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PREAMBLE IDBI PUBLIC ISSUE OF UNSECURED BONDS (FLEXIBONDS SERIES 2003-2004) OF Rs.1500 CRORE WITH AN OPTION TO RETAIN OVER-SUBSCRIPTION UPTO Rs.1500 CRORE (AGGREGATING Rs.3000 CRORE) TO BE RAISED IN ONE OR MORE TRANCHES The Lead Manager SBI Capital Markets Ltd. had filed a draft Umbrella Offer Document for the Public Issue of Unsecured Bonds in the nature of Promissory notes (Flexibonds Series 2003-2004) of Rs.1500 crore with an option to retain an over-subscription upto Rs.1500 crore (aggregating Rs.3000 crore) to be raised in one or more tranches. The present tranche is for raising Rs.400 crore with an option to retain over subscription upto Rs.400 crore. The details of all the previous tranches (if any) is as follows: Tranche No. Date of Issue Issue Size for the tranche (Rs. Crore) Additional Date of Subscription Despatch of Retained under Bond the Green certificates shoe option (Rs.Crore) 288 * Date of Listing and names of the Stock Exchanges * No. of Investor grievances/ complaints pending

Dec 1 - 17, 2003

300

* Post issue formalities are being completed The balance of Rs.800 crore along with any shortfall in the target amount of Rs.400 crore of this tranche may be raised in one or more tranches in the future but within the period of 12 months from SEBIs observation letter dated November 7, 2003.

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ABBREVIATIONS USED ADB AY bps BSE CBDT CDSL CIT(A) CMD CRISIL DER DMD FEDAI FII FITCH FY GOI HUF IBRD ICRA ICMS IDBI/ the Institution/ the Bank ITAT LIBOR MTLR MSTLR NDSCR NSDL NSE OCBs RBI SEBI SIDBI SLR SWIFT The Act The Board TDS YTM YTP SAT Asian Development Bank Assessment Year Basis points The Stock Exchange, Mumbai Central Board of Direct Taxes Central Depository Services Ltd. Commissioner of Income Tax (Appeals) Chairman & Managing Director, IDBI Credit Rating Information Services of India Ltd. Debt Equity Ratio Deputy Managing Director, IDBI Foreign Exchange Dealers Association of India Foreign Institutional Investor Fitch Ratings India Private Ltd. Financial Year Government of India Hindu Undivided Family International Bank for Reconstruction and Development Investment Information and Credit Rating Agency IDBI Capital Market Services Ltd. Industrial Development Bank of India Income Tax Appellate Tribunal London Inter Bank Offered Rate Minimum Term Lending Rate Minimum Short Term Lending Rate Notional Debt Service Coverage Ratio National Securities Depository Ltd. National Stock Exchange of India Ltd. Overseas Corporate Bodies Reserve Bank of India Securities and Exchange Board of India Small Industries Development Bank of India Statutory Liquidity Ratio Society for Worldwide Interbank Financial Telecommunication The IDBI Act, 1964 The Board of Directors of IDBI Tax Deducted at Source Yield to Maturity Yield to Put Securities Appellate Tribunal

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RISK FACTORS Internal Factors (a) Redemption Reserve: Creation of Redemption Reserve is not envisaged for the proposed issue of Bonds. IDBI being a public financial institution has been raising resources both from domestic market and overseas market in the form of unsecured borrowings. In respect of the monies borrowed from overseas markets, IDBI has agreed to create pari passu charge if any other lender is offered security on the assets of IDBI. Since the resources raised by IDBI are being utilised for the purpose of its business i.e. providing credit and other facilities to the industry, the assets of IDBI are mostly in form of loans and advances. Hence it is proposed that the Bonds shall be unsecured in nature in that they shall not be secured against any asset of IDBI. IDBI has appointed a trustee to protect the interest of the investors. In the event of default, the bondholders may proceed against IDBI in terms of the mechanism given under para Trustees to the bondholders on page 26. (b) Credit Risk: The business of lending carries the risk of default by borrowers. Any term lending activity is exposed to credit risk arising from the risk of default by the borrowers. IDBI has put up a systematic credit evaluation process in place. Necessary control measures like maintaining a diversified portfolio with industry-wise, promoter group-wise and specific client-wise exposure limits are set to avoid concentration of lending to any specific industry segment/ promoter group/ company. These limits help minimise credit risk. With a view to derisk the portfolio the exposure limits have been reviewed and exposure by way of Project Finance assistance to greenfield projects have been reduced as a matter of deliberate strategy. A Credit Risk Monitoring Group (CRMG) has been set up at the Head Office to monitor the risk associated with lending to individual projects, business groups and industries. IDBI monitors the performance of its asset portfolio on a regular basis and also constantly evaluates the changes and developments in industries to which it has substantial exposure. Market Risk: Increased interest rate volatility exposes IDBI to market rate risk arising out of maturity/rate mismatches. Risk arising from interest rate volatility is inherent to the business of financial intermediation and term lending. This risk is minimised by linking the interest rates on term lending to a base rate (PLR / MTPLR etc), which varies in accordance with overall movement in market rates. Further, the rate applicable to each tranche of disbursement varies in accordance with the prevailing base rate. In case of lending pegged to floating rates, they are generally matched by floating rate liability (both rupee and foreign currency). IDBI manages market risks through active Asset Liability Management (ALM), viz. liquidity, interest rate and foreign exchange risk by way of Gap/Duration Analysis so as to optimize matching of the Assets and Liabilities. Active Asset Liability Management with efforts to match Duration of Assets and Liabilities as also availability of hedging mechanisms help moderate the market risk. Asset Liability mismatch : The maturity profile of assets and liabilities as on March 31, 2003 shows negative gaps in over 1 to 3 years bucket and Over 5 years bucket. As can be observed from the Table on Maturity profile of Assets and Liabilities given on page 71 there are negative gaps of Rs.1640 crore in over 1 year to 3 years bucket and Rs.4465 crore in over 5 years time bucket. However, the maturity buckets upto 1 year and over 3 years to 5 years have positive gaps of Rs.1303 crore and Rs.4802 crore. On cumulative basis, there is negative gap in only over 1 to 3 years time bucket amounting to Rs.337 crore. This situation has arisen because the balance sheet of IDBI is Assets sensitive and the assets are maturing faster than liabilities. The statement does not take into account the effect of relending of these repayments from clients and fresh borrowings in future. Any gap resulting in any of the maturity buckets at any future date will be managed dynamically through suitable structuring of maturity profile of investment products, asset portfolio and liability products. Credit Rating: The credit rating of outstanding bond issues of IDBI has been revised from AAA to AA+ by CRISIL, from LAAA to LAA by ICRA and from Ind AAA to Ind AA+ by FITCH.

(c)

(d)

(e)

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The revision in ratings reflects the perception of the rating agencies. While CRISIL has reaffirmed its ratings assigned to Fixed Deposit program of IDBI at FAAA and assigned the highest rating P1+ to the Term Money Bonds, Commercial Papers and Corporate Deposits of IDBI, it has revised its rating assigned to the outstanding bond issues and Certificate of Deposit program of IDBI from AAA to AA+. ICRA has assigned the highest rating A1+ to Commercial Paper, Term Money Bonds, Inter Corporate Deposits and Certificate of Deposits of IDBI. The ratings for Fixed Deposit Programme has been reaffirmed at MAA+. ICRA has revised its rating from LAAA to LAA for bonds. FITCH has revised its rating from IndAAA to IndAA+ for bonds and Fixed Deposits program. While AAA denotes highest safety in terms of timely payment of interest and principal, AA+ denotes high safety of timely payment of interest and principal. LAA indicates high safety. Risk Factors are modest and may vary slightly. The protective factors are strong and the prospect of timely payment of principal and interest as per terms under adverse circumstances, as may be visualized, differs from LAAA only marginally. (f) Contingent Liabilities: As on March 31, 2003, IDBI had contingent liabilities of about Rs.4494 crore on account of Guarantees, Letters of credit, Underwriting Commitments, uncalled monies on partly paid shares/debentures, claims against IDBI not acknowledged as debt and Disputed Tax claims. As on September 30, 2003 the contingent liabilities aggregated to Rs.4141 crore. The contingent liabilities are solely on account of normal operations and are subject to the prudential norms applicable to lending and investment operations. (g) Pending Grievances: As on December 31, 2003 there were 3 references pending pertaining to Flexibonds-2, 5 pertaining to Flexibonds3, 4 pertaining to Flexibonds-4, 4 pertaining to Flexibonds5, 6 pertaining to Flexibonds-6, 2 pertaining to Flexibonds-7, 11 pertaining to Flexibonds-9, 13 pertaining to Flexibonds-10, 8 pertaining to Flexibonds-12, 7 pertaining to Flexibonds-13, 17 pertaining to Flexibonds-18 and 4 pertaining to Equity shares. Further no complaint was pending for more than 60 days. Tax Liabilities: As on October 31, 2003, the gross demand raised by the Income Tax Department on account of Income Tax, Wealth Tax and Penalty is Rs.5029.25 crore against which the provision made is Rs.2866.69 crore. The demands include Rs.1462.22 crore in respect of matters in which IDBI has favourable decisions in its own case in the earlier years. Thus the amount of contingent liability on account of Tax in dispute is Rs.700.33 crore. Appeals have been filed on matters covered by the disputed amount. (Please refer to page 81 of this document). (i) Non Performing Assets (NPA) : The total NPAs of IDBI in amount terms has been increasing over the past 5 years. Movement of Net NPAs over the past 5 years is detailed in the Table on page 60. Net NPAs (percent of total assets) has increased from Rs.6490 crore (12.05%) as on March 31, 1999 to Rs.7330 crore as on March 31, 2003 (14.20%). IDBI has initiated measures for NPA containment by setting up Close Monitoring Cells and Restructuring Committees. IDBI actively monitors all assisted companies for timely recovery of dues. With respect to defaulting accounts, IDBI places emphasis on recovery, settlement and containment of NPAs. The Close Monitoring Cells constantly monitor performance of assisted companies to improve recovery and initiate pro-active remedial actions. Efforts of Close Monitoring Cells are reinforced by Empowered Committee and High Power Committee at Head Office. These committees assess and advise necessary restructuring and one-time settlement process. Wherever the long-term viability of assisted companies is in question, legal measures are initiated and securities are enforced. In cases where financial restructuring is under consideration, discussions are held with other term lenders as also with working capital bankers to have a co-ordinated approach to ensure quicker recovery. A Corporate Debt Restructuring (CDR) mechanism has been set up to facilitate this. Further, there has been substantial changes in the legislative and operating environment enabling FIs and banks to aggressively pursue

(h)

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recovery of overdues. Besides the Debt Recovery Tribunal (DRT) set up for faster settlement of recovery litigation, GOI has recently promulgated The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SRES) Act, 2002, enabling FIs and banks to securitise and reconstruct the financial assets and enforce security of FIs and banks without pursuing the available legal route. As on May 31, 2003 IDBI has issued notices to 49 defaulting borrowers with an outstanding assistance of Rs.1588 crore by invoking provisions under the said Act. Further in 33 cases IDBI has sought consent of other secured creditors for initiating action under the Act. After the SRES Act has come into effect IDBI has initiated action against chronic defaulters resulting in many defaulters willinglly coming forward for settlement of their dues. IDBI has been taking recourse to all available methods for recovery of overdues including reporting to RBI the name of wilful defaulters simultaneous with initiation of necessary steps for recovery. IDBI has also initiated aggressive One Time Settlement (OTS) measures to recover overdues. Aggregate of provisions / write offs as a percentage of Gross NPAs stood at 54% as on March 31, 2003. To facilitate recovery of overdues and reconstruction of weaker assets, IDBI in participation with SBI, ICICI Bank and a few other institutions and Banks have set-up an Asset Reconstruction Company viz. Asset Reconstruction Company of India Ltd (ARCIL). With the changes in operating and legislative environment including formation of the ARC coupled with the NPA management measures initiated the NPA levels are expected to be contained/ reduced. (j) Overdues : The overdues of Videocon Group Companies, in which Shri R. N. Dhoot (industrialist director in the Borad of IDBI) was associated, as on January 1, 2004 amounted to Rs.57.62 crore. The group has indicated it would clear the overdues shortly. Asset concentration to few industries : The top 5 industries account for 48.17% of the total outstanding assistance as on March 31, 2003. Large exposures to specific industries will be impacted by global trends in these industries. IDBIs loan portfolio is well diversified among industries. The major outstandings are to the iron and steel, power, cotton textiles, telecom services and petrochemicals, which together accounted for about 48% of the outstandings as at March 31, 2003. As a prudential measure, IDBI has recently revised the exposure limit to individual industry at 10% of its total portfolio or Rs.5000 crore whichever is lower. As on March 31, 2003 only two industries viz. Iron & Steel (18.31%) and Electricity Generation (12.58%) exceeded the limit. This excess has been largely due to historical factors wherein IDBI had been extending assistance to core sector projects in line with overall national objectives. IDBI particularly monitors both domestic and global trends and developments in industries accounting for higher exposure within its portfolio and takes necessary actions and remedial measures to maintain its portfolio quality and reduce any possible adverse impact on its financials. (l) Change In Balance Sheet size : IDBIs total asset and liabilities have decreased from Rs.66,643 crore to Rs.63,116 crore during FY 2003. To improve the asset quality, IDBI has restricted new assistance and extends assistance only on very selective basis. On the liability side, IDBI has exercised call option on its high cost borrowings during the year. Change in the Balance Sheet size is a part of the deliberate strategy of IDBI to pursue quality asset growth and profitability in operations.

(k)

(m) Decrease in profit : The profit after tax of IDBI is Rs.401 crore for FY 2003 as against Rs.424 crore for FY 2002 and Rs.691 crore for FY 2001. IDBIs profit after tax for the half year ended September 30, 2003 stood at Rs.176 crore as against Rs.152 crore in the corresponding half year ended September 30, 2002. General economic slowdown in the recent past has led to lower industrial activity. During the last couple of years credit off-take has been low due to lower industrial growth in spite of fall in interest rates and other steps taken by the Government to boost the industrial performance. Foray of commercial banks into term lending has also resulted in increased competition to extend assistance

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to creditworthy clients at very competitive rates. Resultant lowering of interest income and overall squeezing of margin has impacted the profit after tax. However with the expected economic upturn the position is expected to improve. Further recovery out of written off cases will directly add to the profit of IDBI. (n) Return on Assets : The return on average assets has declined from 10.4% in FY 2002 to 9.8% in FY 2003 while the average cost of funds has also gone down from 9.2% to 8.5% over the same period. The major factor impacting the returns and costs is the sharp drop in interest rates during the last few years. This has resulted in prepayment of borrowing by high credit clients which in turn has, to some extent impacted credit composition of the portfolio. This coupled with NPAs adversely affected return on assets. On the cost front, impact of drop in incremental cost of rupee borrowing (12.08% in FY 2000 to 11.21% in FY 2001, to 9.81% in FY 2002 and further down to 8.35% in FY 2003) and exercising of call option on high cost borrowings by IDBI has resulted in decline in cost of borrowing. The average cost of loan funds has reduced from 11.5% in FY 2002 to 10.5% in FY 2003. As may be observed from above, the decline in average cost of funds has been more than the decline in average return on assets. Further as mentioned on page 67 of this Offer Document under the auspicies of GOI, the liabilities of IDBI to Public Sector Banks, Institutions etc. has been restructured, which will bring down the average cost of funds of IDBI significantly. (o) Quoted Investments : IDBI has in its portfolio quoted investments aggregating Rs.2730.22 crore as on March 31, 2003 which are booked at cost whose market value amounted to Rs.2152.54 crore. As on September 30, 2003 its portfolio quoted investments aggregating Rs.5993.78 crore, which are booked at cost whose market value amounted to Rs.6392.20 crore. As on March 31, 2003, IDBI had debentures of Rs.4389.16 crore in its portfolio. All the debentures are secured by hypothecation/mortgage of fixed assets. However, in case of debentures amounting to Rs.795 crore, the final security by way of mortgage was yet to be created as on March 31, 2003. IDBIs investment portfolio is predominantly of long term and strategic nature. Temporary diminution in value of securities arises on account of price volatility due to factors and forces affecting the stock market, interest rates, etc. IDBI has been classifying its investment portfolio and making appropriate provision for diminution in value as per RBI guidelines issued from time to time in this regard. The investments are classified under the following categories (i) Held to Maturity, (ii) Available for Sale (iii) Held for Trading. These investments were valued according to the prevailing valuation norms. Foreign Exchange Risk : IDBI may be exposed to foreign exchange risk on account of changes in foreign exchange rates. IDBI maintains a currency-wise matching of assets and liabilities. IDBI makes foreign currency loans on terms that are similar to its foreign currency borrowings thereby transferring the foreign exchange risk to the borrower. In case of certain foreign currency borrowings that are re-lent in rupees, the Govt. of India bears the foreign exchange risk on these borrowings pursuant to certain agreements between IDBI and GOI. IDBIs foreign currency cash balances are generally maintained abroad in currencies matching with the underlying borrowings. IDBI also operates a USD denominated single currency pool (SCP) and interest rate risks under the SCPs are hedged through basic SWAPs. IDBI is therefore not exposed to any significant risk on account of foreign exchange fluctuations. Nature of Bonds : Bonds are unsecured and in the nature of promissory notes transferable by endorsement and delivery. The certificates are valuable documents and should be kept safely. Duplicate bonds will be issued only in accordance with the procedure specified later in the Offer Document. The bonds are also offered in demat mode.

(p)

(q)

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External Factors (a) Changes in Government policies may impact the performance of the industrial sector, which may in turn affect IDBI Indian industry has demonstrated remarkable resilience in adjusting to the changed environment and competition in the wake of the economic reforms initiated by the Government. Further, IDBIs diversified portfolio provides a sufficient cushion against any downtrend in a particular industry or sector. (b) Risk of Competition : Competition in the financial sector has increased and is likely to increase further with the entry of commercial banks and other new players in term lending. IDBI faces competition both in corporate lending and in raising resources. While focusing attention on its core business of project financing and infrastructure financing in particular, IDBI has taken steps to diversify its operations in various other areas like working capital financing, merchant banking, corporate advisory services, forex services, venture capital, non-fund based activities etc. IDBI, through its subsidiary/ associate companies also addresses the needs of its clients for commercial banking requirements, depository services, capital market related services, mutual fund products, information technology services etc. On the resource-raising front, avenues like Mutual Funds,Charitable and Religious Trusts, Private insurance companies, Pension Funds, etc. hold good potential. IDBI has over the years strengthened its reach to retail segment through its public issues of retail bonds and Fixed Deposits marketed through its 35 branch offices, large agent network, broking outfits and debt market intermediaries. (c) Disintermediation : Development of the capital markets may lead to disintermediation by borrowers. With the development and maturing of the capital markets, there has been a distinct shift in the pattern of industrial financing. However, it will be noteworthy that while a part of the financial requirement of the industrial projects may be met by direct borrowing from the investors, a major portion will still need to be serviced by financial intermediaries. Consequent to the opening up of the economy, large projects in infrastructure, power, petroleum, telecom, etc. with huge financial outlays are being set up. Their large fund requirements are unlikely to be met by private investments alone. Accordingly, the requirement of funds both from lending institutions/banks and the capital market is likely to increase substantially. Also, the disintermediation brings with it the opportunity for IDBI to expand its fee based activities. General Risks Investors are advised to read the risk factors carefully before taking an investment decision in this offering. For taking an investment decision, the investor must rely on his/her own examination of the issuer and the issue including the risks involved. The Bonds have not been recommended or approved by SEBI nor does SEBI guarantee the accuracy or adequacy of this document. Notes 1. Allotment against all valid applications for the IDBI Infrastructure (Tax Saving) Bond (2004 B) will be made on a full and firm allotment basis, upto the issue size Rs.400 crore plus the amount of over subscription retained by IDBI. Subscribers to the IDBI Infrastructure (Tax Saving) Bond (2004 B) will have priority over subscribers to other bonds for allotment. Therefore, only after all eligible applicants for IDBI Infrastructure (Tax Saving) Bond (2004 B) have been allotted, applications for other bonds will be considered for allotment on proportionate basis. 2. IDBI would like to clarify that inspection by RBI is a regular exercise and is carried out periodically by RBI for all Banks and Financial Institutions. IDBI is in dialogue with RBI in respect of observation made by RBI in their report for previous year. The reports of RBI are strictly confidential. RBI does not allow disclosure of its inspection report and that all the disclosures in the Offer Document are on the basis of Management and Audit Reports of the Issuer.

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3. The Networth of IDBI as on March 31, 2003 was Rs.6945 crore and on September 30, 2003 was Rs.7122 crore. The present issue size is Rs.400 crore with an option to retain oversubscription upto Rs.400 crore. The Book Value per share of IDBI as on March 31, 2003 was Rs.106.4. Cost per share to the promoter of IDBI i.e. GOI is Rs.10 (i.e. at par). Shri R. N. Dhoot, a director on the board of IDBI, nominated by the Government of India, was on the board of some of the Videocon group companies during the last 5 years. SEBI had taken action against one of the Videocon group companies viz. Videocon International Ltd. and 3 of its officials. On an appeal filed by Videocon International Ltd, the SAT vide its order dated June 20, 2002 has set aside SEBIs order directing Videocon International Ltd. in so far as not to raise money from the public in the capital market for a period of 3 years. SEBI has filed an appeal against the said SAT order in the Honble High Court of Mumbai and the appeal is pending. Shri R.N. Dhoot is, however, not a Director on the Board of Videocon International Ltd., nor does he figure in the list of 3 officials mentioned above. As on March 31, 2003, loan outstanding to companies with which industrialist director presently on the Board of IDBI was associated in the past, amounted to Rs. 908.64 crore, comprising of loans to (i) 8 companies engaged in the electronics and electronics appliances industry (Rs.567.44 crore), and (ii) a company in petroleum industry (Rs.341.20 crore). These loans constituted 1.76% of the total loan outstanding and 13.08% of IDBIs Net Worth as on March 31, 2003. The bonds may have various features/options. Such features need specific attention of the investor. For better understanding of such common features, investors are requested to refer to the discussion on Glossary of common terms used in Bond structures on page 132 of this Offer Document.

4. 5.

6.

7.

8. Summary of transactions of IDBI with its subsidiaries for three years ended (Rs. crore)
March 31, 2001 March 31, 2002 March 31, 2003

Interest income Dividend, fees, commission and other revenue Interest expense Administrative and other expenses Outstanding Balances Loans Investments Current assets Long term debt Current Liabilities 9.

145.42 93.09 5.86 1.75 809.76 648.10 0.27 112.58 2.20

5.81 51.51 2.57 8.37 1.20 388.10 19.47 50.00 7.67

2.91 152.00 0.17 7.73 58.00 296.60 105.73 4.61 8.63

The financial information as contained in the Auditors Report, including the notes to accounts, significant accounting policies as well as Auditors qualifications have been duly certified by the Auditors of IDBI. As far as possible, the Audited numbers have been used for computation of or arriving at the other financial information contained in the Offer Document. However, such other financial information contained in the Offer Document except as contained in the Auditors Report has been certified by the management of IDBI.

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INSTRUMENTS AT A GLANCE
Brief particulars of the four types of Bonds offered under the current series are tabulated below. IDBI Infrastructure (Tax Saving) Bond (2004 B) Option A (Annual interest) Face Value Minimum Investment Interest Rate* Tenor Maturity value Yield to Maturity YTM with tax benefits u/s 88 # Put/ Call option Rs.5,000 One Bond Rs.5,000 5.50% p.a. 3 years Rs.5,000 5.50% 11.71% None Option B (Annual interest) Rs.5,000 One Bond Rs.5,000 5.75% p.a. 5 years Rs.5,000 5.75% 9.67% None Option C (Cumulative) Rs.5,000 One Bond Rs.5,000 Refer YTM 3 year 6 months Rs.6,030* 5.50% 10.52% None Option D (Cumulative) Rs.5,000 One Bond Rs.5,000 Refer YTM 5 years Rs.6,615* 5.75% 9.25% None

* Subject to TDS as applicable. Investors are advised to read the Offer Document for more details. # Investment made in these bonds will be eligible for tax benefits under Section 88 of the Income Tax Act, 1961.The YTM (with tax benefits) is calculated assuming the investor gets a tax benefit of 15% of the invested amount. Subscribers to the IDBI Infrastructure (Tax Saving) Bond (2004 B) will have priority over subscribers to other bonds for allotment.

IDBI Money Multiplier Bond (2004 B) Option A Issue Price Minimum Investment Tenor Face Value / Maturity Value * Yield to Maturity Put/Call option Rs.5,000 One Bond Rs. 5,000 6 years 11 months Rs.7,500 6.03% None Option B Rs.5,000 One Bond Rs. 5,000 11 years 5 months Rs.10,000 6.25% None

* Subject to TDS as applicable. Investors are advised to read the Offer Document for more details.

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IDBI Floating Rate Bond (2004 B) Face Value Minimum Investment Payment of Interest Tenor Interest rate * Banchmark Rate Interest Reset Put/ Call Option Rs.5,000 Two Bond Rs.10,000 Semi annual 5 years 100 bps over Benchmark Rate 5 year G-Sec Semi annually None

* Subject to TDS as applicable. Investors are advised to read the offer document for more details. IDBI Regular Income Bond (2004 B) Option A Face Value Minimum Investment Payment of Interest Interest Rate* Tenor Yield to Maturity Put Option Call Option Rs.5,000 Two Bonds Rs.10,000 Annual 6.00% p.a. 7 years 6.00% None None Option B Rs.5,000 Six Bonds Rs.30,000 Quarterly 5.80% p.a. 7 years 5.93% None None Option C Rs.5,000 Two Bonds Rs.10,000 Annual 6.20% p.a. 10 years 6.20% None None Option D Rs.5,000 Six Bonds Rs.30,000 Quarterly 6.00% p.a. 10 years 6.14% None None

*Subject to TDS as applicable. Investors are advised to read the Offer Document for more details.

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PART A
INDUSTRIAL DEVELOPMENT BANK OF INDIA (Established under the Industrial Development Bank of India Act, 1964) IDBI Tower, WTC Complex, Cuffe Parade, Mumbai 400 005 Tel: (022) 22189117 Fax:(022) 22181294 Grams:INDBANKIND. Website: www.idbi.com Industrial Development Bank of India (IDBI) offers for public subscription, the following unsecured, redeemable bonds through a simultaneous public issue (the issue). IDBI Infrastructure (Tax Saving) Bond (2004 B) IDBI Money Multiplier Bond (2004 B) IDBI Floating Rate Bond (2004 B) IDBI Regular Income Bond (2004 B) The above bonds are collectively referred to in this Offer Document as IDBI Flexibonds 20 or Bonds. GENERAL INFORMATION Target Amount This issue is intended to collectively raise an amount of upto Rs.400 crore, with an option to retain oversubscription upto Rs.400 crore (i.e. in all, upto Rs.800 crore). Issue Schedule The Issue will open for subscription at the commencement of business hours and close at the close of business hours on the dates indicated below: OPENING DATE CLOSING DATE : : January 19, 2004 February 12, 2004 March 5, 2004

DEEMED DATE OF ALLOTMENT : Authority for the Issue

The Issue is made pursuant to Section 11(1)(a) of the Industrial Development Bank of India Act, 1964 (IDBI Act). The Board of Directors of IDBI at its Meeting held on June 20, 2003, passed resolution approving the Umbrella Offer Document for 2003-2004 for raising Rs.1500 crore with an option to retain additional subscription upto Rs.1500 crore and authorising the Chairman & Managing Director to exercise powers in relation to the Public Issue. Chairman & Managing Director vide his approval dated January 8, 2004, has authorised Shri O.V.Bundellu/ Shri K.Sivaprakasam, Executive Directors, severally, to sign the Offer Document of Flexibonds-20 on his behalf. The Issue is made in accordance with the Guidelines for Issue of Capital by Designated Financial Institutions, SEBI Guidelines 2000. The current issue of IDBI is in accordance with the terms of RBIs letter No. DBS.FID. 21/09.01.02/ 1999-2000 dated June 21, 2000 and DBS.FID No.966/09.01.02/2001-02 dated March 2, 2002 regarding issue of bonds by Financial Institutions. IDBI can issue the bonds proposed by it in view of the present approvals and no further approvals in general from any Government Authority / RBI are required by IDBI to undertake the proposed activity. IDBI, in future, will secure any other required approvals from the statutory authorities, if necessary. IDBI being a public financial institution has been raising resources both from domestic market and overseas market in the form of unsecured borrowings. In respect of the monies borrowed from overseas markets, IDBI has agreed to create pari passu charge if any other lender is offered security on the assets of IDBI. Since the resources raised by IDBI are being utilised for the purpose of its business i.e. providing credit and other facilities to the industry, the assets of IDBI are mostly in form of loans and advances. Hence it is proposed that the Bonds shall be unsecured in nature in that they shall not be secured against any asset of IDBI. IDBI has appointed a trustee to protect the interest of the investors.

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IDBI FLEXIBONDS 20
Eligibility of IDBI to come out with the issue IDBI, its directors or any of its subsidiaries have not been prohibited from accessing the capital market under any order or directions passed by SEBI. Also, IDBI is eligible to do an issue of bonds under the applicable guidelines pertaining to Designated Financial Institutions of SEBI (DIP) guidelines. Terms of the Issue The Bonds will be subject to the IDBI Act 1964, the Industrial Development Bank of India General Regulations, 1994, Industrial Development Bank of India (Issue and Management of Bonds) Regulations, 1972, Industrial Development Bank of India Bonds and Deposits (Nomination) Regulations, 1997, relevant statutory guidelines and regulations for allotment and listing of securities issued from time to time by the Government of India (GOI), SEBI, Reserve Bank of India (RBI) and the Stock Exchanges concerned, the terms of this Offer Document and Application Form. Objects of the Issue The Issue is for augmenting the medium to long-term rupee resources of IDBI for the purpose of carrying out its functions authorised under the IDBI Act. The Main Object Clause of IDBI as contained in the IDBI Act, 1964 (as disclosed in Part C of the Offer Document) enables IDBI to undertake the activities for which the funds are being raised in the present issue. Also, the main objects of IDBI as contained in IDBI Act, 1964 adequately cover its existing and proposed activities. The funds raised by way of this public issue will be utilised for project lending/ investment in shares/debenture, debt servicing and such other activities as may be permitted under the IDBI Act. Further, the funds raised through Infrastructure Bonds will be used for lending to infrastructure projects. Utilization of Funds IDBI will have access to the funds raised through the Issue as per the provisions of the Guidelines for Issue of Capital by Designated Financial Institutions, SEBI Guidelines 2000. Disclaimer As required, a copy of the Offer Document has been submitted to SEBI. It is to be distinctly understood that the submission of Offer Document to SEBI should not in any way be deemed or construed that the same has been cleared or approved by SEBI. SEBI does not take any responsibility either for the financial soundness of any scheme or the project for which the issue is proposed to be made, or for the correctness of the statements made or opinions expressed in the Offer Document. The Lead Manager, SBI Capital Markets Ltd. has certified that the disclosures made in the Offer Document are generally adequate and are in conformity with the Guidelines for Issue of Capital by Designated Financial Institutions, SEBI Guidelines 2000. This requirement is to facilitate the investors to take an informed decision for making investment in the proposed issue. It should also be clearly understood that while the Issuer is primarily responsible for the correctness, adequacy and disclosure of all relevant information in the Offer Document, the lead merchant banker is expected to exercise due diligence to ensure that the Issuer discharges its responsibility adequately in this behalf and towards this purpose, the Lead Manager, SBI Capital Markets Ltd. has furnished to SEBI a due diligence certificate dated September 18, 2003 in accordance with SEBI (Merchant Bankers) Regulations, 2000 which reads as follows: 1. We have examined various documents including those relating to litigation like commercial disputes etc. and other materials in connection with the finalisation of the draft Offer Document pertaining to the said issue. On the basis of such examination and the discussions with IDBI, its Directors and other officers, other agencies, independent verification of the statements concerning objects of the issue and the contents of the documents mentioned in the Annexure and other papers furnished by IDBI, we confirm that: a) b) the Offer Document forwarded to SEBI is in conformity with the documents, materials and papers relevant to the Issue; all the legal requirements connected with the said issue as also the guidelines, instructions etc. issued by SEBI, the Government and any other competent authority in this behalf have been duly complied with; and

2.

12

IDBI FLEXIBONDS 20
c) 3. the disclosures made in the Offer Document are true, fair and adequate to enable the investors to make a well informed decision as to the investment in the proposed issue.

We confirm that besides ourselves, all the intermediaries named in the Offer Document are registered with SEBI and that till date such registration is valid.

The Lead Manager has issued a fresh due diligence certificate dated January 9, 2004 which reiterates the statements made in the certificate dated September 18, 2003 referred to above and states that all observations made by SEBI vide letter dated November 7, 2003 have been incorporated in the Offer Document. The filing of the Offer Document does not, however, absolve the issuer from any liabilities arising out of misstatements in the Offer Document or from the requirement of obtaining statutory or other approvals as may be necessary for the proposed issue. SEBI further reserves the right to take up, at any point of time, with the lead manager any irregularities or lapses in the Offer Document. Filing of the Draft Shelf Offer Document The Draft Shelf Offer Document was filed with SEBI on September 18, 2003 at Mumbai. A copy of this Offer Document, having attached thereto the Material contracts & documents referred to elsewhere in the Offer Document, has been delivered for registration to the Stock Exchange, Mumbai and National Stock Exchange. The complete copy of the said documents has been kept open for public inspection at the Head Office of IDBI. The Lead Managers and the Bank shall make all information available to the public and investors at large and no selective or additional information would be available for a section of investors in any manner whatsoever. General Disclaimer IDBI accepts no responsibility for statements made otherwise than in the Offer Document or in the advertisements or other material issued by or at the instance of IDBI and the Lead Managers and any one placing reliance on any other source of information would be doing so at their own risk. Fictitious Applications Any person who (a) makes, in a fictitious name, an application to a body corporate for acquiring, or subscribing to, the bonds, or (b) otherwise induces a body corporate to allot, or register any transfer of, bonds therein to them, or any other person in a fictitious name, shall be liable for legal consequences of such action. Disclaimer in respect of jurisdiction This offer of Bonds is made in India to persons resident in India. This Offer Document does not constitute an offer to sell or an invitation to subscribe to the bonds offered herein, in any other jurisdiction to any person to whom it is unlawful to make an offer or invitation in such jurisdiction. Any person, in whose possession this Offer Document comes, is required to inform himself about and to observe any such restrictions. Consents Consents in writing from the Lead Managers, the Principal Marketing Co-ordinator, the Co-Managers, the Trustees to the Bondholders, the Registrars and the Bankers to the Issue to act in their respective capacities have been obtained and filed with The Stock Exchange, Mumbai and the National Stock Exchange of India Ltd., along with a copy of this Offer Document and none of them have withdrawn their consent upto the date of delivery of a copy of this Offer Document to the said Stock Exchanges. M/s Sorab S. Engineer & Co., Chartered Accountants, (Ismail Building, 381, Dr. D. Naoroji Road, Fort, Mumbai - 400 001) Auditors of IDBI, and Tax Consultants to IDBI have given their written consent to the inclusion of their report in this Offer Document in the form and context in which they appear herein and such consent has not been withdrawn upto the date of delivery of a copy of this Offer Document to the said Stock Exchanges. Minimum - Maximum Target The basic issue size is Rs.400 crore with a right to retain oversubscription of any amount upto Rs.400 crore. Minimum Subscription The provisions as to minimum subscription are not applicable to the Issue as per the Guidelines for Issue of Capital by Designated Financial Institutions, SEBI Guidelines 2000. IDBI would be free to retain whatever amount is received by it subject to a maximum of Rs.800 crore.

13

IDBI FLEXIBONDS 20
CREDIT RATING
Domestic Rating An issue of unsecured bonds of Rs.1,500 crore with an option to retain oversubscription upto Rs.1,500 crore filed under the Umbrella Offer Document for the FY 2003-2004 has been rated AA+ (pronounced Double A Plus) by CRISIL, AA+(ind) by FITCH Ratings India Pvt Ltd and LAA by ICRA The proposed tranche of bond issue has been rated by three Agencies and the rating details are as below: Institution Rating Category Debentures (Bonds) Meaning of the Rating High safety with regard to timely payment of principal and interest. Though the circumstances providing this degree of safety are likely to change, such changes as can be envisaged are most unlikely to affect adversely the fundamentally strong position of such issues. Rating Watch identifies the possibilities of changes in CRISIL ratings of debt instruments. An instrument will be placed on Rating Watch when circumstances arise, the impact of which needs to be evaluated in terms of the credit rating. The Developing designation means that a rating may be raised, lowered or reaffirmed. Rating Watch, however, does not imply that a rating will necessarily change. High credit quality. AA(ind) ratings indicate a low expectation of credit risk. They indicate strong capacity for timely is paymentof finanical commitments.This capacity may vary slightly from time to time because of ecnomic conditions. FITCH assigns a Rating Outlook to Long Term and Term Deposits Ratings. A Rating Outlook indicates the direction a rating is likely to move over time. Outlook may be Positive, Stable or Negative. A Positive or Negative Rating Outlook does not imply a rating change is inevitable. Similarly, ratings for which Outlook is Stable could be upgraded or downgraded before an outlook moves to Positive or Negative if circumstances warrant such an action. Occasionally, FITCH Ratings may be unable to identify the fundamental trend. In these cases, the Rating Outlook may be described as Evolving. High safety. Risk factors are modest and may vary slightly. The protective factors are strong and the prospect of timely payment of principal and interest as per terms under adverse circumstances, as may be visualised, differs from LAAA only marginally. CRISIL AA+ (Credit Rating Information (Rating watch Services of India Ltd) with Developing implication)

FITCH (Fitch Ratings India Pvt. Ltd.)

AA+(ind) (The outlook on the rating Evolving)

Long Term debt

ICRA (Investment Information and Credit Rating Agency)

LAA

Debentures, Bonds, Preference Shares

As IDBI is a promoter shareholder of CARE, ratings of proposed instruments of borrowings are not being obtained from CARE as a measure of good corporate governance. International Rating Standard & Poors has assigned BB (with Stable outlook) long-term foreign currency credit rating to IDBI. Moodys Investors Services has assigned a long-term foreign currency debt rating to IDBI of Ba1. The rating has been placed on review for possible upgrade along-with the sovereign India rating. Fitch, the international rating agency, has assigned long-term foreign currency rating of BB (with negative outlook) to IDBI. Rating and Investment Information Inc. (R&I) formerly known as Japan Bond Research Institute (JBRI), has in the past accorded foreign currency long term rating of BBB to IDBI for Samurai Bonds. The bonds have since been repaid.

14

IDBI FLEXIBONDS 20
Meaning of International Ratings BB long term foreign currency rating from Standard & Poors : Less vulnerable in the near term than other lower rated obligors. However it faces major ongoing uncertainties and exposure to adverse business, financial and economic conditions, which could lead to the obligors inadequate capacity to meet its financial commitments. Ba long term foreign currency debt rating from Moodys : Bonds and preferred stock which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguard during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. BB long term foreign currency rating from Fitch : Indicates that there is possibility of credit risk developing, particularly as a result of adverse economic change over time; However, business or financial alternatives may be available to allow financial commitments to be met. Securities rated in this category are not investment grade. Investors are requested to note that a security rating is not a recommendation to buy, sell or hold securities and that it may be subject to revision or withdrawal at any time by the agency assigning the rating and that each rating should be evaluated independently of any other rating. Details of rating in the past 3 years CRISIL ICRA FITCH/DCR FY 2002-2003 AA+ LAA AA+ (ind) FY 2001-2002 AA+ LAA+ Ind AA+ FY 2000-2001 AAA LAAA Ind AAA Underwriting The Issue of Bonds has not been underwritten.

ISSUE MANAGEMENT TEAM


LEAD MANAGERS
SBI Capital Markets Ltd. 202, Maker Tower E, Cuffe Parade, Mumbai 400 005. Tel: (022) 2218 9166; Fax: (022) 2218 8332. e-mail : cmg@sbicaps.com DSP Merrill Lynch Ltd. Mafatlal Centre, 10th Floor, Nariman Point, Mumbai 400 021. Tel (022) 5632 8000 ; Fax (022) 5604 8518 J M Morgan Stanley Pvt. Ltd. 141, Maker Chambers III, Nariman Point, Mumbai-400 021. Tel: (022) 5630 3030;Fax (022) 5604 2137 Enam Financial Consultants Pvt. Ltd. 2nd Floor, Khatau Building, 44, Bank Street, Off Shahid Bhagat Singh Road, Fort, Mumbai - 400 023 Tel: (022) 2267 7901;Fax: (022) 2266 5613 Kotak Mahindra Capital Co. Ltd. 229, Bakhtawar, 1st Floor, Nariman Point, Mumbai 400 021. Tel (022) 5634 1100; Fax (022) 5682 6632 Integrated Enterprises (India) Ltd. 5A, 5th Floor, Kences Towers, No.1, Ramkrishna Street, North Usmad Road, T. Nagar, Chennai 600 017. Tel: (044) 814 3045/46; Fax: (044) 814 4826 KJMC Global Market (India) Ltd. 168, Atlanta, 16th Floor, Nariman Point, Mumbai - 400 021. Tel : (022) 2283 2350, 2284 1542; Fax : (022) 2285 2892 RR Financial Consultants Ltd. th 412-422 Indra Prakash, 4 Floor, 21, Barakhamba Road, New Delhi 110 001. Tel : (011) 335 2496 - 99; Fax : (011) 335 3703 Bajaj Capital Ltd. Bajaj House, 97 Nehru Place New Delhi 110 019. Tel : (011) 641 8903; Fax : (011) 647 6638 Karvy Investor Services Ltd. Karvy House, 46 Avenue 4, Street No. 1, Banjara Hills, Hyderabad 500 034. Tel: (040) 335 1840; Fax: (040) 335 1989

CO-MANAGERS
UTI Securities Exchange Ltd. 41, Sir Vithaldas Thackersay Marg; New Marine Line Mumbai - 20 Tel : (022) 22030127 Fax:(022) 22030165 SPA Merchant Bankers Ltd. 25, C- Block, Community Centre, Janak Puri, New Delhi - 110 058. Tel: (011) 2551 5086 Fax: (011) 2553 2644 AK Capital Services Ltd. Centrum Finance Ltd. Flat No. N Sagar Apartments, Bombay Mutual Building, 2nd Floor, 6, Tilak Marg, New Delhi - 110 001 Dr. D.N. Road, Fort, Mumbai - 400 001. Tel: (011) 338 2380, 338 8235; Tel: (022) 2266 2434, 2266 4611; Fax: (011) 338 5189 Fax: (022) 2266 3458 Allianz Securities Ltd. C-2, Green Park Extn, New Delhi - 110 016 Tel ( 011) 656 8607, 696 0902 Fax : (011) 696 9478

15

IDBI FLEXIBONDS 20
PRINCIPAL MARKETING CO-ORDINATOR
IDBI Capital Market Services Ltd 8th Floor, Bakhtawar, 229, Nariman Point, Mumbai - 400 021 Tel ( 022) 56371212; Fax : (022) 5688 5850

REGISTRAR TO THE ISSUE


Datamatics Financial Software & Services Ltd Plot No A 16 & 17, MIDC Part B Crosslane, Marol, Andheri (East), Mumbai - 400 093 Tel:(022) 2837 5519 Fax:(022) 2835 0217 REGISTRAR AND TRANSFER AGENT Investor Services of India Ltd. IDBI Building; Plot No. 39-41, Sector 11 CBD Belapur; Navi Mumbai - 400614 Tel : (022) 2757 9645 Fax : (022) 2757 9650

TRUSTEE TO THE BONDHOLDERS


IL&FS Trust Company Ltd The IL&FS Financial Centre, Plot - C22, Block - G, Bandra Kurla Complex, Bandra (East), Mumbai - 400 051 Tel : (022) 2653 3333 Fax : (022) 2653 3297

BANKERS TO THE ISSUE


Abu Dhabi Commercial Bank Bank of Maharashtra Central Bank of India Corporation Bank Citibank, N.A. Development Credit Bank Ltd HDFC Bank Ltd. IDBI Bank Ltd. Indian Bank Indian Overseas Bank The Sangli Bank Ltd State Bank of India State Bank of Hyderabad Syndicate Bank Union Bank of India United Bank of India UCO Bank UTI Bank Ltd

STATEMENT OF INTER-SE ALLOCATION OF RESPONSIBILITIES AMONG THE LEAD MANAGERS TO THE ISSUE Responsibility : SBI Capital Markets Ltd. Co-ordinator : SBI Capital Markets Ltd. Capital Structuring with the relative components and aspects such as composition of debt. Structuring of the Issue instruments Draft design of Offer Document and memorandum containing salient features of the Offer Document, Due Diligence and completion of formalities with SEBI; completion of prescribed formalities with the Stock-Exchange Draft and design of advertisement/publicity material including newspaper advertisement. Selection of various agencies connected with the issue, namely printers and advertising agencies. Selection of Registrars to the Issue. Follow-up with Bankers to the Issue to get quick estimates of collection and advising the issuer about closure of the issue, based on the correct figures. The post-issue activities involving essential follow-up steps, finalisation of basis of allotment, weeding out of multiple applications, listing of instruments and despatch of certificates and refunds, with the various agencies connected with the work such as Registrars to the Issue. Bankers to the Issue, and the bank handling refund business. Even if many of these activities would be handled by other intermediaries, the designated Lead Managers shall be responsible for ensuring that these agencies fulfil their function and enable him to discharge this responsibility through suitable arrangement with IDBI. Responsibility : SBI Capital Markets Ltd., DSP Merril Lynch Ltd., Enam Financial Consultants Pvt. Ltd., J.M. Morgan Stanley Private Ltd., Kotak Mahindra Capital Company Ltd., RR Financial Consultant Ltd., Bajaj Capital Ltd., Karvy Investors Services Ltd., KJMC Global Market (India) Ltd. Co-ordinator : SBI Capital Market Ltd. Marketing of Issue covering inter-alia formulating marketing strategies, preparation of publicity budget, arrangements for selection of (i) ad media (ii) centres for holding press conference (iii) Bankers to the Issue (iv) collection centres (v) distribution form, prospectus and brochure (vi) deciding on the quantum of issue material.

16

IDBI FLEXIBONDS 20
CAPITAL STRUCTURE (As on March 31, 2003) (Rs. Crore) (A) Authorised Capital Preference Capital 50,00,00,000 Redeemable Preference Shares of Rs.10/- each Equity Capital 150,00,00,000 Equity Shares of Rs.10/- each (B) Issued, subscribed and paid-up capital Equity Capital 65,28,30,400 equity shares of Rs.10/- each Reserves,Funds and Surplus Including Share Premium Account (D) Loan Funds Bonds and Debentures (i) Issued in Rupees (ii) Issued in Foreign Currency Deposits Borrowings (i) Issued in Rupees (ii) Issued in Foreign Currency Present Issue to Public through this Offer Document 1624 1500 2000

500

653 6325

(C)

40618 1180

41798 4330

409 4951

(D)

5360 400

Notes : 1. The Promoters / Directors / Lead Managers / IDBI have not entered into standby or similar arrangements for these bonds. 2. The present issue of unsecured bonds by IDBI is made under Guidelines for Issue of Capital by Designated Financial Institutions, SEBI DIP Guidelines 2000, and therefore, provisions of lock-in of share of the promoters are not applicable. IDBI has not raised any bridge loan or any other similar financial arrangement, the amount of which would be repaid out of the proposed public issue of unsecured bonds. IDBI being a financial institution is in the business of raising resources and deploying them on an ongoing basis. However, no specific issue of Security in domestic currency by way of a private placement or a public issue (by means of an Offer Document/ information memorandum, wherein a specific invitation is given to investors to subscribe to securities) shall be made during the time when the tranche is open. To the best of knowledge of IDBI, there is no intention of IDBI to significantly alter its capital structure within a period of 6 months from the date of opening the present issue. In the event of oversubscription beyond the green-shoe option, the basis of allotment shall be decided on a proportionate manner in consultation with the Stock Exchange, Mumbai and the National Stock Exchange as per the procedure laid out in para Basis of Allotment on page 29 of the Offer Document. No single applicant in the net offer to the public category can make an application for a number of bonds, which exceeds the net offer to the public. As on December 31, 2003, there were 2,97,048 shareholders of IDBI.

3. 4.

5. 6.

7. 8.

17

IDBI FLEXIBONDS 20
SHARE CAPITAL HISTORY OF IDBI The ownership of IDBI from 1964 to 1976 was with the Reserve Bank of India. The ownership was transferred to the Government of India with effect from February 16, 1976. The contribution to the share capital, since inception was made by the RBI (later transferred to the Government of India in 1976 ) / Government of India. Details of capital history are as under : Year@ 1964-65 1966-67 1970-71 1971-72 1973-74 1977-78 1978-79 1979-80 1980-81 1981-82 1982-83 1983-84 1984-85 1985-86 1986-87 1987-88 1988-89 1989-90 1990-91 1991-92 16.11.1994* 25.8.1995 ** 5.6.2000 *** 25.8.2000# 29.3.2001## @ * ** *** No. of equity shares 1,00,00,000 1,00,00,000 1,00,00,000 1,00,00,000 1,00,00,000 1,00,00,000 3,00,00,000 1,50,00,000 4,00,00,000 5,50,00,000 5,50,00,000 13,00,00,000 3,00,00,000 3,00,00,000 3,00,00,000 2,00,00,000 4,50,00,000 9,70,00,000 6,60,00,000 5,00,00,000 (25,30,00,000) 17,30,93,300 (24,70,00,000) (1,80,74,300) 24,48,11,400 Face Value 10,00,00,000 10,00,00,000 10,00,00,000 10,00,00,000 10,00,00,000 10,00,00,000 30,00,00,000 15,00,00,000 40,00,00,000 55,00,00,000 55,00,00,000 130,00,00,000 30,00,00,000 30,00,00,000 30,00,00,000 20,00,00,000 45,00,00,000 97,00,00,000 66,00,00,000 50,00,00,000 (253,00,00,000) 173,09,33,000 (247,00,00,000) (18,07,43,000) 244,81,14,000 Cumulative Share Capital 10,00,00,000 20,00,00,000 30,00,00,000 40,00,00,000 50,00,00,000 60,00,00,000 90,00,00,000 105,00,00,000 145,00,00,000 200,00,00,000 255,00,00,000 385,00,00,000 415,00,00,000 445,00,00,000 475,00,00,000 495,00,00,000 540,00,00,000 637,00,00,000 703,00,00,000 753,00,00,000 500,00,00,000 673,09,33,000 426,09,33,000 408,01,90,000 652,83,04,000

The financial year upto 1987-88 was July June year and April-March thereafter. Conversion of equity capital into redeemable preference shares, since redeemed. Initial Public Offer The Government of India vide notification dated June 5, 2000 converted 24.70 crores equity shares held by it into three year redeemable preference shares of Rs. 10 each aggregating Rs.247 crore carrying dividend @ 13% p.a. Consequently, the equity shareholding of the Government in IDBI stands reduced from Rs.485.58 crore (i.e. 72.14%) to Rs.238.58 crore(i.e. 57.76%). On August 25,2000 1,80,74,300 partly paid up equity shares of face value Rs. 10/- each were forfeited Consequently (i) the aggregate face value of Rs. 18,07,43,000 has been reduced from the subscribed and paid up equity capital (ii) Allotmentmoney in Arrears of Rs.13,55,57,250 has been written down fully and (iii) Capital Reserve account has been credited by Rs.4,51,85,750 being the amount actually paid up on the forfeited shares. On account of this, Governments shareholding has gone up to 58.5% with effect from August 25,2000. The board of IDBI has recommended bonus in the ratio of 3 equity shares for every 5 equity shares held vide Board resolution dated December 19,2000 which was subsequently ratified in the EGM held on January 23,2001.Consequently IDBI has issued 24,48,11,400 fully paid equity shares of Rs.10/- each issued as bonus shares on March 29, 2001 by capitalisation of Capital Reserve of Rs. 4.52 crore and Share Premium of Rs. 240.29 crore.

##

18

IDBI FLEXIBONDS 20
3. (i) NOTES ON CAPITAL STRUCTURE The list of top ten shareholders of IDBI on the date of Stock Exchange filing on January 9, 2004 and the number of shares held by them is as follows. Name of the Shareholder Government of India Life Insurance Corporation of India Unit Trust of India State Bank of India HSBC Global Investment Funds a/c HSBC GlobalInvest.Funds MAU LTD Morgan Stanley Investment Management Inc a/c Morgan Stanley Ind Inv. Fund Inc. HSBC Financial Services (Middle East) Ltd Morgan Stanley Mutual Fund A/C & Morgan Stanley Growth Fund HSBC Equity Fund Export Import Bank of India No of Shares 38,17,28,000 2,85,21,950 2,45,00,000 1,71,24,960 1,16,34,198 64,05,000 54,09,521 53,21,000 32,96,000 32,00,000

Sr.No 1 2 3 4 5 6 7 8 9 10

(ii) The list of top ten shareholders 10 days prior to the date of Stock Exchange filing and the number of shares held by them is as follows. Sr.No 1 2 3 4 5 6 7 8 9 10 Name of the Shareholder Government of India Life Insurance Corporation of India Unit Trust of India State Bank of India HSBC Global Investment Funds a/c HSBC GlobalInvest.Funds MAU LTD Morgan Stanley Investment Management Inc a/c Morgan Stanley Ind Inv. Fund Inc. HSBC Financial Services (Middle East) Ltd Morgan Stanley Mutual Fund A/C & Morgan Stanley Growth Fund HSBC Equity Fund Export Import Bank of India No of Shares 38,17,28,000 2,85,21,950 2,45,00,000 1,71,24,960 1,16,34,198 64,05,000 54,09,521 53,21,000 32,96,000 32,00,000

(iii) The list of top ten shareholders of IDBI 2 years prior to the date of Stock Exchange filing and the number of shares held by them is as follows. Sr.No 1 2 3 4 5 6 7 8 9 10 Name of the Shareholder Government of India Unit Trust of India Life Insurance Corporation of India State Bank of India Export Import Bank of India The Industrial Finance Corporation of India Ltd. Nagarjuna Fertilizers & Chemicals Ltd. Synducate bank ICICI Ltd. Canara bank No of Shares 23,85,80,000 3,13,60,753 1,52,23,800 1,07,03,100 20,00,000 17,83,800 17,17,000 17,15,200 16,94,700 16,94,700

19

IDBI FLEXIBONDS 20
PRINCIPAL TERMS OF THE BONDS
Under the present Offer Document, IDBI offers for public subscription four types of unsecured Bonds. These Bonds have been structured with several investor-friendly features to meet the needs of different types of investors. Investors can apply for any or all types of Bonds, as they desire. This offer of Bonds is made in India to persons resident in India. The bonds issued herein are subject to applicable prudential norms of RBI, as applicable. The Bonds are also governed by the Trustee agreement, which stipulates a covenanted DER and NDCSR ratio to be maintained throughout the currency of the bonds. If IDBI fails to meet the minimum required criteria regarding DER and NDSCR, no dividend shall be declared for the relevant year except with the approval of the Trustees and the rate of dividend shall not exceed 10%. IDBI INFRASTRUCTURE (Tax Saving) BOND (2004 B) Investors in IDBI INFRASTRUCTURE (Tax Saving) BOND (2004 B) will receive interest @ 5.50% p.a. payable annually for 3 years (option A) or @ 5.75% p.a. payable annually for a period of 5 years (option B). The investor may also choose from the cumulative options, Option C with maturity of 3 year 6 months (YTM 5.50%) and Option D with maturity of 5 years (YTM 5.75%). Investment made in these bonds will be eligible for tax benefits under Section 88 of the Income Tax Act, 1961. KEY TERMS The Investor in the IDBI Infrastructure (Tax Saving) Bond (2004 B) will have the following options. Option A: Annual Interest Option The Investor receives interest at 5.50% p.a. annually for 3 years. Option B: Annual Interest Option The Investor receives interest at 5.75% p.a. annually for 5 years. Option C: Cumulative Option The Investor receives cumulative amount of Rs.6,030 per bond at the end of 3 year 6 months. Option D: Cumulative Option The Investor receives cumulative amount of Rs.6,615 per bond at the end of 5 years. Minimum Investment Each bond has a issue price of Rs.5,000. The minimum investment shall be 1 bond i.e. Rs.5,000 and in multiples of 1 bond i.e. Rs.5,000 thereafter. Interest Payment Dates for Option A and Option B Interest on bonds under Option A and Option B accrues from the deemed date of allotment, i.e. March 5, 2004. Interest will be due and payable on March 5 every year. The first payment of interest for the period from the deemed date of allotment up to March 4, 2005 will be made on March 5, 2005. Maturity Option A : The Bonds under Option A will mature on the expiry of 3 years from the deemed date of allotment i.e. March 5, 2004. The date of maturity, therefore, will be March 5, 2007. On maturity, the Bonds will be redeemed at face value (Rs. 5,000). Option B : The Bonds under Option B will mature on the expiry of 5 years from the deemed date of allotment. i.e. March 5, 2004. The date of maturity, therefore, will be March 5, 2009. On maturity, the Bonds will be redeemed at face value (Rs. 5,000). Option C: The Bonds under Option C will mature on the expiry of 3 year 6 months from the deemed date of allotment i.e. March 5, 2004. The date of maturity will be September 5, 2007. On maturity, the bonds will be redeemed at the cumulative value of Rs.6,030. Option D: The Bonds under Option D will mature on the expiry of 5 years from the deemed date of allotment. i.e. March 5, 2004. The date of maturity will be March 5, 2009. On maturity, the bonds will be redeemed at the cumulative value of Rs.6,615. Early Encashment Option / Put Option There is no early encashment option/put option for investors in IDBI Infrastructure (Tax Saving) Bond (2004 B).

20

IDBI FLEXIBONDS 20
Call Option There is no call option for IDBI in the IDBI Infrastructure (Tax Saving) Bond (2004 B). Priority for Allotment Allotment against all valid applications for the IDBI Infrastructure (Tax Saving) Bond (2004 B) will be made on a full and firm allotment basis, upto the issue size Rs.400 crore plus the amount of over subscription retained by IDBI. Subscribers to the IDBI Infrastructure (Tax Saving) Bond (2004 B) will have priority over subscribers to other bonds for allotment. Therefore, only after all eligible applicants for IDBI Infrastructure (Tax Saving) Bond (2004 B) have been allotted, applications for other bonds will be considered for allotment on proportionate basis. Yield to Maturity The table of annualised yields to maturity per bond is given below. Option Tenor Interest rate Amount payable on maturity (Rs) Rs.5,000 Rs.5,000 Rs.6,030 Rs.6,615 YTM (without tax benefit) 5.50% p.a. 5.75% p.a. 5.50% p.a. 5.75% p.a. YTM (with tax benefits)* 11.71% p.a. 9.67% p.a. 10.52% p.a. 9.25% p.a.

A : Annual B : Annual C : Cumulative D : Cumulative

3 years 5 years 3 year & 6 months 5 years

5.50% p.a. 5.75% p.a. Refer YTM Refer YTM

* The YTM (with tax benefits) is calculated assuming the investor gets a tax benefits of 15% of the invested amount. Tax Benefits CBDT has, vide letter F.No. 178/40/2003-ITA-I dated September 12, 2003 declared Infrastructure Bonds issued by IDBI in the financial year 2003-2004 upto an amount of Rs.3,000 crore as eligible for the purpose of clause (xvi) of sub-section (2) of Section 88 of the Income Tax Act, 1961 read with Rule 20 of the Income Tax Rules,1962. Accordingly, allottees (sole/first applicant) of the these bonds can avail of tax rebate under Section 88 of IT Act, subject to certain conditions as details under Tax Benefits in the Offer Document. For tax benefits and tax treatment of interest income, please refer Tax Benefits later in this document. An assessee being an Individual or HUF may out of his / its taxable income invest up to Rs. 1,00,000 in these Bonds along with other eligible modes of investments specified in Section 88 of IT Act and secure a tax rebate as given in the table on page 37. Tax Deduction at Source Payment of interest will be subject to deduction of tax at source as per prevailing tax laws and as specified under Common Terms appearing later in the Offer Document. IDBI MONEY MULTIPLIER BOND (2004 B) IDBI MONEY MULTIPLIER BOND (2004 B) is issued at a discounted price of Rs.5,000. After the maturity period of 6 years 11 months in case of Option A and 11 years 5 months in case of Option B, the Bonds will be redeemed at their face value of Rs.7,500 and Rs.10,000 respectively. KEY TERMS Discounted Price/ Issue Price Each Bond under Option A and Option B has a discounted price of Rs. 5,000. Minimum Investment The minimum investment is one Bond i.e. Rs. 5,000 and thereafter the investors can apply in multiples thereof. Maturity The Bonds will mature on the expiry of 6 years 11 months under Option A and 11 years 5 months under Option B from the deemed date of allotment. The deemed date of allotment will be March 5, 2004. The Bonds will, therefore, mature on February 5, 2011 and August 5, 2015 under Option A and Option B respectively. Maturity Value On maturity, investors can redeem the Bond at their face value of Rs.7,500 and Rs.10,000 for Option A and Option B respectively.

21

IDBI FLEXIBONDS 20
Yield To Maturity The annualized yield to maturity in case of Option A (on redemption after 6 year 11 months) is 6.03% and for Option B (on redemption after 11 year 5 months) is 6.25%. Early Encashment Option / Put Option Investors will not have the put option to encash the Money Multiplier Bond (2004 B) prior to the date of maturity. Call Option IDBI will not have Call option to redeem the Money Multiplier Bond (2004 B) prior to the date of maturity. Tax Treatment For tax benefits, please refer Tax Benefits later in the Offer Document. Tax Deducted at source Tax will be deducted at source as per the prevailing tax laws and as specified under Common Terms appearing later in the Offer Document. IDBI FLOATING RATE BOND (2004 B) Bondholders in IDBI FLOATING RATE BOND (2004 B) shall receive interest semi-annually at a spread of 100 bps (i.e. 1%) over the Benchmark Rate i.e. 5 year G-Sec rate. The interest will be reset semi-annually. The process of computation of benchmark is explained in this section. KEY TERMS Face Value Each bond has a face value of Rs.5,000/-. Minimum Investment The minimum investment is two Bonds i.e. Rs.10,000 and thereafter the investors can apply in multiples of one Bond i.e. Rs.5,000. Interest Rate Investors will receive interest semi-annually at 100 bps over the Benchmark Rate. Benchmark Rate Interest Rate on the bonds will be linked to the 5 year Government of India Securities with 5 years residual maturity. The Benchmark Rate will be fixed on the basis of a simple average of the semi-annual yield (simple average of bid and offer) on the aforesaid security for the 6 business days preceeding the Interest Reset Date i.e. March 5 and September 5 every year. The benchmark 5 year rate will be the 5 year G-Sec (semi-annual) rate put out by the Reuters at 12.00 hrs IST on its page 0#INBMK=. If the above mentioned screen has either been renamed or if the identical information is being presented by Reuters on a different screen (the Replacement screen), the rate will be determined by utilising the methodology set out about but with reference to the Replacement screen. If such a rate does not appear on the Reuter screen 0#INBMK= without a replacement being provided, the rate for the reset will be the 5 year Benchmark Rate appearing on Reuters page INCMT. If none of the aforesaid benchmark rates are available for any reason whatsoever, then the benchmark rate will be decided by IDBI in mutual consultation with the Trustees. Interest Reset Date Interest will be reset semi-annually on March 5 and September 5 every year. This rate will be applicable for the next half year period starting from the said date. The rate applicable for the first half year will be determined as on March 5, 2004 and will be applicable for the half year period from March 5, 2004 to September 4, 2004 and will be payable on September 5, 2004. Interest Payment Date Interest will be paid semi-annually on March 5 and September 5 every year throughout the tenor of the bonds. The first payment of interest for the period from the deemed date of allotment up to September 4, 2004 will be due and payable on September 5, 2004. Maturity The Bonds will mature on the expiry of 5 years from the deemed date of allotment i.e. March 5, 2004. The Bonds will, therefore, mature on March 5, 2009. On maturity, the Bonds will be redeemed at face value (Rs.5,000). Put Option/ Call Option There is no put option / call option for the IDBI Floating Rate Bond (2004 B)

22

IDBI FLEXIBONDS 20
Tax Benefits For tax benefits, please see under Tax Benefits later in this document. Tax Deduction at Source Payment of interest will be subject to deduction of tax at source as per prevailing tax laws and as specified under Common Terms appearing later in the document. IDBI REGULAR INCOME BOND (2004 B) Investors in IDBI REGULAR INCOME BOND (2004 B) will receive interest @ 6.00% p.a. payable annually (Option A) or @ 5.80% p.a. payable quarterly (Option B) for a period of 7 years or interest @ 6.20% p.a. payable annually (Option C) or @ 6.00% p.a. payable quarterly (Option D) for a period of 10 years. KEY TERMS Face Value Each Bond has a face value of Rs. 5,000. Minimum Investment Minimum investment shall be Rs.10,000 (2 Bonds), Rs.30,000 (6 Bonds), Rs.10,000 (2 Bonds) and Rs.30,000 (6 Bonds) for Option A, Option B, Option C and Option D respectively and thereafter in multiples of one Bond i.e. Rs.5,000. Interest Rate Investors have the option to receive interest payments either annually (Option A and C) or quarterly (Option B and D) at the rates mentioned in the table as follows. Option A Payment of Interest Interest Rate Tenor Yield to Maturity Annual 6.00% p.a. 7 years 6.00% Option B Quarterly 5.80% p.a. 7 years 5.93% Option C Annual 6.20% p.a. 10 years 6.20% Option D Quarterly 6.00% p.a. 10 years 6.14%

Interest Payment Dates Option A: Annual Interest Option (Tenor 7 years) Interest will be due and payable on March 5 every year. The first payment of interest for the period from the deemed date of allotment up to March 4, 2005 will be be due and payable on March 5, 2005. Option B: Quarterly Interest Option (Tenor 7 years) Interest will be due and payable on June 5, September 5, December 5 and March 5 every year. The first payment of interest for the period from deemed date of allotment up to June 4, 2004 will be due and payable on June 5, 2004. Option C: Annual Interest Option (Tenor 10 years) Interest will be due and payable on March 5 every year. The first payment of interest for the period from the deemed date of allotment up to March 4, 2005 will be be due and payable on March 5, 2005. Option D : Quarterly Interest Option (Tenor 10 years) Interest will be due and payable on June 5, September 5, December 5 and March 5 every year. The first payment of interest for the period from deemed date of allotment up to June 4, 2004 will be due and payable on June 5, 2004. Maturity The Bonds with Option A and Option B will mature on the expiry of 7 years from the deemed date of allotment and the Bonds with Option C and Option D will mature on the expiry of 10 years from the deemed date of allotment. As the deemed date of allotment will be March 5, 2004 therefore Option A and Option B of the IDBI Regular Income Bonds (2004 B) will mature on March 5, 2011 and Option C and Option D will mature on March 5, 2014. On maturity, the Bonds will be redeemed at face value (Rs.5000). Put Option There is no early encashment/put option for investors in any of the options of IDBI Regular Income Bond (2004 B). Call Option IDBI will not have Call option to redeem the Regular Income Bond (2004 B) prior to the date of maturity. Tax Treatment / Tax Deducted at source For tax benefits/ TDS please refer Tax Benefits later in the Offer Document.

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IDBI FLEXIBONDS 20
COMMON TERMS
Terms of Payment The full amount of issue price of the Bonds applied for should be paid along with the application. Interest on Application money Successful applicants will be paid interest on their application money @ 3.50% p.a. from the third day from the date of deposit of their application upto the deemed date of allotment. Interest on application money will be sent to the investor by way of a warrant and will be despatched along with the bond certificate. However in case of Regular Income Bond, Floating Rate Bond and Option A & B of Infrastructure (Tax Saving) Bond interest on application money upto Rs.100 will be sent alongwith the first interest cheque. Investment holding and Market Lot Investment in the bonds may be held either in Physical form or in Demat form. The market lot will be one bond. Denomination of Bond Certificates (Physical form) Investors may opt for certificates in market lot or consolidated certificate by indicating in the application form. If Consolidated Certificate option is chosen, one consolidated Bond Certificate will be issued for each option/bond for the total number of bonds allotted. Investors may later ask for split of the certificate into market lots at any time. This will be done free of cost once. If Market Lots option is chosen, separate Bond Certificate will be issued for each bond allotted. If no option is indicated, a Consolidated Certificate will be issued. Those investors who wish to trade on the stock exchanges are advised to opt for certificates in Market Lots. Others may opt for Consolidated Certificate for ease and convenience. Depository Arrangement IDBI has entered into depository arrangements with National Securities Depository Ltd. (NSDL) and Central Depository Services Ltd. (CDSL). Investors will have the option to hold the security in dematerialised form and deal with the same as per the provisions of Depositories Act, 1996 (as amended from time to time). IDBI has signed two tripartite agreements in this connection viz. 1) 2) Tripartite Agreement dated September 18, 2000 between IDBI, National Securities Depository Ltd. (NSDL) and the Registrar to Issue, Datamatics Financial Software and Services Ltd. Tripartite Agreement dated November 3, 2000 between IDBI, Central Depository Services Ltd. (CDSL) and the Registrar to Issue, Datamatics Financial Software and Services Ltd.

Procedure for opting for demat facility 1. Investor(s) should have / open a Beneficiary Account with any Depository Participant of NSDL or CDSL. 2. Responsibility for correctness of investors age and other details given in the Application Form vis--vis those with the investors Depository Participant would rest with the investors. Investors should ensure that the names of the sole/all the applicants and the order in which they appear in the application form should be same as Registered with the Investors Depository Participant. For opting for Bonds in dematerialized form, the beneficiary account number and depository participants ID shall be specified in the relevant columns of the Application Form. If incomplete/incorrect Beneficiary Account details are given in the application form or where the investor does not opt for the option to receive the Bonds in dematerialized form, the Bonds will be issued in the form of physical certificate(s). The Bonds allotted to investor opting for dematerialized form, would be directly credited to the Beneficiary Account as given in the application form after verification. Allotment advice/refund order (if any) would be sent directly to the applicant by the Registrars to the Issue but the confirmation of the credit of the bonds to the investors Depository Account will be provided to the investor by the investors Depository Participant. Investors may choose to opt for part of the total number of bonds applied for in demat form and the balance in physical form. In case of partial allotment, bonds will first be allotted in demat form and the balance if any in physical form. Separate applications in physical and dematerialised form would be considered as multiple applications and are liable to be rejected at the sole discretion of IDBI. Interest or other benefits with respect to the bonds held in dematerialised form would be paid to those bondholders whose names appear on the list of beneficial owners given by the depositories to IDBI as on the Record Date. In case, the beneficial owner is not identified by the depository on the Record Date due to any reason whatsoever, IDBI shall keep in abeyance the payment of interest or other benefits, till such

3. 4.

5.

6.

7.

24

IDBI FLEXIBONDS 20
time the beneficial owner is identified by the depository and intimated to IDBI. On receiving such intimation, IDBI shall pay the interest or other benefits to the beneficiaries identified, within a period of 15 days from the date of receiving such intimation. 8. Investors may please note that the bonds in demat form can be traded only on the stock exchanges having electronic connectivity with NSDL or CDSL.

Electronic Clearing Service for Payment of Interest Reserve Bank of India has introduced the concept of Electronic Clearing Service (ECS) through the clearing-house to obviate the need for issuing and handling paper instruments and thereby facilitate improved customer service. This facility would be available in cities where RBI provides such facility. As per the guidelines issued by RBI in this regard, the investor is required to give his mandate for ECS with all the details. This will help IDBI to credit the interest amount to investors account with the concerned bank at the earliest. The investors will also have the convenience of direct credit to their bank account without the need to receive interest warrants by post and deposit the same in their bank accounts. The bank branch will credit the investors account and indicate the credit entry with ECS in the passbook/statement of account. Investors who have not opted for ECS will be sent interest warrants by post. Listing Applications have been made to The Stock Exchange, Mumbai and the National Stock Exchange of India Ltd. for permission to deal in and for official quotation of the Bonds. The Stock Exchange, Mumbai and the National Stock Exchange have given their in-principle approvals vide their letters dated October 29, 2003 and November 3, 2003 respectively. IDBI shall complete all the formalities relating to the listing of the bonds within seventy days from the date of closure of each tranche/issue. If the permissions to deal in and for an official quotation of bonds are not granted by any of the Stock Exchanges, IDBI shall forthwith repay, without interest, all such moneys received from the applicants in pursuance of this Offer Document. If such money is not repaid within eight days after the Bank becomes liable to repay it (i.e. from the date of refusal or within 70 days from the date of closing of the subscription list, whichever is earlier), then the Bank will be liable to repay the money, with interest, as prescribed under applicable regulations. Nature of Instruments The Bonds will be unsecured and issued in the form of promissory notes. The Bonds shall rank pari passu, inter se, and subject to any obligations preferred by mandatory provisions of the law prevailing from time to time shall also, as regards repayment of principal and payment of interest, rank pari passu with all other unsecured unsubordinated borrowings of IDBI. These Bonds will rank superior to all the existing and future unsecured subordinated borrowings of IDBI. Tax Deduction at Source As per the prevailing income tax laws [as applicable for FY 2003-04] : (a) In case of payment of interest to a bondholder who is an individual, tax is required to be deducted @10% (plus surcharge as applicable) where the interest payment in the aggregate, during the financial year exceeds Rs.2,500. However tax will not be deducted where a declaration, in duplicate, in the prescribed Form is submitted in accordance with the Income Tax Rules and the aggregate amount payable does not exceed the maximum amount not liable to tax. (b) In the case of payment of interest to entities other than individuals, tax is required to be deducted at source @ 10% (plus surcharge at applicable rate) except in the case of domestic company where the tax is to be deducted @ 20% (plus surcharge at applicable rate). Investors eligible for exemption from deductions of tax at source or eligible for a lower rate of taxation may submit declaration in the prescribed Form or a certificate signed by the Assessing Officer to that effect.

Such a declaration for the financial year 2003-04 may be attached to the Application Form. For subsequent years, the investor will have to submit the prescribed Form every financial year (April-March) to the Registrar and Transfer Agent (ISIL) separately, atleast two months prior to the date for payment of interest or despatch of post dated interest warrants as the case may be, failing which the tax will be deducted at source as per prevailing tax laws. Investors may approach any of IDBIs offices for copies of prescribed Form. The TDS certificate if applicable is mailed to the investors by the Registrars. Investors desirous of receiving one consolidated certificate of Tax Deduction at Source in case of IDBI Floating Rate Bond (2004 B) and IDBI Regular Income Bond (2004 B) Option B & Option D, may indicate their request for the same at the appropriate place in the application form.

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IDBI FLEXIBONDS 20
Amendment of the Terms of the Bonds IDBI may amend the terms of the Bond(s) at any time by a resolution passed at a meeting of the bondholders with the consent of the bondholders holding in the aggregate more than 50% in nominal value of the Bonds held and outstanding under the respective schemes from those present and voting. Right to Purchase / Reissue Bond(s) IDBI may purchase the Bonds in the open market, through market makers or otherwise. Such Bonds may be cancelled (extinguished), held, resold or reissued to any person at the discretion of IDBI. Where IDBI purchases Bonds, IDBI shall have and shall be deemed always to have had the right to keep such Bonds alive for the purposes of resale or reissue and in exercising such right, IDBI shall have and deemed always to have had the power to resell or reissue the same Bonds or by issuing other Bonds in lieu thereof. Future Borrowings / Issues IDBI will be entitled to borrow/ raise loans or avail of financial assistance in whatever form as also issue debentures / bonds / other securities in any manner having such ranking in priority, pari passu or otherwise and change the capital structure including the issue of shares of any class, on such terms and conditions as IDBI may think appropriate, without the consent of, or intimation to, the bondholders or the Trustees.

TRUSTEES TO THE BONDHOLDERS


IDBI has appointed IL&FS Trust Company Ltd. to act as Trustees to the Bondholders. IDBI and the Trustees will enter into a Trustee Agreement, specifying inter alia, the powers, authorities and obligations of the Trustees and IDBI. The bondholders shall, without further act or deed, be deemed to have irrevocably given their consent to the Trustees or any of their agents or authorised officials to do all such acts, deeds, matters and things in respect of or relating to the Bonds as the Trustees may in their absolute discretion deem necessary or require to be done in the interest of the bondholders. The complete name and address of the Trustees to the Bondholders will be disclosed in the annual report. IDBI will provide a compliance certificate to the bondholders on (yearly basis) in respect of compliance with the terms and conditions of issue of bonds as contained in the Offer Document, duly certified by the Trustees to the Bondholders. The certificate will be published by way of a notice in a National Daily. It is proposed that in terms of the agreement, the Trustees will endeavor to protect the interest of the bondholders, in the event of default in regard to timely payment of interest or repayment of principal by IDBI. Any payment made by IDBI to the Trustees on behalf of the bondholders shall discharge IDBI pro tanto to the bondholders. No Bondholder shall be entitled to proceed directly against IDBI unless the Trustees, having become so bound to proceed, fail to do so. The events of default under the trustee agreement are as follows: Events of default which occur and continue without being remedied for a period of 30 days after the dates on which the monies specified in (i) and (ii) below become due and will necessitate repayment before maturity are as follows: (i) (ii) Default in payment of monies due in respect of interest owing upon Bond(s); Default in payment of any other monies including costs, charges and expenses incurred by the Trustees.

Additional events of default 1 Default is committed in the performance or observance of any covenant, condition or provision contained in the trustee agreement and/or the financial Covenants and Conditions (other than the obligation to pay principal and interest) and, except where the Trustees certify that such default is in their opinion incapable of remedy (in which case no notice shall be required), such default continues for thirty days after written notice has been given thereof by the Trustees to the IDBI requiring the same to be remedied.
2. Any information given by the IDBI in its applications to the Bondholders, in the reports and other information furnished by the IDBI and the warranties given/ deemed to have been given by it to the Bond holders/ Trustees is misleading or incorrect in any material respect. The IDBI is unable to or has admitted in writing its inability to pay its debt as they mature. Receiver or a Liquidator has been appointed or allowed to be appointed for all or any part of the undertaking of the IDBI and such appointment is not dismissed within 60 days of appointment. The IDBI ceases to carry on its business. l l IDBI hereby declares that it has not defaulted in payment of any of its previous borrowings. IDBI has executed Memorandum of Understanding (MoU) in respect of all its previous public issues

3. 4. 5.

26

IDBI FLEXIBONDS 20
within a period of six months from the closure of each of the public issue which was subsequently followed up with a Trustee Agreement. l IDBI confirms that the NDSCR ratio covenanted to be maintained in the said agreement has been maintained as on the date of filing the present document with the Stock Exchange as also in past three years. If IDBI fails to meet the minimum required criteria regarding DER and NDSCR, no dividend shall be declared for the relevant year except with the approval of the Trustees and the rate of dividend shall not exceed 10%.

Rights of Bondholder(s)
a) The Bond(s) shall not, except as provided in the Act, confer upon the holder(s) thereof any rights or privileges available to the members of the IDBI including the right to receive notices or Annual Reports of, or to attend and/or vote, at the General Meeting of the IDBI. However, if any resolution affecting the rights attached to the Bond(s) is to be placed before the shareholders, the said resolution will be first placed before the concerned registered Bondholder(s) for their consideration. Holder(s) of the Bond(s) shall be entitled to a copy of the Annual Report on a specific request made to the IDBI. The registered Bondholder or in the case of joint-holders, the one whose name stands first in the register of Bondholder(s) shall be entitled to vote in respect of such Bond(s), resolution(s), either in person or by proxy, at any meeting of the concerned Bondholder(s) and every such holder shall be entitled to one vote on a show of hands. On a poll, his/her voting rights shall be in proportion to the outstanding nominal value of Bond(s) held by him/her on every resolution placed before such meeting of the Bondholder(s). The quorum for such meetings shall be at least five Bondholder(s) present in person. The Bond(s) are subject to the provisions of the IDBI Act 1964, the terms of this Offer Document and Application Form. Over and above such terms and conditions, the Bond(s) shall also be subject to the other terms and conditions as may be incorporated in the Trustee Agreement/ Letters of Allotment /Bond Certificates, guidelines, notifications and regulations relating to the issue of capital and listing of securities issued from time to time by the Government of India and/or other authorities and other documents that may be executed in respect of the Bond(s). The Bonds will be subject to provisions of this Offer Document, application form, IDBI Act 1964, Industrial Development Bank of India (Issue and Management of Bonds) Regulations 1972, Industrial Development Bank of India General Regulations 1994, IDBI Bonds and Deposits (Nomination) Regulations 1997 and rules and regulations of Govt. of India, SEBI, RBI and concerned Stock Exchanges as prevailing and to the extent applicable, will apply in relation to matters not otherwise provided for in terms of the issue of the Bond(s). A register of Bondholder(s) will be maintained in accordance with the aforesaid provisions of the Act and all interest and principal sums becoming due and payable in respect of the Bond(s) will be paid to the registered holder thereof for the time-being or in the case of joint-holders to the person whose name stands first. The bondholders will be entitled to their bonds free from equities and/or cross claims by IDBI against the original or any intermediate holders thereof. Bonds can be rolled over only with the positive consent of the bondholders.

b)

c)

d)

e)

f) g)

Role, Power and Obligations of Trustees The major clauses relating to the general rights, powers and discretions of the Trustees shall be as under. These are in addition to other powers conferred on the Trustees and provisions for their protection. a) The trustee shall not be bound to give notice to any person of the execution of the Trustee Agreement or to see to the performance or observance of any of the obligations hereby imposed on the IDBI or in any way to interfere with the conduct of the IDBIs business unless and until the rights under the Bonds shall have become enforceable and the Trustees shall have determined to enforce the same. Save as otherwise expressly provided in the Agreement, the Trustees shall, as regards all trusts, powers, authorities and discretions, have absolute and uncontrolled discretion as to the exercise thereof and to the mode and time of exercise thereof and in the absence of fraud shall not be responsible for any loss, costs,

b)

27

IDBI FLEXIBONDS 20
charges, expenses or inconvenience that may result from the exercise or non-exercise thereof and in particular they shall not be bound to act at the request or direction of the Bondholders under any provisions of these presents unless sufficient monies shall have been provided or provision to the satisfaction of the Trustees made for providing the same and the Trustees are indemnified to their satisfaction against all further costs, charges, expenses and liability which may be incurred in complying with such request or direction; c) d) e) With a view to facilitate any dealing under any provision of these presents the Trustees shall have full power to consent (where such consent is required) to a specified transaction or class of transactions conditionally; The Trustees shall not be responsible for the monies paid by applicants for the Bonds; The Trustees shall not be responsible for acting upon any resolution purporting to have been passed at any meeting of the Bondholders in respect whereof minutes have been made and signed even though it may subsequently be found that there was some defect in the constitution of the meeting or the passing of the resolution or that for any reason the resolution was not valid or binding upon the Bondholders; The Trustees shall have full power to determine all questions and doubts arising in relation to any of the provisions of the trustee agreement and every such determination bonafide made (whether or not the same shall relate wholly or partially to the acts or proceedings of the Trustees) shall be conclusive and binding upon all persons interested hereunder; The Trustees shall not be liable for anything whatsoever except a breach of trust knowingly and intentionally committed by the Trustees; The Trustees shall not be liable for any default, omission or delay in performing or exercising any of the powers or trusts under the trustee agreement expressed or contained or any of them or in enforcing the covenants or in giving notice to any person or persons of the execution hereof or in taking any other steps which may be necessary, expedient or desirable for any loss or injury which may be occasioned by reason thereof unless the Trustees shall have been previously requested by notice in writing to perform, exercise or do any of such steps as aforesaid by the holders representing not less than three fourths of the nominal amount of the Bonds for the time being outstanding or by a Special Resolution duly passed at a meeting of the Bondholders and the Trustees shall not be bound to perform, exercise or do any such acts, powers or things or to take any such steps unless and until sufficient moneys shall have been provided or provision to the satisfaction of the Trustees made for providing the same by or on behalf of the Bondholders or some of them in order to provide for any costs, charges and expenses which the Trustees may incur or may have to pay in connection with the same and the Trustees are indemnified to their satisfaction against all further costs, charges, expenses and liabilities which may be incurred in complying with such request PROVIDED NEVERTHELESS that nothing contained in this clause shall exempt the Trustees from or indemnify them against any liability for breach of trust nor any liability which by virtue of any rule or law would otherwise attach to them in respect of any negligence, default or breach of trust which they may be guilty of in relation to their duties under the Trustee Agreement.

f)

g) h)

RETIREMENT AND REMOVAL OF TRUSTEES The trustees shall not retire without other trustee being appointed. a) b) The Trustees hereof may retire at any time after giving at least one months previous notice in writing to the IDBI in that behalf. The Trustees hereof may be removed by the Bondholders by a Special Resolution duly passed at the meeting of the Bondholders. The IDBI shall appoint such person or persons as may be nominated by such Resolution as new Trustee or Trustees hereof. For the purposes aforesaid, forthwith upon receipt of the notice of retirement from the Trustees for the time being hereof or on the occurrence of the vacancy in the office of the Trustee or Trustees hereof, the IDBI shall convene a meeting of the Bondholders.

c)

Loan Facility against Pledge of Bonds Investors may avail loan against these bonds from any of the scheduled banks. IDBI will note the banks lien on any of the bonds against which they have extended the loan facility in their normal course of business. Market Making IDBI may consider making arrangements for market making in order to provide liquidity.

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IDBI FLEXIBONDS 20
Compliance Officer IDBI has appointed a Compliance Officer for the issue. Investors may contact the Compliance Officer at the address and telephone/Fax numbers mentioned below in case of any pre-issue / post-issue related problems such as nonreceipt of refund orders etc. K P Ramakrishnan General Manager Domestic Resources Department, IDBI 22nd Floor, IDBI Tower, WTC Complex, Cuffe Parade, Mumbai - 400005 Tel : (022) 22180479, 22189117 ; Fax : (022) 22188137, 22181155 ; e-mail : kp.ramakrishnan@idbi.co.in ALLOTMENT AND REFUNDS Deemed Date of Allotment March 5, 2004 shall be the deemed date of allotment of the Bonds under all the schemes for Flexibonds-20. All the benefits under the bonds will accrue to the investor from this date even though the actual allotment may take place on a date other than the specified deemed date of allotment. Basis of Allotment In the event of oversubscription, the Basis of Allotment will be decided in consultation with the regional stock exchanges, i.e. The Stock Exchange, Mumbai and National Stock Exchange. The drawal of lots (where required) to finalise the basis of allotment, shall be done in the presence of a Public Representative on the governing board of the Regional Stock Exchange. The Executive Director/Managing Director of the Regional Stock Exchange along with the post-issue Lead Managers and the Registrars to the Issue shall be responsible to ensure that the basis of allotment is finalised in a fair and proper manner in accordance with the SEBI Guidelines. The investors should note that allotment against all valid applications for the IDBI Infrastructure (Tax Saving) Bond (2004 B) will be made on a full and firm allotment basis, subject to a limit of issue size plus the amount of over subscription retained by IDBI. Subscribers to the IDBI Infrastructure (Tax Saving) Bond (2004 B) will have priority over subscribers to other bonds for allotment. Therefore, only after all eligible applications for IDBI Infrastructure (Tax Saving) Bonds (2004 B) have been allotted, will applications for other bonds be considered on a proportionate basis. The procedure for proportionate allotment is as under: (a) A minimum of 50% of the net offer of the Bonds to the public shall be initially made available for allotment to individual applicants who have applied for allotment of 10 or less than 10 Bonds. (b) (c) (d) The balance of the net offer shall be made initially available for allotment to investors, including corporate bodies / institutions and individual applicants who have applied for allotment of more than 10 Bonds. The unsubscribed portion of the offer to any one of the categories specified in (a) or (b) may be made available for allotment to applicants in the other category, if so required. Allotment will be made on a proportionate basis in lots of one bond as given below: i) Applications will be categorised according to the number of bonds applied for. ii) The total number of bonds to be allotted to each category as a whole shall be arrived at on a proportionate basis, i.e., the total number of bonds applied for in that category multiplied by the inverse of the oversubscription ratio. The number of bonds to be allotted to the successful allottees will be arrived at on a proportionate basis (i.e. total number of bonds applied for multiplied by the inverse of the oversubscription ratio). For applications where the proportionate allotment works out to less than one bond the allotment will be made as follows:

iii) iv)

Each successful applicant will be allotted one Bond; and The successful applicants out of the total applicants for that category shall be determined by the drawal of lots in such a manner that the total number of bonds allotted in that category is equal to the number of bonds worked out as per (ii) above.

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IDBI FLEXIBONDS 20
e) f) If the proportionate allotment to an applicant works out to a number that is not a multiple of bonds, the applicant would be allotted bonds by rounding off to the nearest multiple of one. If the number of bonds allocated on a proportionate basis to any category is more than the bonds allotted to the applicants in that category the balance available bonds for allotment shall be first adjusted against any category, where the allocated bonds are not sufficient for proportionate allotment to the successful applicants in that category. The balance bonds, if any, remaining after such adjustments will be added to that category comprising applicants applying for the minimum number of bonds. Investors may note that in case of investors applying for more than 1 type of bond and applying for more than 1 bond, if the number of bonds allotted is less than the number of bonds applied for, the number of bonds allotted under each type of bond will be proportionate to the number of bonds applied under each type of bond.

g)

Despatch of Bond Certificates and Refund Orders IDBI shall ensure despatch of refund orders of value over Rs.1,500/- and bond certificates by Registered Post/Speed Post only and adequate funds for the purpose shall be made available to the Registrars by the issuer company. Refund orders of less than Rs.1,500/- shall be mailed under Certificate of Posting at the applicants sole risk. Despatch of bond certificates shall be completed within 10 weeks of the closure of the issue and IDBI shall be liable to pay penal interest as per applicable regulations for the delay period beyond 10 weeks. Despatch of Interest Warrant Interest warrants of value over Rs.5,000/- will be despatched by Registered Post/Speed Post. Interest warrants of value upto Rs.5,000/- shall be mailed under Certificate of Posting at the applicants sole risk. Interest in case of Delay on Allotment/Despatch IDBI agrees that a) as far as possible allotment of securities offered to the public shall be made within 30 days of the closure of the public issue; b) interest shall be paid @ 15% p.a. if the allotment has not been made and/or the refund orders have not been despatched to the investors within 30 days from the date of closure of the Issue, for the delay beyond 30 days.

Rejection of Applications IDBI reserves the right to accept or reject any application in whole or in part and in either case without assigning any reason therefor. In the event the Bonds applied for are not allotted in full/part, the excess application money, without interest, in respect of any application will be refunded. Any application for bonds, which is not complete in all respects, may be rejected. The various reasons for rejections could be, but not limited to following: incomplete or illegible applications, number of bonds applied for less than minimum required number, no information about PAN/ GIR in case of applications of value over Rs.50,000, applications accompanied by cash of more than Rs. 20,000. Applicants are also advised to refer para on General Instructions to understand various other reasons for rejection of applications. Mode of Refunds In case of rejection of applications or non-allotment of the Bonds, refunds will be made by cheque or by pay order drawn on any Bank payable at centres where the applications were received. TRANSFER AND REDEMPTION Transferability of Bonds Physical Certificates The Bonds in physical form being negotiable instruments are transferable by endorsement and delivery by the transferor. Bondholders should, therefore, note that Bonds are valuable documents and should be kept safely. The endorsement by the transferor shall be made on the Bond by affixing his signature at the place indicated thereon. The transferee shall also affix his signature on the Bond at the appropriate place. All endorsements must be clear. Vernacular endorsement must be translated into English immediately below the endorsement. At present, no stamp duty is payable on transfer of the Bonds by endorsement and delivery.

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IDBI FLEXIBONDS 20
Certificates in Dematerialised/Electronic form In case of bonds in electronic form, the normal procedure applicable for dematerialized securities shall be followed. In case of transfer from one demat holder to another demat holder, the seller will give delivery instructions containing details of the buyers DP account to his Depository Participant. In case of transfer from a demat holder to a non-demat holder (physical), the seller rematerialises his bonds and then transfers the bonds to the buyer by endorsement and delivery. In case of transfer from a non-demat holder to a demat holder, the buyer can choose to dematerialise his holding or hold the bonds in physical form only. Trading on stock exchange: IDBI Flexibonds are not in compulsory demat mode and hence trading can take place both in physical and electronic mode, unless otherwise specified by the exchange. Registration of Transfer Physical Certificates Though the Bonds are transferable by mere endorsement and delivery, the transferee is advised to send the Bond Certificates to IDBI/ Registrars for being registered in his/her name. IDBI, on being satisfied, will register the transfer of such Bonds in its books. For the purpose of registration, the transferee shall intimate his/her name, address, occupation, if any, and shall deliver the bond certificate(s) to IDBI/Registrars to the Issue. In the case of transfer by or to companies, body corporates, societies registered under the applicable laws in India, trusts, provident funds, superannuation funds, gratuity funds, commercial banks, co-operative banks, regional rural banks or NRIs/OCBs/FIIs etc, certified true copy of the power of attorney or other acceptable authority must be lodged with IDBI or Registrars along with the request to register transfer. Transfer of bonds to and from NRIs/OCBs/FIIs will be governed by the prevailing guidelines of RBI. IDBI may, at any time, review and modify the procedure for transfer / registration of transfer of these Bonds in consultation with The Stock Exchange, Mumbai and the National Stock Exchange of India Ltd. Certificates in Dematerialised Form The necessary transfers will be effected by the depository, NSDL/CDSL. The concerned depositories shall inform the Registrars about the rightful owners of the bonds for payment of interest and principal amount. Record Date The Record Date for all interest payments / sending post dated interest warrant and for the repayment of the face value / cumulative amount upon redemption of the Bonds will be one month prior to the due date of payment of interest / sending post dated interest warrant or repayment of face value / cumulative value. In case of bonds where interest is paid annually, the interest accruing upto March 4 every year will be paid on March 5 every year. Therefore, February 4 will always be considered as Record Date for the purpose of such payment of interest. In case of IDBI Regular Income Bond (2004 B) Option B and Option D (quarterly payment options) the interest accruing upto June 4, September 4, December 4 and March 4 every year is paid on June 5, September 5, December 5 and March 5 respectively. Therefore the record date in this case would be May 4, August 4, November 4, February 4 respectively. In case IDBI decides to send 4 post dated interest warrants for Option B and D of IDBI Regular Income Bond (2004 B) (i.e. quarterly payment options) for any financial year the record date for sending post dated warrants will be February 28 of that year. Interest will be paid as mentioned under the head Interest Payment Dates under key terms of each bond. Payments to Registered Bondholders In case of transfer of bonds, the transferee is required to register his/her name with IDBI or Registrars as interest payments or redemption amount on the Bonds are paid or credited only to Registered bondholders. Interest payments will be made by way of post-dated warrants sent in advance. Transferees should register transfers with IDBI or Registrars at least one month prior to the date on which the interest is due / post dated interest warrants are sent. In case four post dated interest warrants are sent in advance for Regular Income Bond with quarterly payment options, the buyer of such Bonds shall have to send the Bond Certificate and uncashed interest warrants to be transferred in his/her name. If the request for registration of transfer is not received by IDBI or the Registrars to the Issue before the record date, payments shall be made to the Registered Bondholder (as on the record date) and claims, if any, shall be inter-se among the parties and shall not be against IDBI.

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IDBI FLEXIBONDS 20
Registration in the event of Redemption of Bond The Bondholder must get his name registered with IDBI if he/she decides to exercise early exit or redemption option. The Bonds will be redeemed only on the surrender of the duly discharged Bond certificates by Registered Bondholders. The record date in such instances will be one month prior to the deemed date of encashment/ redemption. Investors may note that this is necessary as the Bonds are transferable by endorsement and delivery.

However, IDBI shall be deemed to have a right to dispense with the requirement of surrender of Bond certificates for redemption or on exercise of call option, at its sole discretion. IDBI shall exercise the option to dispense with the requirement of surrender of bond certificates after giving a public notice through one English and one Hindi National daily at least 15 days prior to the record date. In case of such dispensation, IDBI shall be discharged of its liability if the redemption proceeds are remitted to the Bondholders appearing in its register of bond holders as on the record date.
Nomination The sole Bondholder or all the holders jointly or the surviving holder or holders not being person(s) holding the Bond as holder of an office, or acting for a trust, or acting in any other capacity for any other person with a beneficial interest in the Bond, may nominate one or more persons not exceeding four, including a minor, who shall in the event of death of the sole holder or all the joint-holders, be entitled to the amount payable by IDBI in respect of the bond. The nomination made at the time of Application may be substituted or cancelled at a later date by a request in writing to IDBI or Registrars, signed by all the bondholders. A nomination shall stand rescinded upon the transfer of the Bond by the person nominating. A transferee will be entitled to make a fresh nomination for which request in writing should be made to IDBI or the Registrars to the Issue. When the Bond is held by two or more persons, the nominee shall become entitled to receive the amount only on the demise of all the holders. Nominations so made by investors will be subject to the Industrial Development Bank of India Bonds and Deposits (Nomination) Regulations, 1997. The share of each nominee can also be specified. Succession On the demise of the sole holder of a Bond or the last survivor in case of joint bondholders, the title of any person(s) to the Bond may be recognised by IDBI subject to the provisions of Regulation 15 of the, Industrial Development Bank of India ( Issue and Management of Bonds) Regulations , 1972. 1. The executors or administrators of a deceased sole holder of a Bond (whether a Hindu, Mohammedan, Parsi or otherwise) or the holder of a succession certificate issued under Part X of the the Indian Succession Act, 1925 (39 of 1925) in respect of the bond shall be the only persons who may be recognized by the Office of the Issue (subject to any general or special instructions of the Prescribed Officer) as having any title to the bond. Notwithstanding anything contained under Section 45 of the Indian Contract Act 1872 ( 9 of 1872), in the case of the bond issued, sold or held payable to two or more holders, the survivor or survivors and on the death of the last survivor, his executors or administrators or any person who is the holder of a succession certificate in respect of such bond shall be the only person who may be recognised by the Office of Issue (subject to any general or special instructions of the Prescribed Officer) as having any title to the Bond. The Office of the issue shall not be bound to recognize such executors or administrators unless they shall have obtained letters of probate or letters of administration, as the case may be from a competent court or office in India, having effect as the place of situation of the Office of Issue, provided that in any case where the Prescribed Officer his absolute discretion thinks fit, it shall be lawful for him to dispense with the production of probate or letters of administration or other legal representation upon such terms as to indemnify or otherwise as be may think fit.

2.

3.

Where on the demise of the sole or last of the survivors of the joint holders, who is a resident , an NRI becomes entitled to the Bond, the following steps have to be complied with: (i) (ii) to the effect that the Bond was acquired by the NRI as part of the legacy left by the deceased holder. Proof that the NRI is an Indian national or is of Indian origin. Such holding by the NRI will be on a nonrepatriable basis.

Where on the demise of the sole or last of the survivors of the joint holders who is a non-resident another NRI becomes entitled to the bonds, the steps as stated earlier will have to be complied with. The holding of the inheriting NRI would be on the same basis as held by the NRI from whom the bonds are inherited.

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IDBI FLEXIBONDS 20
Register of Bondholders A Register of bondholders containing necessary particulars will be maintained by IDBI, at such place(s) as it may decide. Issue of Duplicate Bond Certificates Industrial Development Bank of India (Issue and Management of Bonds) Regulations, 1972, govern the issue of duplicate bonds. In terms of the said Regulations, IDBI will publish on behalf of the applicants, details of loss, theft or destruction (mutilation or defacement) of a Bond in the form of a promissory note in a leading newspaper of the area. Upon satisfying itself about the loss, theft, destruction or defacement of a Bond in the form of a promissory note, IDBI may issue a duplicate Bond in the form of a promissory note on applicants furnishing an indemnity bond with one or more sureties. No surety is required if the denomination of the bond does not exceed Rs. 50,000. IDBI shall not incur any liability for issuing such Bonds in good faith under this Regulation. IDBI shall have the right to claim reimbursement of expenses incurred in connection with the issue of duplicate certificate. No fees shall be charged for the issue of Bond certificates in respect of mutilated or defaced certificates or in case of bond certificates where the cages for recording the transfer of Bond are fully utilised. Investors are advised to carefully read the relevant provisions of the IDBI (Issue and Management of Bonds) Regulations, 1972 reproduced in Part C of this Offer Document. WHO CAN APPLY Applications can be made by: a) b) c) d) e) f) g) 1) Resident Indian Individuals in their own names or in the name of their minor children as natural/legal guardians. Individuals can apply in single or joint names (but not exceeding three). Hindu Undivided Families through the Karta of the Hindu Undivided Family. (Applications by HUF would be given the same treatment as that to applications by individuals). Provident Funds, Superannuation Funds and Gratuity Funds Companies, Body Corporates and Societies registered under the applicable laws in India and authorised to invest in the Bonds Trusts which are authorised to invest in the Bonds Public Financial Institutions, Statutory Corporations, Commercial Banks, Co-operative Banks and Regional Rural Banks. Mutual Funds and Insurance companies The Bonds have been declared as Public Securities as follows: a) The Endowments Department of Andhra Pradesh has approved investment of surplus funds of the Endowment Institutions/ Trusts in the Bonds of IDBI vide notification No. G.O. Rt No. 292 dated 23.02.1996. b) Government of Madhya Pradesh has declared Bonds issued by IDBI as public securities under Section 13 of the Madhya Pradesh Trusts Act, 1951. c) Government of India, Ministry of Surface Transport has declared the Bonds as securities under Section 88(2) of the Major Port Trusts Act, 1963 vide notification no .PR-15018/14/96-PG dated 23.12.1997. d) Government of Gujarat, Agriculture and Co-operation Department has permitted Co-operative Societies to invest their surplus money in Flexibonds of IDBI under Section 71(1)(g) of Gujarat State Co-operative Societies Act, 1964 vide its notification-dated 19.12.1997 no. GHKH/67-97-SMB-2097-4249-CH. Applications have been made by IDBI for declaration of these Bonds as Public Securities as follows: a) b) c) To the Government of Maharashtra for declaration of these Bonds as public securities under Section 2(12)(d) of the Bombay Public Trusts Act, 1950. To the Government of Gujarat for declaration of these Bonds as public securities under Section 2(12)(d) of the Bombay Public Trusts Act, 1950. To the Government of Rajasthan for declaration of these Bonds as public securities under u/s 2(10)(c) of the Rajasthan Public Trusts Act, 1959.

Declaration of Bonds as Public Securities

2)

Subject to declaration by the State Governments as above, Public Trusts and Co-operative Societies in the above states will be eligible to invest in IDBI Bonds. In other States, public trusts may invest in the Bonds of IDBI subject

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IDBI FLEXIBONDS 20
to the relevant provisions of the respective trust deeds and applicable statutory provisions, if any, governing their investments. Declaration of Bonds as Public Securities by Government of India under the Indian Trusts Act, 1882 Government of India, Ministry of Finance, Department of Economic Affairs (Capital Market Division) vide notification F.No. 6/3/CM/2003 dated November 25, 2003, has approved IDBI Flexibonds Series 2003-04, with aggregate value not exceeding Rs.3000 crore, as Public Securities under section 20(f) of the Indian Trusts Act, 1882. Application by Provident Funds, Superannuation Funds and Gratuity Funds The Government of India has, vide notification No.F-5(18)-ECB/2001 dated March 6, 2003 permitted Recognised Provident Funds, Approved Superannuation Funds and Approved Gratuity Funds to invest upto 30% of their investible moneys in the bonds and securities issued, inter alia, by a Public Financial Institution. In addition, 30% of the investible moneys may be invested in any of the three categories specified in the notification. Recognised Provident Funds and Approved Superannuation and Gratuity Funds can, therefore, subject to compliance of the terms and conditions of their Trust Deeds, invest upto 60% of their investible monies in IDBI Bonds. HOW TO APPLY Availability of Offer Document and Application Forms Copies of Offer Document and Application Forms may be obtained from the Head Office, Zonal Offices or the Branch Offices of IDBI, Lead Managers, Principal Marketing Co-ordinator, Co-Managers and Bankers to the Issue named herein or from their branches as stated in the Application Form. Copies of Application Forms and Offer Document may also be obtained through members of recognised Stock Exchanges. GENERAL INSTRUCTIONS Investors are advised to comply with the following General Instructions: 1. Instructions for filling in Application Forms a) b) c) d) 2. Application for the Bonds must be in the prescribed form and completed in BLOCK LETTERS in English as per the instructions contained therein. Thumb impressions and signatures other than in English, Hindi or any of the other languages specified in the Eighth Schedule of the Constitution of India must be attested by a Magistrate or a Notary Public or a Special Executive Magistrate under his/her official seal. Application Form Number (including the prefix) should be mentioned on the reverse of the cheque/draft. Where applications without number are used, the number may be obtained at the time of deposit with the Collection Centres. A separate cheque/draft must accompany each application form.

If the applicant does not indicate the desired option clearly on the application form or if the option is not ticked on the application form, then Option A of the respective Bonds shall be allotted to such an applicant for the amount applied for, subject to the application being for an amount not less than the minimum investment amount required for the respective option. If bond type is not indicated in the application form then IDBI Regular Income Bond Option A would be allotted to the investors. The decision of IDBI will be final in this regard. Applications under Power of Attorney In the case of applications made under Powers of Attorney or by limited companies, corporate bodies, trusts etc a certified copy of the Power of Attorney and/or the relevant authority, as the case may be, alongwith a certified copy of the Memorandum and Article of Association and byelaws as the case may be must be lodged separately at the office of the Registrars to the Issue, Datamatics Financial Software & Services Ltd, simultaneously with the submission of the Application Form, indicating the serial number of the Application Form and the name of the bank and the branch or the IDBI Collection Centre where the application is submitted. PAN/GIR Number Where application is for a total value of Rs. 50,000 or more, the applicant, or in the case of an application in joint names, each of the applicants, should mention his/her Permanent Account Number (PAN) allotted under the Income Tax Act, 1961 or where the same has not been allotted, the GIR No. and the Income Tax Circle/Ward/District. In case neither the PAN nor the GIR No. has been allotted, or the Applicant is not assessed to income tax, the appropriate information should be mentioned in the space provided. Application Forms without this information will be considered incomplete and are liable to be rejected.

3.

4.

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IDBI FLEXIBONDS 20
5. Joint Applications in the case of Individuals Applications may be made in single or joint names (not more than three). In the case of joint applications, all payments will be made out in favour of the first applicant. All communications will be addressed to the applicant whose name appears first at the address stated in the Application Form. Multiple Applications An applicant should submit only one application (and not more than one) for the total number of Bonds required. Applications may be made in single or joint names (not more than three). Two or more applications in single or joint names will be deemed to be multiple applications, if the sole and/or first applicant is one and the same. IDBI reserves the right to accept or reject in its absolute discretion all or any multiple applications in conformity with relevant statutory guidelines. Separate applications for Bonds in demat and physical mode shall be treated as multiple applications. Bank Account Details The applicant must fill in the relevant column in the application form giving particulars of Savings Bank/ Current Account number and name of the bank with whom such account is held, to enable the Registrars to the Issue to print the said details in the refund order / interest warrant. This is in the interest of the applicant for avoiding misuse of the refund order / interest warrant. Furnishing this information is mandatory and applications not containing such details are liable to be rejected. Investors desirous of holding the bonds in demat form may please refer to the paragraph on Depository Arrangement in this Offer Document. PAYMENT INSTRUCTIONS (a) Payment may be made by way of cash (not exceeding Rs.20,000) or cheques/drafts drawn on any bank, including a Co-operative Bank which is situated at and is a member or sub-member of the Bankers Clearing House located at the bank collection centre where the Application Form is submitted. Outstation cheques/ bank drafts or cheques/bank drafts drawn on a bank not participating in the clearing process will not be accepted. Money orders/Postal orders will also not be accepted. (b) All cheques/drafts must be made payable to IDBI FLEXIBONDS and crossed A/C PAYEE ONLY. (c) Applications complete in all respects must be submitted at any of the bank branches designated for collection of such applications mentioned in the application form. The applicants are advised in their own interest to remit the money along with the Application Form by means of an account payee cheque or a bank draft. Charges for the bank draft are to be borne by the investor and should not be deducted from the amount payable on application. SUBMISSION OF COMPLETED APPLICATION FORMS Bankers to the Issue Applications, duly completed and accompanied by cash/cheque/demand draft must be lodged before the closure of the Issue with the Bankers to the Issue or their designated branches as mentioned in the Application Form. Applications should not be sent to the Lead Managers, Co-Managers or Principal Marketing Co-ordinator. IDBI Collection Centres Applications, duly completed and accompanied by cheque/demand draft may also be lodged with the IDBI Collection Centres as mentioned in the Application Form. The IDBI Collection Centres are not authorised to accept cash. They will accept Applications accompanied by cheque or demand draft. Applications sent through post should reach IDBI before the issue closes for subscription. The envelope should be marked IDBI Flexibonds-20 Application. Additional Collection Centres Applications, duly completed and accompanied by cheque/demand draft may also be lodged with all branches of IDBI Home Finance Ltd. and Stock Holding Corporation of India Ltd. (SHCIL) as mentioned in the Application Form. These Collection Centres are not authorised to accept cash and/or Applications sent through post. Acknowledgements No separate receipts will be issued for the application money. However, the Bankers to the Issue or their approved collecting branches and the Collection Centres receiving the duly completed Application Form will acknowledge receipt of the application by stamping and returning to the applicant the Acknowledgement slip at the bottom of each Application Form.

6.

7.

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IDBI FLEXIBONDS 20
UNDERTAKING FROM THE ISSUER IDBI hereby undertakes that (a) The complaints in respect of the issue would be attended to expeditiously and satisfactorily. (b) (c) (d) IDBI would get the instruments listed on time and would take necessary steps for the purpose. The requisite funds for despatch of refunds/certificates by Registered Post will be made available to the Registrars IDBI shall co-operate with the rating agencies in providing true and adequate information.

INVESTOR RELATIONS AND GRIEVANCE REDRESSAL Arrangements have been made to redress investor grievances expeditiously. All grievances related to the Issue quoting the Application Number (including prefix), number of Bonds applied for, amount paid on application and Bank and Branch / IDBI Collection Centre where the Application was submitted, may be addressed to the Registrars at the following address. Registrars to the Issue Datamatics Financial Software & Services Ltd Plot No A 16 & 17 MIDC, Part B Crosslane, Marol, Andheri (East), Mumbai - 400 093. Tel : (022) 2837 5519 - 24; Fax : (022) 2835 0217; e-mail : idbiflexi@dfssl.com. Registrars and Transfer Agent Investor Services of India Ltd. IDBI Building, Plot No.39-41 Sector 11, CBD Belapur, Navi Mumbai - 400 614 Tel. : (022) 27579645 Fax : (022) 27579650 e-mail : flexi20@isilindia.com Applicants may also get in touch with the Investor Relations Department of IDBI for assistance, at the following address: Deputy General Manager Domestic Resources Department (Customer Relations Management Cell) Industrial Development Bank of India 7th Floor, IDBI Tower, WTC Complex, Cuffe Parade, Mumbai - 400005 Tel : (022) 22189117 / 22151051, Fax : (022) 22180930 e-mail : ird@idbi.co.in ISSUE EXPENSES The expenses of the Issue payable by IDBI including brokerage, fees to the Issue Management team and the Auditors, fees to the Credit Rating agencies, fees and reimbursement of expenses to the Registrars and Bankers to the Issue, printing and distribution expenses, Issue advertisement expenses, Listing fees and other expenses are estimated to be around Rs.20 crore and will be met out of the proceeds of the Issue. The terms and conditions of appointment of the Issue Management Team and Registrars to the Issue are as set out in their letters of appointment / MoU, copies of which are available for inspection. Brokerage IDBI will pay brokerage to all the members of recognised Stock Exchanges, Bankers to the Issue and agents of IDBI on applications bearing their stamp in the Broker/Agent column in the following manner. A)

For IDBI Infrastructure (Tax Saving) Bond (2004 B) :


1) For individuals and HUFs, investing upto Rs.1 crore, Brokerage will be l For investment in Option A & C : @ 0.70% of amount allotted l For investment in Option B & D : @ 0.80% of amount allotted.

In addition to above Rs.20/- per application (if allotted) would be paid on application amounting to Rs.20,000 and above on single application form. 2) 3) For individuals and HUFs, investing above Rs.1 crore, brokerage will be paid @ 0.25% of amount allotted. For other investors, brokerage will be paid @ 0.25% of amount allotted.

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IDBI FLEXIBONDS 20
B)

For IDBI Money Multiplier Bond (2004 B), IDBI Floating Rate Bond (2004 B) and IDBI Regular Income Bond (2004 B) :
1) For individuals and HUFs, Brokerage will be paid @ 0.75% of amount allotted upto an investment of Rs. 1 crore and 0.25% of the amount allotted on investment above Rs.1 crore. For other investors, brokerage will be paid @ 0.25% of amount allotted.

2)
C)

Apart from the brokerage indicated above, IDBI may, at its sole discretion, pay kitty/incentive to the top performing Lead team members/brokers/agents etc., based on the mobilisation/number of applications procured etc. In case of overwriting etc. in the brokers column, the decision of payment of brokerage will be made by IDBI and would be final/binding on all parties. The aggregate of brokerage and kitty amount, if any, paid by IDBI shall not exceed 1.50% of the total amount raised and retained by IDBI.

TAX BENEFITS
IDBI has been advised by its Tax Consultant that under the current tax laws, the following tax benefits inter alia, will be available to the bondholders. However, investors are advised to consider in their respective own cases the tax implications of the investment in the bonds now being offered under this Offer Document. 1. 1.1. 1.1.1. To Resident Indian Bondholders : Deduction under Section 80L in respect of interest on bonds : On issue of notification by the Central Government, interest earned on these bonds by bondholders, being individuals and Hindu Undivided Families, would be eligible for deduction from the Gross Total Income of the eligible bondholders under Section 80L of the Income Tax Act, 1961 upto an overall ceiling as prescribed in the section. An application has been made to the Central Government for notifying the interest income on the Bonds, as eligible for deduction u/s 80L of the IT Act.

1.1.2.

1.2. Tax Deduction at Source : 1.2.1. No Income tax will be deducted at source from interest payable on Bonds in the following cases: (a) (b) (c) in case of payment of interest to a Bondholder, who is an individual and resident in India, where the interest payment in the aggregate during the financial year does not exceed Rs.2,500/-. Where the Bondholder (not being a company or a firm) submits a declaration (wherever applicable) in the prescribed form and verified in the prescribed manner. Where on application by any Bondholder, the Assessing Officer issues a certificate that the total income of the bondholder justified no deduction, as per the provisions of Section 197(1) of the Income Tax Act. Tax will be deducted at a lower rate where the Assessing Officer, on an application of any Bondholder, issues a certificate for deduction of tax at such lower rate as per provisions of the Section 197(1) of the Income Tax Act.

(d)

1.3. Capital Gains The difference between the sale price on transfer and the cost of acquisition of the Bond held by the bondholder as a capital asset, will be treated as long-term capital gain/loss in the hands of the investor, provided that such Bond was held for a continuous period of more than twelve months. However, in the case of Money Multiplier Bond and Cumulative Options of IDBI Infrastructure (Tax Saving) Bond, held as investment, where the income is offered on accrual basis in accordance with the CBDT circular dated February 15, 2002, the gains arising on transfer of bonds will be treated as short term capital gains, as clarified in the said circular. As per the amendment of Section 112 by Finance Act, 1998, tax on long term capital gain arising on transfer of listed securities will be limited to 10% plus surcharge of such gain for all the assessees. IDBI Bonds, on being listed, will be eligible for this benefit. It may be noted that the various Bonds under consideration, being debt instruments, will not have the benefit of cost indexation. Investors who wish to avail of the exemption from tax on capital gains on transfer of capital asset as provided in sections 54EC, 54ED or 54F, may do so subject to the conditions as prescribed in those sections. Moreover, bondholders are advised to consult their tax advisors in this matter.

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IDBI FLEXIBONDS 20
2. To Other Eligible Institutions

2.1. Investment in bonds by charitable/religious trusts will qualify as eligible investments under Section 11(5) of the IT Act. 2.2. A mutual fund registered under the SEBI Act or regulations made thereunder or such other mutual fund set up by a public sector bank or a public financial institution or authorized by Reserve Bank of India and notified by the Central Government will, subject to the provisions of Chapter XII-E be exempt from income tax on all its income, including income from investments in bonds under the provisions of Section 10(23D) of the IT Act. 2.3. Section 10(25) of the IT Act, inter alia, exempts from tax, any income received by a Recognized Provident Fund, an approved Superannuation Fund or an approved Gratuity Fund. As per the pattern of investment laid down in Rule 67 [as amended by Income Tax (Seventh Amendment) Rules, 1997] of the Income Tax Rules, Recognized Provident Funds, Approved Superannuation Funds and Approved Gratuity Funds can invest up to 40% of the investible money in bonds and securities issued by a Public Financial Institution or a public sector company. They can also invest an additional 20% of the investible money in any of the three permitted categories mentioned in the Rules, including the category of bonds / securities of a public financial institution. Therefore in the aggregate 60% of the investible money can be invested in the bonds / securities of the public financial institution. The subscription to the bonds being issued under this Offer Document, within the permissible limits, would satisfy the requirements of the said Rule. 3. Tax provisions relating to various Bonds : Interest payable on these bonds with Annual Interest Option in any financial year will be taxable in that year. In case of Cumulative Options, the interest income/capital gains would be calculated as given under IDBI Money Multiplier Bonds. Tax Rebate under Section 88(2)(xvi) CBDT has approved Infrastructure (Tax Saving) Bond forming part of the present Issue for the purpose of Section 88(2)(xvi) of the Income Tax Act, 1961 vide their letter F.No.178/40/2003-ITA-I dated September 12, 2003. Therefore, investment in the Infrastructure (Tax Saving) Bond will be eligible for rebate under Section 88 within the limits mentioned in that Section provided that the bonds are not sold or otherwise transferred at any time within a period of three years from the date of investment. An assessee being an Individual or HUF may out of his / its taxable income invest up to Rs.1,00,000 in these Bonds along with other eligible modes of investments specified in Section 88 and secure a tax rebate as given in the following table. (a) (b) (c) (d) Income {before deduction u/s 16 (i.e. standard deduction) and salary income being 90% of such income} upto Rs. 1,00,000/For gross total income upto Rs.1,50,000/Gross Total Income above Rs.1,50,000/- below Rs.5,00,000/Gross Total Income above Rs.5,00,000/30% of the qualifying amount. 20% of the qualifying amount. 15% of the qualifying amount. Nil 3.1. IDBI Infrastructure (Tax Saving) Bond

Rebate under section 88 is available provided the bonds are held for a minimum period of 3 years. Bondholders intending to pledge the bonds as a security for availing loans, are advised to consult their tax advisors, as in terms of section 88(7A) of the Act, such pledge of the bonds could be construed as a sale or transfer, resulting in non availability of the benefit under section 88. 3.2. IDBI Money Multiplier Bond Small non-corporate investors investing upto an aggregate face value of Rs.1 lakh CBDT has clarified the position regarding Deep Discount Bonds for small non-corporate investors investing upto an aggregate face value of Rs.1 lakh, by its letters dated March 12 and May 27, 1996 as follows: It is clarified that the difference between the issue price and the redemption price of Deep Discount Bonds will be treated as interest income assessable under the IT Act. On transfer of bonds before maturity, the difference between the sale consideration and the issue price will be treated as Capital Gains/Loss, if the assessee purchased them by way of investment. However, in the case of an assessee who deals in purchase and sale of bonds, securities, etc. the profit or loss shall be treated as trading profit or loss.

38

IDBI FLEXIBONDS 20
the difference between the issue and redemption price will be treated as interest income assessable under the Income Tax Act and therefore, tax will have to be deducted at source under the relevant provisions of the IT Act. However, in case of transfer before maturity, the difference between the issue price and the sale consideration will be capital gain. This position will hold good for transfer till date of redemption. As mentioned below, CBDT has provided such investors an option to offer income from Money Multiplier Bonds to tax in the manner available to the other investors as given in the immediate paragraph below. Such investors may, therefore, at thier option, choose between any one of the two methods for computing income from Money Multiplier Bonds. Other investors CBDT has further clarified the position regarding Deep Discount Bond by its circular dated February 15, 2002: It is clarified that every person holding a Deep Discount Bond will make a market valuation of the bond as on March 31st of each financial year (hereinafter referred to as the valuation date) and mark such bonds to such market value in accordance with the guidelines issued by RBI for valuation of investments. For this purpose, market values of different instruments declared by RBI or by Primary Dealers Association of India jointly with the FIMMDA may be referred to. .... The difference between the market valuation as on two successive valuation dates will represent the accretion to the value of the bond during the relevant financial year and will be taxable as interest income (where the bonds are held as investments) or business income (where the bonds are held as trading assets). .... Where the bond is transferred at any time before the maturity date the difference between sale price and the cost of the bond will be taxable as capital gains in the hands of the investor or as business income in the hands of the trader. For computing such gains the cost of the bond will be taken to be the aggregate of the cost for which the bond was acquired by the transferor and the income, if any, already offered to tax by such transferor (as mentioned above) upto the date of transfer. .... Since the income chargeable in this case is only the accretion to the value of the bond over a specific period, for the purpose of computing capital gains, the period of holding in such cases will be reckoned from the date of purchase/subscription, or the last valuation date in respect of which the transferor has offered income to tax, whichever is later. Since such period would always be less than one year the capital gains will be chargeable to tax as short term capital gains. .... Where the bond is redeemed by the original subscriber the difference between the redemption price and the value, as on the last valuation date immediately preceeding the maturity date will be taxed as interest income in the case of investors, or business income in the case of traders. .... The difference between the bid price of Deep Discount Bond and its redemption price which is actually paid at the time of maturity, will continue to be subject to tax deduction at source u/s 193 of the IT Act. .... Further the Central Government is empowered to specify any such bonds issued by an institution, authority, public sector company or co-operative society by way of notification, exempting them from the requirement of tax deduction at source. .... Considering the difficulties which might be faced by small non-corporate investors in determining market values under the RBI Guidelines and computing income taxable in each year of holding, it has further been decided that such investors holding Deep Discount Bonds upto an aggregate face value of Rs.1 lakh may, at their option, continue to offer income for tax in accordance with the earlier clarifications issued by the Board (CBDT letters dated March 12 and May 27, 1996). 3.3. IDBI Floating Rate Bond Interest receivable on these Bonds in any financial year will be taxable as income of the Bondholder in that year. 3.4. IDBI Regular Income Bond Interest receivable on these Bonds in any financial year will be taxable as income of the Bondholder in that year under all the options. 4. Wealth Tax 4.1. The bonds are exempt from Wealth Tax without any monetary limit in case of all assessees.

39

IDBI FLEXIBONDS 20
PART B INDUSTRIAL DEVELOPMENT BANK OF INDIA
Constitution and Milestones Industrial Development Bank of India (IDBI) was established in 1964 by the Government of India under an Act of Parliament, the Industrial Development Bank of India Act, 1964 (the IDBI Act). The functions and working of IDBI are governed by the IDBI Act. Initially, IDBI was set up as a wholly-owned subsidiary of Reserve Bank of India (RBI) to provide credit and other facilities for the development of industry. In 1976, the ownership of IDBI was transferred to the Government of India and it was entrusted with the additional responsibility of acting as the principal financial institution for co-ordinating the activities of institutions engaged in the financing, promotion or development of industry. In 1982, IDBIs portfolio relating to its International Finance Division (which was providing export finance to industry), was transferred to Export-Import Bank of India (EXIM Bank), which was established as a wholly owned corporation of the Government of India under the Export-Import Bank of India Act, 1982. In 1990, IDBIs portfolio relating to the small scale industrial sector was transferred to the Small Industries Development Bank of India (SIDBI) which was established as a wholly-owned subsidiary of IDBI under the Small Industries Development Bank of India Act, 1989 (SIDBI Act, 1989). RBI vide its circular No.C-24/01-02-00/2000-2001 dated 28-April-2001 has mentioned that DFIs can either convert themselves into a commercial bank or a Non Banking Finance Company (NBFC). The Board of Directors of IDBI has decided in-principle to convert IDBI into a Commercial Bank. The Honble Finance Minister while presenting the Union Budget for the year 2002-03 to the Parliament announced the proposal to make legislative changes to corporatise IDBI to provide greater flexibility. Accordingly, the Govt. of India had introduced The Industrial Development Bank (Transfer of Undertaking and Repeal) Bill, 2002, wherein, inter-alia, repeal of IDBI Act, 1964 and corporatisation of IDBI was proposed, in the Winter Session of Parliament. The said Bill was referred to the Standing Committee on Finance. The committees report was placed in the Parliament in its Monsoon Session and again in the Winter Session. The Bill proposing the repeal of IDBI Act, 1964 has been approved by both the Houses of Parliament viz. Lok Sabha (Lower House) and Rajya Sabha (Upper House) on December 8 and December 15, 2003 respectively. The Bill envisages transfer of all assets and liabilities to a company to be named as Industrial Development Bank of India Ltd.. All the existing shareholders of IDBI will become shareholders of the new company. The Bill facilitates the new company to become a banking company, without the need to obtain a separate banking license under Banking Regulation Act, 1949 and thus enable it to access funds at cheaper cost. It envisages, inter alia, the conversion of IDBI into a Commercial Bank while continuing to be a Development Bank which will provide term lending to industry - large, medium and small. The Bank will be given certain regulatory forbearance which include maintenance of reserve requirements. All the assets and liabilities of IDBI shall, with effect from a date to be notified (appointed date) vest in the new company and be discharged by it. The IDBI Act, 1964 will stand repealed. Any guarantee given for or in favour of IDBI with respect to any loan, finance or other assistance shall continue to be operative in relation to the company. The Bill has also received the assent of the President of India. The Bill would require a notification in the Official Gazette and further notification of the appointed date after the fulfilment of the formalities connected with incorporation of a new company under the Companies Act, 1956. Functions Over the last thirty eight years, IDBIs role as a catalyst to industrial development has encompassed broad spectrum of activities. IDBI can finance all types of industrial concerns covered under the provisions of the IDBI Act, irrespective of the size or form of organisation. IDBI primarily provides finance to large and medium industrial enterprises and is authorised to finance all types of industrial concerns engaged or to be engaged in the manufacture, processing or preservation of goods, mining, shipping, transport, hotel industry, information technology, medical and health services, leasing, generation or distribution of power, maintenance, repair, testing or servicing of vehicles, vessels and other types of machinery and the setting up and development of industrial estates. IDBI may also assist industrial concerns engaged in the research and development of any process or product or in the provision of special technical knowledge or other services for the promotion of industrial growth. In addition, floriculture, road construction and the establishment and development of tourism related facilities including amusement parks, cultural centres, restaurants, travel and transport facilities and other tourist services, film industry and construction activity have been recognised as industrial activities eligible for finance from IDBI. IDBI has been assigned a special role for co-ordinating the activities of institutions engaged in financing, promoting or developing industries as also provision of technical, legal and marketing assistance to industry and undertaking market surveys, investment research as well as techno-economic studies in connection with the development of industry. Offices IDBI has its Head Office at Mumbai and has an all India presence through its branch network. It operates through a network of 5 Zonal offices, one each in Chennai, Guwahati, Kolkata, Mumbai and New Delhi. Besides, IDBI has 36 branch offices located in state capitals and major commercial centres in India.

40

IDBI FLEXIBONDS 20
Government Holding The IDBI Act was amended in October 1994 which, inter alia, permitted IDBI to raise equity from the public subject to the holding of the Government not falling below 51% of the issued capital. Pursuant to the amendment, in July 1995, IDBI made its initial public offering of equity shares aggregating Rs.2184 crore. Simultaneously, the Government also offered for sale a part of its holding of equity shares in the capital of IDBI aggregating Rs.187.5 crore (including premium of Rs.120 per share) to the Indian public. On completion of the allotment of the shares offered to the public, the Governments shareholding in IDBI reduced to 72.14%. The Governments share holding has further come down to 57.76% with effect from June 5, 2000 as the Government of India converted 24.7 crore equity shares (out of its holding of 48.6 crore equity shares) into 24.70 crore fully paid preference shares of Rs. 10 each (equivalent to Rs.247 crore) redeemable within 3 years and carrying dividend @ 13% p.a. The preference shares have since been redeemed. On August 25, 2000, 18,074,300 partly paid up equity shares of face value Rs. 10/- each were forfeited and aggregate face value of Rs. 180,743,000 has been reduced from the subscribed and paid-up equity capital. On account of this, Governments shareholding has gone up to 58.5% with effect from August 25, 2000. IDBI made its bonus issue in March 2001 in the ratio of 3 bonus shares for every 5 held. Accordingly, GOI has been allotted 1,431,48,000 bonus shares. The shareholding of GOI remains at 58.5 % only. Regulation and Supervision IDBI, being a statutory organization is governed by the Industrial Development Bank of India Act, 1964 (IDBI Act). The functions and business of IDBI are regulated by the IDBI Act. In addition, IDBI being a financial institution is subject to regulatory supervision by RBI. Section 45L of the Reserve Bank of India Act, 1934 empowers RBI, inter alia, to call for certain information relating to the business of IDBI and give directions relating to the conduct of its business. RBI had set up a Board for Financial Supervision (BFS) in 1995 under the chairmanship of the Governor of Reserve Bank of India. Under the guidance of the Board for Financial Supervision, the department of Financial Supervision of the RBI supervises Financial Institutions and Commercial Banks. The Department of Financial Supervision also undertakes off-site and on-site supervision over banks and financial institutions. As part of such surveillance, the Reserve Bank of India carries out periodical inspection of IDBI. As clarified by RBI the contents of the inspection report is strictly confidential. It may be mentioned that IDBI has replied all the points referred to by the RBI in its latest inspection report. The Reserve Bank of India has been issuing detailed guidelines to Financial Institutions on Asset Classification, Income Recognition and Provisioning, Capital Adequacy, Asset Liability Management etc. from time to time. IDBI adheres to all such guidelines and submits necessary information to RBI as per the guidelines.

MANAGEMENT AND ORGANISATION


CORPORATE GOVERNANCE Corporate governance is administered in IDBI through the Board and three major committees of the Board, i.e, the Executive Committee, Audit Committee and Shareholders/ Investors Grievances Committee. However, the primary responsibility of upholding high standards of corporate governance in its operations and providing necessary disclosures within the framework of legal provisions and banking conventions with commitment to enhance the shareholders value, lies with the Board of IDBI. IDBI has complied with SEBI guidelines in respect of Corporate Governance specially with respect to broad basing of Board, Constituting the Committees such as Shareholders/ Investors Grievances Committee and Audit Committee etc. The Board The general superintendence, direction and management of the affairs and business of IDBI is vested in the Board of Directors which exercises all powers and does all acts and things which may be done by IDBI under the IDBI Act. The Board may direct that any power exercisable by it may also be exercised by the Chairman, Managing Director or Wholetime Director. As per the IDBI Act, 1964, the Board can have maximum 12 directors, consisting of a Chairman and a Managing Director appointed by the Government of India (both functions can be assumed by the same person), a wholetime Director appointed by the Government on the recommendations of the Board, two Government nominees, three directors having special knowledge/ professional experience in diverse fields nominated by the Central Government and four directors elected by the shareholders other than the Government of India. Shri M Damodaran, Chairman, UTI, has assumed concurrent charge of the post of Chairman and Managing Director of IDBI w.e.f. October 1, 2003 in terms of Notification F.No.24(4)/2003-IF-I dated September 29, 2003

41

IDBI FLEXIBONDS 20
issued by Government of India. Presently the Board comprises of 10 directors including CMD in the category of Executive Director, 2 Government Directors in the category of Non-Executive Directors, 3 Professional Directors nominated by GOI and 4 Elected Directors in the category of Non Executive and independent Directors. The primary responsibility of the Board includes: 1. 2. 3. 4. 5. Maintaining high standards of corporate governance and compliance with various laws and regulations. Shaping the policies and procedures of the Bank. Monitoring performance of the organization and evolving the growth strategy. Setting up various prudential risk management limits. Overseeing financial management of the Bank and approve various products and their policies.

The Executive Committee The Executive Committee, presently comprising of 6 directors including the CMD of IDBI as the committee Chairman, deals with sanctions of assistance and other operational matters. All project proposals for sanction of assistance above the threshold limits applicable to Credit Committee are dealt with by the Executive Committee. The EC also decides on matters relating to Business Plans, Resource Mobilization, Investments, Capital Expenditure, Risk Management Systems, assessment of performance against goals, initiating corrective measures etc. Audit Committee Audit Committee presently comprises of 5 directors including one independent professional director qualified as Chartered and Cost Accountant as chairman of the committee. Senior Executives of IDBI are invited as and when considered necessary. The Audit Committee acts as an interface between the management and the statutory and internal auditors overseeing the internal audit functions. The functions of the Audit Committee are as follows: 1. 2. To provide direction and oversee audit functions of the Bank. To review periodically financial statements before submission to the Board focussing primarily on: Any changes in accounting policies and practices. Major accounting entries on exercise of judgement by management. Qualification in draft audit report. Significant adjustments arising out of credit. The going concern assumption Compliance of accounting standards. Compliance with stock exchange and legal requirements concerning financial statements. Any related party transactions i.e. transactions of the bank of material nature, with promoters or the management, their subsidiaries or associates etc. that may have potential conflict with the interests of the bank at large. Review with management, external and internal auditors, adequacy of internal control system. Discussions with internal auditors and in house Audit Committee. Review action taken on inspection reports of RBI and Statutory Auditors Report. Review action taken on major findings of internal audit reports having bearing on policy, business risk, control and corporate governance. To review cases of fraud and action taken. Such other matters as may be delegated by the Board.

3. 4. 5. 6. 7. 8.

Shareholders/ Investors Grievances Committee The Committee presently consists of 4 independent directors. The Committee looks into the redressal of shareholders and investors grievances mainly relating to transfer of shares/bonds, non-receipt of annual accounts and dividend, interest etc. Policy Committee A Policy committee has also been constituted and presently comprises of 5 Directors including CMD as the Chairman of the committee.

42

IDBI FLEXIBONDS 20
Board of Directors
The present composition of Board is as follows : Name 1. Shri M. Damodaran Chairman and Managing Director Industrial Development Bank of India, Cuffe Parade, Mumbai 400 005 Tenure As may be decided by GOI Age 56 Qualification Graduate in Economics (Rank holder) University of Madras Graduate in Law (First Division) University of Delhi Other Directorships/ Membership Administrator Administrator of the Specified Undertaking of the UTI Chairman & Managing Director UTI AMC Pvt. Ltd. Chairman The India Infrastructure Fund Ltd UTIIAS (Mauritius) Ltd., UTI - Investment Advisory Services Ltd. The India Media, Internet & Communication Fund Ltd. (IMIC Fund) UTI - Investor Services Ltd. UTI - Securities Ltd. India Fund Infrastructure Leasing & Financial Services Ltd. Chairman of Governing Council - Indian Institute of Capital Markets Director National Stock Exchange of India Ltd. The India IT Fund Ltd. Indian Airlines Ltd. Export Import Bank of India India Growth Fund IAL Airport Services Ltd. Infrastructure Development Finance Co. Ltd. National Securities Depository Ltd. IDBI Bank Ltd. IDBI Home Finance Ltd. Asset Reconstruction Company (India) Ltd.

2. Shri Lakshmi Chand Secretary, Ministry of Commerce & Industry, Department of Industrial Policy & Promotion, Government of India, Udyog Bhavan, New Delhi-110011

As may be decided by GOI

58

Graduate (English) Director Post Graduate Exim Bank (Economics)

43

IDBI FLEXIBONDS 20

Name 3. Shri N S Sisodia Secretary (Financial Sector) Department of Economic Affairs, Ministry of Finance, 3rd floor, Room No. 35, Jeevan Deep Building, Parliament Street, New Delhi - 110001 4. Shri R. N. Dhoot Dhoot Bungalow, Station Road, Aurangabad 5. Shri Shekhar Datta Chairman, Piaggio Vehicles Pvt. Ltd., Trade World, B Wing, 4th floor Unit No.5, Kamala Mills Compound, Lower Parel, Mumbai - 400013

Tenure As may be decided by GOI

Age 58

Qualification Memberhip Master Degree in Public Policy & Management from Harvard University, USA M.Phil (Social Sciences)

Other Directorship/ State Bank of India Life Insurance Corpn of India LIC International (Bahrain) Ltd. LIC (Nepal) Ltd. India International Insurance Pte Ltd., Singapore Member Audit Committee of SBI Investment Committee of LIC -NIL-

Upto March 29, 2004 Upto March 29, 2004

48

B.Com., M.E. A.M.I.E. Graduate in Mech. Engg. London], F.I.M.A.

66

Director Piaggio Vehicles Pvt. Ltd. Piaggio India Pvt. Ltd. Lombardini (India) Pvt. Ltd. Director and Member of ACB Wockhardt Ltd Share Transfer & Investors Grievance Committee and Finance Committee Vesuvius India Ltd. Member National Council, Confederation of Indian Industries

6. Shri K. Narasimha Murthy Partner - Narsimha Murthy & Co. (Cost Accountants firm) 104, Pavani Estate, Himayat Nagar, Hyderabad 500 029.

Upto March 29, 2004

46

B.Sc., F.C.A., F.I.C.W.A.

Director Srikari Management Consultants Pvt. Ltd. Director and Member of ACB, Remuneration Committee and Risk Management Committee UTI Bank Partner Narasimha Murthy & Co. (Cost Accountants Firm) Member Expert Group on Transfer Pricing, Dept. of Company Affairs, Govt. of India Director

7. Dr. Kirit S. Parikh Professor Emeritus, Indira Gandhi Institute of Development Research, Gen. Vaidya Marg, Goregaon (E), Mumbai 400 065.

Upto May 31, 2006

68

B.E. [Civil],

M.Tech Business Standard Ltd. [Structures] SKP Cross Border I.I.T. Kharagpur, Consulting Pvt. Ltd. Sc.D. [Civil Engineering], MIT, USA, M.S. [Economics and Engineering], MIT, USA

44

IDBI FLEXIBONDS 20
Name 8. Shri. R.V. Gupta 9, Anand Lok, August Kranti Marg, New Delhi - 110049 Tenure Upto August 02 2005 Age 65 Qualification Memberhip B.A (Honours) Economics & Course on Development, Cambridge Other Directorship/ Chairman Pannel Keir Foster Consultants Ambit Corporate Finance Local advisory board for India in Deutsche Bank Vira Charitable Society. Director Southern Pertrochemical Industries Corporation Goodyear(India) Ltd. Delhi Safe Deposit Company Ltd. Steel Authority of India Ltd. DCM Precision Engineering Ltd. Seshasayee Paper and Boards Ltd.,GW Capital Pvt. Ltd. SIEL Sugar Ltd. Trustee Indian National Theatre Trust President Shriram Centre for the Performing Arts Member National Committee for United World Colleges Director & Chairman of the Audit Committee (ACB) Mahindra & Mahindra Financial Service Ltd. Mahindra Shubhalabh Services Ltd JP Morgan Securites India Pvt. Ltd. Global Trade Finance Pvt. Ltd. Director & Member of ACB - Deposit Insurance and Credit Guarantee Corporation of India - Finolex Industries Ltd. Director & Member of ACB & Investor Grievance Committee (IGC) Shipping Corporation of India Limited. Director & Member of ACB, Inv. Com. & Executive Com. - The Credit Rating Information Services of India Ltd. (CRISIL) Director Indian Oiltanking Ltd. Asset Reconstruction Company (India) Ltd. Adviser Board of Advisors of the Specified Undertaking of the Unit Trust of India (Transfer of Undertaking and Repeal Act, 2002) Senior Expert Council (SEC) of IDFC Asset Management Co. Ltd.

9. Shri. M. G. Bhide Director, Credit Rating Information Services of India Ltd., CRISIL House, 121/122,Andheri Kurla Road Andheri(East) Mumbai-400093

Upto August 02 2005

64

M.A. CAIIB

45

IDBI FLEXIBONDS 20
Name 10. Shri H. L. Zutshi D-25, Defence Colony, New Delhi - 110 024 Tenure Upto August 22, 2006 Age 61 Qualification Memberhip B.E. (Hons) Mechanical Engg. SMDP(Oxford) Other Directorship/ Chairman Petroleum, Coal and Related Products Division Council Director Rain Calcining Ltd. Member MOU setting Committee of Adhoc Task Force for 2003-04, Department of Public Enterprise, Govt. Of India.

Shri M Damodaran and Shri K Narsimha Murthy hold 160 shares each of IDBI. The holding of equity shares of IDBI by the other Directors is Nil. Changes In The Board Of Directors During The Last 3 Years (a During the period 1st April, 2000 March 31, 2001. Name of Director Shri J.R. Gagrat Dr. Kirit S. Parikh Dr. A. Besant C. Raj Shri Ajit Kumar Shri Piyush G.Mankad Shri Kulwant Rai Shri G.P. Gupta Shri R.N. Dhoot Shri Shekhar Datta
Shri K.Narasimha Murthy

Change Ceased Appointed Ceased Ceased Appointed Ceased Ceased Appointed Appointed Appointed

Date of Change 31 May, 2000


st

Reason Expiry of term of office Appointed as director Expiry of term of office Relinquished charge as Govt. nominee Appointed as Govt. nominee Expiry of term of office Expiry of term of office Nominated by GOI Nominated by GOI Nominated by GOI

31st May, 2000 23 October, 2000


rd

31st October, 2000 31st October 2000 15th November 2000 31st January, 2001 30th March, 2001 30 March, 2001
th

30th March, 2001

(b)

During the period 1st April, 2001 March 31, 2002. Name of Director Shri Piyush G. Mankad Shri V.Govindarajan Shri S.K. Chakrabarti Shri Devi Dayal Shri S.K. Purkayastha Shri Tarun Das Shri S.K. Kapur Shri P.P. Vora Shri S.K. Kapur Shri D. Basu Dr. S.K. Gupta Shri T.M. Nagarajan Change Ceased Appointed Ceased Ceased Appointed Resigned Appointed Appointed Retired Ceased Ceased Appointed Date of Change 30 June, 2001
th st

Reason Relinquished charge as Govt. nominee Appointed as Govt. Nominee Expiry of term of office Relinquished charge as Govt. nominee Appointed as Govt. Nominee Resigned as Director Appointed as Whole time Director (Deputy Managing Director)

21 July, 2001 31st July, 2001 1st August, 2001 1st August, 2001 6th August, 2001 1st August, 2001

4th September, 2001 Appointed as Chairman and Managing Director 31st October, 2001 15thNovember, 2001 15 November, 2001
th

Retired as Whole time Director (Deputy Managing Director) Expiry of term of office Expiry of term of office Appointed as Whole time Director (Deputy Managing Director)

18th February, 2002

46

IDBI FLEXIBONDS 20
c) During the period April 1, 2002 March 31, 2003 Name of Director Change Date of Change Shri S. K. Purkayastha Ceased 19th July, 2002 Shri D.C. Gupta Appointed 19th July, 2002 Shri R.V.Gupta Appointed 3rd August, 2002 Dr. J.J. Irani Appointed 3rd August, 2002 Shri M.G. Bhide Appointed 3rd August, 2002 Shri T.M. Nagarajan Retired 30th September, 2002 Shri D.C. Gupta Smt. Vineeta Rai d) During the period April Dr. J. J. Irani Shri V. Govindarajan Shri Rajeeva Ratna Shah Smt. Vineeta Rai Shri N.S. Sisodia Shri H.L. Zutshi Shri P. P. Vora Shri M. Damodaran Shri Rajeeva Ratna Shah Shri Lakshmi Chand Ceased Appointed 31st October, 2002 31st October, 2002

Reason Relinquished charge as Govt. nominee Appointed vice Shri. S. K. Purkayastha Elected by share-holders at AGM Elected by share-holders at AGM Elected by share-holders at AGM Retired as Whole-time Director (Deputy Managing Director) Relinquished charge as Govt. nominee Appointed vice Shri D.C. Gupta Resigned as Director Relinquished charge as Govt. nominee Appointed vice Shri. V. Govindarajan Relinquished charge as Govt. nominee Appointed vice Smt. Vineeta Rai Elected by Share-holders at AGM Expiry of term of office Appointed as Chairman & Managing Director Relinquished charge as Govt. nominee Appointed vice Shri Rajeeva Ratna Shah

1, 2003 January 8, 2004 Resigned 20th June, 2003 Ceased 2nd July, 2003 Appointed 2nd July, 2003 Ceased 10th July, 2003 Appointed 10th July, 2003 Appointed 23rd August, 2003 Ceased 30th September, 2003 Appointed 1st October, 2003 Ceased 27th November, 2003 Appointed 27th November, 2003

MANAGEMENT
Chairman and Managing Director

Shri

M. Damodaran
Age (yrs) Date of joining IDBI Dec. 3, 1974 Apr.24, 1972 Sep.29, 1978 Apr. 12, 1982 Oct. 29, 1981 Jan. 17, 1979 July 14, 1978 Qualifications Details of Previous employment Work Experience Total in IDBI 35 y 29 y 4 m 1 m 35 y 1 m 33 y 4 m 30 y 11 m 30 y 1 m 34 y 35 y 31 y 8 m 25 y 3 m 21 y 8 m 22 y 2 m 24 y 11 m 25 y 5 m Shares held in IDBI NIL

Principal Executive Officers Name & Designation

Shri J.N. 58 Godbole, Executive Director Shri A.K. Doda, Executive Director Shri R. Jayaraman Iyer, Executive Director Shri K. Sivaprakasam, Executive Director Shri O.V. Bundellu, Executive Director Shri S. Gajendran, Director- JNIDB Shri G.M. Ramamurthy, Legal Adviser 57 56 55 53 59 57

B.Tech (Chem. Engg.) (Hons), AMIIE. B.Tech.(Civil) (Hons), CAIIB B.E. (Mech), D.I.E. B.Com, A.C.A, I.C.W.A, C.S(Inter) CAIIB, L.L.B M.Sc, M.F.M, CAIIB-I B.E (Elec.) B.Sc, B.L, CAIIB, Praveen, D.L.L, D.C.L, D.T.L, C.S

Production In-Charge, Narmada Valley Chemical Industries Pvt. Ltd. Asst. Executive Engineer, Central Water & Power Commission Asst. Superintendent, WG Forge & Allied Industries Ltd. Superintendent (Credit) Union Bank of india Manager Indian Bank Asst. Engineer Tamilnadu Electricity Board Law Officer Canara Bank

320 NIL 320 NIL 320 320

All the Principal Executive Officers shown in above table are on the rolls of IDBI as permanent employees as on the date of filing.

47

IDBI FLEXIBONDS 20
Changes in Auditors M/s. V. Sankar Aiyar and Company was the Auditors for IDBI till 1996-97. Subsequently, M/s. G.P. Kapadia and Company and M/s Ray & Ray were appointed as the Auditors and thereafter M/s Ray & Ray and M/s M.P. Chitale and Co were the Auditors of IDBI. From FY 2002-03 M/s Sorab S. Engineer & Co. and M/s Suri & Co. are the Auditors of IDBI. HUMAN RESOURCES As on December 31, 2003, IDBI had 2,805 employees (figures excludes staff on deputation - 22, on study leave - 6, on foreign leave - 2) of whom 1,421 are officers including professionals in accountancy, management, engineering, law, computers, economics and banking. IDBI has a good and cordial relationship with its employees and their Association/Union. Since inception in 1964, no major industrial action has been resorted to by IDBIs employees. During the last three years there were 3 occasions of general strike resorted to by a section of IDBIs employees.

PRODUCTS AND SERVICES


IDBI provides project related finance for the establishment of new industrial projects as well as for expansion, diversification and modernisation of existing industrial enterprises. In view of the changed financial needs of the industries, IDBI has also designed other products to meet the short term funding, core working capital and treasury requirements of the industrial clients. IDBI also extends non-fund based assistance, advisory services, forex services etc,. IDBI has also set up specialised subsidiaries and associates to extend mutual fund products, capital market services, banking services as also Registrar and transfer agent services. IDBI currently offers the following major products and services to industrial concerns: 1. DIRECT FINANCE The expression direct finance refers to the provision of finance directly to an industrial unit without the involvement of an intermediary financial institution. During FY 2002-03, approximately 91% of total sanctions and 94% of total disbursements of IDBI were accounted for by direct finance. (a) Project Finance Project Finance involves providing credit and other facilities to medium and large scale units for the establishment of new projects as well as for expansion, diversification or modernisation of existing industrial units. Project finance is granted directly to units established as companies in private, joint and public sectors, and to co-operatives. As part of Project Finance, IDBI provides term loans in Rupee and in Foreign currency repayable over 5-10 years depending upon the debt servicing capacity of the borrowing unit, and secured by a charge over the immovable/ movable assets. It also provides financial guarantees, usually in foreign currency, to cover deferred payments and to enable corporates to raise loans from overseas. IDBIs guarantees are of near sovereign nature and have been an important segment of operations in the recent years. Infrastructure financing continues to be the Banks thrust area with IDBI financing projects involving large financial outlay to power, telecom and port projects. Assistance to infrastructure projects during 2002-03 amounted to Rs.440 crore (sanctions) and Rs.813 crore (disbursements). (b) Equipment Finance and Asset Credit Under Equipment Finance, rupee and foreign currency loans are given to industrial units conforming to certain minimum financial criteria for the purpose of financing acquisition of specific items of machinery and equipment. Such loans are secured by charge on specific assets and generally have a maturity of upto 6 years including moratorium. Under Asset Credit Facility a line of credit is extended to industrial units for financing their normal capital expenditure over a specified period. Such credit is normally extended for a period of upto 5-6 years and is secured by a charge on the assets so acquired. (c) Working Capital IDBI provides loans to corporates for meeting core working capital requirements. The loan is granted in the nature of a term loan either rupee or foreign currency for meeting the core component of the working capital requirements of the company assessed for period upto 18 months.

48

IDBI FLEXIBONDS 20
(e) Direct Discounting of Bills IDBI provides facilities for direct discounting of bills of exchange and promissory notes which arise from the sale of indigenous machinery on a deferred payment basis by a seller to a domestic purchaser. Underwriting and Direct Subscription As part of Project Finance and Capital Market activities, IDBI underwrites public and rights issues and provides direct subscription support in respect of equity as well as debt instruments. Energy Conservation IDBI has extended rupee and foreign currency term loans for the acquisition and installation of energy conservation equipment, as also to pollution control and prevention projects in highly polluting industrial sectors. Further, IDBI also provides finance for implementing Ozone Depleting Substances (ODS) Phase-out projects under the Montreal Protocol. Venture Capital Venture Capital finance is extended by IDBI for projects involving the development and use of indigenous technology and for adaptation and development of imported technology, as well as highrisk, high-return ventures. With the development of new economy sectors like technology, media and entertainment, bio-technology, etc. the scope of Venture Capital Fund Scheme has been widened since January 2000. Equity Participation Scheme IDBI has formulated a separate Equity participation scheme for investment in select companies with high growth and profitability potential to facilitate early financial closure of projects. Film Financing Consequent upon GOI conferring industry status to the Entertainment Industry including Films and approving the same as an eligible activity for financing under Section 2(c)(xvii) of IDBI Act, 1964, the Bank has introduced a scheme for financing the Film Industry.

(f)

(g)

(h)

(i)

(j)

2.

INDIRECT FINANCE The expression indirect finance refers to the provision of finance to industrial concerns through State Financial Corporations (SFCs) and State Industrial Development Corporations (SIDCs). In indirect finance, the responsibility for repayment to IDBI rests with the relevant intermediary institution or bank. (a) Refinancing of Industrial Loans IDBI grants refinance facilities to SFCs, SIDCs and Banks against their loans to medium-sized industrial concerns throughout India. IDBI has widened the scope of the Refinance Scheme to cover infrastructure/ Technology Upgradation Fund Scheme projects. Bills Rediscounting Bills of exchange discounted by banks arising from the sale of indigenous machinery on deferred payment terms are rediscounted by IDBI. Investment in Shares and Bonds of other Financial institutions IDBI subscribes to the share capital, bonds and debentures issued by SFCs and other financial institutions. Lines of Credit to Institutions IDBI provides lines of credit to select SFCs and SIDCs by way of resource support.

(b)

(c)

(d) 3.

FINANCIAL SERVICES (a) Merchant Banking IDBIs Capital Markets Division provides professional advice and services to industry for capital market issues, loan and guarantee syndication, project advice/appraisal, capital restructuring and mergers and acquisitions. (b) Forex Services IDBI opens Letters of Credit (LCs) and effects foreign currency remittances on behalf of its assisted companies for import of goods and services. In line with the prevailing guidelines for External Commercial Borrowings (ECBs), the Bank also disburses FC loans for project related Rupee

49

IDBI FLEXIBONDS 20
expenditure. A Forex Trader Software has been implemented which enables speedier generation and transmission of LCs and amendments through the SWIFT connectivity. To enhance customer service, the LC and FC operations have been decentralised to cover more branches. IDBI offers various foreign exchange related services, namely spot and forward purchases of currencies for letters of credit and debt servicing, as well as forex advisory services through its dealing room. IDBI has been awarded ISO 9002 certification for its Treasury Operations for implementation of Quality Management System (QMS). This certification assures that the Treasury Operations of IDBI conform to international standards. (c) Debenture Trusteeship IDBI was registered as a Debenture Trustee with SEBI and had provided these services to holders of debentures issued by companies. It also acted as a Mortgage Trustee or Security Agent in respect of loans provided by domestic and foreign lenders. Government of India vide its Gazette notification dated August 8, 2000 had notified amendments to the SEBI (Debenture Trustees) Rules & Regulations. In terms of these amendments there has to be arms length relationship between the trustees and issuer of the securities. Keeping this in view, IDBI alongwith other institutional shareholders has promoted company known as IDBI Trusteeship Services Ltd. (ITSL) for carrying out corporate trusteeship and other related business. ITSL is not a subsidiary of IDBI.

4.

INSTITUTIONAL DEVELOPMENT AND PROMOTIONAL ACTIVITIES IDBIs developmental activities have included a range of promotional services to build an institutional structure for entrepreneurship development, credit delivery and capital market development. (a) Institutional Development IDBI has been playing a major role in sponsoring / supporting several institutions for the development of an effective institutional structure for financing Indian industry. The major institutions that have been sponsored are the SIDBI, Export-Import Bank of India (EXIM Bank), Industrial Investment Bank of India Ltd. (IIBI) formerly known as Industrial Reconstruction Bank of India (IRBI), SCICI Ltd (since merged with ICICI) and Tourism Finance Corporation of India Ltd (TFCI). In addition, IDBI, as the nodal agency, promoted the North Eastern Development Finance Corporation Ltd, (NeDFI) for catering to the finance and development needs of the North-Eastern region of India. IDBI is also one of the promoters of Infrastructure Development Finance Company Ltd (IDFC) which has special focus on providing finance and guarantee products to infrastructure projects. Capital Markets Development IDBI is also playing a major role in the development of Indian Capital Markets. It played a key role in the formation of Securities and Exchange Board of India (SEBI) for effective regulation of the capital markets. It sponsored National Stock Exchange of India Ltd. (NSE), which first introduced electronic trading in securities in India. IDBI has sponsored/ supported the formation of Stock Holding Corporation of India Ltd (SHCIL), Credit Analysis and Research Ltd. (CARE), Investor Services of India Ltd. (ISIL) and OTC Exchange of India Ltd (OTCEI). In order to reduce paperwork and the difficulties associated with securities settlements, IDBI has promoted the National Securities Depository Ltd. (NSDL) in association with Unit Trust of India (UTI) and NSE. Money Market Institutions IDBI is one of the original subscribers to the capital of Discount and Finance House of India Ltd (DFHI) and Securities Trading Corporation of India Ltd (STCI), which are contributing significantly to the development of money markets. IDBI is one of the main promoters of The Clearing Corporation of India Ltd. (CCIL). It has been set up to facilitate clearing and settlement of dealings in all kinds of Securities and Money Market instruments including Government Securities, Treasury Bills, Corporate Bonds, interbank transactions in foreign exchange and dealings in derivatives. (d) Entrepreneurship Development IDBI took the lead in setting up the Entrepreneurship Development Institute of India Ltd. (EDII) at Ahmedabad as a national institute to foster entrepreneurship development. IDBI has also taken the lead in creating similar institutions in some of the industrially less developed states. IDBI supported the establishment of the Biotech Consortium of India Ltd., to assist in the promotion of bio-technology projects.

(b)

(c)

50

IDBI FLEXIBONDS 20
IDBI sponsored industrial potential surveys in various parts of the country in 1970s which was followed by setting up of a chain of Technical Consultancy Organisations (TCOs) in collaboration with other financial institutions and banks. TCOs provide advisory services to entrepreneurs on product selection, preparation of feasibility studies and technology selection and evaluation. In its role as the premier development bank of India, IDBI undertakes a variety of promotional activities including the sponsorship of quality testing centres, science and technology parks, industrial potential surveys, entrepreneurship development programmes and training programmes for the staff of other development institutions. Shareholding in Institutions IDBIs shareholding in institutions other than its subsidiaries as on March 31, 2003 is given below. Name of the Institution IDBIs shareholding (Rs. Crore) 220.00 0.40 36.40 50.00 7.50 5.84 3.57 1.70 41.30 25.00 3.00 2.08 1.50 202.50 2.75 349.38* 24.00 2.50** % to total equity of the institution 49.00 40.00 7.30 5.00 11.12 12.98 16.96 17.00 28.89 25.00 25.00 26.00 27.90 31.70 5.50 28.34 30.00 50.00

Small Industries Development Bank of India IDBI Trusteeship Services Ltd. Securities Trading Corporation of India Ltd. Infrastructure Development Finance Co. Ltd. Tourism Finance Corporation of India Ltd. National Stock Exchange of India Ltd. Stock Holding Corporation of India Ltd. Over the Counter Exchange of India Ltd. Twin Function State Industrial Development Corporations North Eastern Development Finance Corporation Ltd. Investor Services of India Ltd. Credit Analysis and Research Ltd. Biotech Consortium Ltd. IFCI Ltd. Clearing Corporation of India Ltd. State Financial Corporations National Securities Depository Ltd. Unit Trust of India

* the budget for 1998-99 provides for transfer of IDBIs shareholding in SFCs to SIDBI. IDBIs shareholding in SFCs is required to be transferred to SIDBI at a mutually agreed prices in terms of Section 4(H) of the SFCs (Amendment) Act 2000. ** contribution to initial unit capital.

LENDING POLICIES
1. LENDING POLICIES FOR DIRECT ASSISTANCE a) Financing Criteria IDBI periodically assesses the composition of its asset portfolio in terms of industry wise exposure, return, overall domestic and global trends in these industries, demand-supply gap, capacity built up as also the future potential. Accordingly, the proposed portfolio composition is directed. Market Research Department (MRD) carries out industry research and provides inputs to Project Appraisal Department/ Corporate Finance Department and facilitates appraisal and follow up work. MRD maintains a large updated data base of industry trends built up during the past 10 years. IDBI is presently in the process of updating the present credit risk evaluation system and convert it into a technology driven module.

51

IDBI FLEXIBONDS 20
b) Lending Rates Interest on specific loans are fixed within a band (3.5% at present) over the MTLR (12.50% at present) depending upon the risk perception of the project, the track record of the borrower and the industry outlook. IDBI has also introduced a minimum short term lending rate (MSTLR) (12.0 % at present) which is applicable to short term/working capital loan. Credit Approval Process In the context of emerging environment, the crezdit delivery mechanism has been revamped based on the recommendation of Booz-Allen & Hamilton, the consultants appointed by IDBI. The customer base has been segmented into corporate and mid-corporate divisions, with industry focussed groups in these divisions. A dedicated group has been constituted to deal with infrastructure related projects. All sanctions and credit related matters are approved by specific Committees. Different committees are formed to assess and approve credit proposals depending on the size and complexities of the proposals. Major committees constituted are Credit Committee at the Head Office and Zonal Committees at the zonal level. Proposals outside the powers of Credit and Zonal Committees are referred to the Executive Committee. The functions and the composition of various committees involved in the credit approval process are as follows: (i) Zonal Committees Four Zonal Committees have been constituted at the respective zones viz. Western Zonal Committee at Mumbai, Northern Zonal Committee at Delhi, Southern Zonal Committee at Chennai and Eastern and North Eastern Zonal Committee at Kolkata. The Zonal Committees comprise of the Chief General Manager (CGM) for the respective zone as the Chairman and the General Managers (GMs) of the respective branches within that zone as the members of the committee. This apart, an official of CGM rank from Head Office also participates in Zonal Committees as a member. The functions of the Zonal Committees are as follows: 1. To screen the proposals from the branches in their respective Zones, with exposure within their delegated authority for taking up detailed appraisal. 2. 3. 4. 5. (ii) To sanction assistance under the powers delegated to it by the Board of Directors. To review the progress and performance of assisted projects periodically and take appropriate action. To review the quality of portfolio, asset classification, provisioning etc, at quarterly intervals. To review the operational targets, performance, profitability etc. of individual branches.

c)

Credit Committee The Credit Committee is empowered to sanction assistance upto specified limits with respect to Head Office cases and cases from branches wherever it exceeds the power of Zonal Committee. Cases for assistance above the threshold limits of Credit Committee are referred to the Executive Committee. The Credit Committee comprises of Executive Directors and Chief General Manager from the Corporate Finance Department as the members of the Committee. Chief General Managers/ General Managers of the Treasury & Funding Division, ALM group, General Manager (Legal) and General Managers from other operational departments are invited as participants. The functions of the Credit Committee includes : 1. Screening the proposals for assistance received at the HO for a detailed appraisal 2. Sanctioning assistance under the powers delegated to it by the Board of Directors from time to time. 3. Reviewing the progress/ performance of assisted projects periodically and take necessary actions. 4. Review the quality of the portfolio, asset classification, provisioning etc. at quarterly intervals. 5. Review the policies, products, pricing etc. relating to direct finance operations and initiate action, as may be considered necessary.

52

IDBI FLEXIBONDS 20
(iii) Executive Committee: All proposals beyond the threshold limit of Credit Committees are referred to the Executive Committee which is a sub-committee of the Board. The Executive Committee deals with sanctions of assistance and other operational matters.

d)

Follow-up and Monitoring An elaborate project monitoring system has been set-up by IDBI over the years. Project monitoring is done both during implementation and operating periods through periodical progress reports/annual reports of the borrowing units, follow-up visits and periodic interaction with the Chief Executive/Senior Executives of the companies. The system enables IDBI to monitor the progress of the project, diagnose difficulty if any and work out remedial measures where needed. Where considered necessary on grounds of higher exposure, IDBI also considers nomination of IDBI officers / outside professionals on the Boards of assisted companies. All assisted cases are periodically reviewed at the appropriate credit forum like Zonal/ Credit / Executive committees.

2.

LENDING POLICIES FOR INDIRECT ASSISTANCE IDBI considers the business plans and resource forecasts of State Financial Corporations (SFCs) and State Industrial Development Corporations (SIDCs) to evaluate their fund requirements. Limits for refinancing and lines of credit are fixed taking into consideration other resources available. Under Bills Rediscounting, IDBI extends annual limits to commercial banks, Electricity Boards, State Road Transport Organisations and Corporations. The limits are reviewed periodically. Since the credit risk in indirect finance is borne by the primary lender, IDBI fixes uniform interest rates for refinance assistance to primarly lenders (SFCs / SIDCs), in tune with the movement in prime lending rates for such finance.

OPERATIONS
IDBIs portfolio of direct finance comprises over 3,700 companies representing the complete range of industrial activities and a well diversified client profile. Its portfolio including loans, investments and guarantees, etc. as on March 31, 2003 was Rs.57850 crore. Particulars regarding effective sanctions (net of cancellations) and disbursements for the last 5 years ending March 31, 2003 and April-September, 2003 are indicated in the table below:

SANCTIONS
Year ended March 31 (Effective sanctions net of cancellations) Direct Finance Rupee Loans Foreign Currency Loans Underwriting and direct subscription to shares, bonds and debentures of industrial concerns Equipment leasing Sub Total (A) Guarantees for loans and deferred payments Total Direct Finance (B) 12904 2882 387 15604 3442 512 17121 2564 457 1999 2000 2001

(Rs. crore)

2002

2003

Half year Ended Sept. 2003 1806 640 0

9722 2029 512

1377 1123 105

233 16406 1671 18077

299 19857 236 20093

250 20392 1362 21754

12 12275 403 12678

0 2605 31 2636

0 2446 1 2447

53

IDBI FLEXIBONDS 20
Year ended March 31 (Effective sanctions net of cancellations) Indirect Finance Refinance of Industrial loans Bills finance Loans to and investments in shares and bonds of financial institutions Others Total Indirect finance (C ) Total Sanctions (B+C) Annual Growth Rate (%) 92 675 95 242 723 968 363 286 246 187 123 291 0 87 53 12 13 0 1999 2000 2001 2002 2003 Half year Ended Sept. 2003

862 18939 (6.4)

34 1967 22060 16.5

529 1424 23178 5.1

226 827 13505 (41.7)


(Rs. crore)

113 253 2889 (78.6)

0 25 2472

The compounded annual growth rate (CAGR) over the 5-year period ended March 31, 2003 works out to (-)37.5%.

DISBURSEMENTS
Year ended March 31 (Effective sanctions net of cancellations) Direct Finance Rupee Loans Foreign Currency Loans Underwiting and direct subscription to shares, bonds and Debentures of Industrial concerns Equipment leasing Sub Total (A) Guarantees for loans and deferred payments Total Direct Finance (B) Indirect Finance Refinance of Industrial loans Bills finance Loans to and investments in shares and bonds of financial institutions Others Total Indirect Finance ( C) Total Disbursements (B+C) Annual Growth rate (%) 102.1 475.6 95 229.5 527.9 823.5 332 202 287 9858 1809 1901 10719 2614 1745 11182 1341 3391 1999 2000 2001

2002

2003

Half year Ended Sept. 2003 828 439 35

5812 1610 2892

2011 1542 140

232 13800 0 13800

370 15448 0 15448

255 16169 0 16169

12 10326 0 10326 158.8 84.9 313

0 3693 0 3693 0 60.8 53.8

0 1302 0 1302 16 9 64

0 672.7 14473.4 (5.8)

34 1614.9 17062.8 17.9

484 1305 17473 2.4

267.9 824.6 11151 (36.2)

117.1 231.7 3924.3 (64.8)

0 89 1391

The CAGR in disbursements over the 5-year period ended March 31, 2003 works out to (-)27.8%

54

IDBI FLEXIBONDS 20
Trend in Sanctions and Disbursements March 1999 - March 2003. (Rs. crore)

25000 23178 22060

20000

S A N C T IO N S
18939 17063 17473

D IS B U R S E M E N T S

15000

14473 13505

11151 10000

5000 2889

3924

0 1999 2000 2001 2002 2003

OUTSTANDING ASSISTANCE PORTFOLIO The following table provides a breakdown of IDBIs outstanding portfolio of loans, investments and guarantees as at March 31, 1999 to March 31, 2003. (Rs. crore) As at March 31 1999 2000 2001 2002 2003 Direct Finance Rupee Loans 35144 38322 39484 38460 37876 Foreign Currency Loans 7585 8426 6618 6522 5677 Underwriting and direct subscription 5494 5492 6673 7514 6405 to shares, bonds and debentures of Industrial concerns Equipment leasing 1089 1245 1300 1148 955 Sub total (A) 49312 53485 54075 53644 50913 Guarantees for loans and 3830 4005 4617 4011 3369 deferred payments Total Direct Finance (B) 53142 57490 58692 57655 54282 Indirect Finance Refinance of Industrial loans 1767 1310 1666 1643 1490 Bills finance 2336 2031 1443 965 612 Loans to and investments in shares & bonds of financial institutions of which i) Shares of FIs 1320 1465 1341 1010 1066 ii) Loans to and Bonds of FIs 313 656 140 249 236 iii) Consideration receivable form SIDBI1656 1284 755 525 164 iv) Others 355 349 0 0 0 Total Indirect Finance (C) 7747 7095 5346 4392 3568 Total (B+C) Annual Growth rate (%) 60889 11.2 64585 6.1 64038 (0.9) 62047 (3.1) 57850 (6.8)

The CAGR in outstandings over the 5-year period ended March 31, 2003 works out to 0.5% in respect of direct finance and (-)1.3% in respect of total outstandings.

55

IDBI FLEXIBONDS 20
Guarantees given by the Issuer to third parties The Outstanding guarantees for loans and deferred payments amounted to Rs. 3,369 crores as on March 31, 2003. The guarantees extended are solely on account of normal business operations and are subject to prudential applicable norms. Guarantees extended by IDBI are normally secured by assets/ way of charge over the fixed assets of the assisted company. Trend in Outstanding Loan Portfolio during March 1999 - March 2003 (Rs. crore)
66000

64585 64038
64000

62047
62000

60889

60000

58000

57850

56000

54000

1999

2000

2001

2002

2003

INDUSTRYWISE BREAK-UP IDBIs loan portfolio is well diversified among industries. The major outstandings are to the iron and steel, power, cotton textiles, telecom services and petrochemicals, which together accounted for about 48% of the outstandings as at March 31, 2003. As a prudential measure, IDBI has recently revised the exposure limit to individual industry at 10% of its total portfolio or Rs.5000 crore whichever is lower. As on March 31, 2003 only two industries viz. Iron & Steel (18.31%) and Electricity Generation (12.58%) exceeded the limit. This excess has been largely due to historical factors wherein IDBI had been extending assistance to core sector projects in line with overall national objectives. The following table shows the breakdown, by industry category, of direct assistance outstanding as at March 31, 2003. Industry Outstanding amount (Rs.crore) 9104.90 6257.90 4414.66 2132.63 2045.08 1895.71 1517.69 1704.43 1082.12 1174.34 1216.21 912.54 1069.87 1080.28 1250.76 12003.98 O/s amt. as %of total outstanding 18.31% 12.58% 8.88% 4.29% 4.11% 3.81% 3.05% 3.25% 2.18% 2.36% 2.45% 1.84% 2.15% 2.06% 2.52% 24.14% Outstanding of top 5 companies as a % of total o/s to the industry 56.27% 64.34% 15.49% 69.86% 86.58% 94.35% 62.98% 53.86% 28.95% 23.87% 61.96% 52.11% 63.11% 59.40% 48.39% 14.71% Outstanding of top 10 companies as a % of total o/s to the industry 73.14% 82.25% 25.65% 98.45% 94.45% 99.58% 77.55% 68.64% 41.85% 34.77% 80.59% 64.76% 74.46% 75.08% 61.85% 22.73%

Iron and steel Electricity Generation Cotton Textiles Telecom Services Petrochemicals Fertilizers Cement Artificial Fibres Chemical (Others) Food (others) Basic Industrial Chemicals Services (Others) Electronics Drugs & Pharmaceuticals Paper & Paper Products Other Industries*

* Total of all industries excluding top 15

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IDBI FLEXIBONDS 20
Industry-Wise Outstandings (%)
E le c t r ic ity G e n e r a tio n 13% F o o d ( o th e r s ) 2% C h e m ic a l ( O th e r s ) 2% A r t if ic ia l F ib r e s 3% C em ent 3% F e r tiliz e r s 4% P e t r o c h e m ic a ls 4% O th e r In d u s t r ie s 25% Ir o n a n d s te e l 19% B a s ic In d u s tr ia l C h e m ic a ls 3% S e r v ic e s 2% E le c t r o n ic s 2% D ru g s & P h a r m a c e u t ic a l 2% Paper & Paper P ro d u c ts 3% C o tt o n T e x tile s 9% T e le c o m S e r v ic e s 4%

Industry-Wise break up of outstandings in respect of top 10 borrowers as a percentage of total Assets as on March 31, 2003 is given in the table below. Borrower Industry Outstanding as % to total assets as on March 31, 2003 3.91 2.48 1.89 1.70 1.33 1.33 1.18 1.13 1.09 1.08 Total Loan Disbursed till March 31, 2003* (Rs. crore) 548.74 1008.75 865.77 731.46 729.03 558.58 1675.37 2056.99 500.37 535.00 Quality of the asset Write off/ Provision

A B C D E F G H I J

Electricity Generation Iron & Steel Iron & Steel Refineries & Oil Exploration Iron & Steel Iron & Steel Petrochemicals Refineries & Oil Exploration Iron & steel Petrochemicals

Standard Standard Standard Standard Standard Standard Standard Standard Sub-Standard Standard

Nil Nil Nil Nil Nil Nil Nil Nil 74.32 Nil

*Total amount disbursed does not indicate total amount outstanding as on March 31, 2003. Credit Exposure as percentage to Capital funds and as percentage to total assets As on March 31, 2003 The largest single borrower The largest borrower group The 10 largest single borrowers The 10 largest borrower groups As % to Capital funds 15.28 24.30 87.23 108.33 As % to Total Assets 3.63 5.77 20.70 25.71

Deployment of funds raised by issue of Infrastructure Bonds In respect of InfrastructureBonds issued by IDBI, the deployment has been in accordance with the relevant tax guidelines. Also the deployment of funds raised under Infrastructure Bonds has been duly certified by the auditors.

57

IDBI FLEXIBONDS 20
INVESTMENTS IDBIs investment portfolio is predominantly of long term and strategic nature. Temporary diminution in value of securities arises on account of price volatility due to factors and forces affecting the stock market, interest rates, etc. IDBI has been classifying its investment portfolio and making appropriate provision for diminution in value as per RBI guidelines issued from time to time in this regard. The investments are classified under the following categories (i) Held to Maturity, (ii) Available for Sale (iii) Held for Trading. These investments were valued according to the guidelines in the matter issued by RBI to FIs. As on March 31, 2003 the portfolio of quoted investments aggregated Rs.2730.22 crore, whose market value amounted to Rs.2152.54 crore. IDBI had debentures of Rs.4389.16 crore in its portfolio as on March 31, 2003. All the debentures are secured by hypothecation/mortgage of fixed assets. Debentures on which final security was yet to be created by way of mortgage amounted to Rs.795 crore as on March 31, 2003. Since March 2001, IDBI is active in secondary market transactions in equity. The transactions under Secondary Market Operations are conducted in accordance with the policy regarding investment in equities, as formulated by the Board. The valuation of equity investments is done in accordance with the RBI guidelines. Provision for Depreciation on Investments Opening Balance as on April 1, 2002 Add : (i) Provisions made during the year Rs.56.96 crore Rs.158.79 crore

(ii) Appropriation, if any, from Investment Fluctuation Reserve Account during the year Less :(i) Write off during the year Rs.66.51 crore (ii) Transfer, if any, to Investment Fluctuation Reserve Account Closing balance as on March 31, 2003 Rs.149.24 crore

Note : During the year ended March 31, 2002 and 2003, Rs.25 crore each was appropriated from profits to Investment Fluctuation Reserve Account and as on March 31, 2003, the balance in the Investment Fluctuation Reserve Account was Rs.50 crore.

ASSET CLASSIFICATION, INCOME RECOGNITION, PROVISIONING FOR NON-PERFORMING LOANS AND NPA STRATEGY
ASSET CLASSIFICATION IDBI has evolved a comprehensive health code system for assessing the quality of advances so as to be able to monitor effectively and follow-up each individual advance. All advances are reviewed at regular intervals with reference to factors like past performance, immediate and future prospects and asset backing. In addition, the borrowers balance sheets and profit and loss accounts are critically analysed and information relating to credit record with other institutions/banks, quality of management, the industrial environment in which the borrower operates and relevant technological issues is kept up-to-date to enable IDBI to have a complete picture of the risk profile of its assets. The quality of portfolio is subjected to continual monitoring, through review by senior executives. In line with RBI guidelines issued from time to time, the loan portfolio is being classified as performing and nonperforming assets for the purpose of income recognition and provisioning. The criteria for the classification are: Performing/Standard Assets Loan Assets in respect of which interest and principal are received regularly and where arrears of interest and/ or of principal, if any, do not exceed 180 days as at the end of the financial year, are classified as performing assets (standard assets). A general provision of 0.25% on outstanding standard assets has been made. Non-performing Assets Loan assets where interest and/or principal installments are in arrears beyond 180 days are classified as nonperforming assets (NPAs). NPAs are further sub-classified into sub-standard, doubtful and loss assets as follows: Sub-standard assets Sub-standard assets are those which are non-performing for a period not exceeding eighteen months. In addition, companies which have been exhibiting signs of weaknesses in their viability or whose viability has been weakened due to delayed implementation are also classified within the sub-standard category.

58

IDBI FLEXIBONDS 20
Doubtful assets A doubtful asset is one which has remained non-performing for a period exceeding eighteen months and which is not considered as a loss asset. A major portion of assets under this category relate to sick companies referred to the Board for Industrial and Financial Reconstruction (BIFR) and awaiting finalisation of rehabilitation packages. Loss assets A loss asset is one where loss has been identified but the amount has not been written off, wholly or partly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. INCOME RECOGNITION While income in respect of the performing assets is accounted for on an accrual basis, income from nonperforming assets is recognised only on cash basis ( i.e. treated as income on actual receipt ) PROVISIONING FOR NON PERFORMING LOANS Loan assets (including bonds & debentures acquired in the primary market) and other assistance portfolios are classified based on record of recovery as Standard, Sub-standard, Doubtful and Loss. Provision is made for assets as per Guidelines issued to term lending institutions by Reserve Bank of India, as under: 1. 2. 3. Standard assets Sub-Standard Assets Doubtful assets A global provision of 0.25% on outstanding standard assets 10% of loan/assistance 100 % of unsecured portion plus 20%/30 %/50% of secured portion depending on the period for which the loan / assistance has remained doubtful. The entire loan is written off.

4.

Loss Assets

The following table provides a summary of IDBIs loan assets in accordance with RBI classification in the last five years. ASSET CLASSIFICATION AS PER RBI GUIDELINES Gross Assets (before w/o) 31st March, 1999 Standard Sub-standard Doubtful Loss Total 31st March, 2000 Standard Sub-standard Doubtful Loss Total 31st March, 2001 Standard Sub-standard Doubtful Loss Total 48107 3518 8686 1026 61337 0 504 3330 1026 4860 48107 3014 5356 0 56477 85.2 5.3 9.5 0.0 100.0 0.00 14.3 38.3 100.0 7.9 49425 4484 6017 926 60852 0 429 2397 926 3752 49425 4055 3620 0 57100 86.6 7.1 6.3 0.0 100.0 0.0 9.6 39.8 100.0 6.2 47377 4635 4030 857 56899 2 450 1725 857 3034 47375 4185 2305 0 53865 88.0 7.7 4.3 0.0 100.0 0.0 9.7 42.8 100.0 5.3 Provisions and write-offs (cumulative) Net Assets after prov and w/o % to total (Rs. crore) % of provisions and write-offs to gross assets

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IDBI FLEXIBONDS 20
(Rs. crore) Gross Assets (before w/o) 31st March, 2002 Standard Sub-standard Doubtful Loss Total 31st March, 2003 Standard Sub Standard Doubtful Loss Total 44311 3353 11478 1175 60317 22 444 7058 1175 8699 44289 2910 4420 0 51619 85.8 5.6 8.6 0 100.0 0.1 13.2 61.5 100.0 14.4 49107 2831 10466 1152 63556 0 321 6476 1152 7949 49107 2511 3990 0 55607 88.3 4.5 7.2 0.0 100.0 0.0 11.3 61.9 100.0 12.5 Provisions and write-offs (cumulative) Net Assets after prov and w/o % to total % of provisions and write-offs to gross assets

*A prudential provision of Rs.123.51 crore ( @ 0.25% on outstanding standard assets ) has been made as per RBI guidelines. It may be noted that the above information conforms to classification norms issued by RBI from time to time. IDBI has made full provisions in respect of all its non-performing assets as per RBI norms. Further, all loan assets of IDBI are secured and provide recourse to the borrower. Net NPAs, adjusted for the value of collateral, account only for a marginal proportion of total assets, as in the following table : Net NPAs - Details of Assets for 5 years As on March 31 No. of cases # Gross Principal Outstanding Gross interest outstanding (#) Gross total outstanding Net NPA (net of write offs and provisions) Total Assets (net) %of Net NPAs to Total Assets %of Net NPAs (net of collateral) to Total Assets @ 1999 1204 9523 5376 14899 6490 53865 12.05 0.70 2000 1332 11428 5532 16960 7675 57099 13.44 1.09 2001 1392 13230 7029 20259 8371 56478 14.82 1.67 2002 525 14449 8646 23095 6500 55607 11.69 1.81 (Rs.crore) 2003 630 16007 5366 21373 7330 51619 14.20 2.27

# Direct Finance @ Value of collateral represents asset cover available against direct finance assets only. Write off during the years ended March 31, 2002 and March 31, 2003 aggregated Rs.3142 crore and Rs.907 crore respectively. However, where a loan is written off partially or fully, it does not necessarily mean that the loan will not be recoverable by IDBI. Intensive efforts towards the recovery of the outstanding balances continue. As and when funds are realised in respect of such outstandings, they are credited to the revenue account. Classification of Assets/ Liabilities based on Interest rate band Less than 10% Standard Assets Gross NPAs Rupee Liabilities 12463 1064 26394 10%-12% 1589 246 4936 (March 31, 2003) 12%-14% 7295 1349 7737 (Rs. crore) 22964 13347 6128 14% & above

All FC liabilities are predominantly at floating rate of interest and presently carry rates below 9%.

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IDBI FLEXIBONDS 20
Amount of provision/write offs made during the year towards Standard assets, NPAs, investments (Other than those in the nature of an advance), income tax: March 31, 2003 Standard assets NPA Accelerated provisioning / write off Investments(Other than those in the nature of advance) Income Tax Total Movement in net NPAs: Particulars As on April 2002 Additions Recoveries As on March 2003 Net NPA (Rs.crore) 6500.18 2272.27 1442.51 7329.94 (Rs.crore) 950.90 0 158.79 92.36 1202.05

Provision for Non-Performing Assets (comprising loans,bonds and debentures in the nature of advance and inter-corporate depoists,excluding provision for standard assets) FY 2003 Opening balance at the beginning of the financial year Add : Provisions made during the year Less : Write-off, write back of excess provision Closing balance at the close of the financial year Restructured Accounts (FY 2003) Total amount of loan and debenture assets which have been subjected to Restructuring/rescheduling/renegotiation (Includes cases restructured under CDR agreegating Rs.3892.44 crore) Total substandard assets which have been subjected to restructuring/ rescheduling/renegotiation Restructured Accounts - Top 5 Industries (FY 2003) Sl. 1 2 3 4 5 Industry Iron & Steel Electricity Generation Petrochemicals Cotton Textiles Cement (Rs. crore) 4053 971 830 792 639 Rs. 349.73 crore Rs.10346.51 crore (Rs.crore) 1657.90 1082.97 1038.03 1702.84

Net Outstanding

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IDBI FLEXIBONDS 20
Top 10 Accounts Restructured (FY 2003) (Rs. crore)

Sl.
1 2 3 4 5 6 7 8 9 10

Company Name
Borrower 1 Borrower 2 Borrower 3 Borrower 4 Borrower 5 Borrower 6 Borrower 7 Borrower 8 Borrower 9 Borrower 10

Net Outstanding
1332 1117 811 708 681 488 342 335 298 239

Industry-wise classification of NPAs Industry-wise outstanding NPAs (Gross) for direct finance (excluding investments) as a percentage to total NPAs for the past 3 years is given in the table below. As on March 31, Industry Iron & Steel Cotton Textiles Food (Others) Metal Products Vehicles Chemical (Others) Plastic & Plastic Goods Drugs & Pharmaceuticals Paper & Paper Products Artificial Fibres Textiles Electronics Non-Ferrous Electrical Machinery Sugar Services Ceramics & Refractories Machinery Services (Others) Basic Industrial Cemicals Other Industries Total NPA o/s (Rs. Crore) 721 973 564 472 0 539 291 378 255 313 179 243 201 202 140 26 155 152 71 151 1266 7292 2001 % 9.89 13.34 7.73 6.48 0.00 7.39 4.00 5.18 3.50 4.29 2.45 3.34 2.76 2.77 1.92 0.35 2.12 2.09 0.98 2.07 17.35 100 2002 NPA o/s (Rs. Crore) 838 738 482 357 0 364 270 266 197 158 174 141 80 130 128 112 96 87 71 85 623 5397 % 15.54 13.68 8.93 6.61 0.00 6.74 5.00 4.93 3.64 2.93 3.22 2.62 1.49 2.41 2.37 2.07 1.77 1.61 1.31 1.58 11.55 100 2003 NPA o/s (Rs. Crore) 1393 822 461 355 344 324 284 235 193 178 178 149 131 118 108 102 99 93 82 80 738 6467 % 21.54 12.70 7.12 5.50 5.33 5.01 4.40 3.63 2.98 2.76 2.75 2.30 2.02 1.82 1.67 1.58 1.52 1.43 1.26 1.24 11.43 100

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IDBI FLEXIBONDS 20
TOP 10 NON PERFORMING ASSETS AS ON 31.3.2003 Sl. No 1 2 3 4 5 6 7 8 9 10 Name of the company Borrower 1 Borrower 2 Borrower 3 Borrower 4 Borrower 5 Borrower 6 Borrower 7 Borrower 8 Borrower 9 Borrower 10 Gross o/s 743 383 392 138 100 114 82 77 76 76 Net o/s* 669 345 274 96 80 80 74 69 69 69 Industry IRON & STEEL VEHICLES IRON & STEEL IRON & STEEL SERVICES CHEMICALS COTTON TEXTILES NON FERROUS COTTON TEXTILES PLASTIC & PLASTIC GOODS (Rs. crore)

*Net of write off/provision

NPA STRATEGY
Asset Quality IDBI is focusing on quality lending. It has developed sophisticated credit analysis and loan monitoring system. IDBI has been following a well formulated conservative accounting policy regarding income recognition even before RBI guidelines on the above subject were prescribed. IDBI has strictly followed RBIs guidelines for asset classification, income recognition and provisioning. As on March 31, 2003, IDBIs standard assets constituted 85.80% of loan portfolio. IDBI has initiated several measures for containment of NPAs. The Bank has set up Close Monitoring Cells (CMCs) for constantly monitoring the performance of assisted companies to improve recovery and initiate timely remedial action. For expeditious decision-making Empowered Committee and High Powered Committee have been set up. IDBI is also currently in the process of fine-tuning a comprehensive recovery policy, which would help in efficient management of its efforts as also standardisation of the systems and procedures across departments and offices. The composition and functions of the High Powered Committee and the Empowered Committee are as follows: 1. High Powered Committee The Board of IDBI has constituted a High Powered Committee headed by CMD and all the Executive Directors as members. This committee deals with restructuring and one- time settlement cases of large size. Empowered Committee The Empowered Committee headed by an Executive Director with Executive Directors and Chief General Managers as members has been constituted to approve restructuring and one time settlement of dues from clients upto a certain limit. In order to improve the credit quality, credit approval and delivery systems have been further strengthened. In the case of infrastructure sector a three tier security mechanism letter of credit, escrow facility and government guarantee has been adopted. Under the escrow cover, the escrowable capacity is being assessed by independent agencies acceptable to the lenders. A condition for opening Trust and Retention Account is also stipulated for large projects for depositing all funds and proceeds to be utilised in a manner and priority as agreed to by the Bank and the client. Through this account entire cash flow is monitored during the implementation period and operation phase of the projects. The Bank often appoints reputed consultants as Lenders engineers for monitoring the implementation of the project, as well as various financial and technical parameters during the operation of the project. The Bank has also been resorting to stipulation of additional security such as pledge of promoters equity and other collateral as also conversion of loan to equity, etc.

2.

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IDBI FLEXIBONDS 20
THE SECURTISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST (SRES) ACT, 2002 NPA containment measures adopted by IDBI as mentioned above have been further strengthened by the Securtisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SRES) Act, 2002. The provisions of the Act are applicable to NPAs only. The Act provides legal framework for (i) securitisation of financial assets by setting up of Securitisation Company (SC) or Reconstruction Company (RC), (ii) Reconstruction of assets through SC or RC, and (iii) foreclosure of NPA accounts. The Act provides for transfer of financial asset from banks and FIs to SC or RC on mutually agreed terms and conditions notwithstanding anything contained in any other law or agreement. Under the Act, the SC and RC can effect change of management, sale or lease the business, reschedule the dues, enter into settlement of dues, take possession of the secured assets or enforce the security interest by selling the secured assets. The Act also gives powers to certain types of secured creditors viz. SC/RC, FIs, banks, Debenture Trustees appointed by FIs and banks, International Finance Corporation and any other institution or Non Banking Finance Company (NBFC) as may be notified by Central Government to enforce their security interest in respect of NPA accounts without going through the long and cumbersome judicial process for recovery of their dues. Salient features of the provisions relating to enforcement of security interest are summarized below. Under the Act, action for enforcement of security interest against a borrower can be taken only if there is a default in payment of dues and the account is classified as NPA in accordance with RBI guidelines. As a first step, secured creditor has to issue a notice to the borrower in writing calling upon him to make the full payment of the dues within 60 days. If the borrower fails to make the payment, the secured creditor is entitled to one or more of the following measures to recover the dues : Taking possession of the secured assets including the right to transfer these assets by way of lease, assignment or sale for realising the secured loans. Taking over the management of secured assets including the right to transfer these assets by way of lease, assignment or sale for realising the secured loans. Appointing any person to manage the secured assets after taking possession. Advising any person who owes money because of acquiring any of the secured assets from the borrower, to pay the money directly to the banks and institutions.

If required, the secured creditors may request the Chief Metropolitan Magistrate or District Magistrate to take possession of part or whole of the secured assets and other related documents and forward the assets/ documents to the secured creditors. The sale proceeds would first be utilized to meet all the expenses incurred in enforcement of security interest and then for payment of dues of secured creditors. The residual amount would be paid to others in accordance with their rights and interests. In case the dues are not fully recovered by sale of secured assets then the secured creditors may file an application to Debt Recovery Tribunal (DRT) for the remaining dues. The secured creditors are also entitled to proceed against the guarantors and sell the pledged assets independent of their action for enforcement of security interest. As per the Act, the borrower cannot make a reference to BIFR after transfer of financial assets to SC or RC. Similarly, any pending reference before BIFR shall abate if 75% of secured creditors (in terms of amount outstanding) have taken any action to recover their dues under the Act. It may, thus, be observed that the Act gives wide-ranging powers to the secured creditors to recover their dues from NPA accounts by sale of secured assets without intervention of the Court. IDBI has already taken proactive action to make effective use of SRES Act for speedy recovery of NPA cases. Notices under the Act have been issued to 67 defaulting borrowers as on December 31, 2003 with an aggregate outstanding assistance of Rs.1911 crore. In many cases the promoters of the defaulting borrowers have approached IDBI with proposals for settlement of dues/ restructuring the assistance outstanding, which are under various stages of negotiation. Some companies have also made token payments. In 22 cases IDBI has sought consent of other secured creditors for taking action under the Act and notices to these defaulting borrowers would be issued after obtaining the requisite consents and completion of necessary legal formalities. IDBI has also given consent for initiation of action under the Act against the defaulters to other institutions/banks in 50 cases. Identification of cases for action under the Act is a continuous process and IDBI is in the process of identifying more defaulting cases for possible action under the Act to take maximum usage of the Act for recovery of dues out of NPAs. After the act has come in effect IDBI has initiated action against chronic defaulters resulting in many defaulter companies willingly coming forward for settlement of their dues, fearing initiation of action under section 13(2) of the act. However, IDBI is adopting a cautious approach in the mater in view of the restrictions passed

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IDBI FLEXIBONDS 20
by various courts in the matter. If the pending court cases are decided and clear directions are issued by the courts, the institutions and banks will be able to successfully contain the NPAs. IDBI expects a positive result out of all these efforts. It is expected that the defaulting companies would come forward to clear their dues, which would improve the profitability of the institution. Further, the Act would also deter the presently regular borrowers from defaulting in future, thus, preventing accretion of fresh NPAs. IDBI, in participation with ICICI Bank, SBI and some other institutions/ banks has set up an Asset Reconstruction Company, viz ARCIL. IDBI has identified 5 cases for transfer to ARCIL and has already completed the transfer in respect of 4 cases. IDBI is in the process of identifying further cases for transfer to ARCIL as part of its NPA resolution. CORPORATE DEBT RESTRUCTURING (CDR) MECHANISM To improve the quality of its asset portfolio and arrest any deterioration, IDBI has also initiated action under CDR mechanism. The objective of CDR is (a) to ensure timely and transparent mechanism for restructuring of corporate debts of viable entities affected by certain internal and external factors and (b) to minimise the losses to the creditors and other stake holders through an orderly and coordinated restructuring programme. RBI, in terms of letter dated August 23, 2001 addressed to all the Commercial Banks and Financial Institutions communicated the formation of Corporate Debt Restructuring system and its implementation mechanism. The scope of CDR frame work was enlarged by RBI vide its circular dated February 5,2003.

Eligibility Criteria The Scheme is applicable only to multiple banking accounts, syndication accounts with outstanding exposure of not less than Rs. 20 crore by Banks /Institutions Corporates declared as willful defaulter or who commit misfeasance will not be considered for restructuring under the CDR system Reference to the CDR system could be triggered by one or more of the secured creditors who have minimum 20 % share in either working capital or term finance or (ii) by the concerned corporate if supported by a bank/ financial institution having stake as at (i) above. CDR mechanism is expected to ensure quicker response and better co-ordination among lender so as to ensure smooth operation by the assisted unit after adoption of a restructuring package. Schemes Approved As on December 31, 2003, FIs/Banks have submitted 97 applications to the CDR Cell involving an aggregate amount of Rs.61,223 crore. The CDR Empowered Group has approved final schemes in 63 cases involving aggregate assistance of Rs.47,784 crore. 17 cases have been rejected/closed. The remaining 17 cases involving an amount of Rs.10,600 crore are under various stages of processing.

RESOURCE MANAGEMENT
IDBIs principal sources of outstanding funds are (i) borrowings from the Government and RBI, (ii) borrowings by way of Government guaranteed bonds (iii) private placement and public issue of unsecured bonds (iv) market related borrowings including certificates of deposit and fixed deposits, (v) foreign currency borrowings and (vi) internal generation. (a) Borrowings from the Government The outstanding borrowings from the Government of India mostly represent loans from the International Bank for Reconstruction and Development (IBRD) routed through the Government to IDBI. The loans drawn by IDBI were repayable within 15 years from the date of agreement. As mentioned below, the outstandings under the IBRD line has been converted into a 20 year liability. Borrowings from Reserve Bank of India RBI provided resource support to certain institutions, including IDBI, out of the National Industrial Credit (Long-Term Operations) Fund [NIC (LTO) Fund] which was set up by RBI in July 1964. The assistance under the NIC(LTO) fund was provided by subscribing to bonds and debentures of the institutions as well as by granting loans. The loans drawn by IDBI are repayable within 15 years from the date of agreement. This facility has been discontinued from April 1990.

(b)

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IDBI FLEXIBONDS 20
As provided for in the Union Budget, GOI has since taken over IDBIs liabilities under NIC(LTO) fund and converted the same along with outstanding borrowings under IBRD lines of credit into a 20 year liability. In consideration thereof IDBI has issued unsecured bonds of Rs.2130 crore with an initial maturity period of 20 years i.e. upto March 30, 2022. The amount comprises Rs.1150 crore and Rs.973 crore towards the outstandings under NIC(LTO) and IBRD line of credit carrying an interest rate of 8% and 11.88% respectively. The bonds carry a provision for conversion into equity or roll-over for another 20 year period after the initial maturity as may be requested by IDBI. The Govt would favourably consider foregoing interest payable on these bonds in the years when IDBIs profit is not enough to cover the interest. The bonds qualify for treatment as Tier I Capital. (c) Government Guaranteed Rupee Bonds IDBIs Government guaranteed bonds enjoy the status of trustee securities and are also approved securities under the Banking Regulation Act, 1949. The bonds are largely taken up by commercial banks and form part of their statutory liquid assets. Total outstanding as at March 31, 2003 stood at Rs.5672 crore representing 11.02% of total debt. IDBIs access to this source of finance has been gradually phased out. Public Issues and Private Placements of Unsecured Bonds In January 1992, IDBI floated its first public issue of unsecured bonds in India. The issue was successful and attracted subscriptions in excess of the target amount from over 11 lakh investors. IDBI launched its second public issue of bonds in March 1993 which also elicited subscription in excess of the target amount. IDBI has also made eighteen more public issue of bonds under Flexi series (Flexi 1 to Flexi 18) during Feb 96 to March 2003 collecting Rs.14922 crore. In addition to public issues of Bonds which are targeted mainly at retail investors, IDBI also raises funds from Banks, Institutions and wholesale investors such as, Provident Funds, Charitable Trusts etc. through private placement of bonds. As of March 31, 2003, the outstanding amount against unsecured bonds (raised through public issues and through private placements) stood at Rs.34946 crore representing 67.87% of total debt. (e) Deposits and Borrowings Total outstandings of CDs, fixed deposits, term money bonds and other borrowings as at March 31, 2003 amounted to Rs.4565 crore representing 8.87% of total debt. Foreign Currency Bonds Since 1986, IDBI has issued foreign currency bonds (denominated in Deutsche Mark, US Dollar, Japanese Yen and Swiss Francs) in the international debt markets. Total outstanding as at March 31, 2003 amounted to Rs.1180 crore representing 2.29% of total debt. Multilateral and Bilateral Credits, Syndicated Loans and other foreign currency borrowings IDBI has been borrowing in foreign currency from multilateral agencies and international banks on a regular basis since 1982. It has obtained funding from International Development Agency (IDA)/IBRD for financing various sectors viz. small scale industries, cement, fertilisers, electronics etc. and for specific end uses like Pollution Control. With the exception of the Electronics Line and the Pollution Control Line, all IDA/IBRD credits have been routed through the Government of India where IDBIs liability has been rupee denominated and the exchange risk is borne by the Government. As part of the Financial Sector Development Project Loan (USD 700 million) for the Indian Banking sector, IBRD has routed the Modernisation and Institutional Development Loan component (USD 150 million) through IDBI for on lending to eligible banks. ADB has extended three lines of credit to IDBI, one in 1987 for on lending to small and medium industries (USD 100 million), for Industrial Energy Efficiency Projects (USD 150 million) in 1995 and for Infrastructure Projects in private sector (USD 100 million) in 2003. Over the years IDBI has also raised funds by means of syndicated loans, bilateral credits and private placements. Total outstandings under these heads as at March 31, 2003 stood at Rs.4951 crore representing 9.62% of total debt. Internal Generation Internally generated funds by way of repayment of loans by borrowing companies, receipt of interest, guarantee commissions and sale of investments in shares and bonds of companies constitute an important source of funds for IDBI.

(d)

(f)

(g)

(h)

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IDBI FLEXIBONDS 20
(i) Equity Issue In July 1995, IDBI made its first public Issue of Equity Shares. 16.8 crore equity shares of Rs 10 each were offered to the public at a premium of Rs.120 per share for an aggregate amount of Rs 2184 crore. In addition, 1.44 crore shares were offered by the Government of India for sale at the same price, raising the total amount of the Public Issue to Rs.2371.5 crore.

RESTRUCTURING OF LIABILITIES In view of the difficulties faced by the certain industries viz. steel, textile, etc. IDBI has been extending relief to select corporates in these sectors and after examining the viability, by way of reschedulement of principal, reduction in interest rates/ stepping-up of interest payments in line with the revised cash-flow projections. Since there is no corresponding change in the terms of liabilities raised for financing these assets, it creates assetliability mismatch. Declining interest rate scenario also is an added problem, as the liabilities to finance these assets have been raised at higher cost in the range of about 11%-16%. While, wherever call options on the liabilities are available, IDBI has been exercising the same, in case of other liabilities, IDBI has been discussing the issue with some of the large investors for accepting prepayment at par or at lower premium. While some investors have accepted, many are reluctant to accept prepayments. In this backdrop, the issue was taken up with the Govt. of India (GOI), to help in reducing interest cost in respect of IDBIs liabilities. After a series of discussions with GOI in the matter, a proposal was formulated and the same was discussed at the meeting of select Banks/ Institutions convened by the Ministry of Finance, GOI on November 26 and December 2, 2002. It was agreed in the meeting that the liabilities of IDBI to public sector Banks/ Institutions/ UTI/ Army Group Insurance Fund will be restructured from the appointed date as under: (i) The interest rate on the liabilities will be reset to 8% p.a. and the difference between the document rate & 8% p.a. would be paid by GOI by way of bonds payable on March 31st of each financial year (ii) All select banks & institutions would on maturity of the existing investment, re-invest the amount in IDBI Bonds for the same tenor as the initial investment at the then prevailing market rates. Army Group Insurance Fund (AGIF) would, however, have an option to decide whether to reinvest. (iii) The characteristics of the bonds on reinvestment viz. SLR/ non-SLR would remain the same as that of original investment. The appointed date for restructuring was subsequently conveyed by GOI as March 1, 2003. In order to implement the restructuring proposal & make it administratively simpler, IDBI, after discussion with GOI, has decided to continue paying interest at the document rate to the select Banks/Institutions, with the difference to be claimed by IDBI directly from GOI. Thus, the essence of the proposal now is only reinvestment of amount on maturity at the then prevailing market rates for the period of original maturity, with no loss to the banks/ institutions. All the 35 banks/ institutions, except AGIF and UTI, have approved the scheme. AGIF has opted to keep out of the scheme due to the nature of the fund and as requested by them, their entire outstanding liabilities (Rs. 710.9 cr as on March 1, 2003) have been repaid/ prepaid, at par. The matter regarding UTIs participation is being discussed separately with GOI. The total liabilities, which will be reinvested in IDBI Bonds on maturity in terms of the scheme, aggregate to Rs.14753 cr. These are falling due over the next 10 years period. The total liabilities which will be reinvested in FY 2003-04 aggregate to Rs.2354 cr. As mentioned earlier, IDBI would pay interest at the document rate to the select banks/institutions and claim the interest differential between the document rate and 8% p.a. from GOI. This would have the effect of reduction in interest cost debited to the P&L Account of IDBI. The total reduction in the interest cost for FY 2002-03 amounts to Rs.354.37 cr representing the interest differential accrued/ reimbursable by GOI. The total interest differential to be received from GOI over the next 5 years period works out to about Rs.2500 crore. On the liquidity front, the restructuring has resulted in elongating the maturity profile of the liabilities.

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IDBI FLEXIBONDS 20
DEBT OUTSTANDING Set forth below is a summary of IDBIs outstanding debt as at March 31, 1999 to March 31, 2003 (Rs. crore) As at March 31, 1. Bonds and Debentures a. Issued in India b. Issued outside India 2. Deposits 3. Borrowings a. From RBI b. From GOI c. from other sources (i) Inside India (ii) Outside India Total 1999 35525 3466 2092 2000 1456 675 7754 52968 2000 41509 2467 1753 1740 1366 75 8268 57178 2001 42047 1771 2639 1440 1269 0 7253 56419 2002 41762 1857 3384 0 198 120 6561 53882 2003 40618 1180 4330 0 174 235 4951 51488

Top 25 Borrowings of IDBI under various schemes as on March 31, 2003 Scheme Borrowing Borrowing Borrowing Borrowing Borrowing Borrowing Borrowing Borrowing Borrowing Borrowing 1 2 3 4 5 6 7 8 9 10 Amount (Rs.Cr) 1521 1500 1492 1233 1221 1215 1174 1000 871 853 788 763 712 659 613 588 538 537 536 531 516 485 475 475 380 Interest rate (%)* 12.40-13.00 12.10-12.30 13.90-14.00 12.50-14.00 Libor+0.34 12.50-14.00 14.75-16.00 13.10 13.75-14.00 13.75-14.00 13.75-14.00 13.42 Libor+0.60 11.75-12.00 10.50-11.10 10.50-11.50 10.25-10.50 6.31 8.00-8.30 8.25-9.70 7.20-8.00 7.00-7.60 Libor+0.85 Libor+0.68 Libor+1.30 Maturity@ 5-15 5-7 7-17 3-14 13 3-7 4-10 5 5-7 5-7 Yrs Yrs Yrs Yrs Yrs Yrs Yrs Yrs Yrs Yrs Date of borrowing 11-09-1999 06-01-2000 16-11-1998 27-03-1999 21-01-1996 11-02-1999 31-01-1997 8-09-1998 12-12-1998 07-08-1998 05-10-1998 06-10-1997 07-04-1997 04-10-2000 30-03-2001 05-01-2001 02-07-2001 30-03-1995 17-01-2003 25-11-2002 04-03-2003 25-04-2003 17-05-2000 19-01-2001 20-03-2003

Borrowing 11 Borrowing 12 Borrowing 13 Borrowing 14 Borrowing 15 Borrowing 16 Borrowing 17 Borrowing 18 Borrowing 19 Borrowing 20 Borrowing 21 Borrowing 22 Borrowing 23 Borrowing 24 Borrowing 25

5-7 Yrs 7 Yrs 7 Yrs 3-5 Yrs 3-7 Yrs 3-6 Yrs 3 Yrs 14 Yrs 3-7 Yrs 3-9 Yrs 3-10 Yrs 3-10 Yrs 4 Yrs 5 Yrs 5 Yrs

* In case of issues offering more than one structure / instrument, interest rate band is indicated @ In case of issues offering more than one structure / instrument, maturity band is indicated. Notes All borrowings of IDBI are unsecured in nature.

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IDBI FLEXIBONDS 20
The promoters/ directors have not given any personal guarantees for collaterally securing any borrowings. IDBI has not defaulted on any of its previous borrowings including the above-mentioned borrowings and has neither sought any roll over facility on the same. Amount (Rs. crore) 59.72 102.27 47.68 0.46 1.21 2.70 255.30 250.00 68.07 0.77

Call Option to IDBI on previous Flexibonds Public Issues/ Private Placements (March 31, 2003) Instrument Flexibonds-4 Flexibonds-7 Flexibonds-11 Flexibonds-15 Flexibonds-17 Omni I 2001 A Omni I Omni 2002 A Omni 2002 B Deep Discount Bonds Deep Discount Bonds Regular Income Bonds(Option C) Regular Income Bonds(Option D) Growing Interest Bonds Growing Interest Bonds RRB I FII C RRB I RRB III Date 11.11.2005 11.09.2004 05.02.2009 05.02.2009 25.11.2004 04.03.2005 02.07.2003@ 03.10.2003@ 14.06.2003 26.09.2007
@

@ Call option exercised on the respective dates. DEBT SERVICING TRACK RECORD IDBI has a consistent record of paying principal installments and interest on all loans, bonds and deposits on due dates.

RISK MANAGEMENT
IDBI in the course of its operations is exposed to various risks like Credit Risk (mainly on account of the borrowers and other counter-parties inability to meet their repayment commitments), Market Risk (arising out of movement of market values/interest rates impacting earning potential, fair valuation or realisable value of the portfolio), Liquidity Risk (impacts capacity to raise necessary funds to meet debt servicing requirements and disbursements), Exchange Risk (arising from movement of exchange rates of foreign currency) and Operational Risk (includes risks arising from operational processes including technology, manpower, procedures etc,.). The risk philosophy of the Bank is guided by the twin objectives of enhancement of shareholder value and optimum allocation of capital. RISK MANAGEMENT PROCESS

(a) Credit Risk


The credit risk is assessed as a part of project appraisal, which considers various parameters. Management, track record of the promoters and the company, technology, overall capacity, demand and supply scenario, competitors, industry environment etc are assessed to evaluate the credit risk which will in turn decide the assistance level and the spread chargeable (credit spread) over the bench mark interest rate. While the appraisal system assesses the Credit Risk quality, exposure limits set for individual companies, groups and industries facilitate limiting credit risk quantity. IDBI also has a 10 point grading system of Health codes for its borrowers. Further, IDBI has a data base of its borrowers which is updated regularly. Credit risk management both at the transaction level as well as at the portfolio level, aims at building up sound asset quality and long-term profitability of the institution and encompasses activities like risk identification, risk measurement, risk mitigation and risk-based pricing. The IDBI Board, in August 2000, approved the proposed implementation of a Credit Risk Management System (CRMS) in IDBI within a period of three years. Pursuant to the above decision, to manage the credit risk proactively, a Risk Management Committee (RMC) was set up in the Bank. The RMC, comprising senior executives of the Bank, enunciates the overall risk philosophy of the Bank, lays down strategies and policies in accordance with the former and reviews progress of implementation of the risk management framework. A Credit Risk Management Group (CRMG) has also been set up to establish a credit rating system suited to the business of IDBI and the Banks specific requirements and eventually to put a Credit Risk Management System in place.

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IDBI FLEXIBONDS 20
Risk identification and evaluation is done at the credit sanctioning stage itself. IDBI has in house experience and expertise in appraisal of projects. The appraisal techniques are continuously reviewed and upgraded to take into account the knowledge acquired and experience of project implementation as also the changing complexities of the economic scenario. All sanctions are committee based to ensure better discussion / evaluation. A senior officer from Risk Management Group attends Credit Committee meetings to provide independent risk evaluation inputs, to facilitate appropriate credit decisions. As risk mitigation measures, exposure limits are set for individual corporates, corporate groups and industries. The exposure norms have recently been revised. The new norms have been designed to have an in built check against exposure to companies / groups / industries. Besides, project specific risk mitigation covenants are incorporated in the terms and conditions of loans. The risk perception also gets reflected in pricing, within the constraints of competition.

(b) Market Risk Interest Rate Risk The market risk arises from movement in market values including interest rate levels which in turn may be impacted by various economic and political factors, change in policies/regulatory framework etc. Movement in market rates will have an impact on the fair valuation/realisability of adequate returns on the portfolio including investments in Government securities, corporate bonds, equities, etc. IDBI addresses this risk through the continuous evaluation of movement in market rates, analysis of past trends, stress test through rate shocks, scenario analysis etc. IDBI has a separate group for assessment of interest rate risk on a continuous basis. Further, the interest rate on lending is fixed on the date of each disbursement which to a great extent limits the risk as compared to earlier practice of fixing the lending rate at the time of sanction.
Liquidity Risk IDBI will be exposed to the liquidity risk in case of low market liquidity which may in turn result in IDBI not being able to raise necessary funds from the market to meet its operational/debt servicing requirements. As IDBIs asset portfolio matures faster than the liability portfolio (while assets have periodic repayment of principal, major portion of liabilities have bullet repayments) the cash flows are relatively favourable. The borrowing is also timed considering the overall market liquidity apart from requirement of funds. IDBI maintains a reasonable level of investment in liquid securities which could be encashed at short notice. Exchange Risk IDBI has a portion of its assets and liabilities contracted in foreign currencies. As a matter of policy, IDBI maintains a currency wise matching of assets and liabilities. IDBI makes foreign currency loans on terms that are similar to its foreign currency borrowings thereby transferring the foreign exchange risk to the borrower. In case of certain foreign currency borrowings that were on lent, in the past, in rupee equivalents under the Exchange Risk Administration Scheme (ERAS), the Government of India bearing foreign exchange risk on these borrowings pursuant to certain agreements between IDBI and Government of India. The scheme has been foreclosed as on January 31, 2003. IDBIs foreign currency cash balances are generally maintained abroad in currencies matching with the underlying borrowings. IDBI also operates a USD denominated Single Currency Pool (SCP) and the interest rate risks under SCP are hedged through basis swaps. Therefore IDBI is not exposed to any risk of foreign exchange fluctuations.

(c) Operational Risk Internal Audit Department of IDBI conducts periodic operational audit and suggests procedures for improving the systems, procedures, documentation, etc. so as to mitigate operational risk. IDBI periodically reviews its systems and procedures through internal groups or with the help of outside consultants. IDBI Treasury Operations have been certified under ISO 9002.
Asset & Liability Management (ALM) With progressive financial deregulation, especially after the financial sector reforms of 1991, there has been a gradual enlargement of the Banks exposure to market risks. IDBI recognizes that these market risks, mainly interest rate, liquidity and foreign exchange need to be measured, monitored and managed. IDBI has an Asset Liability Management Committee (ALCO) to manage market risks in a coordinated manner. With a view to further refine the market risk management systems, IDBI has with the approval of its Board defined the ALM policies, charter and procedures, taking into account the best practices followed internationally. The Bank has also defined its market risk philosophy and has specified ALM policies and charter, tolerance levels, monitoring and reporting systems etc. in terms of the operational guidelines issued by RBI in December 1999. IDBI has been preparing Liquidity Gap Reports for liquidity risk management and Interest Rate Sensitivity Reports as also Duration and Modified Duration to control the impact on Net Interest Income (NII) and Economic Value of Equity (EVE).

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IDBI FLEXIBONDS 20
Maturity profile of assets and liabilities of IDBI as on March 31, 2003 is as follows : Outstanding Amount Liabilities 1. Capital 2. Reserves and Surplus 3. Notes,Bonds & Debentures 4. Deposits 5. Borrowings 6. Current Liabilities & Provisions A. Total 654 6325 40594 4329 6564 4650 63116 Upto 1 yr 0 0 4906 2446 1674 3259 12284 4 1372 2072 8195 0 1944 13587 1303 1303 Over 1 yr to 3 yrs 0 0 12475 832 2851 448 16606 1 0 1517 12737 0 711 14966 (1640) (337) Over 3 yrs to 5 yrs 0 0 3955 835 1290 93 6173 0 0 1161 9687 0 128 10975 4802 4465 Over 5 yrs 654 6325 19259 216 748 850 28052 0 0 4718 16965 330 1574 23587 (4465) 0 (Rs. crore) Total

654 6325 40594 4329 6564 4650 63116 5 1372 9467 47584 330 4356 63116

Assets 1. Balances with RBI 5 2. Balances with other banks 1372 3. Investments 9467 4. Loans & Advances 47584 5. Fixed Assets (excl. Assets on lease) 330 6. Other Assets 4356 B. Total 63116 Gap (B-A) Cumulative gap

As can be observed from the Table on Maturity profile of Assets and Liabilities given above there are negative gaps of Rs.1640 crore in over 1 year to 3 years bucket and Rs.4465 crore in over 5 years time bucket. However, the maturity buckets upto 1 year and over 3 years to 5 years have positive gaps of Rs.1303 crore and Rs.4801 crore. On cumulative basis, there is negative gap in only over 1 to 3 years time bucket amounting to Rs.337 crore. This situation has arisen because the balance sheet of IDBI is Assets sensitive and the assets are maturing faster than liabilities. The statement does not take into account the effect of relending of these repayments from clients and fresh borrowings in future. Any gap resulting in any of the maturity buckets at any future date will be managed dynamically through suitable structuring of maturity profile of investment products and the asset portfolio. Maturity profile of assets and liabilities of IDBI as on March 31, 2002 was as follows : Outstanding Amount Liabilities 1. Capital 2. Reserves and Surplus 3. Notes,Bonds & Debentures 4. Deposits 5. Borrowings 6. Current Liabilities & Provisions A. Total 653 6042 41762 3383 8903 5899 66643 Upto 1 yr 0 0 6227 2630 3047 4547 16452 28 1948 1868 10162 0 2538 16544 92 92 Over 1 yr to 3 yrs 0 0 13170 308 2971 509 16959 0 0 2167 15631 0 698 18496 1537 1629 Over 3 yrs to 5 yrs 0 0 11361 165 1612 11 13149 0 0 1024 11355 0 44 12423 (726) 903 (Rs. crore) Over 5 yrs 653 6042 11004 280 1272 832 20083 0 0 5078 12751 340 1012 19180 (903) 0 Total

653 6042 41762 3383 8903 5899 66643 28 1948 10137 49898 340 4292 66643

Assets 1. Balances with RBI 28 2. Balances with other banks 1948 3. Investments 10137 4. Loans & Advances 49898 5. Fixed Assets (excl. Assets on lease) 340 6. Other Assets 4292 B. Total Gap (B-A) Cumulative gap 66643

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IDBI FLEXIBONDS 20
Maturity profile of assets and liabilities of IDBI as on March 31, 2001 was as follows : Outstanding Amount Outflows 1. Capital 653 2. Reserves and Surplus 8509 3. Notes,Bonds & Debentures 42047 4. Deposits 2639 5. Borrowings 11733 6. Current Liabilities & Provisions 6202 A. Total 71783 Inflows 1. Balances with RBI 10 2. Balances with other banks 3028 3. Investments 8761 4. Advances 52183 5. Fixed Assets (excl. Assets on lease) 351 6. Other Assets 7450 B. Total 71783 Gap (B-A) Cumulative gap Upto 1 yr 0 0 7078 2080 941 5727 15826 10 3012 1740 11189 0 4951 20902 5076 5076 Over 1 yr to 3 yrs 0 0 10367 348 5319 308 16342 0 16 1885 15548 0 1128 18577 2235 7311 Over 3 yrs to 5 yrs 0 0 15146 65 3205 2 18418 0 0 1030 12061 0 317 13408 (5010) 2301 (Rs. crore) Over 5 yrs 653 8509 9456 146 2268 165 21197 0 0 4106 13385 351 1054 18896 (2301) 0 Total

653 8509 42047 2639 11733 6202 71783 10 3028 8761 52183 351 7450 71783

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IDBI FLEXIBONDS 20

FINANCIALS
CASH FLOW STATEMENT The Cash Flow Statement of IDBI for the last two years is set out below: Year ended March 31, Cash flow from Operating Activities Net Profit before tax and extraordinary items Adjustments for: (Profit)/Loss on sale of investments (Net) Depreciation Discount/Expenses on Bond Issues written off Provisions/write-offs of Loans/Investments & other provisions Withdrawn from Reserve u/s 36(1)(viii) of IT Act Deferred Tax credit Interest credited to Staff Welfare Fund/other Funds Operating profit before Working Capital changes Adjustments for: Other Assets Current Liabilities Net Deferred Tax Liabilities withdrawn from Reserves Cash generated from operations Payment of Income Tax/ Interest Tax Net Cash Flow from Operating Activities B. Cash Flow from Investing Activities Purchase of/Advance towards Fixed Assets Addition to Investments [adjusted for application money] (Net of Sale /Redemption of Investments) Net Cash (used in)/raised from Investing Activities C. Cash Flow from Financing Activities 0 0 0 (2931.63) (4.47) 952.05 (60.07) 60.33 (323.91) (2.87) 0 0 (2310.57) 0 0 0 (2524.65) 29.19 1372.58 (21.84) 38.39 (97.92) (11.42) 0 0 (1215.67) Reduction in share capital Decrease in share premium Reduction in premium on bond issue Loans borrowed (net of repayments made) Application money in respect of Flexibonds/unsecured bonds Loans lent, Bills discounted and rediscounted (net of repayments received) Receipts from borrowers pending appropriation Purchase of / advance towards assets for leasing Dividend paid on Equity Shares & tax on dividend Expenditure out of Staff Welfare Fund Increase in reserve fund - capital reserve on account of forfeiture Transfer from Reserve Fund to Provision/TDB Sub-total (84.84) (311.67) (396.51) (32.31) 703.83 671.52 (17.19) 931.47 (293.35) 2236.18 (159.08) 2077.10 (132.63) (1059.32) 0.00 397.62 (242.07) 155.55 (277.98) 223.03 459.89 3272.87 (2500.26) 19.38 3.40 1615.25 (419.45) 198.59 203.53 1109.70 0.00 38.16 3.43 1589.57 414.91 455.61 2002 (Rs. Crore) 2003

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IDBI FLEXIBONDS 20
(Rs. crore) Year ended March 31, Sub-total Adjustments for: ADB and ERAS exchange fluctuation Difference in exchange on sale of foreign currency to RBI (to be adjusted on repurchase) Write back to Investment Equalisation Reserve Receipts from borrowers in advance Swap Adjustment account Net cash (used in)/raised from Financing Activities Net increase in Cash and Cash Equivalents Opening Cash and Cash Equivalents Closing Cash and Cash Equivalents @ 83.97 0 0 (502.87) 6.60 (2722.87) (1042.27) 3038.81 1996.54 42.27 0 0 (105.33) (167.56) (1446.29) (619.22) 1996.54 1377.32 2002 (2310.57) 2003 (1215.67)

@ Includes balance in call lending account Rs. 214.35 crore (previous year Rs.135.91 crore) and short term funds under BRS Rs.NIL crore(previous year Rs.20.00 crores). Figures for the previous period have been regrouped wherever considered necessary.

BALANCE SHEET
The Table below presents the summarized Balance Sheet of IDBI as at March 31, 1999 - March 31, 2003 and as at September 30, 2003 (Rs. Crore) As at March 31, Cash and Bank Balances Investments Loans and Advances Bills of Exchange and Promissory Notes Premises Other Fixed Assets Other Assets Total Assets Current Liabilities and Provisions Borrowings Deposits Bonds and Debentures Total Liabilities (Excluding Capital & Reserve) 1999 4193 7853 47339 2336 296 1143 5983 69143 7210 11885 2092 38990 60177 2000 1608 9617 50763 2111 310 1283 6594 72285 5889 11449 1753 43976 63067 660 8558 9218 72285 134.1 2001 2365 9709 51606 1443 302 1349 5009 71783 6202 9963 2639 43817 62621 653 8509 9162 71783 139.8 2002 1841 10607 47429 985 295 1193 4293 66643 6066 6879 3384 43619 59948 653 6042 6695 66643 101.9 2003 1163 10180 45569 613 292 993 4306 63116 4650 5360 4330 41798 56138 653 6325 6978 63116 106.4 Sept 30, 2003 1251 14766 42973 467 296 860 4207 64820 4537 5200 4094 43834 57665 653 6502 7155 64820 109.1

Equity Capital 660 Reserves, Funds and Surplus 8306 Total Capital and Reserves 8966 Total Liabilities, Capital & Reserves 69143 Book Value per Equity Share (Rs) 129.2

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IDBI FLEXIBONDS 20
PROFIT AND LOSS ACCOUNTS The Table below presents the Profit and Loss Account of IDBI for the years ended March 31, 1999 to March 31, 2003 and for the half year ended September 30, 2003. (Rs. crore) Year ended March 31 A. INCOME FROM OPERATIONS* Interest and Discount Income Income from investments Commission and Brokerage etc Net profit on sale of investments Other income Total Income B. EXPENDITURE Interest on deposits, borrowings, etc. Establishment Expenses Accelerated write-off of Bad and Doubtful Debts Less : Withdrawn from Special Reserve u/s 36(1)(viii) of IT Act Depreciation Other Expenditure Total Expenditure Net Profit (NP) before Tax and Extraordinary items Less : Provision for Tax Add : Deferred Tax Credit NP before Extraordinary items Extra-ordinary items ** Net Profit as per Audited Accounts Prior period items Diminution in value of investments Adjusted Profit After Tax 6359 694 176 62 173 7464 5725 76 6225 818 194 382 240 7859 6370 74 6191 757 188 535 164 7835 6595 84 5862 761 130 278 145 7176 6250 117 2500 (2500) 200 162 6163 1301 75 1226 33 1259 4 1263 213 175 6833 1027 80 947 947 (3) 944 230 192 7101 734 43 691 691 (3) 68 756 223 171 6761 415 (10) 19 424 424 (13) 411 199 188 5916 455 (92) 38 401 401 401 89 84 2608 197 (39) 18 176 176 (7) 169 5219 516 73 419 144 6371 5434 95 2103 337 28 291 46 2805 2381 54 1999 2000 2001 2002 2003 April-Sept 2003

The above figures have been rounded off to the nearest crore. * after meeting of bad debts and making provisions for bad and doubtful debts and other necessary and expedient provisions. ** write back of excess income/interest tax provision/lease equalisation adj.

Notes to Adjustments (as stated in the Auditors Report) 1. We have taken the view that adjustments to profits in respect of the following: material amounts relating to previous years although events triggering off the profit/loss accrued in a subsequent year extraordinary items and changes in accounting policies prior period items are required to be done as per the SEBI guidelines in respect of only those items which are disclosed in the audited financial statements of the five financial years. The significant accounting policies followed by IDBI are given in the Auditors Report reproduced later in the Offer Document.

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ACTIVITYWISE BREAKUP OF REVENUE FY 2003

In c o m e fr o m in v e s tm e n ts 8% In te r e s t a n d D is c o u n t In c o m e 82% C o m m is s io n a n d B ro k e r a g e e tc 1% N e t p r o fit o n s a le o f in v e s tm e n ts 7% O th e r in c o m e 2%

CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2003 The consolidated Balance Sheet of IDBI and its subsidiaries is given below LIABILITIES 1. Share Capital (Rs. Crore)

Authorised
Equity Shares Redeemable Preference Shares Issued and paid up 65 28 30 400 Equity Shares of Rs.10 each 2. 3. Reserves, Funds and Surplus Bonds and Debentures Tier I Bonds Tier II Bonds Other Bonds and Debentures 4. 5. 6. 7. Deposits Borrowings Current Liabilities and Provisions Minority Interest TOTAL ASSETS 1. 2. 3. 4. 5. 6. 7. Cash and Bank Balances Investments Loans and Advances Bills of Exchange and Promissory Notes Discounted/Rediscounted Premises (At cost less depreciation) Other Fixed Assets (At cost less depreciation) Other Assets TOTAL 1881.89 12296.16 48868.84 1477.64 316.63 1138.93 7555.94 73536.03 2130.50 3651.13 36181.33 41962.96 10362.21 8461.42 5147.63 152.96 73536.03 1500.00 500.00 2000.00 652.83 6796.02

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CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2003 The consolidated Profit & Loss a/c of IDBI for the year ended March 31, 2003 and its subsidiaries is given below (Rs. Crore) INCOME (Less provisions made during the year for bad and doubtful debts and other necessary and expedient provisions) 1. Interest and Discount etc. 2. Income from Investments 3. Commission, Brokerage,etc. 4. Net Gain on sale of investments (not credited to Reserves or any particular fund or account) 5. Other Income TOTAL INCOME 1 2 3 4 5 6 7 8 9 EXPENDITURE Interest paid on Deposits,Borrowings,etc., Establishment Expenses Directors & Executive Committee Members Fees and Expenses Auditors Fees Rent,Taxes,Insurance,Lighting, etc. Law Charges Postage,Telegrams & Stamps Stationery,Printing,Advertisement,etc. Accelerated write-off of bad and doubtful debts Less : Withdrawn from Special Reserve u/s 36(1) (viii) of IT Act, 1961

5534.66 1068.08 156.90 464.77 200.63 7425.04 5947.51 156.38 0.22 0.32 53.77 7.22 16.62 28.31 2500.26 (2500.26) 42.48 184.51 210.43 6647.77 777.27 (275.09) 41.30 543.48

10 Depreciation / Amortisation 11 Depreciation on Leased assets 12 Other Expenditure TOTAL Profit before Tax and Extraordinary Items Less : Provision for Income Tax Add : Deferred Tax Credit NET PROFIT

The significant accounting policies and schedules to consolidated balance sheet and profit & loss account are given in the Auditors Report reproduced later in the Offer Document.

KEY RATIOS
Sr No 1 2 3 4 5 6 7 Year ended March 31, Profitability and Efficiency Ratios Average cost of funds (%) Average cost of loan funds (%) Return on average assets (%) Return on average net worth (%) Standard assets to total assets (%) Average income earning assets (Rs.Cr) Average interest earning assets (Rs.Cr) 1999 2000 2001 2002 2003

9.0 11.8 11.6 15.1 88.0 58611 51170

9.2 11.8 11.1 10.7 86.6 64071 55691

9.3 11.8 10.9 7.3 85.2 64657 57285

9.2 11.5 10.4 5.4 88.36 62996 55969

8.5 10.5 9.8 5.9 85.8 60244 52170

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IDBI FLEXIBONDS 20
Sr No 8 9 10 11 12 13 14 15 16 17 18 19 Year ended March 31, Profitability and Efficiency Ratios Average interest bearing liabilities (Rs.Cr) Gross Interest Income (Rs.Cr) Net Interest Income (Rs.Cr) Net Profit Margin (%) Margin (%) (3-1) % of avg. int. earning assets to avg. int. bearing liabilities (7/8 %) Interest expense apportioned to interest earning assets ( Rs. crore) Net Interest income based on apportioned interest expense ( Rs.crore) (9-14) Net interest margin ( 15/ 7 %) Gross yield (9/7 %) Yield spread ( 17-2)% Average share capital and reserves to average total assets(%) Capital Ratios Average shareholders equity to average assets (%) Debt to Equity Capital Adequacy Ratio (%) Debt Service Coverage ratio(%) @ Notional Debt Service Coverage ratio(%) * @ Growth Ratios Total assets (%) Direct Assistance Portfolio (%) Net worth (%) Earnings per Equity Share (based on Net Profit as per Audited Accounts) Earnings per Equity Share (calculated based on Adjusted Profit after tax) 49244 7162 6851 2.0 2.6 103.9 6042 1120 2.2 14.0 2.2 12.9 55073 7439 6665 1.3 1.9 101.1 6555 884 1.6 13.4 1.6 12.5 56799 7775 6782 1.0 1.6 100.86 6782 993 1.7 13.6 1.7 12.6 55151 7174 6401 0.6 1.2 101.48 6441 733 1.3 12.8 1.3 11.4 52685 6640 5531 0.6 1.3 99.02 5489 1151 2.2 12.7 2.2 10.4 1999 2000 2001 2002 2003

20 21 22 23 24 25 26 27 28 29

12.9 6.5 12.7 1.2 1.2 15 15 9 18.7

12.5 6.8 14.5 1.3 1.2 4 8 4 14.1

12.6 6.7 15.8 1.6 1.5 (0.7) 8.4 1.1 9.4

12.9 8.7# 17.9 1.6 1.6 (7.2) (0.8) (27.9) 6.5

13.7 7.9# 18.7 1.2 1.2 (5.3) (5.1) (20.9) 6.2

18.8

14

10.3

6.3

6.2

# As per SEBI guidelines, in case of bonds convertible at the option of investors 50% of the amount is to be treated as Debt (and the balance 50% as equity). The DER on that basis would be 6.3. However, these bonds are convertible at the request of IDBI (issuer) and not only at the option of GOI (investor). @ DSCR and NDSCR has been calculated after excluding prepayments made by IDBI during the year by exercising call option. * Notional Debt Service Coverage Ratio (NDSCR) is computed as follows :

Net Profit after tax+ interest & principal instalment on loans+non-cash profits NDSCR = -- - Interest on borrowings+ principal instalments on loans+ apportioned principal instalment during the year on bonds = Rs.401 cr + Rs.14407 cr + Rs.481 cr Rs.15289 cr = = 1.2 Rs.5863 cr + Rs.6637 cr + Rs.36 cr Rs.12536 cr

Average balances are the average of outstandings at the end of the year and at the end of the previous year. All ratios are computed after making adjustments towards items reflected in the part titled Adjustments resulting

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IDBI FLEXIBONDS 20
from audit qualifications, material amounts relating to adjustments for previous years and changes in accounting policies, of the Auditors Report and this does not take into account consequential adjustments to the Balance Sheet. All ratios are rounded off to a single decimal place. Notes to ratios above alongwith reference serial no. (1) (2) (3) (4) (5) (6) (7) (9) Average Cost of Funds is interest and financial cost as a percentage of the average of total liabilities. Average cost of loan funds is ratio of interest and financial expenses to average borrowings. Return on Average Assets is total income net of provisions and write offs, as a percentage of the average of total assets. Return on average net worth is Adjusted Profit after tax less dividend on Preference Shares as a percentage of average net worth (excluding earmarked reserves). Standard assets are assets in respect of which no interest payment/ principal repayment is overdue beyond 180 days. Average Income Earning Assets represent average of total assets less non-income earning assets. Average interest earning assets consist of average loan assets + bill finance + debentures + equipment leasing. Interest income before write-offs and provisions.

(10) Interest income consists of income from interest earning assets (11) Net Profit Margin is Adjusted Profit after tax as a percentage of average Assets (14) Interest expense include financial expenses on borrowings (21) Debt Equity Ratio is total borrowings plus contingent liability on account of guarantees issued as a proportion of net worth less earmarked reserves. (22) Capital Adequacy Ratio is as per RBIs circular dated March 29, 1994 and related subsequent guidelines. Desired v/s Actual Ratios Ratios Notional Debt Service Coverage Ratio@ Debt Equity Ratio Capital Adequacy Ratio (As on March 31, 2003) Desired 1.2 12:1 9 Actual 1.2 7.9:1# 18.7

All ratios are rounded off to a single decimal place. # As per SEBI guidelines, in case of bonds convertible at the option of investors 50% of the amount is to be treated as Debt (and the balance 50% as equity). The DER on that basis would be 6.3:1. However, these bonds are convertible at the request of IDBI (issuer) and not only at the option of GOI (investor). @ NDSCR has been calculated after excluding prepayments made by IDBI during the year by exercising call option. Capital Adequacy Ratio as on March 31, 2003 (a) Capital to Risk weighted Asset Ratio (CRAR) Core CRAR Supplementary CRAR (b) (c) The amount of subordinated debt raised and outstanding as Tier II capital Risk weighted assets Balance sheet items Off-Balance sheet items Rs.57559.95 crore Rs. 3406.62 crore 18.72% 14.08% 4.64% Rs.3481.13 crore

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AVERAGE BALANCES AND AVERAGE INTEREST RATES The average Balances and average interest rates for the last three years is given in the table below. Avg Bal (Rs.Cr) ASSETS Rupee loans FC loans Total assets LIABILITIES Re borrowings GOI SLR & other Govt. guaranteed bonds Other Borrowings FC borrowings Total liabilities 48253 9032 57285 46920 1318 7715 37886 9879 56799 March 31, 2001 Interest Avg (Rs.Cr) Rate (%) 6001 781 6782 5968 196 907 4915 756 6724 12.44 8.64 11.84 12.72 11.06 11.76 12.97 7.65 11.84 Avg Bal (Rs.Cr) 49396 6573 55969 46429 734 7005 38690 8721 55151 March 31, 2002 Interest Avg (Rs.Cr) Rate (%) 6017 384 6401 5955 137 837 4981 392 6347 12.18 5.85 11.44 March 31, 2003 Avg Interest Avg Bal (Rs.Cr) Rate (Rs.Cr) (%) 46070 6099 52170 5196 334.7 5530.82 5314 14.08 669.41 4631 228.6 5542.69 11.28 5.49 10.60 11.70 7.57 10.94 11.84 3.14 10.52

12.82 45410.5 18.66 186.1 11.94 6118.6 12.87 39105.8 4.50 727.4 11.51 52684.9

Average balances are the average of outstandings at the end of the year and at the end of the previous year. DETAILS OF FIXED AND FLOATING RATE ASSETS AND LIABILITIES (Rs.Crore) As on March 31, 2003 Fixed Rupee Foreign Currency Total 47504 348 47853 Assets* Floating 464 5763 6227 Total 47968 6112 54080 Fixed 45342 592 45934 Liabilities# Floating 16 5538 5554 Total 45357 6130 51488

* Total assets less Fixed assets, investments in equity & MF units, Cash and Current a/c balances. # Total outstanding debt.

MANAGEMENT DISCUSSION
The following discussion and analysis should be read in conjunction with the IDBIs financial statements and related notes which appear on the foregoing pages and under the Auditors Report on page (98). Result of Operations for the half year ended September 30, 2003 compared with the half year ended September 30, 2002 IDBIs total income during April-September 2003 was Rs.2,805 crore as against Rs.3,315 crore during AprilSeptember 2002. Total expenditure before depreciation and tax decreased to Rs.2,519 crore from Rs.3,066 crore during the same period in the previous year. Gross Profit (after interest but before depreciation and tax) amounted to Rs.286 crore as against Rs.249 crore during April-September 2002. After making provisions for depreciation and tax( net of deferred tax) of Rs.89 crore and Rs.21 crore respectively, Profit after Tax for the half year ended September 30, 2003 stood at Rs.176 crore as against Rs.152 crore during the corresponding period of the previous fiscal year. Aggregate assets of the Bank as on September 30, 2003 decreased by 0.9% to Rs.64,820 crore over Rs.65,417 crore as on September 30, 2002. Result of Operations for the year ended March 31, 2003 compared to the year ended March 31, 2002 IDBIs total income during April-March 2003 was Rs.6371 crore as against Rs.7176 crore during April-March 2002. Total expenditure before depreciation and tax decreased to Rs.5717 crore from Rs.6538 crore during the same period in the previous year i.e. by Rs.821 crores mainly due to interest cost on loan funds. Gross Profit (after interest but before depreciation and tax) amounted to Rs.654 crore as against Rs.638 crore during April-March 2002. After making provisions for depreciation and tax of Rs.199 crore and Rs.92 crore respectively and also after taking into account deferred tax credit of Rs.38 crore, Profit after Tax for the year ended March 31, 2003 stood at Rs.401 crore as against Rs.424 crore during the corresponding period of the previous fiscal year. Aggregate assets of the Bank as on March 31, 2003 decreased by 5.3% to Rs.63116 crore over Rs.66643 crore as on March 31, 2002.

80

IDBI FLEXIBONDS 20
Result of Operations for the year ended March 31, 2002 compared to the year ended March 31, 2001 IDBIs total income during April-Mar 2002 was Rs.7176 crore as against Rs.7835 crore during April-Mar 2001. Total expenditure before depreciation and tax decreased to Rs.6538 crore from Rs.6871 crore during the same period in the previous year i.e. by Rs.333 crore mainly due to interest cost on loan funds. Gross Profit (after interest but before depreciation and tax) amounted to Rs.638 crore as against Rs.964 crore during April-Mar 2001. After making provisions for depreciation and tax of Rs.223 crore and Rs.10 crore respectively and also after taking into account deferred tax credit of Rs.19 crore, Profit after Tax for the year ended March 31, 2002 stood at Rs.424 crore as against Rs.691 crore during the corresponding period of the previous fiscal. Aggregate assets of the Bank as on March 31, 2002 decreased by 7.2% to Rs.66643 crore over Rs.71783 crore as on March 31, 2001. Result of Operations for the year ended March 31, 2001 compared with year ended March 31, 2000 Interest and discount income during the year ended March 31, 2001 amounted to Rs.6191 crore compared with Rs.6225 crore for the previous year (a decrease of 0.5%) IDBIs portfolio of loans and advances, bills of exchange and promissory notes discounted or rediscounted decreased at a rate of 3.96% (from Rs.52874 crore to Rs 50779 crore) Income from investments amounted to Rs.757 crore compared to Rs.818 crore in the previous year, a decrease of 7.5%. Commision and brokerage income during the year ended March 31, 2001 was Rs. 188 crore compared to Rs.194 crore earned during the year ended March 31, 2000 (a decrease of 3.1%). Net gain on sale of investments at Rs.535 crore was higher by 40% compared to Rs.382 crore realised in the previous year. Other income was Rs.164 crore compared to Rs.241 crore in the previous year, a decrease of 32%. Interest paid on deposits and other borrowings during the year ended March 31, 2001 aggregating Rs.6595 crore compared to Rs.6370 crore spent during the previous year (an increase of 3.5%). The higher rate of growth in interest expense is mainly on account of rise in rupee borrowings to the extent of Rs.954 crore and repayment of low cost borrowings on maturity. Miscellaneous other expenditure (including establishment expenses, rent, taxes, insurance and depreciation) increased by 9.3% from Rs.463 crore to Rs.506 crore. The resultant profit before tax was Rs.734 crore compared with Rs.1027 crore recorded during the year ended March 31, 2000 (decrease of 28.5%) The provision for tax during the year ended March 31,2001 amounted to Rs.43 crore (an effective rate of 5.9%) compared with Rs.80 crore for the year ended March 31, 2000 (an effective rate of 7.8%), Total assets as at March 31, 2001 were Rs.71783 crore, a decrease of 0.7% from Rs.72285 crore as at March 31, 2000. IDBI confirms that 1. There have been no unusual or infrequent events or transactions, since the date of the Auditors Report (November 17, 2003) contained herein. 2. There are no significant economic changes that materially affected or are likely to materially affect income from continued operations. 3. There are no known trends or uncertainties that have had or are likely to have a material adverse impact on the revenue or income from continuing operations. 4. There have been no changes in the activity of the Issuer which may have had a material effect on the statement of profit/ loss for the last five years. 5. The Bill proposing the repeal of IDBI Act, 1964 has been approved by both the Houses of Parliament viz. Lok Sabha (Lower House) and Rajya Sabha (Upper House) on December 8 and December 15, 2003 respectively. The Bill has also received the assent of the President of India. The Bill envisages transfer of all assets and liabilities to a company to be named as Industrial Development Bank of India Ltd.. The Bill facilitates the new company to become a banking company, without the need to obtain a separate banking license under Banking Regulation Act, 1949. It envisages, inter alia, the conversion of IDBI into a Commercial Bank while continuing to be a Development Bank. The Bank will be given certain regulatory forbearance which include maintenance of reserve requirements. Brief particulars in this regard are given on page 40 of this Offer Document.

TAXATION
IDBI was exempted from income tax by virtue of specific exemption granted under Sec 35 of the IDBI Act, 1964. IDBI became liable to pay income tax from the assessment year 1992-93 onwards, after Sec. 35 of the IDBI Act was repealed by Finance (No.2) Act, 1991. The status of IDBIs pending tax assessments and appeals as on October 31, 2003 is as follows: INCOME TAX Assessment Year 1992-93 1993-94 Status Appeal againt re-assessment is pending before CIT (A). Penalty proceedings u/s 271(1)/(c) has been initiated. The demand outstanding Rs.38.91 crores. Appeal against the orginal assessment order and the reassessment order are pending before the CIT(A). Penalty proceedings u/s 271(1)/(c) is also pending. The demand outstanding is Rs.39.37 crores.

81

IDBI FLEXIBONDS 20

Assessment Year 1994-95, 1995-96, 1996-97

Status Appeals are pending before the CIT(A) against the original assessment orders and also the reassessment. Penalty proceeding u/s 271(1)(c) has ben inititated by the AO. The demand outstanding is Rs.47.86 crores, Rs.197.2 crores and Rs.54.24 crores respectively. Appeal is pending before the Income Tax appellate Tribunal against the order of the CIT(A) on certain issues. There is no outstanding demand. The assessment has been reopened. Appeals are pending before the CIT(A) against the Assessment order passed by the AO. There is outstanding demand of Rs.210.95 crores, Rs.191.16 crores and Rs.373.14 crores respectively. Return of income have been filed. Adequate provisions have been made to cover the income tax liability. The Assessment has not completed so far.

1997-98

1998-99,99-2000,2000-01

2001-02 & 2002-03 WEALTH TAX Assessment Year 2001-2002 to 2002-03 INTEREST TAX Assessment Year 1994-95 to 1996-97

Status Returns of wealth have been filed. Adequate provisions have been made to cover the wealth tax liability. The assessment have been completed so far. Status Appeals are pending before the CIT(A) against the Assessment Orders. There is no outstanding demand. Assessment for these assessment years have also been reopened. Appeal filed before ITAT against the order of CIT (A). There is no outstanding demand. Assessment for these assessment years have been reopened Appeals are pending before the CIT (A) against the assessment orders. There is no outstanding demand.

1997-98

1998-99 to 2000-01

Tax provision as per books : As on October 31, 2003, the gross demand raised by the Income Tax Department on account of Income Tax, Wealth Tax and Penalty is Rs.5029.25 crore against which the provision made is Rs.2866.69 crore. The demands include Rs.1462.22 crore in respect of matters in which IDBI has favourable decisions in its own case in the earlier years. Thus the amount of contingent liability on account of Tax in dispute is Rs.700.33 crore. STATEMENT OF TAX COMPUTATION For the year ended March 31, Tax at notional rate (A) Tax Shelters Permanent nature Deduction under Sec.36(1)(viii) Income exempt from tax Indexation Benefit Reinvestment Timing Difference Difference between tax depreciation and book depreciation Other adjustments Total Tax Shelters (B) Provision for Tax (A B) 2001 208 2002 133 (Rs. crore) 2003 121

14 95 110 (1) 9 228 (20)

11 99 39 0 (19) (9) 121 (12)

0 0 30 15 (26) 10 29 92

* Tax provision for year ended 31.3.2001, 31.3.2002 has been under Section 115JA/115JB of the Income Tax Act, at Rs.43 crores and Rs.10 crore respectively.

82

IDBI FLEXIBONDS 20
SUBSIDIARIES
IDBI CAPITAL MARKET SERVICES LTD.
IDBI Capital Market Services Ltd (IDBI Capital), a wholly owned subsidiary of IDBI, was established in December 1993 to offer a broad range of financial services. The Companys business activities include Bond Trading, Equity Broking, Client Asset Management and Depository Services. IDBI Capital is one of the Primary Dealers accredited by the Reserve Bank of India to act as a market maker in Government Securities. The Company, during 2002-03, achieved an outright secondary market turnover in excess of Rs. 100000 crore in Government Securities for the second time in succession. The Company also achieved a repo turnover in excess of Rs 125000 crore during 2002-2003. The Company participated in the Securities auctions conducted by RBI and achieved a success ratio of 45% in Government Securities and 40% in Treasury Bills (as against the requirement of 40%). The Company is also at the forefront in building a retail debt market in India. IDBI Capital is also an active institutional equity broker having memberships of both BSE and NSE. The company has also acquired Trading and Clearing Memberships on the recently started Derivatives segment of BSE and NSE. The Company is also one of the largest portfolio manager for pension and provident funds with assets under management presently being more than Rs 26,000 crore. The Company also acts as an arranger in the private placement market for institutional and corporate debt and also markets products like equity, debt, mutual fund instruments, RBI relief bonds etc. through its nation-wide network of sub-agents. As a Depository Participant, the Company offers its institutional and individual clients the facility to maintain their investments in securities in electronic form. The abridged Balance Sheet and Profit and Loss Account of IDBI Capital is given below: ABRIDGED BALANCE SHEET As on March 31, Paid-up capital Reserves & Surplus Current liabilities & provisions (including loans) TOTAL LIABILITIES TOTAL ASSETS PROFIT AND LOSS ACCOUNT For the year ended March 31, Total Income Total Expenditure Profit before tax Profit after tax EPS (Rs per share) Book Value (Rs per share) 2001 141.2 63.6 77.5 45.0 4.5 14.1 2002 469.9 99.8 370.1 234.0 15.6 26.3 2001 100.0 41.5 1008.1 1149.6 1149.6 2002 150.0 238.2 1606.8 1995.0 1995.0 (Rs. crore) 2003 200.0 315.4 2531.1 3046.5 3046.4 (Rs. crore) 2003 503.9 136.5 367.4 228.1 11.4 25.77

IDBI BANK LTD. IDBI Bank Ltd., a new generation private sector bank, incorporated in September 1994, was set up by IDBI to offer complete range of commercial banking products and services to corporate and retail customers. With globally skilled management team, focus on technology driven retail banking and emphasis on superior credit quality, IDBI Bank has been able to build a customer-centric banking franchise on the principles of profitability, growth and quality. For the year ended March 31, 2003, IDBI Bank recorded 36% growth in Net Profits to reach Rs.71.1 crores. Significant growth in Net Interest Income (over 40%) and Core Fees (over 75%) were the key drivers of profitability delivering return on equity of 21.8%. IDBI Banks distribution now extends to 68 cities across 97 banking outlets and 264 ATMs serving 800,000 customers. IDBI Banks Total Deposits grew by 15.2% in FY03 to reach Rs.6032 crore while Savings Deposits grew by 53% at Rs.853 crores. IDBI Banks Customer Assets grew by 26% to cross Rs.5000 crores while Retail Assets grew 4 times to reach Rs.1608 crores.

83

IDBI FLEXIBONDS 20
With focus on Retail Deposits (58% of Total Deposits) and Low Cost Deposits (35% of Total Deposits), IDBI Bank was able to reduce its Average Cost of Deposits to 5.2% in Q4FY03 one of the lowest in the banking industry. IDBI Bank now has net NPA/ Net Customer Assets of 0.9% and Provision Cover of 76%. With net NPA/ Net Worth of about 13%, IDBI Banks Credit Quality is now amongst the best across banks in India. The current market price of equity shares of IDBI Bank (as on April 30, 2003 was Rs.23.65). The highest & lowest price of shares of IDBI Bank during previous 52 weeks was Rs.36 and Rs.18 respectively of National Stock Exchange. The abridged Balance Sheet and Profit & Loss Account of IDBI Bank Ltd. are as follows. BALANCE SHEET As on March 31, Liabilities Capital Reserves & Surplus Deposits Borrowings Other Liabilities & Provisions TOTAL LIABILITIES ASSETS Cash and Bank Balance with RBI Balances with Banks and Money at call and short notice Investments Advances Fixed Assets Deferred Tax Asset Other Assets TOTAL ASSETS PROFIT AND LOSS ACCOUNT For the year ended March 31, Income Interest Other Income TOTAL Expenditure Interest expenses Operating Expenses Provisions & Contingencies Total Profit after Tax EPS (Rs per share) Book Value (Rs per share) 2001 539.1 69.6 608.7 437.5 102.6 49.2 589.3 19.4 1.38 19.51 2002 508.8 122.5 631.3 365.2 143.0 70.7 578.9 52.4 3.74 21.49 2001 140.0 128.1 3567.5 783.6 299.5 4918.7 266.6 124.5 2524.6 1725.0 115.5 162.5 4918.7 2002 140.0 160.9 5234.5 771.4 334.3 6641.1 363.1 355.5 2417.8 3099.3 158.2 1.3 245.9 6641.1 (Rs. crore) 2003 140.1 212.4 6032.3 1041.5 502.5 7928.7 600.8 101.6 2410.9 4325.2 164.5 4.5 321.3 7928.8 (Rs. crore) 2003 598.1 165.1 763.1 396.5 206.6 89.0 692.0 71.1 5.08 25.17

84

IDBI FLEXIBONDS 20
IDBI INTECH LTD.
Business Operations : a) IDBI Intech Ltd. (INTECH) was set up as a wholly owned subsidiary of IDBI in March, 2000 to undertake Information Technology (IT) related activities. It is registered with Software Technology Parks of India (STPI). The authorised capital of INTECH is Rs.100 crore comprising equity share capital of Rs.75 crore and preference share capital of Rs.25 crore. IDBI subscribed an amount of Rs.8.10 crore towards the equity share capital of INTECH. IDBI has also contributed Rs.3.50 crore as advance towards share capital. b) INTECH continued to service IT needs of IDBI both in terms of Facilities Management Services (FMS) and software maintenance till September 2002 and January 2003 respectively. INTECH has developed and partly delivered integrated software for the HR and various administration activities of IDBI as well as for Fixed Deposit in single man branches. It is proposed to integrate a new payroll module with HR and Admin. software which is expected to be completed by June 2003. c) INTECH managed to achieve the breakthroughs in obtaining software development orders from NABARD for Financial Accounting and from Kerala Finance Corporation for Loan Accounting, Financial Accounting and Administration and HR. INTECH was awarded contract by Punjab National Bank for conducting acceptance test for ATMs, Telebanking Software, Branch Automation Software, Servers, and PCs etc. on an all India basis. d) During the year INTECH has set up a 100 seats Contact Center which would commence commercial production in May, 2003. Initially the operations would start with 25 seats which would be increased to 100 seats by July 2003. It is proposed to leverage the contact center operations after it is stabilised for procuring BPO assignments. INTECH has tied up with an USA based Company for providing prospect lists and telemarketing services on mutually agreed terms and conditions. Technology Partners : INTECH has entered into Microsoft Certified Partner program and was also appointed as CISCO reseller during the year. Empanelment : INTECH was also empanelled by the following government organisations as the service provider/ IT Vendor. National Institute of Agricultural Marketing, Rajasthan Government of Maharashtra Quality Certification : INTECH was awarded the ISO 9001-2002 quality certification by BVQi. INTECH has also initiated activities in quality process for CMM Level 3 and the certification is expected to be received by September, 2003. The Company has initiated activities for ISO certification for contact center operations which is expected to be completed by August, 2003. Future plans : Based on a review of its existing strengths and opportunities, INTECH has business plans to focus on financial sector, provide value added services through Contact Center, target international development institutions for financial/loan accounting system, explore opportunities in setting up WAN and related services, explore International BPO opportunities through Contact Center operations etc. Summarised financial results for the year 2002-2003 : The year 2002-2003 was the second full year of effective operations of the Company. During the year under review, the aggregate revenue from Sales and Services and other income was Rs. 613 lakh as against Rs. 785 lakh for the previous year. Substantial part of the revenue was generated from the IT services provided to IDBI. The income had come down during the year under consideration as maintenance services to IDBI were only for part of the year. Pending orders to the extent of Rs.110 lakh remained to be executed, the income against which would be booked based on deliverables in the financial year 2003-2004. The Company also provided services to Delhi Financial Corporation, IREDA, SIDBI, IDBI Bank Ltd. IDBI Principal, ISIL, NABARD, Punjab National Bank, etc. The Company earned Profit before tax of Rs. 39 lakh for the year ended March 31, 2003 as against Rs. 42 lakh for the year ended March 31, 2002. The abridged Balance Sheet and Profit and Loss Account of IDBI Intech Ltd. is given below: BALANCE SHEET As on March 31, Paid up Equity Capital Adv Towards Share Capital Reserves & Surplus Current Liabilities & Provisions Deferred Tax Liabilities Total Liabilities Total Assets 2001 1.60 6.50 0.10 1.33 9.53 9.53 2002 1.60 6.50 0.32 3.61 0.05 12.08 12.08 (Rs crore) 2003 8.10 3.50 0.48 5.21 0.05 17.34 17.34

85

IDBI FLEXIBONDS 20
PROFIT & LOSS ACCOUNT For the year ended March 31, Total Income Total Expenditure Profit Before Tax Profit After Tax Basic EPS (Rs per share) Book Value (Rs per share) IDBI HOME FINANCE LIMITED In September 2003, IDBI acquired the entire shareholding of Tata Finance Limited (TFL) (i.e. 4,99,76,746 equity shares of face value Rs.10 per share) in Tata Homefinance Limited, at par, for total consideration of Rs.49.98 crore. The acquisition represents IDBIs foray into the retail financing sector. The company has since been renamed as IDBI Homefinance Limited. The company offers loans to individuals for purchase / construction / extension / repairs of residential units. The company also offers individual employee loans through a corporate Line of Credit, either guaranteed or routed through the employer. The company has implemented a Total Home Loan solutions (THLS) system with connectivity through lease lines with all its 16 branches. The system is scalable and forms the foundation for future business growth. 2001 2.17 2.02 0.15 0.11 0.66 6.13 2002 7.85 7.43 0.42 0.26 1.63 11.95 (Rs crore) 2003 6.13 5.74 0.39 0.20 0.21 10.59

86

IDBI FLEXIBONDS 20
OTHER STATUTORY INFORMATION Capitalisation Statement
The following table sets out the audited capitalisation of Industrial Development Bank of India as at September 30, 2003 and also adjusted to give effect to the present issue of bonds aggregating to Rs.800 crore pertaining to the present issue. (Rs.crore) Particulars Short Term Debt (Rupee) (a) Long Term Debt : Long Term Debt (Rupee) Long Term Debt (Foreign currency) Total Long Term Debts (b) Total Debts (c) = (a+b) SHARE CAPITAL Issued, Subscribed and paid-up 65,28,30,400 Equity Shares of Rs 10/- each Total Equity Capital (d) RESERVES FUNDS AND SURPLUS Reserve Fund Share Premium Special Reserve under Section 36(1)(viii) of the Income Tax Act 1961 Surplus Other Reserves Total Reserves & Funds (e) Total Shareholders Funds (f) = (e+d) Long Term Debt (b)/Equity(f) September 30, 2003 1687 41612* 5735 47347* 49034* As adjusted for the present issue 1687 42412 5735 48147 49834

653 3808 1624 111 652 307 6502 7155 6.62

653 3808 1624 111 652 307 6502 7155 6.73

* Excluding amount raised under Flexibonds-19 public issue for an amount of Rs.600 crore (including greenshoe option of Rs.300 crore) launched in December 2003 for which post issue formalities are being completed. Notes: (1) Debts having a maturity period of one year or more than one year from the date of borrowing have been treated as Long Term Debts and those having maturity period within a year are treated as Short Term Debts. (2) Amounts in Foreign currencies have been translated into rupees at the FEDAI rates prevailing as on September 30, 2003. Outstanding Litigation and material developments The outstanding litigations as on September 30, 2003 aggregate Rs.385.87 crore with respect to 139 cases. There are no outstanding litigations involving IDBI pertaining to matters which are likely to adversely affect the operations and finances of IDBI. Category wise breakup of the cases is given below: (Rs.Crore) Category Suits filed by borrowers Suits filed by other parties Property disputes Miscellaneous cases Misc consumer court cases Total *not quantifiable. The claim made in these cases are being contested by IDBI and in our view, they will not have any material adverse effect on IDBI. There are no outstanding litigations involving any of the directors of IDBI who are elected by the public shareholders under the IDBI Act. Number of Cases 14 3 3 4 115 139 Amount involved 320.72 48.33 16.61 0.21 * 385.87

87

IDBI FLEXIBONDS 20
Save as otherwise disclosed in the Offer Document, since the date of the last audited Balance Sheet, no circumstances have arisen which adversely affected or are likely to adversely affect IDBIs operations or profitability, or the value of its assets, or its ability to pay its liabilities within the next twelve months. There are 30 litigation pending as on June 15, 2003 against IDBI Bank Ltd. (a subsidiary of IDBI) involving an amount of Rs.91.53 crore. Interest of Present Industrialist Director of IDBI The industrialist Director of IDBI is interested to the extent of shares held by them and/ or by their friends and relatives or which may be subscribed by them and/ or allotted to them by IDBI. The Industrialist Director of IDBI is interested to the extent of fees, if any, payable to them for attending meetings of the Board or Committee and reimbursement of traveling and other incidental expenses, if any, for such attendance as per IDBI Act. The Industrialist Director of IDBI is not interested in the appointment of or acting as Underwriters, Registrars and Bankers to the Issue or any such intermediary registered with SEBI. The Industrialist Director of IDBI is not interested in any property acquired by the Bank within two years of the date of Offer Document or proposed to be acquired by it. Save as stated above, no amount or benefit has been paid or given to the IDBIs Directors or Officers since its incorporation nor is intended to be paid or given to any Directors or Officers of IDBI except the normal remuneration and/or disbursement for services as Directors, Officers or Employees of IDBI. Stock Market Data (i) IDBIs Equity Shares were listed on The Stock Exchange, Mumbai (BSE) and National Stock Exchange of India Ltd. (NSE) in September 1995. The following is the movement in the Share Price of IDBI on The Stock Exchange, Mumbai and the National Stock Exchange of India Ltd. Period High (Rs) BSE Low(Rs) Average(Rs)* High (Rs) NSE Low(Rs) Average(Rs)*

2002 26.50 14.00 20.25 26.65 14.00 20.33 2001 52.25 15.20 33.73 51.05 45.05 48.05 2000 75.10 30.30 52.70 78.95 30.05 54.50 December 2003 62.40 52.45 57.43 62.10 52.25 57.18 November 2003 56.25 50.25 53.25 56.05 50.45 53.25 October 2003 53.25 41.05 47.15 53.05 40.60 52.70 September 2003 41.45 34.00 37.73 41.40 33.90 37.65 August 2003 49.00 36.05 42.53 48.55 36.10 42.33 July 2003 45.35 33.40 39.38 45.25 33.55 39.40 * The average price is calculated as (High price + low price)/ 2 (ii) The following table shows number of shares traded on the day High and Low prices of IDBIs shares were recorded on BSE & NSE for the period January 2003 to June 2003 : Month Date BSE High No. of Shares traded 1613151 884560 329846 NSE High Date No. of Shares traded 3237094 1871116 881662 Date BSE Low No. of Shares traded 1074588 216410 235933 Date NSE Low No. of Shares traded 2453079 607600 494659

December 2003 November 2003 October 2003 September 2003 August 2003 July 2003

08.12.03 11.11.03 31.10.03

08.12.03 11.11.03 31.10.03

12.12.03 24.11.03 01.10.03

12.12.03 21.11.03 01.10.03

29.09.03 26601000 11.08.03 49071700 14.07.03 79471900

29.09.03 71149900 11.08.03 124956000 14.07.03 162386500

05.09.03 58977600 25.08.03 40146000 01.07.03 30369900

05.09.03 91039700 25.08.03 85216400 01.07.03 76312400

88

IDBI FLEXIBONDS 20
(iii) The total volume of shares traded in each month during the six months preceding the date of filing with the Stock Exchange is as follows: No. of shares traded Period December 2003 November 2003 October 2003 September 2003 August 2003 July 2003 (iv) As on December 31, 2003, there were 2,97,048 shareholders of IDBI. BSE 24597581 6837292 25262582 549539600 1171246700 950180500 NSE 52272562 15468983 51959460 1215694500 139755800 2122206000

Details of listing of IDBI and its Subsidiaries Company IDBI Instrument Equity Flexibonds IDBI Bank PUBLIC ISSUES Details of all outstanding public bond issues made in the Indian capital market is furnished in the following table: Year of Issue Type of Issue Amount Amount of Issue retained (Rs. crore) (Rs. crore) 750 1500 Amount Deemed outsta Date of nding Allotment 1174 January 31, 1997 March 16, 1998 Date of closure January 23, 1997 February 18, 1998 Rede Rating at mption the time date of Issue 31/1/2005 31/1/2005 31/8/2006 16/3/2005 Equity Listed on BSE, NSE BSE, NSE BSE, NSE, MPSE

January 1997 Flexi-2 January 1998 Flexi-3

Super Deposit Bond Monthly Income Bond Double Money Bond Infrastructure Bond

750 750

985 1343

234

September 1998 Regular Income Bond Flexi-4 Growing Interest Bond Deep Discount Bond Education Bond December 1998 Infrastructure Bond Flexi-5 Growing Interest Bond Multi Option Bond Regular Income Bond February 1999 Regular Income Bond Flexi-6 Growing Interest Bond Retirement Bond Infrastructure Bond July 1999 Flexi-7 Regular Income Bond Growing Interest Bond Deep Discount Bond Retirement Bond

1492 November 16, 1998

October 16/11/2005 17, 1998 16/11/2005 16/05/2016 16/11/2007-12 January 15, 1999

CARE AAA by

750

1500

1215

February 11, 1999

11/2/2006 CARE & 11/2/2006 AAA by 11/2/2006 CRISIL 11/2/2006 5/4/2006 5/4/2006 5/4/2008-13 27/3/2006 11/9/2004 11/9/2004 11/9/2014 11/9/2004 27/3/2005 AAA by 27/3/2005 CRISIL & IndAAA 27/4/2007 by DCR

750

1500

1233

April 5 and March 27, 1999

March 15, 1999

750

1500

1521 September 11, 1999

August 19, 1999

February 2000 Regular Income Bond Flexi-8 Growing Interest Bond Infrastructure (Tax Saving) Bond

300

573

366

March 27, 2000

March 10,2000

89

IDBI FLEXIBONDS 20

Year of Issue

Type of Issue

Amount of Issue (Rs. crore) 300

Amount Retained (Rs. crore) 561

Amount Outsta -nding 588

Deemed Date of Allotment January 5, 2001

Date of Closure December 16, 2000

Redemption Rating at Date the time of Issue 5/1/2006 5/1/2006 5/5/2007 5/1/2004 or 5/5/2004 30/3/2006 30/3/2006 30/10/2007 30/3/2004 or 30/7/2004 5/2/2009 or 12 5/2/2007 5/4/2007 or 5/5/2009 5/2/2005-07-09 or 5/8/2005 15/3/2009 or 12 15/3/2007 15/3/2009 or 12 15/3/2005 or 09 or 15/9/2005 AAA by CRISIL LAAA by ICRA and Ind AAA by FITCH AA+ by CRISIL & LAA+ by ICRA AA+ by CRISIL & LAA+ by ICRA & IndAA+

November 2000 Flexi-9

Regular Income Bond Growing Interest Bond Money Multiplier Bond Infrastructure (Tax Saving) Bond Regular Income Bond Growing Interest Bond Money Multiplier Bond Infrastructure (Tax Saving) Bond

February 2001 Flexi-10

300

599

613

March 30, 2001

March 2, 2001

December 2001 Regular Income Bond Flexi-11 Growing Interest Bond Money Multiplier Bond Infrastructure (Tax Saving) Bond February 2002 Flexi-12 Regular Income Bond Growing Interest Bond Retirement Bond Infrastructure (Tax Saving) Bond Regular Income Bond Money Multiplier Bond Retirement Bond Infrastructure (Tax Saving) Bond Regular Income Bond Money Multiplier Bond Retirement Bond Growing Interest Bond October 2002 Flexi-15 Infrastructure (tax saving) Bond Growing Interest Bond Money Multiplier Bond Regular Income Bond November 2002 Infrastructure Flexi-16 (tax saving) Bond Floating Rate Bond Retirement Bond Regular Income Bond January 2003 Flexi-17 Infrastructure (tax saving) Bond Money Multiplier Bond GrowingInterest Bond Regular Income Bond Infrastructure (tax saving) Bond Money Multiplier Bond Fixed Option Floating Option Bond Regular Income Bond

250

321

324

February 5, 2002

January 15, 2002

250

334

334

March 15, 2002

February 25, 2002

March 2002 Flexi-13

250

319

332

April 30, 2002

April 30/4/2009 or 12 by FITCH 10, 2002 30/9/2009 or 30/11/11 30/4/2009 or 12 30/4/2005 or 07 or 30/11/2005 August 12/9/2007 or 09 16, 2002 12/11/2007 or 12/2/10 or 12/4/2012 12/9/09 or 12 12/9/07 November 2, 2002 AA+ by CRISIL & IndAA+ by FITCH & LAA by ICRA

July 2002 Flexi-14

200

294

317 September 12, 2002

300

520

531

November 25, 2002

25/11/05 or 08 or 25/5/06 or 09 25/11/07 25/7/07 or 25/5/10 AA+ by or 25/9/12 CRISIL & 25/11/07 or 09 AA+(ind) 17/1/06 or 08 by FITCH or 17/7/06 & LAA 17/1/06 or 08 by ICRA 17/1/10 or 13 17/1/10 or 13 4/3/06 or 08 or 4/9/06 or 08 4/4/10 or 4/5/12 4/3/08 4/3/10 or 13 25/4/06 or 08 or 25/10/06 or 08 25/10/10 or 12 25/4/08 25/4/10 or 13

250

536

536

January 17, 2003

December 23, 2002

300

515

516

January 17, 2003

December 23, 2002

March 2003 Flexi-18

350

485

485

April 25, 2003

March 31, 2003

90

IDBI FLEXIBONDS 20
Year of Issue Type of Issue Amount of Issue (Rs. crore) 300 Amount Retained (Rs. crore) 588 Amount Outsta -nding 588 Deemed Date of Allotment January 12, 2004 Date of Closure December 17, 2003 Redemption Date 12/1/07 or 09 or 12/7/07 12/1/11 or 15 12/1/11 or 14 12/1/11 or 14 or 12/1/19 Rating at the time of Issue AA+ by CRISIL & AA+(ind) by FITCH & LAA by ICRA

December 2003 Flexi-19

Infrastructure (Tax Saving) Bond Money Multiplier Bond Retirement Bond Regular Income Bond

a.

b.

c.

On annual review of rating CRISIL has revised the rating of all the outstanding borrowings and bonds from AAA assigned at the time of issue to AA+ in 2001. ICRA has revised the rating from LAAA to LAA+ and further to LAA. FITCH has revised the rating from IndAAA to IndAA+. CARE has revised the rating from CARE AAA to CARE AA+. The ratings in respect of Public Issue instruments of IDBI were carried out by CARE (promoted by IDBI) along with CRISIL, an independent Credit Rating Agency, prior to commencement of SEBI (Credit Rating Agencies) Regulation, 1999. CARE will monitor the rating till the securities rated by it are outstanding. State Bank of India, Mumbai Main branch, Mumbai Samachar Marg, Fort, Mumbai -400 023 is the debenture trustee for Flexibonds series 47 and Bank of Maharashtra, Lokmangal, 1501, Shivajinagar, Pune 411 005 is the debenture trustee for Flexibonds series 3, 8, 9 and 10. IL&FS Trust Co. Ltd. is the debenture trustee for Flexibonds-11-19. Flexibonds 2 18 are listed on the BSE and NSE. IDBI has maintained Interest coverage ratio, NDSC ratio covenanted in the Trust Agreement in the past and as on the date of filing. The total amount of liabilities as on March 31, 2003 on account of redemption of Flexibonds over the next 10 years will be as follows (Rs Crore) Years FY FY FY FY FY FY FY FY FY FY 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2002-03 Redemption Amount 1149 4032 3657 1415 404 146 357 12 109 89 (Rs. Crore)

PRIVATE PLACEMENTS Details of private placements made during the last 3 years are furnished in the following table: Year of Issue Type of Issue 2000 2001 2001 2001 2002 2002 2003 2003 2003 OMNI 2000A OMNI 2001A FII/D OMNI 2001 B OMNI 2002 A OMNI 2002 B OMNI 2003 A OMNI 2003 B OMNI 2003 C Amount mobilised 660 720 100 48 212 71 68 5 240 Month of Allotment October July July October 2000 2001 2001 2001 Rating at the time of Issue CARE AAA by CARE, AAA by CRISIL & Ind AAA by FITCH IndAAA by FITCH & AA+ by CRISIL AA+ by CRISIL, IndAA+ by FITCH & LAA+ by ICRA AA+ by CRISIL, AA+(ind) by FITCH & LAA by ICRA

June 2002 September February March July 2002 2003 2003 2003

On annual review of rating CRISIL has revised the rating of all the outstanding borrowings and bonds from AAA assigned at the time of issue to AA+ in 2001. ICRA has revised the rating from LAAA to LAA+ and further

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IDBI FLEXIBONDS 20
to LAA. FITCH has revised the rating from IndAAA to IndAA+. CARE has revised the rating from CARE AAA to CARE AA+. The ratings in respect of Public Issue instruments of IDBI were carried out by CARE (promoted by IDBI) along with CRISIL, an independent Credit Rating Agency, prior to commencement of SEBI (Credit Rating Agencies) Regulation, 1999. CARE will monitor the rating till the securities rated by it are outstanding. Investor Grievances The status report for the total number of grievances received and pending for redressal as on December 31, 2003, is given in the following table: No. 1 2 3 4 5 6 7 8 9 Nature of complaint Letters from SEBI Letters from Stock Exchanges Non-receipt of Allotment Advice/ Bond Certificate/ Share Certificate/ Duplicate Certificate Correction in Bond certificate/ other document Change of address/ bank details etc. Non-receipt of Brokerage /incentive Non-receipt of Interest /dividend Warrants Transfer related queries Miscellaneous/ Other queries Total Pending 0 0 0 22 23 7 0 0 32 84

As per IGG Cell of SEBI there were 41 complaints pending as on December 31, 2003. Out of these, 14 complaints have been pending for more than 30 days. Investor grievance redressal system To ensure that the Investor grievances are handled expeditiously and satisfactorily IDBI has put up an IGG cell under the overall supervision of the Compliance Officer to handle all investor grievances. IDBI has appointed a Registrar and Transfer Agent to effectively deal with Investor grievances. The agreement between IDBI and the Registrars to the Issue provides for the retention of issue records with the Registrars for a period of at least twelve months from the last date of dispatch of Letters of Allotment / Bond Certificates / Refund Orders to enable the investors to approach the Registrars for redressal of their grievances. Compliance Officer K P Ramakrishnan General Manager Domestic Resources Department 19th Floor, IDBI Tower, WTC Complex Cuffe Parade, Mumbai - 400005 Tel : (022) 22189117, 22180479 Fax : (022) 22188137, 22181155 e-mail : kp.ramakrishnan@idbi.co.in The investors can also contact the Registrars to the Issue Datamatics Financial Software & Services Ltd at their office at Plot No. A 16 & 17, MIDC, Part B, Crosslane, Marol, Andheri (East), Mumbai - 400 093, Tel : (022) 2837 5519, Fax : (022) 2835 0217, in case of queries/ grievances, if any, regarding this issue. As far as possible, IDBI endeavors to resolve the investors grievances within 60 days of its receipt. Registrar & Transfer Agent for the issue will be Investor Services of India Ltd, IDBI Building, Plot No. 39-41, Sector 11, CBD Belapur, Navi Mumbai - 400 614, Tel : (022) 2757 9645, Fax : (022) 2757 9650. Promises Vs Performance The offer document in respect of the previous bond Issues of IDBI did not contain any statement on projected financial or operational performance.

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IDBI FLEXIBONDS 20
RISK FACTORS Internal Factors (a) Redemption Reserve: Creation of Redemption Reserve is not envisaged for the proposed issue of Bonds. IDBI being a public financial institution has been raising resources both from domestic market and overseas market in the form of unsecured borrowings. In respect of the monies borrowed from overseas markets, IDBI has agreed to create pari passu charge if any other lender is offered security on the assets of IDBI. Since the resources raised by IDBI are being utilised for the purpose of its business i.e. providing credit and other facilities to the industry, the assets of IDBI are mostly in form of loans and advances. Hence it is proposed that the Bonds shall be unsecured in nature in that they shall not be secured against any asset of IDBI. IDBI has appointed a trustee to protect the interest of the investors. In the event of default, the bondholders may proceed against IDBI in terms of the mechanism given under para Trustees to the bondholders on page 26. (b) Credit Risk: The business of lending carries the risk of default by borrowers. Any term lending activity is exposed to credit risk arising from the risk of default by the borrowers. IDBI has put up a systematic credit evaluation process in place. Necessary control measures like maintaining a diversified portfolio with industry-wise, promoter group-wise and specific client-wise exposure limits are set to avoid concentration of lending to any specific industry segment/ promoter group/ company. These limits help minimise credit risk. With a view to derisk the portfolio the exposure limits have been reviewed and exposure by way of Project Finance assistance to greenfield projects have been reduced as a matter of deliberate strategy. A Credit Risk Monitoring Group (CRMG) has been set up at the Head Office to monitor the risk associated with lending to individual projects, business groups and industries. IDBI monitors the performance of its asset portfolio on a regular basis and also constantly evaluates the changes and developments in industries to which it has substantial exposure. (c) Market Risk: Increased interest rate volatility exposes IDBI to market rate risk arising out of maturity/rate mismatches. Risk arising from interest rate volatility is inherent to the business of financial intermediation and term lending. This risk is minimised by linking the interest rates on term lending to a base rate (PLR / MTPLR etc), which varies in accordance with overall movement in market rates. Further, the rate applicable to each tranche of disbursement varies in accordance with the prevailing base rate. In case of lending pegged to floating rates, they are generally matched by floating rate liability (both rupee and foreign currency). IDBI manages market risks through active Asset Liability Management (ALM), viz. liquidity, interest rate and foreign exchange risk by way of Gap/Duration Analysis so as to optimize matching of the Assets and Liabilities. Active Asset Liability Management with efforts to match Duration of Assets and Liabilities as also availability of hedging mechanisms help moderate the market risk. (d) Asset Liability mismatch : The maturity profile of assets and liabilities as on March 31, 2003 shows negative gaps in over 1 to 3 years bucket and Over 5 years bucket. As can be observed from the Table on Maturity profile of Assets and Liabilities given on page (71) there are negative gaps of Rs.1640 crore in over 1 year to 3 years bucket and Rs.4465 crore in over 5 years time bucket. However, the maturity buckets upto 1 year and over 3 years to 5 years have positive gaps of Rs.1303 crore and Rs.4801 crore. On cumulative basis, there is negative gap in only over 1 to 3 years time bucket amounting to Rs.337 crore. This situation has arisen because the balance sheet of IDBI is Assets sensitive and the assets are maturing faster than liabilities. The statement does not take into account the effect of relending of these repayments from clients and fresh borrowings in future. Any gap resulting in any of the maturity buckets at any future date will be managed dynamically through suitable structuring of maturity profile of investment products, asset portfolio and liability products. (e) Credit Rating: The credit rating of outstanding bond issues of IDBI has been revised from AAA to AA+ by CRISIL, from LAAA to LAA by ICRA and from Ind AAA to Ind AA+ by FITCH. The revision in ratings reflects the perception of the rating agencies. While CRISIL has reaffirmed its ratings assigned to Fixed Deposit program of IDBI at FAAA and assigned the highest rating P1+ to the Term Money Bonds, Commercial Papers and Corporate Deposits of IDBI, it has revised its rating assigned to the outstanding bond issues and Certificate of Deposit program of IDBI from AAA to AA+. ICRA has assigned the highest rating A1+ to Commercial Paper, Term Money Bonds, Inter Corporate Deposits and Certificate of Deposits of IDBI. The ratings for Fixed Deposit Programme has been reaffirmed at MAA+. ICRA has revised its rating from LAAA to LAA for bonds. FITCH has revised its rating from IndAAA to IndAA+ for bonds and Fixed

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IDBI FLEXIBONDS 20
Deposits program. While AAA denotes highest safety in terms of timely payment of interest and principal, AA+ denotes high safety of timely payment of interest and principal. LAA indicates high safety. Risk Factors are modest and may vary slightly. The protective factors are strong and the prospect of timely payment of principal and interest as per terms under adverse circumstances, as may be visualized, differs from LAAA only marginally. (f) Contingent Liabilities: As on March 31, 2003, IDBI had contingent liabilities of about Rs.4494 crore on account of Guarantees, Letters of credit, Underwriting Commitments, uncalled monies on partly paid shares/ debentures, claims against IDBI not acknowledged as debt and Disputed Tax claims. As on September 30, 2003 the contingent liabilities aggregated to Rs.4141 crore. The contingent liabilities are solely on account of normal operations and are subject to the prudential norms applicable to lending and investment operations. (g) Pending Grievances : As on December 31, 2003 there were 3 references pending pertaining to Flexibonds2, 5 pertaining to Flexibonds3, 4 pertaining to Flexibonds-4, 4 pertaining to Flexibonds-5, 6 pertaining to Flexibonds-6, 2 pertaining to Flexibonds-7, 11 pertaining to Flexibonds-9, 13 pertaining to Flexibonds-10, 8 pertaining to Flexibonds-12, 7 pertaining to Flexibonds-13, 17 pertaining to Flexibonds-18 and 4 pertaining to Equity shares. Further no complaint was pending for more than 60 days. Tax Liabilities: As on October 31, 2003, the gross demand raised by the Income Tax Department on account of Income Tax, Wealth Tax and Penalty is Rs.5029.25 crore against which the provision made is Rs.2866.69 crore. The demands include Rs.1462.22 crore in respect of matters in which IDBI has favourable decisions in its own case in the earlier years. Thus the amount of contingent liability on account of Tax in dispute is Rs.700.33 crore. Appeals have been filed on matters covered by the disputed amount. (Pl. refer to page (81) of this document). (i) Non Performing Assets (NPA) : The total NPAs of IDBI in amount terms has been increasing over the past 5 years. Movement of Net NPAs over the past 5 years is detailed in the Table on page (60). Net NPAs (percent of total assets) has increased from Rs.6490 crore (12.05%) as on March 31, 1999 to Rs.7330 crore as on March 31, 2003 (14.20%). IDBI has initiated measures for NPA containment by setting up Close Monitoring Cells and Restructuring Committees. IDBI actively monitors all assisted companies for timely recovery of dues. With respect to defaulting accounts, IDBI places emphasis on recovery, settlement and containment of NPAs. The Close Monitoring Cells constantly monitor performance of assisted companies to improve recovery and initiate pro-active remedial actions. Efforts of Close Monitoring Cells are reinforced by Empowered Committee and High Power Committee at Head Office. These committees assess and advise necessary restructuring and one-time settlement process. Wherever the long-term viability of assisted companies is in question, legal measures are initiated and securities are enforced. In cases where financial restructuring is under consideration, discussions are held with other term lenders as also with working capital bankers to have a co-ordinated approach to ensure quicker recovery. A Corporate Debt Restructuring (CDR) mechanism has been set up to facilitate this. Further, there has been substantial changes in the legislative and operating environment enabling FIs and banks to aggressively pursue recovery of overdues. Besides the Debt Recovery Tribunal (DRT) set up for faster settlement of recovery litigation, GOI has recently promulgated The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SRES) Act, 2002, enabling FIs and banks to securitise and reconstruct the financial assets and enforce security of FIs and banks without pursuing the available legal route. As on May 31, 2003 IDBI has issued notices to 49 defaulting borrowers with an outstanding assistance of Rs.1588 crore by invoking provisions under the said Act. Further in 33 cases IDBI has sought consent of other secured creditors for initiating action under the Act. After the SRES Act has come into effect IDBI has initiated action against chronic defaulters resulting in many defaulters willinglly coming forward for settlement of their dues. IDBI has been taking recourse to all available methods for recovery of overdues including reporting to RBI the name of wilful defaulters simultaneous with initiation of necessary steps for recovery. IDBI has also initiated aggressive One Time Settlement (OTS) measures to recover overdues. Aggregate of provisions / write offs as a percentage of Gross NPAs stood at 54% as on March 31, 2003. To facilitate recovery of overdues and reconstruction of weaker assets, IDBI in participation with SBI, ICICI Bank and a few other institutions and Banks have set-up an Asset Reconstruction Company viz. Asset Reconstruction Company of India Ltd (ARCIL). With the changes in operating and legislative environment including formation of the ARC coupled with the NPA management measures initiated the NPA levels are expected to be contained/ reduced.

(h)

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IDBI FLEXIBONDS 20
(j) Overdues : The overdues of Videocon Group Companies, in which Shri R. N. Dhoot (industrialist director in the Borad of IDBI) was associated, as on January 1, 2004 amounted to Rs.57.62 crore. The group has indicated it would clear the overdues shortly. Asset concentration to few industries : The top 5 industries account for 48.17% of the total outstanding assistance as on March 31, 2003. Large exposures to specific industries will be impacted by global trends in these industries. IDBIs loan portfolio is well diversified among industries. The major outstandings are to the iron and steel, power, cotton textiles, telecom services and petrochemicals, which together accounted for about 48% of the outstandings as at March 31, 2003. As a prudential measure, IDBI has recently revised the exposure limit to individual industry at 10% of its total portfolio or Rs.5000 crore whichever is lower. As on March 31, 2003 only two industries viz. Iron & Steel (18.31%) and Electricity Generation (12.58%) exceeded the limit. This excess has been largely due to historical factors wherein IDBI had been extending assistance to core sector projects in line with overall national objectives. IDBI particularly monitors both domestic and global trends and developments in industries accounting for higher exposure within its portfolio and takes necessary actions and remedial measures to maintain its portfolio quality and reduce any possible adverse impact on its financials. (l) Change In Balance Sheet size : IDBIs total asset and liabilities have decreased from Rs.66,643 crore to Rs.63,116 crore during FY 2003. To improve the asset quality, IDBI has restricted new assistance and extends assistance only on very selective basis. On the liability side, IDBI has exercised call option on its high cost borrowings during the year. Change in the Balance Sheet size is a part of the deliberate strategy of IDBI to pursue quality asset growth and profitability in operations. (m) Nature of Bonds : Bonds are in the nature of promissory notes transferable by endorsement and delivery. The bonds are valuable documents and should be kept safely. Duplicate bonds will be issued only in accordance with the procedure specified later in the offer document. The bonds are also offered in demat mode. Decrease in profit : The profit after tax of IDBI is Rs.401 crore for FY 2003 as against Rs.424 crore for FY 2002 and Rs.691 crore for FY 2001. IDBIs profit after tax for the half year ended September 30, 2003 stood at Rs.176 crore as against Rs.152 crore in the corresponding half year ended September 30, 2002. General economic slowdown in the recent past has led to lower industrial activity. During the last couple of years credit off-take has been low due to lower industrial growth in spite of fall in interest rates and other steps taken by the Government to boost the industrial performance. Foray of commercial banks into term lending has also resulted in increased competition to extend assistance to creditworthy clients at very competitive rates. Resultant lowering of interest income and overall squeezing of margin has impacted the profit after tax. However with the expected economic upturn the position is expected to improve. Further recovery out of written off cases will directly add to the profit of IDBI. (o) Return on Assets : The return on average assets has declined from 10.4% in FY 2002 to 9.8% in FY 2003 while the average cost of funds has also gone down from 9.2% to 8.5% over the same period. The major factor impacting the returns and costs is the sharp drop in interest rates during the last few years. This has resulted in prepayment of borrowing by high credit clients which in turn has, to some extent impacted credit composition of the portfolio. This coupled with NPAs adversely affected return on assets. On the cost front, impact of drop in incremental cost of rupee borrowing (12.08% in FY 2000 to 11.21% in FY 2001, to 9.81% in FY 2002 and further down to 8.35% in FY 2003) and exercising of call option on high cost borrowings by IDBI has resulted in decline in cost of borrowing. The average cost of loan funds has reduced from 11.5% in FY 2002 to 10.5% in FY 2003. As may be observed from above, the decline in average cost of funds has been more than the decline in average return on assets. Further as mentioned on page (67) of this offer document under the auspicies of GOI, the liabilities of IDBI to Public Sector Banks, Institutions etc. has been restructured, which will bring down the average cost of funds of IDBI significantly. (p) Quoted Investments : IDBI has in its portfolio quoted investments aggregating Rs.2730.22 crore as on March 31, 2003 which are booked at cost whose market value amounted to Rs.2152.54 crore. As on September 30, 2003 its portfolio quoted investments aggregating Rs.5993.78 crore, which are booked at cost whose market value amounted to Rs.6392.20 crore.

(k)

(n)

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IDBI FLEXIBONDS 20
As on March 31, 2003, IDBI had debentures of Rs.4389.16 crore in its portfolio. All the debentures are secured by hypothecation/mortgage of fixed assets. However, in case of debentures amounting to Rs.795 crore, the final security by way of mortgage was yet to be created as on March 31, 2003. IDBIs investment portfolio is predominantly of long term and strategic nature. Temporary diminution in value of securities arises on account of price volatility due to factors and forces affecting the stock market, interest rates, etc. IDBI has been classifying its investment portfolio and making appropriate provision for diminution in value as per RBI guidelines issued from time to time in this regard. The investments are classified under the following categories (i) Held to Maturity, (ii) Available for Sale (iii) Held for Trading. These investments were valued according to the prevailing valuation norms. (q) Foreign Exchange Risk : IDBI may be exposed to foreign exchange risk on account of changes in foreign exchange rates. IDBI maintains a currency-wise matching of assets and liabilities. IDBI makes foreign currency loans on terms that are similar to its foreign currency borrowings thereby transferring the foreign exchange risk to the borrower. In case of certain foreign currency borrowings that are re-lent in rupees, the Govt. of India bears the foreign exchange risk on these borrowings pursuant to certain agreements between IDBI and GOI. IDBIs foreign currency cash balances are generally maintained abroad in currencies matching with the underlying borrowings. IDBI also operates a USD denominated single currency pool (SCP) and interest rate risks under the SCPs are hedged through basic SWAPs. IDBI is therefore not exposed to any significant risk on account of foreign exchange fluctuations. External Factors (a) Changes in Government policies may impact the performance of the industrial sector, which may in turn affect IDBI Indian industry has demonstrated remarkable resilience in adjusting to the changed environment and competition in the wake of the economic reforms initiated by the Government. Further, IDBIs diversified portfolio provides a sufficient cushion against any downtrend in a particular industry or sector. (b) Risk of Competition : Competition in the financial sector has increased and is likely to increase further with the entry of commercial banks and other new players in term lending. IDBI faces competition both in corporate lending and in raising resources. While focusing attention on its core business of project financing and infrastructure financing in particular, IDBI has taken steps to diversify its operations in various other areas like working capital financing, merchant banking, corporate advisory services, forex services, venture capital, non-fund based activities etc. IDBI, through its subsidiary/ associate companies also addresses the needs of its clients for commercial banking requirements, depository services, capital market related services, mutual fund products, information technology services etc. On the resource-raising front, avenues like Mutual Funds,Charitable and Religious Trusts, Private insurance companies, Pension Funds, etc. hold good potential. IDBI has over the years strengthened its reach to retail segment through its public issues of retail bonds and Fixed Deposits marketed through its 35 branch offices, large agent network, broking outfits and debt market intermediaries. (c) Development of the capital markets may lead to disintermediation by borrowers. With the development and maturing of the capital markets, there has been a distinct shift in the pattern of industrial financing. However, it will be noteworthy that while a part of the financial requirement of the industrial projects may be met by direct borrowing from the investors, a major portion will still need to be serviced by financial intermediaries. Consequent to the opening up of the economy, large projects in infrastructure, power, petroleum, telecom, etc. with huge financial outlays are being set up. Their large fund requirements are unlikely to be met by private investments alone. Accordingly, the requirement of funds both from lending institutions/banks and the capital market is likely to increase substantially. Also, the disintermediation brings with it the opportunity for IDBI to expand its fee based activities. General Risks Investors are advised to read the risk factors carefully before taking an investment decision in this offering. For taking an investment decision, the investor must rely on his/her own examination of the issuer and the issue including the risks involved. The Bonds have not been recommended or approved by SEBI nor does SEBI guarantee the accuracy or adequacy of this document.

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IDBI FLEXIBONDS 20
Notes 1. Allotment against all valid applications for the IDBI Infrastructure (Tax Saving) Bond (2004 B) will be made on a full and firm allotment basis, upto the issue size Rs.400 crore plus the amount of over subscription retained by IDBI. Subscribers to the IDBI Infrastructure (Tax Saving) Bond (2004 B) will have priority over subscribers to other bonds for allotment. Therefore, only after all eligible applicants for IDBI Infrastructure (Tax Saving) Bond (2004 B) have been allotted, applications for other bonds will be considered for allotment on proportionate basis. IDBI would like to clarify that inspection by RBI is a regular exercise and is carried out periodically by RBI for all Banks and Financial Institutions. IDBI is in dialogue with RBI in respect of observation made by RBI in their report for previous year. The reports of RBI are strictly confidential. RBI does not allow disclosure of its inspection report and that all the disclosures in the Offer Document are on the basis of Management and Audit Reports of the Issuer. The Networth of IDBI as on March 31, 2003 was Rs.6945 crore and September 30, 3002 was Rs.7122 crore. The present issue size is Rs.400 crore with an option to retain oversubscription upto Rs.400 crore. The Book Value per share of IDBI as on March 31, 2003 was Rs.106.4. Cost per share to the promoter of IDBI i.e. GOI is Rs.10 (i.e. at par). Shri R. N. Dhoot, a director on the board of IDBI, nominated by the Government of India, was on the board of some of the Videocon group companies in the past. SEBI had taken action against one of the Videocon group companies viz. Videocon International Ltd. and 3 of its officials. On an appeal filed by Videocon International Ltd, the SAT vide its order dated June 20, 2002 has set aside SEBIs order directing Videocon International Ltd. in so far as not to raise money from the public in the capital market for a period of 3 years. SEBI has filed an appeal against the said SAT order in the Honble High Court of Mumbai and the appeal is pending. Shri R.N. Dhoot is, however, not a Director on the Board of Videocon International Ltd., nor does he figure in the list of 3 officials mentioned above. As on March 31, 2003, loan outstanding to any company with which industrialist director presently on the Board of IDBI was associated in the past, amounted to Rs.908.64 crore, comprising of loans to (i) 8 companies engaged in the electronics and electronics appliances industry (Rs.567.44 crore) and (ii) a company in petroleum industry (Rs.341.20 crore). These loans constituted 1.76% of the total loan outstanding and 13.08% of IDBIs Net Worth as on March 31, 2003. The bonds may have various features/options. Such features need specific attention of the investor. For better understanding of such common features, investors are requested to refer to the discussion on Glossary of common terms used in Bond structures on page 132 of this offer document. Summary of transactions of IDBI with its subsidiaries for three years ended March 31, 2001 Interest income Dividend, fees, commission and other revenue Interest expense Administrative and other expenses Outstanding Balances Loans Investments Current assets Long term debt Current Liabilities 9. 145.42 93.09 5.86 1.75 809.76 648.10 0.27 112.58 2.20 March 31, 2002 5.81 51.51 2.57 8.37 1.20 388.10 19.47 50.00 7.67 (Rs. crore) March 31, 2003 2.91 152.00 0.17 7.73 58.00 296.60 105.73 4.61 8.63

2.

3. 4. 5.

6.

7.

8.

The financial information as contained in the Auditors Report, including the notes to accounts, significant accounting policies as well as Auditors qualifications have been duly certified by the Auditors of IDBI. As far as possible, the Audited numbers have been used for computation of or arriving at the other financial information contained in the Offer Document. However, such other financial information contained in the Offer Document except as contained in the Auditors Report has been certified by the management of IDBI.

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IDBI FLEXIBONDS 20
AUDITORS REPORT
The Board of Directors, Industrial Development Bank Of India, IDBI Tower, World Trade Complex, Cuffe Parade, Mumbai 400 005. Dear Sirs, We have examined the accounts of Industrial Development Bank of India (IDBI) for the 4 financial years ended 31st March 2002. These accounts have been audited by other firms of chartered accountants and for the purpose of preparing this report, we have relied on their audit reports. We have also examined the accounts for the year ended 31st March, 2003 as well as the accounts for the six months ended 30th September, 2003. We report as follows, 1. The profits of IDBI for the 5 financial years ended 31st March 2003 and for the half-year ended September 30, 2003 and Assets and Liabilities as at that date are extracted from the aforesaid accounts which were drawn-up in accordance with Regulation 14 of the Industrial Development Bank of India Regulations, 1994. 2. The profits read together with the notes appearing hereunder and the Significant Accounting Policies as also the notes appearing under the head Adjustments resulting from audit qualifications, material amounts relating to adjustments for previous years and changes in accounting policies, have been arrived at after charging all expenses and after making such adjustments and regroupings as are, in our opinion, considered appropriate and are set out as follows. 3. There is no significant deviation from accounting standards applicable to listed companies. There are no material notes/qualification in the Auditors Report which has a significant impact on the financials or bearing on the financial status of the company. Attention is invited to Note 3 to the Profit and Loss A/c. in this report regarding reimbursement from Government of India on account of interest differential. We have also examined the attached consolidated Balance Sheet of IDBI and its subsidiaries as at March 31, 2003 and the consolidated Profit and Loss A/c. for the year then ended and report that the said financial statements have been prepared by IDBI in accordance with the requirements of Accounting Standard (AS) 21, Consolidated Financial Statements, (AS) 23 Accounting for Investments in Associates in Consolidated Financial Statements and (AS) 27 Financial reporting of Interests in Joint Ventures, issued by the Institute of Chartered Accountants of India, except to the extent that (a) Statement of calculation of minority interest and, (b) Consolidated Cash flow Statement, have not been furnished. I. PROFITS ( Rs.crore) Year ended March 31 INCOME From operations (After writing off bad debts and/or making provisions for Bad & Doubtful Debts and other necessary and expedient provisions) A) Interest & Discount 6359 6225 6191 5862 5219 2103 B) Income from investments 694 818 757 761 516 337 C) Commission & Brokerage, etc. 176 194 188 130 73 28 D) Net Profit on Sale of Investments 62 382 535 278 419 291 E) Other Income 173 240 164 145 144 46 TOTAL INCOME 7464 7859 7835 7176 6371 2805 EXPENDITURE A) Interest paid on deposits, borrowings, etc. (see Note 3) 5725 6370 6595 6250 5434 2381 B) Accelerated write-off of bad and 2500 --doubtful debts Less : Withdrawn from special reserve (2500) --u/s36(1)(viii) of IT Act, 1961 C) Establishment expenses 76 74 84 117 95 54 D) Depreciation 200 213 230 223 199 89 E) Other Expenditure 162 175 192 171 188 84 GROSS EXPENDITURE 6163 6832 7101 6761 5916 2608 PROFIT BEFORE TAXATION 1301 1027 734 415 455 197 1999 2000 2001 2002 2003 April -Sept. 2003

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IDBI FLEXIBONDS 20
(Rs.crore) Year ended March 31 PROFIT BEFORE TAXATION Less : Provision for Taxation Add : Deferred Tax Income PROFIT AFTER TAXATION Excess Income tax/Interest tax provision of earlier years written back BALANCE OF PROFIT Balance of profit b/f from last year Profit available for appropriation Transfers to : Reserve Fund Investment Equalisation Reserve Investment Fluctuation Reserve Special Reserve u/s 36(1) (viii) of I.T. Act, 1961 Venture Capital Fund IDBI EXIM(J) Special Fund Staff Welfare Fund Contingency Reserve Capital Reserve Proposed dividend on Redeemable Preference Shares Proposed dividend on equity shares Tax on Dividend Surplus TOTAL 400 50 190 30 2 200 303 34 289 1498 400 125 142 30 2 303 33 201 1236 300 120 50 5 25 294 36 62 892 25 30 5 12 98 316 486 25 75 31 98 12 476 717 ------------652 652 1999 1301 (75) 1226 2000 1027 (80) 947 2001 734 (43) 691 2002 415 (10) 19 424 2003 Apr-Sept 2003 455 (92) 38 401 197 (39) 18 176

33 1259 239 1498

947 289 1236

691 201 892

424 62 486

401 316 717

176 476 652

The above figures have been rounded off to the nearest crore. Wherever the actual figure is less than Rs 50 lakhs, they have been reflected as 0. Adjustments resulting from audit qualifications, material amounts relating to adjustments for previous years and changes in accounting policies (Rs.crore) Year ended March 31 Profit after tax and after extra Ordinary items Prior period items Diminution in value of investments Adjusted Profit after tax 1259 4 1263 947 (3) 944 691 (3) 68 756 424 (13) 411 401 401 176 (7) 169 1999 2000 2001 2002 2003 Apr-Sept 2003

The above figures have been rounded off to the nearest crore.

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IDBI FLEXIBONDS 20
Notes to Adjustments 1. We have taken the view that adjustments to profits in respect of the following: a) b) c) d) material amounts relating to previous years although events triggering off the profit/loss occured in a subsequent year. extraordinary items changes in accounting policies, and prior period items, are required to be done as per the SEBI guidelines in respect of only those items which are disclosed in the audited financial statements of the five financial years.

2. 3.

Prior Period Items : These represent the net difference between prior period incomes and prior period expenses charged to the Profit and Loss account of the relevant years. Diminution in value of Investments : From the year 2000 2001 net appreciation / depreciation in investments is credited / charged to the Profit and Loss account as against the earlier policy of charging / adjusting the permanent diminution if any in the value of shares, bonds and debentures to the Investment Equalization Reserve.

Notes to the Profit and Loss Account for the half year ended September 30, 2003. 1. Other expenditure for the half year ended September 30, 2003 includes Management fees, commitment charges etc. on FC Borrowings Unsecured Bond Issue Expenses written off Repairs & Maintenance & Telephone expenses Guarantee Fees on Bonds & FC lines of credit Prior period expenditure/ (Income) - Net Miscellaneous expenditure Brokerage/Incentives on Bonds and Deposits Others Total 2. Other Income for the half year ended September 30, 2003 includes : Interest on Bank deposits Fees for Financial Services Profit (net) on Dealing room activities Prior period income Management Fees for assistance under DPG/Guarantee Miscellaneous Receipts Rupee Interest Rate Swap (Hedge) - Gain/(Loss) Others Total 3. (Rs. Crore) 3.12 35.69 4.65 6.73 (4.79) 4.57 4.98 12.58 67.53 (Rs.crore) 5.95 9.24 1.15 2.01 -3.07 13.07 11.67 46.16

GOI reimburses the amount representing difference between the document rate of interest and 8% p.a. on IDBIs liabilities towards select Banks/Institutions. The interest expenditure debited to Profit and Loss A/c.is after taking into account such credit of Rs.341 crore for the half year ended September 30, 2003 on paid/accrued basis.

100

IDBI FLEXIBONDS 20
II. ASSETS AND LIABILITIES The assets and liabilities as at September 30, 2003 read together with the notes appearing hereunder and the significant accounting policies adopted, are as set out below: (Rs.crore) Assets as at September 30, 2003 Cash and Bank Balances a] b] Cash in hand and balances with RBI Balances with other Banks in India a) b) c] a) b) a) b) c) a] b] On current account On deposit account On current account On deposit account 151 57 66 961 4271 4279 6216 1569 41404 42973 467 296 860 4207 64820 43834 4094 14766 1251 16 Amount Amount

Balances with other Banks outside India

Investments (See Note No. 4) Securities of Central and State Govt. In stocks, shares, bonds and debentures of financial institutions In stocks, shares, bonds and debentures of industrial concerns To Scheduled Banks, State Co-operative Banks and other Financial Institutions To industrial concerns Bills of Exchange and Promissory Notes Discounted or Rediscounted Premises (at cost less depreciation) (See Note Nos. 5) Other Fixed Assets (at cost less depreciation) (See Note No. 6) Other Assets (See Note No.7) TOTAL ASSETS LIABILITIES Bonds and Debentures (See Note No. 2) Deposits Borrowings i] From RBI a] b] c] ii] a] b] c] iii] iv] Secured against stocks, funds and other trustee securities Secured against Bills of exchange or promissory notes Out of the National Industrial Credit (LTO) Fund Interest free loan Against IDA Line of Credit/World Bank Loan Other Loans 5 3 603 4589 5200 4537 57665 -

Loans and advances

From Govt. of India

From other sources In Foreign Currency Current liabilities & provisions (See Note No. 3) TOTAL

101

IDBI FLEXIBONDS 20
(Rs.crore) September 30, 2003 NET ASSETS Represented by Share Capital Issued, subscribed and paid-up: 65,28,30,400 Equity shares of Rs. 10 each, fully paid up Less: Allotment money in arrears Reserves Funds and Surplus (see note 1) i) ii) Reserve fund Other funds a] b] c] d] iii) Staff Welfare Fund Venture Capital Fund Exchange Risk Administration Fund IDBI EXIM(j) Fund 653 0 3808 32 179 0 2 50 0 0 111 1624 44 652 6502 7155 653 Amount Amount 7155

Reserves a] Investment Fluctuation Reserve b] c] d] e] Foreign Currency Fluctuation Reserve Premium on bond issue Special Reserve under Section 36(1)(viii) of the Income Tax Act, 1961 Share Premium Account

iv)

f] Capital Reserve Surplus TOTAL

The above figures have been rounded off to the nearest crore. Notes to the Balance Sheet as at September 30, 2003 1. Reserves, Funds and Surplus Balance as at 1.4.2003 Additions/ Transfers during the period 1.54 -- ---- 176.47 178.01 (Rs. crore) Deductions/ Transfers during the period 0.51 ----0.51 Balance as at 30.9.2003

Particulars

Reserve Fund Venture Capital Fund Staff Welfare Fund IDBI-EXIM(J) Special Fund Share Premium Account Special Reserve under Section 36(1) (viii) of the Income Tax Act, 1961 Investment Fluctuation Reserve Capital Reserve Profit & Loss (Surplus) Account Total

3808.04 178.99 31.33 1.69 1624.46 111.35 50.00 43.43 475.97 6325.26

3808.04 178.99 32.36 1.69 1624.46 111.35 50.00 43.43 652.44 6502.76

102

IDBI FLEXIBONDS 20
2. Bonds and Debentures (i) Issued in rupees (a) Bonds and Debentures guaranteed by the GOI (b) Discount/ Zero coupon bonds less: discount not w/off (c) (ii) Other bonds and debentures (Rs.crore) As on September 30, 2003 5544.79 566.33 (137.24) 5973.88 36713.44 42687.32 1146.62 (0.34) 1146.28 43833.60 (Rs.crore) As on September 30, 2003 Prudential provisions against standard assets Provision for Taxation Provision for Deferred Taxation Receipts from borrowers pending appropriation Receipts from borrowers in advance Income received in advance on Bills etc. Interest/ premium payable on Bonds and Deposits Application money received on bonds Provision for outstanding liabilities (including Interest accrued but not due) Others Total 4. Investments a) b) i) ii) Quoted Unquoted In Financial Institutions / Technical consultancy organizations * In Industrial Concerns (Rs.crore) Book Value 5993.78 2624.45 6147.71 Market Value 6392.20 1878.86 1150.94 4537.22 123.51 233.04 217.50 68.78 349.28 70.33 413.03 31.95

Issued in foreign currency US dollar denominated FRNs less : discount paid in advance on FRN issue Total

3.

Current Liabilities & Provisions include

The above investments at (a) and (b) have been classified as under as required by RBI guidelines: Held To Maturity Rs.7526.91 crore Available For Sale Rs. 6367.80 crore Held For Trading Rs. 871.23 crore * Includes investments in units of MFs, the book value of which was Rs.2002.96 crore and the NAV / Assured redemption value stood at Rs.2066.36 crores. 5. Premises include Leasehold Land of Rs.135.03 crore and Capital work-in-progress of Rs.5.69 crore. Workin-progress of Rs. 4.22 crore is in respect of a residential building which is under construction on land subleased to the bank. The sub-lease has not yet been ordered for registration in favour of the bank and disputes having arisen, the matter is sub-judice. The Other Fixed Assets include Assets given on lease amounting to Rs.824.39 crore at cost less depreciation and after adding the debit balance in Lease adjustment account Rs. 200.25 crore.

6.

103

IDBI FLEXIBONDS 20
7. Other Assets include Amount recoverable form associate institutions Accrued Income Deposits towards lease rentals for premises Pre-paid taxes including TDS paid Advances & Housing Loan to staff Loans disbursed on behalf of other institutions Exchange Fluctuation recoverable under ERAS Minimum guaranteed Dividend receivable on shares of SFCs (up to 31.03.1995) Application money in respect of Shares/Debentures of Jt.St. Cos./FIs Advance towards leased assets Unsecured Bond issue exp. not written off Others (Rs.crore) As on September 30, 2003 2.51 1252.69 33.71 1345.93 91.17 40.84 19.53 43.02 81.27 69.46 133.54 1093.56 4207.23 8. 9. Foreign currency balances have been translated at the FEDAI rates prevailing as on September 30, 2003. Contingent Liabilities: i) ii) iii) iv) v) vi) Claims against the Bank not acknowledged as debts On account of Guarantees/Letters of Credit issued* On account of underwriting commitment On account of uncalled monies on partly paid shares, debentures etc. On account of disputed income tax, interest tax, penalty and interest demands Monies for which the Bank is contingently liable **700.33 1.31 (Rs.crore) 397.95 3040.99 0 0

* includes guarantees/letters of credit in foreign currency converted at FEDAI rates prevailing as on September 30, 2003. ** The gross demand raised by the Income Tax Department on account of Income Tax, Wealth Tax, Interest Tax, Penalty and Interest demands is Rs.5029.25 crore against which the provision made is Rs.2866.70 crore. The demands include Rs.1462.22 crore in respect of which IDBI has favourable appellate decisions in its own cases in the earlier years. 10. 11. Estimated amount of contracts remaining to be executed on capital account not provided for (net of advance paid) is Rs.0.45 crore. Provision for taxation for the year ended September 30, 2003 has been made after considering a) b) 12. 13. 14. Deduction under Sec.36(1)(viii) of Income Tax Act, 1961, in respect of which transfer to Special Reserve would be made at the end of accounting year and Amount provided towards sub-standard, doubtful assets and loss assets indicated at note No.E on Significant Accounting Policies below.

Interest and discount etc. includes Rs.125.91crore of Lease Rental Income (net of lease equilisation) Current Liabilities and Provisions include a sum of Rs. 123.51 crore for provision against standard assets. The figures of the Previous year/period have been regrouped whereever required.

104

IDBI FLEXIBONDS 20
Significant Accounting Policies A. Income Recognition 1. 2. 3. 4. 5. 6. Income is shown in the Profit & Loss Account net of provisions/ write off / write back during the year for bad and doubtful debts and also other necessary and expedient provisions. Interest income, lease rentals and other dues are reckoned as accrued, in accordance with the directives issued by RBI from time to time regarding income recognition. Underwriting/guarantee commissions are reckoned on accrual basis. Front-end fees, loan syndication charges, appraisal fees, fees for merchant banking, debenture trusteeship and other financial services are accounted on cash basis. Discount received in respect of Bills discounted/rediscounted, Commercial paper and Certificate of Deposits is apportioned over the period of usance of the instruments. The amount of Lease Equalisation representing the difference between the annual lease charge and the depreciation provided on leased assets in the books is adjusted in the Profit & Loss a/c with corresponding adjustment to the value of leased assets through a separate lease adjustment account. The minimum dividend guaranteed by State Governments on shares held in the State Financial Corporations under section 6 of the State Financial Corporations Act, 1951 is recognised on realisation basis. Final dividend on shares held in Industrial Concerns and Financial Institutions is recognised as income on dates of declaration and interim dividend is recognised as income when received.

7.

8. B.

Investments 1. In terms of extant Guidelines of the Reserve Bank of India, the entire investment portfolio is categorised as Held to Maturity Available for sale and Held for trading. The investments under each category are further classified as i) Government securities ii) other approved securities iii) Shares iv) Debentures & Bonds v) Subsidiaries / joint ventures vi) Others (CP, Mutual Fund Units, etc). 2. 3. The debentures/bonds/equity and preference shares deemed to be in the nature of advance, are subject to the usual prudential norms. Investments acquired with the intention to hold till maturity are categorised under Held to Maturity. Such investments are carried at acquisition cost unless it is more than the face value, in which case the premium is amoritised over the period remaining to maturity. Diminution, other than temporary, in the value of investments in subsidiaries / joint ventures under this category is provided for each investment individually. Profit on sale of investments in this category are appropriated to the capital reserve account at the end of financial year. Investments acquired with the intention to trade by taking advantage of the short-term price/ interest rate movements are categorised under Held for Trading. The investments in this category are revalued as a whole and net appreciation/ depreciation is recognised in the profit & loss account, with corresponding change in the book value of the individual scrips. Investments which do not fall within the above two categories, are categorised under Available for Sale. The individual scrips under this category are revalued at yearly intervals and net depreciation under any of the six classifications mentioned above, is recognised in the profit & loss account. Net appreciation under any classification is ignored. The book value of individual scrips is not changed. The basis for periodical valuation of investments categorised as Held for Trading and Available for Sale are as follows: Treasury bills are valued at carrying cost; In respect of traded /quoted investments, the market price is taken as available from the trades / quotes on the stock exchanges, price of SGL Account transactions, price list of RBI and prices declared by PDAI / FIMMDA periodically; and

4.

5.

6.

7. 8.

The unquoted shares / units are valued at break-up value / repurchase price & Net Asset Value. The unquoted fixed income securities are valued on YTM basis with appropriate mark-up over the YTM rates for Central Government securities of equivalent maturity. Investments are shown net of provisions. Profit/Loss on sale of investments are booked on accrual basis.

105

IDBI FLEXIBONDS 20
C. Fixed Assets and depreciation 1. 2. 3. Fixed Assets are shown at cost less depreciation. Depreciation on assets acquired during the course of leasing business is provided on straight-line method pro-rata from the month in which lease rentals commence over the primary period of lease. (a) Depreciation is provided on : i) ii) (b) 4. D. Motor vehicles on Straight Line Method. Other Fixed Assets on Written Down Value Method.

No depreciation is provided on assets sold/or discarded during the year.

Leasehold land is amortised over the period of lease.

Foreign Currency Transactions 1. Income and Expenditure is accounted at the actual exchange rates of remittance. Amounts pending remittance are accounted at the closing FEDAI rates. Foreign Currency assets and liabilities are translated at closing FEDAI rates. Forward Exchange Contracts and the net-income/expenditure thereon are accounted for on the settlement date.

2. E.

Provisions For Assets As per RBI Guidelines, loan assets and other assistance portfolios (including debentures in the nature of advances) are to be classified as Standard, Sub-standard, Doubtful and Loss subject to provision / write off on an annual basis, as under: 1. 2. 3. Standard Assets Sub-Standard assets Doubtful assets 0.25% of loan/assistance 10% of loan/assistance. 100 % of unsecured portion plus 20% /30% /50% of secured portion depending on the period for which the loan/assistance have remained doubtful The entire assistance is to be provided/written off.

4.

Loss Assets

On the above basis and keeping in view the record of recovery and other relevant factors the requirements of provisions/write-off are being determined. Loan Assets are shown net of provision/write-offs for sub-standard/doubtful/loss assets. F. Retirement Benefits The Gratuity, Leave encashment and Pension Liability determined based on actuarial valuation at the yearend, is fully provided for. G. Interest Expenditure on Borrowings The Interest Expenditure on Borrowings is accounted for on accrual basis. H. Expenditure / Discount On Bond Issues The expenses relating to issue of bonds and discount, if any, on the issue are amortized equitably over the tenure of the bonds/over the period upto which the earliest redemption expires. I. Securitisation Transation: Financial assets securitised are derecognised in the books and the gains/loss on securitisation are recognised in the year of securitisation. Expenditure incurred for securitisation are charged off in the year of securitisation. J Accounting Standards Mandatory Accounting Standards as applicable to the Bank in accordance with RBI Guidelines issued from time to time are followed.

106

IDBI FLEXIBONDS 20
IV. SIGNIFICANT CHANGES IN ACCOUNTING POLICIES BETWEEN 1st April 1997 AND March 31, 2003 1. Foreign Exchange Fluctuation: Gains / losses on account of the differences in the exchange rates applied for such transactions upto March 31, 1997 were reflected in the Foreign Currency Exchange Fluctuation Account. It has been decided to account such gains/losses from April 1, 1997 to the Profit & Loss A/c. 2. The balance in investment equalisation reserve was being maintained to cover the permanent deminution, if any, in the value of shares, bonds and debentures. It has been decided from the year 2000-01 onwards that net appreciation/depreciation in investment be credited/charged to profit & loss account. 3. Investments : Change in categorisation / method of valuation 1. Up to 31st March 2000 Categorisation a. Government Securities b. Treasury Bills c. Shares Debentures and Bonds d. Commercial Paper e. f. g. Certificate of Deposit Units of Mutual Funds Subscription to Venture Capital Funds From the year 2000 2001 1. Categorisation a. Held to Maturity b. Available for Sale c. Held for Trading Investments under each of the above category are further classified as : a. Government securities b. Other approved securities c. Shares d. Debentures and Bonds e. Subsidiaries / Joint ventures f. Other (CP, Mutual Fund Units, etc.) 2. Valuation a. Held to Maturity At cost of acquisition unless the same is more than the face value, in which case the premium is amortised over the period remaining to maturity. Permanent diminution in the value of investments in subsidiaries / joint ventures is provided for each investment individually. b. Available for Sale Individual scripts under this category are revalued and net depreciation under each of the six classifications mentioned above is recognised in the Profit and Loss account, net appreciation under any classification is ignored and the book value of individual scripts is not changed. c. Held for Trading Investments under this category are revalued as a whole and net appreciation/depreciation is recognised in the Profit and Loss account, with a corresponding change being made in the book value of the individual scripts.

2.

Valuation a. Government Securities Permanent investments at cost. Current investments at lower of cost or Market value or at YTM advised by RBI b. Treasury Bills At carrying cost c. Shares, Debentures and Bonds At cost, after adjusting for diminution as per RBI norms d. Commercial Paper At face value e. Certificate of Deposit At face value f. Units of Mutual Funds At cost g. Subscription to Venture Capital Funds At cost

4.

Provisioning against Standard Loan Assets and other assistance portfolios : From the year 1999 2000 a provision of 0.25 % is made against standard loan assets and other assistance portfolios as required by the revised Prudential Norms of RBI.

107

IDBI FLEXIBONDS 20
CONSOLIDATED BALANCE SHEET AS AT MARCH 31, 2003 The consolidated Balance Sheet of IDBI and its subsidiaries as on March 31, 2003 is given below (Rs. crore) LIABILITIES 1. SHARE CAPITAL Authorised 150 00 00 000 Equity Shares of Rs.10 each 50 00 00 000 Redeemable Preference Shares of Rs.10 each Issued and paid up 65 28 30 400 Equity Shares of Rs.10 each 2. RESERVES, FUNDS AND SURPLUS i) Reserve Fund ii) Statutory Reserves iii) Reserve u/s 45 IC of RBI Act iv) Other Funds a) Staff Welfare Fund b) Venture Capital Fund c) Exchange Risk Admn. Fund d) IDBI EXIM(J) Special Fund v) Reserves a) Share Premium b) Special Reserve under Section 36(1)(viii) of IT Act, 1961 c) Sp. Res. created and maintained u/s 36(1)(viii) of IT Act, 1961 d) Capital Reserve e) Investment Fluctuation Reserve vi) Surplus 3. GIFTS,GRANTS,DONATIONS AND BENEFACTIONS i) From Government III 2130.50 3651.13 36181.33 41962.96 10362.21 ii) From Other Sources 4. BONDS AND DEBENTURES Tier I Bonds Tier II Bonds Other Bonds and Debentures 5. DEPOSITS 1642.81 6.35 105.00 51.82 64.28 613.08 6796.02 II 1.69 31.33 178.99 I 3946.08 36.42 118.17 652.83 1500.00 500.00 2000.00 Schedule No March 31, 2003

108

IDBI FLEXIBONDS 20
(Rs. crore) LIABILITIES 6. BORROWINGS i) From Reserve Bank of India a) Secured against stocks,funds and other trustee securities b) Secured against bills of exchange or promissory notes c) Out of National Industrial Credit(Long Term Operations) Fund d) Others ii) From Government of India a) Interest-free loan b) Other Loans 1. Against IDA /World Bank Loan 2. Others iii) From Other Sources iv) In Foreign Currency 7. CURRENT LIABILITIES AND PROVISIONS Deferred Tax Liab Other Liabilities and Provisions MINORITY INTEREST TOTAL CONTINGENT LIABILITIES Schedule No March 31, 2003

1000.00

IV V

5.37 168.37 2336.98 4950.70 237.06 4910.57

8461.42

5147.63 152.96 73536.03

VI (Rs. Crore)

ASSETS 1. CASH AND BANK BALANCES i) Cash in hand and balances with Reserve Bank of India ii) Balances with other Banks in India a) On Current Account b) On Deposit Account iii) Balances with other Banks outside India a) On Current Account b) On Deposit Account 2. INVESTMENTS i) In securities of Central and State Governments ii) In stocks,shares,bonds & debentures of financial institutions iii) In Stocks,shares,bonds & debentures of industrial concerns 3. LOANS AND ADVANCES i) To Scheduled banks, State Co-operative Banks and other Financial institutions ii) To industrial concerns iii) Call money

Schedule No. 605.78

March 31, 2003

514.27 259.63 67.46 434.75 VII 2739.81 2766.57 6789.78 12296.16 1881.89

1801.81 47012.63 54.40

48868.84

109

IDBI FLEXIBONDS 20
(Rs. crore) ASSETS 4. 5. 6. 7. BILLS OF EXCHANGE AND PROMISSORY NOTES DISCOUNTED/REDISCOUNTED PREMISES (At cost less depreciation) OTHER FIXED ASSETS (At cost less depreciation) OTHER ASSETS Deferred Tax Asset Other Assets TOTAL Notes forming part of Accounts XII (Rs. crore) Schedule No 5534.66 1068.08 IX 156.90 464.77 X 200.63 7425.04 5947.51 156.38 0.22 0.32 53.77 7.22 16.62 28.31 42.48 184.51 XI 210.43 6647.77 777.27 (275.09) 41.30 543.48 VIII 4.46 7551.48 7555.94 73536.03 1477.64 316.63 1138.93 Schedule No. March 31, 2003

CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2003 INCOME (Less provisions made during the year for bad and doubtful debts and other necessary and expedient provisions) 1. 2. 3. 4. 5. Interest and Discount etc. Income from Investments Commission, Brokerage,etc. Net Gain on sale of investments (not credited to Reserves or any particular fund or account) Other Income TOTAL EXPENDITURE 1 2 3 4 5 6 7 8 9 Interest paid on Deposits,Borrowings,etc., Establishment Expenses Directors & Executive Committee Members fees and Expenses Auditors Fees Rent,Taxes,Insurance,Lighting, etc. Law Charges Postage,Telegrams & Stamps Stationery,Printing,Advertisement,etc. Accelerated write-off of bad and doubtful debts Less : Withdrawn from Special Reserve u/s 36(1) (viii) of IT Act, 1961 10 Depreciation / Amortisation 11 Depreciation on Leased assets 12 Other Expenditure TOTAL Balance of Profit carried down Provision for Income Tax Deferred Tax Income Balance of profit transferred to Appropriation Account

110

IDBI FLEXIBONDS 20
Year ended March 31, 2003 Balance of profit transferred from Profit & Loss Account Balance of Profit brought forward from last year TOTAL 1 2 3 4 5 6 7 8 9 APPROPRIATIONS Transferred to Statutory/ General Reserves Transferred to Special Reserve created & maintained u/s.36(1)(viii) of IT Act, 1961 Transferred to Capital Reserve Transferred to IDBI EXIM(J) Special Fund Transferred to Staff Welfare Fund Transferred to Investment Fluctuation Reserve Proposed Dividend / Interim Dividend on Equity shares Tax on Proposed Dividend Deferred tax adjustment of earlier years TOTAL Minority interest Balance of profit carried to Balance Sheet SCHEDULES FORMING PART OF ACCOUNTS I Reserves, Funds and Surplus (Net of Minority Interest) Balance on 1-Apr-02 i) ii) Reserve Fund Statutory Reserves 3916 26 58 20 31 179 39 2 1643 6 (Rs. crore) Balance on 31-Mar-03 3946 36 118 52 65 179 31 2 1643 6 Additions/Transfers Deductions/transfers during the period during the period 30 10 60 32 34 0 4 0 0 0 0 0 0 0 0 0 12 0 0 0 (Rs. crore) 543.48 478.90 1022.38 107.97 75.00 33.38 0.12 0.00 40.00 106.40 13.51 646.00 1022.38 32.92 613.08

10 Balance of profit

iii) Reserve u/s 45 IC of RBI Act iv) Capital Reserve v) Investment Fluctuation Reserve vi) Venture Capital Fund vii) Staff Welfare Fund viii) IDBI Exim (J) Special Fund ix) Share Premium Account x) Special Reserve under Section 36(1)(viii) of the Income Tax Act,1961

xi) Special Reserve created & maintained u/s 36(1)(viii) of the Inc Tax Act,1961 xii) Profit & Loss (surplus) account Total

30

75

105

438 6388

670 915

495 507

613 6796

111

IDBI FLEXIBONDS 20
(Rs. crore) II Exchange Risk Administration Fund Initial Contribution Interest/Other Income Premium Settlement with ERAF Amount recd. from /paid toGOI Less: Exchange Fluctuation (Deficit) Receivable from/(payable to ) Government of India IDBI 5 54 218 (526) 111 (138) (-) (138) 138 ---------

Under the Exchange Risk Administration Scheme(ERAS), the Government of India has agreed to extend support to the Fund when it is in deficit and recoup its contribution in the event of surplus. The IDBI has a claim on Exchange Risk Administration Fund (ERAF) to the extent of deficit represented by the Exchange Fluctuation on ERAS Account provided there is positive balance in the ERAF Account. If the balance is insufficient, the claim will be on Government of India. As per decision of Government of India the above scheme has been foreclosed w.e.f. January 31, 2003. A part of the balance outstanding has been received subsequent to the date of the balance sheet and for the balance amount a claim is to be filed on Government of India. Also refer Schedule VIII on other assets

III Bonds and Debentures (March 31, 2003) (i) Issued in Rupees a. b. c. (ii) Bonds and Debentures guaranteed by Govt. of India Discount/Zero Coupon Bonds Less Discount not written off Other Bonds and Debentures Issued in Foreign Currency US Dollar denominated FRNs Less Discount paid in advance on FRN issue Total IV Borrowings in Foreign Currency (March 31, 2003) (Rs.crore) Lines of credit a. b. a. b. Total Multilateral Bilateral Syndicated Bilateral

(Rs.crore) 5672 597 (162) 34677 1187 (8) 41963

1306 2050 1329 237 29 4951

Bank Loans

Others

112

IDBI FLEXIBONDS 20
(Rs. crore) 149 468 237 89 597 94 313 106 14 31 1867 1183 5148

V Current Liabilities & Provisions (March 31, 2003) Prudential provisions against standard assets Provision for Taxation Provision for Deferred Taxation Receipts from borrowers pending appropriation Receipts from borrowers in advance Income received in advance on Bills etc. Interest/premium payable on Bonds and Deposits Dividend payable on equity shares Provision for tax on dividend Application money received on Bonds Provision for outstanding liabilities (incl. interest accrued but not due) Others Total

VI Contingent Liabilities (March 31, 2003) (i) Claims against the Bank not acknowledged as debts ii) On account of Guarantees/Letters of Credit issued * iii) On account of underwriting commitment iv) On account of uncalled monies on partly paid shares, debentures etc. v) On account of disputed income tax, interest tax, penalty and interest demands pending in appeal not provided for vi) Monies for which the Bank is contingently liable Total

(Rs. crore) 399 4258 0 2

723** 772 6154

* includes guarantees/LCs in Foreign currency converted at FEDAI rates prevailing as on March 31,2003 ** The gross demand raised by Income Tax Dept. on account of Income Tax, wealth Tax, Interest Tax, Penalty and Interest demands on IDBI is Rs.4969 crore against which the provision made is Rs.2814 crore. The demands include Rs.1462 crore in respect of which IDBI has favourable appellate decisions in its own cases in the earlier years.

113

IDBI FLEXIBONDS 20
(Rs.crore) VII a) b) Investments (March 31, 2003) Quoted Unquoted i) ii) iii) Investment in GOI Securities In Financial Institutions/Technical Consultancy Organisations* In Industrial Concerns 1815 6010 5995 5713 588 Book Value 4471 Market Value 3937

The above investments at (a) and (b) have been classifed as under as required by RBI guidelines Held to Maturity Available for sale Held for trading assured redemption value stood at Rs.812 crore. (Rs. crore) VIII Other Assets (March 31, 2003)

* Includes Investments of IDBI in units of MFs, the book value of which was Rs.809 crore and the NAV

Amount recoverable from associate institutions Accrued Income Deposits towards lease rentals for premises Pre-paid taxes including TDS Advances & Housing Loan to staff Loans disbursed on behalf of other institutions Exchange Fluctuation recoverable under ERAS Minimum guaranteed Dividend receivable on shares of SFCs Application money in respect of Shares/Debentures of Jt.St. Cos./FIs Advance towards leased assets Unsecured Bond issue exp. not written off Preliminary expenses not written off Deferred tax asset Others Total

77 1289 34 1633 88 41 138 43 81 70 147 5 5 3905 7556

114

IDBI FLEXIBONDS 20
(Rs. crore)
IX Details of Commission , Brokerage etc. Up-front fee on loans sanctioned Guarantee commission Underwriting commission and Front end fees Others Total X Other Income Interest on Bank deposits Fees for Financial services Profit(net) on Dealing room activities Management fees for assistance under DPG/Guarantee Miscellaneous receipts Prior Period income Others Total XI Other Expenditure Management fees,commitment charges etc.on FC borrowings Guarantee Fees on Bonds & FC lines of credit Unsecured Bond Issue Expenses written off Repairs , Maintenance & Telephone expenses Prior Period Expenditure(Net) Brokerage/incentives paid on Bonds and Deposits Miscellaneous expenditure Preliminary expenses written off Others Total 10 12 74 210 111 201 2002-03 4 15 72 23 2002-03 9 62 1 85 157 2002-03 43 22 2 1 22

115

IDBI FLEXIBONDS 20
XII Notes forming part of the Accounts 1. Basis of accounting : The financial statements are prepared as per historical cost convention in accordance with the statutory provisions and accounting principles generally accepted in India 2. Principles of consolidation : a) b) c) d) The consolidated financial statements include the accounts of Industrial Development Bank of India (parent company) and all of its majority owned subsidiary companies. The financial statements of the Bank and its subsidiary companies have been combined on a line by line basis by adding together the book-values of like items of assets, liabilities, income & expenses. All significant inter company accounts and transactions resulting in unrealised profits or losses are eliminated on consolidation. The subsidiary companies considered in the consolidated financial statements are : Name of the company IDBI Bank Ltd. (IBL) IDBI Capital Market Services Ltd. (ICMS) IDBI Intech Ltd. (IIL) % equity capital held as at March 31, 2003 57.11% 100% 100%

e) Though the bank holds more than 20% of voting power in certain entities, the same are not treated as investment in an Associate under AS 23, mainly either due to lack of significant influence or such investments are not considered as material investments requiring consolidation as an Associate under AS 23. f) 3. A. IDBI does not presently have any joint ventures requiring proportionate consolidation as defined under AS 27.

Significant Accounting Policies Income Recognition i. ii. iii. iv. v. vi. Income is shown in the Profit & Loss Account net of provisions/write off / write back during the year for bad and doubtful debts and also other necessary and expedient provisions. Interest income, lease rentals and other dues are reckoned as accrued, in accordance with the directives issued by RBI from time to time regarding Income Recognition. Underwriting/guarantee commissions are reckoned on accrual basis. Front-end fees, loan syndication charges, appraisal fees, fees for merchant banking, debenture trusteeship and other financial services are accounted on cash basis. Discount received in respect of Bills discounted/rediscounted, Commercial paper and Certificate of Deposits is apportioned over the period of usance of the instruments. The amount of Lease Equalisation representing the difference between the annual lease charge and the depreciation provided on leased assets in the books is adjusted in the Profit & Loss a/c. with corresponding adjustment to the value of leased assets through a separate lease adjustment account The minimum dividend guaranteed by State Governments on shares held in the State Financial Corporations under section 6 of the State Financial Corporations Act, 1951 is recognised on realisation basis. Final dividend on shares held in Industrial Concerns and Financial Institutions is recognised as income on dates of declaration and interim dividend is recognised as income when received. Revenue from software contracts is recognised on achievement of milestone basis. Sale of products is recognised on transfer of property of goods as per agreed terms. Annual Technical Services is recognised proportionately over the period in which the services are rendered.

vii. viii. ix.

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x. In case of IDBIs stockbroking subsidiary, the difference between the acquisition cost and redemption value of discounted debt securities, held as on the Balance Sheet date, is apportioned on time basis and recognised as accrued income. In respect of discounted debt securities, discount earned represents the excess of sales and redemption proceeds and the value of closing stock over purchases and the value of opening stock of such securities. Total consideration paid or received on purchase or sale, on outright basis, of coupon-bearing debt securities is identified separately as principal consideration and accrued interest. Amount paid as accrued interest on purchase, and received on sale, of such securities is netted and reckoned as expense or income by way of interest. Interest on fixed coupon debt securities, held as on the Balance Sheet date, is accrued for the expired period at the coupon rate. Interest on floating rate securities is accrued at rates determined as per the terms of the issue. Profit or loss on sale of securities represents the excess of sales and redemption proceeds and the value of closing stock over purchases and the value of opening stock of such securities and is recognised on the basis of settlement dates. Where, in a primary floatation of securities, the value of securities devolved or allotted exceeds or is equal to the value of securities underwritten, the whole of the underwriting fee received is reduced from the cost of the security. Where the value of securities devolved or allotted is less than the value of securities underwritten, that proportion of the underwriting fee received is reduced from the cost as the value of securities devolved or allotted bears to the value of securities underwritten and the balance fee received is considered as income. B. Investments i. In terms of extant Guidelines of the Reserve Bank of India, the entire investment portfolio is categorised as Held to Maturity, Available for Sale and Held for Trading. The investments under each category are further classified as (i) Government securities; (ii) Other approved securities; (iii) Shares; (iv) Debentures & bonds; (v) Subsidiaries / Joint Ventures; (vi) Others (CP, Mutual Fund Units, etc.) The debentures/bonds/equity and preference shares deemed to be in the nature of advance are subject to the usual prudential norms. Investments acquired with the intention to hold till maturity are categorised under Held to Maturity. Such investments are carried at acquisition cost unless it is more than the face value, in which case the premium is amortised over the period remaining to maturity. Diminution, other than temporary, in the value of investments in subsidiaries/joint ventures under this category is provided for each investment individually. Profit on sale of investments in this category are appropriated to the Capital Reserve Account at the end of financial year. Investments acquired with the intention to trade by taking advantage of the short term price/interest rate movements are categorised under Held for Trading. The investments in this category are revalued as a whole and net appreciation/depreciation is recognised in the Profit & Loss Account, with corresponding change in the book value of the individual scrips. Investments which do not fall within the above two categories, are categorised under Available for Sale. The individual scrips under this category are revalued at yearly intervals and net depreciation under any of the six classifications mentioned above, is recognised in the Profit & Loss Account. Net appreciation under any classification is ignored. The book value of individual scrips is not changed. The basis for periodical valuation of investments categorised as Held for Trading and Available for Sale are as follows :

ii. iii.

iv.

v.

vi.

Treasury bills are valued at carrying cost; In respect of traded/quoted investments, the market price is taken as available from the trades/quotes on the Stock Exchanges, price of SGL Account transactions, price list of RBI and prices declared by PDAI/ FIMMDA periodically; and The unquoted shares/units are valued at break-up value/repurchase price and Net Asset Value. The unquoted fixed income securities are valued on YTM basis with appropriate mark-up over the YTM rates for Central Government securities of equivalent maturity.

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vii. Investments are shown net of provisions. viii. Profit/Loss on sale of investments are booked on accrual basis. ix. In case of IDBIs stockbroking subsidiary, securities and other financial assets acquired and held for earning income by way of dividend and interest and for the purpose of capital appreciation are classified as long term investments and are valued at their cost of acquisition. Decline in their value, if any, other than temporary, is recognised. Securities acquired with the intention of short-term holding and trading are considered as stock-in-trade and regarded as current assets. Securities held as stock-in-trade category wise are valued at lower of cost or market/fair value. Cost is derived by following the FIFO method considering only outright transactions. Market value is determined based on market quotes for actual trades and where such quotes are not available, fair value is determined, in the case of debt securities, with reference to yields on securities of similar maturity and credit standing, and in the case of equities, with reference to the break-up value as per the last balance sheet. Each type of security is regarded as a separate category and depreciation or appreciation is aggregated under each category. Net depreciation, if any, for each category is provided and net appreciation, if any, is ignored. C. Repo Transactions in case of IDBIs stockbroking subsidiary: i. The difference between total consideration paid on purchase, and received on sale, is treated as interest and shown as interest expense on Repo Transactions and interest income on Reverse Repo transactions. Interest on transactions outstanding, as on the Balance Sheet date, is accrued for the expired period at the contract rate. Securities held as stock-in-trade, as on the Balance Sheet date, include securities purchased in Reverse Repo transactions and exclude securities sold in Repo transactions. Securities purchased in Reverse Repo transactions are valued at lower of cost or market value. Accrued interest paid on purchase, on Reverse Repo transactions outstanding as on the Balance Sheet date, is shown under current assets as Reverse Repo Interest Adjustment Account. Accrued interest received on sale, on Repo transactions outstanding as on the Balance Sheet date, is shown under current liabilities as Repo Interest Adjustment Account. The difference between holding rate and the repo rate, in respect of Repo transactions outstanding as on the Balance Sheet, is shown as Repo Price Adjustment Account.

ii.

iii.

D.

Derivatives in case of IDBIs stock broking subsidiary i. ii. In case of IDBIs stockbroking subsidiary, Initial Margin payable at the time of entering into futures contract is adjusted against the deposits with the exchanges in the form of fixed deposits and cash deposits. The difference in the settlement price or exchange closing price of the previous day and exchange closing price of the subsequent day, paid to or received from the exchange is treated as Mark to Market Margin. The balance in the Mark to Market Margin Account represents the net amount paid or received on the basis of movement in the prices of open interest in futures contracts till the balance sheet date. Net debit balance in the Mark to Market Margin Account is charged off to revenue whereas net credit balance is shown under current liabilities. Premium paid or received on purchase and sale of options and the difference paid or received on exercise of options is accounted as Purchases or Sales. In case of open interest in options sold as on the balance sheet date, the premium received is shown under current liabilities. Fixed Assets are shown at cost less depreciation. All costs relating to the acquisition and installation of fixed assets are capitalised. Depreciation on assets acquired during the course of leasing business is provided on straight line method prorata from the month in which lease rentals commence over the primary period of lease. (a) Depreciation is provided on i) ii) Motor Vehicles on Straight Line Method. Other Fixed Assets on Written down Value Method.

iii.

E.

Fixed Assets and Depreciation i. ii. iii.

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(b) iv. F. i) No depreciation is provided on assets sold/or discarded during the year.

Leasehold land is amortised over the period of lease. Income and Expenditure is accounted at the actual exchange rates of remittance. Amounts pending remittance are accounted at the closing FEDAI rates. Foreign Currency assets and liabilities are translated at closing FEDAI rates. Forward Exchange Contracts and the net income/expenditure thereon are accounted for on the settlement date.

Foreign Currency Transactions

ii)

G. Provisions For Assets As per RBI guidelines, loan assets and other assistance portfolios (including debentures in the nature of advances) are to be classified as Standard, Sub-standard, Doubtful and Loss subject to provisions/write-off on an annual basis, as under : 1. 2. 3. Standard Assets Sub-standard assets Doubtful assets 0.25% of loan/assistance 10% of loan/assistance. 100 % of unsecured portion plus 20% /30% /50% of secured portion depending on the period for which the loan/assistance have remained doubtful. The entire assistance is to be provided/ written off.

4.

Loss Assets

On the above basis and keeping in view the record of recovery and other relevant factors, the requirements of provisions/write-off are being determined. Loan Assets are shown net of provision/write-off for sub-standard/doubtful/loss assets. H. Securitisation Transaction Financial assets securitised are derecognised in the books and the gains/loss on securitisation are recognised in the year of securitisation. Expenditure incurred for securitisation are charged off in the year of securitisation. I. Retirement Benefits The Gratuity, Leave encashment and Pension Liability determined based on actuarial valuation at the year end, is fully provided for. J. Interest Expenditure on Borrowings The Interest Expenditure on borrowings is accounted for on accrual basis. K. Expenditure / Discount On Bond Issue The expenses relating to issue of bonds and discount, if any, on the issue are amortized equitably over the tenure of the bonds/over the period upto which the earliest redemption expires. L. Accounting Standards Mandatory accounting standards as applicable to the bank in accordance with the RBI guidelines issued from time to time are followed

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4. Contingent Liability (March 31, 2003) a. b. c. d. e. f. Claims against the Bank not acknowledged as debt On account of Guarantees/Letters of Credit issued * On account of underwriting commitment On account of uncalled monies on partly paid shares, debentures etc. On account of disputed income tax, interest tax, penalty and interest demands pending in appeal not provided for Monies for which the Bank is contingently liable (Rs. crore) 399 4258 0 2 ** 723 772

* Includes Guarantees/LCs in foreign currency converted at FEDAI rate prevailing as on March 31, 2003 ** The gross demand raised by the Income Tax Dept. on account of Income Tax, Wealth Tax, Interest Tax, Penalty and Interest Demands on IDBI is Rs.4968.56 crore against which the provision made is Rs.2814.36 crore. The demands include Rs.1462.22 crore in respect of which IDBI has favourable appellate decisions in its own cases in the earlier years. 5. 6. 7. Estimated amount of contracts remaining to be executed on capital account not provided for (net of advance paid) is Rs.16 crore. Forward Exchange Contracts amounting to Rs.11698 crore have not been included in Contingent Liabilities. In compliance with the accounting standard AS- 22 relating to Accounting for Taxes on Income issued by The Institute of Chartered Accountants of India, the bank has recognised Rs.41 crore as deferred tax credit in the Profit & Loss Account for the year ending March 31, 2003. During the year 2002-03, Financial Assets having an aggregate outstanding of Rs.583 crores have been securitised for a consideration of Rs.630 crore resulting in a gain of Rs.47 crore. The net gain is included under the head Interest and Discount Income in the Profit and Loss A/c. IDBIs stock broking subsidiary has been raising Demand Loan from the Reserve Bank of India from time to time against the pledge of Dated Govt. Securities and Treasury Bills, under the Scheme of Liquidity Support to Primary Dealers. The Company has also been availing Liquidity Adjustment Facility from the Reserve Bank of India, against the pledge of Dated Govt. Securities and Treasury Bills. The outstanding Demand Loan and Liquidity Adjustment Facility as on 31.3.2003 is Rs. NIL and Rs.1000 crore against the pledge of Dated Govt. Securities/ Treasury Bills for face value of Rs.NlL and Rs.1050 crore respectively.

8.

9.

For Sorab S. Engineer & Co. Chartered Accountants sd/Mumbai November 17, 2003 N.D.Anklesaria Partner

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PART C Extracts of relevant provisions of The Industrial Development Bank of India Act, 1964 Preamble An Act to establish the Industrial Development Bank of India as the principal financial institution for co-ordinating, in conformity with national priorities, the working of institutions engaged in financing, promoting or developing industry, for assisting the development of such institutions for providing credit and other facilities for the development of industry and for matters connected therewith and further to amend certain enactments. Definitions Section 2 In this Act, unless the context otherwise requires, (a) (b) Board means the Board of Directors of the Development Bank. Development Bank means the Industrial Development Bank of India established under Section 3.

Corporate Status Section 3(2) The Development Bank shall be a body corporate with the name aforesaid having perpetual succession and a common seal with power, subject to the provisions of this Act, to acquire, hold and dispose of property and to contract and may, by that name, sue or be sued. Capital Section 4 (1) The authorised capital of the Development Bank shall be two thousand crores of rupees divided into one hundred and fifty crores fully paid-up equity shares of rupees ten each and, subject to the provisions of section 4E, fifty crores of fully paid-up redeemable Preference shares of rupees ten each. The Development Bank may, from time to time, by a resolution in general meeting, increase the authorised capital to an amount not exceeding five thousand crores of rupees consisting of such number of equity shares and redeemable preference shares as it deems fit. The issued capital of the Development Bank of seven hundred and fifty three crores of rupees which stands fully vested in and subscribed by the Central Government immediately before the commencement of the Industrial Development Bank of India (Amendment) Act, 1995 shall, on such commencement, stand divided into seventy five crores and thirty lakhs equity shares of rupees ten each. The Board may, from time to time, increase the issued equity share capital of the Development Bank by allotment of shares to such persons and on such terms and conditions as the Board may determine: Provided that no increase in the issued equity capital shall be made in such a manner that the Central Government holds at any time less than fifty-one percent of the issued equity capital of the Development Bank. Section 4D (1) (2) The Development Bank may, by a resolution passed in a general meeting of the shareholders, reduce its share capital in any way. Without prejudice to the generality of the foregoing power, the share capital may be reduced by (a) (b) extinguishing or reducing the liability on any of its equity shares in respect of share capital not paid up; either with or without extinguishing or reducing liability on any of its equity shares, cancelling any paid -up share capital which is lost, or is unrepresented by available assets; or

(2)

Section 4C (1)

(2)

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(c) (3) either with or without extinguishing or reducing liability on any of its equity shares, paying off any paid -up share capital which is in excess of the wants of the Development Bank.

In any general meeting referred to in sub-section (1), the resolution for reduction of share capital shall be passed by shareholders entitled to vote, voting in person, or where proxies are allowed, by proxy, and the votes cast in favour of the resolution are not less than three times the number of the votes, if any, cast against the resolution by shareholders so entitled and voting.

Conversion of equity shares into redeemable preference shares Section 4E (1) The Central Government may, at any time after the commencement of the Industrial Development Bank of India (Amendment) Act, 1995 by notification in the Official Gazette, convert such number of equity shares held by it not exceeding fifty crores as it may decide into redeemable preference shares. The redeemable preference shares referred to in sub-section (1) shall (a) (b) (3) carry such fixed rate of dividend as Central Government may specify at the time of such conversion, and neither be transferable nor carry any voting rights.

(2)

The redeemable preference shares referred to in sub-section(1) shall be redeemed by the Development Bank within three years from the date of such conversion in such instalments and in such manner as the Board may determine.

Management of the Development Bank Section 5 (1) The general superintendence, direction and management of the affairs and business of the Development Bank shall vest in a Board of directors which may exercise all powers and do all such acts and things, as may be exercised or done by the Development Bank and are not by this Act expressly directed or required to be done by the Development Bank in general meeting. The Board may direct that any power exercisable by it under this Act shall also be exercisable in such cases and subject to such conditions, if any, as may be specified by it, by the chairman, managing director or the whole-time director. Subject to the provisions of this Act, the Board in discharging its functions shall act on business principles with due regard to public interest.

(2)

(3)

Constitution of the Board Section 6 (1) The Board shall consist of the following, namely :(a) a chairman and a managing director appointed by the Central Government: Provided that the same person may be appointed to function both as chairman and as managing director; one whole-time director appointed by the Central Government on the recommendation of the Board; two directors who shall be officials of the Central Government nominated by the Central Government; three directors from amongst persons having special knowledge of, and professional experience in, science, technology, economics, industry, banking, industrial co-operatives, law, industrial finance, investment, accountancy, marketing or any other matter, the special knowledge of, and professional experience in, which would, in the opinion of the Central Government, be useful to the Development Bank, nominated by the Central Government; and such number of directors elected, in the prescribed manner, by shareholders other than the Central Government, whose names are entered on the register of shareholders of the Development Bank ninety days before the date of the meeting in which such election takes place on the following basis, namely:-

(b) (c) (d)

(e)

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(i) (ii) (iii) where the total amount of equity share capital issued to such shareholders is ten per cent or less of the total issued equity capital, two directors; where the total amount of equity share capital issued to such shareholders is more than ten per cent but less than twenty-five per cent of the total issued equity capital, three directors; where the total equity share capital issued to such shareholders is twenty five per cent, or more of the total issued equity capital, four directors:

Provided that until the assumption of charge by the elected directors under this clause, the Central Government may at any time nominate such number of directors, not exceeding four, from amongst persons having special knowledge of and professional experience in, science, technology, economics, industry, banking, industrial co-operatives, law, industrial finance, investment, accountancy, marketing or any other matter, the special knowledge of, and professional experience in, which would, in the opinion of the Central Government, be useful to the Development Bank for carrying out its functions. (2) The chairman, managing director and the whole-time director shall hold office for such term not exceeding five years as the Central Government may specify in this behalf and any person so appointed shall be eligible for re-appointment.

(2A) Notwithstanding anything contained in sub-section (1), the Central Government shall have the right to terminate the term of office of the chairman, managing director or the whole-time director, as the case may be, at any time before the expiry of the term specified under sub-section (2) by giving him notice of not less than three months in writing or three months salary and allowances in lieu of such notice; and the chairman, the managing director or the whole-time director , as the case may be, shall also have the right to relinquish his office at any time before the expiry of the term specified under sub-section (2) by giving to the Central Government notice of not less than three months in writing. (3) The chairman, the managing director or the whole-time director shall receive such salary and allowances as may be determined by the Central Government.

(3A) The Central Government may, at any time, remove the chairman, the managing director or the whole-time director, as the case may be, from office. Provided that no person shall be removed from his office, under this sub-section, unless he has been given an opportunity of showing cause against his removal. (4) A nominated director shall hold office during the pleasure of the authority nominating him.

(4A) Subject to the provisions of sub-section (4), (a) every director nominated under clause (d) of sub-section (1) shall hold office for such term not exceeding three years as the Central Government may specify in this behalf and thereafter until his successor assumes office, and shall be eligible for re-nomination: Provided that no such director shall hold office continuously for a period exceeding six years; and (b) every director elected under clause (e) of sub-section (1) shall hold office for three years and thereafter until his successor assumes office, and shall be eligible for re-election:

Provided that no such director shall hold office continuously for a period exceeding six years. (4B) The shareholders, other than the Central Government, may, after giving to the director a reasonable opportunity of being heard in the manner as may be prescribed, by resolution passed by majority of the votes of such shareholders holding in the aggregate not less than one-half of the share capital held by such shareholders, remove any director elected under clause (e) of sub-section (1) and elect another director in his place to fill the vacancy so caused;

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Disqualification of directors Section 6B (1) A person shall not be eligible for being elected director under clause (e) of sub-section (1) of section 6, if he (a) (b) (c) (d) has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force; is an undischarged insolvent; has applied to be adjudicated as an insolvent and his application is pending; has been convicted by a court of any offence involving moral turpitude and sentenced in respect thereof to imprisonment for not less than six months and a period of five years has not elapsed from the date of expiry of the sentence; or has not paid any call in respect of shares of the Development Bank held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call.

(e)

Vacation of office by director Section 6C (1) The office of a director shall become vacant if he (a) (b) (c) (2) becomes subject to any of the disqualifications mentioned in section 6B; or resigns his office by giving notice in writing under his hand and the resignation is accepted; or absents himself from three consecutive meetings of the Board without obtaining leave of absence from the Board.

Notwithstanding anything in clause (a) of sub-section (1), the disqualifications referred to in that clause shall not take effect _ (a) (b) for thirty days from the date of the adjudication, sentence or order; where any appeal or petition is preferred within thirty days aforesaid against the adjudication, sentence or conviction resulting in the sentence or order until the expiry of seven days from the date on which such appeal or petition is disposed of; or where within the seven days aforesaid, any further appeal or petition is preferred in respect of the adjudication, sentence, conviction or order and the appeal or petition, if allowed, would result in the removal of the disqualification, until such further appeal or petition is disposed of.

(c)

Borrowings and acceptance of deposits by Development Bank Section 11 (1) (a) The Development Bank may, for the purpose of carrying out its functions under this Act issue and sell bonds and debentures with or without the guarantee of the Central Government Extracts of relevant provisions of Industrial Development Bank of India (Issue and Management of Bonds) Regulations, 1972 3. Form of the Bond and the mode of transfer thereof, etc. (1) A Bond may be issued in the form of (a) A promissory note payable to, or to the order of, a certain person; or

(1A) Not withstanding anything contained in sub-regulation (1) and subject to the provisions of the Depositories Act,1996, every person subscribing to or holding the Bond under these regulations shall have the option to hold the same with a depository. (2) (a) A Bond issued in the form of a promissory note shall be transferable by endorsement and delivery like a promissory note payable to order.

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(b) (5) No writing on a Bond issued in the form of a promissory note shall be valid for the purpose of negotiation if such writing purports to transfer only a part of the amount denominated by the Bond.

No endorsement of a Bond in the form of promissory note or no instrument of transfer in the case of a Bond in the form of a Stock Certificate shall be valid unless made by the signature of the holder or his duly constituted attorney or representative inscribed in the case of a Bond in the form of a promissory note on the back of the Bond itself.

Trust not recognised (1) The Development Bank shall not be bound or compelled to recognize in any way, even when having notice thereof, any trust or any right in respect of a Bond other than an absolute right thereto in the holder. Provided that nothing in this regulation shall apply to a depository in respect of Bonds held by it as a registered owner on behalf of the beneficial owner.

5A

Provision for holding of bonds issued in the form of promissory notes by trust/trustee(s) (1) Without prejudice to the provisions of sub-regulation (1) of regulation 4, the Development Bank may, at the request of the applicant and without liability to the Development Bank, issue a Bond in the form of promissory note in the name of a specified trust or trustee(s) of that trust, or, as the case may be, in the personal name of the applicant, describing him as a trustee, whether as a trustee of the trust specified in his application or as a trustee without such specifications.

Procedure where Bond in the form of a promissory note is Lost, etc. (1) Every application for the issue of a duplicate Bond in place of a Bond which is alleged to have been Lost, Stolen, Destroyed, Mutilated or Defaced, either wholly or in part shall be addressed to the Office of Issue, and shall contain the following particulars, namely: a) b) c) d) e) f) (2) Bond No. ____ for Rs _____ of the ____ percent Industrial Development Bank of India Bonds, --------[year]; Last half-year for which interest has been paid; The person to whom such interest was paid; The person in whose name Bond was issued (if known); The circumstances attending the Loss, Theft, Destruction, Mutilation or Defacement; and Whether the Loss or Theft was reported to the police

Such application shall be accompanied by: a) b) c) where the Bond was lost in course of transmission by registered post, the Post Office registration receipt for the letter containing the Bond; a copy of the police report, if the loss or theft was reported to the police; if the applicant is not a registered holder, an affidavit sworn before a magistrate testifying that the applicant was the last legal holder of the Bond, and all documentary evidence necessary to trace back the title to the registered holder; and any portion or fragments which may remain of the Lost, Stolen, Destroyed, Mutilated or Defaced Bond.

d) 9.

Publication of notice of loss, theft, etc. in newspaper (1) The loss, theft, destruction (mutilation or defacement) of a Bond in the form of a promissory note shall be published on behalf of the applicant in a leading newspaper of the area.

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10 Issue of duplicate bond and taking of indemnity (1) If the Prescribed Officer is satisfied of the loss, theft, destruction or defacement of the Bond in the form of a promissory note, he may order issue of a duplicate Bond in the form of a promissory note on applicants furnishing an indemnity bond with one or more sureties; Provided that if at any time before the issue of the duplicate Bond in the form of a promissory note, the original Bond is discovered or it appears to the Office of the Issue for other reasons that the order should be rescinded, the matter shall be referred to the Board for further consideration, and in the meantime, all action on the order shall be suspended. An order passed under this sub-rule shall, on expiry of the three months referred to therein become final unless it is in the meantime rescinded or otherwise modified; and Provided that where a Bond in the form of a promissory note lost, stolen, destroyed, mutilated or defaced is of denomination not exceeding of rupees fifty thousand, a duplicate Bond in the form of Promissory note may be issued on applicant furnishing an indemnity bond without any such surety; Provided further that where such application is made with respect to a Bond in the form of a Promissory note mutilated or defaced, of whatever face value, a duplicate Bond in the form of a Promissory note may be issued without any such indemnity with or without surety if the Bond in the form of Promissory note is capable of being identified as the one originally issued; (2) (3) the Development Bank shall not incur any liability for issuing such Bond in good faith under this regulation. A duplicate certificate issued under sub-rule (1) shall be treated as equivalent to the original certificate for all the purposes of these rules except that it shall not be encashable at an office of Issue other than the office of Issue at which such certificate is registered without previous verification.

12

Publication of list of duplicate Bonds (1) The Development Bank shall publish half yearly in two leading newspapers or in one leading newspaper and in the Gazette of India in the months of January and July a list of duplicate Bonds issued by the Development Bank. The list shall contain the following particulars regarding the duplicate Bonds issued by the Development Bank: (a) (b) (c) (d) (e) (f) the name of the Issue the number of the Bond, its value the name of the person to whom it was issued the date from which it bears interest the name of the applicant for a duplicate the number and date of order passed by the Prescribed Officer for payment of interest or issue of a duplicate.

(2)

15

Person whose title to a Bond of deceased sole holder may be recognised. (1) The executors or administrators of a deceased sole holder of a Bond (whether a Hindu, Mohammedan, Parsi or otherwise), or the holder of a succession certificate issued under Part X of the Indian Succession Act, 1925 (39 of 1925) in respect of the Bond shall be the only persons who may be recognised by the Office of Issue (subject to any general or special instructions of the Prescribed Officer) as having any title to the Bond.

21

Discharge of a Bond (a) When a Bond held in the form of a promissory note becomes due for payment of principal, it shall be presented at the office of the Development Bank at which interest thereon is payable or at the Office of Issue duly signed by the holder on its reverse;

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Provided that the Development Bank may having regard to interest of the holder of the Bonds and other relevant factors, make the payment of the amount due on the Bond without requiring its presentment at the office of the Development Bank invoking call option as per the terms of its issue or on maturity. (b) When a Bond in the form of an entry in the account or held with a depository becomes due for payment of principal, a duly signed receipt shall be furnished by the holder or beneficial owner, as the case may be, to the Office of Issue.

Extracts of Relevant Provisions of The Industrial Development Bank Of India Bonds And Deposits (Nomination) Regulations, 1997 3. Nomination in respect of bonds or deposits:(1) (2) A nomination made by a holder or as the case may be, all the holders jointly, shall be recognised by the Development Bank in the circumstances and to the extent specified in these regulations. A sole holder or all the holders jointly or the surviving holder or holders not being persons (s):(i) (ii) (iii) holding the bond or deposit as holder of an office; or acting for a trust; or acting in any other capacity for any other person with a beneficial interest in the bond or deposit,

may nominate one or more persons not exceeding four including a minor, who shall in the event of his or their death be entitled to the amounts payable by the Development Bank in respect of the bond or deposit: Provided that where the nominee is a minor, the holder (s) shall at the time of making the nomination also appoint any person to receive the amounts due in respect of the bond or deposit in the event of death of the holder(s) during the minority of the nominee. Explanation: Nomination may also be made in favour of Central or State Government, a local authority, any person designated by virtue of his office or a religious or charitable trust. 4. Substitution or cancellation of nomination:(1) (2) A nomination made under sub-regulation (2) of regulation 3 may subsequently be substituted or cancelled. For a nomination, substitution of nomination or cancellation of nomination to be valid, it shall be made to the Development Bank in such form containing necessary information as may be approved by the Development Bank accompanied with the relevant bond or deposit receipt. A valid nomination, substitution of nomination or cancellation of nomination shall be deemed to be effective on the date on which it was received by the Development Bank. The nomination, substitution of nomination or cancellation of nomination shall be registered in the relevant records of the Development Bank and a suitable endorsement shall be made by the Development Bank on the bond or deposit receipt. The substitution of nomination or cancellation of nomination shall not be valid in the case of a bond or deposit held jointly by more than one holders, unless such substitution or cancellation is made by all the surviving holder(s).

(3)

(4)

5.

Nomination not affected due to issue of new bond or deposit receipt: The nomination made under these regulations shall not be affected by the issue of a new bond or deposit receipt in lieu of the existing one.

6.

Nominees right to receive the amount:(1) A nomination shall cease to be in force from the date of death of the sole nominee during the lifetime of the holder.

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(2) Where the nomination is in favour of more than one person, the nominee first named shall alone have the right to receive the amount due in respect of the bond or deposit, in the event of the death of the holder(s). Where the nominee first named has pre-deceased the holder and the holder has not cancelled the nomination or substituted the nomination, the nominee second named shall be entitled to receive the amount in respect of the bond or deposit of the deceased holder and in the same manner, on death of a successive nominee, the nominee next named shall be entitled to receive the amount in respect of such bond or deposit. 7. Deemed cancellation of nomination:On the transfer by the holder or the redemption by the Development Bank of any bond, the nomination shall, in respect of such bond, be deemed to have been cancelled and shall cease to be in force from the date of such transfer or redemption, unless the transferee, in the case of transfer, advises the Development Bank in writing that he does not desire such bond to be transferred to his name. 8. Discharge on payment to the nominee:Payment by the Development Bank to the nominee in accordance with the provisions of these regulations in respect of bond or deposit to which the nomination relates shall constitute a full discharge to the Development Bank of its liability. Provided that nothing contained in this regulation shall affect the right or claim which any person may have against the nominee to whom any payment is made under these regulations.

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PART D
MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION Copies of the contracts and documents, referred to below, all of which have been attached to a copy of this Offer Document, which has been delivered to The Stock Exchange, Mumbai and National Stock Exchange of India Ltd., may be inspected at the Head Office of IDBI between 10.00 a.m. and 12.00 noon on any working day between the date of the Offer Document and the date of closing of the Issue. Material Contracts and Documents 1. 2. 3. 4. 5. 6. 7. 8. IDBI Act, 1964 (as amended) & IDBI General Regulations, 1994. IDBI (Issue and Management of Bonds) Regulations, 1972 and the IDBI Bonds and Deposits (Nomination) Regulations, 1997. IDBIs letters of appointment dated January 7, 2004 to the Lead Managers, Co-Managers, Registrar, Trustees to the bondholders and Principal Marketing Co-ordinator. Copies of MOU entered into by IDBI with the Lead Managers dated January 8, 2004 and Registrar dated January 9, 2004. Tripartite Agreement between IDBI, NSDL and Registrar to Issue dated January 20, 1997. Tripartite Agreement between IDBI, CDSL and Registrar to Issue dated October 11, 1999. Notification F.No.24(4)/2003-IF-1 dated September 29, 2003 appointing Shri M. Damodaran as Chairman and Managing Director. Resolutions of the Board of Directors of IDBI passed at the Meeting held on June 20, 2003 approving the Umbrella Offer Document for 2003-2004 for raising Rs.1500 crore with an option to retain additional subscription upto Rs.1500 crore and authorising the Chairman & Managing Director to exercise powers in relation to the Public Issue. Chairman & Managing Directors authorisation dated January 8, 2004 to Shri O.V.Bundellu/Shri K. Sivaprakasam, Executive Directors, severally, to sign the offer document of Flexibonds-20 on his behalf. Copy of letter dated November 7, 2003 from S&P assigning a rating of BB (with stable outlook) for IDBIs long term foreign currency debt, copy of release dated February 5, 2003 from Moodys Investors Service assigning a rating of Ba1 and copy of release from Fitch dated February 2003 assigning a rating of BB (with negative outlook) for IDBIs long term foreign currency debt. Letter from CRISIL dated July 15, 2003 assigning a AA+ rating for the unsecured bonds under the umbrella series 2003-2004 for an amount of Rs.3000 crore and letter dated January 9, 2004 assigning a rating of AA+ (Rating Watch with developing implications) for the present issue. Letter from ICRA dated June 28,2002 and July 14, 2003 assigning a LAA rating for the unsecured bonds under the umbrella series 2003-2004 for an amount of Rs.3000 crore and letter dated January 9, 2004 assigning a rating of LAA for the present issue. Letter from Fitch Ratings India Pvt. Ltd. dated July 14, 2003 assigning a rating of AA+(ind) for the unsecured bonds under the umbrella series 2003-2004 for an amount of Rs.3000 crore and letter dated January 9, 2004 assigning a rating of AA+(ind) (the outlook on the rating is evolving) for the present issue. Consent of the auditors Sorab S. Engineer & Co., Chartered Accountants, dated January 6, 2004 for inclusion of their report on Accounts in the form and context in which they appear and inclusion of their name as Tax Consultants and Auditors in this Offer Document. The reports of Auditors, Sorab S. Engineer & Co., Chartered Accountants, dated November 17, 2003 containing the audited Balance Sheets and Profit and Loss Accounts for the five years ended March 31, 1999, 2000, 2001, 2002, 2003 and the half year ended September 30, 2003. Report on Tax Benefits from Sorab S. Engineer & Co., Chartered Accountants dated January 6, 2004. Copies of the audited Balance Sheets and Profit and Loss Accounts for five years ended March 31, 1999, 2000, 2001, 2002, 2003.

9. 10.

11.

12.

13.

14.

15.

16. 17.

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18. 19. 20. 21. 22. 23. 24. Consents of the Lead Managers, Principal Marketing Co-ordinator, Co-Managers, Registrars, Trustees and Bankers to act in their respective capacities. Copies of the Initial Listing Applications made to The Stock Exchange, Mumbai and National Stock Exchange of India Ltd., dated September 17, 2003 for listing of the Bonds. Copy of G.O.Rt. No 292 dated 23.02.1996 issued by the Government of Andhra Pradesh approving investment of surplus funds of the Endowment Institutions/ Trusts in the Bonds of IDBI. Copy of Notification No. F-11(3)-PD/98, dated June 12, 1998 issued by Government of India, Ministry of Finance authorising Provident Funds etc to invest in bonds and securities issued by Public Financial Institutions. Copy of the order of Madhya Pradesh Government dated January 15,1996 declaring Bonds issued by IDBI as Public Securities under Section 13 of M.P. Public Trust Act, 1951. Copy of Notification No.PR-15018/14/96-PG dated 23.12.1997 from Government of India, Ministry of Surface Transport declaring the Bonds as public securities under Section 88(2) of the Major Port Trusts Act, 1963. Copy of letter from Government of Gujarat, Agriculture and Co-operation Department dated June 22, 1998 confirming their permission to Co-operative Societies to invest their surplus money in Flexibonds of IDBI under Section 71(1)(g) of Gujarat State Co-operative Societies Act, 1964 vide its notification dated 19.12.97 No. GHKH/67-97-SMB-2097-4249-CH. Copy of notification dated November 27, 2003 issued by Government of India, Ministry of Finance declaring IDBI Flexibonds Series 2003-04 as Public Securities under Section 20(f) of the Indian Trust Act, 1882. Copy of application vide letter no.1248/DRD/Flexi-20 dated January 8, 2004 to Government of Rajasthan for declaring the Bonds to be issued under the IDBI Flexibonds-20 as public securities under section 2(10)(c) of the Rajasthan Public Trusts Act, 1959. Copy of application vide letter No.1247/DRD/Flexi-20 dated January 8, 2004 to Government of Gujarat for declaration of the Bonds to be issued under the IDBI Flexibonds-20 as Public Securities under Section 2 (12)(d) of the Bombay Public Trusts Act, 1950. Copy of application vide letter No.1246/DRD/Flexi-20 dated January 8, 2004 to Government of Maharashtra for declaration of the Bonds to be issued under the IDBI Flexibonds-20 as Public Securities under Section 2(12)(d) of the Bombay Public Trusts Act, 1950. Copy of letter No.1249/DRD/Flexi-20 dated January 8, 2004 to CBDT seeking deduction for the interest on IDBI Flexibonds-20 under section 80L of the Income-tax Act 1961. SEBI Observations vide letter No.CFD/DIL/SNB/21606/2003 dated November 7, 2003. Observations of The Stock Exchange, Mumbai vide letter No.DCS/sg/ak/ps/2003 dated October 29, 2003 and of National Stock Exchange of India Ltd. vide letter No.NSE/LIST/55367 dated November 3, 2003. Copy of notification dated September 12, 2003 issued by Govt. of India, Ministry of Finance, Department of Revenue,CBDT according approval to the Infrastructure Bonds for FY 2003-04 issued by IDBI bonds u/s 88(2)(xvi) of the IT Act, 1961.

25. 26.

27.

28.

29. 30. 31. 32.

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DECLARATION All relevant provisions of the IDBI Act 1964, IDBI (Issue and Management of Bonds) Regulations, 1972, IDBI General Regulations, 1994, Industrial Development Bank of India Bonds and Deposits (Nomination) Regulations, 1997 and the relevant guidelines issued by SEBI have been complied with and no statement made in this Offer Document is contrary to the provisions of the said Act/Regulations/Guidelines. IDBI accepts no responsibility for statements made otherwise than in this Offer Document or in the advertisement or any other material issued by or at the instance of IDBI and that anyone placing reliance on any other source of information would be doing so at his own risk. SIGNED PURSUANT TO THE AUTHORITY GRANTED BY BOARD OF DIRECTORS OF IDBI AT ITS MEETING HELD ON THE 20TH DAY OF JUNE, 2003 AND CHAIRMAN & MANAGING DIRECTORS APPROVAL ON THE 8TH DAY OF JANUARY, 2004.

O.V.BUNDELLU EXECUTIVE DIRECTOR


Place : Mumbai Date : January 9, 2004.

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GLOSSARY OF COMMON TERMS USED IN BOND STRUCTURES. The debt instruments are being increasingly structured to suit investor preferences with respect to his return requirements, periodicity of return, investment period etc. With increasingly complex instruments being offered, the general retail investors are required to understand the implications of various structures in order to choose the right product best suited to him/her and also to make a well informed decision. To make understanding of these structures easy, some of the commonly used terms relating to a bond structure are explained below. The discussion below is not exhaustive and investors are requested to consult their investment / tax consultants from time to time for specific features offered under bonds issued. 1. Debt Instruments These are the instruments used for borrowing money. Some of the generally used instruments are Bonds and Deposits. (i) Bonds are debt instruments, which are transferable and tradeable. Bonds can be in the form of Promissory Notes or Debentures. While the two forms are the same in basic essence, they differ in terms of legal format, treatment for incidence of tax, stamp duty on issue and transfer etc. Deposits are debt instruments, which are non-transferable and non-negotiable. Deposits are in the form of a receipt.] Premium / discount / par : One often hears that an instrument is issued at par or at a premium or at a discount. This indicates the value to be paid for acquiring an instrument with a given face value. For example: (a) (b) (c) If a bond of Rs. 100 can be bought for Rs.100, the value is at par. If Rs.105 is to be paid for a Rs.100 bond, the bond is said to be sold at a premium of Rs.5. Purchasing a Rs.100 bond for Rs.98 is equivalent to saying that it is bought at a discount of Rs. 2. Therefore premium or discount indicates the difference between the par value and the acquisition value. It may be noted that irrespective of the amount at which the bond is acquired, the interest will be calculated on the par value of the instrument. However, deep discount bonds are issued at a discount to the face value. On maturity the bonds are redeemed at par/ face value. Similarly, if an issuer undertakes to redeem the Rs.100 bond at a premium of say Rs.3, on redemption date the investor will receive Rs.103 towards principal On the same analogy, redemption at discount will mean that the investor will receive less than the par value on redemption. (ii) Redeemable / Irredeemable : A redeemable instrument implies that the principal amount is returned after a specified time period. For example, a 3 year bond is said to be redeemable after 3 years. Irredeemable means that the principal is held by the borrower perpetually on terms of offer. However no irredeemable bonds can be issued in India as per the current provisions of law. An example of irredeemable instrument is Equity Shares. (iii) Secured / Unsecured : A secured instrument is one for which the borrower offers specific security (in the form of assets) to support meeting of repayment of principal and payment of interest in the event of default. In case of any such default, the lender may enforce the security through necessary legal procedures. An unsecured instrument indicates that the investors have to depend solely on the performance capabilities of the issuer / borrower for principal / interest payments. (iv) Senior / Subordinate Debt : These two words indicate the order in which the lenders will be paid in case of liquidation of the issuer / borrower. In case of liquidation, the assets of the company will be sold and the creditors / lenders will be paid as per the order subject to various legal provisions. In such an eventuality, an investor in a subordinate debt will be paid only after meeting the payments to investors in senior debt.

(ii) 2.

Structures used in Debt Instruments. (i)

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(v) Fixed / Floating interest : A fixed interest indicates that interest will be paid at an accepted rate expressed as a percentage of the principal amount. However, if the interest payable on the bond is linked to some other variable rate (called benchmark) then the rate is said to be floating. For example, if interest on a Rs.100 bond with 3 year maturity is fixed at 10% p.a. payable annually the interest payable is Rs.10 each at the end of first, second and third year. Assume the rate on the above instrument is linked to one year Government Security rate on the first day of each year (resetting dates). If the interest rate on the first day of first, second and third year happens to be 10%, 11% and 9%, interest for the three years will be Rs. 10 (Rs.100 x 10%), Rs. 11 (Rs.100 x 11%) and Rs.9 (Rs. 100 x 9%) respectively. This is an example of a floating rate instrument wherein the rate of interest payable every year will change as per the underlying benchmark. The benchmark for a floating rate instrument can be linked to rates offered on G-sec, G-sec traded rates, Treasury bills, stock index, commodity prices, inflation rate etc. The actual interest amount received every year may not be uniform in the case of a floating rate. Further the actual amount of interest to be received every year in case of floating rate instrument cannot be determined at the time of investment. vi) Return : The amount of interest paid on an investment is said to be the return. This compensation is paid in different forms depending on the bond structure an investor opts for. Some common terms are given below: (a) (b) Interest / coupon rate : This is the rate expressed as a percentage of the par value. For example (1). 10% per annum (2). 9% per annum payable quarterly etc. Periodicity of payment: This refers to the intervals at which interest is paid by the borrower. For example 9% per annum payable quarterly means an investment in a Rs.100 bond will get Rs.2.25 (100 x 9% x 1/4) at the end of every quarter. Similarly the periodicity of interest payment can also be monthly, half-yearly etc. Yield to Maturity: Yield to maturity is the effective annual return an investor will get at the end of each year considering that all intermittent payments (interest payments) received are reinvested at the rate mentioned. Yield also refers to the effective rate of interest per annum. For example. 1. 2. 3. (d) (e) 9% per annum payable annually will result in YTM of 9% 9% per annum payable or compounded quarterly will result in yield of 9.31% and 9% per annum payable or compounded monthly will result in yield of 9.38%.

(c)

Yield to put/call : This refers to the yield calculated for the period upto the date of put/call considering all intermittent cash flows to be reinvested at the same rate as the original investment Discount: When an investment giving a specified maturity amount is offered for a lower issue price (for example Rs.10,000 to be received at the end of 6 years by investing Rs. 5,000) the instrument is said to be at a discount. The difference between the issue price and the maturity value (also called as face value) will be the amount of discount. Discount rate and the yield to maturity will be the same and there will not be any payment of interest between the date of investment and the maturity date

(vii) Repayment Bullet and staggered Bullet repayment :Principal amount will be repaid on the date of maturity Staggered payment: Principal amount will be repaid in two or more instalments (For example, payment of 25% each of the principal at the end of 6th, 7th, 8th and 9th year in a 9 year bond) (viii) Options Put / Call / Early redemption Increasingly borrowers/issuers of debt are providing facilities like put/call options or early redemption provision in the structures offered by them.

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(a) Put option : This is the right given to the investor to return the bond and take back the money on specific dates between the date of investment and maturity date. This feature imparts liquidity to the instrument and also permits the investor to take advantage of any favorable interest rate movement during option period. (For example- Consider a 9% 5 year bond with put option at the end of 3 years. An investor invests in the bond taking it as 5 year investment. If the interest after 3 years for a two year bond is 12% p.a., the investor can exercise put option and reinvest for 2 years at 12% thereby increasing his overall return). (b) Call option : This is the right retained by the borrower/issuer to call back the bond and return the money to the investor on specific dates between the date of investment and the maturity date. Whenever such option is available, the investor should rather look at the returns and investment period upto the date of first call option. For example- Consider a 10 year bond with call option at the end of 5 years. An investor invests in the bond taking it as a 10 year investment. If the issuer exercises option at the end of 5 years, the investor may or may not be able to get same returns for the balance 5 years by investing in other securities. This uncertainty is called reinvestment risk. (c) Early redemption This nomenclature is generally used when the put/call option is not on any specific dates, but can be exercised over a period before the date of maturity. (d) Option date and Option notice As mentioned above, option dates can be anytime between the date of investment and maturity date. Issuer/investor desirous of exercising the option will have to give specific notice of the same in advance to the investor /issuer respectively. The exact notice period will be mentioned in the bond terms. (ix) Other related terms: 1. Interest payment date In case of interest bearing instruments the date(s) on which interest will be paid represents interest payment dates. (For example, If interest is payable for the calendar quarter on the first of the succeeding month, interest will be paid on April 1 for the period January to March, on July 1 for the period April to June etc.). 2. Record date Interest/redemption proceeds are paid to the investors whose names appear on the records of the issuer as on a particular date which is referred to as Record Date. Investors are required to ensure that the bonds purchased by them are transferred in their names before the record date, failing which the issuer will send the payment to the person whose name appears in the register of bond holders. 3. Deemed Date of allotment Deemed Date of allotment will be the date on which the investment proposed by the applicant is considered to have been accepted by the issuer. The terms of the bond will come into effect from this date even though the actual date of allotment could differ from the deemed date of allotment. 4. Listing Bonds can be listed on the Stock Exchanges. Generally major issuers list securities in the leading Stock Exchanges. Listing facilitates trading of the securities by the holders thereby imparting liquidity.

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5. Ranking of various instruments In case of liquidation of the issuer, the amount due to various types of bond holders will be settled in the following order. Secured debt. Unsecured Senior debt (includes Bonds, Fixed Deposits etc.) Unsecured Sub-ordinate debt This in essence will mean that an investor in unsecured sub-ordinate debt will be paid only after meeting the payments due to the investors in secured debt and unsecured senior debt. 6. Market Making This is a facility whereby market makers will give two way quotes (Buy / Sell) in the secondary market. This is done with the intention of creating liquidity to the instrument in the secondary market. Presence of the market maker for specific securities helps the investors in those securities to have additional liquidity 7. Depository Arrangement Bonds can be dematerialised through a depository. Dematerialisation creates paperless security thereby reducing the risk of forged documents, does away with consequences of loss of security, reduces transaction time and brokerage. Also the trading in dematerialised securities in the secondary market does not attract stamp duty.

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HEAD OFFICE: IDBI Tower, WTC Complex, Cuffe Parade, Mumbai 400 005. Tel: (022) 22182026/221989117/22161746. Fax: (022) 22188137, 22181155. Grams: INDBANKIND. Website : www.idbi.com ZONAL OFFICES IDBI, Chennai 115, Anna Salai Saidapet, P. B. No. 1306, Chennai 600015 Tamil Nadu Tel.: (044) 22355201-16 Fax : 22355226/3346 IDBI, Mumbai IDBI Tower, 5th Floor, WTC Complex, Cuffe Parade, Mumbai 400005 Maharashtra Tel.: (022) 22160696-98 Fax : 22160785 IDBI, Guwahati G.S.Road, Guwahati 781005 Assam. Tel.: (0361) 2529520-24 Fax : 2452136 IDBI, Kolkata 44, Shakespeare Sarani, P.B.No.16102, Kolkata 700017, West Bengal. Tel.: (033) 22476818-20 Fax : 22473593

IDBI, New Delhi Indian Red Cross Society Bldg.1, Red Cross Road, P.B.No. 231, New Delhi 110001 Tel.: (011) 23716181-84 23711733, 23725480 - 81 Fax : 23711664 / 23718074

BRANCH OFFICES
IDBI, Agartala Chapala Villa Near Circuit House, Airport Road, Kunjaban P.O., Agartala 799006, Tripura.(0381) Tel. & Fax : 2324986 IDBI, Ahmedabad IDBI Complex, Nr. Lal Bungalow, Off CG Road. Ahmedabad 380006, Gujarat.(079) Tel: 26563911/4994/4149 26565301/822/849/896 Fax : 26400814 IDBI, Aizwal P.U. Vaivenga Bldg., Tuikhuahlang, Aizwal 796001, Mizoram (0389) Tel. & Fax No. 2325791 IDBI, Bangalore IDBI House, 58, Mission Road, Bangalore 560027, Karnataka. Tel.: (080) 22245047/8 22275442/22225442/2272 869/22274840/22211335 Fax. : 22215194/22213166 IDBI, Bhopal 6, Malviya Nagar, Opp.Raj Bhavan, Adj. to LIC, Bhopal 462003, Madhya Pradesh. Tel. : (0755) 2558415/ 2555008/ 2762399 Fax : 2554921/ 2220563 IDBI, Bhubaneshwar IDBI House, Janapath, P. B. No.190, Bhubaneswar 751022, Orissa. Tel: (0674) 2542196/ 2542572, 2543243 Fax : 2543442 IDBI, Chandigarh S.C.O. 72-73, Sector 17-B, P.B. No. 27, Chandigarh 160017 Tel.: (0172) 2709689/2702781 Fax.: 2703409 IDBI, Dimapur Leirauki, 1st Floor, Khermahal Junction, P.B.No.173, Dimapur 797112. Nagaland. Tel. & Fax : (03862) 225715

IDBI, Chennai 115, Anna Salai Saidapet, P. B. No. 1306, Chennai 600015. Tamil Nadu. Tel.: (044) 22355201-16 Fax : 22355226/3346

IDBI, Hyderabad D.No. 5-9-89/1&2, Chapel Road, P.B.No.370, Hyderabad 500001. Andhra Pradesh. Tel.: (040) 23236846/ 5466/6145/4610/3240841 Fax : 23230613 IDBI, Indore 2nd Floor, Chaturvedi Mansion, 26/4, Old Palasia, Agra-Mumbai Road, Indore 452001 Madhya Pradesh. Tel. (0731) 2563496/2561898 Fax: 2563496

IDBI, Coimbatore Stock Exchange Bldg., 683-686, Trichy Road, Coimbatore 641005. Tamil Nadu. Tel. : (0422) 2310262/67 Fax.: 2310257

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IDBI, Itanagar VIP Road, Bank Tinali, Itanagar 791111 Arunachal Pradesh. Tel & Fax : (0360) 2211436

IDBI, Jaipur Anand Bhavan, 1st Floor, Sansar Chandra Road, P.B.No.22, Jaipur 302001 Rajasthan. Tel.: (0141) 2360581-82/83 Fax : 2372830 IDBI, Jammu Office Block No. O.B. 26, Grid Bhavan, 1st Floor, rail Head Complex, Jammu - 180012. J&K Tel.: (0191) 2474337 Fax : 2474338 IDBI, Kanpur Virendra Smriti, 2nd Floor, 15/54-B Civil Lines, Kanpur 208001. Uttar Pradesh. Tel.:(0512) 2304232/2304380 2306866, 2306915 Fax : 2304286 IDBI, Kochi Panampilly Nagar, P.B.No. 4253, Kochi 682036 Kerala. Tel.: (0484) 2318889, 23221571 / 168, 2312964 Fax : 2319042 IDBI, Kolkata 44, Shakespeare Sarani, P.B.No.16102, Kolkata 700017. West Bengal. Tel.. (033) 22807924, 22478834 Fax : 2475094

IDBI, Ludhiana B-19-110/4, 2nd floor, 203, Carnival Shopping Centre, Mall Road, Ludhiana 141001. Punjab. Tel : (0161) 2407436/6541 Fax: 2406541 IDBI, Mangalore 3rd Floor, Siddarth Bldg., Bal Matta Road, Mangalore 575001. Karnataka. Tel.: (0824) 2444952. Fax: 2447029

IDBI, Panaji EDC House, 6th Floor, Dr. Atmaram Borkar Road, Panaji, 403 001. Goa Tel.: (0832) 2223112/1453. Fax : 2223401 IDBI, Patna Maurya Centre, 1 Fraser Road, P.B.No.183, Patna 800001. Bihar Tel.Nos: (0612) 2223797/ 2225676/5535/2230450 Fax: 2220758 IDBI, Pune IDBI House, F.C. Road, Dnyaneshwar Paduka Chowk, Shivajinagar, Pune: 411004 Maharashtra Tel. (020)25677481-5 Fax. : 25676132 IDBI, Rajkot 201, 235, 236, Star Chamber, IInd Floor, Dr. Rajendra Prasad Road, Rajkot 360001. Gujarat Tel.: (0281) 2234904 Fax : 2233453 IDBI, Ranchi Arjan Place, 1st Floor, 5 Main Road, Ranchi 834001. Bihar. Tel. (0651) 2300357/ 2208655 Fax: (0651) 2300357 IDBI, Shillong Sapphire House, Don Bosco Road, Laitumkrah, P.B.No.31, Shillong 793003 Meghalaya. Tel. & Fax: (0364) 2224632

IDBI, Shimla Jeevan Jyoti, Lala Lajpat Rai Chowk, The Mall, P.B. No.52, Shimla 171001 Himachal Pradesh Tel.: (0177) 2258999 Fax : 2254169 IDBI, Surat 302, Meridian Tower, 3rd Floor, Nr.Rajkumar Theatre, Udhna Darwaja, Ring Road, Surat 395003 Gujarat Tel: (0261) 28342890/ 28348040 Fax : 28342890 IDBI, Varanasi 1st floor D-64/132-K Anant Complex, Sigra, Varanasi 221010 Uttar Pradesh Tel : (0542) 2224023/4083 Fax : 2224023 IDBI, Vijaywada 3A, Alankar Complex, 3rd Floor, Gandhi Nagar, Vijaywada 520003. Andhra Pradesh. Tel. & Fax : (0866) 2571025.

IDBI, Meerut 222-225, Citi Centre, 2nd floor, Begum Bridge Road, Meerut 250001. Uttar Pradesh. Tel. & Fax (0121)2528970

IDBI, Mumbai th IDBI Tower, 5 Floor, WTC Complex, Cuffe Parade, Mumbai 400005. Maharashtra Tel.: (022) 22160696-98 Fax : 221660785 IDBI, Nagpur F-1, 1st floor, Vasant Vihar Complex, 6, Shankar Nagar, West High Court Road, Nagpur 440 010. Maharashtra Tel : (0712) 2536505 Fax : 2547668 IDBI, New Delhi Indian Red Cross Soc.Bldg. 1,Red Cross Road, P.B.No. 231, New Delhi 110001 Tel. : (011) 23716181-84 23711733, 23725 480-81 Fax : 23711664/80474

IDBI, Visakhapatnam 13-26-2, 1st Floor, Apuroopa Arcade, Jagadamba Centre, Visakhapatnam 530002. Andhra Pradesh Tel. (0891): 2565067 Fax : 2565267

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ag p is h T

s i e

k n la b t p e k lly a n o i t n e int

138