Development Credit Bank

The Directors are pleased to present the thirteenth Annual Report of
 DCB together with the audited accounts for the year ended 31st March,
 2008.
 
 FINANCIAL RESULTS
 
                                                        (Rs. in crores)
                            For the year  For the year     Variance (%)
                                  ending        ending
                          31 March, 2008 31 March, 2007
 
 Deposits                      6,074.85        4,415.20        37.59
 
 Customer Deposits             5,646.00        4,102.51        37.62
 
 (Including CASA)             (1,474.29)       1,251.68)       17.78
 
 Inter Bank Deposits             428.85          312.69        37.15
 
 Advances                      4,068.80        2,658.31        53.06
 
 Won Performing Assets
 
 (Gross)                          63.43          146.16       (56.60)
 
 Non Performing Assets (Net)      26.98           43.62       (38.14)
 
 Provision for Standard
 
 Assets                           28.12           20.89        34.61
 
 Total Assets                  7,577.48        5.262.15        44.00
 
 Profit & Loss Parameters
 
 Net Interest Income             186.11          119.55        55.68
 
 Non-Interest Income16             2.56           92.49        75.75
 
 Total Operating Income          348.67          212.04        64.43
 
 Operating Cost                  239.06          171.07        39.74
 
 Operating Profit                109.61           40.97       167.54
 
 Provisions                       73.47           39.15        87.66
 
 Net Profit Before Tax            36.14            1.82      1885.71
 
 Tax                              (2.19)          (5.55)      (60.54)
 
 Net Profit After Tax             38.33            7.37       420.08
 
 During the year, DCB has consolidated its position by posting an
 Operating Profit of Rs. 109.61 crores (Previous year: Rs. 40.97 crores)
 and Net Profit of Rs. 38.33 crores (Previous year: Rs. 7.37 crores).
 The total assets of DCB have grown by 44% during the year to Rs. 7,577
 crores in FY 2007-08, from Rs. 5,262 crores in FY 2006-07.
 
 Total Deposits and Total Advances have grown by 38% and 53%
 respectively.  Gross and Net Non-Performing Advances have been brought
 down considerably to Rs. 63 crores and Rs. 27 crores in FY 2007-08 from
 Rs. 146 crores and Rs. 44 crores in FY 2006-07.
 
 Cost to Income Ratio has been reduced to 68.6% for the year ended FY
 2007-08, from 80.7% in FY 2006-07.
 
 Capital Adequacy Ratio (CAR) in FY 2007-08 stood at 13.38% over the
 previous years 11.34% compared with a regulatory minimum of 9%.
 
 The Bank opened eight new branches in FY 2007-08, which substantially
 enhanced DCBs business footprint and brand presence in key market
 locations.
 
 DCBs return to the dividend list will require a longer period of
 profitable growth to eliminate accumulated losses of prior years. In
 view of this, your Directors do not recommend payment of any dividend
 for FY 2007-08 (Previous Year: Nil).
 
 MANAGEMENT DISCUSSION AND ANALYSIS OF BUSINESS PERFORMANCE
 
 A.  CONSUMER BANKING GROUP (CBG)
 
 DCB took significant steps for the FY 2007-08 towards building and
 consolidating its position as an emerging player in the retail banking
 industry. With an expanding national footprint, the introduction of new
 and innovative products and strategic partnerships, the Bank has
 continued on its growth trajectory.
 
 DCB has expanded its retail operations. It currently operates a network
 of 80 branches and extension counters spread over ten States and two
 Union Territories with a strong presence in Maharashtra, Gujarat and
 Andhra Pradesh. In addition to its own ATMs, the Bank has ATM sharing
 arrangements with the Cashnet and Infinet networks, thereby allowing
 customers access to more than 18000 ATMs across the country.
 
 The year also saw DCB expand into new markets including Nashik and
 Jodhpur while further strengthening its retail presence in cities like
 New Delhi, Bengaluru, Chennai, Kolkata, Mumbai and Pune.
 
 Due to an increased thrust on the retail business, all efforts have
 been focused on developing and delivering to customers a comprehensive
 suite of best in class products for specific market segments in
 chosen geographies. DCBs strategy of developing select asset and
 liability products, through a mix of owned and outsourced products and
 multi-channel capability has been highly successful.
 
 There has been a significant growth in retail accounts. The number of
 retail accounts is at present over 631,000 as on 31 st March 2008.
 During the year, DCB opened approximately 120,000 new accounts.
 
 Growth in Liabilities
 
 The Current 8- Savings Accounts (CASA) and Term Deposits portfolio
 showed continued momentum and have increased by 36% - rising to Rs.
 3,155 crores in FY 2007-08 from Rs. 2,328 crores in FY 2006-07.
 
 DCB launched several value-added initiatives, providing a comprehensive
 suite of liability products ranging from premium accounts to zero
 balance accounts for specific market segments in chosen geographies.
 
 With core liability product offerings such as the Classic Savings and
 Current Accounts, Corporate Payroll Account, Fee-based Free Style
 Savings Account and M-Power Account, the Bank managed to accelerate the
 process of customer acquisition. At the same time, DCB increased focus
 on the premium segment accounts, which aided growth in CASA. These
 initiatives enabled DCB to acquire over one lakh transaction
 relationships in FY 2007-08.
 
 DCBs TRIO Account launched in FY 2006-07 continues to be a success.
 This deposit portfolio registered an increase of 126% in FY 2007-08.
 
 The introduction of a Tax Saver Fixed Deposit product provided
 customers an additional option to invest in tax-planning instruments.
 DCB today has a complete suite of liability offerings that complements
 the unique needs and requirements across customer segments. The Bank
 also initiated the Point of Sale business through which it plans to
 enhance the heavy float based Current Accounts of merchants.
 
 Alternate Channels
 
 DCB offers a host of alternate channel options to its customers such as
 Internet Banking, Mobile Banking, Phone Banking and access to over
 18000 ATMs through Cashnet, Infinet and Visa networks. The Banks
 alternate channel offerings are truly world class, with the launch of
 several value-added initiatives to strengthen the alternate channels
 portfolio.
 
 Products like Visa card-to-card transfer. National Electronic Funds
 Transfer (third party funds transfer through internet banking), Visa
 Money Transfer, Online Utility Bill Payments, etc. are likely to have a
 very positive effect on customer acquisition, increased customer
 loyalty and service quality in the immediate future. DCBs Phone-
 banking alternate channel recorded impressive usage with over 75,000
 customer calls received in March 2008 alone, from around 10,500 calls
 in March 2007.
 
 DCB Phone Banking
 
 Investment Services
 
 Investment Services products have been a key contributor to the Banks
 fee income. The Bank experienced a good year for its Third Party
 Distribution / Wealth Advisory business.
 
 The insurance distribution business (both, Life and General taken
 together) has contributed Rs. 10.58 crores in FY 2007-08 as fee income,
 (Rs. 7.31 crores FY 2006-07), a growth of 45%. The Mutual funds
 distribution business added Rs. 7.32 crores to fee income in FY
 2007-08, (Rs. 6.16 crores FY 2006-07) a growth of 16%.
 
 The year also saw DCB launching its credit Card. The DCS Advantage
 Credit Cards come with a host of features and benefits that offers
 customers, convenience, rewards and financial freedom. Available in
 Gold and Silver variants, the free for life card can be used to shop,
 dine and travel at any MasterCard merchant establishment in India and
 overseas. The Card comes with powerful benefits such as SMS alerts,
 balance transfer facility and an accelerated rewards program.
 
 Retail Assets
 
 The retail asset portfolio of DCB has also shown a quantum growth of
 76%, Rs.  1,896 crores in FY 2007-08 from Rs. 1,077 crores in FY
 2006-07, predominantly contributed by commercial vehicles /
 construction equipment and other collateralised products. Currently,
 the retail asset products network spans 19 centres (13 centres in the
 previous year) across the country with a renewed focus on distribution.
 
 As a conscious strategy, it was decided to tighten the credit screens
 on collateralised loans keeping in mind the external environment and
 the risk reward scenario. Collateralised lending products contribute
 62% of the total retail asset books and DCB endeavours to grow this
 segment further.
 
 There has been an increase in provisioning for non-collateralised
 lending in FY 2007-08. This has been an industry-wide phenomenon and is
 being corrected with strong collections, reduced proportion of such
 loans, and continuous change in the lending criteria.
 
 DCBs Retail Asset Portfolio
 
 RETAIL ASSETS                                         (Rs. in crores)
 
                                       Advances               Advances
 Product                                  as on                  as on
                                 31 March, 2008          31 March.2007
 
 Secured Loan
 
 Infrastructure Supply Chain             665                  130
 
 Mortgage                                181                  206
 
 Business Banking                        324                  194
 
 Total Secured                         1,170                  530
 
 Unsecured Loans
 
 Personal Loan                           726                  547
 
 Total Unsecured                         726                  547
 
 Total Retail Assets                   1,896                1,077
 
 A recent initiative by the Bank has been in the home loan space where
 it entered into a strategic alliance with HDFC Ltd. to market their
 home loan products. HDFC is one of the countrys premier financial
 institutions in the home loan business and is recognized for its
 excellent customer service. This alliance will help the Bank serve
 customers better by providing them with a comprehensive range of
 financial services.
 
 B.  CORPORATE BUSINESS & BANKING GROUP (CBBG) Corporate Business and
 Banking Group (CBBG) has been a significant contributor to DCBs growth
 story.
 
 CBBG has posted impressive growth on all parameters. The asset book has
 seen a sharp growth to Rs. 2,324 crores, from previous years Rs. 1,605
 crores, an increase of 45% in FY 2007-08. Asset growth has been
 influenced by the growth in the economy and the Banks continuous
 endeavour to enhance the customer base. The asset portfolio ratings as
 per the CRISIL RAM rating model continue to be good.  During FY
 2007-08, renewed efforts were made to increase non-funded income
 through a thrust in Trade Finance business. This has been reflected in
 a substantial growth in CBBGs contribution to non-funded income of the
 Bank.  Non-funded income grew sharply to Rs. 26.7 crores, an increase
 of 69% in FY 2007-08 over the previous year. A major highlight has been
 the growth in income from non-credit trade transactions that grew to
 Rs. 7 crores, over the previous year (Rs. 3.9 crores), an increase of
 79%.
 
 CBBG follows a dual strategy for achieving business growth in the
 corporate and SME segments. In order to intensify the Banks effort on
 the SME segment, Product and Relationship Specialists have been hired
 to cater to the specific needs of this customer segment.
 
 During the year, the Bank was able to achieve the mandatory priority
 sector lending targets for both, direct and indirect agricultural
 advances. CBBG contributed significantly towards this achievement The
 Banks priority sector lending portfolio grew to Rs. 1,611 crores from
 Rs. 1130 crores in FY 2006-07, an increase of 43% in FY 2007-08 over
 the previous year.
 
 Advances under the warehouse receipt-financing program grew extremely
 well to Rs. 213 crores in FY 2007-08 from Rs. 81 crores in FY 2006-07,
 an increase of 163%. Significant volumes under the product have been
 booked in the agrarian states - Rajasthan, Gujarat, Maharashtra, Punjab
 and Haryana.
 
 DCB Trade Finance Volumes
 
 CBBG has launched a very sophisticated state-of-the-art Internet
 banking platform for its corporate customers. The product compares with
 the best in the industry and will enable customers to conduct their
 banking operations including fund transfers through Real Time Gross
 Settlement (RTGS|/ National Electronic Funds Transfer (NEFT) from their
 own sites.
 
 DCB has been empanelled as a clearing and settlement banker with the
 National Commodities & Derivatives Exchange (NCDEX) in addition to the
 Multi Commodity Exchange (MCX). CBBG offers customised stock and
 commodity exchange related products to cater to the needs of the
 broking community.
 
 CBBGs team is well equipped to handle the changing needs of its
 clients. The team has ensured that customer service quality standards
 are best in class.
 
 Going forward, CBBG is in the process of introducing Cash Management
 Services.  The product incorporates the latest technology and will
 enable customers to manage their finances in a more profitable and
 effective manner. The trade finance product suite is being enhanced
 through the addition of factoring services and structured trade
 products. This will boost growth in non-funded income for DCB. The
 improved performance of the Bank has resulted in increased counter
 party trade lines, which will boost income further.
 
 CBBGs business strategy takes into account the emerging capital
 requirements under the BASEL II norms and is well geared for change.
 
 Small and Medium Enterprise (SME)
 
 CBBG continues with its strategic focus on the high growth SME sector.
 The sector has been the growth engine for Indias economic prosperity
 and has a huge potential for net interest and fee income for banks.
 Advances to Micro and Small Enterprises have been classified as
 Priority Sector. To strengthen DCBs presence in the segment, the Bank
 focused on scaling up operations through branch presence in the small
 enterprises segment and product customisation.  Product customisation
 has simplified the credit approval process, improving both consistency
 and speed.
 
 During the year, DCB enhanced the value proposition of its assets
 products for SMEs through product innovation and process efficiency.
 One of the major developments in the last year has been the initiation
 of parameterised lending for providing both fund based and non-fund
 based working capital loans to Traders, Manufacturers, and the Service
 segment. This approach is unique as it evaluates the borrower not only
 on the financial basis, but also rewards the promoter for business and
 transaction efficiency, thereby lending consistency in credit
 assessment.
 
 We also further plan to expand services by targeting clusters of small
 enterprises that have a homogeneous profile. To drive operational
 efficiency in the entire transaction process, the Bank proposes to
 develop SME hubs at various locations in the country that have industry
 concentration in order to provide dedicated service to the SME segment.
 
 Microfinance Initiative
 
 DCB introduced Microfinance in its portfolio in FY 2007-08 with direct
 lending to groups and lending to Microfinance Institutions (MFIs). This
 segment is expected to grow significantly in the coming years.
 
 Microfinance activities have been started at various locations in
 India. DCB has tie- ups with well-known MFIs in these geographies. To
 service the growing needs of the microfinance sector, the Bank has
 planned a comprehensive range of products and services. The Bank has
 set up a Business Facilitator model with the Aga Khan Rural Support
 Programme (India) - AKRSP (I) in Gujarat.
 
 As a pilot project, DCB has opened a dedicated microfinance branch at
 Dediapada in Gujarat this year. DCB will provide direct credit
 facilities to microfinance borrowers through relationships with MFIs in
 the region. This initiative will also help DCB meet the RBI
 requirements of lending to the economically weaker sections of society.
 
 C.  SPECIAL ACCOUNTS GROUP (SAG)
 
 The SAG team continued to excel in the challenging task of reducing
 DCBs Non Performing Assets (NPAs). As on 31st March 2008 NPAs were at
 Rs. 63.43 crores (1.54% of gross advances) against Rs. 146.16 crores
 (5.15% of gross advances) as on 31st March 2007. There was also a
 reduction in net NPA to Rs.  26.98 crores (0.66% of net advances) as on
 31st March 2008, from Rs. 43.62 crores (1.64% of net advances) as on
 31st March 2007. The continued effort of recoveries resulted in
 collections to the tune of Rs. 62.73 crores from NPAs and written off
 accounts, inclusive of the Rs. 31.25 crores received from Asset
 Reconstruction Company India Limited (ARCIL) for saleable legacy
 portfolio.
 
 D.  TREASURY
 
 DCBs Treasury is active in foreign exchange (forex), equity and fixed
 income securities market apart from managing the growing balance sheet
 and customer sales.
 
 Continued tightening of the money market by RBI through increased Cash
 Reserve Ratio (CRR) by 100 basis points (bps), reduced liquidity from
 the market and kept interest rates under pressure for most part of the
 year. Money supply, inflation and credit growth remained under
 continuous attention of the RBI. During the year, DCBs Treasury was
 successful in funding requirements of the Bank. A rising interest rate
 scenario provided limited opportunities to trade in Government
 Securities (G-sec). DCB traded in the G-sec market with a cautious
 approach. The equity market provided good opportunities during the bull
 run and DCB invested in Initial Public Offerings (IPOs) of
 fundamentally sound companies. The Money Market Desk generated revenues
 of Rs. 18.40 crores during FY 2007-08, (Rs. 6.29 crores in FY 2006-07).
 
 The Treasury is dealing actively in G7 Currencies & Cross Currencies as
 well as participating in USD/INR forwards market. Treasury has also
 been dealing in derivatives product like Overnight Index Swaps (OIS),
 both, for trading as well as hedging. DCB offers a bouquet of forex and
 derivatives product to its customers.  An aggressive and proactive
 marketing approach has resulted in increasing the exclusive client base
 for the merchant forex desk, which generated a turnover of USD10.62
 billion / Rs. 42,607 crores. Active and opportunistic trading calls in
 the volatile inter-bank forex market resulted in a turnover of USD
 29.66 billion/ Rs.118,991 crores. The forex desk generated gross
 revenue of Rs. 22.51 crores during FY 2007-08 as against Rs. 14.93
 crores in FY 2006-07.
 
 During FY 2007-08, the Treasury generated gross revenue of Rs. 40.91
 crores from its activities, as against Rs. 21.22 crores in the previous
 year.
 
 E.  CREDIT & RISK Risk Management
 
 DCB has deployed a risk management framework that enables comprehensive
 and integrated management of risks, with a clear objective of
 identifying all types of risks that DCB is exposed to. DCB has
 developed structured Risk Profile Templates to cover various types of
 risks and assiduously monitors and measures the level and direction of
 risks. Establishing a well-defined and independent risk management
 function in respective business and operations is a key requirement
 before undertaking any new activity. Operating level risk committees,
 which oversee specific risk areas, viz., the Asset Liability Management
 Committee (ALCO), the Operational Risk Management Committee (ORCO) and
 the Credit
 
 Risk Management Committee (CRMC), in turn support the Risk Management
 Committee (RMC).
 
 Credit Risk
 
 The credit risk policy of DCB supports, and is aligned with, the Banks
 corporate priority of achieving growth and at the same time maintaining
 asset quality to ensure long term sustainable profitability over
 business cycles. DCB assumes only those credit risks that are
 acceptable within the context of provisioning requirements, and present
 and expected future earnings. A healthy balance is maintained between
 risk and reward. During the course of the financial year, the Bank
 moved over to linking exposure limits to credit rating.
 
 During the year, DCB further strengthened its internal risk assessment
 capabilities by procuring / developing additional risk assessment
 models, industry risk reports, score card templates for retail lending,
 etc. All individual corporate exposures are internally rated on one of
 five modules: Large Corporates, Traders, Small and Medium Sized
 Enterprises (SME), Manufacturing and SME Services and Non Banking
 Financial Companies (NBFC). For each product, programs defining
 customer segments, underwriting standards, security structures and
 other criteria are specified to ensure consistency of credit buying
 patterns. Clear separation of functional responsibilities is maintained
 between business acquisition, credit assessment and approval, and loan
 administration.
 
 The role of the Credit Monitoring Unit was enhanced during the year and
 it now functions as a Credit Risk Analytics & Monitoring (CRAM) unit.
 The unit monitors all corporate exposures centrally, to identify and
 reveal early warning signals. It also evaluates impact on the loan book
 arising or evolving because of specific market developments. An
 independent Credit Risk Inspection Group (CRIG) as part of credit audit
 carries out periodic loan reviews to assess the quality of the loan
 book on an ongoing basis.
 
 Concentration Risk
 
 Risk is managed at individual exposure as well as portfolio level, with
 prudential caps fixed for individual and groups of borrowers,
 industrial sectors, geographies, asset classes and unsecured exposures.
 The exposures norms adopted by the Bank are conservative in comparison
 to the regulatory prudential exposure norms.  To avoid imbalance in
 corporate portfolio, DCB has set a Substantial Exposure threshold
 (exposure above Rs. 50 crores) and the Aggregate Substantial Exposure
 limit at a very conservative limit of four times capital funds. The
 actual exposure under this limit as on 31st March, 2008 is Rs. 458
 crores (17% of the aggregate substantial exposure limit set).
 
 DCB Credit Risk Asset Distribution
 
 Distribution of credit risk asset by industry sector as on 31 st March
 2008
 
 Industry Sector                                    Percent
 
 Loans - Personal, housing, staff, others             16.81
 
 Direct & Indirect - Agriculture                      16.78
 
 Transport                                            10.12
 
 Construction - Contractors                            5.87
 
 Wholesale Trade                                       5.02
 
 Finance - others                                      4.32
 
 Infrastructure-Power, Ports, Roads, Bridges           3.47
 
 Retail Trade                                          3.42
 
 Industry Sector Percent
 
 Other Chemicals                                       2.69
 
 Iron & Steel                                          2.88
 
 All Others                                            2.79
 
 Miscellaneous Services                                2.44
 
 Information Technology                                2.33
 
 Food & Beverages                                      2.32
 
 Textiles - Others                                     2.11
 
 Housing Finance Companies                             2.05
 
 Edible Oils                                           1.75
 
 Gems & Jewellery                                      1.63
 
 Miscellaneous Manufacturing                           1.60
 
 Electronic Equipment & parts                          1.48
 
 Real Estate                                           1.39
 
 Cotton Textiles                                       1.19
 
 Heavy Engineering                                     1.19
 
 Pharmaceuticals & Bulk Drugs                          1.08
 
 Petrochemicals / Plastics & Products                  0.84
 
 Vehicles & Parts                                      0.68
 
 Metal Products                                        0.56
 
 Paper & Products                                      0.41
 
 Metals and Alloys - Non Ferrous                       0.31
 
 Light Engineering                                     0.19
 
 Renting of Equipment                                 _0.10
 
 Consumer Credit Risk Management
 
 DCB continued its thrust in the area of retail banking resulting in a
 sharp build up of the retail asset portfolio. The key challenge for a
 healthy retail asset portfolio is to ensure a stable risk adjusted
 earnings stream by maintaining customer defaults within acceptable
 levels. Given the granularity of individual exposures, retail credit
 risk is managed largely on a portfolio basis, across various products
 and customer segments. During the year, the Bank has initiated a
 project to revamp its existing credit scoring models for retail assets
 with the external support of a reputed international vendor.
 
 Market Risk
 
 Besides Structural Liquidity, Interest Rate Sensitive Gap limits and
 Absolute Holding limits, DCB also monitors interest rate risks using
 Value at Risk (VaR) limits.  Exposures to foreign exchange,
 commodities, and capital markets are monitored within pre-set exposure
 limits, margin requirements, and stop-loss limits. DCB has taken steps
 to have system generated comprehensive Asset Liability statements that
 are expected to be rolled out during the current year. Moreover, DCB
 enters into derivative transactions on a fully hedged basis.
 
 Country Exposure Risk
 
 DCB has established specific country exposure limits capped at 1% of
 Total Assets for each individual country, and uses insurance cover
 available through the Export Credit and Guarantee Corporation (ECGC),
 where appropriate.
 
 Liquidity Risk
 
 Liquidity risk arises in any banks general funding of its activities.
 As part of the liquidity management contingency planning, DCB assesses
 potential trends, demands, events and uncertainties that could
 reasonably result in an adverse liquidity condition. The Bank considers
 the impact of these potential changes on its sources of short term
 funding and long term liquidity planning. The Banks ALM policy defines
 the gap limits for the structural liquidity, and the liquidity profile
 of the Bank is analysed, on a static as also a dynamic basis, by
 tracking all cash inflows and outflows in the maturity ladder based on
 the expected occurrence of cash flows. The Bank undertakes behavioural
 analysis of the non-maturity products, viz., savings and current
 deposits and cash credit / overdraft accounts, on a periodic basis, to
 ascertain the volatility of residual balances in these accounts. The
 renewal pattern and premature withdrawals of term deposits and draw
 downs of unavailed credit limits are also captured through behavioural
 studies. The liquidity profile of the Bank is estimated on a dynamic
 basis by considering the growth in deposits and loans, and investment
 obligations, for a short-term period of three months.  The
 concentration of large deposits is monitored on a periodic basis. The
 Banks ability to meet its obligations and fund itself in a crisis
 scenario is very critical, and accordingly, stress tests are conducted
 under different scenarios at periodical intervals to assess the impact
 on liquidity to withstand stressed conditions.
 
 Operational Risk
 
 Operational risk is the risk of loss resulting from inadequate or
 failed internal processes, people or systems, or normal external
 events. The business units put in place the baseline internal controls
 as approved by the Product Management Committee to ensure a sound and
 well controlled operating environment throughout the organisation. Each
 new product or service introduced is subject to a rigorous risk review
 and sign-off process where all relevant risks are identified and
 assessed by departments independent of the risk taking unit proposing
 the product. Key Operational Risk Indicators (KORIs) have been defined
 and are regularly tracked. Self-assessment of operational risks within
 all business divisions has been done and loss reporting and data
 capturing systems have been implemented. Business Contihufty Plans
 (BCP) for all critical units is in place. The Bank is in the process of
 evaluating software solutions for efficient management of operational
 risk with emphasis on identification of all key risk indicators at the
 unit level, monitoring all identified risk and measuring their impact
 in terms of occurrence and severity at the unit level and then
 aggregating them to a higher organisational level
 
 Implementation of Basel II guidelines
 
 DCB has decided to migrate to New Capital Adequacy Framework (NCAF)
 under Basel II guidelines on 31st March, 2009. DCB is adopting the
 Standardised Approach for Credit Risk and Market Risk, and the Basic
 Indicator Approach for Operational Risk. The Bank has assessed the key
 requirements of the NCAF contained in the Basel II guidelines issued by
 the regulator and has set in place a core group to monitor the
 implementation. Several critical steps, as under, have been taken to
 ensure that the Bank is in readiness to migrate under NCAF, well before
 the scheduled date for migration:
 
 DCB continues to examine appropriate technologies to support the
 business plans in the coming financial year including the requirements
 relating to Basel II implementation. The Bank is taking active steps to
 make use of technology to create competitive advantage in addition to
 its enabling rale.
 
 The Operations and Technology division moved to a new premises at
 Vikhroli, Mumbai. This is an excellent work environment, housed in low
 cost premises, and very similar to a BPO. The Vikhroli premises also
 houses DCBs training centre.
 
 G.  INTERNAL AUDIT
 
 DCB has established a well-defined and independent Internal Audit
 function in line with the expectations of the shareholders and
 regulators.
 
 Internal Audit department is staffed with professionals in the fields
 of accounting, information audit etc. The internal audit function
 undertakes three types of audit: Operational Audit, Information Systems
 Audit and Credit Audit.
 
 H.  HUMAN CAPITAL
 
 2007-08 has been a milestone year for DCB. Fast paced growth,
 restructuring and strengthening the human capital of the Bank through
 strategic and focused initiatives have redefined the landscape of the
 organisation.
 
 As DCB prepares to take on the challenge to be a preferred employer
 through its human capital initiatives, it participated in best employer
 surveys of Watson Wyatt and Great Places to Work. Inputs from these
 surveys have resulted in initiatives for employee connect and people
 policies. The Banks senior management team provides the line of sight
 on growth, performance, opportunities and challenges. Open, direct and
 regular communication across all levels and the senior management team
 in the Bank has improved employee morale, and fostered engagement
 across all regions.
 
 Promotion of the DCB brand as a preferred employer was achieved through
 participation in campus placements. The Bank recruited 49 management
 trainees as a part of the DCB Future Leaders Campaign.
 
 In management changes, Mr. Praveen Kutty joined DCB as EVP & Head
 Consumer Banking Group; he replaced Mr. R N. Vasudevan who resigned in
 July 2007.
 
 The Bank views the implementation of the Basel II framework as an
 opportunity to systematically review its risk management systems and
 practices, with an objective of aligning them to international best
 practices.
 
 F.  INFORMATION TECHNOLOGY
 
 DCB continues to leverage technology for supporting its business
 strategy and to constantly improve the level of customer service. The
 applications acquisition strategy continues to be product-led, while
 the IT service delivery strategy is evolving towards a hybrid model
 involving a strong in-house team combined with judicious use of
 outsourcing options with reputed players. Ensuring customer data
 security and confidentiality is an important element of the IT
 strategy.
 
 DCB continues to augment and modernise its core IT infrastructure in
 line with business priorities to provide faster processing and better
 connectivity to branches and offices. The Bank continues to adopt
 suitable measures to strengthen controls around information security.
 During the year, creation of a service delivery infrastructure around
 alternate channels, particularly, the Internet and voice channels, have
 been an area of focus. Some of the key technology initiatives
 undertaken during this financial year include:
 
 With a view to enhance regional presence and provide greater support to
 employees, Human Capital had initiated an area structure at Mumbai,
 Delhi, Gujarat and the South. The new approach allows for a single
 point interface for all human capital related requirements of the
 region.
 
 Training is synonymous with development and growth and over 4000
 people-days of training were provided in FY 2007-08. Programs ranged
 from technical, skill building to customer service, Know Your Customers
 (KYC) and Anti Money Laundering (AML). Department specific training
 roadmaps were created and deployed. These added immense value to the
 employee knowledge base, enhanced customer experience and reaffirmed
 the learning culture at DCB.
 
 The staff strength of the Bank ending 31 st March, 2008 stood at 2,235
 as against 1,810 as on 31st March, 2007. Human Capital has focused on
 realigning and driving the best-fit philosophy.
 
 DCB undertook employee pool reprofiling at all levels with the
 objective to attract external talent and fill crucial gaps with the
 best available talent. Strategic empanelment, targeted campus drives,
 campaign based hiring and tie-ups with job portals like naukri.com and
 monster.com provided the impetus and brand visibility to attract talent
 to DCB.
 
 The outsourcing of the Payroll to Mafoi has improved the service
 Offerings to the employees. All employees are able to access the
 compensation, Provident Fund, leave, and tax details with ease.
 
 The Employee Stock Option Plan (ESOP) is a powerful motivator. At DCB,
 even new staff members are eligible. ESOP attracts the right talent,
 recognises the contribution of employees and inculcates ownership. The
 Bank has a tie-up with ESOP Direct for employees to view the ESOP
 details on-line.
 
 The Human Capital mandate is to build a strong performance driven
 culture through transparent mid-year and annual appraisal programmes.
 
 I.  CUSTOMER SERVICE
 
 2006 saw the launch of the Service Quality initiative at DCB with a lot
 of awareness created amongst employees. 2007-08 was devoted to driving
 home a change in mindset with respect to service through relevant
 projects at grassroots level.
 
 The Quality Management System (QMS) project was one such major
 initiative launched across 78 branches. The objective of the project
 was to supplement the training on Customers for Life with practical
 application at the branch.  The project focused on three main aspects,
 viz., Customer Service, Workplace Management and Quality Management.
 
 At the branches, small-customised training modules were deployed to
 create awareness on ways of improving customer service, workplace
 organisation and quality management. These modules were followed up
 with practical implementation involving the entire branch staff using
 tools such as 5S. This exercise brought about a perceptible change in
 mindset towards customer service at branches.
 
 Mystery Audits conducted through an independent external agency, and
 Mystery Calling conducted by members of the Customer Service Committee,
 preceded this implementation. Two rounds of Mystery Audits revealed key
 areas of improvement - in people grooming, greeting and executive
 knowledge. However, the overall Branch Index improved from 65% to 70%
 after the first round itself!  Mystery Calling scores also showed
 average improvements in the range of 30% to 40% across all parameters.
 
 Quality Circles were expanded across 78 branches. Branches started
 reporting key customer service metrics and issues on a weekly basis,
 and Operations have begun reporting their metrics on a monthly basis.
 The Customer Service Committee deliberated on these and other issues
 from an analysis of customer complaints as well as Branch and regional
 service committee meetings, and delivered many improvements that have
 resulted in enhanced customer experience.
 
 Last year, DCB launched Good as Gold Individual Award, an on-the-spot
 award to recognise individuals for exemplary service to both, internal
 and external, customers. 118 winners across various departments and
 functions were felicitated. The rewards program is being revamped and
 will be branded and deployed with many more categories next year.
 
 Complaints showed a healthy decrease over the previous financial year
 with 69% of the complaints being resolved within three days. The year
 had 46 Banking Om- budsman / Reserve Bank of India (RBI) complaints
 against the Bank and the Om- budsman passed no awards against the Bank.
 
 Last year, DCB was amongst the first to become a member of the Banking
 Codes and Standards Board of India (BCSBI), thereby, voluntarily
 adopting the Banking Code of Commitment to Customers (Code). The Bank
 has already implemented almost all provisions of the Code. Internal
 Audits of implementation were carried out as part of the QMS projects
 and will continue throughout next year. BCSBIs initial sample survey
 revealed only minor areas of improvement in customer education that
 have since been addressed.
 
 Overall, the Service Quality initiative has taken firm root and is
 poised to take the next big step towards achieving our vision of being
 the gold standard in customer service!
 
 Highlights
 
 - Quality Management System project imptemented across 78 branches has
 brought about a significant change in mindset at the grassroots level
 
 - Mystery Audit scores improved from 65% to 70% after the first round
 
 - Service Indicators and Quality Circles expanded across 78 branches
 with metrics and service issues being reported on a weekly basis
 
 - 118 winners of the Good as Gold Individual Award this year
 
 - Complaints reduced by 28% over last year with 69% of the complaints
 being resolved within three working days
 
 Annual Summary
 
 (a)    Number of complaints pending at the beginning of the year   7
 
 (b)    Number of complaints received during the year             198
 
 (c)    Number of complaints redressed during the year            197
 
 (d)    Number of complaints pending as on 31.03.2008               8
 
 Data on awards passed by the Banking Ombudsman
 
 (a) Number of unimplemented awards at the beginning of the year  Nil
 
 (b) Number of awards passed by the Banking Ombudsman 
     during the year                                              Nil
 
 (c)    Number of awards implemented during the year              Nil
 
 (d)    Number of unimplemented awards as on 31.03.2008           Nil
 
 PARTICULARS OF EMPLOYEES
 
 In accordance with Section 217(2A) of the Companies Act, 1956 and the
 rules framed thereunder, a statement furnishing names and other
 particulars of employees in receipt of remuneration of Rs. 24 lakhs or
 more per annum and pro rata, if employed for a part of the year, is
 annexed to this Report.
 
 EMPLOYEE STOCK OPTIONS
 
 The information pertaining to the Employee Stock Options is given in an
 annexure to this Report.
 
 PARTICULARS REGARDING CONSERVATION OF ENERGY AND TECHNOLOGY
 
 ABSORPTION
 
 The provisions of Section 217(1 )(e) of the Companies Act, 1956
 relating to conservation of energy and technology absorption do not
 apply to DCB. However, as mentioned in the earlier part of the Report,
 DCB has been extensively using technology in its operations.
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 In accordance with Section 217(2AA) of the Companies Act, 1956, your
 Board of Directors confirms that:
 
 a) in the preparation of the annual accounts, the applicable accounting
 standards have been followed along with proper explanation relating to
 material departures;
 
 b) except for change in accounting policies set out in Item No. 1 in
 the Notes to Accounts, accounting policies have been selected and
 applied consistently.  Reasonable and prudent judgments and estimates
 have been made so as to give a true and fair view of the state of
 affairs of DCB in FY 2007-08 and of the profit for the year ended on
 that date;
 
 c) proper and sufficient care has been taken for maintenance of
 adequate accounting records as provided in the Companies Act, 1956, for
 safeguarding the assets of DCB and for preventing and detecting frauds
 and other irregularities; and
 
 d) the annual accounts of DCB have been prepared on a going concern
 basis
 
 CORPORATE GOVERNANCE
 
 The Bank strongly believes in observing the best corporate governance
 practices and benchmarking itself against each such practice on an
 ongoing basis. A separate section on Corporate Governance and a
 Certificate from the Practicing Company Secretary regarding compliance
 of conditions of Corporate Governance as stipulated under Clause 49 of
 the Listing Agreements with the Stock Exchanges form part of this
 Annual Report.
 
 DIRECTORS
 
 In accordance with the Companies Act, 1956 and the Articles of
 Association of DCB, Directors Mr. Amin Manekia, Mr. R. A. Momin, and
 Mr. Anuroop Singh are retiring by rotation and, being eligible, offer
 themselves for re-appointment.
 
 The Board recommends the reappointments of Mr. Amin Manekia, Mr. R. A.
 Momin, and Mr. Anuroop Singh as Directors at this Annual General
 Meeting. The brief resume/details relating to the Directors who are to
 be re- appointed are furnished in the report on Corporate Governance.
 
 None of the above mentioned persons are disqualified from being
 appointed as a Director as specified in terms of Section 274(1 )(g) of
 the Companies Act, 1956.
 
 Dr. Vijay Kelkar has resigned from the Board w.e.f. December 31, 2007
 pursuant to his appointment by the President of India as the Chairman
 of the Thirteenth Finance Commission. Your Directors wish to place on
 record their sincere appreciation for the contribution and guidance
 given by Dr. Vijay Kelkar during his tenure as Director.
 
 STATUTORY AUDITORS
 
 Messrs N. M. Raiji & Co., Chartered Accountants, were appointed as
 Statutory
 
 Auditors at the last Annual General Meeting. They have completed a
 continuous term of four years as the Banks Statutory Auditors and as
 required under the Banking Regulation Act, 1949 they cannot be
 reappointed at the ensuing Annual General Meeting.
 
 The appointment of the Banks Statutory Auditors requires prior
 approval of RBI. The Bank has made the usual representation to RBI,
 recommending the appointment of Statutory Auditors from a panel of
 Chartered Accountants as approved by the Board of Directors. The order
 of preference includes the name of M/s. S. R. Batliboi & Co., Chartered
 Accountants, Mumbai as first preference. The approval of RBI for
 appointing M/s. S. R. Batliboi & Co., Chartered Accountants, Mumbai as
 Statutory Auditors, is therefore expected.
 
 ACKNOWLEDGEMENTS
 
 Your Board wishes to thank the principal shareholder, the Aga Khan Fund
 for Economic Development (AKFED), and all the other shareholders for
 the confidence and trust they have reposed in DCB. Your Board also
 thanks the RBI for its valuable guidance and support to DCB. Your Board
 acknowledges with appreciation, the assistance and co-operation
 extended by SEBI, BSE, NSE, NSDL, CDSL, Central Government and the
 Governments of various States where DCB has its branches.
 
 Your Board acknowledges with appreciation, the invaluable support
 provided by DCBs auditors, lawyers, business partners and investors.
 Your Board is also thankful for the continued co-operation of various
 financial institutions and correspondents in India and abroad.
 
 Your Board records with appreciation the valuable contribution made by
 employees at all levels and looks forward to their continued commitment
 to achieve and surpass the ambitious organisational goals that we have
 set ourselves for the coming financial year.
 
                             On behalf of the Board of Directors
 
 Mumbai                                    Nasser Munjee
 
 May 6, 2008                                    Chairman