Kotak Mahindra Bank

The Directors present their Twenty Third Annual Report together with
 the audited accounts of your Bank for the year ended 31st March 2008.
 
 FINANCIAL HIGHLIGHTS
 
 (A) Kotak Mahindra Bank Limited - Consolidated financial highlights:
 
                                          31st March 2008 31st March 2007
                                                Rs. crore    Rs. crore
 
 Total income                                   7,678.47     4,352.30
 Total expenditure, excluding
 provisions and contingencies                   5,907.53     3,421.11
 Operating Profit                               1,770.94       931.19
 Provisions and contingencies,
 excluding provision for tax                      363.02       152.50
 Profit before tax                              1,407.92       778.69
 Provision for taxes                              449.19       254.21
 Profit after tax                                 958.73       524.48
 Less: Share of minority Interest                 (18.69)        0.66
 Add: Share in profit of Associates                13.81        14.42
 Consolidated profit for the Group                991.23       538.24
 Earnings per Equity Share Basic (Rs.)             29.62        16 60
 Diluted (Rs.)                                     29.18        16.47
 
 (B)    Kotak Mahindra Bank Limited - Standalone financial highlights:
 
                                         31st March 2008  31st March 2007
                                            Rs. crore       Rs. crore
 
 Total Income                                  2,998.83       1,637.76
 Operating Profit                                669.89          325.8
 Total expenditure, excluding
 provisions and contingencies                  2,328.94       1,311.94
 Provisions and contingencies,
 excluding tax provisions                        272.11         122.57
 Profit before tax                               397.78         203.25
 Provision for taxes                             103.85          61.88
 Profit after tax                                293.93         141.37
 Add: Surplus brought 
 forward from the previous year                  354.18         286.36
 Add: Transfer from. Kotak
 Mahindra Capital Company Limited on demerger        --         216.76
 Amount available for appropriation              648.12         644.49
 
                                       31st March 2008   31st March 2007
                                          Rs. crore         Rs. crore
 
 Appropriations:
 Transfer from Kotak Mahindra
 Capital Company Limited on
 demerger appropriated to
 
 General Reserve                           --                 216.76
 Statutory Reserve under
 Section 17 of the Banking
 
 Regulation Act, 1949                      73.50              35.50
 
 General Reserve                           14.70               7.25
 
 Transfer to Capital Reserve                1.48               4.05
 
 Proposed Dividend                         25.87              22.86
 
 Corporate Dividend Tax                     4.40               3.89
 
 Surplus carried to Balance Sheet         528.17             354.18
 
 DIVIDEND
 
 Keeping in mind the overall performance and the outlook for your Bank,
 the Directors recommend a dividend of 7.5% (previous year 7%),
 entailing a payout of Rs. 25.87 crore (previous year Rs. 22.86 crore).
 The dividend would be paid to all the shareholders, whose names appear
 on the Register of Members/Beneficial Holders list on the Book Closure
 date.
 
 CAPITAL
 
 Tier -1 Capital
 
 During the year, your Bank raised Rs. 1,615 crore through issue of
 1,70,00,000 equity shares to Qualified Institutional Buyers (QIBs) at
 an issue price of Rs. 950/- per share.
 
 Also, during the year, your Bank has allotted 15,17,134 shares arising
 out of the exercise of Employees Stock Options granted to the
 employees, employees of your subsidiaries and Executive Directors of
 your Bank.  Tier-II Capital Subordinated debt:
 
 During the year your Bank has issued Unsecured, Redeemable,
 Non-Convertible Subordinated Debt Bonds in the form of Promissory
 Notes/Debentures through private placement for an amount aggregating to
 Rs. 35.80 crore to augment the Tier-ll capital to meet the growth in
 assets of your Bank and to enhance overall Capital Adequacy Ratio.
 These Bonds iwere issued in demat and were listed on the Wholesale Debt
 Market segment of the .National Stock Exchange of India Limited. Your
 Bank has appointed IDBI Trusteeship Services Limited as the Trustees
 for these Bonds, as aforesaid. Outstanding Unsecured, Redeemable Non-
 Convertible, Subordinated Debt Bonds as at 31st March 2008 stood at Rs.
 465.70 crore.
 
 Hybrid debt capital instruments: Upper Tier- II Capital
 
 During the year your Bank has issued and allotted Unsecured, Non
 Convertible, Redeemable Debt Capital Instruments through private
 placement for an amount aggregating to Rs. 136 crore to augment the
 Upper Tier-ll capital to meet the growth in assets of your Bank and to
 enhance overall Capital Adequacy Ratio. These Bonds were listed on the
 Wholesale Debt Market segment of the National Stock Exchange of India
 Limited. Your Bank has appointed IDBI Trusteeship Services Limited as
 the Trustees for these Bonds, as aforesaid. Outstanding Unsecured,
 Non-Convertible, Redeemable Debt Capital Instruments Upper Tier II as
 at 31st March 2008 stood at Rs. 136 crore.
 
 During the year your Bank has not issued any Foreign Currency
 denominated Subordinated Debt Bonds or Debt Capital Instruments Upper
 Tier-ll to augment the Tier-ll capital of the bank.
 
 OPERATIONS
 
 The Branch Banking Business completed its fifth year of operations. The
 network expansion momentum has significantly increased in the current
 year with addition of 73 new full fledged branches & 179 new ATMs,
 taking the network size to 178 branches & 314 ATMs in 107 locations.
 The momentum of expansion will continue with addition of 80-100
 branches in the next year. The Branches and ATMs have helped expand our
 reach and increase our brand presence in the minds of customers. The
 pace of acquisition of customers and deposits from the branch network
 continued to be very satisfactory and in line with the best in the
 industry. Currently, the network acquires about 40000 deposit accounts
 every month & has more or less doubled the account base from 3,50,000
 last year to around 7,00,000 this year. The penetration into Corporate
 Salary segment of Customers has given a significant impetus to the
 customer acquisition programme.
 
 Your Bank added new products & services like Gold debit card, Smart fee
 (a fee solution for Educational Institutions), GPRS based mobile
 banking, Bill presentment and payment facility, online term deposits
 etc. to meet the needs of the customers. Several new initiatives were
 taken during the year to improve the operations and service levels to
 customers, through mystery shopping, customer feedback surveys and
 dedicated Control Unit. The customer response to our service levels
 continues to be heartening. Your Bank has won several awards for high
 quality implementation of various technology aspects of the business
 which help your Bank in delivering its proposition to customers in a
 manner most secure & most desirable to them, yet keeping it cost
 efficient for your Bank.
 
 The distribution of third party products remains strong from the Branch
 Network, contributing to a good mix of Fee Income to Net Interest
 Income.
 
 Overall the progress of the business gives us the confidence to invest
 in further network expansion.
 
 The year saw a continued increase in coverage of top corporate and mid
 market corporate clients and your bank widened and deepened its
 franchise in these segments. The year continued to see a surge in
 credit demand from the corporate and mid market business segments both
 for working capital and term facilities. Your Bank was able to tap this
 opportunity by offering a variety of products from plain vanilla debt
 issuance to structured products and loan syndication.
 
 The year also saw an increase in demand for trade finance both domestic
 and international and your Bank was able to tap this opportunity
 through structured product offerings to customers. Volumes saw a
 significant increase.
 
 Your Bank increased its thrust in offering customized solutions on
 foreign exchange, and cash management services across the spectrum of
 customers.  Your Bank was also able to provide products and services to
 segments of financial institutions group through customized credit and
 transaction banking offerings. Your Bank continued its presence as a
 collection banker in a number of the Initial Public Offers and New
 Fund Offers.
 
 Disbursements in the Commercial Vehicles and Infrastructure Finance
 divisions grew in line with the industry trends. Whereas the commercial
 vehicle sector showed a marked tapering down of growth rates, the
 construction equipment sector continued its robust growth. Keeping in
 view the opportunities in both the sectors, in addition to traditional
 asset funding, the businesses focused on growing its book on the
 transaction banking and non fund based products. The thrust given on
 cross sell of other banking products also got further momentum during
 the year. The businesses will continue to give focus on building
 customer value, going forward. A risk control unit was established
 during the year to supplement its robust risk management practices.
 
 The Agri Business has further consolidated comprising short term and
 long term loans, working capital facilities to farmers and other agri
 intermediaries.  Funding was extended for improved agriculture projects
 like horticulture, poultry, floriculture, bee keeping and other allied
 activities. Working capital facilities were extended to distinctive
 agri sectors like oils, cotton, agro processors, rice millers and
 sugar. The division also has developed the portfolio & expertise in
 funding against commodities. The agri division is becoming the
 predominant vehicle for identifying & servicing the financial
 requirements for agriculture & other rural segments.
 
 The Home Finance business saw the continued growth rate it has
 witnessed since inception as a result Of the growth in the real estate
 market. Similarly the Personal loan business grew significantly and
 your Bank improved its presence across newer geographies.
 
 Last year several auctions of the NPA portfolios by banks/NBFCs and
 institutions failed due to pricing mismatch between the buyers and
 sellers. Your bank made an entry in purchasing retail assets by
 acquiring a portfolio, as there is good opportunity in this space,
 moving forward. Your bank resolved several accounts resulting in good
 recoveries and continued to invest in attractive single asset
 transactions with good turnaround prospects.
 
 Your Bank has an active proprietary desk trading in all products such
 as Fixed Income, Money Markets, Derivatives, Foreign Exchange and
 Bullion.  The treasury plays an important role in balance sheet
 management and implementation of FundsTransfer Price between various
 business units. In the area of Debt Capital Markets (DCM) the Bank
 offered the following products: Securitisation, Loan and Bond
 syndication, mezzanine financing, promoter funding and acquisition
 financing. The Bank is one of the active players in the Seqritisation
 market particularly in Corporate Loan securitization.
 
 In respect of forex derivatives transactions with corporate customers
 of the Bank, as on May 8, 2008 customers of the Bank had negative MTM
 exposures aggregating Rs. 612 crore. As on March 31,2008, Bank carries
 a provision of Rs. 86 crore towards stressed cases.
 
 After many months of market research and product development, your bank
 launched the Credit Cards business on April 15th 2008. Kotak Cards has
 taken a fresh approach to card design, and has introduced Indias 1 st
 vertical card. Kotak Cards have been built on 3 core tenets - Relevant
 benefits that reflect what customers do most, Simplified credit that is
 easy to use and Transparent communication of charges. The Credit Cards
 are available in 4 variants to cater to the specific needs of distinct
 customer segments. With the launch of its credit cards, your Bank now
 offers a complete range of retail financial services.
 
 As at the end of the year, your Banks capital adequacy was 18.65% and
 the Tier 1 capital adequacy ratio was 14.46% and the net NPAs were at
 0.38% of net advances excluding stressed assets portfolio. The Net NPAs
 of the Bank including stressed assets portfolio were at 1.78%.
 
 SUBSIDIARIES
 
 Your Bank along with its subsidiaries offers complete financial
 solutions to its customers. The key business segments where the
 subsidiaries operate include investment banking, stock broking, car
 finance, asset management and life insurance.
 
 Kotak Mahindra Capital Company Limited and Kotak Securities Limited
 posted a good financial performance on the back of strong capital
 markets and the robust overall economic growth. The life insurance
 subsidiary, Kotak Mahindra Old Mutual Life Insurance Limited continued
 its growth momentum in premium income. The international subsidiaries
 have gained impetus and have now become gainful contributors to the
 profits of the Group. Kotak Mahindra Asset Management Company Limited,
 Kotak Mahindra Prime Limited and the other subsidiaries also posted
 growth in profits and had a good year.
 
 The various activities of the subsidiaries are outlined in the
 Management Discussion and Analysis section appended to this Report.
 
 In the year 2006-07 a petition was filed before the Honble High Court
 of Judicature at Bombay in respect of a Scheme of Arrangement between
 Kotak Mahindra Securities Limited (KMSL), Kotak Mahindra Capital
 Company Limited (KMCC) for demerger of undertaking comprising of the
 trading and clearing operations and strategic investments of KMSL to
 KMCC.  Upon receipt of all necessary approvals, the demerger was
 completed on 3rd September, 2007 to take effect from 31st March, 2007.
 
 During the year, the name of KMSL was changed to Kotak Investment
 Advisors Limited (KIAL). With effect from 1st October, 2007, the
 alternate asset management business i.e. management of private equity
 and realty funds of Kotak Mahindra Group was assigned to KIAL.
 
 In terms of the approval granted by the Central Government vide their
 letter dated 14th January 2008 under Section 212(8) of the Companies
 Act, 1956, abridged Annual Report which consists of the financial
 statements of your Bank on standalone basis as well as consolidated
 financial statements of the group for the year ended 31st March 2008,
 have been sent to all the members of the Bank. It does not contain
 Annual Reports of the Banks subsidiary companies. The Bank will make
 available full Annual Report (including the Annual Reports of all
 subsidiaries) upon request by any member of the Bank. These Annual
 Reports will be available on Banks website and will also be available
 for inspection by any member at the Registered Office of the Bank.
 
 EMPLOYEE STOCK OPTION SCHEME
 
 The stock options granted to the employees currently operate under
 three schemes, namely Kotak Mahindra Equity Option Plan 2002 - 2003
 (Plan 2002-03), Kotak Mahindra Equity Option Scheme 2005 (Scheme
 2005) and Kotak Mahindra Equity Option Scheme 2007 (Scheme 2007).
 The disclosures below are in respect of the year ended 31st March 2008.
 
 DIRECTORS
 
 Mr. Shivaji Dam retires at the Twenty Third Annual General Meeting and
 is eligible for re-appointment.
 
 The Reserve Bank of India (RBI), vide its letter no. DBOD No.
 17/08.140.001 /2006-07 dated July 14,2006 had approved the continuation
 of Mr. K. M. Gherda as a Director till he retires by rotation. Mr.
 Gherda retires by rotation at this Annual General Meeting and
 accordingly the term of Mr. Gherda expires at this Meeting.
 
 Mr. Asim Ghosh was appointed as an Additional Director of the Bank with
 effect from 9th May 2008 and, pursuant to the proviso to Section 260 of
 the Companies Act, 1956, holds office as a Director up to the date of
 this Annual General Meeting but is eligible to be appointed as a
 Director. In terms of Section 257 of the Companies Act, 1956 the Bank
 has received notice in writing from the member along with a requisite
 deposit of Rs. 500/- proposing the candidature of Mr. Asim Ghosh for
 his appointment as a Director.
 
 Mr. Asim Ghosh is an MBA from Wharton School, University of
 Pennsylvania and a B.Tech from IIT Delhi. Mr. Ghosh commenced his
 career in consumer goods marketing with Procter & Gamble in the U.S.
 and Canada, and worked subsequently with Rothmans International as a
 Board member of one of Canadas major .breweries. He moved to Asia in
 1989 as CEO of the Frito Lay (Pepsi Foods) start up in India.
 Thereafter, he was tn executive positions with Hutchison in Hong Kong
 and India for the past 16 years, and is currently CEO of Vodafone Essar
 Limited since 1998.
 
 The Board of Directors of the Bank, at its meeting held on 9th May
 2008, has re-appointed Mr. Uday Kotak as the Executive Vice-Chairman
 and Managing Director for a period up to 21st March 2012, subject to
 the approval of the Members and of the Reserve Bank of India. Mr. Dipak
 Gupta and Mr. C. Jayaram have been appointed as Executive Directors for
 a further period up to 31 st December 2011, subject to the approval of
 the shareholders and of the Reserve Bank of India. The approval of the
 shareholders in this regard is being sought at the ensuing Annual
 General Meeting of the Bank.
 
 AUDITORS
 
 Messrs S. R. Batliboi & Co., Chartered Accountants, auditors of your
 Bank, retire on the conclusion of Twenty Third Annual General Meeting
 and are eligible for reappointment. You are requested to appoint
 auditors for the current financial year and to fix their remuneration.
 
 STATUTORY INFORMATION
 
 The Companies (Disclosure of Particulars in the Report of Board of
 Directors) Rules, 1998, are not applicable to your Bank.
 
 EMPLOYEES
 
 There was a significant increase in your Banks staffing particularly
 in the Retail Banking business. The employee strength of your Bank
 along with its subsidiaries as of 31st March 2008 was around 20,000, as
 compared to 10,800 employees a year ago.
 
 The Bank standalone had around 9,000 employees as of 31st March 2008
 (previous year around 5,400). 177 employees employed throughout the
 year and 82 employees employed for part of the year were in receipt of
 remuneration of Rs. 24 lacs or more per annum.
 
 Your Bank has in place policies relating to employee service
 conditions, welfare and training which are reviewed on an ongoing basis
 by your Banks Management Committee.
 
 Your Bank continues to focus on training its employees on a continuing
 basis by deputation to reputed training institutions by holding
 workshops on various areas including Regulatory Compliance, Risk
 Management, Customer Care and Communication, Trade Finance, Foreign
 Exchange Rules and Treasury.
 
 In accordance with the provisions of Section 217(2A) of the Companies
 Act, 1956 and the rules framed thereunder, the names and other
 particulars of employees are set out in the annexure to the Directors
 Report. In terms of the provisions of Section 219 (1)(b)(iv) of the
 Companies Act, 1956, the Directors Report is being sent to all the
 shareholders of the Bank excluding the aforesaid annexure. The annexure
 is available for inspection at the Registered Office of the Bank. Any
 shareholder interested in obtaining a copy of the said annexure may
 write to the Company Secretary at the Registered Office of the Bank.
 
 DIRECTORS RESPONSIBILITY STATEMENT
 
 The Directors, based on the representations received from the
 operational management, confirm in pursuance of Section 217 (2AA) of
 the Companies Act, 1956, that:
 
 (i) your Bank has, in the preparation of the annual accounts for the
 year ended 31 st March 2008, followed the applicable accounting
 standards along with proper explanations relating to material
 departures, if any;
 
 (ii) they have selected such accounting policies and applied them
 consistently and made judgements and estimates that are reasonable and
 prudent so as to give a true and fair view of the state of affairs of
 the Bank as at 31 st March 2008 and of the profit of your Bank for the
 financial year ended 31st March 2008;
 
 (iii) they have taken proper and sufficient care to the best of their
 knowledge and ability, for the maintenance of adequate accounting
 records in accordance with the provisions of the Act for safeguarding
 the assets of the Bank and for preventing and detecting fraud and other
 irregularities; and
 
 (iv) the annual accounts have been prepared on a going concern basis.
 
 ACKNOWLEDGEMENTS
 
 Your Directors would like to place on record their gratitude for the
 valuable guidance and support received from the Reserve Bank of India,
 Securities and Exchange Board of India, Insurance Regulatory and
 Development Authority and other Government and Regulatory agencies.
 Your Directors acknowledge the support of the shareholders and also
 wish to place on record their appreciation of employees for their
 commendable efforts, teamwork and professionalism.
 
                             For and on behalf of the Board of Directors
 
                                                Dr. Shankar Acharya
 Mumbai, 9th May 2008.                                 Chairman