Credit Risk:

Credit risk arises as a result of failure or unwillingness on part of customer or counterparties to fulfil their contractual obligations. These obligations arise from wholesale, retail advances and off balance sheet items. Credit risks also emanate from investment and trading portfolio by way of issuer risk in debt paper, settlement risk on OTC trades and downgrade risk on non SLR investments and OTC contracts. Credit risk is managed in the Bank through committees that approve credit and an enterprise wide risk management framework which sets out policies and procedures covering the measurement and management of credit risk.

Credit risk management process:

Credit risk management is an integral part of the management and governance process within the Bank. The Bank focuses on ensuring that credit risk taking is in line within approved policies, while meeting risk-reward objectives. The Bank expects to achieve its earnings objectives and to satisfy its customers needs while maintaining a sound portfolio. Credit exposures are managed through target market identification, appropriate credit approval processes, postdisbursement monitoring and remedial management procedures. Periodic portfolio review, clear identification of early warning signals and prompt action on the legal and recovery front ensure a healthy credit portfolio. Timely and in-depth research on industries and sectors ensure that funds are directed to positive outlook sectors. Adverse developments in sectors are tracked to facilitate timely actions. The Bank also constantly reviews its concentration across borrowers, groups, portfolio segments, geography, maturity, sectors and ratings. This helps the Bank maintain a well diversified portfolio. The Bank has also put in place a rating based approval matrix for sanctioning wholesale loans.

Credit Risk Management Principles:

The Bank measures and manages its credit risk based on the following principles: The extension and renewal of any credit facility to a particular borrower requires credit approval at the appropriate authority level. The approval authorities policy indicates the sanctioning authorities and the rating tool helps the of authorities in counterparties such decisions.should be in line with the corporate credit policy and credit risk The approval all limits to mitigation policy of the bank. Such approval should generally be within the Banks portfolio guidelines and credit strategies. The credit worthiness of borrowers is regularly reviewed and monitored. Customers with emerging credit problems are identified early and classified accordingly. Remedial action is initiated promptly to minimise the potential loss to the bank.

Definition and classification of non-performing assets (NPA):

The Bank classifies its advances into performing and non-performing advances in accordance with e xtant RBI guidelines. A NPA is defined as a loan or an advance where; Interest and / or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan; The account remains out of order in respect of an overdraft / cash credit (OD/CC); and The bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted.

Out of Order:
An account should be treated as out of order if the outstanding balance remains continuously in excess of the sanctioned limit / drawing power for a continuous period of 90 days. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit / drawing power, but there are no credits continuously for 90 days as on the date of balance sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as out of order.

Overdue:
Any amount due to the bank under any credit facility is overdue if it is not paid on the due date fixed by the bank. Further, NPAs are classified into sub-standard, doubtful and loss assets based on the criteria stipulated by RBI. A sub-standard asset is one, which has remained NPA for a period less than or equal to 12 months. An asset is classified as doubtful if it has remained in the sub-standard category for a period exceeding 12 months. A loss asset is one where loss has been identified by the Bank or internal or external auditors or during RBI inspection but the amount has not been written off fully. The loans of subsidiaries have been classified as non-performing in accordance with the guidelines prescribed by their respective regulators.

Total credit risk exposures as at 31st March 2013:

in crore Overall credit exposure Fund Non-fund Total based based Total gross credit exposures 66,737.7 10,986.6 77,724.3 6 0 6 Credit exposure include term loans, working capital facilities (i.e. funded facilities like cash credit, demand loans, temporary limits and non-funded facilities like letter of credits, acceptances and guarantees).

Geographic distribution of exposures as at 31st March 2013:

Exposures Domestic Overseas Total Fund based 66,737.7 6 66,737.7 6 Non-fund based 10,977.8 3 8.77 10,986.6 0 Total 77,715.5 9 8.77 77,724.3 6

Industry-wise distribution of exposures:

Industry Auto loans Personal loans Home loans / Loan against property Credit cards Other retails loans Iron and steel Engineering Chemical, dyes, paints etc Construction Automobiles Infrastructure NBFCs Other industries (i) Total Fund based 20,714.86 3,063.58 10,338.40 309.12 12,749.54 293.78 753.82 962.49 3,383.56 1,955.23 3,492.98 1,857.09 6,863.31 66,737.76 Non-fund based

in crores Total 20,714.86 3,063.58 10,338.40 309.12 12,749.54 602.12 2,094.40 1,935.68 3,794.96 2,626.16 5,940.63 1,859.13 11,695.78 77,724.36 % of total 26.6517 3.941596 13.30136 0.397713 16.40353 0.774686 2.694651 2.490442 4.882588 3.378812 7.643202 2.391953 15.04777 100

308.34 1,340.58 973.19 411.40 670.93 2,447.65 2.04 4,832.47

10,986.60

(i) Other industries include entities from sectors such as cotton textiles, sugar, food processing, vegetable oils and vanaspati, paper and paper products, rubber and rubber products, cement, IT-related, gems and jewellery, capital markets, media publication etc. From the industry wise distribution of exposure of loan we can see that exposure to auto loans is most by the bank. Banks shell out more on auto loans and majority of defaults are also in auto loans segment. This default is due to sluggish demand and overall downturn in the economy. Auto loans are also given to the customers who have a bad credit history, but now a days banks have tightened the eligibility limit for auto loans to check on defaults. From the table we can see the exposure of the bank to credit card is least.

Credit risk portfolios subject to the standardised approach

External Ratings As per the NCAF, the Bank has adopted the Standardised approach for measurement of credit risk. The risk weights under this approach are based on external ratings of counterparties, the Bank has identified the following External Credit Assessment Agencies (ECAIs) as approved rating agencies: a. b. Domestic credit rating agencies: CRISIL, ICRA, CARE and India Ratings (erstwhile FITCH India) International rating agencies: S&P, FITCH and Moodys

The Bank assigns risk weight on the basis of Long Term and Short Term rating of the borrower. The issue / issuer ratings of the ECAIs are considered for the borrowers and the risk weights are then derived on a case by case basis in accordance with the rules laid down by RBI as part of the New Capital Adequacy Framework.

Credit exposures by risk weights

` in crore Exposure category Below 100% risk weight 100% risk weight More than 100% risk weight TOTAL Fund based 22,158. 61 25,493. 94 18,247. 74 65,900. 29 Non-fund based 5,598.7 8 4,041.6 8 496.8 8 10,137. 34 Total 27,757. 39 29,535. 62 18,744. 62 76,037. 63

Maturity pattern of certain items of assets and liabilities: As at 31st March 2013: Day 1 2 to 7 days 8 to 14 15 to 28 29 days to days days 3 months Over 3 Over 6 months months & & up to 6 up to 12 months months 4,417.40 4,058.30 4,914.93 4,122.71 1,993.50 2,111.90 11,450.59 6,703.04 6,209.24 2,519.68 1,443.35 2,952.79 433.84 747.81 32.13 Over 1 Over 3 Over 5 Total year & years & years up to 3 up to 5 years years 18,977.55 4,584.83 6,943.01 48,455.64 5,559.13 898.01 1,305.26 28,873.43 14,573.31 1,225.82 412.77 51,028.77 2,166.39 404.30 566.10 20,410.62 12.80 1.29 54.63 1,984.08

Advances * Investments Deposits Borrowings Foreign Currency Assets Foreign Currency Liabilities

677.65 9,350.83 295.70 75.42 69.41

1,345.37 1,441.70 1,094.90 1,194.31 1,541.65 796.13 3,623.18 3,852.57 2,682.55 9,457.84 183.38 641.37 552.18 26.80 53.19

84.40

58.37

146.72

238.30 1,387.64

928.81

1,520.69

578.79

15.43

244.28 5,203.43

* Advances shown above are net of the Advance EMI received amounting to ` 13.34 crores.
In computing the above information, certain estimates and assumptions have been made by the Banks Management which have been relied upon by the auditors.

As at 31st March 2012

(` in crores) Over 1 Over3 Over 6 year Over 3 Over Total months months & & up to 3 years & 5 years & up to 6 up to 12 years up to 5 months months years 3,065.17 5,208.69 14,669.15 3,535.55 5,907.26 39,066.36 1,837.00 2,076.73 4,085.48 704.47 992.79 21,566.81 4,379.45 5,397.51 12,826.13 1,285.82 230.73 38,536.52 1,203.14 2,196.73 2,034.08 898.00 630.63 16,595.52 393.58 14.51 21.33 6.93 51.05 1,398.30 560.34 1,058.75 676.94 2.24 229.33 4,750.70

Day 1

2 to 7 days

8 to 14 15 to 28 29 days to days days 3 Months

Advances * Investments Deposits Borrowings Foreign Currency Assets Foreign Currency Liabilities

350.37 6,494.14 299.78 44.18 62.00 60.07

937.21 1,228.01 1,043.67 1,345.83 1,345.37 803.97 2,443.09 3,295.99 2,348.62 6,429.00 760.88 749.40 473.89 23.52 85.44 252.35 173.10 644.39

3,121.28 1,881.03 6,029.40 1,649.48 266.05 1,093.19

*Advances shown above are net of the Advance EMI received amounting to ` 12.87

Residual contractual maturity break-down of assets as at 31st March 2013 ` in crore Maturity Pattern Cash Balances and with balances other with banks 752.8 1,067.6 monetary 595.9 9 275.0 authority 7 0 378.1 100.0 1 0 221.7 0 227.5 1 424.6 0.59 242.7 7 68.0 0.09 1 2,211.5 1,443.3 4 7 Investmen ts 12,086.7 8 808.9 2 4,393.1 6 2,093.4 4 2,543.7 7 5,409.1 3 908.4 4 1,432.1 5 29,675.7 9 Advanc es 4,765.4 5 2,380.7 6 6,914.0 6 6,446.3 2 8,378.1 9 24,802.5 15,550.3 2 7,021.5 9 66,259.2 0 Fixed Assets 494.3 5 494.3 5 Other Assets 487.4 9 268.0 7 206.3 8 164.8 437.1 8 18.5 8 44.4 7 1,330.4 8 2,557.4 9

0 to 14 days 15 to 28 days 29 days to 3 months Over 3 months & upto 6 months Over 6 months & upto 1 year Over 1 year & upto 3 years Over 3 years & upto 5 years Over 5 years Total

Liquidity Risk Liquidity risk is the risk that the Bank is unable to meet its obligations when they fall due. Liquidity risk has the potential to constrain growth through depletion of resources available for lending and investment. Treasury is responsible for managing liquidity under the liquidity risk management framework and the contingency liquidity plan approved by ALCO and the Board. Stress testing and scenario analysis are incorporated in the liquidity risk management structure. The Bank follows a scenario based approach towards liquidity stress testing, wherein historical and hypothetical scenarios are employed to evaluate the impact of stress on the liquidity position of the Bank. The Basel Committee of Banking Supervisors (BCBS) issued its final Basel III guidelines in December 2010. These guidelines include a ratio for short term liquidity {the Liquidity Coverage Ratio (LCR) and a longer term liquidity measure {the Net Stable Funding Ratio (NSFR) proactively, the Bank has incorporated these metrics as part of its risk appetite and monitors performance against these on a regular basis. Liquidity in Equity investments may be affected by trading volumes, settlement periods and transfer procedures. These factors may also affect the Scheme's ability to make intended purchases/sales, cause potential losses to the Scheme and result in the Scheme missing certain investment opportunities. These factors can also affect the time taken by KMMF for redemption of Units, which could be significant in the event of receipt of a very large number of redemption requests or very large value redemption requests. In view of this, redemption may be limited or suspended after approval from the Boards of Directors of the AMC and the Trustee, under certain circumstances as described in the Statement of Additional Information.