A.  ACCOUNTING METHODOLOGY
 
 The financial statements have been prepared in accordance with
 statutory requirements prescribed under the Banking Regulation Act,
 1949. The accounting and reporting policies of Kotak Mahindra Bank
 Limited used in the preparation of these financial statements conform
 to Generally Accepted Accounting Principles in India (Indian GAAP),
 the guidelines issued by Reserve Bank of India (RBI) from time to
 time, the Accounting Standards (AS) issued by the Institute of
 Chartered Accountants of India (ICAI) and notified by the Companies
 (Accounting Standards) Rules, 2006 as amended to the extent
 applicable and practices generally prevalent in the banking industry in
 India. The Bank follows the accrual method of accounting, except where
 otherwise stated, and the historical cost convention.
 
 The preparation of financial statements requires the management to make
 estimates and assumptions considered in the reported amounts of assets
 and liabilities (including contingent liabilities) as of the date of
 the financial statements and the reported income and expenses during
 the reporting period. Management believes that the estimates used in
 preparation of the financial statements are prudent and reasonable.
 Actual results could differ from these estimates.
 
 B.  REVENUE RECOGNITION
 
 a.  Interest income is recognised on accrual basis except in case of
 non-performing assets where it is recognised, upon realisation, as per
 RBI guidelines. Penal interest is recognised as income on realisation.
 
 b.  Interest income in respect of retail advances is accounted for by
 using the internal rate of return method to provide a constant periodic
 rate of return on the net investment outstanding on the contract.
 
 c.  Interest income on discounted instruments is recognised over the
 tenure of the instruments so as to provide a constant periodic rate of
 return.
 
 d.  Service charges, Fees and Commission income are recognised when due
 except for Guarantee Commission which is recognised over the period of
 the guarantee.
 
 e.  Dividend income is accounted on an accrual basis when the Banks
 right to receive the dividend is established.
 
 f.  Gain on account of securitisation of assets is amortised over the
 life of the securities issued in accordance with the guidelines issued
 by the RBI.
 
 g.  In respect of non-performing assets acquired from other Banks / FIs
 and NBFCs, collections in excess of the consideration paid at each
 asset level or portfolio level is treated as income in accordance with
 RBI guidelines and clarifications.
 
 C.  FIXED ASSETS
 
 a.  Fixed Assets have been stated at cost inclusive of incidental
 expenses less accumulated depreciation.
 
 D.  EMPLOYEE BENEFITS
 
 a.  Provident Fund – Defined Contribution Plan
 
 Contribution as required by the Statute made to the Government
 Provident Fund is debited to the Profit and Loss Account when incurred.
 
 b.  Gratuity – Defined Benefit Plan
 
 The Bank accounts for the liability for future gratuity benefits based
 on an actuarial valuation conducted by an independent actuary. The Bank
 makes contribution to a Gratuity Fund administered by trustees and
 managed by a life insurance company.  The net present value of the
 Banks obligation towards the same is actuarially determined based on
 the projected unit credit method as at the Balance Sheet date.
 Actuarial gains and losses are recognised in the Profit and Loss
 Account.
 
 c.  Superannuation Fund – Defined Contribution Plan
 
 The Bank contributes a sum equivalent to 15% of eligible employees
 salary, subject to a maximum of Rs. 1 lakh per employee per annum to a
 Fund administered by trustees and managed by a life insurance company.
 The Bank recognises such contributions as an expense in the year they
 are incurred.
 
 d.  Compensated Absences – Other Long-Term Employee Benefits
 
 The Bank accrues the liability for compensated absences based on the
 actuarial valuation as at the Balance Sheet date conducted by an
 independent actuary. The net present value of the Banks obligation is
 determined based on the projected unit credit method as at the Balance
 Sheet date.
 
 e.  Other Employee Benefits
 
 The undiscounted amount of short-term employee benefits expected to be
 paid for the services rendered by employees is recognised during the
 period when the employee renders the service. These benefits include
 performance incentives.
 
 E.  INVESTMENTS
 
 1.  Classification
 
 a.  In accordance with the RBI guidelines, investments are categorised
 into Held for Trading, Available for Sale and Held to Maturity
 and further classified under six groups, namely, Government Securities,
 Other Approved Securities, Shares, Debentures and Bonds, Investments in
 Subsidiaries / Joint Ventures and Other Investments for the purposes of
 disclosure in the Balance Sheet.
 
 b.  Investments which are held for resale within 90 days from the date
 of purchase are classified as Held for Trading.
 
 c.  Investments which the Bank intends to hold till maturity are
 classified as Held to Maturity. The Bank has classified investments
 in subsidiaries, joint ventures and associates as Held to Maturity.
 
 d.  Investments which are not classified in either of the above two
 categories are classified as Available for Sale.
 
 2.  Valuation
 
 The cost of investments is determined on weighted average basis. Broken
 period interest on debt instruments is considered as a revenue item.
 The transaction costs including brokerage, commission etc. paid at the
 time of acquisition of investments is charged to Profit and Loss
 Account.
 
 The valuation of investments is performed in accordance with the RBI
 guidelines as follows:
 
 a.  Held for Trading / Available for Sale – Each security in this
 category is revalued at the market price or fair value and the net
 depreciation of each group is recognised in the Profit and Loss
 Account. Net appreciation, if any, is ignored. Further, provision for
 diminution other than temporary is made for, at the individual security
 level.
 
 b.  Held to Maturity – These are carried at their acquisition cost. Any
 premium on acquisition of debt instruments is amortised over the
 balance maturity of the security on a straight line basis. Any
 diminution, other than temporary, in the value of such securities is
 provided.
 
 c.  The market value of investments where market quotations are not
 available is determined as per the norms laid down by the RBI.
 
 d.  Repurchase and reverse repurchase transactions – Securities sold
 under agreements to repurchase (Repos) and securities purchased under
 agreements to resell (Reverse Repos) are accounted as collateralised
 borrowing and lending transactions respectively. The difference between
 the consideration amount of the first leg and the second leg of the
 repo is recognised as interest income / interest expense over the
 period of the transaction. (Refer note 3 of Schedule 18 B)
 
 3.  Transfer between Categories
 
 Transfer between categories is done, in accordance with RBI guidelines
 at the lower of the acquisition cost / book value / market value on the
 date of the transfer and depreciation, if any, on such transfer is
 fully provided for.
 
 4.  Profit or Loss on sale / redemption of Investments
 
 a.  Held for Trading and Available for Sale - Profit or loss on sale /
 redemption is included in the Profit and Loss Account.
 
 b.  Held to Maturity - Profit on sale / redemption of investments is
 included in the Profit and Loss Account and is appropriated to Capital
 Reserve after adjustments for tax and transfer to Statutory Reserve.
 Loss on sale / redemption is charged off to the Profit and Loss
 Account.
 
 F.  FOREIGN CURRENCY AND DERIVATIVE TRANSACTIONS
 
 a.  Foreign currency assets and liabilities are translated as at the
 Balance Sheet date at rates notified by the Foreign Exchange Dealers
 Association of India (FEDAI).
 
 b.  Income and Expenditure items are translated at the rates of
 exchange prevailing on the date of the transactions except in respect
 of representative office expenses, which are translated at monthly
 average exchange rate.
 
 c.  Foreign Exchange contracts (other than deposit and placement swaps)
 outstanding at the Balance Sheet date are revalued at rates notified by
 FEDAI and resulting profits or losses are included in the Profit and
 Loss Account. Foreign exchange swaps linked to foreign currency
 deposits and placements are translated at the prevailing spot rate at
 the time of swap. The premium / discount on the swap arising out of the
 difference in the exchange rate of the swap date and the maturity date
 of the underlying forward contract is amortised over the period of the
 swap and the same is recognised as income / expense.
 
 d.  Notional amounts of derivative transactions comprising of forwards,
 swaps, futures and options are disclosed as off Balance Sheet
 exposures. The swaps are segregated into trading or hedge transactions.
 Trading swaps outstanding as at the Balance Sheet dates are marked to
 market and the resulting profits or losses, are recorded in the Profit
 and Loss Account. Outstanding derivative transactions designated as
 Hedges are accounted on an accrual basis over the life of the
 transaction. Option premium paid / received is accounted for in the
 Profit and Loss Account on expiry of the option.
 
 e.  Contingent liabilities as at the Balance Sheet date on account of
 outstanding foreign exchange contracts are restated at year end rates
 notified by FEDAI.
 
 G.  ADVANCES
 
 a.  Advances are classified into standard, sub-standard, doubtful and
 loss assets in accordance with the RBI guidelines and are stated net of
 provisions made towards non-performing advances.
 
 b.  Provision for non-performing advances comprising sub-standard,
 doubtful and loss assets is made in accordance with the RBI guidelines.
 In addition, the Bank adopts an approach to provisioning that is based
 on past experience, evaluation of security and other related factors.
 
 c.  In accordance with RBI guidelines the Bank has provided general
 provision on standard advances at uniform rate of 0.40% except in case
 of direct advances to Agricultural & SME sectors which are provided at
 0.25%, Commercial Real Estate sector at 1.00% and teaser rate Housing
 loans at 2.00%.
 
 Excess standard provision due to revision in provisioning rates is not
 written back to Profit and Loss Account in accordance with the RBI
 guidelines and clarifications.
 
 d.  Amounts paid for acquiring non-performing assets from other banks
 and NBFCs are considered as advances. Actual collections received on
 such non-performing assets are compared with the cash flows estimated
 while purchasing the asset to ascertain overdue. If the overdue is in
 excess of 90 days, then the assets are classified into sub-standard,
 doubtful or loss as required by the RBI guidelines on purchase of
 non-performing assets.
 
 H.  SECURITISATION
 
 The Bank enters into arrangements for sale of loans through Special
 Purpose Vehicles (SPVs). In most cases, post securitisation, the Bank
 continues to service the loans transferred to the SPV. At times the
 Bank also provides credit enhancement in the form of cash collaterals
 and / or by subordination of cash flows to Senior Pass Through
 Certificate (PTC) holders. In respect of credit enhancements provided
 or recourse obligations (projected delinquencies, future servicing
 etc.) accepted by the Bank, appropriate provision / disclosure is made
 at the time of sale in accordance with Accounting Standard 29,
 Provisions, Contingent Liabilities and Contingent Assets notified by
 the Companies (Accounting Standards) Rules, 2006 as amended.
 
 The profit / premium on account of securitisation of assets at the time
 of sale is computed as the difference between the sale consideration
 and the book value of the securitised asset amortised over the tenure
 of the securities issued. Loss on account of securitisation on assets
 is recognised immediately to the Profit and Loss Account.
 
 I.  TAXES ON INCOME
 
 The Income Tax expense comprises current tax and deferred tax. Current
 tax is measured at the amount expected to be paid in respect of taxable
 income for the year in accordance with the Income Tax Act, 1961.
 Deferred tax adjustments comprise of changes in the deferred tax assets
 and liabilities. Deferred tax assets and liabilities are recognised for
 the future tax consequences of timing differences being the difference
 between the taxable income and the accounting income that originate in
 one period and are capable of reversal in one or more subsequent
 periods. Deferred tax assets are recognised only to the extent that
 there is reasonable certainty that sufficient future taxable income
 will be available against which such deferred tax assets can be
 realised. Deferred tax assets and liabilities are measured using tax
 rates and tax laws that have been enacted or substantially enacted at
 the Balance Sheet date.  Changes in deferred tax assets / liabilities
 on account of changes in enacted tax rates are given effect to in the
 Profit and Loss Account in the period of the change. The carrying
 amount of deferred tax assets are reviewed at each Balance Sheet date
 for recoverability based on future taxable income.
 
 J.  SEGMENT REPORTING
 
 In accordance with guidelines issued by RBI vide
 DBOD.No.BP.BC.81/21.01.018/2006-07 dated 18th April 2007 and Accounting
 Standard 17 (AS-17) on Segment Reporting notified under the Companies
 (Accounting Standard) Rules, 2006 as amended, the Banks business has
 been segregated into the following segments whose principal activities
 were as under:
 
 K.  LEASES
 
 Leases where the lessor effectively retains substantially all the risks
 and benefits of ownership of the leased term, are classified as
 operating leases. Operating lease payments are recognised as an expense
 in the Profit and Loss Account on a straight-line basis over the lease
 term.
 
 L.  CASH AND CASH EQUIVALENTS
 
 Cash and cash equivalents include cash in hand, balances with Reserve
 Bank of India and Balances with Other Banks / institutions and money at
 Call and short Notice (including the effect of changes in exchange
 rates on cash and cash equivalents in foreign currency).
 
 M.  EARNINGS PER SHARE
 
 Basic earnings per share are calculated by dividing the net Profit or
 Loss for the period attributable to equity shareholders (after
 deducting attributable taxes) by the weighted average number of equity
 shares outstanding during the period. The weighted average number of
 equity shares outstanding during the period is adjusted for events of
 bonus issue; bonus element in a rights issue to existing shareholders
 and share split.
 
 For the purpose of calculating diluted earnings per share, the net
 Profit or Loss for the period attributable to equity shareholders and
 the weighted average number of shares outstanding during the period are
 adjusted for the effects of all dilutive potential equity shares.
 
 N.  PROVISIONS
 
 A provision is recognised when the Bank has a present obligation as a
 result of past event; it is probable that an outflow of resources will
 be required to settle the obligation, in respect of which a reliable
 estimate can be made. Provisions are not discounted to its present
 value and are determined based on best estimate required to settle the
 obligation at the Balance Sheet date. These are reviewed at each
 Balance Sheet date and adjusted to reflect the current best estimates.
 Provision is made for Credit card reward points based on reward points
 accrued to the customer at Balance Sheet date.
 
 Contingent Liabilities are not recognised but are disclosed in the
 notes unless the outflow of resources is remote. Contingent assets are
 neither recognised nor disclosed in the financial statements.
 
 O.  IMPAIRMENT
 
 The carrying amounts of assets are reviewed at each Balance Sheet date
 if there is any indication of impairment based on internal / external
 factors.
 
 P.  EMPLOYEE STOCK OPTION SCHEME
 
 Equity-settled scheme:
 
 The Bank has formulated Employee Stock Option Schemes (ESOSs) in
 accordance with Securities and Exchange Board of India (Employee Stock
 Option Scheme) Guidelines, 1999. The Schemes provide for grant of
 options to employees of the Group to acquire the equity shares of the
 Bank that vest in cliff vesting or in a graded manner and that are to
 be exercised within a specified period. In accordance with the SEBI
 Guidelines and the guidance note on Accounting for Employee Share
 based payments issued by The Institute of Chartered Accountants of
 India, the excess, if any, of the market price of the share preceding
 the date of grant of the option under ESOSs over the exercise price of
 the option is amortised on a straight-line basis over the vesting
 period.
 
 Where the terms of an equity-settled award are modified, the minimum
 expense recognised in Payments to and provision for employees is the
 expense as if the terms had not been modified. An additional expense is
 recognised for any modification which increases the total intrinsic
 value of the share-based payment arrangement, or is otherwise
 beneficial to the employee as measured at the date of modification.
 
 In respect of options granted to employees of subsidiaries, the Bank
 recovers the related compensation cost from the respective
 subsidiaries.
 
 Cash-settled scheme:
 
 The cost of cash-settled transactions (stock appreciation rights) is
 measured initially using intrinsic value method at the grant date
 taking into account the terms and conditions upon which the instruments
 were granted. This intrinsic value is amortised on a straight- line
 basis over the vesting period with a recognition of corresponding
 liability. This liability is remeasured at each Balance Sheet date up
 to and including the settlement date with changes in intrinsic value
 recognised in Profit and Loss Account in Payments to and provision for
 employees.
 
 C.  Disclosures on risk exposures in derivatives: Qualitative
 disclosures:
 
 a) Structure and organization for management of risk in derivatives
 trading:
 
 The management of risk in derivatives trading is carried out by the
 market risk department which is independent of the Treasury and
 directly reports into the Group Head–Risk of the Bank. The philosophy
 and framework for the derivative business is laid out in the Board
 approved Investment and Derivative policies. These policies are
 actioned upon by the ALCO. The ALCO sets various limits and reviews
 various exceptions to them.
 
 Apart from ALCO, the New Product Committee is responsible for approving
 any new derivative products. The Board approved Customer
 Appropriateness and Suitability Policy gives guidance to assess
 customers and the suitability of products offered to the customer.
 
 b) Scope and nature of risk measurement, risk reporting and risk
 monitoring systems:
 
 The risk department is responsible for measuring, monitoring and
 mitigating risk arising from Derivative transactions.  Various risk
 metrics like volatility, interest rate sensitivity, price sensitivity,
 open position and counterparty exposure are monitored daily.
 
 The Risk Management function undertakes the following activities:- -
 monitors daily derivative operations against the set limits
 
 - reviews daily profitability and activity reports for derivative
 operations at various levels
 
 - reports MIS to the ALCO on a periodic basis as well as exception
 reporting
 
 c) Policies for hedging and / or mitigating risk and strategies and
 processes for monitoring the continuing effectiveness of hedges /
 mitigants:
 
 The Bank enters into derivative transactions for trading and hedging
 purposes. The Balance Sheet Management Unit of the Bank obtains
 approvals from the ALCO for hedging depending on the market conditions
 and Balance Sheet positions.
 
 These hedges are monitored for its hedge effectiveness periodically
 having regard to the terms of the hedging instrument and the underlying
 hedged risk.
 
 d) Accounting policy for recording hedge and non-hedge transactions;
 recognition of income, premiums and discounts; valuation of outstanding
 contracts; provisioning, collateral and credit risk mitigation:
 
 Derivative transactions are segregated into trading or hedge
 transactions. Trading transactions outstanding as at the Balance Sheet
 dates are marked to market and the resulting profits or losses, are
 recorded in the Profit and Loss Account.
 
 Derivative transactions designated as Hedges are accounted on an
 accrual basis over the life of the transaction.
 
 Option premium paid / received is accounted for in the Profit and Loss
 Account on expiry of the option.
 
 Provisioning on derivative receivables is made in accordance with RBI
 guidelines. The derivative limit sanctioned to clients is part of the
 overall limit sanctioned post credit appraisal. Collateral is accepted
 on a case to case basis considering the volatility of the price of the
 collateral and any increase in operational, legal and liquidity risk.