1.  We have audited the accompanying financial statements of The
 Karnataka Bank Limited as at 31st March 2011, which comprises the
 Balance sheet as at 31st March 2011; the statement of Profit and Loss
 Account and the Cash Flow Statement for the year then ended; and a
 summary of significant Accounting Policies and other explanatory
 information. Incorporated in these financial statements are the returns
 of 13 branches and 3 offices audited by us and 465 branches and 21
 offices audited by Branch Auditors. The Branches audited by us and
 those audited by other auditors have been selected by the Bank in
 accordance with the guidelines issued by the Reserve Bank of India.
 
 Managements responsibility for the Financial Statements:
 
 2.  Management is responsible for the preparation of these financial
 statements in accordance with the Banking Regulation Act, 1949. This
 responsibility includes the design, implementation and maintenance of
 internal control relevant to the preparation of the financial
 statements that are free from material misstatements, whether due to
 fraud or error.
 
 Auditors Responsibility:
 
 3.  Our responsibility is to express an opinion on these Financial
 Statements based on our audit.  We conducted our audit in accordance
 with the Standards on Auditing issued by the Institute of Chartered
 Accountants of India. Those Standards require that we comply with the
 ethical requirements and plan and perform the audit to obtain
 reasonable assurance about whether the financial statements are free of
 material misstatements.
 
 4.  An audit involves performing procedures to obtain audit evidence
 about the amounts and disclosures in the financial statements. The
 procedures selected depend on the auditors judgment, including the
 assessment of the risks 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
 banks preparation and fair presentation of the financial statements in
 order to design audit procedures
 
 that are appropriate in the circumstances. An audit also includes
 evaluating the appropriateness of accounting policies used and the
 reasonableness of the accounting estimates made by the management, as
 well as evaluating the overall presentation of the financial statements
 
 5.  We believe that the audit evidence we have obtained is sufficient
 and appropriate to provide a basis for our audit opinion.
 
 Emphasis of Matter:
 
 6.  Without qualifying our opinion, we draw attention to Note 2.3.2 of
 Schedule 18 to the financial statements, which describes deferment of
 peinsion and gratuity liability of the Bank to the extent of Rs. 125.63
 crore pursuant to the exemption granted by the Reserve Bank of India to
 the Bank from the application of the provisions of Accounting Standard
 (AS) 15, Employee Benefits, vide its circular No. DBOD.  B P.
 BC/15896/21.04.018/2010-11 dated 8th April, 2011 on prudential
 regulatory treatment relating to re-opening of pension option to
 employees of the Bank and enhancement in gratuity limits.
 
 Opinion:
 
 7.  In our opinion and to the best of our information and according to
 the explanations given to us, the said accounts together with the notes
 thereon, give the information required by the Banking Regulation Act,
 1949 as well as the Companies Act, 1956, in the manner so required for
 the Banking Companies and give a true and fair view in conformity with
 the accounting principles generally accepted in India: (i) in the case
 of the Balance Sheet, of the state of affairs of the Bank as at 31st
 March, 2011; (ii) in the case of the Profit and Loss Account, of the
 profit for the year ended on that date; and (iii) in the case of the
 Cash Flow Statement, of cash flows for the year ended on that date.
 
 Report on other legal and Regulatory requirements:
 
 8.  The Balance Sheet and the 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 211 of the Companies Act, 1956;
 
 9.  Subject to the limitations of the audit indicated in paragraph 1 to
 5 above, 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 purposes of our
 audit and have found them to be satisfactory; b. the transactions of
 the Bank, which have come to our notice, have been within the powers of
 the Bank; and c. the returns received from the Offices and Branches of
 the Bank have been found adequate for the purposes of our audit.
 
 10.  In our opinion, the Balance Sheet, Profit and Loss Account and
 Cash Flow Statement comply with the Accounting Standards referred to in
 sub-section (3C) of Section 211 of the Companies Act, 1956.
 
 11.  We further report that: (i) the Balance Sheet and Profit and Loss
 account dealt with by this report are in agreement with the books of
 accounts and returns; (ii) in our opinion, proper books of account as
 required by law have been kept by the bank so far as appears from our
 examination of those books; (iii) the reports on the accounts of the
 branches audited by branch auditors have been dealt with in preparing
 our report in the manner considered necessary by us; (iv) as per the
 information and explanations given to us the Central Government has,
 till date, not prescribed any cess payable under section 441A of the
 Companies Act, 1956; and (v) on the basis of the written representation
 received from the directors and taken on record by the Board of
 Directors, none of the directors is disqualified as on March 31, 2011
 from being appointed as a director in terms of clause (g) of
 sub-section (1) of section 274 of the Companies Act, 1956.
 
 
 
 
 For Vishnu Daya & Co                          For R.K. Kumar & Co
 Chartered Accountants                         Chartered Accountants
 Firm Reg. No. 008456S                         Firm Reg. No. 001595S
 
 
 Sd/-                                          Sd/-
 
 Venkatesh Kamath S.V.                         B.R. Ashok
 Partner                                       Partner
 M.No. 202626                                  M.No. 023313
 
 
 Place : Mangalore 
 Date  : 23rd May, 2011