Basis of brparation:

The accompanying financial statements have been brpared under the historical cost convention and on the accrual basis of accounting, unless otherwise stated, and comply with statutory requirements brscribed under the Banking Regulation Act, 1949, circulars and guidelines issued by the Reserve Bank of India ('RBI') from time to time, Generally Accepted Accounting Principles, the Accounting Standards issued by the Institute of Chartered Accountants of India (ICAI) and notified by the Companies (Accounting Standard) Rules, 2006 to the extent applicable and current practices within the banking industry in India.

Use of estimates:

The brparation of the financial statements in conformity with Generally Accepted Accounting Principles ('GAAP') in India requires the management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities on the date of the financial statements. The estimates and assumptions used in the accompanying financial statements are based upon management's evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates used in brparing the accompanying financial statements. Any revision to accounting estimates is recognized prospectively in current and future periods.

Significant Accounting Policies:

1. Investments

a) Classification

Classification and valuation of Bank's Investments is carried out in accordance with RBI guidelines. Accordingly, investments are classified into 'Held for Trading' ('HFT'), 'Available for Sale' ('AFS') and 'Held to Maturity' (HTM) categories at the time of purchase. Investments, which the Bank intends to hold till maturity are classified as HTM investments. Investments that are held principally for resale within a short period, including short sale, are classified as HFT investments. All other investments are classified as AFS investments. The Bank follows settlement date method for accounting of its investments. For disclosure in the financial statements, the Investments are classified under six groups viz. Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Subsidiaries/ Joint Ventures and Others and disclosed in the financial statements.

Investments are classified as Performing or Non-performing as per RBI guidelines.

b) Valuation

Investments classified as HTM are carried at acquisition cost. Any brmium on acquisition is amortised over the remaining period of maturity by constant yield method.

Securities are valued scrip-wise and debrciation/ apbrciation is aggregated for each category. Net apbrciation in each category, if any, is ignored, while net debrciation is provided for. The book value of individual securities is not changed consequent to the periodic valuation of investments.

Treasury bills being discounted instruments are valued at carrying cost including the pro rata discount accreted for the holding period.

For deriving market value of dated Central and State Government securities and unquoted securities yields/ rates declared by the Fixed Income and Money Market Dealers Association ('FIMMDA') in consultation with Primary Dealers Association of India ('PDAI') are used. Quoted equity shares are valued at NSE closing rates applicable as at year end. Quoted Mutual Fund units are valued as per Stock Exchange quotations and un-quoted Mutual Fund units are valued at latest re-purchase price or at Net Asset Value if re-purchase price is not available.

c) Transfer between categories

Transfer of securities between categories of investments, if any, is accounted for at the acquisition cost/ book value/ market value, whichever is lower, as on the date of transfer. Debrciation, if any, on such transfer is fully recognized in the profit and loss account and the book value of the security is amended accordingly.

d) Repurchase transactions

Pursuant to RBI circular RBI/ 2009-2010/ 356IDMD/ 4135/ 11.08.43/ 2009-10, dated March 23, 2010, with effect from April 1, 2010, repurchase ('repo') and reverse repurchase ('reverse repo') transactions are accounted for as borrowing and lending transactions. Accordingly, a security given as a collateral under an agreement to repurchase them, continue to be held under the investment account of the Bank and the Bank would continue to accrue the coupon/ discount on the security during the repo period. Also, the Bank continues to mark the securities sold under repo to market as per the investment classification of the security. The difference between the clean price of the first leg and clean price of the second leg is recognized as interest income/ expense over the period of the transaction in the Profit and Loss account. This change in the method of accounting for repo and reverse repo transactions has no impact on the profit of the year.

e) Broken period interest, brokerage etc.

Broken period interest, brokerage, commission etc. paid at the time of acquisition of the security, is charged to the Profit and Loss account.

2. Advances

Advances are stated at net of provisions made in respect of non-performing advances. Advances are classified as Performing and Non-Performing Assets ('NPA'). Provisions in respect of non-performing and restructured advances are made based on management's assessment of the degree of impairment of the advances subject to the minimum provisioning levels brscribed under the RBI guidelines with regard to the Prudential Norms on Income Recognition, Asset Classification and Provisioning brscribed by Reserve Bank of India from time to time. The Bank also maintains provision on standard assets to cover potential credit losses which are inherent in any loan portfolio in accordance with the RBI guidelines in this regard.

3. Fixed Assets and Debrciation

Fixed Assets are accounted for at cost less accumulated debrciation. Cost includes freight, duties, taxes and incidental expenses related to the acquisition and installation of the asset. Premises acquired upto March 31, 1998 have been revalued by the management and are stated at such revalued figure. Debrciation on brmises revalued is charged to 'Premises Revaluation Reserve'. On disposal of revalued brmises, the amount standing to the credit of the Premises Revaluation Reserve is transferred to Capital Reserve. The apbrciation on revaluation is credited to 'Revaluation Reserve' Account. Debrciation attributable to the enhanced value is transferred from Revaluation Reserve to the credit of Debrciation in the Profit and Loss Account.

Debrciation is provided on the straight-line method from the date of addition over the estimated useful life of the asset. Debrciation on assets sold during the year is charged to the Profit and Loss account upto the date of sale. If the management's estimate of the useful life of a fixed asset at the time of acquisition of the asset or of the remaining useful life on a subsequent review is shorter, then the debrciation is provided at a higher rate based on management's estimate of the useful life/ remaining useful life. The debrciation rates applied on fixed assets, which are not lower than the rates brscribed in Schedule XIV of the Companies Act, 1956, are as follows:

Premises- 2%

Desktop Computers and printers, Laptops- 33.33%

VSATs, Telecom equipment, cabling, other computer hardware and related equipment, LAN/ Mainframe servers, printers, scanners- 20%

Purchased and developed Software- 20%

Vehicles- 20%

Office equipment, Locker cabinets, Strong room- 15%

ATMs- 14.29%

Furniture, fittings and work of art- 10%

Items costing less than Rs.5,000- 100%

Improvements and installations of capital nature on the leasehold property are debrciated over the primary lease term.

The Bank assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Bank estimates the recoverable amount of the asset. If such recoverable amount of the asset is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the Profit and Loss account. If at the Balance Sheet date there is an indication that a brviously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of debrciable historical cost.

4. Foreign currency transactions

Transactions denominated in foreign currency are recorded at exchange rates brvailing on the date of the transactions. Exchange differences arising on foreign currency transactions settled during the year are recognized in the Profit and Loss account.

Monetary assets and liabilities denominated in foreign currencies are translated at the balance sheet date at rates of exchange notified by the Foreign Exchange Dealers' Association of India ('FEDAI') and the resultant exchange differences are recognized in the Profit and Loss account.

In accordance with the RBI Circular No. DBOD No. BP.BC.76/21.04.018/ 2005-06 dated April 5, 2006 and Accounting Standard-11, the effect of change in foreign exchange rates, foreign exchange trading positions including spot and forward contracts are revalued monthly at the brvailing market rates (notified by FEDAI). The resulting gains and losses are recorded in the Profit and Loss account at the brsent value equivalent using appropriate discount rates. The notional values of these contracts are recorded as contingent liability at the closing rates.

Foreign currency swaps are marked to market at rates notified by FEDAI except in case of swaps entered into for hedging an on-balance sheet foreign currency exposure. The profit or loss on revaluation is recorded in the Profit and Loss account and is included in "Other assets" or "Other liabilities" respectively. The notional value of these swaps is recorded as a Contingent liability.

5. Retirement and other employee benefits

Bank's contribution towards Provident fund, being a defined contribution scheme, is accounted for on an accrual basis and recognized in the Profit and Loss account. Liability for Gratuity and Pension, being the defined benefit retirement schemes, are determined based on an actuarial valuation as at the balance sheet date as per the Projected Unit Credit Method as computed by an independent actuary.

Consequent to the re-opening of pension option pursuant to the agreement between Indian Bank Association & United Forum of Bank Unions, the RBI had permitted the Bank to amortise the enhanced expenditure resulting there from over five years starting from financial year ended on March 31, 2011 except for pension cost pertaining to the retired/ separated employees which was to be charged off entirely in the year ending on March 31, 2011.

Accordingly, pension cost pertaining to the retired/ separated employees had been charged to the Profit and Loss account in the year ended on March 31, 2011. Pension cost pertaining to the existing employees is being amortised over three financial years starting from financial year ended on March 31, 2011 amounting to Rs. 6.57 crore per financial year.

The Bank provides for its leave encashment liability of employees who are eligible for encashment of accumulated leave, which is a long-term benefit scheme, based on actuarial valuation of the leave encashment liability at the balance sheet date, carried out by an independent actuary.

The Bank has applied the intrinsic value method to arrive at the compensation cost of ESOP granted to the employees of the Bank. Intrinsic value is the amount by which the value of the underlying shares determined by an independent valuer exceeds the exercise price of the options. Accordingly, such cost is amortized over the vesting period.

6. Revenue Recognition

Interest income is recognized in the profit and loss account on accrual basis, except in the case of interest on non-performing assets, which is recognized as income on receipt.

Till financial year ended March 31, 2011, recoveries in respect of past due loan accounts classified as sub-standard, were appropriated towards principal after adjusting interest accrued. During the year ending on March 31, 2012 (current year), the Bank has amended its accounting policy with regard to appropriation of recoveries in respect of past due loan accounts classified as sub-standard such that recoveries, if they are not adequate to upgrade the Non-Performing Assets, are appropriated towards principal balance in the first instance and towards interest/ charges/ other incomes thereafter. In other words, as long as an account is non-performing, recoveries from such account will be first applied towards overdue principal before recognizing any income. Owing to this amendment, the profit before tax for the current year is lower by Rs.0.31 crore.

Commission, Exchange, Brokerage, Dividends and Locker Rent are accounted for as income on realisation basis. Gains and losses arising out of outright assignment deals are recorded upfront.

Income on discounted instruments is recognized over the tenure of the instrument on a constant yield basis. Dividend is accounted on an accrual basis when the right to receive the dividend is established. Loan processing fee is accounted for upfront when it becomes due.

Commission received on guarantees issued is amortised on a straight-line basis over the period of the guarantee. All other fees are accounted for as and when they become due.

7. Accounting for leases

Operating leases

Leases where the lessor effectively retains substantially all the risks and benefits of ownership over the lease term are classified as operating leases. Operating lease rentals are recognized as an expense on straight-line basis over the lease period.

The Bank has not undertaken any Finance leases.

8. Taxation

Income tax comprises the current tax (i.e. amount of tax for the period, determined in accordance with the Income Tax Act, 1961 and the rules framed there under) and deferred tax charge or credit (reflecting the tax effects of timing differences between accounting income and taxable income for the year).

Provision for current income-tax is recognized in accordance with the provisions of Indian Income Tax Act, 1961 and is made annually based on the tax liability after taking credit for tax allowances and exemptions.

The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. However, where there is unabsorbed debrciation or carried forward loss under taxation laws, deferred tax assets are recognized only if there is virtual certainty of realization of such assets.

Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/ virtually certain to be realized.

9. Provisions and contingencies

The Bank creates a provision when there is brsent obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a brsent obligation that may, but probably will not, require an outflow of resources. When there is a possible obligation or a brsent obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed.

Contingent assets are not recognized in the financials. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs.

10. Earnings per share (EPS)

Basic and diluted earnings per share are computed in accordance with Accounting Standard-20 - Earnings per share.

Basic earnings per share is calculated by dividing the net profit or loss after tax for the year attributable to equity shareholders by the weighted average number of equity shares outstanding during the year.

Diluted earnings per share reflect the potential dilution that could occur if contracts to issue equity shares were exercised or converted during the year. Diluted earnings per equity share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the year, except where the results are anti-dilutive.

NOTES ON ACCOUNT

1. Investments

In terms of guidelines of Reserve Bank of India, amortisation of brmium of Rs.1.60 crore (brvious year Rs.2.02 crore) relating to investments in 'Held to Maturity' category has been netted off against 'Income on Investments' under Schedule - 13. There are no transactions of transfer/ sale of securities from Held to Maturity category of investments during the year.

2. Employee Stock Option Plan ("ESOP")

The shareholders of the Bank had approved granting of stock options to employees under one or more Employee Stock Option Plan (ESOP) on August 25, 2010, enabling the Board and/ or the Human Resource Committee to grant such number of Options of the Bank not exceeding 10% of the aggregate number of issued and paid up equity shares of the Bank. The ESOP is equity settled where the employees will receive one equity share per option. The stock options granted to employees vest over a period of three years, generally, in equal proportion each year. Vested Options can be exercised within a period of three years from the date of vesting or within a period of one year from the date on which the shares of the Bank get listed on a recognized stock exchange, whichever is later.

Under Intrinsic Value method, since exercise price of the stock options granted under the ESOP is more than the underlying value of the shares, it has not resulted in any charge to the statement of Profit and Loss for the year. If the Bank had adopted the Black-Scholes model based fair valuation, compensation cost for the year ended March 31, 2012, would have increased by Rs.6.48 crore (brvious year Rs.0.80 crore) and the profit before tax would have been lower correspondingly. Accordingly, diluted earnings per share would be Rs.2.84.

Expected volatility is a measure of the amount by which the equity share price is expected to fluctuate during a period. The measure of volatility used in Black-Scholes option pricing model is the annualized standard deviation of the continuously compounded rates of return on the share over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in the closing equity share price on NSE of similar listed banks over the last three years.

3. ACCOUNTING STANDARDS

3.1 Segment Reporting (AS-17): Information about business segments

In terms of the AS-17 Segment Reporting issued by ICAI and RBI circular Ref. DBOD. No. BP.BC.81/ 21.04.018/ 200607 dated April 18, 2007 read with DBOD.BP.BC No.16/ 21.04.018/ 2011-12 dated July 1, 2011 and amendments thereto, the following business segments have been disclosed:

• Corporate/ Wholesale Banking: Includes lending, deposits and other banking services provided to corporate customers of the Bank.

• Retail Banking: Includes lending, deposits and other banking services provided to retail customers of the Bank through branch network or other approved delivery channels.

• Treasury: includes investments, all financial markets activities undertaken on behalf of the Bank's customers, proprietary trading, maintenance of reserve requirements and resource mobilization from other Banks and financial Institutions. Intersegment earnings of Balance Sheet Management function are included in the Treasury segment.

• Other Banking Operations: Includes para banking activities like Bancassurance, etc.

Segment revenues include earnings from external customers and earnings from other segments on account of funds transferred at negotiated rates, which are determined by the management. Segment results includes segment revenues as reduced by interest expense, charge from other segments on account of funds transferred at negotiated rates and operating expenses and provisions either directly identified or allocated to each segment.

3.2 Operational Leases (AS - 19)

Disclosure as per Accounting Standard-19 on Leases as per Companies (Accounting Standard) Rules, 2006.

The company has taken certain brmises on operating lease. The Agreements entered into provide for renewal and rent escalation clause.

3.3 Taxes on Income (AS -22)

Surplus arising due to Net Deferred Taxation computed for the year ended 31-03-2012 amounting to Rs.7.18 crore (Rs.5.98 crore surplus in the brvious year) is credited to Profit and Loss Account.

3.4 Impairment of Assets (AS -28)

There is no material impairment of fixed assets and as such no provision is required as per AS - 28.

3.5 Provisions, Contingent Liabilities and Contingent Assets (AS-29)

i) Provision for Contingent Liabilities comprises of Rs.0.05 crore against case pending in respect of guarantee invoked, Rs.0.16 crore for claims acknowledged as debts and Rs.0.09 crore on account of municipal tax paid under dispute.

ii) In the opinion of the Management, there is remote possibility of any outflow in respect of other Contingent Liabilities disclosed in Schedule 12, hence no provision is made.

4. Small & Micro Industries

Based on information available with the Bank, during the year, there were no amounts outstanding for more than the specified period, to the parties covered under the Micro, Small and Medium Enterprises Development Act, 2006.

6. Investments

Repo/ Reverse Repo Transactions:

During the year, the Bank has not under taken Repo/ Reverse Repo transactions other than Repo/ Reverse Repo transactions under the Liquidity Adjustment Facility (LAF) with Reserve Bank of India.

7. Forward Rate Agreement/ Interest Rate Swaps/ Exchange Traded Interest Rate Derivatives

The bank has not undertaken any forward rate agreement, interest rate swaps and Exchange Traded Interest Rate Derivatives during the year.

8. Details of Single/ Group Borrower limit exceeded by the Bank

During the year ended 31.03.2012 the Bank has not exceeded the exposure ceiling fixed by RBI to Individual/ Group borrowers.

9. Penalties imposed by RBI

During the year no penalty has been imposed by RBI on the Bank.

10. Drawdown from Reserves

There has been no draw down from reserves during the year ended March 31, 2012 (for brvious year ending March 31, 2011 drawdown from reserves were NIL)

11. Floating Provisions

The Bank has not made any floating provisions.

12. Description of nature of contingent liabilities is set out below

i) Claims against the Bank not acknowledged as debts:

These rebrsent claims filed against the Bank in the normal course of business relating to various legal cases currently in progress.

ii) Liability for partly paid investments:

These rebrsent contingent liability on account of possible claims for uncalled amount by the issuer of the securities held by the Bank.

iii) Liability on account of forward exchange contracts:

The Bank enters into foreign exchange contracts as well as currency swaps with inter-bank participants on its own account and for the customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by the way of interest/principal in one currency against another, based on br-determined rates. The amount recorded as contingent liability with respect to these contracts rebrsents the underlying notional amounts of these contracts.

iv) Guarantees given on behalf of Constituents, Acceptances, Endorsement and other obligations:

As a part of its corporate banking activities, the Bank issues documentary credit and guarantees on behalf of its customers. Documentary credits such as letters of credit enhance the credit standing of the customer of the Bank. Guarantees generally rebrsent irrevocable assurances that the Bank will make the payment in the event of the customer failing to fulfill its financial or performance obligations.

v) Acceptances, endorsements and other obligations:

These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank's customers that are accepted or endorsed by the Bank.

vi) Other contingent items: These include:

a. Commitments for settlement date accounting;

b. Amount of bills rediscounted by the Bank;

c. Demands raised by income tax and other statutory authorities, disputed by the Bank.

13. Bank has not issued any letter of comforts during the year.

14. Figures for the brvious year have been regrouped/ rearranged wherever necessary.

Subhash Kutte

Chairman

B. D. Arwade

Director

Naresh Karia

Chief Financial Officer

Vishwavir Ahuja

Managing Director & CEO

Jairaj Purandare

Director

Virta Jain

Company Secretary

As per our report of even date

For M/s. P. G. Bhagwat

Chartered Accountants

Firm Regn. No. 101118W

Nikhil M. Shevade

M. No. 217379 Partner

Place: Pune

Date: June 20, 2012