sbindore ipdi bonds information memorandum sept 27 2007

8/2/2019 SBIndore IPDI Bonds Information Memorandum Sept 27 2007

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STATE BANK OF INDORE(Associate of the State Bank of India)

Head Office: 5, Yashwant Niwas Road, Indore 452003 (MP).Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217

Website:www.indorebank.org

PRIVATE PLACEMENT OF INNOVATIVE PERPETUAL DEBT INSTRUMENTS FOR INCLUSION OF

TIER I CAPITAL IN THE NATURE OF UNSECURED PROMISSORY NOTES AGGREGATING TO Rs. 165CRORES

GENERAL RISKSInvestors are advised to read the Risk factors carefully before taking an investment decision in this offering. For taking aninvestment decision the investor must rely on their examination of the offeror and the offer including the risks involved.The securities have not been recommended or approved by Securities and Exchange Board of India (SEBI) nor does SEBIguarantee the accuracy or adequacy of this document. Specific attention of investors is invited to the chapter on RiskFactors in this Information Memorandum of Private Placement.

OFFERORS ABSOLUTE RESPONSIBILITYThe Offeror, having made all reasonable inquiries, accepts responsibility for, and confirms that this InformationMemorandum contains all information with regard to the Offeror and the Offer, which is material in the context of theOffer, that the information contained in this Information Memorandum is true and correct in all material aspects and isnot misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that thereare no other facts, the omission of which makes this document as a whole or any of such information or the expression of

any such opinions or intentions misleading in any material respect.

The Arranger is not required to file this document with SEBI/ROC as it is on private placement and not an Offer to thegeneral Public.

CREDIT RATINGCRISIL India Ltd. has assigned a rating of AAA/Stable (pronounced Triple A with stable outlook) rating to the captioneddebt programme of the Bank. This rating indicates highest safety. It indicates fundamentally strong position. Risk factorsare negligible. There may be circumstances adversely affecting the degree of safety but such circumstances, as may bevisualized, are not likely to affect the timely payment of principal and interest as per terms.

CARE Ltd has assigned a rating of AAA (pronounced Triple A) to the captioned debt program of the bank. This ratingindicates that the instrument is considered to be of the best credit quality, offering highest safety for timely servicing ofdebt obligations. This instrument carries minimal credit risk.

The rating is not recommended to buy, sell or hold Securities and investors should take their own decision. The rating may

be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluatedindependently of any other rating. The rating obtained is subject to revision at any point of time in the future. The ratingagencies have a right to suspend, withdraw the rating at any time on the basis of new information, etc.

LISTINGThe IPDI instruments are proposed to be listed on the Bombay Stock Exchange. (BSE)

BOND TRUSTEEIDBI Trusteeship Services Ltd., have given their consent to the Bank vide their letter No. 1929/ITSL/OPR/2007/CL-156 dated September 3, 2007 for being appointed as Bond Trustee for the present private placement.

Coordinating Arranger Arrangers Registrars

Ankit Consultancy Pvt. Ltd2nd Floor, Alankar Point4-A, Rajgarh KothiGeeta Bhawan Crossing, IndoreTel: (0731) 2491298/5076083Fax: (0731) 5065798Email:[email protected]

SBI Capital Markets

Limited202, Maker Tower E,Cuffe Parade, Mumbai 400 005.Tel: (022) 2218 9166Fax: (022) 2218 8332

Citibank, N.A.Citigroup Centre, 4th Floor,Bandra Kurla Complex,Bandra (East), Mumbai 400 051Tel: 022 40015644Fax: 022 4006 5859

Trust Investment Advisors

Pvt. Ltd.109/110 1st floor, BalaramaVillage ParigkhariBandra-Kurla ComplexBandra (E) Mumbai 400051Tel: 022 3068 1150Fax: 0223068 1151

Issue Opens: September 27, 2007 Issue Closes: September 28, 2007Note: The Bank reserves the right to vary (pre-pone/postpone) any of the above date(s) at its sole and absolutediscretion, without giving any reasons or prior notice. In such a case, investors will be intimated about the revised timeschedule by the Bank

Private and ConfidentialInformation Memorandum


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TABLE OF CONTENTS

Chapter PageInstrument Snapshot 1Definitions & Abbreviations 3Forward Looking Statements 7Risk Factors & Management Perceptions Thereof 8

Internal Risk Factors 8Lock-in-Clause 12

External Risk Factors 12Highlights of the Bank 16PART IGeneral Information 17

Eligibility 17Authority for the Placement 17General Disclaimer 17Listing 19Caution 19Minimum Subscription 20Undertaking by the Bank 20Private Placement Programme 21

Private Placement Management Team 22Capital Structure of the Bank 23Terms of the Present Placement 26Unsecured Non convertible IPDI Bonds 27Tax Benefits 43Particulars of the Placement 47Banking Sector Overview 48History and Background of the Bank 77Management of the Bank 98Promoters, Group Companies, Joint Ventures & Associates 104Stock Market Data 108Financial Summary 109Management Discussion & Analysis 110Outstanding Litigations, Defaults & Material Developments 112

Investor Grievance & Redressal 114Risk Factors & Management Perceptions thereof 115PART IIGeneral Information 124Financial Information 127Unaudited Financial results for/upto Qtr ended June 30, 2007 155Statutory and Other Information 157Main Provisions of the State Bank of India Act 161Material Contracts & Documents for Inspection 171PART IIIDeclaration 172APPLICATION FORM 173Annexures 174


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DEFINITIONS AND ABBREVIATIONS

DEFINITIONSTerm(s) Description

Board/Board of The Board of Directors of State Bank of Indore or a committee thereofDirectors

Book Closure/ The date of closure of register of Bond for payment of interest.Record Date

Bonds/IPDI Bond Unsecured Irredeemable Non-Convertible Innovative PerpetualDebt Instruments in the nature of promissory notes

Offeror/Bank State Bank of Indore constituted under the State Bank of India (Subsidiary Banks) Act,1959

Depository A depository registered with SEBI under the SEBI (Depositories and Participant)Regulations, 1996, as amended from time to time

Depositories Act The Depositories Act, 1996, as amended from time to time

Depository Participant A depository participant as defined under the Depositories Act

Director(s) Director(s) of State Bank of Indore unless otherwise specified

Financial Period of twelve months ended March 31 of that particular yearYear/Fiscal/FY

Head Office of the 5, Yeshwant Niwas Road, Indore 452003 (MP).Bank

ITSL/Trustee IDBI Trusteeship Services Ltd.

Issue/Offer/ Private Placement of the BondsPrivate Placement

Issuer/Offeror State Bank of Indore

InformationMemorandum/ The Offer Document for the Private Placement of BondsMemorandum

I.T. Act The Income-Tax Act, 1961, as amended from time to time

Offer Size Unsecured, Irredeemable, Non-Convertible Innovative Perpetual Debt InstrumentBonds aggregating Rs. 165 Crores

RBI The Reserve Bank of India

Registrar Registrar to the Offer, in this case being Ankit Consultancy Pvt. Ltd.

SEBI The Securities and Exchange Board of India constituted under the SEBI Act, 1992

SEBI Act Securities and Exchange Board of India Act, 1992, as amended from time to time

SEBI Guidelines SEBI (Guidelines for Disclosure and Investor Protection) 2000 issued by SEBI onJanuary 27, 2000, as amended, including instructions and clarifications issued by SEBIfrom time to time


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ABBREVIATIONS

ALCO Asset-Liability Management CommitteeALM Asset Liability ManagementAGL Aggregate Gap LimitsARC Asset Reconstruction Companies

AS Accounting StandardBSE Bombay Stock Exchange Limited, MumbaiCAR Capital Adequacy RatioCARE CARE LimitedCDR Corporate Debt RestructuredCDSL Central Depository Services (India) Ltd.CRISIL CRISIL Ltd.CRAR Capital to Risk-weighted Assets RatioCRR Cash Reserve RatioDICGC Deposit Insurance and Credit Guarantee Corporation of India Ltd.DP Depository ParticipantECGC Export Credit Guarantee Corporation of India Ltd.FDI Foreign Direct InvestmentFEDAI Foreign Exchange Dealers Association of IndiaGoI Government of India/Central Government

GDP Gross Domestic ProductICAI Institute of Chartered Accountants of IndiaIGL Individual Gap LimitsIPDI Innovative Perpetual Debt Instrument in the nature of promissory notesMoF Ministry of FinanceNDTL Net Demand and Time LiabilitiesNPA Non-Performing AssetsNRI Non Resident IndiansNSDL National Securities Depository Ltd.RBI Reserve Bank of IndiaRRBs Regional Rural BanksSARFAESI Act Securitisation and Reconstruction of Financial Assets and Enforcement of Security

Interest ActSBI State Bank of India

SBI (SB) Act State Bank of India (Subsidiary Banks) Act, 1959SEBI Securities and Exchange Board of IndiaSLR Statutory Liquidity RatioThe Bank State Bank of IndoreThe Board The Board of Directors of the BankThe Companies Act The Companies Act, 1956VRS Voluntary Retirement Scheme


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PRIVATE PLACEMENT OF BONDS ISSUED BY STATE BANK OF INDORE

Dear Sir/ Madam,

State Bank of Indore (the Bank) is proposing to issue IPDI Bonds on a private placement basis as described in this

Memorandum.

Investors are required to make payment through demand draft(s) / cheque(s)/RTGS remittance payable in favour ofState Bank of Indore A/c - SB Indore Tier I Perpetual Bond - Series I and crossed Account Payee only. The fullface value of the Bonds has to be paid up on application. Investors may also remit the application money throughRTGS with instructions to credit the same to State Bank of Indore A/c - SB Indore Tier I Perpetual Bond - Series Ito our RTGS Centre, Mumbai (RTGS Code Number ofSTIN0003351).

The Bank reserves the right to reject in full or part any or all of the offers received by them to invest in these Bondswithout assigning any reason for such rejections.

You are requested to confirm your acceptance to the terms and conditions outlined in this Memorandum of PrivatePlacement by sending the Application Form along with the cheque(s) / demand draft(s)/RTGS to theArranger/Banks branches.

Your acceptance of the terms and conditions outlined in this Memorandum will constitute an offer to invest in theabovereferred Private placement and will be subject to acceptance by the Bank. Please note that this PrivatePlacement Memorandum is restricted for circulation only to the investors to whom the above has been addressedpersonally and this Memorandum cannot be transferred / circulated to others. The information contained herein is tobe retained in strict confidence.

Should you require any further clarifications regarding the above-mentioned Private placement, we request you tocontact the undersigned.

Yours Faithfully,

For State Bank of Indore

Sd/-

Authorised Signatory

Place: IndoreDate: September 25, 2007


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DISCLAIMER

This Memorandum of Private Placement (Memorandum) is neither a prospectus nor a statement in lieu ofprospectus and does not constitute an offer to the public to subscribe for or otherwise acquire the Bonds issued byState Bank of Indore (the Bank/the Offeror). The document is for the exclusive use of the Person(s)/Institution(s) towhom it is delivered and it should not be circulated or distributed to third party (ies). Apart from this InformationMemorandum, no Offer Document or Prospectus has been prepared in connection with this Bond Offer and that noProspectus in relation to the Issuer or the Bonds relating to this Offer has been delivered for registration nor such adocument is required to be registered under the applicable laws. The Arranger is not required to file this documentwith SEBI/ROC/RBI as it is on private placement and not an Offer to the general Public.

This Memorandum is issued by the Bank. The views contained herein do not necessarily reflect the views of itsdirectors, employees, affiliates, subsidiaries or representatives and should not be taken as such. The Memorandum hasbeen prepared by the Bank to provide general information on the Bank and does not purport to contain allinformation a potential investor may require. Where this Memorandum summarizes the provisions of any otherdocument, that summary should not be relied upon and the relevant document should be referred to for the full effectof the provisions. The information relating to the Bank contained in the Memorandum is believed by the Bank to beaccurate in all respects as of the date hereof.

The Memorandum shall not be considered as a recommendation to purchase the bonds and recipients are urged todetermine, investigate and evaluate for themselves, the authenticity, origin, validity, accuracy, completeness, adequacyor otherwise the relevance of information contained in this Memorandum. The recipients are required to make their

own independent valuation and judgment of the Bank and the Bonds. It is the responsibility of potential investors toalso ensure that they will sell these bonds in strict accordance with this Information Memorandum and otherapplicable laws, so that the sale does not constitute an offer to the public, within the meaning of the Companies Act1956. The potential investors should also consult their own tax advisors on the tax implications relating to acquisition,ownership, sale or redemption of Bonds and in respect of income arising thereon. Investors are also required to maketheir own assessment regarding their eligibility for making investment(s) in the Bonds of the Bank. The Bank or any ofits Directors, employees, advisors, affiliates; subsidiaries or representatives do not accept any responsibility and/ orliability for any loss or damage however arising and of whatever nature and extent in connection with the saidinformation.

Neither the Arranger nor any of their respective affiliates or subsidiaries have independently verified the informationset out in this Memorandum or any other information (written or oral) transmitted or made to any prospective lenderin the course of its evaluation of the Offeror.

The Arranger make no representation or warranty, express or implied, as to the accuracy or completeness of theInformation Memorandum, and the Arranger do not accept any responsibility for the legality, validity, effectiveness,adequacy or enforceability of any documentation executed or which may be executed in relation to this Offer.

The recipients of this Memorandum agree that unless and until the definitive written agreements between the Bankand any such recipient with respect to a possible transaction have been executed and delivered and have becomelegally effective, and then only to the extent of the specified terms and provision of such definitive agreements, neitherthe Bank nor any of its Directors, employees, advisors, affiliates, subsidiaries or representatives shall be under any legalobligation of any kind what so ever with respect to any such transaction by virtue of the delivery of this Memorandumor its content or of any other written or oral expression by any of the Directors, employees, advisors, affiliates,subsidiaries or representatives of the Bank.

Force MajeureThe Bank reserves the right to withdraw the Offer prior to the earliest closing date in the event of any unforeseendevelopment adversely affecting the economic and regulatory environment or otherwise. In such an event, the Bank

will refund the application money, if any, along with interest payable on such application money, if any, withoutassigning any reason.

This Information Memorandum is issued by the Bank and signed by its authorized signatory.

Sd/-Date: September 25, 2007 Authorised Signatory


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FORWARD-LOOKING STATEMENTS

This Information Memorandum may contain certain forward-looking statements. These forward-looking statementsgenerally can be identified by words or phrases such as we believe, expect, estimate, anticipate, intend,plan or other words or phrases of similar import. Similarly, statements that describe our objectives, plans or goalsare also forward-looking statements. All forward-looking statements are subject to risks, uncertainties and assumptionsabout us that could cause actual results to differ materially from those contemplated by the relevant forward-looking

statement. Important factors that could cause actual results to differ materially from our expectations include, amongothers:a) General economic and business conditions in India;b) Our ability to successfully implement our strategy, our growth and expansion plans and technological changes;c) Changes in the value of the Indian rupee and other currency changes;d) Changes in the Indian and international interest rates;e) Changes in laws and regulations that apply to the Indian Banking Industry;f) Increasing competition in, and the conditions of, the Indian Banking Industry;g) Changes in political conditions in India; andh) Changes in the foreign exchange control regulations in India.

By their nature, certain market risk disclosures are only estimates and could be materially different from what actuallyoccurs in the future. As a result, actual future gains or losses could materially differ from those that have beenestimated. In accordance with SEBI requirements, our bank will ensure that investors in India are informed of materialdevelopments until such time as the grant of listing and trading permission by the Stock Exchanges.


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RISK FACTORS AND MANAGEMENT PERCEPTION THEREOF

The Investors should carefully consider the following risk factors as well as the other details andinformation contained in this Information Memorandum in evaluating the Bank and its business beforeinvesting the Bonds offered by this Information Memorandum.

INTERNAL RISK FACTORS

1. Contingent Liabilities

As on March 31, 2007 the contingent liabilities of the Bank were at Rs 22105 crores comprising claimsagainst the Bank not acknowledged as debts - Rs. 61 crores, liability on account of outstanding forwardexchange contracts - Rs. 19622 crores, guarantees on behalf of constituents - Rs. 1021 crores, acceptances,endorsements and other obligations - Rs. 1226 crores and others - Rs. 175 crores. As on June 30, 2007 thecontingent liabilities of the Bank were at Rs 22105 crores comprising claims against the Bank notacknowledged as debts - Rs. 61 crores, liability on account of outstanding forward exchange contracts - Rs.19420 crores, guarantees on behalf of constituents - Rs. 1079 crores, acceptances, endorsements and otherobligations - Rs. 1370 crores and others - Rs. 175 crores.

Management Perception

The contingent liabilities have arisen in the normal course of business of the Bank and are according to theprudential norms prescribed by RBI.

2. Profits of the BankThe net profits of the Bank has increased marginally from Rs. 139.11 crores in FY 2005-06 to Rs. 190crores in FY 2006-07 (growth of 36.58%) mainly due to a decrease in provisions and contingencies to anextent of Rs 199 crore for the FY 2006-07 from Rs 250 crore of 2005-06.

Management PerceptionDuring 2006-07, the interest rate scenario underwent a sea change and this had a major impact on the

banking sector in the country. Bank has responded effectively to the changed scenario and earned increasedNet profit of Rs 190 crores during the year after making all the provisions. It may be noted that operatingprofit of the Bank has come from diversified income streams comprising net interest income, profit on saleof securities and other income, which account for 128.91%, 18.65% and 46.99% of the total operating profitrespectively for the FY 2006-07, which is sustainable in future. For the Quarter Ended 30th June 2007, theBank has made a net profit of Rs 64.77 crores against net profit of Rs 10.34 crores for the correspondingperiod last year i.e. a growth of 526.40%.

4. Non-Performing Assets (NPAs)

As on 31.03.2006 and 31.03.2007, the net NPAs of the Bank stood at Rs 216.80 crores and Rs 159.06 croresi.e. 1.83% and 1.04% of its net advances amounting to Rs 11875.97 crores and Rs 15351.38 croresrespectively in absolute terms. In the event of non-recovery of these assets, the Bank may have to provide

for these NPAs, which might affect the profitability of the Bank in future.

Management PerceptionThe Net NPAs of the Bank have remained low. The Banks provision on NPAs is more than the amountprescribed under RBIs IRAC norms. The Net NPAs ratio of the Bank stood at low 1.04% as on 31.03.2007and at 1.01% on 30.06.2007. The Bank is taking steps to reduce the proportion of non-performing assetsthrough aggressive recovery drives combined with improved risk management practices. The bank has setbenchmarks for Gross NPAs and Net NPAs on the basis of the corporate goals. The top management ofthe bank is closely monitoring the movement of NPAs in tune with the corporate goals. Further, there havebeen substantial changes in the legislative and operating environment enabling Financial Institutions and


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Banks to pursue recovery of overdues. Besides Debt Recovery Tribunal (DRT) set up for faster settlementof recovery litigation, GoI has enacted The Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 enabling FIs and Banks to securitise and reconstruct financialassets and enforce security more effectively. Reserve Bank of India has formulated detailed guidelines foroperation of the scheme. The Bank is invoking the provisions of the Securitization Act to enhance recovery.Thus, the Bank has been taking recourse to all the available methods to recover its overdues from theborrowers.

5. Regional Concentration of the BankState Bank of Indore has a regional concentration in Madhya Pradesh accounting for approximately 77% ofall branches in terms of numbers. The regional presence of the Bank may compromise its competitiveposition vis--vis its national level competitors.

Management PerceptionThe regional presence of the Bank may not be a hindrance to its growth prospects. Total deposits of theBank have grown by 152.28% to Rs. 19976.47 crores and advances have grown up by 257.91% to Rs.15351.38 crores during the past 5 years ending 31.03.2007. The Bank has 445 branches and 23 extensioncounters as on 31.03.2007

6. Decline in Return Ratios

The Average Yield on Investment (domestic) of the Bank has shown a declining trend from 8.34% in FY2006 to 8.20% in FY 2007. The Average Yield on Advances of the Bank has marginally increased from8.24% to 9.02% during the same period.

Management PerceptionAverage Yield on investments has come down because of the decline in the general interest rate structure ofthe economy during past years and redemption of high yielding securities on maturity. The continuousdownward trend in the interest rates over past years has been the major reason for decline in Yield onInvestment of the Bank. For example, the yield on 10 year GoI security (semi-annualised yield), which was6.21% on 31.03.2003 has come down to 5.16% on 31.03.2004. However, the G-Sec yields started hardeningdue to the higher crude oil prices, higher inflation, etc. and during December 2006, the yield on 10 year GoI

security was at 7.60% (semi annualized). We believe that the declining interest scenario has now reversedand the yield on advances and investments will start improving.

7. Depreciation charge to P& L account due to Transfer of Securities from AFS to HTM

Consequent upon transfer of certain Government Securities amounting to Rs 1631crores during 2006-07from Available for Sale (AFS) category to Held to Maturity (HTM) as permissible, depreciation amounted toRs 172.17 crores in the FY 06-07.

Management PerceptionThe above-referred securities were transferred from AFS to HTM to insulate the Bank from further declinein prices. While improvement in prices will enable selling the securities with the permission of the topmanagement of the Bank, in case of price fall, no further provisioning is necessary as HTM category is

exempted from mark to market.

8. Adverse affect of the revised RBI policy on the Capital Adequacy of the Bank

The provision of operational risk capital from 31.03.2008 will adversely affect the Capital Adequacy Ratio ofthe Bank in coming years.

Management PerceptionThe Bank has already initiated steps to improve the capital funds and has raised the subordinated bonds forRs 200 crores in February 2005, Rs 140 crores in September 2005, Rs 110 crores in March 2006 and upper


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Tier II Bond augmenting tier-II capital of Rs. 100 crores in December 2006 and upper Tier II Bondaugmenting tier-II capital by Rs 200 crores in March 2007 to shore up the Capital Adequacy Ratio. Thebank is further making this offer for Innovative Perpetual Debt Instrument for Rs 165 crores to furthershore up CRAR that would take care of capital charge for operational risk.

9. Asset Liability Position

As per the statement of structural liquidity as on the 31st March 2007, the negative mismatches in the firsttwo time buckets are well within the tolerance levels stipulated by RBI and ALM policy of our Bank.Further, all the negative gaps in the other time buckets are also within the tolerance limits fixed by the bank.A large portion of the funding of the Bank is in the form of short and medium term deposits. The assetliability position of the Bank could be affected if the depositors do not roll over the deposits. Acomprehensive contingency plan is put in place to address fully any problems relating to liquidity.

Management PerceptionAs per the normal behavioral pattern and past experience, a large portion of the deposits gets rolled over.The Bank feels that in the event of these deposits not being rolled over, the fresh accretion of depositswould take care of the Asset Liability mismatches. In addition, bank maintains ordinarily a surplus of aroundRs 500 crores in the form of excess SLR securities, which can be utilized to correct any medium termmismatches. Moreover, the Bank has an Asset Liability Management system in place to actively monitor and

manage liquidity mismatches.

10. Credit Risk

The Banks main business of lending carries an inherent credit risk, which involves inability or unwillingnessof a customer or counterparty to meet commitments in relation to lending, trading, hedging, settlement andother financial transactions.

Management PerceptionThe Bank has a rigorous and well-defined credit appraisal system. Prudential exposure norms and variousinternal exposure norms are followed to avoid credit concentration and to minimize and mitigate credit risk.Credit risk assessment is in place for capturing the risk profiles of the accounts. The Bank ensures that RiskManagement Department is independent of the operational department. Bank has a comprehensive loan

policy document covering areas of credit and credit risk.

11. Asset ConcentrationTop five industries amount for 28.68% and 32.38% of non-food credit of the bank as on 31.3.2006 and31.3.2007 respectively. Top five borrowers account for 7.03% and 10.32% of non-food credit as on31.3.2006 and as on 31.3.2007 respectively.

Management PerceptionExposure norms are in place to avoid asset concentration. Portfolio reviews and reviews of implementationof exposure management norms are undertaken at regular intervals to check asset concentration. Except forsome specified industries, exposure limits for individual industry is capped at 15 percent of the bank's totalfund-based exposure to avoid concentration of assets in a few industries.

12. Outstanding Litigations against the Bank

There are outstanding litigations 297casesas on 31.03.2007 the financial implication of which cannot beestimated. For details, please refer to the section on Litigation appearing elsewherein the InformationMemorandum.

Management PerceptionThese claims are not likely to affect the operations and finances of the Bank.

13. Litigation against the Bank sponsored RRBs


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There are 9 cases of claims/suits filed against Vidisha Bhopal Gramin Bank. This Gramin Bank issponsored by State Bank of Indore. For details, please refer to the section on Litigation appearing elsewherein the Information Memorandum.

Management PerceptionThese claims against Vidisha Bhopal Gramin Bank are not likely to affect the operations and finances ofState Bank of Indore.

14. RBIs Annual Financial Inspection Report

The Annual Inspection Reports of RBI on the financial position of the Bank has identified certainweaknesses in the system, operational and other deficiencies.

Management PerceptionThe bank has taken the necessary action to rectify the various deficiencies pointed out in the AnnualFinancial Inspections which is a regular supervisory exercise carried out by RBI in respect of all banks andfinancial institutions. A comprehensive report has been submitted to the regulatory authorities furnishingdetails of corrective actions initiated by the bank.

15. Utilization of Funds

The utilization of the funds proposed to be raised through this private placement is entirely at the discretionof the Bank and no monitoring agency has been appointed to monitor the deployment of funds.

Management PerceptionThe funds raised through this private placement are not meant for any specific project and hence amonitoring agency may not be required. The Bank is managed by professionals under the supervision of itsBoard of Directors. Further, the Bank is subject to a number of regulatory checks and balances as stipulatedin its regulatory environment. Therefore, the management believes that the funds raised via this privateplacement would be utilised only towards satisfactory fulfillment of the Objects of the Offer.

16. Credit Decisions

The credit decisions of the Bank are subject to various risk parameters.

Management PerceptionIn a dynamic environment, all the credit decisions are subjected to various risk parameters. As such theBank is following a prudent policy marked by in built checks and balances, where identification andmitigation of risk are the key objectives. Prudential limits are fixed on various financial parameters toimplement risk management guidelines. Bank has implemented various Credit Risk Management guidelinesgiven by the Reserve Bank of India. Bank has fixed internal exposure ceilings based on credit rating of theborrowal account to mitigate concentration risk. Portfolio/Industry wise exposure limit is fixed as a riskmitigation tool. As part of the credit risk management system, the Bank has also confined, by and large, thehigh value credit exposures to specially designated branches which are equipped to handle such exposures. Bank has also stipulated criteria for taking exposures in a particular industry. Maximum industry wisestipulated exposure is 15 per cent of total advances. The Due Diligence in respect of the retail assets has

been strengthened to protect the quality of this portfolio.

17. Credit Policy of the Bank

The credit policy followed by the Bank may materially influence its credit portfolio.

Management PerceptionThe Bank has a comprehensive loan policy document. The loan policy is regularly updated in the light ofmarket changes and revision in RBI guidelines. Loan policy aims at continued growth of assets whileendeavoring to ensure that they remain performing and standard.


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18. Lock-in Clause(a) The present Tier I Subordinate Innovative Perpetual Bond shall be subjected to a lock-in clause, in

terms of which the Bank shall not be liable to pay Interest, if(i) the banks CRAR is below the minimum regulatory requirement prescribed by RBI; or(ii) the impact of such payment results in banks capital to risk assets ratio (CRAR) falling below

or remaining below the minimum regulatory requirement prescribed by RBI

(b) However, the bank may pay interest with the prior approval of RBI when the impact of suchpayment may result in net loss or increase the net loss, provided the CRAR remains above theregulatory norm.

(c) The interest shall not be cumulative.(d)All instances of invocation of the lock-in clause should be notified by the issuing bank to the Chief

General Managers-in-charge of Department of Banking Operations & Development andDepartment of Banking Supervision of Reserve Bank of India, Mumbai.

(e) The claim of the investors shall be(i) Superior to the claims of investors in equity shares, and(ii) Subordinated to the claims of all other creditors.

Management PerceptionThe regulatory minimum CAR stipulated by RBI is 9% as on date, which may be revised by RBI from time

to time. The CAR of the Bank is at 12.39%, 11.61%, 11.40%, 11.77% and 12.12% as on March 2004,March 2005, March 2006, March 2007 and June 2007 respectively, which is well above the minimumregulatory CAR of 9%. The Bank has a well-laid out internal policy to maintain a healthy CAR, well abovethe regulatory minimum CAR prescribed by RBI. To shore up the CAR further, the Bank, as a part of itscapital augmentation programme is launching the present issue of Tier 1 Perpetual Bond (reckoned as Tier Icapital). Hence, the Bank is confident of maintaining a healthy CAR, well above the regulatory minimumCAR stipulated by RBI as on date or that may be prescribed from time to time.

19. Accounting Standard 15 (Revised) [AS-15 (R)]The Institute for Chartered Accountants of India has issued guidelines for implementation of AccountingStandard - 15 (Revised). However, the effect of the revised Accounting Standard 15 on employeebenefits ( which has come into effect from 1st April, 2007) have not been considered as on 31st March, 2007, pending guideline from Reserve Bank of India. However provision has been made by bank on estimated

basis of Rs 3.75 crore as on 30.06.2007 but actual payment will be made to the trust at the year end.

Management PerceptionThe Bank is in the process of assessing the impact of AS-15 (R) on the Capital funds of the Bank.However, given the existing level of Capital funds and ability of the Bank to raise additional capital from theMarket at short notice, the Bank is of the view that it would be able to implement AS-15 (R).

EXTERNAL RISK FACTOTRS

1. Regulatory restrictions on the Bank and limitations of the powers of bondholders of the BankThere are a number of restrictions as per the State Bank of India (Subsidiary Banks) Act, 1959, whichimpede the flexibility of the Bank's operations and affect/restrict investor's right.

i. The Banks can carry on business/activities as specified in the Act. There is no flexibility to pursueprofitable avenues if they arise, in contrast with companies under the Companies act, whereshareholders can amend the Object clause by a Special Resolution Act.

ii. There are restrictions in the Banking regulation Act regarding:a) Setting up of subsidiaries by a bankb) Management of the Bank including appointment of directorsc) Borrowings and creation of floating charge thereby hampering leverage.d) Expansion of business as the branches need to be licensede) Opening of new place of business and transfer of existing place of businessf) Disclosures in the profit & loss account and Balance sheet


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g) Production of documents and availability of records for inspection by shareholders

h) Reconstruction of banks through amalgamation etci) Further issues of capital including issue of rights share for which prior SBI/RBI

approval is neededj) The Bank is prohibited from trading activity. This may act as operational constraint.

iii. Every Banking Company is required to create a Reserve fund by transfer of a sum equivalent to

not less than twenty percent of profit as disclosed in the Profit & Loss account before any dividend isdeclared.

iv. Every Bank has to maintain assets in India, which would be not less than 75% of the Bank'sdemand and time liabilities in India, which in turn may prohibit the Bank from creating overseasassets and exploiting overseas business opportunities.

v. The financial disclosures in the Information Memorandum may not be available to investors afterlisting, on a continuous basis.

vi. Various rights/powers of shareholders available under the Companies Act in this behalf are notavailable to shareholders of Banks as the provisions of the Companies Act are not applicable tothe Bank. Rights like calling for general meetings, inspection of minutes and other material records,application by members for investigation of affairs of a company, application for a relief in case ofoppression and mismanagement, voluntary winding up are not available to shareholders of a Bank.

vii. As per section 19(2) of State Bank of India (Subsidiary Bank's) Act, 1959, no person other than the

State Bank, shall be entitled to exercise voting rights in respect of any shares held by such person inexcess of one percent of the issued capital of the subsidiary bank concerned.

viii. No banking company shall pay dividend on its shares until all its capital ised expenses (includingpreliminary, organizational expenses, share selling commission, brokerage, amounts of lossesincurred and any other item of expenditure not represented by tangible assets) have been completelywritten off. The bank has no such assets/capitalized expenses as on 31.03.2005 and 31.03.2006.

ix. As per Section 9 (1) of the State Bank of India Act, 1959 no person shall be registered as ashareholder in respect of any shares in a subsidiary bank held by him, whether in his own name orjointly with any other person, in excess of two hundred shares, or be entitled to payment of anydividend on the excess shares held by him, or to exercise any of the rights of a shareholder inrespect of such excess shares otherwise than for the purpose of selling them:

Provided that nothing contained in this sub-section shall apply to-

a) the State Bank;b) a State Government;c) a Corporation;d) an insurer as defined in the Insurance Act, 1938;e) a local authority;f) a Co-operative society;g) a trustee of a public or private religious or charitable trust;

Increase in regional hostilities, terrorist attacks and other acts of violence and war could adverselyaffect the country's economic growth and development thereby the financial markets including theBank's business and its future financial performance.

The performance, quality, and growth of the Bank are dependent on the health of the overall Indian

economy. Slowdown in economic growth in India could affect the business of the Bank.

Management Perception

The bank has been functioning well with all these constraints and is expected to continue to grow ashitherto. The Bank is expanding its product and services offered to diversify its income streams. TheBank's thrust on retail products is envisaged to provide growth. Risk management systems, creditsupervision, special emphasis on recovery of NPAs and close monitoring will enable the Bank to closelymonitor the health of its credit portfolio. The slowdown witnessed in the Indian and global economy inthe past few years has not materially affected the Bank's profitability.


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2. Sensitivity to the Economy and Extraneous Factors

The Banks performance is highly correlated to the performance of the economy and the financial markets.The health of the economy and the financial markets in turn depends on the domestic economic growth,state of the global economy and business and consumer confidence, among other factors. Any eventdisturbing the dynamic balance of these diverse factors would directly or indirectly affect the performance

of the Bank including the quality and growth of its assets.

3. Competition from Existing and New Commercial Banks

Competition in the financial sector has increased with the entry of new players and is likely to increasefurther as a result of further deregulation in the financial sector. The Bank may face competition both inraising resources and in deploying them.

Management PerceptionThe Bank has an established broad-based presence and has been taking steps to enhance customersatisfaction by upgrading skills, systems and technology to meet such challenges. The Bank is attempting toadd quality assets on competitive terms. The Bank is also taking steps to broad base its product bouquetwith a special emphasis on enhancement in the non-fund based income. On the resource-raising front, the

Bank is actively endeavouring to broaden its reach and raise resources through its wide distribution networkof 452 branches, 23 extension counters as on 31.08.2007

4. Changes in Regulatory Policies

The operations of the Banking Industry are subject to regulations by the Government/RBI. Major changesin Government/ RBI policies relating to banking sector may have an impact on the operations of the Bank.

Management PerceptionThe policy changes may provide both opportunities and challenges for the Bank. The Bank has a longpresence in the banking sector, for more than 86 years and does not perceive policy changes to be a majorthreat.

5. Disintermediation in the Financial Markets

As the financial markets mature and with growing developments in the capital markets, the trend towardsdisintermediation may be increasingly in evidence. In such a scenario, many companies including the currentand potential borrowers of the Bank may access capital markets directly for their financing needs and reducetheir dependence on the banking system. This may have an adverse impact on the level of deposits and alsoon the level and mix of advances portfolio and the profitability of the Banks.

Management PerceptionThe Bank has, in recent years, launched several retail lending schemes and value added products so as tobroaden its borrower base. Further, disintermediation brings with it the opportunity for the Bank to expandits fee-based activities. The Bank has been endeavoring to develop a presence in several financial services toearn fee based income by focusing on businesses such as foreign exchange, treasury, investments, cash

management, insurance, depository, etc., thus taking advantage of the disintermediation phenomenon.

6. Forex Risk

Exchange Rate fluctuations may have an impact on the Banks financial performance.

Management PerceptionAs per RBI guidelines, banks are not allowed to keep open position on their foreign exchange transactionsbeyond prescribed limits on a daily basis. Foreign exchange transactions beyond such limits, if any, must besquared off at the end of each day. Hence, the risk from exchange rate fluctuations is minimised. The Board


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of Directors of the Bank has also prescribed limits for gaps or mismatches in maturities of Banks foreigncurrency assets and liabilities and forward transactions in foreign exchange. The Bank operates within thelimits fixed for gaps or mismatches in maturities of Banks foreign currency assets and liabilities and forwardtransactions in foreign exchange, thus minimising the risks of mismatches in maturities and interest rates.

7. Interest Rate RiskPresent interest rates on deposits and advances are based on many micro and macro economic factorsincluding the directives of the Reserve Bank of India which are likely to be market driven due toderegulation and thereby may result in increasing pressure on spreads and affect profitability. Interest ratevolatility exposes the Bank to an interest rate risk or market risk. Such interest rate risk has a potentialimpact on net interest income or net interest margin as well as on the market value of the fixed incomesecurities held by the Bank in its investment portfolio.

Management PerceptionThese risks are inherent in the banking business. However, the Bank has put in place a system of regularreview of lending and deposit rates in order to minimise the interest rate risk. The Asset LiabilityManagement Committees of the Bank reviews the risk on a regular basis. Continuous Risk Managementmeasures are initiated depending upon the movement in the market interest rates. The movement in theinterest rates is closely monitored for appropriate action.

8. Operational RiskOperational risk is a result of failure of operating system in a bank due to certain reasons like computerbreak-ins, power disruptions, fraudulent activities, natural disaster, human error or omission or sabotage.

Management PerceptionFor managing operational risk, the Bank has laid down well-defined systems and procedures. The Bank hasset up a separate department to improve the systems and procedures to suit the changing environment. TheBank has also in place a strong internal inspection and audit system. For managing IT related risks, theInformation Systems Security Policy is in place. The Bank has an effective Systems and Proceduresdepartment, which formulates and monitors delegation of duties and responsibilities at different level.

Note to Risk Factors

1. Net worth (excluding revaluation reserves) of the Bank as on 31.03.2006 and 31.03.2007 was Rs.1017.73 crores and Rs 1176.97 crores respectively. The networth as of June 30, 2007 was Rs. 1241.74crores. The Bank has not revalued its assets during the past 5 years.

2. The Private Placement size of this Tier I Perpetual Bond issue is Rs. 165 crores.3. The Book Value of the share as on March 31, 2006 and March 31, 2007 was at Rs. 5506/- and Rs.

6355/- respectively (face value of Rs. 100/-).4. State Bank of Indore 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. The reports of RBI are strictly confidential.The Bank has informed the RBI the actions already taken and measures that are under implementationin respect of observations made by RBI.

5. As per the provisions of Section 15(1) of the Banking Regulation Act, 1949 no banking company shallpay any dividend on its shares until all its capitalised expenses (including preliminary expenses,organisational expenses, share selling commission, brokerage, amounts of losses incurred and any otheritem of expenditure not represented by tangible assets) have been completely written off.

6. No person holding shares in the Bank in respect of any shares held by him/her can exercise votingrights on a poll in excess of 1% of the total voting rights of all the shareholders of the Bank.

7. Transactions between State Bank of Indore and its Associates w.r.t. related party transactions are givenunder the head Financial Information.

8. The face value per share of the promoters is Rs. 100/-.


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HIGHLIGHTS OF THE BANK

Member of the State Bank Group, the largest Banking Group in India. The Group has the biggestnetwork of branches and the highest market share of deposits and advances in the country.

Only Public sector bank headquartered at Madhya Pradesh.

Uninterrupted record of profitability since incorporation.

Low net NPA ratio of 1.04% as on 31.03.2007 and 1.01% as on 30.06.2007. The Capital Adequacy Ratio of the Bank stood at 11.77% and 12.12% as at the end of 31.03.2007

and 30.06.2007 respectively, which is higher than the minimum required 9%.

Bank's existing equity shares are listed on the Madhya Pradesh Stock Exchange at Indore.

Credit growth during the year 2006-07 was at 29.26% against ASCB growth 28%.

Return on Assets and Return on Equity as on 31.03.2007 were 0.87% and 17.31% respectively.

100% Business has been computerized under Core-Banking.


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STATE BANK OF INDORE(Associate of the State Bank of India, Constituted under State Bank Of India (Subsidiary Banks) Act, 1959)

Head Office: 5, Yashwant Niwas Road, Indore 452003 (MP).Tel No: (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731) 2537217

Website: www.indorebank.org

Private Placement of Unsecured, Non-Convertible Innovative Perpetual Debt InstrumentBonds in the nature of promissory notes aggregating Rs. 165 crores

PART I

GENERAL INFORMATION

State Bank of Indore (herein after referred to as the Bank or the Issuer) has been constituted

under the State Bank of India (Subsidiary Banks) Act, 1959 herein after referred to as the SBI (SB)Act. The Bank is privately placing to eligible applicants, as mentioned elsewhere in thisinformation Memorandum, Unsecured, Non-Convertible Innovative Perpetual Debt Instruments inthe nature of promissory notes aggregating to Rs. 165 croresof the face value of Rs. 10,00,000/-each ('the Issue').

ELIGIBILITY

This being a private placement of debt securities, the eligibility norms of SEBI DIP Guidelines,2000 are not applicable.

AUTHORITY FOR THEPLACEMENT

This private placement of Bonds is being made pursuant to the resolution passed by the Board ofDirectors of the Bank on 22nd August 2007 permitting to raise Subordinated Innovative PerpetualBond (inclusive in tier I) up to Rs. 165 crores. Further, State Bank of India, Central Office, hasapproved the issue of IPDI bonds vide their letter SBD/AA/002167 dated 18 August, 2007.

The Bank can carry on its existing activities and has planned future activities in view of the existingapprovals, and no further approvals from any Government authority are required by the Bank tocarry on its said activities.

GENERALDISCLAIMER

This Information Memorandum is neither a Prospectus nor a statement in lieu of Prospectus. Itdoes not constitute an offer or an invitation to the Public at large to subscribe to IPDI Bonds(Bonds) issued by State Bank of Indore. This Information Memorandum is not intended fordistribution and is for the consideration of the person to whom it is addressed and should not bereproduced by the recipient. It cannot be acted upon by any person other than to whom it hasbeen specifically addressed. It is not intended to be offered to more than forty-nine investors.Multiple copies hereof given to the same entity shall be deemed to be offered to the same investor.

Apart from this Information Memorandum, no other document has been prepared in connectionwith this Bond Issue and that no document in relation to the Issuer or this Bond Issue has beendelivered for registration to any authority.


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This Information Memorandum has been prepared in accordance with Schedule II of theCompanies Act 1956, Chapter VI of the SEBI (DIP) Guidelines to give information regarding theBank to investors proposing to invest in this issue of Bonds and it does not purport to contain allthe information that any such party may require. The Issuer, having made all reasonable inquiries,accepts responsibility for, and confirms that this Information Memorandum contains all

information with regard to the Issuer, and the Issue, which is material in the context of the Issue,that the information contained in this Information Memorandum is true and correct in all materialaspects and is not misleading in any material respect, that the opinions and intentions expressedherein are honestly held and that there are no other facts, the omission of which makes thisdocument or any of such information or the expression of any such opinions or intentionsmisleading in any material respect.

Potential investors are required to make their own independent valuation and judgment beforemaking the investment and they are believed to be experienced in investing in debt markets andare able to bear the economic risk of investing in the Bonds. It is the responsibility of potentialinvestors to have obtained all consents, approvals or authorizations required by them to make anoffer to subscribe for, and purchase of the Bonds. Potential investors have not relied on any advice

given by the Arrangers in connection with their offer to subscribe for and purchase the Bonds andacknowledge that the Arranger does not owe them any duty of care in respect of their offer tosubscribe for and purchase of the Bonds. It is the responsibility of potential investors to ensurethat any transfer of the Bonds is in accordance with this Information Memorandum and theapplicable laws, and ensure that the same does not constitute an offer to the public. Potentialinvestors should also consult their own tax advisors on the tax implications of the acquisition,ownership, sale and redemption of Bonds and income arising thereon.

The Arrangers do not take any responsibility either for the financial soundness of the Bondsoffered or for the correctness of the statement made in this Information Memorandum. The

Arrangers have relied exclusively upon the information provided by State Bank of Indore and hasneither verified independently, nor assumes responsibility for the accuracy and completeness of

this Information Memorandum, or any other information or documents supplied or approved byState Bank Of Indore. The Arrangers hold no responsibility for any misstatement in or omissionby the Bank, publicly available information or any other information about the Bank available inthe market. Neither the Arrangers nor any officer or employee of the Arrangers accept any liability

whatsoever for any direct or consequential loss arising from any use of this document or itscontents.

Disclaimer Statement from the Issuer

The Bank accepts no responsibility for statements made otherwise than in the InformationMemorandum or in the advertisements or other material issued by or at the instance of the Bankand the Arrangers and that anyone placing reliance on any other source of information would bedoing so at his/her own risk.

Disclaimer in respect of Jurisdiction

This Issue is made in India to Investors as specified under section Who Can Apply of thisInformation Memorandum, who shall be specifically approached by the Bank/Arrangers. ThisInformation Memorandum does not, however, constitute an offer to sell or an invitation tosubscribe to bonds offered hereby in any other jurisdiction to any person to whom it is unlawful tomake an offer or invitation in such jurisdiction. Any person into whose possession thisInformation Memorandum comes is required to inform himself about and to observe any such


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restrictions. Any disputes arising out of this Issue will be subject to the exclusive jurisdiction of thedistrict courts of Indore.

The Issuer shall make all information available to the investors at large and no selective oradditional information would be available for a section of the investors in any manner whatsoever.

Disclaimer Clause of the Bombay Stock Exchange Ltd.

A copy of this Information Memorandum has been submitted to The Bombay Stock ExchangeLtd. (hereinafter referred to as BSE) where Banks securities are proposed to be listed in terms ofthe extant Guidelines.

BSE does not in any manner:

1. warrant, certify or endorse the correctness or completeness of any of the contents of thisInformation Memorandum; or

2. warrant that the Banks securities will be listed or will continue to be listed on the Exchange; or3. take any responsibility for the financial or other soundness of the Bank, its promoters, its

management or any scheme or project of the Bank.

Every person who desires to apply for or otherwise acquire any securities of the Bank may do sopursuant to independent inquiry, investigation and analysis and shall not have any claim againstBSE whatsoever by reason of any loss which may be suffered by such person consequent to or inconnection with such subscription/ acquisition whether by reason of anything stated or omitted tobe stated herein or for any other reason whatsoever.

The delivery of this Information Memorandum hereunder shall not under any circumstances createany implication that there has been no change in the affairs of the Bank since the date thereof orthat the information contained herein is correct as of any time subsequent to this date.

LISTING

Application shall be made to the Bombay Stock Exchange Ltd. to list the bonds of the Bank nowbeing offered through this Information Memorandum and for permission to deal in such Bonds.

If the permissions to deal in and for an official quotation of the Bonds is not granted by BSE, theBank shall forthwith repay, without interest all such moneys received from the applicants inpursuance of this Information Memorandum. If such monies are not repaid within eight days afterthe Bank becomes liable to repay them (i.e. from the date of refusal or within 70 days from thedate of the closing of the subscription list, whichever is earlier), then the Bank will be liable torepay the monies, with interest, as prescribed under Section 73 of the Companies Act, 1956.

CAUTION

Though the provisions of Sub-section (1) of Section 68-A of the Companies Act, 1956 do notapply to an issue of Bonds, attention of the investors is drawn to the provisions as a matter ofabundant precaution:Any person who -

makes in a fictitious name, an application to a company for acquiring, orsubscribing for, any shares therein, or


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otherwise induces a company to allot, or register any transfer of shares therein tohim, or any other person in fictitious name, shall be punishable with imprisonmentfor a term which may extend to five years

UNDERWRITING

The Bonds offer is not underwritten.

MINIMUMSUBSCRIPTION

Minimum subscription is not applicable for private placement of bonds.

UNDERTAKING BY THEBANK

The Bank undertakes:

a. to attend to the complaints received in respect of the Issue expeditiously and satisfactorily;b. to take all steps for completion of necessary formalities for listing and commencement

of trading at the Stock Exchange where the securities are to be listed are taken within 7working days of finalisation of basis of allotment;c. to apply in advance for the listing of the securities;d. that the funds required for despatch of refund orders/allotment letters by registered post shall

be made available;e. that the Allotment Letters/Refund Orders to the applicants shall be despatched within

specified time;f. that no further issue of securities shall be made till the securities offered through this

Offer Document are listed or till the application monies are refunded on account of non-listing;

g. that necessary cooperation with Credit Rating Agency (ies) shall be extended in providing trueand adequate information till the debt obligations in respect of the instrument are outstanding;

h. to forward the details of utilisation of the funds raised through the Bonds duly certified by thestatutory auditors, to the bond trustees at the end of each half-year;i. to disclose the complete name and address of the bond trustees in the annual report;j. to provide a compliance certificate to the bond holders on a yearly basis in respect of

compliance with the terms and conditions of placement of Bonds as contained in thememorandum, duly certified by the bond trustee.

PROHIBITION BYSEBI

The Bank, its associates and companies with which the directors of the Bank are associated asdirectors or promoters are not prohibited from accessing the capital market/Corporate DebtSecurities Market under any order or directions passed by SEBI.

CREDITRATING

CRISIL India Ltd. has assigned AAA/Stable (pronounced Triple A with Stable Outlook) ratingto the captioned debt programme of the Bank. This rating indicates highest safety. It indicatesfundamentally strong position. Risk factors are negligible. There may be circumstances adverselyaffecting the degree of safety but such circumstances, as may be visualized, are not likely to affectthe timely payment of principal and interest as per terms.


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CARE Ltd has assigned a rating ofAAA(pronounced triple A) to the captioned debt program ofthe bank. This rating indicates that the instrument is considered to be of the best credit quality,offering highest safety for timely servicing of debt obligations. This instrument carries minimalcredit risk.

The rating is not a recommendation to buy, sell or hold Securities and investors should take their

own decision. The rating may be subject to revision or withdrawal at any time by the assigningrating agency and each rating should be evaluated independently of any other rating. The ratingobtained is subject to revision at any point of time in the future. The rating agencies have a right tosuspend, withdraw the rating at any time on the basis of new information etc.

CREDITRATINGDURINGPREVIOUSTHREEYEARS

The Credit Ratings received by the Bank are as follows:

Year Credit Rating Agency Credit Rating Received Amount Raised(Rs. Crs.)

FY 2004-05 CRISIL Ltd CRISIL AAA/Stable 200FY 2005-06 CRISIL Ltd CRISIL AAA/Stable 140

ICRA Ltd LAAAFY 2005-06 CRISIL Ltd CRISIL AAA/Stable 110

ICRA Ltd LAAAFY 2006-07 CRISIL AAA/Stable 100

CARE AAAFY 2006-07 CRISIL AAA/Stable 200

CARE AAA

TRUSTEES

The Bank has appointed IDBI Trusteeship Services Ltd, 10th Floor, Nariman Bhavan, 227, VinayK Shah Marg, Nariman Point, Mumbai 400 021 as Bond Trustees registered with SEBI, for the

holders of the Bonds (hereinafter referred to as Trustees).

PRIVATEPLACEMENTPROGRAMME

Opening date September 27, 2007Closing Date September 28, 2007Deemed Date of Allotment September 28, 2007

Note: The Bank reserves the right to vary (pre-pone/postpone) any of the above date(s) at its sole and absolutediscretion without giving any reasons or prior notice. In such a case, investors will be intimated about the revised timeschedule by the Bank.

PRIVATEPLACEMENTMANAGEMENTTEAM

Coordinating ArrangerSBI Capital Markets Limited202, Maker Tower E,Cuffe Parade, Mumbai 400 005.Tel: 022 2218 9166Fax: 022 2218 8332www.sbicaps.com

ArrangerCitibank, N.A.Citigroup Centre, 4th Floor,Bandra Kurla Complex,Bandra (East), Mumbai 400 051Tel: 022 40015644Fax: 022 4006 5859

ArrangerTrust Investment Advisors Pvt. Ltd.109/110 1st floor, BalaramaVillage, ParigkhariBandra-Kurla ComplexBandra (E) Mumbai 400051Tel: 022 3068 1150Fax: 022 3068 1151


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Registrar to the OfferAnkit Consultancy Pvt. Ltd2nd Floor, Alankar Point4-A, Rajgarh KothiGeeta Bhawan Crossing, IndoreTel: 2491298/5076083 Fax: 5065798E-mail:[email protected]

Bankers to the Bond IssueState Bank of Indore5, Yeshwant Niwas Road,Indore 452003Tel. (0731) 2434584 - 86, 2434580, 2433982 Fax: (0731)2537217www.indorebank.org

TrusteesIDBI Trusteeship Services Ltd10th Floor, Nariman Bhawan227, Vinay K. Shah Marg,Nariman Point, Mumbai-400021Tel. 022 5631 1771/2/3 Fax: 5631 1776www.idbitrustee.com

Auditors to the Bond IssueM. Munshi & Co.305, Navneet Plaza,5/2 Old PalasiaIndore-452018.Tel.0731 2561023/2563452 Fax: 2564019E-mail:[email protected]

COMPLIANCEOFFICERThe investors can contact the Compliance Officer for Bonds in case of any pre-issue/post-issuerelated problems such as non-credit of letter(s) of allotment/bond certificate(s) in the demataccount, non-receipt of refund order(s), interest warrant(s)/cheque(s) etc.

Mr. Ravindra G. GadkariGeneral Manager-TreasuryState Bank of Indore-Head Office5, Yashwant Niwas Road, Indore 452003 (MP)

Tel No: (0731) 2434584 - 86, 2434580, 2433982Fax: (0731) 2537217Email: [email protected]


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CAPITAL STRUCTURE OF THE BANK(As on March 31, 2007)

No. of Shares Face Value(Rs.)

Issue Value(Rs.)

A.Authorised Capital

5,000,000 Equity Shares of Rs. 100 each

500,000,000 500,000,000

B. Issued, Subscribed and Paid-up Capital1,750,000 Equity Shares of Rs. 100 each

175,000,000 175,000,000

C. Paid Up Capital after the Present Offer1,750,000 Equity Shares of Rs. 100 each

175,000,000 175,000,000

D. Share Premium AccountBefore the Offer

After the Offer437,500,000437,500,000

Notes to Capital Structure:1) Following is the capital history since 1985:

(No. and Amount of Shares)Year ended

March 31Increase (Decrease)

in capitalMode Cumulative Paid-up

capital

1985

Existing Capital35,000 sharesRs.0.35 crore

Opening Balance/ Issue ofShares at Face Value of Rs.100/Issue of Shares at premium ofRs.Nil per share etc 35,000 shares

Rs.0.35 crore

19861,40,000 sharesRs.1.40 crore

Rights shares at face value ofRs.100



Rights shares at face value ofRs.100

8,75,000 sharesRs. 8.75 crore

1996 8,75,000 sharesRs.8.75 crore

Rights shares at face value ofRs.100 at premium of Rs.500


Share premium reserveRs.43.75 crore

2. The list of top 10 shareholders of the bank and the number of equity shares held by them:

a. Top ten shareholders as on date of filing the Information Memorandum with Stock Exchangeis as follows:

Sr. No. Name of the Shareholders Number of Equity

Shares1. State Bank of India 17158672. Life Insurance Corporation of India 119203. Sir Sarupchand Hukumchand Pvt Ltd 4754. Shri Chaganlal Airen 2685. Shri Anuj Airen 2006. Shri Anand Swarup Shastri 2007. Smt. Alka Narendra Airen 2008. Smt. Urmila Bhargawa 200


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9. Shri Manohar Dev 20010. Shri Rajendra Singh Airen 200

b. Top ten shareholders ten days prior to the date filing the Information Memorandum with

Stock Exchange is as follows:

Sr. No. Name of the Shareholders Number of Equity Shares1. State Bank of India 17158672. Life Insurance Corporation of India 119203. Sir Sarupchand Hukumchand Pvt Ltd 4754. Shri Chaganlal Airen 2685. Shri Anuj Airen 2006. Shri Anand Swarup Shastri 2007. Smt. Alka Narendra Airen 2008. Smt. Urmila Bhargawa 2009. Shri Manohar Dev 20010. Shri Rajendra Singh Airen 200

c. Top ten shareholders two years prior to the filing the Information Memorandum with StockExchange is as follows:

Sr. No. Name of the Shareholders Number of Equity Shares

1. State Bank of India 17158672. Life Insurance Corporation of India 119203. Sir Sarupchand Hukumchand Pvt Ltd 4754. Shri Chaganlal Airen 2685. Shri Anuj Airen 2006. Shri Anand Swarup Shastri 2007. Smt. Alka Narendra Airen 200

8. Smt. Urmila Bhargawa 2009. Shri Manohar Dev 20010. Shri Rajendra Singh Airen 200


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3. Shareholding Pattern (as on March 31, 2007):

Sr. No. Category Number of Shares Held % ShareholdingA. Promoter's Holding1. Promoters*

- Indian Directors/Relatives- Foreign Promoters

1715867Nil

98.05Nil

2. Persons acting in Concert - -Sub Total 1715867 98.05

B. Non-Promoters Holding3. Institutional Investors - 11920 0.68a. Mutual Funds & UTIb. Banks, Financial Institutions, Insurance Companies

(Central/ State Govt. Institutions/ Non GovernmentInstitutions)

c. Foreign Institutional InvestorsSub Total 11920 0.68

4. Othersa. Private Corporate Bodies 475 0.03

b. Indian Public 21738 1.24c. NRIs/ OCBsd. Trade Union/ Trusts/Clearing Members - -

Sub Total 22213 1.27 Grand Total 1750000 100.00

*The Promoter Group of the Bank comprises of the State Bank of India.

1. The Bank has not raised any bridge loan against the proceeds of this Private Placement.

2. The Bank has not issued any Equity Shares out of revaluation reserves or for considerationother than cash.

3. The shareholders of the Bank do not hold any warrant, option or any debentures, whichwould entitle them to acquire further shares in the Bank.

4. The number of issued shares of the Bank as on date of the issue is 17,50,000.

5. The Bank as part of its ongoing capital augmentation programme may issuebonds/securities/loans etc. as deemed necessary.


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TERMS OF THE PRESENT PLACEMENT

The Bank is intending to raise an aggregate amount of Rs. 165 crores (through the issue ofUnsecured Non-Convertible Innovative Perpetual Debt Instruments in the nature of promissory notesfor inclusionof Tier I capital of face value of Rs. 10 lakh each for cash at par (hereinafter referred to as theBonds) by way of private placement.

The Bonds being offered are subject, interalia to the terms of this Information Memorandum, theapplication form, the Memorandum and Articles of Association of the Bank, and the provisions ofthe Companies Act, 1956, State Bank of India (Subsidiary Banks) Act 1959 and The BankingRegulations Act, 1949. In addition, the bonds shall be subject to such other terms and conditionsto be incorporated in the Bond Trust Deed / Letter of allotment and to the extent applicable, theprovisions of the Depositories Act 1996, the relevant Statutory Guidelines and Regulations forallotment and listing of securities issued from time to time by the Government of India (GoI),SEBI and the Stock Exchanges concerned. This Information Memorandum does not, however,constitute an offer to sell or an invitation to subscribe to bonds offered hereby in any otherjurisdiction to any person to whom it is unlawful to make an offer or invitation in suchjurisdiction.

The Issue hereunder shall be made in India to Investors specified under clause Who Can Applyof this Information Memorandum, who shall be specifically approached by the bank/Arranger.

This Information Memorandum does not constitute an offer to sell or an invitation to subscribe toBonds offered hereby to any person to whom it is not specifically addressed.

OBJECTS

The Issue proceeds would be used to strengthen the Tier I capital funds position and the longterm resources of the bank.

Instrument at a Glance:

Issue Size Rs. 165 crores

Instrument Fully paid-up, Unsecured, Non Convertible Innovative PerpetualDebt Instruments Bonds qualifying for inclusion in Tier I Capitalin the nature of promissory notes.

Issuance Format To be issued in dematerialized form with Central DepositoryServices (India) Limited/National Securities Depository Limited.

Credit Rating AAA / Stable by CRISIL

AAA by CARE

Face Value/ Issue Price Rs. 10,00,000/- per Bond

Minimum ApplicationSize

One Bond and thereafter in multiples of one bond

Tenor Perpetual

Redemption These bonds shall be perpetual.

However, in case the Bank exercises the call option, thenbulleted Redemption at par


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Coupon Rate Fixed coupon @ 10.25% p.a. subject to TDS as applicable. Ifthe Bank does not exercise Call Option, after 10 years from theDate of Allotment, fixed coupon of 10.75% p.a.,(step-upcoupon of 50 bps) is payable from 28.09.2017 till the next CallOption that may be exercised by the Bank, subject to TDS asapplicable

Interest Payment Annual

Interest on ApplicationMoney

Interest on application money will be paid to Investors at theCoupon Rate (subject to deduction of tax at source, asapplicable) from the date of realisation of cheque(s)/demanddraft(s)/RTGS realisation, upto but not including the DeemedDate of Allotment.

Put option None

Call option At par at the end of 10th year from the date of allotment andthereafter on each anniversary date (with prior approval of RBI)

Step-up Option A step-up-option of 50 bps over and above the coupon rate of10.25%, if the Call Option is not exercised by the Bank after 10

years from the Date of Allotment. That is, the Bonds carry aCoupon Rate of 10.75% after ten years till the next Call Optionthat may be exercised by the Bank.

Lock-in-clause Bank shall not be liable to pay Interest if, the bank's CRAR isbelow the minimum regulatory requirement prescribed by RBI orthe impact of such payment results in bank's CRAR falling belowor remaining below the minimum regulatory requirementprescribed by RBI, at the material time.

Listing Proposed listing at BSE

Depository NSDL and CDSL

Issuance & Trading Demat mode*Subject to TDS as applicable. Investors are advised to read the Information Memorandum for more details.

UNSECUREDNON-CONVERTIBLE SUBORDINATEDINNOVATIVE PERPETUALDEBTINSTRUMENTS BONDSTransferabilityThe Innovative Perpetual Debt Instrument Bonds will be negotiable instruments in the nature ofPromissory Notes, transferable by endorsement and delivery.

Seniority of ClaimThe Innovative Perpetual Bonds will constitute direct, unsecured and subordinated obligations ofthe Bank and the claims of the investors in innovative instruments shall be

a) Superior to the claims of investors in equity shares andb) Subordinate to the claims of all other creditors.

KEYTERMS

TenorThe Bonds are perpetual in nature from the Date of Allotment, unless the Bank exercises the CallOption.


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CouponThe investors will receive interest at 10.25% p.a. subject to TDS as applicable. If the Bank doesnot exercise Call Option, after 10 years from the Date of Allotment, fixed Coupon of 10.75% p.a.,is payable from 28.09.2017 till the next Call Option that may be exercised by the Bank, at the timeof the Annual Interest Payment Date and every year thereafter, subject to TDS as applicable.

Face Value per BondEach Bond has a face value of Rs.10, 00,000/- and is issued at par at Rs.10, 00,000/-.

Minimum Application SizeThe minimum investment shall be 1 bond i.e. Rs.10, 00,000/- and in multiples of 1 (one) Bond i.e.Rs. 10, 00,000 thereafter.

Deemed Date of allotmentSeptember 28, 2007 shall be the deemed date of allotment of the Bonds. All the benefits under thebonds will accrue to the investor from this date even though the actual allotment may take placeon a date other than the specified deemed date of allotment.

Credit RatingCRISIL Ltd. has assigned AAA/Stable (pronounced Triple A with stable outlook) rating to thecaptioned debt programme of the Bank. This rating indicates highest safety. It indicatesfundamentally strong position. Risk factors are negligible. There may be circumstances adverselyaffecting the degree of safety, but such circumstances, as may be visualized, are not likely to affectthe timely payment of principal and interest as per terms.

CARE Ltd has assigned a rating of AAA (pronounced triple A) to the captioned debt program ofthe bank. This rating indicates that the instrument is considered to be of the best credit quality,offering highest safety for timely servicing of debt obligations. This instrument carries minimalcredit risk.

The rating is not recommended to buy, sell or hold Securities and investors should take their owndecision. The rating may be subject to revision or withdrawal at any time by the assigning ratingagency and each rating should be evaluated independently of any other rating. The rating obtainedis subject to revision at any point of time in the future. The rating agencies have a right to suspend,

withdraw the rating at any time on the basis of new information etc.

ListingApplication shall be made to the Bombay Stock Exchange Ltd. to list the bonds of the Bank nowbeing offered through this Information Memorandum and for permission to deal in such Bonds.

If the permissions to deal in and for an official quotation of the Bonds is not granted by BSE the

Bank shall forthwith repay, without interest all such moneys received from the applicants inpursuance of this Information Memorandum. If such monies are not repaid within eight days afterthe Bank becomes liable to repay them (i.e. from the date of refusal or within 70 days from thedate of the closing of the subscription list, whichever is earlier), then the Bank will be liable torepay the monies, with interest, as prescribed under Section 73 of the Companies Act, 1956.

LimitsThe total amount raised by a bank through IPDI shall not exceed 15 percent of unimpaired non-innovative Tier-I Capital of the previous financial year. The eligible amount will be computed with


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reference to the amount of Tier-I capital as on March 31 of the previous financial year, afterdeduction of goodwill and other intangible assets but before the deduction of investments.

Investment by FII in IPDI raised in Indian rupees shall be outside the ECB limit for rupeedenominated corporate debt (currently USD 1.5 billion) fixed for investment by FIIs in corporatedebt instruments.

Put OptionThere is no Put Option available to the Bondholder(s) for redeeming the Bonds prior to maturity.The Bonds are free of any restrictive clause and shall not be redeemable at the initiative of theholder(s). Redemption of these Bonds shall be made only with the prior approval of the RBI.

Call OptionThe Bank can exercise Call Option, if the Innovative Perpetual Debt Instrument Bonds have runfor atleast 10 years i.e. after 10 years from the Date of Allotment and every year thereafter at the

Annual Interest Payment Date, with the prior approval of RBI. For availing this facility, the Bankshall notify its intention to do so, through a notice sent by Registered Post/Courier to thesole/first named applicant or sole/first Beneficial Owner of the Bonds by virtue of sale/transfer,

atleast 30 days prior to the due date.

Step-Up OptionThe Innovative Perpetual Debt Instrument Bonds carry a Step-up Option of 50 bps over andabove the coupon of 10.25% p.a., after 10 years from the Date of Allotment i.e. from 28.09.2017till the next Call Option that may be exercised by the Bank, at the time of Annual Interest PaymentDate and every year thereafter subject to TDS as applicable. The Step-up Option shall not in any

way alter other characteristics of the instruments, except the coupon of the instruments.

Lock-in Clause1. The present Innovative Perpetual Debt Instruments shall be subjected to a lock-in clause,

in terms of which the Bank shall not be liable to pay either periodic interest on principal or

even principal at maturity, ifa. the banks CAR is below the minimum regulatory requirement prescribed by RBI;or

b. the impact of such payment results in banks capital to risk assets ratio (CRAR)falling below or remaining below the minimum regulatory requirement prescribedby RBI

2. However, the bank may pay interest with the prior approval of RBI when the impact ofsuch payment may result in net loss or increase the net loss, provided the CRAR remainsabove the regulatory norm.

3. The interest amount due shall not be cumulative.4. All instances of invocation of the lock-in clause should be notified by the bank to RBI.

However, this lock-in-clause will not proscribe the Bank from making payment of periodicinterest/principal on the stipulated due date(s), as long as the Bank meets with the minimumregulatory CAR requirements.

Date of RedemptionThe Bonds are perpetual, unless the Bank exercises Call Option after 10 years from the Date ofAllotment or every year thereafter at the Annual Interest Payment Date. All the benefits under theBonds will accrue to the investors upto the date of Call Option that may be exercised by the Bank.


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UnderwritingThe Bonds offer is not underwritten.

Interest on Application MoneyInterest at the coupon rate (subject to deduction of tax at source) will be paid in respect of all validapplications including the refunds. Such interest shall be paid from the date of realisation of the

cheques/demand drafts up to the date immediately preceding the Deemed Date of Allotment.Refund cheques/Warrants/Demand Drafts / RTGS realizationswill be mailed within seven days ofDeemed Date of Allotment. In case of an oversubscription, the excess mobilisation that would beeventually refunded will also be applicable for application money. However, in case of a rejectedapplication, no interest would be paid on the application money.

The Interest Cheque(s)/ Demand Draft(s) for Interest on Application Money shall be dispatchedby the Bank alongwith allotment advice/ Regret letter / Rejection letter, as the case may be, and

will be dispatched by registered post to the sole/ first applicant, at the sole risk of the applicant.

Interest on the BondsThe Bonds will carry interest at the rate of 10.25% p.a. at fixed rate for the first 10 years from the

Date of Allotment. If the Bank does not exercise Call Option, after 10 years from the Date ofAllotment, fixed Coupon of 10.75% p.a., is payable from 28.09.2017 till the next Call Option thatmay be exercised by the Bank, at the time of the Annual Interest Payment Date and every yearthereafter, subject to TDS as applicable. The interest will be paid from the Date of Allotment(subject to deduction of Tax at source at the rates prevailing from time to time under the Income

Tax Act, 1961 or any other statutory modification or reenactment thereof) and is payable annuallyon April 1st each year for the previous year ended on March 31st during the tenure of the Bondsexcept for the last interest payment.

If any interest payment date falls on a day, which is not a business day in Indore, Madhya Pradesh(Business Day being a day on which Commercial Bank are open for business in Indore , MadhyaPradesh ), then payment of interest will be made on the next business day but without liability for

making payment of interest for the delayed period. The interest payable shall be calculated bymultiplying the coupon rate by the principal amount, multiplying such product by actual numberof days in the interest period concerned dividing by 365 (a leap year would be considered as 366days for the purpose of interest calculation).

Interest Perioda. The first interest period is defined as the actual number of days falling between the Deemed

Date of Allotment to 31st March 2008 including both the first date and the last date. The firstinterest payment would be made on 1st April 2008.

b. The second interest period is defined as the actual number of days between 1st April 2008 and31st March 2009 including both the dates and so on.

c. The last interest period is defined as the actual number of days falling between the Date of

Redemption on account of Call Option exercised by the Bank and the previous interestPayment Date.

Payment of InterestThe interest payment would be made by Electronic Clearing System or by means ofcheques/demand drafts/(Interest warrants payable at par at specified branches of the Bank) and

will be mailed to the Bondholders. Payment of interest will be made to the holders of the Bondswhose names appear in the list of beneficiaries given by NSDL/CDSL to the Bank on RecordDate.


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Interest DeferralIn terms of the Lock-in clause for IPDI Bonds, the Bank cannot pay periodical interest on duedates, if the Banks Capital Adequacy Ratio is below the Regulatory Minimum Ratio stipulated byRBI (which currently is 9%), on any Interest Payment Date. In such a case, the Bank may deferpayment of Interest on the Bonds, until permitted by RBI.

Record DateThe Record Date will be 30 days prior to each Interest Payment Date or the Date of Redemptionas the case may be.

Tax Deduction at SourceTax as applicable under the Income Tax Act, 1961, or any other statutory modification or re-enactment thereof will be deducted at source. The investor(s) desirous of claiming exemption fromdeduction of income tax at source on the interest on application money are required to submit thenecessary certificate(s), in duplicate, along with the application form in terms of Income Tax rules.

Interest payable subsequent to the Deemed Date of Allotment of Bonds will be treated as

Interest on Securities as per Income Tax Rules. Bondholders desirous of claiming exemptionfrom deduction of income tax at source on the interest payable on Bonds should submit taxexemption certificate/ document, under Section 193 of the Income Tax Act, 1961, if any, at theoffice of the Bank, at least 45 days before the payment becoming due.

Regarding deduction of tax at source and the requisite declaration forms to be submitted, prospective investor is advised toconsult his tax consultant.

RedemptionThe face value of the Bond will be redeemed at par, on expiry of 180 months from the deemeddate of allotment. However, if the call option is exercised by the bank, the bonds will be redeemedon expiry of 120 months. The Bond will not carry any obligation, for interest or otherwise, afterthe date of redemption. The Bonds held in the Dematerialised Form shall be taken as dischargedon payment of the redemption amount by the Bank on maturity to the registered Bondholders

whose name appear in the Register of Bondholders on the record date. Such payment will be alegal discharge of the liability of the Bank towards the Bondholders. On such payment being made,the Bank will inform NSDL/CDSL and accordingly the account of the Bondholders withNSDL/CDSL will be adjusted. The Bonds are negotiable instruments transferable by endorsementand delivery in the denomination of Rs. 10,00,000/- each. The bonds will not be redeemable at theinitiative of the holder or without the consent of Reserve Bank of India. Hence, the consent of ReserveBank of India will be obtained before redemption of bonds on due date or before the date of Call Option to beexercised by the Bank, as required in terms of their guidelines addressed to all Commercial Banks vide RBInotification DBOD No.BP.BC.57/21.01.002/2005-2006 dated 25th January, 2006 and Master Circular Prudential Norms on Capital Adequacy vide their notification DBOD No.BP.BC.13/21.01.002/2006-06dated 1st July, 2006.

Effect of HolidaysShould any of the dates defined above or elsewhere in the Information Memorandum, exceptingthe Deemed Date of Allotment, fall on a Sunday or a Public Holiday, the next working day shall beconsidered as the effective date(s).

In case any Interest Payment Date(s) and/or the Da