , Credit Risk Risk Weighted Assets (RWA) 1,624, ,151, Market Risk RWA 132, , Operational Risk RWA 106, , Total risk weighted assets 1,863, ,329, Common Equity capital adequacy ratio (%) 11.4% 10.3% Tier-1 capital adequacy ratio (%) 13.3% 10.7% Tier-2 capital adequacy ratio (%) 3.7% 5.8% Total capital adequacy ratio (%) 17.0% 16.5% Amount raised during the year by issue of IPDI 30, Amount raised during the year by issue of Tier II Capital - 38, TIER I AND TIER II CAPITAL For the financial year ended March 31, 2017, the Bank has raised Tier I Debt instruments amounting to ` 30, millions: ` in millions Particulars Nature of Date of Coupon Security Issue Rate (%) Tenure Amount Unsecured, Non-convertible, Basel III compliant Tier I Bonds in the nature of debentures Debentures December 9.50 Perpetual 30, , 2016 TOTAL 30, For the financial year ended March 31, 2016, the Bank has raised Tier II Debt instruments amounting to ` 38, millions, details of which are as follows: F-34

321 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS TIER II DEBT INSTRUMENTS Particulars ` in millions Nature of Coupon Date of Issue Tenure Amount Security Rate (%) Non-convertible, Redeemable, Unsecured, Basel III compliant Tier 2 Bonds in the nature of debentures Debentures June 29, Years 5, Non-convertible, Redeemable, Debentures December Years 15, Unsecured, Basel III compliant Tier 2 31, 2015 Bonds in the nature of debentures Non-convertible, Redeemable, Debentures January 15, Years 8, Unsecured, Basel III compliant Tier 2 Bonds in the nature of debentures Non-convertible, Redeemable, Debentures January Years 5, Unsecured, Basel III compliant Tier 2 20, 2016 Bonds in the nature of debentures Non-convertible, Redeemable, Debentures March 31, Years 5, Unsecured, Basel III compliant Tier 2 Bonds in the nature of debentures TOTAL 38, INVESTMENTS I) VALUE OF INVESTMENTS Particulars ` in millions As at As at March 31, 2017 March 31, 2016 Gross value of Investments 501, , In India 499, , Outside India 1, Provision for depreciation 1, In India 1, Outside India - - Net value of Investments 500, , In India 498, , Outside India 1, II) MOVEMENT OF PROVISIONS HELD TOWARDS DEPRECIATION ON INVESTMENTS ` in millions Particulars (In India) As at As at March 31, 2017 March 31, 2016 Opening Balance Add: Provision made during the year Less: Write off / write back of provision during the year Closing Balance 1, Note: There is no provision made for investment outside India F-35

322 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS REPO TRANSACTIONS The details of securities sold and purchased under repos and reverse repos during the year ended March 31, 2017: Securities sold under repos ` in millions Minimum Maximum Daily average outstanding outstanding outstanding As at during the during the during the March 31, 2017 year year year i) Government Securities - 37, , , ii) Corporate debt securities Security purchased under reverse repo i) Government Securities - 39, , ii) Corporate debt securities The details of securities sold and purchased under repos and reverse repos during the year ended March 31, 2016: ` in millions Minimum Maximum Daily average outstanding outstanding outstanding As at during the during the during the March 31, 2016 year year year Securities sold under repos i) Government Securities ii) Corporate debt securities Security purchased under reverse repo i) Government Securities ii) Corporate debt securities , , The above table represents the book value of securities sold and purchased under repos and reverse repos with interbank. It does not include securities sold and purchased under Liquidity Adjusted Facility (LAF) with RBI. F-36

323 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS NON-SLR INVESTMENT PORTFOLIO Issuer composition of Non SLR investments as at March 31, 2017 is given below: ` in millions Extent of Extent of below Extent of Extent of No Issuer Amount private investment unrated unlisted placement grade securities # securities* securities i) PSUs 12, , , ii) Financial Institutions 35, , , , iii) Banks 3, , iv) Private Corporates 69, , , v) Subsidiaries/ Joint ventures vi) Others 24, , , vii) Provision held towards (844.42) depreciation TOTAL 145, , , , *Of the investments disclosed ` 35,320 millions are exempted from applicability of RBI prudential limit for Unlisted Non-SLR securities. # excludes investment in equity shares and units. Issuer composition of Non SLR investments as at March 31, 2016 is given below: ` in millions Extent of Extent of below Extent of Extent of No Issuer Amount private investment unrated unlisted placement grade securities # securities* securities i) PSUs 9, , ii) Financial Institutions 15, , , iii) Banks iv) Private Corporates 78, , , v) Subsidiaries/ Joint ventures vi) Others 33, , , vii) Provision held towards (551.73) depreciation TOTAL 136, , , *Of the investments disclosed ` 41, millions are exempted from applicability of RBI prudential limit for unlisted Non-SLR securities. # excludes investment in equity shares and units. F-37

324 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS Non-Performing Investments ` in millions Particulars March 31, 2017 March 31, 2016 Opening Balance Additions during the year Reductions during the year Closing Balance Total Provision Held The Bank has not sold and transferred securities to or from HTM category exceeding 5% of the book value of investment held in HTM category at the beginning of the year. The 5% threshold referred to above does not include onetime transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks as per extant RBI guidelines, sale of securities under pre-announced Open Market Operation (OMO) auction to the RBI and sale of securities or transfer to AFS / HFT consequent to the reduction of ceiling on SLR securities under HTM DERIVATIVES FORWARD RATE AGREEMENT/ INTEREST RATE SWAP The details of Forward Rate Agreements / Interest Rate Swaps outstanding as at March 31, 2017 is given below: ` in millions Sr. No Items As at As at March 31, 2017 March 31, 2016 i) The notional principal of swap agreements 900, , ii) Losses which would be incurred if counterparties failed to fulfill their 1, , obligations under the agreements1 iii) Collateral required by the bank upon entering into swaps - - iv) Concentration of credit risk arising from the swaps [Percentage 12.81% 8.91% Exposure to Banks]1 [Percentage Exposure to PSUs] % 13.39% v) The fair value of the swap book2 (618.01) INBMK (344.68) MIBOR (279.23) (97.14) MIFOR FCY IRS (68.08) Losses and Credit risk concentration are measured as net receivable under swap contracts 2Fair values represent mark-to-market including accrued interest. F-38

325 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS The nature and terms of the Rupee IRS as on March 31, 2017 are set out below: ` in millions Nature Nos. Notional Principal Benchmark Terms Hedging 10 4, MIFOR Fixed Payable V/S Floating Receivable Hedging 6 1, MIBOR Fixed Receivable V/S Floating Payable Trading 25 23, INBMK Fixed Payable V/S Floating Receivable Trading 1 1, INBMK Fixed Receivable V/S Floating Payable Trading , MIBOR Fixed Payable V/S Floating Receivable Trading , MIBOR Fixed Receivable V/S Floating Payable Trading , MIFOR Fixed Payable V/S Floating Receivable Trading 95 42, MIFOR Fixed Receivable V/S Floating Payable The nature and terms of the FCY IRS as on March 31, 2017 are set out below: ` in millions Nature Nos. Notional Principal Benchmark Terms Trading , USD LIBOR Fixed Receivable V/S Floating Payable Trading , USD LIBOR Fixed Payable V/S Floating Receivable Trading 68 32, USD LIBOR Floating Receivable V/S Floating Payable Trading 10 1, EURIBOR Fixed Receivable V/S Floating Payable Trading 9 1, EURIBOR Fixed Payable V/S Floating Receivable Trading JPY LIBOR Fixed Payable V/S Floating Receivable The nature and terms of the Rupee IRS as on March 31, 2016 are set out below: ` in millions Nature Nos. Notional Principal Benchmark Terms Hedging 25 10, MIFOR Fixed Payable V/S Floating Receivable Hedging 6 1, MIBOR Fixed Receivable V/S Floating Payable Trading 26 23, INBMK Fixed Payable V/S Floating Receivable Trading 1 1, INBMK Fixed Receivable V/S Floating Payable Trading , MIBOR Fixed Payable V/S Floating Receivable Trading , MIBOR Fixed Receivable V/S Floating Payable Trading 85 32, MIFOR Fixed Payable V/S Floating Receivable Trading 90 40, MIFOR Fixed Receivable V/S Floating Payable F-39

326 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS The nature and terms of the FCY IRS as on March 31, 2016 are set out below: ` in millions Nature Nos. Notional Principal Benchmark Terms Trading , USD LIBOR Fixed Receivable V/S Floating Payable Trading , USD LIBOR Fixed Payable V/S Floating Receivable Trading 27 7, USD LIBOR Floating Receivable V/S Floating Payable Trading EURIBOR Fixed Receivable V/S Floating Payable Trading EURIBOR Fixed Payable V/S Floating Receivable Trading JPY LIBOR Fixed Payable V/S Floating Receivable UN-HEDGED / UNCOVERED FOREIGN CURRENCY EXPOSURE OF THE BANK The Bank s foreign currency exposures as at March 31, 2017 that are not hedged/covered by either derivative instruments or otherwise are within the Net Overnight Open Position limit (NOOP) and the Aggregate Gap limit, as approved by the RBI. NOOP is ` 2, millions (March 31, 2016 ` 2, millions) EXCHANGE TRADED INTEREST RATE DERIVATIVES The following table sets forth, for the period indicated, the details of exchange traded interest rate derivatives: ` in millions Sr. No. Particulars As at As at March 31, 2017 March 31, Notional Principal amount of exchange traded interest rate derivatives undertaken during the year : -8.40% Government Securities , % Government Securities , % Government Securities Notional Principal amount of exchange traded interest rate derivatives outstanding: % Government Securities Notional Principal amount of exchange traded interest rate N.A. N.A. derivatives outstanding and not highly effective 4 Mark-to-Market value of exchange traded interest rate derivatives N.A. N.A. outstanding and not highly effective CURRENCY FUTURES The Bank had dealt in exchange traded currency forwards (Futures) during the financial year ended March 31, 2017 and March 31, As at March 31, 2017 and March 31, 2016 the open contracts on the exchange were ` Nil DISCLOSURES ON RISK EXPOSURE IN DERIVATIVES As per RBI Master circular DBR.BP.BC.No.23/ / dated July 1, 2015, the following disclosures are being made with respect to risk exposure in derivatives of the Bank: F-40

327 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS a) Purpose: The Bank uses Derivatives including Forwards & swaps for various purposes viz. hedging its currency and interest rate risk in its balance sheet, customer offerings and proprietary trading. The management of these products and businesses is governed by the Market Risk Policy, Investment Policy, Derivatives Policy, Derivatives Appropriate ness Policy, Hedging Policy and ALM policy. b) Structure: The Board of Directors of the Bank have constituted a Board level sub-committee, the Risk Monitoring Committee ( RMC ) and delegated to it all functions and responsibilities relating to the risk management policy of the Bank and its supervision thereof. c) As part of prudent business and risk management practice, the Bank has also instituted a comprehensive limit and control structure encompassing Value-at-Risk (VAR), Sensitivity, Greeks, Stop loss & credit limits for derivative transactions including a robust suitability and appropriateness framework. The Bank has an elaborate internal reporting mechanism providing regular reports to the RMC as well as Top management of the Bank. Such a structure helps the Bank to monitor and mitigate market risk across FX, interest rates as well as credit risk, operational risk, reputational risk and legal risk. d) The Bank has an independent Middle Office and Market Risk, which are responsible for monitoring, measurement, and analysis of derivative related risks, among others. The Bank has a Credit Risk Management unit which is responsible for setting up counterparty limits and also a treasury operation unit which is responsible for managing operational aspects of derivatives control function and settlement of transactions. The Bank is subject to a concurrent audit for all treasury transactions, including derivatives, a monthly report of which is periodically submitted to the Audit & Compliance Committee of the Bank. e) In addition to the above, the Bank independently evaluates the potential credit exposure on account of all derivative transactions, wherein risk limits are specified separately for each product, in terms of both credit exposure and tenor. As mandated by the Credit Policy of the Bank, the Bank has instituted an approval structure for all treasury/derivative related credit exposures. Wherever necessary, appropriate credit covenants are stipulated as trigger events to call for collaterals or terminate a transaction and contain the risk. f) The Bank reports all trading positions to the management on a daily basis. The Bank revalues its trading position on a daily basis for Management and Information System ( MIS ) and control purposes and records the same in the books of accounts on a monthly basis. g) For derivative contracts in the banking book designated as hedge, the Bank documents at the inception of the relationship between the hedging instrument and the underlying exposure, the risk management objective for undertaking the hedge and ALCO monitors all outstanding hedges on a periodical basis. Further the Bank s Hedging Policy has stipulated conditions to ensure that the Hedges entered into are effective. F-41

328 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS h) Refer Note for accounting policy on derivatives. The details of derivative transactions as at March 31, 2017 and March 31, 2016 are given below: ` in millions Currency derivatives 1 Interest rate derivatives 4 Sr. As at As at As at As at No Particular March 31, March 31, March 31, March 31, I) DERIVATIVES (NOTIONAL PRINCIPAL AMOUNT) II) a) For hedging 30, , , , b) For trading 526, , , , MARKED TO MARKET POSITIONS2 a) Asset (+) 9, , , , b) Liability (-) 8, , , , III) CREDIT EXPOSURE3 46, , , , IV) LIKELY IMPACT OF ONE PERCENTAGE CHANGE IN INTEREST RATE (100*PV01) (REFER NOTE 1&2 BELOW) a) on hedging derivatives b) on trading derivatives 1, , , V) MAXIMUM AND MINIMUM OF 100*PV01 OBSERVED DURING THE YEAR (REFER NOTE 1&2 BELOW) a) on hedging Maximum Minimum b) on trading Maximum 1, , , Minimum , Currency derivatives includes options purchased and sold, cross currency interest rate swaps and currency futures. 2 Trading portfolio including accrued interest. 3 Mark to Market for credit exposure includes accrued interest. 4 Interest rate derivatives include Interest Rate Swaps, forward rate agreements and exchange traded interest rate derivatives. Note: 1) Denotes absolute value of loss which the Bank could suffer on account of a change in interest rates by 1% which however doesn t capture the off-setting exposures between interest rate and currency derivatives. 2) PV01 exposures reported above may not necessarily indicate the interest rate risk the Bank is exposed to, given that PV01 exposures in Investments (which may offset the PV01 reflected above) do not form part of the above table. 3) The notional principal amount of foreign exchange contracts classified as trading at March 31, 2017 amounted to ` 1,631, millions (previous year: ` 1,752, millions). For these trading contracts, at March 31, 2017, marked to market position was asset of ` 35, millions (Previous year: ` 18, millions) and liability of ` 40, millions (Previous Year: ` 18, millions).the notional principal amount of foreign F-42

329 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS exchange contracts classified as hedging at March 31, 2017 amounted to ` 2, millions (previous year: ` 13, millions). Credit exposure on forward exchange contracts at March 31, 2017 was ` 66, millions (Previous Year: ` 54, millions) of which exposure on CCIL is ` 35, millions (Previous Year: ` 33, millions) ASSET QUALITY NON-PERFORMING ADVANCES The details of movement of gross NPAs, net NPAs and provisions during the year ended March 31, 2017 and the year ended March 31, 2016 are given below : ` in millions Sr. No. Particulars March 31, 2017 March 31, 2016 (i) Net NPA to Net Advances 0.81% 0.29% (ii) (iii) (iv) Movement of NPAs (Gross) (a) Opening balance 7, , (b) Additions (Fresh NPAs during the year) 26, , Subtotal (A) 33, , Less: (i) Up-gradations 3, (ii) Recoveries 8, , (iii) Write-offs 1, , Sub-total (B) 13, , Gross NPAs (closing balance) (A-B) 20, , Movement of Net NPAs (a) Opening Balance 2, (b) Additions during the year 18, , (c) Reductions during the year 10, , (d) Closing balance 10, , Movement of provisions for NPAs (excluding provision on standard assets) (a) Opening balance 4, , (b) Additions during the year 7, , (c) write off / write back of excess provision 2, , (d) Closing balance 9, , The Bank does not have any advances which are outstanding in the books of the branches, but have been written-off (fully or partially) at Head Office level PROVISION COVERAGE RATIO The provision coverage ratio of the Bank as at March 31, 2017 computed as per the RBI guidelines is 46.88% (previous year 62.02%) F-43

330 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS DIVERGENCE IN ASSET CLASSIFICATION AND PROVISIONING FOR NPAS (REF DBR. BP.BC.NO. 63/ / DATED APRIL 18, 2017) ` in millions Sr. Particulars No. 1 Gross NPAs as on March 31, 2016 as reported by the Bank 7, Gross NPAs as on March 31, 2016 as assessed by RBI 49, Divergence in Gross NPAs (2-1) 41, Net NPAs as on March 31, 2016 as reported by the Bank 2, Net NPAs as on March 31, 2016 as assessed by the RBI 36, Divergence in Net NPAs (5-4) 33, Provision for NPAs as on March 31, 2016 as reported by the Bank 4, Provision for NPAs as on March 31, 2016 as assessed by RBI 13, Divergence in provisioning (8-7) 8, Reported Net Profit after Tax (PAT) for the year ended March 31, , Adjusted (notional) Net Profit after Tax (PAT) for the year ended March 31, 2016 after 19, taking into account the divergence in provisioning The table above is in conformity with RBI circular issued on April 18, 2017 and as per approval from Board of Directors at its Board meeting held on April 19, 2017, the audited financial statements of the Bank for the year ended March 31, 2017, duly incorporates the current impact of divergences observed recently by RBI a) With ongoing remedial actions undertaken by the Bank during FY 16-17, there have been several reductions / exits / improvement in account conduct which has reduced the overall Gross NPA outstanding to ` 10, million as on March 31, b) Of this amount, one single account represents ` 9,114 millions (88%). The net impact of divergences observed as per above referred RBI circular is given below Reported as on March 31, 2017 Of which impact of single account where management expects near term recovery Gross NPA 1.52% 0.69% Net NPA 0.81% 0.52% After duly factoring the provision impact of divergences, Banks credit cost for FY 17 is at 53 basis points F-44

331 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS CONCENTRATION OF NPAS Exposure (Funded + Non Funded) of the Bank to top four NPA is ` 15, millions as at March 31, 2017 (previous year ` 5, millions) SECTOR-WISE ADVANCES AND NPA The details of Sector-wise Gross Advances and Gross NPAs as at March 31, 2017 and March 31, 2016 are given below: ` in millions Sector As at March 31, 2017 As at March 31, 2016 % of Gross % of Gross NPAs to NPAs to Gross Gross Gross NPAs Gross Gross NPAs Gross Advances Advances Advances in Advances in that sector that sector PRIORITY SECTOR Agriculture and Allied 79, , % 108, , % activities Advances to industries 60, % 40, % sector eligible as priority sector lending Gems and Jewellery 17, , Services 141, % 107, % Fertilizers 10, , NBFC's 18, % 14, Personal Loans Others 12, % 9, % Sub-Total (A) 293, , % 266, , % NON PRIORITY SECTOR Agriculture and Allied 2, % 2, activities Industry 679, , % 456, , % Construction 81, , % 29, % Electricity (generation- 128, , % 79, transmission and distribution) Services 314, % 240, , % Commercial Real Estate 106, % 94, % Tourism, Hotel and 56, , Restaurants Personal Loans 9, % 1, Others 33, % 20, % Sub-Total (B) 1,038, , % 720, , % Total (A+B) 1,332, , % 986, , % F-45

332 RESTRUCTURED ACCOUNTS The details of accounts Restructured during the year ended March 31, 2017 are given below: ` in millions Sr. Type of Restructured Accounts as on April 1 of Downgradations of restructured Write-offs/Sale/Recovery of restructured Restructured Accounts as on March 31 of Fresh restructuring during the year No. Restructuring the FY (opening figures) accounts during the FY accounts during the FY the FY Amount Provision Amount Provision Asset No. of outstanding thereon as No. of Amount Provision No. of Amount Provision No. of Amount Provision No. of outstanding thereon as Classification borrowers as at March at March 31, borrowers outstanding thereon borrowers outstanding thereon borrowers outstanding thereon borrowers as at March 31, at March 31, 31, CDR Standard (2) (425.78) (113.46) (1) (207.09) (72.68) Substandard (144.30) Doubtful (1) (8.55) (8.55) Loss Total OTHERS Standard 10 5, (222.27) (43.81) 10 5, Substandard (2) (102.84) (61.96) Doubtful (5.40) Loss Total 12 5, , GRAND TOTAL SCHEDULES FORMING PART OF FINANCIAL STATEMENTS Standard 14 6, (2) (425.78) (113.46) (1) (429.36) (116.50) 11 5, Substandard (144.30) Doubtful (1) (13.95) (5.26) Loss Total 17 6, (2) (587.61) (22.92) 15 6, NOTES:- 1. There are no SME cases which have been restructured during the year ended March 31, There have been no upgradations of restructured advances during the year ended March 31, The outstanding amount and number of borrowers as at March 31, 2017 is after considering recoveries and sale of assets during the year. 4. The above table pertains to advances and does not include investment in shares of net book value of ` millions in the amount outstanding. 5. The provision in the above table includes general loan loss provision and other provisions held on the restructured advances. 6. Additional facilities availed by borrowers in existing restructured accounts are disclosed under Fresh restructuring during the year and partial repayments in existing restructured accounts are disclosed under Write-offs/sale/recovery of restructured accounts, however, for the purpose of arithmetical accuracy, the number of existing borrowers availing additional facility or partial repayments have been ignored for presentation purpose. 7. For the purpose of arithmetical accuracy as required by Para (xii) of RBI circular no DBR.BP.BC.No.23/ / movement in provisions in the existing restructured account as compared to opening balance, is disclosed under column fresh restructuring(for increase in provision) and write-off/ sale/recovery(for decrease in provision) during the year and are not comparable with the additional facilities availed and partial recovery disclosed under the respective columns. F-46

333 The details of accounts Restructured during the year ended March 31, 2016 are given below: ` in millions Sr. Type of Restructured Accounts as on April 1 of Downgradations of restructured Write-offs/Sale/Recovery of restructured Restructured Accounts as on March 31 Fresh restructuring during the year No Restructuring the FY (opening figures) accounts during the FY accounts during the FY of the FY Amount Provision Amount Provision Asset No. of outstanding thereon as No. of Amount Provision No. of Amount Provision No. of Amount Provision No. of outstanding thereon as Classification borrowers as at March at March borrowers outstanding thereon borrowers outstanding thereon borrowers outstanding thereon borrowers as at March at March 31, , , , CDR Standard (106.04) (219.70) Substandard (2) (252.73) (196.96) Doubtful (1) (49.46) (48.32) Loss Total 8 1, (3) (408.23) (464.98) OTHERS Standard 8 3, , (1) (764.63) (177.29) (1) (38.78) (171.32) 10 5, Substandard (3) (1,025.84) (333.85) Doubtful (1) (105.42) (105.42) Loss Total 11 3, , (5) (1,170.04) (610.59) 12 5, STATEMENTSFINANCIALOFPARTFORMINGSCHEDUL ES 3 GRAND TOTAL Standard 12 4, , (1) (764.63) (177.29) (1) (144.82) (391.02) 14 6, Substandard (5) (1,278.57) (530.81) Doubtful (2) (154.88) (153.74) Loss Total 19 4, , , (8) (1,578.27) (1,075.57) 17 6, NOTES:- 1. There are no SME cases which have been restructured during the year ended March 31, There have been no upgradations of restructured advances during the year ended March 31, The outstanding amount and number of borrowers as at March 31, 2016 is after considering recoveries and sale of assets during the year. 4. The above table pertains to advances and does not include investment in shares of net book value of ` millions in the Amount Outstanding. 5. The provision in the above table includes general loan loss provision and other provisions held on the restructured advances. 6. Additional facilities availed by borrowers in existing restructured accounts are disclosed under Fresh restructuring during the year and partial repayments in existing restructured accounts are disclosed under Write-offs/sale/recovery of restructured accounts, however, for the purpose of arithmetical accuracy, the number of existing borrowers availing additional facility or partial repayments have been ignored for presentation purpose. 7. For the purpose of arithmetical accuracy as required by Para (xii) of RBI circular no DBR.BP.BC.No.23/ / movement in provisions in the existing restructured account as compared to opening balance, is disclosed under column fresh restructuring(for increase in provision) and write-off/sale/recovery(for decrease in provision) during the year, and are not comparable with the additional facilities availed and partial recovery disclosed under the respective columns. F-47

334 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS DISCLOSURE OF SCHEMES FOR STRESSED ASSETS - FLEXIBLE STRUCTURING OF EXISTING LOANS ` in millions Period No. of borrowers Exposure weighted average taken up Amount of loans taken up for duration of loans taken up for flexibly flexible structuring for flexible structuring structuring Before After Classified as Classified as applying applying Standard NPA flexible flexible structuring structuring For the year ended March 31, For the year ended March 31, , years 9.63 years DISCLOSURES ON STRATEGIC DEBT RESTRUCTURING SCHEME (ACCOUNTS WHICH ARE CURRENTLY UNDER THE STAND-STILL PERIOD) ` in millions Amount outstanding as Amount outstanding as Amount outstanding as on the reporting date with on the reporting date with on the reporting date respect to accounts where respect to accounts where No. of accounts where conversion of debt to conversion of debt to SDR has been invoked equity is pending equity has taken place Classified as Classified as Classified as Classified as Classified as Classified as standard NPA standard NPA standard NPA 5 2, , The above table includes one account amounting to ` millions which is a standard restructured account DISCLOSURES ON CHANGE IN OWNERSHIP OUTSIDE SDR SCHEME (ACCOUNTS WHICH ARE CURRENTLY UNDER THE STAND-STILL PERIOD) There are no accounts where the Bank has decided to affect the change of ownership outside SDR scheme and which are currently under the stand-still period DISCLOSURES ON CHANGE IN OWNERSHIP OF PROJECTS UNDER IMPLEMENTATION There are no accounts where the Bank has decided to affect the change of ownership of projects under Implementation F-48

335 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS DISCLOSURES ON THE SCHEME FOR SUSTAINABLE STRUCTURING OF STRESSED ASSETS (S4A) AS ON MARCH 31, 2017 ` in millions No. of accounts Aggregate Particulars where S4A amount has been outstanding implemented Amount outstanding Provision In Part A In Part B Held Classified as Standard * Classified as NPA *Securities envisaged in Part B are yet to be issued FINANCIAL ASSETS SOLD TO SECURITIZATION COMPANY /RECONSTRUCTION COMPANY FOR ASSET RECONSTRUCTION a) Details of Financial assets sold to Securitization/Reconstruction Company during the year ended March 31, 2017 are as follows- ` in millions Particulars Year Ended Year Ended March 31, 2017 March 31, 2016 (i) No. of accounts 5 1 (ii) Aggregate value (net of specific provisions) of accounts sold to SC / RC 9, (iii) Aggregate consideration (includes Net Book Value of Security Receipts 9, of ` 7, millions (previous year ` millions) (iv) Additional consideration realized in respect of accounts transferred in - - earlier years (v) Aggregate gain / (loss) over net book value* (206.14) *As per the extant RBI guidelines, the Bank has not recognized the gains in the financial statements and has recorded the Security Receipts at Net Book Value (NBV). If the sale value is lower than the net book value, the entire loss has been written off in the year of sale. b) Details of Investments held as Security Receipts received by sale of NPA to Securitization/Reconstruction Company as at March 31, 2017 and March 31, 2016 are as follows- ` in millions Particulars Backed by NPAs* sold by other banks/ financial Backed by NPAs* sold by institutions/ non-banking the Bank as underlying financial companies as Total underlying As at March As at March As at March As at March As at March As at March 31, , , , , , 2016 Net Book value of 9, , , , investments in security receipts * Includes all Security Receipts received by Bank on sale of assets as permitted under RBI circular DBOD.BP.BC.No. 98/ / dated February 26, F-49

336 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS c) Details of ageing of Investments held as Security Receipts as at March 31, 2017 are as follows- ` in millions SRs issued SRs issued more than 5 SRs issued within Past 5 years ago but more than 8 Years within past 8 years ago years (i) Book Value of SRs backed by NPAs* sold by the Bank 9, as underlying Provision held against (i) (ii) Book value of SRs backed by NPAs* sold by other banks / financial institutions / non-banking financial companies as underlying Provision held against (ii) Total (i) + (ii) 9, *Includes all Security Receipts received by Bank on sale of assets as permitted under RBI circular DBOD.BP.BC.No. 98/ / dated February 26, NON-PERFORMING FINANCIAL ASSETS PURCHASED/ SOLD FROM/ TO OTHER BANK The Bank has not purchased/sold any non performing financial assets from/to bank during the year ended March 31, 2017 and March 31, PROVISIONS FOR STANDARD ASSETS Provision on standard advances is ` 7, millions and ` 6, millions as at March 31, 2017 and March 31, 2016 respectively BUSINESS RATIOS Business Ratios ` in millions As at As at March 31, 2017 March 31, 2016 i) Interest income as a percentage to working funds1 8.93% 9.47% ii) Non interest income as a percentage to working funds1 2.26% 1.90% iii) Operating profit as a percentage to working funds1 3.17% 3.01% iv) Return on assets1 1.81% 1.78% v) Business (deposits + net advances) per employee vi) Profit per employee Working funds represents the average of total assets as reported in Return Form X to RBI under Section 27 of the Banking Regulation Act, For the purpose of computation of business per employee (deposits plus advances), interbank deposits have been excluded and average employees have been considered. F-50

337 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS ASSET LIABILITY MANAGEMENT The following table sets forth the maturity pattern of assets and liabilities of the Bank as on March 31, 2017 ` in millions Maturity Buckets Loans & Investment FCY Deposits Borrowings FCY Assets Advances Securities Liabilities 1 day 25, , , , days to 7 days 9, , , , , , days to 14 days 15, , , , , days to 28 days 36, , , , , , days to 3 months 114, , , , , , Over 3 to 6 months 94, , , , , , Over 6 to 12 months 191, , , , , , Over 1 year to 3 years 421, , , , , , Over 3 years to 5 years 198, , , , , , Over 5 years 214, , , , , , TOTAL 1,322, , ,428, , , , The following table sets forth the maturity pattern of assets and liabilities of the Bank as on March 31, 2016 ` in millions Maturity Buckets Loans & Investment FCY Deposits Borrowings FCY Assets Advances Securities Liabilities 1 day 10, , , , , days to 7 days 8, , , , , days to 14 days 7, , , , days to 28 days 22, , , , , , days to 3 months 113, , , , , , Over 3 to 6 months 78, , , , , , Over 6 to 12 months 127, , , , , , Over 1 year to 3 years 352, , , , , , Over 3 years to 5 years 127, , , , , , Over 5 years 133, , , , , , TOTAL 982, , ,117, , , , Classification of assets and liabilities under the different maturity buckets is based on the same estimates and assumptions as used by the Bank for compiling the return submitted to the RBI. Maturity profile of foreign currency assets and liabilities is excluding Off Balance Sheet item EXPOSURES The Bank has lending to sectors, which are sensitive to asset price fluctuations. Such sectors include capital market and real estate. F-51

338 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS EXPOSURE TO REAL ESTATE SECTOR The exposure, representing the higher of funded and non-funded limits sanctioned or outstanding to real estate sector, is given in the table below: ` in millions Sr. As at As at Particulars No. March 31, 2017 March 31, 2016 I) DIRECT EXPOSURE Residential Mortgages 17, , Commercial Real Estate* 166, , Of total Commercial real estate - exposure to residential real estate 125, , projects Of total Commercial Real Estate outstanding as advances 109, , Investments in Mortgage Backed Securities (MBS) and other securitized exposures - Residential 1, , Commercial Real Estate - - II) INDIRECT EXPOSURE Fund based and non-fund based exposures on National Housing Board 47, , and Housing Finance Companies TOTAL 231, , *Commercial real estate exposure classification is based on RBI circular DBOD.BP.BC.No. 42/ / dated September 9, EXPOSURE TO CAPITAL MARKET The exposure representing the higher of funded and non-funded limits sanctioned or outstanding to capital market sector is given in the table below: ` in millions Sr. No. Particulars As at As at March 31, 2017 March 31, 2016 i) direct investment in equity shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds the corpus of which is not exclusively invested in corporate debt; ii) advances against shares / bonds / debentures or other securities or on clean basis to individuals for investment in shares (including IPOs / ESOPs), convertible bonds, convertible debentures, and units of equity-oriented mutual funds; iii) advances for any other purposes where shares or convertible bonds - - or convertible debentures or units of equity oriented mutual funds are taken as primary security; F-52

339 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS Sr. No. Particulars ` in millions As at As at March 31, 2017 March 31, 2016 iv) advances for any other purposes to the extent secured by the collateral security of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds i.e. where the primary security other than shares / convertible bonds / convertible debentures / units of equity oriented mutual funds 'does not fully cover the advances; 1, , v) secured and unsecured advances to stockbrokers and guarantees 7, , issued on behalf of stockbrokers and market makers;* vi) loans sanctioned to corporate against the security of shares / bonds / 9, , debentures or other securities or on clean basis for meeting promoter's contribution to the equity of new companies in anticipation of raising resources; vii) financing for acquisition of equity in overseas companies 2, , viii) bridge loans to companies against expected equity flows / issues; - - ix) underwriting commitments taken up by the banks in respect of primary - - issue of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds; x) financing to stockbrokers for margin trading - - xi) all exposures to Venture Capital Funds (both registered and unregistered) Total Exposure to Capital Market 22, , Capital market exposure is reported in line with Para 2.3 of RBI s Master Circular on Exposure Norms dated July 1, 2015 (DBR. No.Dir.BC.12/ / ). * Out of the above ` 2, millions is exposure to YES Securities (India) Ltd, which is a subsidiary of the Bank RISK CATEGORY WISE COUNTRY EXPOSURE As per the extant RBI guidelines, the country exposure of the Bank is categorised into various risk categories listed in the following table. As at March 31, 2017 and March 31, 2016, the Bank s funded exposure to any individual country did not exceed 1% of the total funded assets of the Bank: ` in millions Exposure (net) Provision held Exposure (net) Provision held Risk Category as at as at as at as at March 31, 2017 March 31, 2017 March 31, 2016 March 31, 2016 Insignificant 117, , Low 22, , Moderately Low , Moderate Moderate High High Very High TOTAL 140, , F-53

340 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS DETAILS OF SINGLE BORROWER LIMIT (SBL) AND GROUP BORROWER LIMIT (GBL) During the year ended March 31, 2017 and March 31, 2016, the Bank has complied with the Reserve Bank of India guidelines on single borrower and borrower group limit. As per the exposure limits permitted under the extant RBI regulation, the Bank, with the approval of the Board of Directors, can enhance exposure to a single borrower or borrower group by a further 5 percent of capital funds. During the year ended March 31, 2017, with the prior approval of the Board of Directors, the Bank sanctioned enhancement in single borrower limit for Nirma Limited within the ceiling of 20% of Capital Funds. As on March 31, 2017, the exposure to Nirma Limited as a percentage of capital funds was 0.1%. During the year ended March 31, 2017, with the prior approval of the Board of Directors, the Bank sanctioned enhancement in single borrower limit for Reliance Ports and Terminals Limited within the ceiling of 25% of Capital Funds. As on March 31, 2017, the exposure to Reliance Ports and Terminals Limited as a percentage of capital funds was 4.6%. During the year ended March 31, 2017, with the prior approval of the Board of Directors, the Bank sanctioned enhancement in group borrower limit for Reliance Group within the ceiling of 55% of Capital Funds. As on March 31, 2017, the exposure to Reliance Group as a percentage of capital funds was 21.0%. During the year ended March 31, 2017, with the prior approval of the Board of Directors, the Bank sanctioned enhancement in group borrower limit for Tata Group within the ceiling of 55% of Capital Funds. As on March 31, 2017, the exposure to Tata Group as a percentage of capital funds was 18.3%. During the year ended March 31, 2016, the Bank has not exceeded regulatory single borrower or group borrower exposure limit DETAILS OF FACTORING EXPOSURE The factoring exposure of the Bank as on March 31, 2017 is ` 4, millions (previous year: ` 1, millions) 18.6 MISCELLANEOUS INCOME TAXES Provisions made for Income Tax during the year ` in millions For the year For the year ended ended March 31, 2017 March 31, 2016 Current income tax expense 18, , Deferred income tax credit (1,255.32) (1,220.07) TOTAL 17, , DISCLOSURE OF PENALTIES IMPOSED BY RBI During the financial year ended March 31, 2017 and March 31, 2016, there were no penalties imposed on the Bank by RBI. F-54

341 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS FEES/ REMUNERATION RECEIVED FROM BANCASSURANCE Bank has earned ` 1, millions from bancassurance business during year ended March 31, 2017 (previous year: ` millions) CONCENTRATION OF DEPOSITS As at March 31, 2017, the deposits of top 20 depositors aggregated to ` 158, millions (previous year: ` 131, millions) (excluding certificate of deposits, which are tradable instruments), representing 11.08% (previous year: 11.73%) of the total deposit base CONCENTRATION OF ADVANCES As at March 31, 2017 the top 20 advances aggregated to ` 330, millions (previous year ` 276, millions), representing 12.38% (previous year 13.79%) of the total advances. For this purpose, advance is computed as per definition of Credit Exposure in RBI Master Circular on Exposure Norms DBR.No.Dir.BC.12/ / dated July 1, CONCENTRATION OF EXPOSURES As at March 31, 2017 the top 20 exposures aggregated to ` 361, millions (previous year ` 287, millions), representing 12.55% (previous year 13.24%) of the total exposures. Exposure is computed as per definition of Credit and Investment Exposure in RBI Master Circular on Exposure Norms DBR.No.Dir.BC.12/ / dated July 1, OVERSEAS ASSETS, NPAS AND REVENUE The below table shows total assets, NPAs and revenue for the overseas branches of the Bank ` in millions Particulars Year ended Year ended March 31, 2017 March 31, 2016 Total assets 68, , Total NPAs - - Total revenue 1, SPONSORED SPVS The Bank has not sponsored any SPV and hence there is no consolidation due to SPVs in Bank s books CREDIT / DEBIT CARD REWARD POINTS During financial year ending March 31, 2017, the Bank has provided ` millions for accumulated rewards points on credit and debit card (previous year nil) using an actuarial valuation method by employing an independent actuary CORPORATE SOCIAL RESPONSIBILITY (CSR) a) Amount required to be spent by the Bank on CSR during the year ` millions (previous year ` millions) F-55

342 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS b) Amount spent towards CSR during the year and recognized as expense in the Profit and Loss account on CSR related activities is ` millions (previous year ` millions), which comprise of following March 31, 2017 March 31, 2016 ` in millions Amt Amt In cash unpaid / Total In cash unpaid / Total provision provision Construction/acquisition of any asset On purposes other than (i) above STAFF RETIREMENT BENEFITS The following table sets out the funded status of the Gratuity Plan and the amounts recognized in the Bank s financial statements as of March 31, 2017 and March 31, 2016: a) Changes in present value of Obligations ` in millions As at As at March 31, 2017 March 31, 2016 Present Value of Obligation at the beginning of the year Interest Cost Current Service Cost Past Service Cost Benefits Paid - - (43.63) (41.22) Actuarial (gain)/loss on Obligation Present Value of Obligation at the end of the year Changes in the fair value of planned assets: ` in millions For the year For the year ended ended March 31, 2017 March 31, 2016 Fair value of plan assets at the beginning of the year Adjustment to Opening Balance Expected return on plan assets Contributions Benefits paid (43.63) (41.22) Actuarial gain/( loss) on planned assets 6.95 (14.25) Fair value of planned assets at the end of the period The Bank has entire contribution of Gratuity Fund as Investments with Insurance Companies. F-56

343 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled. Net gratuity cost for the year ended March 31, 2017 and March 31, 2016 comprises the following components: ` in millions For the year For the year ended ended March 31, 2017 March 31, 2016 Current Service Cost Interest Cost Expected Return on plan assets (54.57) (31.03) Net Actuarial gain recognized in the year Past Service Cost - - Expenses recognized EXPERIENCE HISTORY: ` in millions For the year For the year For the year For the year For the year ended ended ended ended ended March 31, 2017 March 31, 2016 March 31, 2015 March 31, 2014 March 31, 2013 (Gain)/Loss on obligation (62.75) due to change in assumption Experience (Gain)/Loss on (9.26) (51.13) 5.34 (31.41) obligation Actuarial Gain/(Loss) on 6.96 (14.25) (2.49) (5.70) (2.40) planned assets The assumptions used in accounting for the gratuity plan are set out below: For the year For the year ended ended March 31, 2017 March 31, 2016 Discount Rate 6.88% 7.58% Expected Return on Plan Assets 8.00% 7.00% Mortality IALM (2006- IALM ( ) Ult 08) Ult Future Salary Increases 12.00% 12.00% Disability - - Attrition 13%-25% 13%-25% Retirement 60 yrs 60 yrs F-57

344 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS Actuarial assumption on salary increase also takes into consideration the inflation, seniority, promotion and other relevant factors. Position of plan asset / liability ` in millions For the year For the year ended ended March 31, 2017 March 31, 2016 Present Value of Obligation at the end of the year Fair value of planned assets at the end of the period Plan asset / (liability) (2.32) (57.34) The Bank is yet to determine future contribution to Gratuity fund for Financial Year SEGMENT RESULTS Pursuant to the guidelines issued by RBI on AS-17 (Segment Reporting) - Enhancement of Disclosures dated April 18, 2007, effective from period ending March 31, 2008, the following business segments have been reported. Treasury: Includes investments, all financial markets activities undertaken on behalf of the Bank s customers, Proprietary trading, maintenance of reserve requirements and resource mobilisation from other banks and financial institutions. Corporate / Wholesale Banking: Includes lending, deposit taking and other services offered to corporate customers. Retail Banking: Includes lending, deposit taking and other services offered to retail customers. Other Banking Operations: Includes para banking activities like third party product distribution, merchant banking etc. F-58

345 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS Segmental results for the year ended March 31, 2017 are set out below: ` in millions Corporate / Other Retail Business Segments Treasury Wholesale Banking Total Banking Banking Operations Segment Revenue 53, , , , , Less: Inter-segment (1,316.79) Revenue net of inter- segment 205, Result 25, , (6,714.34) 1, , Unallocated Expenses (10,110.72) Operating Profit 50, Income Taxes 17, Extra-ordinary Profit/(Loss) Net Profit 33, Other Information: Segment assets 781, ,167, , ,140, Unallocated assets 9, Total assets 2,150, Segment liabilities 437, , , , ,888, Unallocated liabilities 261, Total liabilities 2,150, Segmental results for the year ended March 31, 2016 are set out below: ` in millions Business Segments Treasury Corporate / Other Retail Wholesale Banking Banking Banking Operations Total Segment Revenue 35, , , , Less: Inter-segment 6, Revenue net of inter- segment 162, Result 16, , (4,004.87) , Unallocated Expenses (6,879.23) Operating Profit 37, Income Taxes 12, Extra-ordinary Profit/(Loss) - Net Profit 25, Other Information: - Segment assets 633, , , ,644, Unallocated assets 7, Total assets 1,652, Segment liabilities 371, , , , ,499, Unallocated liabilities 152, Total liabilities 1,652, F-59

346 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS NOTES FOR SEGMENT REPORTING: 1. The business of the Bank is concentrated largely in India. Accordingly, geographical segment results have not been reported in accordance with AS-17 (Segment Reporting). 2. In computing the above information, certain estimates and assumptions have been made by the Management and have been relied upon by the auditors. 3. Income, expense, assets and liabilities have been either specifically identified with individual segment or allocated to segments on a systematic basis or classified as unallocated. 4. The unallocated assets includes tax paid in advance/tax deducted at source and deferred tax asset. 5. The unallocated liabilities include Share Capital and Reserves and Surplus. 6. Inter-segment transactions have been generally based on transfer pricing measures as determined by the Management. 7. The Bank has refined the allocation methodology and has allocated certain items that were previously classified as unallocated, to various segments. The same have been applied to segment information for previous periods also RELATED PARTY DISCLOSURES The Bank has transactions with its related parties comprising of subsidiary, key management personnel and the relative of key management personnel As per AS 18 Related Party Disclosures, notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014, the Bank s related parties for the year ended March 31, 2017 are disclosed below: SUBSIDIARY Yes Securities (India) Limited INDIVIDUALS HAVING SIGNIFICANT INFLUENCE: Mr. Rana Kapoor, Managing Director & CEO F-60

347 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS KEY MANAGEMENT PERSONNEL ( KMP ) (WHOLE TIME DIRECTOR) Mr. Rana Kapoor, Managing Director & CEO The following represents the significant transactions between the Bank and such related parties including relatives of above mentioned KMP during the year ended March 31, 2017: ` in millions Relatives of Whole time whole time Maximum directors / Maximum Maximum directors / Items / Related Balance individual Balance Balance Subsidiaries individual Party Category during the having during the during the having year significant year year significant influence influence Deposits * # # 5.77* Investment * Interest 8.09 # 0.97 Reimbursement 2.65 # of Cost incurred Receiving of # services Dividend paid # Purchase of fixed - asset Sale of fixed asset 6.39 * Represents outstanding as of March 31, 2017 # In Financial Year there was only one related party in the said category, hence the Bank has not disclosed the details of transactions in accordance with circular issued by the RBI on March 29, 2003 Guidance on compliance with the accounting standards by banks. The following represents the significant transactions between the Bank and such related parties including relatives of above mentioned KMP during the year ended March 31, 2016: ` in millions Relatives of Whole time whole time Maximum directors / Maximum Maximum directors / Items / Related Party Balance individual Balance Balance Subsidiaries individual Category during the having during the during the having year significant year year significant influence influence Deposits * # # 5.41* Investment * Interest paid # 0.35 F-61

348 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS ` in millions Relatives of Whole time whole time Maximum directors / Maximum Maximum directors / Items / Related Party Balance individual Balance Balance Subsidiaries individual Category during the having during the during the having year significant year year significant influence influence Reimbursement of 5.31 # Cost incurred Receiving of services # Dividend paid # * Represents outstanding as of March 31, 2016 # In Financial Year there was only one related party in the said category, hence the Bank has not disclosed the details of transactions in accordance with circular issued by the RBI on March 29, 2003 Guidance on compliance with the accounting standards by banks OPERATING LEASES Lease payments recognized in the profit and loss account for the year ended March 31, 2017 was ` 3, millions (Previous year: ` 2, millions). As at March 31, 2017 and March 31, 2016 the Bank had certain non-cancellable outsourcing contracts for information technology assets and branches on rent. The future minimum lease obligations against the same were as follows: ` in millions Lease obligations As at As at March 31, 2017 March 31, 2016 Not later than one year 2, , Later than one year and not later than five years 9, , Later than five years 11, , TOTAL 22, , The Bank does not have any provisions relating to contingent rent. The terms of renewal/purchase options and escalation clauses are those normally prevalent in similar agreements. There are no undue restrictions or onerous clauses in the agreements EARNINGS PER SHARE ( EPS ) The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, Earnings Per Share. The dilutive impact is mainly due to stock options granted to employees by the Bank. F-62

349 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS The computation of earnings per share is given below: ` in millions Particulars Year ended Year ended March 31, 2017 March 31, 2016 Basic (annualised) Weighted average no. of equity shares outstanding 422,140, ,916,568 Net profit / (loss) 33, , Basic earnings per share (` ) Diluted (annualised) Weighted average no. of equity shares outstanding 433,753, ,171,182 Net profit / (loss) 33, , Diluted earnings per share (` ) Nominal value per share (` ) The difference between weighted average number of equity shares outstanding between basic and diluted in the above mentioned disclosure is on account of outstanding ESOPs ESOP DISCLOSURES Statutory Disclosures Regarding Joining Stock Option Scheme: The Bank has Five Employee Stock Option Schemes viz. Joining Employee Stock Option Plan II (JESOP II), Joining Employee Stock Option Plan III (JESOP III), YBL ESOP (consisting of two sub schemes JESOP IV/PESOP I) YBL JESOP V/PESOP II (Consisting of three sub schemes JESOP V/ PESOP II/PESOP II -2010). The schemes include provisions for grant of options to eligible employees of the Bank and its subsidiaries/ affiliates. All the aforesaid schemes have been approved by the Nomination and Remuneration Committee (N&RC) and the Board of Directors and were also approved by the members of the Bank. All these schemes are administered by the N&RC. JESOP II and JESOP III were in force for employees joining the Bank up to March 31, 2006 and March 31, 2007 respectively. YBL JESOP V is in force for employees joining the Bank from time to time. Under JESOP V, 50% options vest takes place at the end of three years and remaining 50% at the end of five years from the date of Grant. PESOP I, PESOP II and PESOP II are Performance Stock Option Plans. Under PESOP I, 25% of the options granted would vest at the end of each year from the date of grant. Under PESOP II, 30% of the granted options vest at the end of first year, 30% vest at the end of second year and balance 40% vest at the end of third year. Under YBL PESOP II 2010, 30% of the granted options vest at the end of the third year, 30% vest at the end of the fourth year and balance 40% vest at the end of the fifth year. Further, grants under PESOP II had been discontinued with effect from January 20, Options under all the aforesaid plans are granted for a term of 10 years (inclusive of the vesting period) and are settled with equity shares being allotted to the beneficiary upon exercise. F-63

350 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS A summary of the status of the Bank s stock option plans as on March 31, 2017 and March 31, 2016 is set out below: As at March 31, 2017 As at March 31, 2016 PESOP JESOP PESOP JESOP Options outstanding at the beginning of the year 14,737,020 4,589,000 14,449,500 4,530,288 Granted during the year 872, ,500 2,378,350 1,427,250 Exercised during the year 2,226,137 1,017,035 1,812, ,963 Forfeited / lapsed during the year 422, , , ,575 Options outstanding at the end of the year 12,960,433 4,122,990 14,737,020 4,589,000 Options exercisable 4,527, ,490 3,990, ,825 Weighted average exercise price (`) Weighted average remaining contractual life of outstanding option (yrs) The Bank has charged Nil amount, being the intrinsic value of the stock options granted for the year ended March 31, 2017 and March 31, Had the Bank adopted the Fair Value method (based on Black- Scholes pricing model), for pricing and accounting of options, net profit after tax would have been lower by ` millions (Previous year: ` millions), the basic earnings per share would have been ` (Previous year: ` 59.63) per share instead of ` (Previous year: ` 60.62) per share; and diluted earnings per share would have been ` (Previous year: ` 58.34) per share instead of ` (Previous year: ` 59.31) per share. The following assumptions have been made for computation of the fair value of ESOP granted for the year ended March 31, 2017 and March 31, For the year For the year ended ended March 31, 2017 March 31, 2016 Risk free interest rate 6.29%-9.23% 7.38%-9.23% Expected life 1.5 yrs yrs 1.5 yrs yrs Expected volatility 25.01%-50.67% 25.01%-57.52% Expected dividends 1.50% 1.50% In computing the above information, certain estimates and assumptions have been made by the Management DEFERRED TAXATION The deferred tax asset of ` 6, millions as at March 31, 2017 and ` 4, millions as at March 31, 2016, is included under other assets and the corresponding credits have been taken to the profit and loss account. F-64

351 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS The components that give rise to the deferred tax asset included in the balance sheet are as follows: ` in millions Particulars As at As at March 31, 2017 March 31, 2016 Deferred tax asset Depreciation Provision for gratuity and unutilized leave Provision for Non-Performing Assets 1, Amortization of premium on HTM securities Provision for standard advances 2, , Other Provisions Deferred tax asset 6, , PROVISIONS AND CONTINGENCIES The breakup of provisions of the Bank for the year ended March 31, 2017 and March 31, 2016 are given below: ` in millions For the year For the year Particulars ended March ended March 31, , 2016 Provision for taxation 17, , Provision for investments Provision for standard advances Provision made/write off for non-performing advances 6, , Others Provisions* (53.87) (22.91) TOTAL 25, , * Other Provisions includes provision made against other assets and provision for sacrifice of interest on Restructured Assets OTHER DISCLOSURES DISCLOSURE ON REMUNERATION a. Information relating to the composition and mandate of the Nomination & Remuneration Committee.- The Board of Directors of the Bank through its Nomination and Remuneration Committee (N&RC) shall exercise oversight & effective governance over the framing and implementing of the Compensation policy. The N&RC shall comprise a minimum of 3 non-executive Directors, majority being Independent Directors. Composition of the N&RC of the Bank as on March 31, 2017 is as follows: Mr. Brahm Dutt, Independent Director (Chairman) Mr. Mukesh Sabharwal, Independent Director F-65

352 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS Mr. Ajai Kumar, Non-Executive Non- Independent Director (appointed w.e.f. October 30, 2016) The roles and responsibilities of the N & RC are as under- Reviewing the current Board composition, its governance framework and determine future requirements and making recommendations to the Board for approval; Examining the qualification, knowledge, skill sets and experience of each director vis-a-vis the Bank s requirements and their effectiveness to the Board on a yearly basis and accordingly recommend to the Board for the induction of new Directors; To review the composition of the existing Committees of the Board and to examine annually whether there is any need to have a special committee of directors to meet the business requirements of the Bank and accordingly recommend to the Board for formation of a special committee; To scrutinize nominations for Independent/ Non Executive Directors with reference to their qualifications and experience and making recommendations to the Board for appointment/filling of vacancies; To identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal; Formulating the criteria for evaluation of performance of independent directors and the board of directors; Carrying out evaluation of every director s performance; To evaluate whether to extend or continue the term of appointment of the independent director, on the basis of the report of performance evaluation of independent directors; To validate fit and proper status of all Directors on the Board of the Bank in terms of the Guidelines issued by the RBI or other regulatory authorities; To develop and recommend to the Board Corporate Governance guidelines applicable to the Bank for incorporating best practices; To implement policies and processes relating to Corporate Governance principles; To formulate the criteria for determining qualifications, positive attributes and independence of a director; To devise a Policy on Board diversity; To recommend to the Board a policy relating to, the remuneration for the directors, key managerial personnel and other employees; Reviewing the Bank s overall compensation structure and related polices with a view to attract, motivate and retain employees and review compensation levels vis-à-vis other Banks and the industry in general; Ensuring the following while formulating the policy on the aforesaid matters: the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors, key managerial personnel and senior management of the quality required to run the company successfully; F-66

353 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS relationship of remuneration to 12 dated January 13, 2012 which is approved by performance is clear and meets the Nomination and Remuneration Committee appropriate performance benchmarks; on January 7, The remuneration of MD & and CEO/Wholetime Directors will be in accordance with the above mentioned circular and shall be remuneration to directors, key reviewed basis RBI guidelines issued from time managerial personnel and senior to time and approved by N&RC before obtaining management involves a balance Regulatory approvals. between fixed and incentive pay reflecting short and long- term The compensation philosophy of the Bank is performance objectives appropriate aligned to the organizational values aimed at to the working of the company and its encouraging Professional Entrepreneurship goals, and reinforcing a strong culture promoting meritocracy, performance, potential and prudent To formulate and determine the Bank s risk taking. policies on remuneration packages payable to the Directors and key managerial personnel The Bank s Remuneration policy is to position including performance/achievement bonus, its pay structure competitively in relation to the perquisites, retrials, sitting fee, etc.; market to be able to attract and retain critical talent. The compensation strategy clearly endeavors to To consider grant of Stock Options differentiate performance significantly and link to employees including employees of the same with quality and quantum of rewards. subsidiaries and administer and supervise The Bank also strives to create long term wealth the Employee Stock Option Plans; creation opportunities through stock option schemes. To function as the Compensation Committee as prescribed under the SEBI (Share Based Human Capital Management shall review the Employee Benefits) Regulations, 2014 and policy annually or as required, based on changes is authorized to allot shares pursuant to in statutory, regulatory requirements and industry exercise of Stock Options by employees; practices pertaining to Compensation and Benefits. Performing any other function or duty as stipulated by the Companies Act, Reserve c. Description of the ways in which current and future Bank of India, Securities and Exchange Board risks are taken into account in the remuneration of India, Stock Exchanges and any other processes. It should include the nature and type regulatory authority or under any applicable of the key measures used to take account of these laws as may be prescribed from time to time. risks b. Information relating to the design and structure of The broad factors taken into account for the remuneration processes and the key features and Annual Review /revision of Fixed Compensation objectives of remuneration policy- (TCC) & Performance Bonus are: The Bank has framed Compensation and benefit 1. Individual performance based on the Annual policy based on the guidelines contained in the Performance Review (APR) process of the RBI circular DBOD No. BC.72/ /2011- Bank. F-67

354 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS 2. Business Unit performance in terms of financial outcomes, productivity, etc. of risk. Further, the compensation in all forms will be consistent with the risk alignment. 3. Consideration of all types of risk factors and shall be symmetrical with risk outcomes as well as sensitive to the time horizon of risk. 4. Profitability of the Bank. 5. Industry Benchmarking and consideration towards cost of living adjustment/inflation The Bank subscribes to a Sum-of-Parts compensation methodology, which is reflective of the Bank s commitment and philosophy of creating and sharing value with its employee partners. The sum-of-parts compensation comprises: FIXED COMPENSATION Variable Compensation in the form of Performance Bonus One of the key factors to be considered for the Annual Review /revision of Fixed Compensation (TCC) & Performance Bonus includes individual performance based on the Annual Performance Review (APR) process of the Bank. The evaluation on risk management parameters is an integral part of the Annual Performance Review process, forming part of Key Result Areas of the executives with suitable weightage. The inputs for assessment on these parameters will be independently provided by the Risk Management function of the Bank. For the services pertaining to financial year where variable pay is 50% or more, 40-60% shall be deferred over minimum period of 3 years. In the event of a negative contribution, deferred compensation shall be subject to appropriate malus/claw back arrangements as decided by the N&RC. Guaranteed bonus shall not be a part of the compensation plan. EMPLOYEE STOCK OPTION PLANS (ESOP) The Board of Directors of the Bank through its Nomination and Remuneration Committee (N&RC) shall exercise oversight & effective governance over the framing and implementing of the Compensation policy. Human Capital Management under the guidance of MD & CEO shall administer the Compensation and Benefits structure in line with Industry practices and statutory requirements as applicable from time to time. The compensation for executives in Risk Control and Compliance functions shall be independent of the business areas they oversee. The Bank shall not provide any facility or funds or permit employees to insure or hedge their compensation structure to offset the risk alignment effects embedded in their compensation arrangement. d. Description of the ways in which the Bank seeks to link performance during a performance measurement period with levels of remuneration and a discussion of the bank s policy and criteria for adjusting deferred remuneration before vesting and after vesting. The Bank ensures that the compensation remains adjusted for all types of risk, symmetrical with risk outcomes as well as sensitive to the time horizon e. Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the Bank utilizes and the rationale for using these different forms. The Bank subscribes to a Sum-of-Parts compensation methodology, which is reflective of the commitment and philosophy of creating and sharing value with the employee partners. The sum-of-parts compensation for executives comprises: F-68

355 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS Fixed Compensation (Total Cost to Company-TCC) - Includes value of perquisites. Variable compensation in the form of Performance /Deferred Bonus Variable pay shall be in the form of Performance Bonus which will be calculated as a percentage of Fixed Pay. The evaluation on risk management parameters is an integral part of the Annual Performance Review process, forming part of Key Result Areas of the executives with suitable weightage. The inputs for assessment on these parameters will be independently provided by the Risk Management function of the Bank. Employee Stock Options Plans These are formulated on a mid to long term basis by the Bank in accordance with SEBI and other Regulatory guidelines. The grant of ESOP shall be under approval from MD & CEO, which shall be subsequently ratified by the N&RC. f. Quantitative Disclosures on Remuneration for MD & CEO and other risk takers There were 4 meetings of the N&RC held during the year ended March 31, The Bank had paid a remuneration of ` 0.60 million* to the members of the N&RC for attending the meetings of the N&RC. ` in millions No. of employee For the year For the year No. of ended ended employees March 31, 2017 March 31, 2016 a. (i) Number of employees having received a variable remuneration award during the financial year. (refer Note below) (ii) Number and total amount of sign-on awards made during - the financial year. (iii) Details of guaranteed bonus, if any, paid as joining / sign on - bonus (iv) Details of severance pay, in addition to accrued benefits, - if any. b. (i) Total amount of outstanding deferred remuneration, split into cash, shares and sharelinked instruments and other forms.(refer Note below ) c. Breakdown of amount of remuneration awards for the financial year to show fixed and variable, deferred and nondeferred Total remuneration award F-69

356 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS ` in millions No. of employee For the year For the year No. of ended ended employees March 31, 2017 March 31, 2016 Of which Fixed Component Of which Variable Component Deferred Paid d. (i) Total amount of outstanding deferred remuneration and retained remuneration exposed to ex post explicit and / or implicit adjustments.(refer Note below ) (ii) Total amount of reductions during the financial year due to ex- post explicit adjustments..(refer Note below ) (iii) Total amount of reductions during the financial year due to ex- post implicit adjustments. (change in variable payout due to change in Market Conditions) (refer Note below) Note: 1. Amounts disclosed represents variable pay paid during the year ended March 31,2017 and March 31,2016 is for services rendered by the risk takers during the year March 31, 2016 and March 31,2015 respectively, since the bonus pool for the year ended March 31, 2017 has not yet been allocated and accordingly, the deferred component for the risk takers is yet to be determined. 2. Compensation for MD & CEO is as approved by the RBI and paid by the Bank to the MD & CEO. Compensation for other risk takers is as approved by the Bank. 3. For the Financial Year ended March 31, 2017, 15,000 ESOPs were issued to 1 risk takers (previous year 285,000 ESOPs to 4 risktakers) MOVEMENT IN FLOATING PROVISIONS The Bank has not created or utilized any floating provisions during the financial year ended March 31, 2017 and financial year ended March 31, The floating provision as at March 31, 2017 was ` Nil (Previous year: ` Nil) DRAWDOWN ON RESERVES During the financial year ended March 31, 2017, the Bank has not drawn down any reserve. (Previous year: ` Nil) LIQUIDITY COVERAGE RATIO (LCR) Below mentioned is a position of Liquidity Coverage Ratio. The Bank has moved from annual disclosures in the previous year to quarterly disclosures in the current financial year in lines with the LCR disclosure standards notified by RBI. F-70

357 ` in millions Current Year Previous Year Quarter ended Quarter ended Quarter ended Quarter ended Year ended March 31, 2017 * December 31, 2016 ** September 30, 2016 ** June 30, 2016 ** March 31, 2016*** Particulars Total Total Total Total Total Total Total Total Total Weighted Total Weighted Unweighted Weighted Unweighted Unweighted Weighted Unweighted Unweighted Weighted Value Value Value Value Value Value Value Value Value Value HIGH QUALITY LIQUID ASSETS 1 Total High Quality Liquid Assets (HQLA) 327, , , , , CASH OUTFLOWS 2 Retail deposits and deposits from small business 470, , , , , , , , , , customers, of which: (i) Stable deposits 59, , , , , , , , , , (ii) Less stable deposits 411, , , , , , , , , , Unsecured wholesale funding, of which: 603, , , , , , , , , , (i) Operational deposits (all counterparties) (ii) Non-operational deposits (all counterparties) 603, , , , , , , , , , (iii) Unsecured debt Secured wholesale funding , , Additional requirements, of which 14, , , , , , , , , , (i) Outflows related to derivative exposures and other 10, , , , , , , , , , collateral requirements (ii) Outflows related to loss of funding on debt products STATEMENTSFINANCIALOFPARTFORMINGSCHEDUL ES (iii) Credit and liquidity facilities 4, , , , , Other contractual funding obligations 35, , , , , , , , , , Other contingent funding obligations 1,012, , , , , , , , , , Total Cash Outflows 426, , , , , CASH INFLOWS 9 Secured lending (e.g. reverse repos) Inflows from fully performing exposures 56, , , , , , , , , , Other cash inflows 34, , , , , , , , , , Total Cash Inflows 91, , , , , , , , , , TOTAL HQLA 327, , , , , Total Net Cash Outflows 372, , , , , Liquidity Coverage Ratio (%) 88.1% 88.0% 83.9% 83.1% 78.2% * For the quarter ended March 31, 2017, the weighted and unweighted amounts are calculated taking simple average of daily positions for 90 days starting 1st Jan 17 to 31st March 17. **For the quarters April 2016 to December 2016, the weighted and unweighted amounts are calculated taking simple average of month-end positions. ***For the year ended March 31, 2016, the weighted and unweighted amount are calculated taking simple average month-end positions from April 2015 to March F-71

358 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS LIQUIDITY COVERAGE RATIO (LCR): The Bank measures and monitors the LCR in line with the Reserve Bank of India s circular dated June 09, 2014 and November 28, 2014 on Basel III Framework on Liquidity Standards - Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards as amended for Prudential Guidelines on Capital Adequacy and Liquidity Standards dated March 31, The LCR guidelines aims to ensure that a bank maintains an adequate level of unencumbered High Quality Liquid Assets (HQLAs) that can be converted into cash to meet its liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario. At a minimum, the stock of liquid assets should enable the bank to survive until day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions can be taken. Banks are required to maintain High Quality Liquid Assets of a minimum of 100% of its Net Cash Outflows by January 01, However, with a view to provide transition time, the guidelines mandate a minimum requirement of 60% w.e.f. January 01, 2015 and a step up of 10% every year to reach the minimum requirement of 100% by January 01, Currently, the LCR applicable is 80%. The adequacy in the LCR maintenance is an outcome of a conscious strategy of the Bank towards complying with LCR mandate ahead of the stipulated timelines. The maintenance of LCR, both on end of period and on a average basis, has been on account of multiple factors viz. increase in excess SLR, existing eligibility in Corporate Bond Investments, increase in Retail deposits and increase in non callable deposits. Funding strategies are formulated by the ALCO of the Bank. The objective of the funding strategy is to achieve an optimal funding mix which is consistent with prudent liquidity, diversity of sources and servicing costs. Accordingly, BSMG (Balance Sheet Management Group) of the Bank estimates daily liquidity requirement of the various business segments and manages the same on consolidated basis under ALCO guidance. With the help of Structural and Liquidity Statement prepared by the Bank, BSMG evaluates liquidity requirement and takes necessary action. Periodical reports are also placed before the ALCO for perusal and review. The Bank s HQLA comprises of Excess CRR, Excess SLR, eligible foreign sovereign investments, Marginal Standing Facility (MSF) and Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) as permitted under prudential guidance and eligible Level 2 investments. The Bank has a very limited exposure to liquidity risk on account of its Derivatives portfolio. Further, the Bank believes that all inflows and outflows which might have a material impact under the liquidity stress scenario have been considered for the purpose of LCR. Further, SLR investments as well as Corporate Bond portfolio of the Bank considered for HQLA is also well diversified across various instruments and Liquid Asset Type Mix and should provide the Bank with adequate and timely liquidity. The daily average LCR for quarter ending March 31, 2017 is 88.1% which is comfortably above RBI prescribed minimum requirement of 80%. Board of Directors of the Bank has empowered ALCO (Top Management Executive Committee) to monitor and strategize the Balance Sheet profile of the Bank. In line with the business strategy, ALCO forms an Interest Rate/Liquidity view for the bank with the help of the economic analysis provided by the in-house economic research team of the bank. ALCO of the Bank channelizes various business segments of the Bank to target good quality asset and liability profile to meet the Bank s profitability as well as Liquidity requirements with the help of robust MIS and Risk Limit architecture of the Bank. Further for the financial year ending 2016 and 2017, the Bank has considered nil operational deposit pending approval from RBI. F-72

359 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS INTRA-GROUP EXPOSURES The Bank has a subsidiary YES Securities (India) Ltd. and below mentioned are details of Intra-Group Exposure as of March 31, 2017 and March 31, ` in millions Particulars As of As of March 31, 2017 March 31, 2016 Total amount of intra-group exposures 2, , Total amount of top-20 intra-group exposures 2, , Percentage of intra-group exposures to total exposure of the bank on borrowers / customers (%) TRANSFERS TO DEPOSITOR EDUCATION AND AWARENESS FUND (DEAF) ` in millions For the year For the year Particulars ended ended March 31, 2017 March 31, 2016 Opening balance of the amount transferred to DEAF Add: Amounts transferred to DEAF during the year Less: Amounts reimbursed by DEAF towards claims - - Closing balance of amounts transferred to DEAF INVESTOR EDUCATION AND PROTECTION FUND There were no amounts which were required to be transferred to the Investor Education and Protection Fund by the Bank as on March 31, UNHEDGED FOREIGN CURRENCY EXPOSURE OF BANK S CUSTOMER The Bank has in place a policy on managing credit risk arising out of unhedged foreign currency exposures of its borrowers. The objective of this policy is to maximize the hedging on foreign currency exposures of borrowers by reviewing their foreign currency product portfolio and encouraging them to hedge the unhedged portion. In line with the policy, assessment of unhedged foreign currency exposure is a part of assessment of borrowers and is undertaken while proposing limits or at the review stage. Additionally, at the time of sanctioning limits for all clients, the Bank stipulates a limit on the unhedged foreign currency exposure of the client (as a % of total foreign currency exposure sanctioned by the Bank) after considering factors such as internal rating of the borrower, size, possibility of natural hedging, sophistication of borrower and maturity of borrower s financial systems, relative size of unhedged foreign currency exposure with respect to total borrowings of the client, etc. Further, the Bank reviews the unhedged foreign currency exposure across its portfolio on a periodic basis. The Bank also maintains incremental provision and capital towards the unhedged foreign currency exposures of its borrowers in line with the extant RBI guidelines. The Bank has maintained provision of ` millions (previous year of ` millions) and additional capital of ` 2, millions (previous year of ` 2, millions) on account of Unhedged Foreign Currency Exposure of its borrowers as at March 31, F-73

360 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS PROVISIONING PERTAINING TO FRAUD ACCOUNTS The Bank has reported 61 cases of fraud in the financial year ended March 31, 2017 amounting to ` millions (Previous Year: 35 cases amounting to ` millions). The Bank has expensed off/ provided for the expected loss arising from these frauds and does not have any unamortized provision DISCLOSURE OF COMPLAINTS A. CUSTOMER COMPLAINTS Year ended Year ended March 31, 2017 March 31, 2016 i) No. of Complaints pending at the beginning of the year 1,258 1,117 ii) No. of Complaints received during the year 61,998 38,745 iii) No. of Complaints redressed during the year 60,639 38,604 iv) No. of Complaints pending at the end of the year 2,617 1,258 Auditors have relied upon the information presented by management as above. B. AWARDS PASSED BY THE BANKING OMBUDSMAN Year ended Year ended March 31, 2017 March 31, 2016 i) No. of unimplemented Awards at the beginning of the year Nil Nil ii) No. of Awards passed by the Banking Ombudsman during the year Nil Nil iii) No. of Awards implemented during the year Nil Nil iv) No. of unimplemented Awards at the end of the year Nil Nil DUES TO MICRO AND SMALL ENTERPRISES Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of interest payments due to delays in such payments to Micro, Small and Medium enterprises. Auditors have relied upon the above management assertion SECURITIZATION TRANSACTIONS The Bank has not done any securitization transactions during the year ended March 31, 2017 and March 31, LETTER OF COMFORT The Bank has not issued any letter of comfort during the year ended March 31, 2017 and March 31, F-74

361 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS SOFTWARE CAPITALIZED UNDER FIXED ASSETS The Bank has capitalized software under Fixed Asset amounting to ` millions and ` millions during the financial year ended March 31, 2017 and March 31, 2016 respectively. ` in millions Particulars As at As at March 31, 2017 March 31, 2016 At cost at March 31st of preceding year 1, , Additions during the year Deductions during the year - - Depreciation to date (1,487.59) (1,082.60) Net block 1, DESCRIPTION OF CONTINGENT LIABILITIES Sr. Contingent Liabilities No. Brief 1. Claims against the Bank not acknowledged as debts 2. Liability on account of forward exchange and derivative contracts. The Bank is a party to various legal and tax proceedings in the normal course of business. The Bank does not expect the outcome of these proceedings to have a material adverse effect on the Bank s financial conditions, results of operations or cash flows. The Bank enters into foreign exchange contracts, currency options, forward rate agreements, currency swaps and interest rate swaps with interbank participants and customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in one currency against another, based on predetermined rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. The notional amounts of financial instruments of such foreign exchange contracts and derivatives provide a basis for comparison with instruments recognized on the balance sheet but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Bank s exposure to credit or price risks. The derivative instruments become favorable (assets) or unfavorable (liabilities) as a result of fluctuations in market rates or prices relative to their terms. The aggregate contractual or notional amount of derivative financial instruments on hand, the extent to which instruments are favorable or unfavorable and, thus the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly. 3. Guarantees given on behalf of constituents, acceptances, endorsements and other obligations 4. Other items for which the Bank is contingently liable As a part of its commercial banking activities the Bank issues documentary credit and guarantees on behalf of its customers. Documentary credits such as letters of credit enhance the credit standing of the customers of the Bank. Guarantees generally represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfill its financial or performance obligations. - Value dated purchase of securities - Capital commitments - Amount deposited with RBI under Depositor Education Awareness Fund - Foreign Exchange Contracts (Tom & Spot) Refer Schedule 12 for amounts relating to contingent liability F-75

362 SCHEDULES FORMING PART OF FINANCIAL STATEMENTS PROVISION FOR LONG TERM CONTRACTS The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Bank has reviewed and recorded adequate provision as required under any law / accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements DISCLOSURE ON SPECIFIED BANK NOTES (SBNs) The Bank believes that the MCA notification G.S.R. 308(E) dated March 30, 2017 regarding holdings as well as dealings in Specified Bank Notes during the period from 8th November, 2016 to 30th December, 2016 is not applicable to banking companies. RBI has expressed a similar view in response to the Bank s question. Accordingly, the disclosures prescribed under the said notification are not required to be made by the Bank PSLCs SOLD AND PURCHASED DURING THE YEAR ENDED MARCH 31, 2017 ` in millions Particulars Purchased Sold PSLC - Agriculture - - PSLC - SF/MF 22, PSLC - Micro Enterprises - - PSLC - General AUDIT OF FINANCIAL STATEMENTS- The figures for the year ended March 31, 2016 were audited by previous statutory auditors PRIOR PERIOD COMPARATIVES Previous year s figures have been regrouped where necessary to conform to current year classification. For B S R & Co. LLP Chartered Accountants ICAI Firm Registration No: W/ W For and on behalf of the Board of Directors YES BANK Limited Manoj Kumar Vijai Rana Kapoor Ashok Chawla Ajai Kumar Partner Managing Director & CEO Non Executive Independent Director Chairman Membership No: (DIN: ) (DIN: ) (DIN: ) Vasant V. Gujarathi Rajat Monga Shivanand R. Shettigar Mumbai Director Chief Financial Officer Company Secretary April 19, 2017 (DIN: ) F-76

363 INDEPENDENT AUDITORS REPORT To, The Members of YES Bank Limited REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS We have audited the accompanying consolidated financial statements of YES Bank Limited (hereinafter referred to as the Holding Company ) and its subsidiary (the Holding Company and the subsidiary together referred to as the Group ), comprising of the Consolidated Balance Sheet as at March 31, 2017, the Consolidated Profit and Loss Account, the Consolidated Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information (hereinafter referred to as the consolidated financial statements ). MANAGEMENT S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS The Holding Company s Board of Directors is responsible for the preparation of these consolidated financial statements in terms of the requirements of the Companies Act, 2013 (hereinafter referred to as the Act ) that give a true and fair view of the consolidated financial position, consolidated financial performance and consolidated cash flows of the Group in accordance with the accounting principles generally accepted in India, including the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules 2014, provisions of Section 29 of the Banking Regulation Act, 1949 and the circulars, guidelines and directions issued by the Reserve Bank of India ( RBI ) from time to time. The respective Board of Directors of the companies included in the Group are responsible for maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Group and for preventing and detecting frauds and other irregularities; the selection and application of appropriate accounting policies; making judgments and estimates that are reasonable and prudent; and design, implementation and maintenance of adequate internal financial controls, that were operating effectively for ensuring the accuracy and completeness of the accounting records, relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error, which have been used for the purpose of preparation of the consolidated financial statements by the Directors of the Holding Company, as aforesaid. AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on these consolidated financial statements based on our audit. While conducting our audit, we have taken into account the provisions of the Act, the accounting and auditing standards and matters which are required to be included in the audit report under the provisions of the Act and the Rules made thereunder. We conducted our audit in accordance with the Standards on Auditing specified under Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal financial control relevant to the Holding Company s preparation of the consolidated financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting policies used and F-77

364 the reasonableness of the accounting estimates made by the Holding Company s Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the consolidated financial statements. OPINION In our opinion and to the best of our information and according to the explanations given to us, the aforesaid consolidated financial statements give the information required by the Act in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India, of the consolidated state of affairs of the Group as at March 31, 2017, their consolidated profit and their consolidated cash flows for the year ended on that date. OTHER MATTERS The consolidated financial statements of the Group for the year ended March 31, 2016 were audited by another auditor who expressed an unmodified opinion on those statements on April 27, REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS The disclosure required on holdings as well as dealings in Specified Bank Notes (SBNs) during the period from November 08, 2016 to December 30, 2016 as envisaged in notification GSR 308(E) dated March 30, 2017 issued by the Ministry of Corporate Affairs, is not applicable to the Bank. The subsidiary of the Bank has NIL reporting for this disclosure. Refer Note to the financial statements. (b) in our opinion, proper books of account as required by law relating to the presentation of the aforesaid consolidated financial statements have been kept so far as it appears from our examination of those books; (c) the Consolidated Balance Sheet, the Consolidated Profit and Loss Account and the Consolidated Cash Flow Statement dealt with by this report are in agreement with the books of account; (d) in our opinion, the aforesaid consolidated financial statements comply with the Accounting Standards specified under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, (e) on the basis of the written representations received from the directors of the Holding Company and of the Subsidiary as on March 31, 2017 taken on record by the Board of Directors of the respective companies, none of the directors of the Group is disqualified as on March 31, 2017 from being appointed as a director in terms of Section 164 (2) of the Act. (f) (g) with respect to the adequacy of the internal financial controls over financial reporting of the Group and the operating effectiveness of such controls, refer to our separate Report in Annexure A ; and with respect to the other matters to be included in the Auditor s Report in accordance with Rule 11 of the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and according to the explanations given to us: Further, as required by Section 143(3) of the Act, we report that: (a) we have sought and obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit of the aforesaid consolidated financial statements; (i) the consolidated financial statements disclose the impact of pending litigations on the consolidated financial position of the F-78

365 Group Refer Note to the consolidated financial statements; (ii) provision has been made in the consolidated financial statements, as required under the applicable law or accounting standards, for material foreseeable losses, if any, on long-term contracts including derivative contracts - Refer Note to the consolidated financial statements; Investor Education and Protection Fund by the Holding Company and its subsidiary. For B S R & Co. LLP Chartered Accountants Firm s Registration No W/W Manoj Kumar Vijai Mumbai Partner April 19, 2017 Membership No (iii) There has been no delay in transferring amounts, required to be transferred, to the ANNEXURE A TO THE INDEPENDENT AUDITORS REPORT OF EVEN DATE ON THE CONSOLIDATED FINANCIAL STATEMENTS OF YES BANK LIMITED Report on the Internal Financial Controls under clause (i) of sub-section 3 of Section 143 of the Companies Act, 2013 In conjunction with our report of the consolidated financial statements of YES Bank Limited and its subsidiary (collectively referred to as the Group ) as of and for the year ended March 31, 2017, we have audited the internal financial controls over financial reporting of YES Bank Limited (hereinafter referred to as the Holding Company ) and its subsidiary. MANAGEMENT S RESPONSIBILITY FOR INTERNAL FINANCIAL CONTROLS The respective Board of Directors of the Holding Company and its subsidiary are responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Group considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting ( the Guidance Note ) issued by the Institute of Chartered Accountants of India ( the ICAI ). These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to the respective policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013 ( the Act ). AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on the Group s internal financial controls over financial reporting based on our audit. We conducted our audit in accordance with the Guidance Note and the Standards on Auditing ( the Standards ), issued by the ICAI and deemed to be prescribed under Section 143(10) of the Act, to the extent applicable to an audit of internal financial controls, both issued by the ICAI. Those Standards and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether adequate internal financial controls over financial reporting was established and maintained and if such controls operated effectively in all material respects. F-79

366 ANNEXURE A TO THE INDEPENDENT AUDITORS REPORT OF EVEN DATE ON THE CONSOLIDATED FINANCIAL STATEMENTS OF YES BANK LIMITED Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal financial controls system over financial reporting and their operating effectiveness. Our audit of internal financial controls over financial reporting included obtaining an understanding of internal financial controls over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion on the Group s internal financial controls system over financial reporting. MEANING OF INTERNAL FINANCIAL CONTROLS OVER FINANCIAL REPORTING A company s internal financial control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company s internal financial control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the bank are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company s assets that could have a material effect on the financial statements. INHERENT LIMITATIONS OF INTERNAL FINANCIAL CONTROLS OVER FINANCIAL REPORTING Because of the inherent limitations of internal financial controls over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls over financial reporting to future periods are subject to the risk that the internal financial control over financial reporting may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. OPINION In our opinion, the Holding Company and its subsidiary have, in all material respects, an adequate internal financial controls system over financial reporting and such internal financial controls over financial reporting were operating effectively as at March 31, 2017, based on the internal control over financial reporting criteria established by the Group considering the essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls Over Financial Reporting issued by the ICAI. For B S R & Co. LLP Chartered Accountants Firm s Registration No W/W Manoj Kumar Vijai Mumbai Partner April 19, 2017 Membership No F-80

367 CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2017 (` in thousands) Schedule As at As at March 31, 2017 March 31, 2016 CAPITAL AND LIABILITIES Capital 1 4,564,858 4,205,316 Reserves and surplus 2 215,831, ,418,492 Deposits 3 1,428,574,438 1,117,041,801 Borrowings 4 386,066, ,589,769 Other liabilities and provisions 5 115,559,428 81,170,843 ASSETS TOTAL 2,150,596,899 1,652,426,221 Cash and balances with Reserve Bank of India 6 69,520,697 57,761,643 Balances with banks and money at call and short notice 7 126,025,880 24,427,395 Investments 8 499,817, ,884,656 Advances 9 1,322,626, ,099,270 Fixed assets 10 6,867,947 4,745,752 Other assets ,737,623 95,507,505 TOTAL 2,150,596,899 1,652,426,221 Contingent liabilities 12 3,795,645,710 3,312,391,973 Bills for collection 13,900,033 15,588,740 Significant Accounting Policies and Notes to Accounts forming 18 part of financial statements As per our report of even date attached. For B S R & Co. LLP Chartered Accountants ICAI Firm Registration No W/W For and on behalf of the Board of Directors YES BANK Limited Manoj Kumar Vijai Rana Kapoor Ashok Chawla Ajai Kumar Partner Managing Director & Non-Executive Director CEO Independent Chairman Membership No (DIN: ) (DIN: ) (DIN: ) Vasant V. Gujarathi Rajat Monga Shivanand R. Shettigar Mumbai Director Chief Financial Officer Company Secretary April 19, 2017 (DIN: ) F-81

368 CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2017 (` in thousands) Schedule For the year ended For the year ended March 31, 2017 March 31, 2016 I. INCOME Interest earned ,249, ,334,419 Other income 14 42,177,999 27,294,218 TOTAL 206,427, ,628,637 II. EXPENDITURE Interest expended ,265,280 89,654,092 Operating expenses 16 41,686,077 30,050,340 Provisions and contingencies 17 25,077,771 17,627,318 TOTAL 173,029, ,331,750 III. PROFIT Net profit for the year 33,398,856 25,296,887 Profit brought forward 55,204,622 42,055,905 TOTAL 88,603,478 67,352,792 IV. APPROPRIATIONS Transfer to Statutory Reserve 8,325,241 6,348,617 Transfer to Capital Reserve 1,082, ,827 Transfer to Investment Reserve - - Dividend paid for previous year 4,665 2,740 Tax on Dividend paid for previous year Proposed Dividend - 4,205,316 Tax (including surcharge and education cess) on Dividend - 856,202 Balance carried over to balance sheet 79,189,628 55,204,622 TOTAL 88,603,478 67,352,792 Significant Accounting Policies and Notes to Accounts 18 forming part of financial statements Earning per share (Refer Sch.18.12) Basic (`) Diluted (`) (Face Value of Equity Share is ` 10/-) As per our report of even date attached. For B S R & Co. LLP Chartered Accountants ICAI Firm Registration No W/W For and on behalf of the Board of Directors YES BANK Limited Manoj Kumar Vijai Rana Kapoor Ashok Chawla Ajai Kumar Partner Managing Director & CEO Non-Executive Director Independent Chairman Membership No (DIN: ) (DIN: ) (DIN: ) Vasant V. Gujarathi Rajat Monga Shivanand R. Shettigar Mumbai Director Chief Financial Officer Company Secretary April 19, 2017 (DIN: ) F-82

369 CONSOLIDATED CASH FLOWSTATEMENT FOR THE YEAR ENDED MARCH 31, 2017 CASH FLOW FROM OPERATING ACTIVITIES (` in thousands) Year ended Year ended March 31, 2017 March 31, 2016 NET PROFIT BEFORE TAXES 50,534,704 37,561,198 ADJUSTMENT FOR Depreciation for the year 1,726,068 1,118,449 Amortization of premium on investments 789, ,580 Provision for investments 522,117 25,337 Provision for standard advances 831, ,558 Provision/write off of non performing advances 6,642,284 4,979,020 Other provisions (176,774) (19,826) (Profit) / Loss from sale of fixed assets (184) (944) 60,869,197 44,566,372 ADJUSTMENTS FOR : Increase / (Decrease) in Deposits 311,532, ,454,032 Increase/(Decrease) in Other Liabilities 39,972,494 11,347,544 (Increase)/Decrease in Investments 27,645,611 (18,915,997) (Increase)/Decrease in Advances (347,169,783) (231,580,128) (Increase)/Decrease in Other assets (30,238,148) (318,401) 1,742,811 (34,012,950) Payment of direct taxes (18,770,623) (13,597,052) Net cash generated from/used in operating activities (A) 43,841,385 (3,043,630) CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets (3,892,184) (2,667,114) Proceeds from sale of fixed assets 44,102 22,075 (Increase) / Decrease in Held To Maturity (HTM) securities (40,890,641) (37,580,647) Net cash generated from/used in investing activities (B) (44,738,722) (40,225,686) F-83

370 CONSOLIDATED CASH FLOWSTATEMENT FOR THE YEAR ENDED MARCH 31, 2017 CASH FLOW FROM FINANCING ACTIVITIES (` in thousands) Year ended Year ended March 31, 2017 March 31, 2016 Increase in Borrowings 43,568,619 14,684,240 Tier II Debt raised - 38,992,000 Innovative Perpetual Debt raised 30,000,000 - Tier II Debt repaid during the year (3,786,000) - Proceeds from issuance of Equity Shares (net of share issue expense) 49,576, ,511 Dividend paid during the year (4,209,981) (3,762,365) Tax on dividend (857,152) (765,928) Net cash generated from/used in financing activities (C) 114,292,111 49,881,458 Effect of exchange fluctuation on translation reserve (D) (37,234) (3,083) Net increase in cash and cash equivalents (A+B+C+D) 113,357,539 6,615,059 Cash and cash equivalents as at April 1 82,189,038 75,573,979 Cash and cash equivalents as at March ,546,577 82,189,038 NOTES TO THE CASH FLOW STATEMENT: Cash and cash equivalents includes the following Cash and Balances with Reserve Bank of India 69,520,697 57,761,643 Balances with Banks and Money at Call and Short Notice 126,025,880 24,427,395 Cash and cash equivalents as at March ,546,577 82,189,038 As per our report of even date attached. For B S R & Co. LLP Chartered Accountants ICAI Firm Registration No W/W For and on behalf of the Board of Directors YES BANK Limited Manoj Kumar Vijai Rana Kapoor Ashok Chawla Ajai Kumar Partner Managing Director & Non-Executive Director CEO Independent Chairman Membership No (DIN: ) (DIN: ) (DIN: ) Vasant V. Gujarathi Rajat Monga Shivanand R. Shettigar Mumbai Director Chief Financial Officer Company Secretary April 19, 2017 (DIN: ) F-84

371 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE 1 - CAPITAL (` in thousands) As at As at March 31, 2017 March 31, 2016 Authorized Capital 600,000,000 equity shares of ` 10/- each 6,000,000 6,000,000 20,000,000 preference shares of ` 100/- each 2,000,000 - Issued, subscribed and paid-up capital 456,485,813 equity shares of ` 10/- each 4,564,858 4,205,316 (March 31, 2016 : 420,531,641 equity shares of ` 10/- each) [Refer Sch 18.6] TOTAL 4,564,858 4,205,316 (` in thousands) As at As at March 31, 2017 March 31, 2016 SCHEDULE 2 - RESERVES AND SURPLUS I. STATUTORY RESERVES Opening balance 25,746,753 19,398,136 Additions during the year 8,325,241 6,348,617 Deductions during the year - - Closing balance 34,071,994 25,746,753 II. SHARE PREMIUM Opening balance 49,462,165 48,750,609 Additions during the year [Refer Sch 18.6] 49,717, ,556 Deductions during the year [Refer Sch 18.6] 500,000 - Closing balance 98,679,248 49,462,165 III. CAPITAL RESERVE Opening balance 2,781,838 2,047,011 Additions during the year 1,082, ,827 Deductions during the year - - Closing balance 3,864,833 2,781,838 IV. INVESTMENT RESERVE Opening balance 226, ,197 Additions during the year - - Deductions during the year - - Closing balance 226, ,197 F-85

372 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS (` in thousands) As at As at March 31, 2017 March 31, 2016 V. FOREIGN CURRENCY TRANSLATION RESERVE Opening balance (3,083) - Additions during the year (37,234) (3,083) Deductions during the year - - Closing balance (40,317) (3,083) VI. CASH FLOW HEDGE RESERVE Opening balance - - Additions during the year (160,135) - Deductions during the year - - Closing balance (160,135) - VII. BALANCE IN PROFIT AND LOSS ACCOUNT 79,189,628 55,204,621 TOTAL 215,831, ,418,492 (` in thousands) As at As at March 31, 2017 March 31, 2016 SCHEDULE 3 - DEPOSITS A. I. DEMAND DEPOSITS i) From Banks 10,543,996 8,430,375 ii) From Others 180,221, ,772,910 II. SAVINGS BANK DEPOSIT 327,818, ,176,990 III. TERM DEPOSITS i) From banks 78,421,060 65,233,073 ii) From others 831,569, ,428,453 TOTAL 1,428,574,438 1,117,041,801 B. I. DEPOSITS OF BRANCHES IN INDIA 1,428,471,154 1,117,041,801 II. DEPOSITS OF BRANCHES OUTSIDE INDIA 103,284 - TOTAL 1,428,574,438 1,117,041,801 F-86

373 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE 4 - BORROWINGS I. INNOVATIVE PERPETUAL DEBT INSTRUMENTS (IPDI) AND TIER II DEBT II. A. BORROWINGS IN INDIA (` in thousands) As at As at March 31, 2017 March 31, 2016 i) IPDI 37,410,000 7,410,000 ii) Tier II Borrowings 84,828,000 88,614,000 B. BORROWINGS OUTSIDE INDIA TOTAL (A) 122,238,000 96,024,000 i) IPDI 324, ,275 ii) Tier II Borrowings 10,969,876 11,268,509 OTHER BORROWINGS* A. BORROWINGS IN INDIA TOTAL (B) 11,294,126 11,599,784 TOTAL (A+B) 133,532, ,623,784 i) Reserve Bank of India - 10,000,000 ii) Other banks 21,818,909 19,520,000 iii) Other institutions and agencies ** 81,117,555 84,915,827 TOTAL (A) 102,936, ,435,827 B. BORROWINGS OUTSIDE INDIA 149,598,140 94,530,158 *Secured borrowings are ` 14,198,629 thousands (March 31, 2016: ` 17,994,327 thousands). **Including refinance borrowing. TOTAL (A+B) 252,534, ,965,985 TOTAL (I+II) 386,066, ,589,769 (` in thousands) As at As at March 31, 2017 March 31, 2016 SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS I. BILLS PAYABLE 5,925,696 3,169,468 II. INTER-OFFICE ADJUSTMENTS (NET) - - III. INTEREST ACCRUED 14,786,010 13,059,484 IV. OTHERS (INCLUDING PROVISIONS) - Provision for standard advances 7,806,482 6,975,086 - Country risk exposures Others 87,041,240 57,966,805 TOTAL 115,559,428 81,170,843 F-87

374 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA (` in thousands) As at As at March 31, 2017 March 31, 2016 I. CASH IN HAND 5,705,440 4,124,093 II. BALANCES WITH RESERVE BANK OF INDIA - In current account 63,815,257 53,637,550 - In other account - - TOTAL 69,520,697 57,761,643 SCHEDULE 7 - BALANCES WITH BANKS, MONEY AT CALL AND SHORT NOTICE I. IN INDIA II. (` in thousands) As at As at March 31, 2017 March 31, 2016 Balances with banks i) in current accounts 661, ,787 ii) in other deposit accounts 5, Money at call and short notice i) with Banks 6,400,000 - ii) with other institutions - - iii) lending under reverse repo (RBI & Banks) 77,533,403 4,253,505 TOTAL (I) 84,600,717 4,814,363 OUTSIDE INDIA i) in current account 22,618,582 17,294,107 ii) in other deposit account - - iii) money at call and short notice 18,806,581 2,318,925 TOTAL (II) 41,425,163 19,613,032 TOTAL (I+II) 126,025,880 24,427,395 F-88

375 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE 8 - INVESTMENTS (NET OF PROVISIONS) A. INVESTMENTS IN INDIA (` in thousands) As at As at March 31, 2017 March 31, 2016 i) Government Securities 354,804, ,862,551 ii) Other approved securities - - iii) Shares 2,369, ,162 iv) Debentures and bonds 110,453,002 95,154,141 v) Subsidiaries and/or joint ventures - - vi) Others (CPs, CDs, Pass through certificates etc.) 30,438,101 40,239,802 TOTAL (I) 498,065, ,884,656 B. INVESTMENTS OUTSIDE INDIA Government Securities 322,750 - Debentures and bonds 1,430,000 - TOTAL (II) 1,752,750 - TOTAL (I+II) 499,817, ,884,656 SCHEDULE 9 - ADVANCES (` in thousands) As at As at March 31, 2017 March 31, 2016 A. i) Bills purchased and discounted 15,592,229 13,618,402 ii) Cash credit, overdrafts and loans payable on demand 285,619, ,961,280 iii) Term loans 1,021,415, ,519,588 TOTAL 1,322,626, ,099,270 B. i) Secured by tangible assets (includes advances secured by 971,727, ,383,226 fixed deposits and book debt) ii) Covered by Bank/Government guarantees 9,982,743 3,162,345 iii) Unsecured (Note 1 and 2) 340,916, ,553,699 1 Includes advances of ` 194,674,665 thousands (March 31, 2016 ` 131,205,302 thousands) for which security documentation is either being obtained or being registered. 2 There are no outstanding advances as at March 31, 2017 and March 31, 2016 for which only intangible securities such as charge over the rights, licenses, authority, etc. has been taken. TOTAL 1,322,626, ,099,270 F-89

376 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS (` in thousands) As at As at March 31, 2017 March 31, 2016 C. I. ADVANCES IN INDIA i) Priority sectors 291,727, ,143,459 ii) Public sector 611,812 47,396 iii) Banks 1,336, ,657 iv) Others 968,611, ,038,944 TOTAL (I) 1,262,286, ,109,456 II. ADVANCES OUTSIDE INDIA i) Due from Banks 803,409 1,977,769 ii) (a) Bills purchased and discounted - - (b) Syndicated loans 59,536,596 13,012,045 (c) others - - TOTAL (II) 60,340,005 14,989,814 TOTAL (I+II) 1,322,626, ,099,270 SCHEDULE 10 - FIXED ASSETS (` in thousands) As at As at March 31, 2017 March 31, 2016 I. Premises At cost as on March 31, of preceding year - - Additions during the year 378,031 - Deductions during the year - - Accumulated depreciation to date (2,101) - TOTAL (I) 375,930 - II. Other Fixed Assets (including furniture and fixtures and software) At cost as on March 31, of preceding year 8,558,882 6,320,861 Additions during the year 3,365,324 2,320,845 Deductions during the year (121,268) (82,825) Accumulated depreciation to date (6,063,338) (4,416,717) TOTAL (II) 5,739,600 4,142,164 TOTAL (I+II) 6,115,530 4,142,164 Capital work-in-progress 752, ,589 TOTAL 6,867,947 4,745,752 F-90

377 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE 11 - OTHER ASSETS (` in thousands) As at As at March 31, 2017 March 31, 2016 I. Interest Accrued 20,757,016 18,767,567 II. Advance tax and tax deducted at source 1,222, ,499 III. Deferred tax asset (Refer Sch 18.14) 6,036,409 4,776,722 IV. Non-Banking assets aquired in satisfaction of claims 427, ,030 V. Others 97,294,606 70,682,687 TOTAL 125,737,623 95,507,505 SCHEDULE 12 - CONTINGENT LIABILITIES (` in thousands) As at As at March 31, 2017 March 31, 2016 I. Claims against the bank not acknowledged as debts 63,484 9,867 II. Liability for partly paid investments - - III. Liability on account of outstanding forward exchange contracts 1,633,440,599 1,765,909,841 IV. Liability on account of outstanding derivative contracts - Single currency Interest Rate Swap 900,717, ,202,393 - Others 557,600, ,521,505 V. Guarantees given on behalf on constituents - in India 238,664, ,664,535 - Outside India - - VI. Acceptances, endorsement and other obligations 319,204, ,500,743 VII. Other items for which the bank is contingently liable - Value dated purchase of securities 2,375, ,714 - Capital commitment 1,664, ,221 - Amount deposited with RBI under Depositor Education and Awareness Fund (DEAF) 4, Foreign exchange contracts (Tom & Spot) 141,909, ,389,795 TOTAL 3,795,645,710 3,312,391,973 Note: Liability on account of outstanding forward exchange contracts as on March 31, 2017 includes notional amount of ` 1,168,538, thousands (Previous year: ` 1,352,010, thousands) guaranteed by CCIL representing 71.54% (Previous year: 76.56%) of total outstanding forward exchange contracts. F-91

378 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE 13 - INTEREST EARNED (` in thousands) For the year For the year ended ended March 31, 2017 March 31, 2016 I. Interest/ discount on advances/ bills 122,097,659 97,114,786 II. Income on investments 37,968,422 35,082,091 III. Interest on balances with Reserve Bank of India and other inter-bank funds 2,578,210 1,125,449 IV. Others 1,605,694 2,012,093 TOTAL 164,249, ,334,419 SCHEDULE 14 - OTHER INCOME (` in thousands) For the year For the year ended ended March 31, 2017 March 31, 2016 I. Commission, exchange and brokerage 32,009,436 24,764,405 II. Profit on the sale of investments (net) 7,112,679 2,606,392 III. Profit/(Loss) on the revaluation of investments (net) - - IV. Profit/(Loss) on sale of land, building and other assets V. Profit on exchange transactions (net) 1,018,902 (175,559) VI. Income earned by way of dividends etc. from subsidiaries, companies - - and/or joint ventures abroad/in India VII. Miscellaneous income 2,036,800 98,035 TOTAL 42,177,999 27,294,218 SCHEDULE 15 - INTEREST EXPENDED (` in thousands) For the year For the year ended ended March 31, 2017 March 31, 2016 I. Interest on deposits 82,032,410 71,771,073 II. Interest on Reserve Bank of India /inter-bank borrowings /Tier I and Tier II debt instruments 22,242,771 16,456,711 III. Others 1,990,099 1,426,308 TOTAL 106,265,280 89,654,092 F-92

379 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS SCHEDULE 16 - OPERATING EXPENSES (` in thousands) For the year For the year ended ended March 31, 2017 March 31, 2016 I. Payments to and provisions for employees 18,402,353 13,197,780 II. Rent, taxes and lighting 3,818,154 3,082,862 III. Printing and stationery 273, ,444 IV. Advertisement and publicity 1,013, ,995 V. Depreciation 1,726,068 1,118,449 VI. Directors' fees, allowances and expenses 29,152 13,123 VII. Auditors' fees and expenses 14,663 10,827 VIII. Law charges 36,745 21,958 IX. Postage, telegrams, telephones, etc. 485, ,478 X. Repairs and maintenance 204, ,854 XI. Insurance 1,196, ,546 XII. Other expenditure 14,484,706 10,110,026 TOTAL 41,686,077 30,050,340 SCHEDULE 17 - PROVISIONS & CONTINGENCIES (` in thousands) For the year For the year ended ended March 31, 2017 March 31, 2016 I. Provision for taxation (Refer Sch 18.7) 17,135,848 12,264,311 II. Provision for investments 522,117 25,337 III. Provision for standard advances 831, ,558 IV. Provision/write-off for non-performing advances 6,642,284 4,979,020 V. Other Provisions (53,874) (22,908) TOTAL 25,077,771 17,627,318 F-93

380 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS 18 SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE CONSOLIDATED ACCOUNTS FOR THE YEAR ENDED MARCH 31, BACKGROUND YES BANK Limited ( the Bank ) is a private sector Bank promoted by the late Mr. Ashok Kapur and Mr. Rana Kapoor. YES BANK Limited together with its subsidiary is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK Limited is a banking company governed by the Banking Regulation Act, The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, The Bank received the license to commence banking operations from the Reserve Bank of India ( RBI ) on May 24, Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, YES Securities (India) Limited (the Company) was incorporated on March 14, 2013 as a wholly owned subsidiary of YES BANK Limited (YBL/Holding Company). The Company is a securities broker registered with Securities and Exchange Board of India since July 08, The Company also got SEBI registration as Category I Merchant Banker w.e.f. September 03, The Company offers, inter alia, trading/investment in equity, merchant banking and other financial products along with various value added services. The Company is member of National Stock Exchange (NSE) since May 02, 2013 and the Bombay Stock Exchange (BSE) since June 11, PRINCIPLES OF CONSOLIDATION The consolidated financial statements comprise the financial statements of YES Bank Limited, and its subsidiary, Yes Securities (India) Limited, which together constitute the Group. The Bank consolidates its subsidiaries in accordance with Accounting Standard ( AS ) 21, Consolidated Financial Statements notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, 2014 issued by the Ministry of Corporate Affairs to the extent applicable on a line-by-line basis by adding together the like items of assets, liabilities, income and expenditure BASIS OF PREPARATION The consolidated financial statements have been prepared in accordance with requirements prescribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, The accounting and reporting policies of the Group used in the preparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014 to the extent applicable and practices generally prevalent in the banking industry in India. The Group follows the accrual method of accounting and the historical cost convention, except in the case of interest income on nonperforming assets (NPAs), loans under strategic debt restructuring (SDR) and Sustainable Structuring of Stressed Assets (S4A) scheme of RBI where it is recognized upon realization USE OF ESTIMATES The preparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods SIGNIFICANT ACCOUNTING POLICIES SIGNIFICANT CHANGES IN ACCOUNTING POLICY PROPOSED DIVIDEND: In terms of revised Accounting Standard (AS) 4 Contingencies and Events occurring after the Balance sheet date as notified by the Ministry of F-94

381 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, dated 30 March, 2016, Group has not accounted for proposed dividend as a liability as at March 31, Proposed Dividend was however accounted for as a liability as at March 31, 2016 in line with the existing accounting standard applicable at that time. / S4A. Interest on non-performing assets and accounts under SDR / S4A is recognized upon realization as per the prudential norms of the RBI. Loan processing fee is recognized when it becomes due. The Board of Directors of the Group has recommended a dividend of ` 12 per equity share for approval by shareholders at the 13th Annual General Meeting. If approved the total liability arising to the Group would be ` 6, million (including dividend tax) in Fiscal year 2018 (previous year ` 5, million). The actual dividend payout may however change due to equity shares exercised by employees between the end of the financial year and the dividend declaration date. ACCOUNTINGFORCASHFLOWHEDGERESERVE: The Group has applied the Guidance Note on Accounting for Derivative Contracts ( Guidance Note ) issued by the Institute of Chartered Accountants of India effective from April 01, 2016 in respect of derivative contracts which are not covered by existing accounting standards or RBI guidelines. For the Group, this impacts the accounting for cross currency interest rate swaps which are used by the Group to hedge its foreign currency borrowings and have been designated as cash flow hedges under the Guidance Note. The adoption of the Guidance Note resulted in the recognition of derivative assets of ` million, derivative liabilities of ` million and a cash flow hedge reserve of (` ) million as at March 31, The application of the Guidance Note has no impact on the net profit for the year ended March 31, 2017 as compared to the previous accounting policy followed by the Group REVENUE RECOGNITION Revenue is recognized to the extent it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Interest income is recognized in the profit and loss account on accrual basis, except in the case of nonperforming assets and accounts under SDR Dividend income is recognized when the right to receive payment is established. Commission on guarantees issued by the Group is recognized as income over the period of the guarantee Commission on Letters of Credit ( LC ) issued by the Group is recognized as income at the time of issue of the LC. Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis. In case of Bonds and Pass Through Certificates, premium on redemption, if any, is amortised over the tenure of the instrument on a yield basis. Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered. Other fees and commission income are recognized on accrual basis. Brokerage income is recognized as per contracted rate on execution of transaction on behalf of the customers on the trade date and is net of related sub brokerage expenses, service tax and stock exchange expenses. F-95

382 F-96

383 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS Fee income from Investment banking / Merchant banking services are recognized based on completion of milestone as per the engagement letter. Fee for subscription based services are recognized as earned on a pro-rata basis over the term of the plan INVESTMENTS Classification and valuation of the Group s investments are carried out in accordance with RBI Circular DBR. No. BP.BC.6/ / dated July 01, 2015 and Fixed Income Money Market and Derivative Association (FIMMDA) guidelines FIMCIR/ /001/ April 03, ACCOUNTING AND CLASSIFICATION Investments are recognized using the value date basis of accounting. In compliance with RBI guidelines, all investments, are categorized as Held for trading ( HFT ), Available for sale ( AFS ) or Held to maturity ( HTM ) at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 ( Investments ) under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others. guidelines. Transfer of scrips from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments placed in the HTM category at a premium are transferred to AFS / HFT at the amortized cost. Transfer of investments from AFS to HFT or vice-aversa is done at the book value. Depreciation carried, if any, on such investments is also transferred from one category to another. d) Valuation Investments categorized under AFS and HFT categories are marked to market (MTM) on a periodical basis as per relevant RBI guidelines. Net depreciation, if any, in the category under the classification mentioned in Schedule 8 ( Investments ) is recognized in the profit and loss account. The net appreciation, if any, in the category under each classification is ignored, except to the extent of depreciation previously provided. The book value of individual securities is not changed consequent to periodic valuation of investments. a) Cost of acquisition Costs such as brokerage pertaining to investments, paid at the time of acquisition are charged to the profit and loss account as per the RBI guidelines. b) Basis of classification Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Group intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category. c) Transfer between categories Reclassification of investments from one category to the other, if done, is in accordance with RBI Investments received in lieu of restructured advances/under Strategic Debt Restructuring (SDR) scheme are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against appreciation in respect of other performing securities in that category. Depreciation on equity shares acquired and held by the Group under SDR scheme is provided as per RBI guidelines. Investments classified under the HTM category are carried at their acquisition cost and any premium over the face value, paid on acquisition, is amortized on a straight line basis over the remaining period to maturity. Amortization expense of premia on investments in the HTM F-97

384 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS category is deducted from interest income in accordance with RBI Circular DBR. No.BP. BC.6/ / dated July 01, Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made. Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost. Pass Through Certificates purchase for priority sector lending requirements are valued at Book Value in accordance with FIMMDA guidelines FIMCIR/ /001/April 03, The market/fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/quotes on the stock exchanges and for Subsidiary General Ledger ( SGL ) account transactions, the prices as periodically declared by Primary Dealers Association of India jointly with FIMMDA. The market/fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FIMMDA. Further, in the case of unquoted bonds, debentures, pass through certificates (other than priority sector) and preference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity ( YTM ) rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA. The Group undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is reflected as the amount received on sale and is netted in the Investment schedule. The short position is marked to market and loss, if any, is charged to the Profit and Loss account while gain, if any, is ignored. Profit / Loss on settlement of the short position is recognized in the Profit and Loss account. Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at ` 1 per VCF. Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the break-up value if the latest balance sheet is available, else, at ` 1 per company, as per relevant RBI guidelines. At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Group reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date. Investments in quoted Mutual Fund (MF) Units are valued at the latest repurchase price/net asset value declared by the mutual fund. Investments in unquoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme. Sovereign foreign currency Bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or on Treasury curve in the chronological order based on availability. F-98

385 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS Masala bonds are valued using either Composite Bloomberg Bond Trader (CBBT) price, Bloomberg Valuation Service (BVAL) price or as per FIMMDA guided valuation methodology for unquoted bonds in the chronological order based on availability. Special bonds such as oil bonds, fertilizer bonds, UDAY bonds etc. which are directly issued by Government of India ( GOI ) is valued based on FIMMDA valuation. Non-performing investments are identified and depreciation/provision are made thereon based on the RBI guidelines. Based on management assessment of impairment, the Group may additionally create provision over and above the RBI guidelines. The depreciation/provision on such nonperforming investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit and Loss account until received. f) Profit/Loss on sale of Investments Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account ADVANCES ACCOUNTING AND CLASSIFICATION Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific provisions, interest in suspense, inter-bank participation certificates issued and bills rediscounted. PROVISIONING Provisions in respect of non-performing advances are made based on management s assessment of the degree of impairment of the advances, subject to the minimum provisioning level prescribed in relevant RBI guidelines. e) Accounting for repos / reverse repos Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI master circular No. DBR. No. BP.BC. 6/ / dated July The first leg of the repo transaction is contracted at the prevailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction. Group also undertakes Repo and Reverse repo transactions from IFSC Banking Unit in GIFT City in Foreign currency Sovereign Securities and accounting is similar to the domestic repo transactions. The specific provision levels for retail non-performing assets are also based on the nature of product and delinquency levels. Specific provisions in respect of nonperforming advances are charged to the Profit and Loss account and included under Provisions and Contingencies. As per the RBI guidelines a general provision is made on all standard advances, including provision for borrowers having unhedged foreign currency exposure and for credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts. The Group also maintains additional general provisions on standard exposure based on the internal credit rating matrix as approved by the Board of the Group. These provisions are included in Schedule 5 - Other liabilities & provisions - Others. Further to the provisions required to be held according to the asset classification status, provisions are held for individual country exposures (other than for home F-99

386 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS country exposure). Countries are categorised into risk categories as per Export Credit Guarantee Corporation of India Ltd. ( ECGC ) guidelines and provisioning is done in respect of that country where the net funded exposure is one percent or more of the Group s total assets. In accordance with AS 11 The Effects of changes in Foreign Exchange Rates, contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date. In respect of restructured standard and non performing advances, provision is made for the present value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines. Accounts are written-off in accordance with the Group s policies. Recoveries from bad debts written-off are recognized in the Profit and Loss account and included under other income. In case of loans sold to asset reconstruction company and consideration is more than net book value, the Group records the security receipts at Net Book Value as per RBI guidelines TRANSACTIONS INVOLVING FOREIGN EXCHANGE Foreign currency income and expenditure items of domestic operations are translated at the exchange rates prevailing on the date of the transaction. Income and expenditure items of integral foreign operations (representative offices) are translated at the daily average closing rates and of non-integral foreign operations (foreign branches) at the monthly average closing rates. Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit/loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until remittance or the disposal of the net investment in the non-integral foreign operations in accordance with AS EARNINGS PER SHARE The Group reports basic and diluted earnings per equity share in accordance with Accounting Standard (AS) 20, Earnings per Share notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules, Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive. Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and liabilities, are amortized over the life of the swap. Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers Association of India ( FEDAI ). Foreign exchange contracts are stated at net present value using LIBOR/SWAP curves of the respective currencies. The resulting profits or losses are recognized in the profit and loss account ACCOUNTING FOR DERIVATIVE TRANSACTIONS Derivative transactions comprises forward rate agreements, swaps and option contracts. The Group undertakes derivative transactions for market making/ trading and hedging on-balance sheet assets and liabilities. All market making/trading transactions are marked to market on a monthly basis and the resultant unrealized gains/losses are recognized in the profit and loss account. F-100

387 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability. The Group follows the option premium accounting framework prescribed by FEDAI SPL- circular dated December 14, Premium on option transaction is recognized as income/expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for premium received/paid on option contracts) is recorded under Other Income. The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/expense on the date of cancellation/termination under Other Income. The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines. As per the RBI guidelines on Prudential Norms for Offbalance Sheet Exposures of Group s a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions. Cross currency interest rate swaps which are used by the Bank to hedge its foreign currency borrowings have been designated as cash flow hedges and are measured at fair value. The corresponding gain or loss is recognized as cash flow hedge reserve. Further to match profit/ loss on account of revaluation of foreign currency borrowing, the corresponding amount is recycled from cash flow hedge reserve to Profit and Loss account FIXED ASSETS Fixed assets are stated at cost less accumulated depreciation, amortization and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the future benefit/ functioning capability from/ of such assets. Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset s recoverable amount is the higher of an asset s net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognized by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. F-101

388 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS DEPRECIATION Depreciation on fixed assets is provided on straight-line method, over estimated useful lives, as determined by the management, at the rates mentioned below- Class of asset Useful life of Assets as per Useful life of Assets as per Companies Act, 2013 Group's Accounting Policy Owned Premises 60 years 60 years Office equipment 5 years 5 years Computer hardware1 6 years 3 years Computer software * 6 years 4 years Vehicles1 8 years 5 years Furniture and Fixtures 10 years 10 years Automated Teller Machines ( ATMs )1 15 years 10 years Leasehold improvements to premises Over the lease period or 9 years whichever is less. *As per RBI Guidelines. 1 Based on technical evaluation, the management believes that the useful lives as given above best represent the period over which management expects to use these assets. Hence, the useful lives for these assets is different from the useful lives as prescribed under Part C of Schedule II of the Companies Act, Assets costing up to ` 5,000 are fully depreciated in the year of purchase. For assets purchased/sold during the year, depreciation is being provided on pro rata basis by the Group EMPLOYEE BENEFITS EMPLOYEE STOCK OPTION SCHEME ( ESOS ) The Employee Stock Option Scheme ( the Scheme ) provides for the grant of options to acquire equity shares of the Group to its employees. The options granted to employees vest in a graded manner and these may be exercised by the employees within a specified period. Improvements to leasehold assets are depreciated over the remaining period of lease Reimbursement, if any, is recognized on receipt and is adjusted to the book value of asset and depreciated over the balance life of the asset Whenever there is a revision in the estimated useful life of the asset, the unamortised depreciable amount is charged over the revised remaining useful life of the said asset The useful life of assets is based on historical experience of the Group, which is different from the useful life as prescribed in Schedule II to the Companies Act, Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, The Group measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day preceding the date of grant of stock options) over the exercise price. The exercise price of the Group s stock option is the last closing price on the stock exchange on the day preceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method. F-102

389 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS LEAVE SALARY The employees of the Group are entitled to carry forward a part of their unavailed/unutilized leave subject to a maximum limit. The employees cannot encash unavailed/unutilized leave. The Group provides for leave encashment/compensated absences based on an independent actuarial valuation at the Balance Sheet date, which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilization. GRATUITY The Group provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days eligible salary payable for each completed year of service if the service is more than 5 years. The Group accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation. The defined gratuity benefit plans are valued by an independent actuary as at the Balance Sheet date using the projected unit credit method as per the requirement of AS-15, Employee Benefits, to determine the present value of the defined benefit obligation and the related service costs. Under this method, the determination is based on actuarial calculations, which include assumptions about demographics, early retirement, salary increases and interest rates. Actuarial gain or loss is recognized in the Profit and Loss account. PROVIDENT FUND In accordance with law, all employees of the Group are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Group contribute monthly at a pre determined rate. Contribution to provident fund are recognized as expense as and when the services are rendered. The Group has no liability for future provident fund benefits other than its annual contribution. NEW PENSION SCHEME The National Pension System (NPS) is a defined contribution retirement plan. The primary objective is enabling systematic savings and to provide retirees with an option to achieve financial stability. Pension contributions are invested in the pension fund schemes. The Group has no liability for future fund benefits other than its annual contribution for the employees who agree to contribute to the scheme LEASES Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term in accordance with Accounting Standard -19, Leases INCOME TAXES Tax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date. The Group recognizes MAT credit available as an asset only to the extent that the Group, based on reasonable evidence, will be able to recoup/set off MAT credit against income tax liability during the specified period i.e. the period for which MAT credit set off is allowed. The Group reviews the MAT credit entitlement asset at each reporting date and writes down the asset to the extent the Group does not have reasonable evidence that it will be able to recoup set off of MAT credit against the income tax liability during the specified period. F-103

390 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized PROVISIONS AND CONTINGENT ASSETS/LIABILITIES A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Group does not recognize a contingent liability but discloses its existence in the financial statements. In accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets, the Group creates a provision when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed CASH AND CASH EQUIVALENT Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice CORPORATE SOCIAL RESPONSIBILITY Expenditure towards corporate social responsibility, in accordance with Companies Act, 2013, are recognized in the Profit and Loss account SHARE ISSUE EXPENSES Share issue expenses are adjusted from Share Premium Account in terms of Section 52 of the Companies Act, SEGMENT INFORMATION The disclosure relating to segment information is in accordance with AS-17, Segment Reporting and as per guidelines issued by RBI EQUITY ISSUE During the financial year ended March 31, 2017, the Bank has issued 32,711,000 equity shares of ` 10 each for cash pursuant to a Qualified Institutions Placement (QIP) at ` 1,500 per share aggregating to ` 49, million. The Bank accreted ` 48, million (net of share issue expenses of ` 500 million) as premium, on account of QIP. Provision on share issue expenses created by debiting to share premium account is on estimated basis. Adjustments, if any required, to share premium shall be made upon final settlement of these expenses. The Bank also issued 32,43,172 shares pursuant to the exercise of stock option aggregating to ` 1, millions. During the financial year ended March 31, 2016, the Bank has issued 2,795,543 shares pursuant to the exercise of stock option aggregating to ` millions. Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs. F-104

391 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS Movement in Share Capital- Share Capital ` in millions As at As at March 31, 2017 March 31, 2016 Opening Share Capital 4, , Addition due to exercise of Stock Option Addition due to shares issued to QIP Closing Share Capital 4, , INCOME TAXES Provisions made for Income Tax during the year ` in millions For the year For the year ended ended March 31, 2017 March 31, 2016 Current income tax expense 18, , Deferred income tax benefit (1,259.69) (1,223.27) TOTAL 17, , STAFF RETIREMENT BENEFITS The following table sets out the funded status of the Gratuity Plan and the amounts recognized in the Group s financial statements as of March 31, 2017 and March 31, 2016: Changes in present value of Obligations ` in millions As at As at March 31, 2017 March 31, 2016 Present Value of Obligation at the beginning of the year Interest Cost Current Service Cost Past Service Cost - - Benefits Paid (45.48) (41.22) Actuarial (gain)/loss on Obligation Present Value of Obligation at the end of the year F-105

392 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS Changes in the fair value of planned assets: ` in millions For the year For the year ended ended March 31, 2017 March 31, 2016 Fair value of plan assets at the beginning of the year Adjustment to Opening Balance Expected return on plan assets Contributions Benefits paid (45.48) (41.22) Actuarial gain/(loss) on planned assets 8.45 (14.25) Fair value of planned assets at the end of the period The Group has entire contribution of Gratuity Fund as Investments with Insurance Companies. The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled. Net gratuity cost for the year ended March 31, 2017 and March 31, 2016 comprises the following components: ` in millions For the year For the year ended ended March 31, 2017 March 31, 2016 Current Service Cost Interest Cost Expected Return on plan assets (54.57) (31.03) Net Actuarial gain recognized in the year Past Service Cost - - Expenses recognized Experience History: ` in millions For the For the For the For the year ended year ended year ended year ended March 31, 2017 March 31, 2016 March 31, 2015 March 31, 2014 (Gain)/Loss on obligation due to change in (62.75) assumption Experience (Gain)/Loss on obligation (5.99) (51.26) 5.34 Actuarial Gain/(Loss) on planned assets 8.46 (18.68) (2.49) (5.70) F-106

393 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS The assumptions used in accounting for the gratuity plan are set out below: For the year ended For the year ended March 31, 2017 March 31, 2016 Discount Rate 6.69%~6.88% 7.49% Expected Return on Plan Assets 8.00% 7%-8% Mortality IALM ( ) Ult IALM ( ) Ult Future Salary Increases 12% 6%-12% Disability - - Attrition 6%-25% 13%-25% Retirement 60 yrs 60 yrs Actuarial assumption on salary increase also takes into consideration the inflation, seniority, promotion and other relevant factors. Position of plan asset/liability ` in millions For the year For the year ended ended March 31, 2017 March 31, 2016 Present Value of Obligation at the end of the year Fair value of planned assets at the end of the period Plan asset/(liability) (16.97) (64.40) The Group is yet to determine future contribution to Gratuity fund for Financial Year SEGMENT REPORTING Pursuant to the guidelines issued by RBI on AS-17 (Segment Reporting) - Enhancement of Disclosures dated April 18, 2007, effective from period ending March 31, 2008, the following business segments have been reported. Treasury: Includes investments, all financial markets activities undertaken on behalf of the Group s customers, proprietary trading, maintenance of reserve requirements and resource mobilisation from other Groups and financial institutions. Corporate/Wholesale Banking: Includes lending, deposit taking and other services offered to corporate customers. Retail Banking: Includes lending, deposit taking and other services offered to retail customers. Other Banking Operations: Includes para banking activities like third party product distribution, merchant banking etc. F-107

394 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS Segmental results for the year ended March 31, 2017 are set out below: ` in millions Corporate / Other Retail Business Segments Treasury Wholesale Banking Total Banking Banking Operations Segment Revenue 53, , , , , Add/(Less): Inter-segment (1,316.79) Revenue net of inter- segment 206, Result 25, , (6,714.34) 1, , Unallocated Expenses (10,135.94) Operating Profit 50, Income Taxes 17, Extra-ordinary Profit/(Loss) Net Profit 33, Other Information: Segment assets 781, ,167, , ,141, Unallocated assets 9, Total assets 2,150, Segment liabilities 437, , , , ,889, Unallocated liabilities 261, Total liabilities 2,150, Segmental results for the year ended March 31, 2016 are set out below: ` in millions Corporate/ Other Retail Business Segments Treasury Wholesale Banking Total Banking Banking Operations Segment Revenue 35, , , , Add/(Less): Inter-segment 6, Revenue net of inter-segment 162, Result 16, , (4,051.36) , Unallocated Expenses (6,946.62) Operating Profit 37, Income Taxes 12, Extra-ordinary Profit/(Loss) Net Profit 25, Other Information: Segment assets 633, , , ,644, Unallocated assets 7, Total assets 1,652, Segment liabilities 371, , , , ,499, Unallocated liabilities 152, Total liabilities 1,652, F-108

395 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS Notes for segment reporting: 1. The business of the Group is concentrated largely in India. Accordingly, geographical segment results have not been reported in accordance with AS-17 (Segment Reporting). 2. In computing the above information, certain estimates and assumptions have been made by the Management and have been relied upon by the auditors. 3. Income, expense, assets and liabilities have been either specifically identified with individual segment or allocated to segments on a systematic basis or classified as unallocated. 4. The unallocated assets Include tax paid in advance/tax deducted at source and deferred tax asset. 5. The unallocated liabilities include Share Capital and Reserves and Surplus. 6. Inter-segment transactions have been generally based on transfer pricing measures as determined by the Management. 7. The Group has refined the allocation methodology and has allocated certain items that were previously classified as unallocated, to various segments. The same have been applied to segment information for previous periods also RELATED PARTY DISCLOSURES The Group has transactions with its related parties comprising key management personnel and the relative of key management personnel. As per AS 18 Related Party Disclosures, notified under Section 133 of the Companies Act, 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014, the Group s related parties for the year ended March 31, 2017 are disclosed below: INDIVIDUALS HAVING SIGNIFICANT INFLUENCE: Mr. Rana Kapoor, Managing Director & CEO KEY MANAGEMENT PERSONNEL ( KMP ) (WHOLE TIME DIRECTOR) Mr. Rana Kapoor, Managing Director & CEO The following represents the significant transactions between the Group and such related parties including relatives of above mentioned KMP during the year ended March 31, 2017: ` in millions Whole time Relatives of whole directors/ time directors/ Items/Related Party Maximum Balance Maximum Balance individual having individual having Category during the year during the year significant significant influence influence Deposits # # 5.77* Interest paid # 0.97 Receiving of services # - Dividend paid # - * Represents outstanding as of March 31, 2017 # In Financial Year , there was only one related party in the said category, hence the Group has not disclosed the details of transactions in accordance with circular issued by the RBI on March 29, 2003 Guidance on compliance with the accounting standards by banks. F-109

396 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS As per AS 18 Related Party Disclosures, prescribed by the Companies (Accounting Standards) Rules, 2006, the Group s related parties for the year ended March 31, 2016 are disclosed below: INDIVIDUALS HAVING SIGNIFICANT INFLUENCE: Mr. Rana Kapoor, Managing Director & CEO KEY MANAGEMENT PERSONNEL ( KMP ) (WHOLE TIME DIRECTOR) Mr. Rana Kapoor, Managing Director & CEO The following represents the significant transactions between the Group and such related parties including relatives of above mentioned KMP during the year ended March 31, 2016: ` in millions Whole time Relatives of whole directors/ time directors/ Items/Related Party Maximum Balance Maximum Balance individual having individual having Category during the year during the year significant significant influence influence Deposits # # 5.41* Interest paid # 0.35 Receiving of services # - Dividend paid # - * Represents outstanding as of March 31, 2016 # In Financial Year , there was only one related party in the said category, hence the Group has not disclosed the details of transactions in accordance with circular issued by the RBI on March 29, 2003 Guidance on compliance with the accounting standards by banks OPERATING LEASES Lease payments recognized in the profit and loss account for the year ended March 31, 2017 was ` 23, millions (Previous year: ` 22, millions). As at March 31, 2017 and March 31, 2016 the Group had certain non-cancellable outsourcing contracts for information technology assets and properties on rent. The future minimum lease obligations against the same were as follows: ` in millions Lease obligations As at As at March 31, 2017 March 31, 2016 Not later than one year 2, , Later than one year and not later than five years 9, , Later than five years 11, , The Group does not have any provisions relating to contingent rent. TOTAL 23, , The terms of renewal/purchase options and escalation clauses are those normally prevalent in similar agreements. There are no undue restrictions or onerous clauses in the agreements. F-110

397 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS EARNINGS PER SHARE ( EPS ) The Group reports basic and diluted earnings per equity share in accordance with AS-20, Earnings Per Share. The dilutive impact is mainly due to stock options granted to employees by the Group. The computation of earnings per share is given below: Particulars Year ended Year ended March 31, 2017 March 31, 2016 Basic (annualised) Weighted average no. of equity shares outstanding 422,140, ,916,568 Net profit/(loss) (` in millions) 33, , Basic earnings per share (` ) Diluted (annualized) Weighted average no. of equity shares outstanding 433,753, ,171,182 Net profit/(loss) (` in millions) 33, , Diluted earnings per share (` ) Nominal value per share (` ) ESOP DISCLOSURES Statutory Disclosures Regarding Joining Stock Option Scheme: The Group has Five Employee Stock Option Schemes viz. Joining Stock Option Plan I (JSOP I), Joining Employee Stock Option Plan II (JESOP II), Joining Employee Stock Option Plan III (JESOP III), YBL ESOP (consisting of two sub schemes JESOP IV/PESOP I) YBL JESOP V/PESOP II (Consisting of three sub schemes JESOP V/ PESOP II/PESOP II -2010). The schemes include provisions for grant of options to eligible employees of the Group and its subsidiaries/ affiliates. All the aforesaid schemes have been approved by the Nomination & Remuneration Committee (N&RC) and the Board of Directors and were also approved by the members of the Group. All these schemes are administered by the N&RC. Options under all the aforesaid plans are granted for a term of 10 years (inclusive of the vesting period) and are settled with equity shares being allotted to the beneficiary upon exercise. JESOP II and JESOP III were in force for employees joining the Group up to March 31, 2006 and March 31, 2007 respectively. YBL JESOP V is in force for employees joining the Group from time to time. Under JESOP V, 50% options vest takes place at the end of three years and remaining 50% at the end of five years from the date of Grant. PESOP I, PESOP II and PESOP II are Performance Stock Option Plans. Under PESOP I, 25% of the options granted would vest at the end of each year from the date of grant. Under PESOP II, 30% of the granted options F-111

398 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS vest at the end of first year, 30% vest at the end of second year and balance 40% vest at the end of third year. Under YBL PESOP II 2010, 30% of the granted options vest at the end of the third year, 30% vest at the end of the fourth year and balance 40% vest at the end of the fifth year. Further, grants under PESOP II had been discontinued with effect from January 20, A summary of the status of the Group s stock option plans as on March 31, 2017 and March 31, 2016 is set out below: As at March 31, 2017 As at March 31, 2016 PESOP JESOP PESOP JESOP Options outstanding at the beginning of the year 14,737,020 4,589,000 14,449,500 4,530,288 Granted during the year 872, ,500 2,378,350 1,427,250 Exercised during the year 2,226,137 1,017,035 1,812, ,963 Forfeited/lapsed during the year 422, , , ,575 Options outstanding at the end of the year 12,960,433 4,122,990 14,737,020 4,589,000 Options exercisable 4,527, ,490 3,990, ,825 Weighted average exercise price (`) Weighted average remaining contractual life of outstanding option (yrs) The Group has charged Nil, being the intrinsic value of the stock options granted for the year ended March 31, 2017 and March 31, Had the Group adopted the Fair Value method (based on Black- Scholes pricing model), for pricing and accounting of options, net profit after tax would have been lower by ` millions (Previous year: ` millions), the basic earnings per share would have been ` (Previous year: ` 59.40) per share instead of ` (Previous year: ` 60.39) per share; and diluted earnings per share would have been ` (Previous year: ` 58.11) per share instead of ` (Previous year: ` 59.08) per share. The following assumptions have been made for computation of the fair value of ESOP granted for the year ended March 31, 2017 and March 31, For the year For the year March 31, 2017 March 31, 2016 Risk free interest rate 6.29%-9.23% 7.38%-9.23% Expected life 1.5 yrs yrs 1.5 yrs yrs Expected volatility 25.01%-50.67% 25.01%-57.52% Expected dividends 1.50% 1.50% In computing the above information, certain estimates and assumptions have been made by the Management DEFERRED TAXATION The net deferred tax asset of ` 6, millions as at March 31, 2017 and ` 4, millions as at March 31, 2016 is included under other assets and the corresponding credits have been taken to the profit and loss account. F-112

399 SCHEDULES FORMING A PART OF CONSOLIDATED FINANCIAL STATEMENTS The components that give rise to the deferred tax asset and liability included in the balance sheet are as follows: ` in millions Particulars As at As at March 31, 2017 March 31, 2016 Deferred tax asset Depreciation Provision for gratuity and unutilized leave Provision for Non-Performing Assets 1, Amortisation of premium on HTM securities Provision for standard advances 2, , Other Provisions TOTAL NET DEFERRED TAX ASSET/ (LIABILITY) 6, , PROVISIONS AND CONTINGENCIES The breakup of provisions of the Group for the year ended March 31, 2017 and March 31, 2016 are given below ` in millions For the year For the year ended ended March 31, 2017 March 31, 2016 Provision for taxation 17, , Provision for investments Provision for standard advances Provision made/write off for non-performing advances 6, , Others Provisions* (53.87) (22.91) TOTAL 25, , * Other Provisions includes provision made against other assets and provision for sacrifice of interest on Restructured Assets DUES TO MICRO AND SMALL ENTERPRISES Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of interest payments due to delays in such payments to Micro, Small and Medium enterprises. Auditors have relied upon the above management assertion ADDITIONAL DISCLOSURE Additional statutory information disclosed in the separate financial statements of the Group and subsidiaries having no material bearing on the true and fair view of the consolidated financial statements and the information pertaining to the items which are not material have not been disclosed in the consolidated financial statement. F-113

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