Home  »  Company  »  Kotak Mahindra Bank  »  Quotes  »  Directors Report
Enter the first few characters of Company and click 'Go'

Directors Report of Kotak Mahindra Bank Ltd.

Mar 31, 2016

The Directors present their Thirty-first Annual Report together with the audited accounts of your Bank for the year ended 31st March 2016.

FINANCIAL HIGHLIGHTS

Pursuant to the approval of the Reserve Bank of India to the Scheme of Amalgamation of ING Vysya Bank Ltd. (IVBL) with Kotak Mahindra Bank Ltd. (the Bank), IVBL merged with the Bank effective from 1st April 2015. The current year consolidated and standalone figures include operations of the erstwhile IVBL. Hence, the previous year figures are not comparable.

The financial highlights are summarized below:

(A) Kotak Mahindra Bank Limited – Consolidated financial highlights:

31st March 2016 31st March 2015 Rs, crore Rs, crore

Total income 28,032.36 21,471.08

Total expenditure, excluding provisions and contingencies 22,017.06 16,715.37

Operating Profit 6,015.30 4,755.71

Provisions and contingencies, excluding provision for tax 991.56 205.73

Profit before tax 5,023.74 4,549.98

Provision for taxes 1,592.62 1,484.90

Profit after tax 3,431.12 3,065.08

Less: Share of minority interest 65.19 59.51

Add: Share in Profit of Associates 92.92 39.88

Consolidated Profit for the Group 3,458.85 3,045.45 Earnings per Equity Share:

Basic (Rs,) 18.91 19.75

Diluted (Rs,) 18.87 19.70

(B) Kotak Mahindra Bank Limited – Standalone financial highlights:

31st March 2016 31st March 2015 Rs, crore Rs, crore

Total Income 18,996.42 11,748.32

Total expenditure, excluding provisions and contingencies 14,955.33 8,750.86

Operating Profit 4,041.09 2,997.46

Provisions and contingencies, excluding tax provisions 917.37 164.50

Profit before tax 3,123.72 2,832.96

Provision for taxes 1,033.94 966.98

Profit after tax 2,089.78 1,865.98

Add: Surplus brought forward from the previous year 5,095.26 4,005.29

Add: Net Additions on Amalgamation 1,674.71 -

Amount available for appropriation 8,859.75 5,871.27 Appropriations:

Statutory Reserve under Section 17 of the Banking Regulation Act, 1949 522.45 466.50

General Reserve - 93.30

Transfer to / (from) Investment Reserve Account (41.52) 86.65

Transfer to Capital Reserve 9.17 5.91

Transfer to Special Reserve 45.00 28.00

Proposed Dividend 91.84 82.07

Corporate Dividend Tax 18.69 13.58

Surplus carried to Balance Sheet 8,214.12 5,095.26

BONUS ISSUE OF SHARES

During the year, pursuant to approval of the shareholders of the Bank at the Annual General meeting held on 29th June 2015, your Bank issued 91,28,41,920 Bonus shares in the ratio of 1:1 i.e. one equity share for every one equity share held on the Record Date, to the Members on 10th July 2015.

DIVIDEND

Your Directors are pleased to recommend a dividend of Rs, 0.50 per equity share entailing a payout of Rs, 110.53 crore including dividend distribution tax. The dividend would be paid to all the shareholders, whose names appear on the Register of Members/Beneficial Holders list on the Book Closure date.

CAPITAL

During the year, your Bank has allotted 99,91,715 equity shares (adjusted for bonus) arising out of the exercise of Employees Stock Options granted to the employees and whole-time directors of your Bank and its subsidiaries. As per the ESOP Schemes of erstwhile ING Vysya Bank Ltd. (eIVBL), the stock options granted to the employees vested on an accelerated basis upon the merger. Consequently, the number of stock options on which vesting was accelerated was 1,04,91,900 (on a post swap basis, adjusted for bonus shares).

Post allotment of equity shares as aforesaid and the bonus allotment, the issued, subscribed and paid-up share capital of your Bank stands at Rs, 9,17,19,10,790 comprising of 1,83,43,82,158 equity shares of Rs, 5 each as on 31st March 2016.

Your Bank is well capitalized and has a Capital Adequacy Ratio (''CAR'') under Basel III as at 31st March 2016 of 16.34% with Tier I being 15.28%.

During the year, your Bank has not issued any capital under Tier II. As on 31st March 2016, outstanding Unsecured, Redeemable Non-Convertible, Subordinated Debt Bonds were Rs, 969.7 crore and outstanding Unsecured, Non-Convertible, Redeemable Debt Capital Instruments Upper Tier II stood at Rs, 806.31 crore.

TERMINATION OF GDS PROGRAM

The Global Depository Shares (GDS) of the Bank were listed on Luxembourg Stock Exchange. Consequent to the issuance of notice of termination of the GDS program by the Bank to the Custodian and the Depository, the Depository Agreement entered into between the Bank and the Depository was terminated. Subsequently, the GDS program has been terminated with effect from 4th September 2015.

OPERATIONS Consumer Banking

The merger of ING Vysya Bank (IVBL) with your Bank brought in 577 branches and 657 ATMs from the erstwhile IVBL.

Your Bank consolidated its network presence through a measured expansion of its footprint across the country and as of 31st March 2016 had 1333 branches and 2032 ATMs, covering 706 locations. Of the 74 new branches commissioned this year, 32 were in rural and semi-urban locations. Your Bank added about 10.96 lac new customers this year across core banking products of savings and checking accounts, term deposits, overdrafts and non-resident accounts.

Your Bank rolled out several initiatives aimed at offering a superior and differentiated customer experience. Some key ones are:

Products and Services

l Launched its first E-Lobby at Andheri Metro Station, Mumbai. The e-lobby offers a host of self service capabilities such as ATM, Banking Kiosk, Tablets, Surface Table, etc. which can be used by both customers and non-customers.

- Enhanced its suite of products positioned at specific customer segments and launched two new propositions, MY FAMILY - a savings bank proposition tailored exclusively for the entire family. The proposition gives the benefit of pooling in balances across family members & also gives them the benefit of a dedicated relationship manager for the family, and, ALPHA - a savings bank proposition linked to investments. The customer gets the benefit of a NMC waived savings account when they choose an RD (or) MF SIP (or) NPS along-with a term insurance premium of Rs, 300 per month (which offers a cover of Rs,20 lac) linked to their savings account. The proposition also offers Cash Back on Debit Card spends & is targeted for the age group of 18-55.

- Tied up with Thomas Cook and Kuoni Travels to offer a Holiday Savings Account linked to a Recurring Deposit. Customers get benefit of various schemes & offers launched by these travel companies and the banking linkage enables them to save on a monthly basis to facilitate the holiday expense.

- Appointed as Authorised Collection Centre (ACC) by Stock Holding Corporation of India Ltd (SHCIL) for providing E-stamping facility in the states of Punjab and Rajasthan.

- Appointed as one of the collecting Banks for Government of India''s Sovereign Gold Bonds and was actively involved in raising subscriptions across all three tranches.

- Launched three new Current Account products - Kotak Pro Plus, Kotak Elite Plus and Kotak Ace Plus offering more efficient cash management in select locations.

- Introduced Kotak Cheque Protect, a calibrated credit oriented program for offering cheque protection facility to existing customers for honouring cheques in the event of shortfall in the bank account, based on certain pre-approved parameters.

- Implemented Foreign Account Tax Compliance Act (FATCA) / Common Reporting Standard (CRS) which requires the Bank to carry out due diligence of its customers to identify the individuals and entities which fulfill the indices as prescribed by the regulatory bodies and reporting to the Indian tax authorities for onward submission of information to foreign authorities as appropriate.

Business Lines

a) Non Resident Indian Business

Some of the key initiatives taken this year are:

- Extended C2R money transfer mode for Canada. Your Bank''s NRI clients can now use this medium to transfer money from Canada to their Kotak Bank account in India.

- Further expanded the network of exchange house relationships and the count now stands at 26.

- As a platform to reach out to the overseas Indian community, your Bank has participated in various international business forums organized by the Indian community in various countries.

- In order to work closely with the mariner community & shipping companies your Bank has participated in various mariner events nationally.

b) Priority Banking Business

Privy League program, positioned to cater to the affluent segment, now services 3.4 lac customers. A new tier-"Insignia" was launched at select locations to cater to customers with group relationship value of at least Rs, 1 crore. A Corporate Credit card with exclusive benefits for Privy League Business banking customers was introduced to increase the segmental focus in the program. To address customers'' need for legacy planning, Smart Will, an automated online will writing solution was launched in association with Kotak Securities.

c) Corporate Salary Business

Salary2Wealth – Your Bank''s corporate salary business now caters to over 17 lac customers across 13,700 corporate. The Salary2Wealth book grew by 33% Y-o-Y to close the year at Rs, 3,988 crore and acquired 4.90 lac new customers with more than 1,700 new corporate sign-up''s.

d) Consumer Assets

Your Bank has continued to grow the product lines under the Consumer Assets business.

Credit Card: Credit card business has issued 6.34 lac cards by March 2016 and is in its seventh year of operations. The premium range of our products – VISA Signature and VISA Platinum have driven the spends growth in the portfolio and it contributes to 42% of spends. The credit card business has clocked total spends of Rs, 4,543 crore for the year at 42% growth Y-o-Y with a book size of Rs,942 crore.

Salaried Personal Loan: Salaried personal loan business offers salaried individuals personal loans with a tenure of upto 60 months. This year the business has grown by 70% with outstanding loans of Rs, 1,416 crore as of March 2016. The total customer base stands at 47,500 customers.

Home Finance: Home finance business clocked growth of 19% in disbursements with loan book growth of 19%. Your Bank has expanded its home finance business further in Tier II cities. Cross Sell through Bank Branches, Corporate Salary, Privy, and Wealth Teams contributed to around 38% of total volume. This year also witnessed very low losses on account of effective recovery and collection processes and policies adopted.

e) Business Banking Assets (BBA)

Your Bank through its BBA division offers secured and unsecured Business loans, Loans against Property & Working Capital Finance to self- employed professionals / non-professionals and Small & Medium Enterprises. This has been a landmark year for your Bank''s BBA business with its book growing by 30%. It continues to maintain its best in class portfolio quality through it effective and efficient risk management and recovery policies and practices. Capitalizing on the growing retail branch network, your Bank managed to expand its BBA product offering in over 450 branches.

Wholesale Banking

Your Bank through its consolidated franchise has focused on serving customers'' requirements across segments with its wide array of customized financial products and services that are driven through best-in-class technology platforms. Your Bank is a trusted banking franchise consistently delivering right and customized solutions to high quality customers through a passionate and entrepreneurial team.

Focused approach on client selection and constant portfolio monitoring has ensured a healthy portfolio through both volatile economic situation and tough credit environment in the last financial year. In order to give more focus to our client activities, your Bank created a separate Corporate, Institutional & Investment Banking vertical which covers selected large Indian corporate houses with a view to provide a single platform to service both their corporate banking and investment banking needs. Consequent to the merger of ING Vysya Bank Limited with your Bank, we now have a strong presence in the multinational segment i.e. as a banker to various multinational companies present in India.

The Integrated Global Transaction Banking with enhanced suite of products and solutions is steered by innovation, technology & "Kona Kona Kotak". The merger has opened up new opportunities to cater to needs of customer segments such as Insurance, Corresponding Banking and Multinational Companies. In addition to serving existing customers as well as being bankers'' Bank on Global Transaction Banking, your Bank has led from the front in offering services to new age segments viz. E-com and M-com. Your Bank recognizes the dynamic landscape in Transaction Banking and the evolving Banking space and has suitably invested in fetch initiatives. It is your Bank''s Endeavour to continue to provide simple, secure, reliable solutions leading to superior customer experience.

Your Bank has been in the limelight for its people, products and services. It has been adjudged Best Cash Management Bank across business categories – Small, Medium and Large Corporate. The Global Custodian magazine has conferred a dual recognition for the Custody Business in the India Domestic Survey and later in the Survey of Agent Banks in Emerging Markets.

Your Bank has introduced the following key initiatives to serve customers better:

- Service Support: To ensure a faster customer response, a Service Solutions vertical was set up during the year. This vertical is the single point of contact for all service related and documentation issues for wholesale customers with personnel present across all key major 9 locations across the country.

- Secure Internet Banking: Given the growing online frauds, the security of the net banking platform has been further strengthened by offering secured token for logging in. Customers can use the dynamic number on the token along with the password to access the account online and transact thereafter.

- KashPay: Offers "walkin" cash and cheque collection services through branch network thereby enhancing the reach and convenience for the customer. The product is capable of validating the collection data pre-fed by customer to ensure only valid requests are processed. The transaction processing is supported by comprehensive MIS for ease of reconciliation and instant status of collection.

- Operation SAHAJ: In order to gain increased efficiencies, your Bank has started Operation SAHAJ. This focuses on improving existing client facing or back-end process in order to deliver superior service to the client with a lower turnaround time without compromising on credit / operational risk. One of our client facing Endeavour''s has been able to open any account in one day post receiving the complete documentation. As of today, courtesy Operation SAHAJ, accounts are being opened within the target of one day. Further, various products are implementing monitoring and control systems to measure and improve service parameters.

- Trade: Tie up with multiple offshore banks for facilitating client transactions like offshore guarantees, ECA financing, ECB funding, offshore subsidiary funding etc. Your Bank is preferred trade partner for top banks for Europe and US region for their India centric business. Financial/ Performance Guarantees, Letter of Credit and remittances of these banks now are handled at your Bank counters.

Commercial Banking

The Commercial Banking business has registered a reasonable growth in FY 2015-16 despite subdued market sentiments and erratic monsoon.

Commercial Vehicles (CV) and Construction Equipment (CE) sectors, which have been witnessing slowdown since 2011, showed strong signs of recovery. The CV situation has improved significantly over the previous year, especially in the case of Medium Commercial Vehicle (MCV) & Heavy Commercial Vehicle (HCV) sales across segments, which was driven by replacement demand. Your Bank has increased exposure significantly to this sector in FY 2015-16. Light Commercial Vehicle (LCV) segment has also grown over the previous year. Further, decrease in energy prices and all round improvement of load factors have improved viability for transport operations and also reduced levels of delinquency. Small Commercial Vehicles (SCV) segment is also showing signs of recovery with marginal growth in the last quarter.

Despite a second back to back dry spell last year, the agri business (including the tractor finance business) managed to grow last year with the loans outstanding of Rs,17,993 crore. The agri business increased its focus on financial inclusion activities by directly financing the micro loans segment for women''s Joint Liability Groups. Close to 56,000 women borrowers were added with loan sizes of around Rs,20,000 each to women in the states of UP and Bihar.

Your Bank has maintained its market share in the tractor finance business. While the delinquencies in this segment have increased, it is under control.

Activities in focus were loans for construction of ware houses & cold storages, warehouse receipt funding under pledge, micro loans and loans for purchase of pumps etc. These loans qualified for small and marginal farmer categorizations and direct individual farmer funding. Other Agri loans included loans for food and Agro processing units.

The agri division (including tractor finance) continued to manage its delinquency though incremental stress was observed across locations due to monsoon shortfall.

The growth of the Emerging Corporate Group''s (ECG) portfolio has been modest in FY 2015-16. There has been an increase in delinquencies in this segment, mainly on account of volatile commodity prices and uncertainty in the economy.

Asset Reconstruction

It was challenging to sell large assets under possession as the market was sluggish for real estate sales. The legal judicial system continues to languish in terms of passing timely orders which cause significant delay in timely and effective recoveries.

The division continued to focus on last mile financing to companies which are on the turnaround path with clear focus on cash fow based recoveries.

The recoveries from NPA purchase of retail portfolio continues to be robust.

Your Bank believes that banks and NBFCs in the next few years will continue to sell their retail NPA portfolios, which will help the division to acquire more portfolios.

Treasury

Your Bank''s treasury actively contributes to your Bank by way of:

- Proprietary Trading: The various proprietary trading desks actively trade in products such as Fixed Income, Money Markets, Derivatives, Foreign Exchange and Bullion. Primary Dealer Desk – part of the proprietary trading desk, actively participates in the primary auctions of government securities, makes market in government securities and engages in retailing of government securities.

- Customer Transactions:

- Facilitating access to foreign currency markets through cash & derivatives products and providing fine market rates to clients for remittance and trade transactions.

- Client solutions - standardized and structured, pertaining to Debt Capital Markets including Syndication of Loans, Bonds, Mezzanine financing, Promoter funding and acquisition financing and Securitization.

- Balance Sheet Management: The Balance Sheet Management Unit (BMU) manages the Asset Liability mismatches, Interest rate & Liquidity gaps and implementation of Funds Transfer Pricing between various business units. The Correspondent Banking Division within treasury actively builds on relationships with offshore banks towards improving quality and international reach for its customers.

Human Resources

The year 2015-16 has been a year of continued focus on employee well-being and investment in human capital stayed significant.

Your Bank undertook substantial work to drive the ''core'' values and culture of the Bank in the last year that strengthened the merger of erstwhile ING Vysya Bank with Kotak Mahindra Bank. To ensure a seamless cultural integration, various initiatives were launched to internalize behavioral parameters and the values across the organization. Further thrust was laid on employee engagement through its linkage to behavioral parameters.

Your Bank has taken strides in the past year and continues to grow with a talent base of over 31,000 employees. A proactive approach to adopting the best of human resource practices, efficient systems, processes and continuous investments in technology has helped manage the scale and complexity of a large and distributed workforce.

With an average age of 33 years your Bank continues to attract talent across all its businesses and hierarchy. Pre-trained manpower acquisition channels such as Kotak Sales Officer (KSO) and Junior Sales Officer (JSO) programs have been further strengthened to create a sustainable workforce pipeline. To enhance ability to deliver on strategic work-force planning and hiring goals, a dedicated team was institutionalized to focus on end to end talent acquisition process – maximizing channel efficiencies, optimizing costs, simplifying and standardizing hiring process and creating a seamless hiring experience to potential employees.

With 19% of the workforce being women, your Bank realizes that achieving progressive gender representation requires addressing mindsets and developing a more inclusive, holistic diversity agenda. Your Bank continues to strive to provide opportunities for a diverse and competent workforce.

Your Bank is committed to developing its capabilities as an organization and as individuals to meet current and future business challenges. In the year 2015-16, we have invested significantly in training and professional development – leveraging the latest technologies to deliver highly impactful and relevant training programs to our employees. These learning initiatives are designed around development of individual and team competencies in partnership with top academic institutions and renowned industry professionals. Leadership Development Programs focused on developing the leadership capabilities of our senior executives, to help them prepare for future roles in the organization.

Your Bank continues its focus on engagement and retention through initiatives that provides a holistic environment where employees get opportunities to realize their potential. Talent management as an integral part of overall performance management process in the Bank aims to provide long term, sustained and meaningful careers to employees across the organization. ''Pulse'' engagement survey, along with other engagement initiatives, provided insights on distinct employee needs that helped developing appropriate interventions.

We are entering a new age where digital is default and this technological change is shaping the sociological change impacting every facet of life and work. Anticipating digital being a significant transformation opportunity, we are on the journey to leverage digital technology to enable greater engagement, interaction and flexibility.

Guided by our value system that motivates our attitudes and action, your Bank is focused on forward looking policies, lean processes and nurturing talent.

Technology

With the announcement of the merger with ING Vysya Bank, your Bank took up the initiative of merging the technology systems and data of the two banks. The merger provided an opportunity to leverage the "best of breed" systems from both banks. As the technology integration progressed across business verticals, your Bank identified synergies in systems and capabilities to optimize costs across the technology operations of the two banks. The merged systems will provide a standard customer experience across all channels to all customers of the merged entities.

Customer data security and risk management need to keep pace with digital offerings. With this in mind, the Distributed Denial of Service was augmented with an in-premise solution. A fraud management solution to track customer transactions across channels was implemented. On the regulatory side, a new Enterprise Risk System was implemented for the Value at Risk calculation of the treasury products.

Digitization

Focus on creating more and more digitally enabled services across channels remained a key priority for your Bank in this year. Some of the highlights being:

- Launched a comprehensive micro site for New Pension System with various calculators and educative content to demystify the concept of pension and also enable people to get started with opening their pension account online.

- Launched a real time customer acquisition platform for personal loan, where a customer PAN, Adhaar & CIBIL are checked real time & decision about the loan amount and interest rate can be given instantly.

- Launched Pre-approved Personal Loan on Net Banking for salaried customers. This enables a pre-qualified customer to apply for personal loan while logged into the net-banking account and the disbursed amount is instantly credited to customer''s banking account.

- Launched tab based account opening process for Saving Account. This is an end-to-end digitized workflow, from lead capture to account set up, thereby reducing the processing time and enhancing customer experience.

- Hashtag banking was given further fillip by creating capability to order a book or special promotional movies by just a single tweet.

- Launched Kotak Bharat Banking - India''s first internet-free app. This app does not need internet to transact. Customer can do 25 different transactions including mobile recharge and small value fund transfer. The app is available in 6 languages (Hindi, Gujarati, Marathi, Tamil, Kannada and English). Response messages within the app will also be in regional language.

- Rolled out e-store on Net Banking after successful roll out of m-store on banking app. This includes travel categories like fight tickets, bus tickets and hotel booking.

- Introduced new features in the iPhone version of mobile app. iPhone customers can now book a Recurring Deposit (RD), Add a new biller and set Auto Pay amongst various new services introduced.

- Turn-around times for lending to commercial customers significantly improved by digitizing the process by introducing a tablet based lead management system for use by sales people in the field.

- Corporate customers got an upgraded FX trading portal.

- Digitization for wealth management customers was also strengthened with the launch of a portal providing a single view of all their investments.

Investment in Airtel M Commerce Services Ltd.

Airtel M Commerce Services Ltd. Company (AMSL), 100% subsidiary of Bharti Airtel Ltd. (BAL), had been granted in-principle approval for setting up a Payments Bank by the Reserve Bank of India (RBI) in August 2015. Basic but critical services such as small savings account, remittances etc. will bring a large number of low income households and small businesses under formal banking network. Your Bank in February 2016 has signed a Share Subscription and Shareholders Agreement with AMSL and BAL for acquisition of 19.90% equity stake in AMSL. Subsequently, your Bank has invested in AMSL. AMSL has received final license from RBI in April 2016.

SUBSIDIARIES & ASSOCIATES

Your Bank''s subsidiaries are established players in the different areas of financial services, viz. car finance, investment banking, stock broking, asset management and life insurance.

As at 31st March 2016, your Bank has eighteen (18) subsidiaries as listed below:

Domestic Subsidiaries

Kotak Mahindra Prime Limited

Kotak Securities Limited

Kotak Mahindra Capital Company Limited

Kotak Mahindra Old Mutual Life Insurance Limited

Kotak Mahindra Investments Limited

Kotak Mahindra Asset Management Company Limited

Kotak Mahindra Trustee Company Limited

Kotak Investment Advisors Limited

Kotak Mahindra Trusteeship Services Limited

Kotak Forex Brokerage Limited

Kotak Mahindra Pension Fund Limited

Kotak Mahindra General Insurance Company Limited

IVY Product Intermediaries Limited (formerly known as ''ING Vysya Financial Services Limited'')

International Subsidiaries

Kotak Mahindra (International) Limited

Kotak Mahindra (UK) Limited

Kotak Mahindra Inc.

Kotak Mahindra Financial Services Limited

Kotak Mahindra Asset Management (Singapore) Pte. Limited

Kotak Mahindra General Insurance Company Limited, which was incorporated in December 2014 with principal objective of carrying on business of general insurance, received approval from Insurance Regulatory and Development Authority of India (IRDAI) to commence the business of general insurance in November 2015 and subsequently commenced its operations in December 2015.

The various activities of the subsidiaries and the performance and financial position of the subsidiaries and associates are outlined in the Management Discussion and Analysis section appended to this Report.

The Bank''s Policy for determining material subsidiaries is available on the Bank''s website viz. URL: http://ir.kotak.com/governance/policies.html

As at 31st March 2016, your Bank has following four (4) Associate companies:

ACE Derivatives & Commodity Exchange Limited Infna Finance Private Limited Matrix Business Services India Private Limited Phoenix ARC Private Limited

The Annual Report which consists of the financial statements of your Bank on standalone basis as well as consolidated financial statements of the group for the year ended 31st March 2016, is sent to all the members of your Bank. Web link of the Annual Report is sent to all members whose email IDs are registered with the Bank/Depository Participant(s). For members who have not registered their email IDs, physical copies of the Annual Report are sent. It does not contain Annual Reports of your Bank''s subsidiary companies. Your Bank will make available full Annual Report (including the Annual Reports of all subsidiaries) either a hard or soft copy depending upon request by any member of your Bank. These Annual Reports will be available on your Bank''s website viz. URL: http://ir.kotak.com/annual-reports and will also be available for inspection by any member at the Registered Office of your Bank.

EMPLOYEE STOCK OPTION & STOCK APPRECIATION RIGHTS SCHEMES

The shareholders of the Bank at its Annual General Meeting held on 29th June 2015 approved a new Scheme under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, for the purposes of granting options and stock appreciation rights to the employees of the Bank, its subsidiaries and its associate companies, as applicable, viz. Kotak Mahindra Share Based Employee Benefit Scheme 2015 comprising of:

- Kotak Mahindra Equity Option Scheme 2015 and

- Kotak Mahindra Stock Appreciation Rights Scheme 2015

Further, pursuant to the Scheme of Amalgamation of ING Vysya Bank (IVBL) with the Bank, the ESOP Schemes of the erstwhile IVBL have been renamed and adopted by the Bank, as given below:

- Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2005

- Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2007

- Kotak Mahindra Bank Ltd. (IVBL) Employee Stock Option Scheme 2010

- Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2013

The stock options granted to the employees currently operate under the following Schemes:

- Kotak Mahindra Equity Option Scheme 2007

- Kotak Mahindra Equity Option Scheme 2015

- Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2007

- Kotak Mahindra Bank Ltd. (IVBL) Employee Stock Option Scheme 2010

- Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2013

The disclosure requirements under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, for the aforesaid ESOP & SARs Schemes, in respect of the year ended 31st March 2016, are disclosed on the Bank''s website viz. URL: http://ir.kotak.com/annual-reports

CORPORATE GOVERNANCE AND BUSINESS RESPONSIBILITY REPORT

Pursuant to Regulation 27 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (SEBI LODR Regulations), a separate section entitled ''Report on Corporate Governance'' has been included in this Annual Report. The Report of Corporate Governance also contains certain disclosures required under the Companies Act, 2013. A Business Responsibility Report containing the requisite details under Regulation 34 of the SEBI LODR Regulations is disclosed on the Bank''s website viz. URL: http://ir.kotak.com/annual-reports

DIRECTORS & KEY MANAGERIAL PERSONNEL

Directors retiring by rotation

Mr. N.P. Sarda (DIN 03480129), Non-Executive & Non-Independent Director of the Bank, retires by rotation as a Director at this Annual General Meeting but having crossed 70 years of age is not offering himself for re-appointment in line with Reserve Bank of India policy and directions.

The Bank does not intend to fll this vacancy at this Annual General Meeting.

Changes in Directors

Mr. C. Jayaram (DIN 00012214), retired as Joint Managing Director of the Bank on 30th April 2016, on attaining the age of superannuation. However, Mr. Jayaram continues as a Non-Executive Non-Independent Director of the Bank with effect from 1st May 2016 up to the date of this Annual General Meeting. Approval of shareholders is being sought at this Annual General Meeting for his appointment as a Non-executive Non-Independent Director of the Bank who would be liable to retire by rotation.

Mr. Asim Ghosh (DIN 00116139), retired as a Director of the Bank with effect from 9th May 2016 due to completion of his eight years tenure pursuant to the provisions of Section 10A(2A)(i) of the Banking Regulation Act, 1949.

Your Directors place on record their appreciation for the valuable advice and guidance rendered by Mr. N.P. Sarda and Mr. Asim Ghosh during their tenure as Directors of the Bank.

The details of the Directors appointed are set out in the Corporate Governance Report annexed to this Report.

Declaration from Independent Directors

The Board has received declarations from the Independent Directors as per the requirement of Section 149(7) of the Companies Act, 2013 and the Board is satisfied that the Independent Directors meet the criteria of independence as mentioned in Section 149(6) of the Companies Act, 2013.

Board Evaluation

The Nomination and Remuneration Committee of the Bank''s Board under the expert advice of an external agency specialized in Human Resource and management consultancy, has formulated the criteria for performance evaluation of the Directors and the Board as a whole. The Criteria formulated broadly covers the Board role, Board/Committee membership, practice & procedure and collaboration & style.

A Board effectiveness assessment questionnaire was designed for the performance evaluation of the Board, its Committees, Chairman and individual directors in accordance with the criteria set and covering various aspects of performance including composition, relationship among directors, director competency, contribution to risk management compliance, roles and responsibility, board procedures, processes, functioning and effectiveness. The said questionnaire was circulated to all the directors of the Bank for the annual performance evaluation.

Based on the assessment of the responses received to the questionnaire from the directors on the annual evaluation of the Board, its Committees, Chairman and the individual Directors, the Board Evaluation Report was placed before the meeting of the Independent Directors for consideration. Similarly, the Board at its meeting assessed the performance of the Independent Directors. The Directors were satisfied with the results of the performance evaluation of the Board & its Committees, Chairman and individual directors.

Key Managerial Personnel (KMPs)

Mr. C. Jayaram ceased to be a ''Key Managerial Personnel'' with effect from 1st May 2016 upon his retirement as a Joint Managing Director of the Bank.

The following offcials of the Bank continue to be the "Key Managerial Personnel" pursuant to the provisions of Section 203 of the Companies Act, 2013:

- Mr. Uday Kotak, Executive Vice Chairman and Managing Director

- Mr. Dipak Gupta, Joint Managing Director

- Mr. Jaimin Bhatt, President & Group Chief Financial Officer

- Ms. Bina Chandarana, Company Secretary

Appointment & Remuneration of Directors & KMPs

The appointment and remuneration of Directors of the Bank is governed by the provisions of Section 35B of the Banking Regulation Act, 1949. The Nomination and Remuneration Committee of the Bank''s Board has formulated criteria for appointment of Senior Management personnel and the Directors. Based on the criteria set it recommends to the Board the appointment of Directors and Senior Management personnel. The Committee considers the qualifications, experience, ft & proper status, positive attributes as per the suitability of the role, independent status and various regulatory/statutory requirements as may be required of the candidate before such appointment.

The Reserve Bank of India (''RBI'') vide its circular no.DBOD.No.BC.72/29.67.001/2011-12 dated 13th January 2012 has issued the Guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Other Risk Takers of Private Sector Banks on Compensation Policy which inter alia cover the following:

- Proper balance between fixed pay and variable pay;

- Variable pay not to exceed 70% (Seventy Per Cent) of the fixed pay in a year;

In accordance with the aforesaid RBI Circular, the Board of the Bank has adopted a Compensation Policy for its Whole-time Directors, Chief Executive Officer of the Bank and other employees which includes issue of stock appreciation rights as a form of variable pay, linked to the Bank''s stock price, payable over a period of time. The salient features of the Compensation Policy are as follows:

- Objective is to maintain fair, consistent and equitable compensation practices in alignment with Kotak''s core values and strategic business goals.

- Applicable to all employees of the Bank. Employees classified into 3 groups:

- Whole-time Directors/Chief Executive Officer

- Risk Control and Compliance Staff

- Other categories of Staff l Compensation structure broadly divided into Fixed, Variable and ESOPs

- Fixed Pay – Total cost to the Company i.e. Salary, Retirals and Other Benefits

- Variable Pay – Linked to assessment of performance and potential based on Balanced Key Result Areas (KRAs), Standards of Performance and achievement of targets with overall linkage to Bank budgets and business objectives. The main form of incentive compensation includes – Cash, Deferred Cash/Incentive Plan and Stock Appreciation Rights.

- ESOPs – Granted on a discretionary basis to employee based on their performance and potential with the objective of retaining the employee.

- Compensation Composition – The ratio of Variable Pay to Fixed Pay and the ratio of Cash v/s Non Cash within Variable pay outlined for each category of employee classification.

- Any variation in the Policy to be with approval of the Nomination & Remuneration Committee.

- Malus and Clawback clauses applicable on Deferred Variable Pay.

- Ensuring no personal hedging strategies by employees which undermine risk alignment effects as part of their remuneration.

The details of the remuneration paid to the Non-Executive Chairman, Executive and Non-Executive Directors of the Bank for the year ended 31st March 2016 is provided in the Corporate Governance Report annexed to this Report.

The Non-Executive Chairman of the Bank receives a fixed amount of remuneration as recommended by the Board and approved by the shareholders of the Bank and RBI, from time to time. He also receives remuneration by way of sitting fees for attending meetings of the Board or Committees thereof.

RBI vide its circular no. DBR.No.BC.97/29.67.001/2014-15 dated June 1, 2015 has issued guidelines on payment of compensation to the NEDs of private sector banks which inter-alia specifies the following:

- The Board of Directors of the Bank (in consultation with the Nomination & Remuneration Committee) needs to formulate and adopt a comprehensive compensation policy for NEDs (other than part-time non-executive Chairman).

- Maximum amount of Profit related commission not to exceed Rs,10 lac per annum for each director of the Bank.

Accordingly, in line with the RBI circular and pursuant to the relevant provisions of the Companies Act, 2013, and the recommendation of the Nomination and Remuneration Committee of the Bank, the Board of Directors have adopted a compensation policy for the NEDs (excluding the part- time Non-Executive Chairman). The salient features of the Compensation Policy are as follows:

- Compensation structure broadly divided into

- Sitting fees

- Re-imbursement of expenses

- Commission (Profit based)

- Amount of sitting fees and commission to be decided by the Board from time to time, subject to the regulatory limits.

- Overall cap on commission for each director Rs,10 lac per annum.

- NEDs not eligible for any stock options of the Bank.

Approval of shareholders for the payment of commission to the NEDs of the Bank is being sought at the ensuing Annual General Meeting of the Bank.

Sr. Disclosure Requirement Disclosure Details No.

4 Number of permanent employees on the rolls of Bank at the 31,410 end of the year

5 Explanation on the relationship between average increase in Recommendation for increase in remuneration is based on the following remuneration and Bank performance factors:

- Compensation trends based on industry benchmarking

- Compensation positioning vis-à-vis market trend

- Alignment between risks and remuneration

- Applicable regulatory guidelines

Increase in remuneration for FY 15-16 vis-à-vis FY 14-15 not comparable on account of merger (Please refer note 4 below)

6 Comparison of the remuneration of the Key Managerial For the FY 2015-16, KMPs were paid approximately 0.38% in aggregate Personnel against the performance of the Bank of the Profit Before Tax of the Bank on standalone basis and 0.24% on consolidated basis.

7 Variations in the market capitalization of the Bank, price The market capitalization of the Bank has increased from Rs, 101,429 crore earnings ratio as at the closing date of the current financial as of 31st March 2015 to Rs, 124,857 crore as of 31st March 2016. Over the year and previous financial year and percentage increase or same period, the price earnings ratio on consolidated Profits moved up from decrease in the market quotations of the shares of the Bank 33.33 to 36.08. Kotak Bank stock price as at 31st March 2016 has increased in comparison to the rate at which the company came out by 18,051% to Rs, 680.65 over the last public offering i.e. IPO in March 1993 at with the last public offer the price of Rs,150 per share (post bonuses & subdivision adjusted price Rs, 3.75).

8 Average percentile increase already made in the salaries of Average percentile increase in remuneration for employees other than employees other than the managerial personnel in the last managerial personnel for FY 15-16 vis-à-vis FY 14-15 not comparable on financial year and its comparison with the percentile increase account of merger (Please refer note 4 below)

in the managerial remuneration and justification thereof

and point out if there are any exceptional circumstances for Average increase for managerial personnel is 7.04% and 9.20% excluding

increase in the managerial remuneration SARs

10 Key parameters for any variable component of remuneration The key parameters for variable component of remuneration availed by the availed by the directors directors are:

- Overall Performance

- Achievement of budgets

- Various risks

- Variable pay will not exceed 70% of the fixed pay.

- Cash component of the variable pay will not exceed 50% of the Fixed Pay.

- If variable pay is higher than 50% of fixed pay, at least 40% of the variable pay will be deferred over a period of 3 years or longer on a pro- rata basis.

- ESOPs are not considered as variable pay for this purpose

Sr. Disclosure Requirement Disclosure Details No.

11 Ratio of the remuneration of the highest paid director to There are 11 employees who are not directors but received remuneration in that of the employees who are not directors but receive excess of the highest paid director during the year.

remuneration in excess of the highest paid director during

Considering the average remuneration of these employees, the ratio works the year

out to 1:1.36

12 Affirmation that the remuneration is as per the remuneration The Bank is in compliance with its Compensation Policy policy of the Bank

Notes:

1) Remuneration includes Fixed pay Variable paid during the year perquisite value as calculated under the Income Tax Act, 1961. Remuneration does not include value of Stock Options.

2) Stock Appreciation Rights (SARs) are awarded as variable pay. These are settled in cash and are linked to the average market price of the Bank''s stock on specified value dates. Cash paid out during the year is included for the purposes of remuneration.

3) * Mr. C. Jayaram retired as Joint Managing Director of the Bank on 30th April 2016, on attaining the age of superannuation. He continues as a non-executive non-independent director of the Bank w.e.f. 1st May 2016.

4) The merger of ING Vysya Bank (''IVBL'') with Kotak Mahindra Bank (''Bank'') was effective from 1st April 2015. Accordingly, there has been integration of the erstwhile IVBL with the Bank and a consequent increase in the employee base for the FY 2015-16. Hence, the numbers for FY 2015-16 are not comparable with that of FY 2014-15.

SECRETARIAL AUDITOR

Pursuant to Section 204 of the Companies Act, 2013, your Bank has appointed Ms. Rupal D. Jhaveri, a Company Secretary in Practice, as its Secretarial Auditor. The Secretarial Audit Report for the financial year ended 31st March 2016 is annexed to this Report.

DEPOSITS

Being a banking company, the disclosures required as per Rule 8(5)(v) & (vi) of the Companies (Accounts) Rules, 2014, read with Section 73 and 74 of the Companies Act, 2013 are not applicable to your Bank.

AUDITORS

In terms of Section 139 of the Companies Act, 2013, Messrs S.R. Batliboi & Co. LLP, Chartered Accountants, were appointed as statutory auditors of your Bank for a period of four years from the conclusion of the Thirtieth Annual General Meeting until the conclusion of the Thirty fourth Annual General Meeting of the Bank, subject to the annual approval of RBI and ratification by the members every year. Accordingly, requisite resolution forms part of the Notice convening the Annual General Meeting.

INTERNAL FINANCIAL CONTROLS

The Board of Directors confirms that your Bank has laid down set of standards, processes and structure which enables to implement Internal Financial controls across the organization with reference to Financial Statements and that such controls are adequate and are operating effectively. During the year under review, no material or serious observation has been observed for inefficiency or inadequacy of such controls.

RELATED PARTY TRANSACTIONS

All the Related Party Transactions that were entered into during the financial year were on arm''s length basis and were in ordinary course of business.

Pursuant to Section 134(3)(h) read with Rule 8(2) of the Companies (Accounts) Rules, 2014, there are no transactions to be reported under Section 188(1) of the Companies Act, 2013, in form AOC-2.

All Related Party Transactions as required under Accounting Standards AS-18 are reported in Note 24 of Schedule 17 - Notes to Accounts of the Consolidated financial statements and Note 7 of Schedule 18 C - Notes to Accounts of the Standalone financial statements of your Bank.

The Bank''s Policy on dealing with Related Party Transactions is available on the Bank''s website viz. URL: http://ir.kotak.com/governance/policies.html

PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Pursuant to Section 186(11) of the Companies Act, 2013, loans made, guarantees given, securities provided or acquisition of securities by a banking company in the ordinary course of its business are exempted from the disclosure requirement under Section 134(3)(g) of the Companies Act, 2013.

WHISTLE BLOWER POLICY / VIGIL MECHANISM

Your Bank is committed to its "Vision Statement" of upholding its Global Indian Financial Services Brand creating an ethos of trust across all constituents, developing a culture of empowerment and a spirit of enterprise thereby becoming the most preferred employer in the financial services sector.

Consistent with the Vision Statement, your Bank is committed to maintain and provide to all its employees and directors highest standards of transparency, probity and accountability. The Kotak Group Endeavour''s to develop a culture where it is safe and acceptable for all employees and directors to raise / voice genuine concerns in good faith, and in a responsible as well as effective manner.

A vigil mechanism has been implemented through the adoption of Whistleblower Policy with an objective to enable any employee or director, raise genuine concern or report evidence of activity by the Bank or its employee or director that may constitute: Instances of corporate fraud; unethical business conduct; a violation of Central or State laws, rules, regulations and/or any other regulatory or judicial directives; any unlawful act, whether criminal or civil; malpractice; serious irregularities; impropriety, abuse or wrong doing; deliberate breaches and non-compliance with the Bank''s policies; questionable accounting/audit matters/financial malpractice. The same option has now been extended to the vendors of the Bank also. The concerns can be reported on the website viz. URL: https://cwiportal.com/kotak.

Currently an online mechanism enabling aforementioned reporting has been implemented over and above other modes of communication like e-mail, or a letter sent by mail, courier or fax to designated persons.

Safeguards to avoid discrimination, retaliation, or harassment, and confidentiality have been incorporated in the policy. All employees and directors have access to the Chairman of the Audit Committee in appropriate and exception circumstances.

The Policy has been uploaded on the Bank''s intranet as well as website viz. URL: http://ir.kotak.com/governance/policies.html and regular communication is made for sustained awareness.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Your Bank has constituted a Board Corporate Social Responsibility Committee (CSR Committee) and consists of the following Directors:

- Mr. C Jayaram, Non-Executive Non-Independent Director & Chairman of the CSR Committee

- Mr. Dipak Gupta, Joint Managing Director

- Prof S. Mahendra Dev, Independent Director

Your Bank''s CSR Committee drives the CSR programme of the Bank. Your Bank has a Board approved CSR policy, charting out its CSR approach. This policy articulates the Bank''s aim to positively contribute towards economic, environmental and social well-being of communities through its Corporate Social Responsibility agenda. The Bank''s CSR agenda is driven by its key focus areas:

a. Promoting education – primary focus area

b. Enhancing vocational skills and livelihood

c. Promoting preventive healthcare and sanitation

d. Reducing inequalities faced by socially and economically backward groups

e. Sustainable development

f. Relief and rehabilitation

g. Clean India h. Sports

The Bank''s CSR policy is available on the Bank''s website viz. URL : http://www.kotak.com/corporate-responsibility.html

Pursuant to the provisions of Section 135, schedule VII of the Companies Act 2013 (the Act), read with the Companies (Corporate Social Responsibility) Rules, 2014 the report of the expenditure on CSR by the Company is as under:

The average net Profit U/S 198 of the Bank standalone for the last three financial years preceding 31st March, 2016 is Rs, 2,366.37 crore.

The prescribed CSR expenditure required U/S 135, of the Act for FY 2015-16 is Rs, 4,733 lac.

The CSR expenditure incurred for the period 1st April 2015 to 31st March 2016 under Section 135 of Companies Act, 2013 amounts to Rs, 1,641 lac as against Rs, 1,197 lac CSR spend in the financial year 2014-15.

CSR expenditure of Rs, 1,641 lac in FY 2015-16 as a percentage of average net Profit U/S 198 of the Bank standalone at Rs, 2,366.37 crore is 0.69%.

Your Bank is building its CSR capabilities on a sustainable basis and is committed to gradually increase its CSR spend in the coming years. The CSR Committee of the Board confirms that the implementation and monitoring of CSR Policy, is in compliance with CSR objectives and Policy of the company.

The details of CSR activities and spends under Section 135 of the Companies Act, 2013 for FY 2015-16, are annexed to this Report.

RISK MANAGEMENT POLICY

Your Bank has in place a comprehensive Enterprise wide Risk Management (ERM) framework supported by detailed policies and processes for management of Credit Risk, Market Risk, Liquidity Risk, Operational Risk and various other Risks. Details of identification, assessment, mitigations, monitoring and the management of these Risks are mentioned in the Management Discussion and Analysis section appended to this Report.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The provisions of Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 are not applicable to your Bank.

EMPLOYEES

The employee strength of your Bank, standalone, was over 31,000 and along with its subsidiaries was over 46,000 as of 31st March 2016.

312 employees employed throughout the year and 132 employees employed for part of the year were in receipt of remuneration of Rs, 60 lac or more per annum.

With an average age of 33 years your Bank continues to attract talent across all its businesses and hierarchy and has put in place various processes and systems to ensure alignment of employee behaviors with the organization''s core values.

Organizational culture aspects like trust & inclusiveness were also reiterated through 90 cross functional meets conducted by senior business leaders for employees at mid management level under the "Meet 5" initiative.

In a very short span, your Bank has crossed several milestones in its Gender Diversity agenda.

- A differentiated talent acquisition strategy to increase women employee base across various suitable roles has helped us to continue adding 20% women amongst all new hires in the Bank. While continuing with our philosophy of providing equal opportunities, an aggressive push in this area will help us achieve a better balance in gender diversity.

- Your Bank''s top senior women professionals (around forty women across Kotak) have been brought together under our diversity initiative "Astra" and these women leaders now play a pivotal role in guiding and mentoring other mid-level women employees to sustain and grow in the careers.

- Prevention of Sexual Harassment (POSH): Your Bank continues with the belief on zero tolerance towards sexual harassment at workplace and continues to uphold and maintain itself as a safe and non-discriminatory organization. To achieve the same Kotak reinforces the understanding and awareness of Prevention of Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Your Bank has formulated Internal Complaints Committee (ICC) at three regions for reporting any untoward instance. Any complaints pertaining to sexual harassment are diligently reviewed and investigated and treated with great sensitivity. The ICC members have been trained in handling and resolving complaints and have also designed an online e-learning POSH Awareness module which covers the larger employee base.

Following is a summary of sexual harassment complaints received and disposed of during the year 2015-16: o No. of complaints received : 8

- No. of complaints disposed of : 4

In the case of 4 pending cases, enquiries were in progress at the close of the year.

With our objective to identify, build and nurture leaders across levels to deliver superior business results and address individual career aspirations, this year your Bank introduced a new contemporary approach to assess and diagnose leadership competency gaps followed by a development plan.

As your Bank enters in its next phase of growth and expansion of footprint across urban and rural India, your Bank and its subsidiaries continued to carry out several initiatives to attract and retain a pool of highly skilled and motivated employees who are aligned to the firm''s vision of becoming the most trusted financial services provider.

In accordance with the provisions of Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 the names and other particulars of employees are set out in the annexure to the Directors'' Report. In terms of the Proviso to Section 136(1) of the Companies Act, 2013, the Directors'' Report is being sent to all shareholders excluding the aforesaid annexure. The annexure is available for inspection at the Registered Office of your Bank. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of your Bank.

DIRECTORS'' RESPONSIBILITY STATEMENT

The Directors, based on the representations received from the operational management, confrm in pursuance of Section 134(5) of the Companies Act, 2013, that:

(i) your Bank has, in the preparation of the annual accounts for the year ended 31st March 2016, followed the applicable accounting standards along with proper explanations relating to material departures, if any;

(ii) they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Bank as at 31st March 2016 and of the Profit of your Bank for the financial year ended 31st March 2016;

(iii) they have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of your Bank and for preventing and detecting fraud and other irregularities;

(iv) the annual accounts have been prepared on a going concern basis;

(v) they have laid down internal financial controls to be followed by the Bank and that such internal financial controls are adequate and are operating effectively; and

(vi) they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

ANNEXURES

Following statements/reports/certificates are set out as Annexure to the Directors'' Report:

- Extract of Annual Return under Section 134(3)(a) of the Companies Act, 2013 read with Rule 12 (1) of Companies (Management & Administration) Rules, 2014 (Annexure - A).

- Secretarial Audit Report pursuant to Section 204 of the Companies Act, 2013 (Annexure - B).

- Details of CSR Activities and Spends (Annexure - C).

ACKNOWLEDGEMENTS

Your Directors would like to place on record their gratitude for the valuable guidance and support received from the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority and other Government and Regulatory agencies. Your Directors acknowledge the support of the members and also wish to place on record their appreciation of employees for their commendable efforts, teamwork and professionalism.

For and on behalf of the Board of Directors

Dr. Shankar Acharya Uday Kotak Place: Mumbai, Chairman Executive Vice Chairman and Managing Director Date: 11th May 2016


Mar 31, 2015

To the Members of

KOTAK MAHINDRA BANK LIMITED

The Directors present their Thirtieth Annual Report together with the audited accounts of your Bank for the year ended 31st March 2015.

FINANCIAL HIGHLIGHTS

(A) Kotak Mahindra Bank Limited - Consolidated financial highlights:

31st March 2015 31st March 2014 Rs.crore Rs. crore

Total income 21,471.08 17,268.29

Total expenditure, excluding provisions and contingencies 16,715.37 13,263.82

Operating Profit 4,755.71 4,004.47

Provisions and contingencies, excluding provision for tax 205.73 308.97

Profit before tax 4,549.98 3,695.50

Provision for taxes 1,484.90 1,183.96

Profit after tax 3,065.08 2,511.54

Less: Share of minority interest 59.51 62.17

Add: Share in profit of Associates 39.88 15.62

Consolidated profit for the Group 3,045.45 2,464.99

Earnings per Equity Share:

Basic (Rs.) 39.49 32.19

Diluted (Rs.) 39.40 32.14

(B) Kotak Mahindra Bank Limited - Standalone financial highlights:

31st March 2015 31st March 2014 Rs. crore Rs. crore

Total Income 11,748.32 10,166.83

Total expenditure, excluding provisions and contingencies 8,750.86 7,589.68

Operating Profit 2,997.46 2,577.15

Provisions and contingencies, excluding tax provisions 164.50 304.70

Profit before tax 2,832.96 2,272.45

Provision for taxes 966.98 769.93

Profit after tax 1,865.98 1,502.52

Add: Surplus brought forward from the previous year 4,005.29 3,016.60

Amount available for appropriation 5,871.27 4,519.12

Appropriations:

Statutory Reserve under Section 17 of the Banking Regulation Act, 1949 466.50 375.63

General Reserve 93.30 75.13

Transfer to / (from) Investment Reserve Account 86.65 (41.10)

Transfer to Capital Reserve 5.91 0.40

Transfer to Special Reserve 28.00 32.00

Proposed Dividend 82.07 63.08

Corporate Dividend Tax 13.58 8.69

Surplus carried to Balance Sheet 5,095.26 4,005.29

INTERNAL FINANCIAL CONTROLS

The Board of Directors confirms that there are internal controls in place with reference to the Financial Statements and that such controls are operating effectively.

DIVIDEND

Your Directors are pleased to recommend a dividend of Rs. 0.90 per equity share (previous year Rs. 0.80 per equity share), entailing a payout of Rs. 95.65 crore including dividend distribution tax (previous year Rs. 71.77 crore). The dividend would be paid to all the shareholders (including the shareholders of the erstwhile ING Vysya Bank Ltd.), whose names appear on the Register of Members/Beneficial Holders list on the Book Closure date.

BONUS ISSUE OF SHARES

Your Directors recommend an issue of bonus shares, subject to the approval of the members at the Annual General Meeting to be held on 29th June 2015, in the ratio of 1:1 i.e. one additional equity share for every one equity share held by the members on a date to be fixed by the Board, by capitalizing a part of the reserves.

AMALGAMATION OF ING VYSYA BANK WITH THE BANK

The Board of Directors of your Bank and the Board of Directors of ING Vysya Bank Ltd. (''IVBL'') at their respective meetings held on 20th November 2014, had approved a Scheme of Amalgamation of IVBL with the Bank under Section 44A(4) of the Banking Regulation Act, 1949, subject to approval of the shareholders of both the Banks, Reserve Bank of India (RBI) and other regulatory authorities. On 7th January 2015, the shareholders of the Bank accorded their consent to the Scheme of Amalgamation of IVBL with the Bank. Further, RBI approved the Scheme of Amalgamation of IVBL with the Bank effective 1st April 2015. Consequently, on 21st April 2015, the shareholders of the erstwhile IVBL were allotted 13,92,05,159 equity shares of Rs.5/- each fully paid up of the Bank, as on the record date of 17th April 2015, in the ratio of 725 equity shares of face value of Rs.5/- each of the Bank for every 1000 equity shares of Rs.10/- each held by the shareholders of IVBL.

CAPITAL

During the year, your Bank has allotted 10,77,480 equity shares arising out of the exercise of Employees Stock Options granted to the employees and whole-time directors of your Bank and its subsidiaries.

Post allotment of equity shares as aforesaid, the issued, subscribed and paid-up share capital of your Bank stands at Rs. 3,86,17,63,320 comprising of 77,23,52,664 equity shares of Rs. 5 each as on 31st March 2015.

Further, upon allotment of 13,92,05,159 equity shares to the shareholders of erstwhile ING Vysya Bank Ltd. pursuant to the scheme of amalgamation in April 2015, the issued, subscribed and paid-up share capital of your Bank stands at Rs. 4,55,77,42,615 comprising of 91,15,48,523 equity shares of Rs. 5 each. On account of cross holding 9300 equity shares of Rs.5 each have been cancelled.

Your Bank is well capitalised and has a Capital Adequacy Ratio (''CAR'') under Basel III as at 31st March 2015 of 17.17% with Tier I being 16.18%. At a consolidated level the CAR was 17.56% under Basel III.

During the year, your Bank has not issued any capital under Tier II. As on 31st March 2015, outstanding Unsecured, Redeemable Non-Convertible, Subordinated Debt Bonds were Rs.482 crore and outstanding Unsecured, Non-Convertible, Redeemable Debt Capital Instruments Upper Tier II stood at Rs. 417.25 crore.

In August 2014, your Bank had sought approval of its shareholders through Postal Ballot for issuance of securities in the nature of non-convertible debentures, in Indian/foreign currencies in the domestic and/or overseas market for an amount upto Rs. 5000 crore on private placement basis. Accordingly, your Bank raised around Rs.962 crore in the financial year under review through issuance of infrastructure bonds.

TERMINATION OF GDS PROGRAM

In April 2006, your Bank had issued and allotted 1,50,00,000 equity shares of Rs. 10 each (post subdivision 3,00,00,000 equity shares of Rs. 5 each) to The Bank of New York, in its capacity as Depository for registered Global Depository Receipts (GDR) holders. The GDRs were listed on Luxembourg Stock Exchange.

The average daily trading volume was 2,449 and the number of outstanding Depository Receipts as on 31st March 2015 was 10,37,075. Due to low trading/conversion volume in GDR, the Board of Directors of the Bank at its meeting held on 5th May 2015 has decided to terminate the GDS program. The requisite notice of termination is being issued to the Custodian and the Depository.

OPERATIONS

Consumer Banking

Your Bank consolidated its network presence through a measured expansion of its footprint across the country and as of 31st March 2015 had 684 branches and 1273 ATMs, covering 379 locations. Of the 79 new branches commissioned this year, 21 were in rural and semi-urban locations. Your Bank added about eight hundred thousand new customers this year across core banking products of savings and checking accounts, term deposits, overdrafts and non-resident accounts.

Your Bank rolled out several initiatives aimed at offering a superior and differentiated customer experience. Some key ones are:

Digital Initiatives

Enabling availing products and services through digital channels was a key focus area for your Bank in this year. Some of the highlights being:

- Building onto the new digital account JIFI, launched last year, your Bank introduced its interest bearing variant, JIFI Saver, this year in January 2015. The account offers up to 6% interest and has a slew of distinguishing features like Hashtag Banking, Loyalty Rewards, Credit Bureau Score and Money Watch to appeal the tech savvy Gen Y segment.

- Marked by the rise of e-commerce in the country and with a view to staying ahead of competition, your Bank introduced a loyalty rewards platform, Kotakrewards.com in January, 2015. The platform is powered by 100 ecommerce partners and 7000 hotels completely funding the points earned by Kotak customers while shopping on their portals. The platform offers extra points to JIFI & JIFI Saver customers.

- In sync with the lifestyle of today''s social media savvy generation, with the launch of Hashtag banking in January 2015, your Bank took banking to a new high. With Hashtag banking, for the JIFI and JIFI Saver account holders, now Mobile & DTH recharge, account updates, cheque book request and many more account activities are just a tweet away.

- Your Bank ventured into the burgeoning digital payments arena with the launch of Kaypay in October 2014. It''s a bank agnostic person-to-person payments application which allows funds transfer to about 250 million customers of 28 banks in the country. Kaypay is a web based application optimized for use on mobile and allows funds transfer in real time 24X7 for free.

- Your Bank also launched an easy and hassle free person-to-person payment feature in Net Banking and Mobile Banking called Mail Money & Message Money. Mail Money, launched in September 2014, allows the Net Banking users to send money to anyone just by using their email addresses. On the same lines, for all Mobile Banking users, Message Money was launched in December 2014, to enable money transfer to any mobile number without the hassle of knowing the recipient''s account details.

- Your Bank introduced Kotak Money Watch, a 360 degree personal finance management tool within Net banking, in March 2015. It enables all the Net Banking users to track expenses, set budgets and track cash out from ATM.

Products & Services

- Your Bank launched Grand, a new savings bank proposition tailored exclusively for customers above 55 years, deriving features & benefits from their needs of healthcare, convenience and personalized attention. Under the proposition, customers are provided with priority service for their transactions at the branch & a first aid card, which details a customer''s health status and emergency contacts for easy reference. Further, Grand customers are offered a health card from Indian Health Organization (IHO), offering discount on treatments, consultation and procedures. Also, available are services like customized cash delivery, courtesy call back, etc.

- Your Bank launched SANMAN savings bank account in unbanked rural locations. The product is customized to cater to the banking needs of rural/ unbanked India such as farmers, small time traders, self-employed, low income group individuals, works etc. It offers key features like reduced Average Quarterly Balance (AQB) requirement and enhanced cash deposit limits to suit the seasonality of rural India apart from standard features.

- Your Bank launched on-line PIN (for debit and credit card) generation feature through net-banking, mobile banking and IVR. On one end, this feature has provided a huge convenience to customers and on the other end, significant cost saving to the bank.

- Your Bank has introduced differentiated cards with additional features. These include the RuPay Debit Card, for customers opening accounts under PMJDY scheme. Associate Card for representatives of customers whereby non-financial transactions can be made through ATMs within Kotak network.

- Your Bank introduced electronic platform for KYC. Customers can walk in to the branch only with Aadhar number and with the help of biometric impression of customer or OTP, the KYC details can be downloaded from UIDAI database through eKYC application. This has enabled faster on boarding of new customers.

Business Lines

a) Non Resident Business

Your Bank continues to deliver innovative products and services in its endeavor to become a preferred banker amongst the NRI community globally. Some of the key initiatives taken this year are:

1. Extended C2R money transfer mode for Australia. Your Bank''s NRI clients can now use this medium to transfer money from Australia to their Kotak Bank account in India.

2. Your Bank has further expanded the network of exchange house relationships and the count now stands at 20.

3. Launched a unique proposition for Indian IT professionals deputed to overseas assignments.

4. Your Bank has signed an MOU with NED Bank South Africa. This alliance would address the needs of the Indians migrating to South Africa and those already present there. South Africa has one of the strongest Indian diaspora which include both the NRI and PIO.

5. As a platform to reach out to the overseas Indian community, your Bank participated in various international business forums such as Pravasi Bhartiya Diwas (PBD)-2015 and Vibrant Gujarat, the annual convention of AAPI-2014 (American Association of Physicians of Indian origin) at San Antonio (Houston.), AIA (Association of Indian Americans)-Annual Convention at New York, 2014.

b) Priority Banking Business

Privy League, the premium banking program of the Bank, now services more than 2.75 lakh customers. The segmental offering in Privy League was re-enforced with the launch of Trader current accounts and Grand savings accounts for senior citizens, under the Privy League program umbrella. An exclusive Privy League branch was launched in Hauz Khas, Delhi to create a differentiated service experience for the HNI customers with amenities like valet parking, private meetings rooms with video conference facility and a coffee lounge.

c) Consumer Assets Business

Your Bank has continued to grow the product lines under the Consumer Assets business.

Credit Card: Your Bank''s credit card business has issued 4.80 lac cards by March 2015 and is in its seventh year of operations. The premium range of our products - VISA Signature and VISA Platinum have driven the spends growth in the portfolio and it contributes to 47% of spends, while accounting for 27% of customer base. The Credit card business has clocked total spends of Rs.3204 crore for the year at 31% growth Y-o-Y with a book size of Rs.643.5 crore. As per RBI data on electronic payments released for November 2014, total credit card spends for the industry has grown by 23% for April to November 2014 period over last year.

Salaried Personal Loan: Your Bank''s Salaried Personal Loan business offers salaried individuals personal loans with a tenure of upto 60 months. This year the business has grown by 68% with a SOH of Rs. 840 crore as of March 2015. The total customer base stands at 34000 customers.

Home Finance: Home Finance business clocked high growth of 37% in disbursements with loan book growth of 20% during the year with strong demand from both Tier I and Tier II Cities. Your Bank has expanded its home finance business further in Tier II Cities. Cross Sell through Bank Branches, Corporate Salary, Privy, and Wealth Teams contributed to around 30% of total volume. This year also witnessed very low losses on account of efficient and effective recovery and collection processes and policies adopted and we were able to resolve NPA cases.

d) Business Banking Assets (BBA): Your Bank through its BBA division offers secured and unsecured Business loans, Loans against Property & Working Capital Finance to self-employed professionals / non-professionals and Small & Medium Enterprises. This has been a landmark year for your Bank''s BBA business with its book growing by 27%. Your Bank continues to maintain its best in class portfolio quality through it effective and efficient risk management and recovery policies and practices. Capitalizing on the growing retail branch network, your Bank managed to expand its BBA product offering in over 400 branches.

Wholesale Banking

Your Bank through its consolidated franchise has focussed on serving customers'' requirements across segments with its wide array of customized financial products and services that are driven through best-in-class technology platforms.

Your Bank has also ensured a healthy portfolio with its continuous efforts through both volatile economic situation and tough credit environment in the last financial year. This has led to a stable credit growth.

The Transaction Banking Group has focussed on reinforcing your Bank as the Best Domestic Bank during the past year. Your Bank has been able to consistently add value to clients across Cash Management & Trade Services through its specialized product solutions that are steered by innovation and robust technology. This has helped clients optimize working capital & liquidity management. Proactive competition benchmarking, advanced processes and product parameters, continuous client feedback and customized solutions have helped the bank in catering to needs of this ever changing challenging industry. Your Bank has introduced the following key initiatives to serve customers better:

- Service Support: To serve diverse financial needs your Bank has nine dedicated commercial branches & 135 CSM teams including cluster heads across 47 locations.

- Tax Payment: Your Bank offers a ''Comprehensive Statutory Payment Solution'' to its customers via direct integration with Tax authorities, payment aggregators and various partner banks. Your Bank has developed a Government Business Module (GBM) for its customers to process payment of Direct (CBDT)/ Indirect Taxes (CBEC) through Net Banking and Branch channel. Currently, your Bank has been empanelled as Agency Bank for

collecting tax for a) Delhi VAT & CST, Gujarat Commercial Tax, b) Andhra Pradesh Commercials Taxes, c) Punjab VAT & CST, Telengana Commercial Taxes d) an aggregator bank for Bihar VAT & CST and e) Odisha VAT & CST.

- Online EPF Payment: Employees'' Provident Fund Organization has enabled online EPF payment for employers through payment aggregator with SBI as their primary banker. Your Bank has successfully integrated GBM module with concerned solution provider to enable all Kotak account holders to make EPF payment online using maker-checker workflow.

- IFC: Your Bank has signed an agreement with International Finance Corporation (IFC) under Global Trade Finance Programme (GTFP) as a confirming bank. Under this arrangement IFC will issue us payment guarantees/ SBLC for letter of credit favouring Kotak Mahindra Bank Ltd., thereby mitigating the payment risk on the underlying banks.

- Kotak Sarvartha Prepaid Card: Your Bank has initiated a comprehensive Prepaid Card program that will enable corporate clients to make payments to their employees, customers, affiliates, and vendors etc. and address their diverse payout needs like incentive payments, petty cash reimbursements, contract staff payouts, FI payouts etc.

- Kotak Bill Pay: To ensure convenient & secure way of managing bill payments, your Bank introduced Kotak BillPay that offers customers the flexibility of making regular payments by one time registration.

Your Bank''s in-depth understanding of clients'' requirement and ability to deliver tailored solutions in both Trade & Cash Management businesses has been acknowledged by industry''s leading agencies. Your Bank has been adjudged the "Best Domestic Trade Bank in India" by Trade & Forfaiting Review and "Best Local Cash Management Bank in India" 6th year in a row by Asiamoney. The Asiamoney awards are based on scores formed from a corporate survey conducted by Asiamoney (turnover less than or equal to USD 100mn). Your Bank won the Best Prepaid Card Programme at Financial Inclusion & Payments Systems Award 2014 for Amul Samriddhi. Your Bank has also received the Special Award for Innovation at the National Payments Excellence Award 2014 and was also recognised by NPCI for its role in launch of the RuPay Prepaid Card. Your Bank also received an award from the Honorable President of India Shri. Pranab Mukherjee at Rashtrapati Bhawan for its role in the launch of RuPay prepaid card leading to automation of the payout process for milk procurement by milk unions. These awards stand testimony to your Bank''s focussed approach towards Transaction Banking and client centric solutions.

Commercial Banking

The Commercial Banking business has registered a reasonable growth in FY 2014-15 despite subdued market sentiments and erratic monsoon.

Commercial Vehicles (CV) and Construction Equipment (CE) sectors, which have been witnessing slowdown since 2011, showed signs of recovery. The CV situation seems to have improved slightly in the last two quarters of the previous year, especially in the case of Medium Commercial Vehicle (MCV) & Heavy Commercial Vehicle (HCV) sales across segments, which was driven by replacement demand. Decrease in energy prices and all around improvement of load factors have improved viability for transport operations and also reduced levels of delinquency. However, the recovery of Light Commercial Vehicle (LCV) segment is still weak. Further, de-growth is seen in the Small Commercial Vehicles (SCV) segment. Your Bank has started increasing exposure to this sector in the second half of FY 2014.

At a macro level, GDP growth in FY 2015-16 is expected to be better than the previous year. MCV and HCV sectors are expected to grow in the next fiscal year, whereas the LCV segment could grow with a lag of 6 months towards the latter half of FY 2015-16. Further, project clearances should pave the way for action in infrastructure, which in turn will lead to revival in the CE sector. Your Bank is well positioned to accelerate growth in these segments should a sustainable turnaround be seen.

After continuous growth in the last four years, the tractor industry was in the negative by 13.5% during FY 2014-15 as a result of late and deficit monsoon in the first half of the last fiscal year followed by unseasonal rain fall. Losses in Kharif and Rabi crops, drop in prices of major commodities and reduction in yields have led to more than 25% percent fall in tractor industry growth post January 2015. Your Bank''s fresh disbursement for tractors in FY 2014-15 was marginally lower than previous year but better than the industry de-growth. However, the slowdown in rural economy has led to marginal deterioration of portfolio quality.

Although the monsoon also had an impact on the agri business industry, your Bank inched closer to the RBI target of 18% of the Bank''s advances in the agri loan portfolio. Your Bank has set up new branches in the tier two to tier six towns and villages. This is in keeping with the Banks philosophy of borrowing (deposits) from India (metro/urban cities) and lending (light on liabilities, heavy on assets) to Bharat (rural and semi-urban). Even though the portfolio quality of agri loans continues to remain satisfactory, there could be incremental stress in the next fiscal year, given the unpredictable weather patterns.

The total agri portfolio of your Bank crossed Rs. 12,000 crore in the last fiscal. The Agri business is now offering new non-urban small ticket loan products in smaller towns and rural pockets. Under the micro loan segment, your Bank commenced direct lending in the state of Uttar Pradesh, specifically in and around Varanasi. Close to 4,000 women customers were added through this initiative. Further, your Bank has acquired by assignment a large portfolio of micro loans given to women borrowers under the Joint Liability Group setup in the states of West Bengal, Bihar and Tripura.

Emerging Corporate Group''s (ECG) strategy continues to focus on balanced growth and maintain asset quality. Further, its growth has been driven by new customer acquisition along with increasing product penetration to existing customers. In the last financial year, the ECG business expanded its operations to 19 locations across 13 states. While the portfolio has witnessed stress due to slow down in the economy majority of them are in advanced stage of resolution.

Your Bank also diversified its gold loans and rural housing finance operations. Gold loan products are now available across 150 bank branches and Rural Housing finance is now offered at 50 locations.

Asset Reconstruction

This year your Bank received and invested in several proposals of special situation and last mile financing. This scenario is expected to continue for the next few years as well. However, recoveries from sale of large assets continues to be challenging.

The retail recoveries of the assets purchased from other banks and NBFC''s continues to be robust. The retail portfolio sale from other banks and NBFC''s is expected to increase in the coming few years.

Treasury

Your Bank''s treasury actively contributes to your Bank by way of:

- Proprietary Trading: The various proprietary trading desks actively trade in products such as Fixed Income, Money Markets, Derivatives, Foreign Exchange and Bullion. Primary Dealer Desk - part of the proprietary trading desk, actively participates in the primary auctions of government securities, makes market in government securities and engages in retailing of government securities.

- Customer Transactions:

o Facilitating access to foreign currency markets through cash & derivatives products and providing fine market rates to clients for remittance and trade transactions.

o Client solutions - standardised and structured, pertaining to Debt Capital Markets including Syndication of Loans, Bonds, Mezzanine financing, Promoter funding and acquisition financing and Securitisation.

- Balance Sheet Management: The Balance Sheet Management Unit (BMU) manages the Asset Liability mismatches, Interest rate & Liquidity gaps and implementation of Funds Transfer Pricing between various business units. The Correspondent Banking Division within treasury actively builds on relationships with offshore banks towards improving quality and international reach for its customers.

Human Resources

Investment in Human Capital continues to be significant as in earlier years. Programs related to Talent Attraction, Talent Development and Talent Management have been institutionalized basis our architectural framework of Value creation and Best employment Experience.

Pre-trained manpower acquisition channels such as Kotak Probationary Officer (KPO) and Junior Probationary Officer (JPO) programs have been further strengthened to create a sustainable pipeline of quality and timely manpower who become specialist bankers with requisite managerial skills.

Talent management continues to be an integral part of overall performance management process in the Bank. Your Bank believes in driving businesses through its core values and our talent management process aims to provide long term, sustained and meaningful career to employees across the organization.

Cultural integration of people is a very key focus area and in this context our organizational learning initiatives are designed around assimilation and development of individuals and team competencies, on aspects such as people management, productivity and service quality. Your Bank has partnered with top academic institutions as well as renowned industry experts for the same

Your Bank recognises that functional training is key to equip employees with strong domain knowledge and it continues the commitment of developing strong functional competencies in its employees through its robust e-learning platform as well as classroom trainings. The organization learning team runs around 350 plus unique functional and developmental programs in the above context.

Specialized certifications for specific roles continue to be run as mandatory programs to ensure employee awareness of various regulatory norms in this dynamic external environment.

Technology

This year, your Bank increased emphasis on digital products. Three major upgrades on the mobile banking application saw a large increase in adoption of usage. Several new "native digital" products were launched including Kaypay, Message Money and Hashtag Banking. On the loans management side, mobility has been introduced for collections on personal loans and credit card payments.

Customer connect was improved by leveraging the Unica platform launched the previous year. Further automation of the marketing operations enabled your Bank to increase its ability to increase scale in offers to customers, tailored to their needs.

A new system was introduced for the Bank''s Wealth Management customers, enabling them to get a consolidated, single view of all their investments. This will serve as the foundation for portal and mobile access to customer dashboards and alerts in the coming year.

To ensure customer data security, technology programs in the area of information security kept pace with the digital innovation. Customers are now given an option to login using digital certificates. New technology to prevent leakage of customer data has been implemented across the Bank and a new initiative for fraud detection on channels has been started.

Governance and control continued to be an area of concentration, with new systems being deployed for internal audit automation, anti-money laundering, asset-liability management and compliance management.

SUBSIDIARIES & ASSOCIATES

Your Bank''s subsidiaries are established players in the different areas of financial services, viz. car finance, investment banking, stock broking, asset management and life insurance.

As at 31st March 2015, your Bank has seventeen (17) subsidiaries as listed below:

Domestic Subsidiaries

Kotak Mahindra Prime Limited

Kotak Securities Limited

Kotak Mahindra Capital Company Limited

Kotak Mahindra Old Mutual Life Insurance Limited

Kotak Mahindra Investments Limited

Kotak Mahindra Asset Management Company Limited

Kotak Mahindra Trustee Company Limited

Kotak Investment Advisors Limited

Kotak Mahindra Trusteeship Services Limited

Kotak Forex Brokerage Limited

Kotak Mahindra Pension Fund Limited

Kotak Mahindra General Insurance Limited

International Subsidiaries

Kotak Mahindra (International) Limited Kotak Mahindra (UK) Limited Kotak Mahindra Inc.

Kotak Mahindra Financial Services Limited

Kotak Mahindra Asset Management (Singapore) Pte. Limited

During the year, Global Investment Opportunities Fund Limited, ceased to be a subsidiary of your Bank with effect from 13th May 2014.

Further, a new subsidiary of the Bank viz. Kotak Mahindra General Insurance Limited was incorporated in December 2014, with principal objective of carrying on business of general insurance. It is awaiting approval from Insurance Regulatory and Development Authority of India (IRDAI) to commence the business of general insurance.

The various activities of the subsidiaries and the performance and financial position of the subsidiaries and associates are outlined in the Management Discussion and Analysis section appended to this Report.

The Bank''s Policy for determining material subsidiaries is available on the Bank''s website viz. URL: http://ir.kotak.com/governance/policies.html

As at 31st March 2015, your Bank has following four (4) Associate companies:

ACE Derivatives & Commodity Exchange Limited Infina Finance Private Limited Matrix Business Services India Private Limited Phoenix ARC Private Limited

The Annual Report which consists of the financial statements of your Bank on standalone basis as well as consolidated financial statements of the group for the year ended 31st March 2015, has been sent to all the members of your Bank. It does not contain Annual Reports of your Bank''s subsidiary companies. Your Bank will make available full Annual Report (including the Annual Reports of all subsidiaries) upon request by any member of your Bank.

These Annual Reports will be available on your Bank''s website viz. URL : http://ir.kotak.com/annual-reports and will also be available for inspection by any member at the Registered Office of your Bank.

The Bank has received in-principle approvals from the Stock Exchanges for the above schemes.

Further, the Board of Directors of the Bank at its meeting held on 5th May 2015 has approved and adopted, subject to the shareholders approval and other necessary approvals, a new Scheme under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 for the purposes of granting options and stock appreciation rights to the employees of the Bank, its subsidiaries and its associate companies, as applicable. viz. Kotak Mahindra Share Based Employee Benefit Scheme 2015 comprising of:

- Part A - Kotak Mahindra Equity Option Scheme 2015

- Part B - Kotak Mahindra Stock Appreciation Rights Scheme 2015

Approval of the shareholders in this regard is being sought at the ensuing Annual General Meeting of the Bank.

CORPORATE GOVERNANCE AND BUSINESS RESPONSIBILITY REPORT

Pursuant to Clause 49 and 55 of the Listing Agreement with the Stock Exchanges, separate sections entitled ''Report on Corporate Governance'' and ''Business Responsibility Report'' have been included in this Annual Report. The Report of Corporate Governance also contains certain disclosures required under the Companies Act, 2013.

DIRECTORS & KEY MANAGERIAL PERSONNEL

Directors retiring by rotation

Dr. Shankar Acharya, Chairman - Non-Independent Director of the Bank, retires by rotation at the Thirtieth Annual General Meeting and is eligible for re-appointment.

Directors appointed during the year

The Board of Directors of the Bank, at its meeting held on 7th September 2014 had appointed Ms. Farida Khambata as an Additional Director of the Bank.

The shareholders of the Bank at their Extraordinary General Meeting held on 7th January 2015 pursuant to Section 149, 150 (2) & 152 of the Companies Act, 2013 and Section 10-A(2-A) of the Banking Regulation Act, 1949, appointed the following directors as Independent Directors, not liable to retire by rotation:

- Mr. Asim Ghosh (DIN : 00116139) for a term upto 8th May 2016

- Mr. Amit Desai (DIN : 00310510) for a term upto 17th March 2019

- Prof. S. Mahendra Dev (DIN : 06519869) for a term upto 14th March 2018

- Mr. Prakash Apte (DIN : 00196106) for a term upto 17th March 2019

- Ms. Farida Khambata (DIN : 06954123) for a term upto 6th September 2019

Further, the shareholders at the same meeting re-appointed Mr. C. Jayaram (DIN : 00012214) as Whole-time Director of the Bank designated as Joint Managing Director for the period from 1st January 2015 to 30th April 2016, subject to the approval of the Reserve Bank of India.

The Board of Directors of the Bank, at its meeting held on 5th May 2015, has re-appointed Dr. Shankar Acharya (DIN : 00033242) as the Chairman of the Bank subject to the approval of the shareholders and of the Reserve Bank of India. The approval of the shareholders in this regard is being sought at the ensuing Annual General Meeting of the Bank.

Mr. Mark Newman (DIN : 03518417) was appointed as an Additional Director of the Bank with effect from 5th May 2015. Mr. Newman holds office as a Director up to the date of this Annual General Meeting and is eligible to be appointed as a Director. In terms of Section 160 of the Companies Act, 2013, your Bank has received notice in writing from a member along with requisite deposit of Rs. 1,00,000/- proposing candidature of Mr. Newman for his appointment as a Director.

The details of the Directors appointed are set out in the Corporate Governance Report annexed to this Report.

Declaration from Independent Directors

The Board has received declarations from the Independent Directors as per the requirement of Section 149(7) of the Companies Act, 2013 and the Board is satisfied that the Independent Directors meet the criteria of independence as mentioned in Section 149(6) of the Companies Act, 2013.

Board Evaluation

The Independent Directors of the Bank at their meeting held on 6th September 2014, had advised the management to appoint an external agency specialized in HR and management consultancy to finalise the criteria for performance evaluation of Non-Executive directors, Whole-time Directors and the Chairperson. Accordingly, the management has identified and shortlisted one external agency for finalizing the criteria for the performance evaluation of the Directors and would be presenting the proposal to the Independent Directors at their next meeting for their consideration and approval.

Key Managerial Personnel (KMPs)

The Board of Directors of the Bank at its meeting held on 30th April 2014 confirmed and approved the appointment of the following officials of the Bank as "Key Managerial Personnel" pursuant to the provisions of Section 203 of the Companies Act, 2013:

- Mr. Uday Kotak, Executive Vice Chairman and Managing Director

- Mr. C. Jayaram, Joint Managing Director

- Mr. Dipak Gupta, Joint Managing Director

- Mr. Jaimin Bhatt, President & Group Chief Financial Officer

- Ms. Bina Chandarana, Company Secretary

Appointment & Remuneration of Directors & KMPs

The appointment and remuneration of Directors of the Bank is governed by the provisions of Section 35B of the Banking Regulation Act, 1949. The Nomination and Remuneration Committee recommends to the Board the appointment of Directors. The Committee considers the qualifications, fit & proper status, positive attributes as per the suitability of the role and independent status as may be required of the candidate before such appointment.

The Reserve Bank of India (''RBI'') vide its circular no.DBOD.No.BC.72/29.67.001/201 1-12 dated 13th January 2012 has issued the Guidelines on

Compensation of Whole Time Directors / Chief Executive Officers / Other Risk Takers of Private Sector Banks on Compensation Policy which inter alia cover the following:

- Proper balance between fixed pay and variable pay;

- Variable pay not to exceed 70% (Seventy Per Cent) of the fixed pay in a year.

In accordance with the aforesaid RBI Circular, the Board of the Bank has adopted a Compensation Policy for its Whole-time Directors, Chief Executive

Officer of the Bank and other employees which includes issue of stock appreciation rights as a form of variable pay, linked to the Bank''s stock price, payable over a period of time. The salient features of the Compensation Policy are as follows:

- Objective is to maintain fair, consistent and equitable compensation practices in alignment with Kotak''s core values and strategic business goals.

- Applicable to all employees of the Bank. Employees classified into 3 groups:

o Whole-time Directors/Chief Executive Officer

o Risk Control and Compliance Staff

o Other categories of Staff

- Compensation structure broadly divided into Fixed, Variable and ESOPs

o Fixed Pay - Total cost to the Company i.e. Salary, Retirals and Other Benefits

o Variable Pay - Linked to assessment of performance and potential based on Balanced Key Result Areas (KRAs), Standards of Performance and achievement of targets with overall linkage to Bank budgets and business objectives. The main form of incentive compensation includes - Cash, Deferred Cash/Incentive Plan and Stock Appreciation Rights.

o ESOPs - Granted on a discretionary basis to employee based on their performance and potential with the objective of retaining the employee.

- Compensation Composition - The ratio of Variable Pay to Fixed Pay and the ratio of Cash v/s Non Cash within Variable pay outlined for each category of employee classification.

- Any variation in the Policy to be with approval of the Nomination & Remuneration Committee.

- Malus and Clawback clauses applicable on Deferred Variable Pay.

- Ensuring no personal hedging strategies by employees which undermine risk alignment effects as part of their remuneration.

The details of the remuneration paid to the Non-Executive Chairman, Executive and Non-Executive Directors of the Bank for the year ended 31st March 2015 is provided in the Corporate Governance Report annexed to this Report.

The Non-Executive Directors of the Bank receive remuneration only by way of sitting fees for attending meetings of the Board or Committees thereof. Remuneration paid to the KMPs is in line with the Compensation Policy of the Bank which is based on the RBI Guidelines.

AUDITORS

Messrs S. B. Billimoria & Co., Chartered Accountants, auditors of your Bank, retire on the conclusion of the Thirtieth Annual General Meeting.

In terms of Section 139 of the Companies Act, 2013, every Company is required to appoint auditors for a term of five years subject to their appointment being ratified at every Annual General Meeting. However, pursuant to the guidelines issued by the Reserve Bank of India (RBI), an audit firm is allowed to continue as the statutory auditor of a bank for a continuous period of four years only.

Accordingly, it is proposed to appoint, subject to the regulatory approvals, Messrs S. R. Batliboi & Co. LLP, Chartered Accountants, as the statutory auditors of the Bank in place of Messrs S. B. Billimoria & Co., Chartered Accountants, who have completed four years as the statutory auditors. The appointment of Auditors is proposed to the members in the Notice of the current i.e. the Thirtieth Annual General Meeting for a period of four years from the conclusion of the Thirtieth Annual General Meeting until the conclusion of the Thirty fourth Annual General Meeting of the Bank, subject to the annual approval of RBI and ratification by the members every year.

SECRETARIAL AUDITOR

Pursuant to Section 204 of the Companies Act, 2013, your Bank has appointed Ms. Rupal D. Jhaveri, a Company Secretary in Practice, as its Secretarial Auditor. The Secretarial Audit Report for the financial year ended 31st March 2015 is annexed to this Report.

DEPOSITS

Being a banking company, the disclosures required as per Rule 8(5)(v) & (vi) of the Companies (Accounts) Rules, 2014, read with Section 73 and 74 of the Companies Act, 2013 are not applicable to your Bank.

RELATED PARTY TRANSACTIONS

All the Related Party Transactions that were entered into during the financial year were on arm''s length basis and were in ordinary course of business.

Pursuant to Section 134(3)(h) read with Rule 8(2) of the Companies (Accounts) Rules, 2014, there are no transactions to be reported under Section 188(1) of the Companies Act, 2013.

All Related Party Transactions as required under Accounting Standards AS-18 are reported in Note 21 of Schedule 17 - Notes to Accounts of the Consolidated financial statements and Note 8 of Schedule 17 - Notes to Accounts of the Standalone financial statements of your Bank.

The Bank''s Policy on dealing with Related Party Transactions is available on the Bank''s website viz. URL: http://ir.kotak.com/governance/policies.html PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Pursuant to Section 186(11) of the Companies Act, 2013, loans made, guarantees given, securities provided or acquisition of securities by a banking company in the ordinary course of its business are exempted from the disclosure requirement under Section 134(3)(g) of the Companies Act, 2013.

WHISTLE BLOWER POLICY / VIGIL MECHANISM

Your Bank is committed to its "Vision Statement" of upholding its Global Indian Financial Services Brand creating an ethos of trust across all constituents, developing a culture of empowerment and a spirit of enterprise thereby becoming the most preferred employer in the financial services sector.

Consistent with the Vision Statement, your Bank is committed to maintain and provide to all its employees and directors highest standards of transparency, probity and accountability. The Kotak Group endeavours to develop a culture where it is safe and acceptable for all employees and directors to raise / voice genuine concerns in good faith, and in a responsible as well as effective manner.

A vigil mechanism has been implemented through the adoption of Whistleblower Policy with an objective to enable any employee or director, raise genuine concern or report evidence of activity by the Bank or its employee or director that may constitute: Instances of corporate fraud; unethical business conduct; a violation of Central or State laws, rules, regulations and/or any other regulatory or judicial directives; any unlawful act, whether criminal or civil; malpractice; serious irregularities; impropriety, abuse or wrong doing; deliberate breaches and non-compliance with the Bank''s policies; questionable accounting / audit matters / financial malpractice. The same option has now been extended to the vendors of the Bank also. The concerns can be reported on the website viz. URL: https://cwiportal.com/kotak.

Currently an online mechanism enabling aforementioned reporting has been implemented over and above other modes of communication like e-mail, or a letter sent by mail, courier or fax to designated persons.

Safeguards to avoid discrimination, retaliation, or harassment, and confidentiality have been incorporated in the policy. All employees and directors have access to the Chairman of the Audit Committee in appropriate and exception circumstances.

The Policy has been uploaded on the Bank''s intranet as well as website viz. URL: http://ir.kotak.com/governance/policies.html and regular communication is made for sustained awareness.

CORPORATE SOCIAL RESPONSIBILITY (CSR)

Your Bank has constituted a Corporate Social Responsibility (CSR) Committee consisting of the following Directors:

- Mr. C Jayaram Joint Managing Director and Chairman of CSR Committee

- Mr. Dipak Gupta, Joint Managing Director

- Prof S. Mahendra Dev, Independent Director

Your Bank''s CSR Committee drives the CSR programme of the Bank. Your Bank has a Board approved CSR policy, charting out its CSR approach, and is available on the Bank''s website viz. URL: http://www.kotak.com/corporate-responsibility.html.

The CSR expenditure incurred for the period 1st April 2014 to 31st March 2015 under Section 135 of Companies Act, 2013 in the financial year 2014-15 amounts to Rs. 1,197 lac as against Rs. 363 lac CSR spent in the financial year 2013-14.

Your Bank is building its CSR capabilities on a sustainable basis and is committed to gradually increase its CSR spend in the coming years. The CSR Committee of the Board confirms that the implementation and monitoring of CSR Policy, is in compliance with CSR objectives and Policy of the company.

The details of CSR activities and report under Section 135 of the Companies Act, 2013, are provided on pages 145-146 and 152-161 of the annual report FY 2014-15.

RISK MANAGEMENT POLICY

Your Bank has in place a comprehensive Enterprise wide Risk Management (ERM) framework supported by detailed policies and processes for management of Credit Risk, Market Risk, Liquidity Risk, Operational Risk and various other Risks. Details of identification, assessment, mitigations, monitoring and the management of these Risks are mentioned in the Management Discussion and Analysis section appended to this Report.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The provisions of Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 are not applicable to your Bank. However, your Bank has been increasingly using information technology in its operations.

EMPLOYEES

The employee strength of your Bank, standalone, was 18,335 and along with its subsidiaries was 31,432 as of 31st March 2015. Upon the merger, 10,314 employees have been added up in the Bank and 514 employees in the subsidiaries.

191 employees employed throughout the year and 30 employees employed for part of the year were in receipt of remuneration of Rs. 60 lacs or more per annum.

With an average age of 31 years your Bank continues to attract talent across all its businesses and hierarchy and has put in place various processes and systems to ensure alignment of employee behaviors with the organization''s core values.

Organizational culture aspects like trust & inclusiveness were also reiterated through 113 cross functional meets conducted by senior business leaders for employees at mid management level under the "Meet 5" initiative.

In a very short span of two years, your Bank has crossed several milestones in its Gender Diversity agenda.

- A differentiated talent acquisition strategy to increase women employee base across various suitable roles has helped us to continue adding 20% women amongst all new hires in the Bank.

- Your Bank''s top senior women professionals (around forty women across Kotak) have been brought together under our diversity initiative "Astra" and these women leaders now play a pivotal role in guiding and mentoring other mid-level women employees to sustain and grow in the careers.

- Your Bank''s internal women''s cell Strisangini continues to address women issues at workplace and facilitates mass-mentoring programs with senior women leaders.

- POSH: Prevention Of Sexual Harassment (POSH) Policy has been formally instituted with 3 Regional Internal Complaints Committees (ICC). The ICC members have been trained in handling and resolving complaints and have also designed an online e-learning POSH Awareness module which covers the larger employee base.

Following is a summary of sexual harassment complaints received and disposed off during the year 2014-15: o No. of complaints received : 5

o No. of complaints disposed off : 4

As part of the Leadership Transformation program, new promotes are now put through an intensive two day intervention to orient them on expected skill-sets and competencies and create a leadership mindset apart from other managerial and leadership development program.

As your Bank enters in its next phase of growth and expansion of footprint across urban and rural India, your Bank and its subsidiaries continued to carry out several initiatives to attract and retain a pool of highly skilled and motivated employees who are aligned to the firm''s vision of becoming the most trusted financial services provider.

I n accordance with the provisions of Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 the names and other particulars of employees are set out in the annexure to the Directors'' Report. In terms of the Proviso to Section 136(1) of the Companies Act, 2013, the Directors'' Report is being sent to all shareholders excluding the aforesaid annexure. The annexure is available for inspection at the Registered Office of your Bank. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of your Bank.

DIRECTORS'' RESPONSIBILITY STATEMENT

The Directors, based on the representations received from the operational management, confirm in pursuance of Section 134(5) of the Companies Act, 2013, that:

(i) your Bank has, in the preparation of the annual accounts for the year ended 31st March 2015, followed the applicable accounting standards along with proper explanations relating to material departures, if any;

(ii) they have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Bank as at 31st March 2015 and of the profit of your Bank for the financial year ended 31st March 2015;

(iii) they have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of your Bank and for preventing and detecting fraud and other irregularities;

(iv) the annual accounts have been prepared on a going concern basis;

(v) they have laid down internal financial controls to be followed by the Bank and that such internal financial controls are adequate and are operating effectively; and

(vi) they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.

ANNEXURES

Following statements/reports are set out as Annexures to the Directors'' Report:

- Extract Of Annual Return under Section 134(3)(a) of the Companies Act, 2013 read with Rule 12 (1) of Companies (Management & Administration) Rules, 2014 (Annexure-A).

- Secretarial Audit Report pursuant to Section 204 of the Companies Act, 2013 (Annexure-B).

ACKNOWLEDGEMENTS

Your Directors would like to place on record their gratitude for the valuable guidance and support received from the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority and other Government and Regulatory agencies. Your Directors acknowledge the support of the members and also wish to place on record their appreciation of employees for their commendable efforts, teamwork and professionalism.

For and on behalf of the Board of Directors

Dr. Shankar Acharya Place: Mumbai,

Chairman Date: 5th May 2015


Mar 31, 2011

The Directors present their Twenty Sixth Annual Report together with the audited accounts of your Bank for the year ended 31st March 2011.

FINANCIAL HIGHLIGHTS

(A) Kotak Mahindra Bank Limited – Consolidated financial highlights:

31st March 2011 31st March 2010 Rs. crore Rs. crore

Total income 11,029.27 10,053.30

Total expenditure, excluding provisions and contingencies 8,634.27 7,639.71

Operating Profit 2,395.00 2,413.59

Provisions and contingencies, excluding provision for tax 147.60 510.73

Profit before tax 2,247.40 1,902.86

Provision for taxes 678.16 575.50

Profit after tax 1,569.24 1,327.36

Less: Share of minority interest 26.36 18.00

Add: Share in profit of Associates 23.86 (2.36)

Consolidated profit for the Group 1,566.74 1,307.00

Earnings per Equity Share Basic (Rs.) 21.73 18.84

Diluted (Rs.) 21.60 18.64

(B) Kotak Mahindra Bank Limited – Standalone financial highlights:

31st March 2011 31st March 2010 Rs. crore Rs. crore

Total Income 4,936.60 3,883.86

Total expenditure, excluding provisions and contingencies 3,611.81 2,586.86

Operating Profit 1,324.79 1,297.00

Provisions and contingencies, excluding tax provisions 137.09 485.89

Profit before tax 1,187.70 811.11

Provision for taxes 369.52 250.00

Profit after tax 818.18 561.11

Add: Surplus brought forward from the previous year 965.91 648.94

Amount available for appropriation 1,784.09 1,210.05

Appropriations:

Statutory Reserve under Section 17 of the Banking Regulation Act, 1949 204.55 140.28

General Reserve 40.91 28.06

Transfer to / (from) Investment Reserve Account (26.83) 1.19

Transfer to Capital Reserve 0.69 6.96

Transfer to Special Reserve 29.00 40.00

Proposed Dividend 36.88 29.66

Corporate Dividend Tax 4.37 (2.01)

Surplus carried to Balance Sheet 1,494.52 965.91

DIVIDEND

Your Directors are pleased to recommend a dividend of Rs. 0.50 per equity share of the face value of Rs. 5 each (previous year Rs. 0.85 per equity share of the face value of Rs.10 each), entailing a payout of Rs. 41.25 crore including dividend distribution tax (previous year Rs. 27.65 crore). The dividend would be paid to all the shareholders, whose names appear on the Register of Members/Beneficial Holders list on the Book Closure date.

CAPITAL

Pursuant to the approval granted by the Members at an Extraordinary General Meeting held on 27th July 2010 and receipt of other necessary approvals, in August 2010 your Bank allotted 1,64,00,000 equity shares of face value of Rs.10/- each to Sumitomo Mitsui Banking Corporation, a public company registered under the laws of Japan on a preferential basis at a price per equity share of Rs. 833/- for a total consideration of Rs. 1366.12 crore.

In September 2010, each equity share of your Bank having a face value of Rs. 10 was subdivided into two equity shares of the face value of Rs. 5 each.

During the year, your Bank has also allotted 77,88,550 equity shares (adjusted for stock split number) arising out of the exercise of Employee Stock Options granted to the employees and Executive Directors of the Bank and its subsidiaries.

Post allotment of equity shares and sub-division of equity shares as aforesaid, the issued, subscribed and paid-up Share Capital of the Bank stands at Rs. 368.44 crore comprising of 73,68,71,504 equity shares of Rs. 5 each.

The Bank has a Capital Adequacy Ratio (CAR) under Basel II as at 31st March 2011 of 19.92% with Tier I being 17.98%. At a consolidated level the CAR was 19.46% under Basel II.

During the year, your Bank has not issued any Capital under Tier II. As on 31st March 2011, outstanding Unsecured, Redeemable Non- Convertible, Subordinated Debt Bonds was Rs. 465.70 crore and outstanding Unsecured, Non-Convertible, Redeemable Debt Capital Instruments Upper Tier II stood at Rs. 336.68 crore.

OPERATIONS

Your Bank worked on a very balanced expansion plan of the network and added 72 branches and 246 ATMs and ended the year with 321 Branches and 710 ATMs, and thereby increasing the presence to 183 locations. Your Bank added over half a million new customers this year across core banking products of savings and checking account, term deposits, overdrafts and non resident accounts.

The robustness of the network manifested in the healthy growth in demand and time liabilities. The momentum gained last year in terms of distribution of asset products from the network continued in the current year. The initiatives launched last year on higher end segment of customers through a branded programme titled "Privy League" continued to show encouraging results. Your Bank maintained its ambition of becoming a bank of choice for the small and mid segment business enterprises and doubled the base of customers engaging in trade and foreign currency transactions. The increased network of ATMs benefitted your Bank by bringing in much higher usage from non customers and growing the interchange income manifold.

Your Bank continued to put significant focus in reaching out to the NRI community last year. Lot of path breaking initiatives were rolled out. Many alliances were signed with leading exchange houses across Gulf countries to provide channels for attracting inward remittances. Through the strategic partnership with OIFC (Overseas India Facilitation Centre) your Bank participated in 3 global meets in Dubai, London and Birmingham which has firmly established your Bank as a key service provider with the NRI community. This alliance further helped your Bank to engage another 30 sub-alliances enabling the growth in business thru NRIs. Your Bank also reached out to a larger canvass of NRI customers by launching a variant to savings account targeted for the mid-income segment, P.O. Box facility in USA & UK. Your Bank launched a new remittance solution under the brand name Click2Remit. This is a multi currency platform and customers can send money into India from anywhere in the world in 8 different currencies. Your Bank also launched a credit card for the NRI customers and started the Home Loan product for NRIs in select markets. To provide higher convenience to the NRI customer your Bank launched a unique service called Click2Call & SMS2Call wherein the Bank calls back the customer within 30 minutes of receiving the intimation. Your Bank focussed on the online space including social media engagement through a partner portal called NRIMatters.com; NRI Power Podium campaign which got 13000 NRI signups in one month and found its way into India Book of Records. The number of hits on the NRI website today stands at 150000 per month, up from 2000 per month last year.

Your Bank implemented several initiatives aimed towards enhancing customer service and widening the product/ services bouquet. Some of the key ones being:

- Annual Combined Statement on Net Banking - Customers can now view and download their Annual Combined Statement for Savings and Current account, Investment and Demat holdings for the previous financial year. This will help customers to file Tax Returns, apply for loan etc.

- Card Protection Plan – Your Bank in association with CPP Assistance Service Pvt. Ltd. offers card protection to protect all Kotak customers cards (Credit, Debit, ATM etc) against loss and resultant fraud.

- Multilingual ATMs - Multilingual (English, Hindi and Marathi) on all ATMs in Maharashtra has gone live. Other regional languages will get covered during the course of next fiscal year.

- Recharge Services - This enables customers to recharge their pre-paid mobile and DTH services through Kotak Net Banking using Kotak Bill Pay.

- Statement Registration on Net Banking - Customers now have the option to register for their preferred statement frequency and mode option on Net Banking.

- Your Bank has also taken steps to participate in the eco drive. An E-Statement campaign was run through the year aiming to convert the customers who have registered for monthly physical statements & quarterly physical statements to register for monthly E-Statements with the theme of Save Trees, Save the Environment! Say no to Physical Statements.

- Interbank Mobile Payment Service – This feature allows customers to transfer money instantly through mobile phone within own accounts & third party accounts within the IMPS member banks.

- Kotak Stock Ace - This is loan (overdraft) against securities product. Under this product your Bank provides an overdraft to customers against equity shares and mutual funds.

The last year saw several regulatory changes in the third party investment and insurance products space. While these regulatory interventions put a significant amount of revenue pressure your Bank recognises the opportunity to create a well differentiated business if it is able to create a more robust platform to advise its customers. Hence significant focus was put to creating processes with an objective to bring maximum transparency in the Banks sales process of these products and to bring more internal accountability to ensure appropriateness of sale as per customer suitability and risk profile. Your Bank believes that its customers will benefit from such stringent internal standards and in the long run it will be able to build a sustainable and robust business model around these processes.

Your Bank has always focussed on its employees as the key to building a sustainable franchise and has in the past won several awards as one of the best employers. Continuing with this emphasis your Bank launched an E-Learning platform for employees which again won accolades in the IBA Technology Awards. This platform enabled your Bank to introduce courses in real time. It also has features of individual learning plans, chat facilities to enable trainers and trainees to interact online, video streaming facility, online completion status tracking, etc. Your Bank believes this will improve the quality of training inputs and will result in raising the service standards.

Your Bank took definitive steps towards risk control. These include set up of - N Vigil (Internal Cameras) in all the ATMs. This will ensure that the Bank has images of the customers who did the transactions at all times and can also facilitate during fraud investigations or customer complaints. A dedicated Risk Containment Unit has been put in place to do pre-on-boarding checks and transaction level checks to ensure conformity to AML guidelines and fraud prevention etc.

Your Bank continued its in-depth coverage and servicing of large and mid market corporate clients during the year. Your Bank was able to build significant franchise with many well known, reputed large corporate groups during this year while focusing on deepening existing clients through an array of customized and regular product offerings.

The year saw a strong trend in credit demand from the corporate and mid market business segments both for working capital and term facilities. This is in keeping with the strong underlying economic growth. Your Bank was able to tap this opportunity and increase its share of business by offering a variety of products and services.

Your Bank added 160 new cash management service customers during the year by offering them technology driven working capital cycle enhancement & efficiency solutions to effectively enrich and optimize their cash flows and liquidity through an entire suite of CMS products and services. This has been made possible through constant innovation, continuous feedback sessions and a high degree of customization to cater to the dynamic and evolving industry scenario.

Your Banks dedicated team of product solution experts strives to provide systemic structured solutions to suit to the customers needs. The in- depth understanding of the customers business and the superior delivery models has helped in achieving high levels of customer satisfaction. The Commercial Vehicle and Infrastructure sectors continued the growth momentum through the year aided by the positive IIP (Index of Industrial Production) and Agriculture growth numbers. Commercial Vehicle operator margins improved as a result of higher freight realisations, which offset the increase in diesel cost. The growth in the core sector and focus on infrastructure led to a healthy growth in the order book position of contractors in the Infrastructure space. As a result, disbursement numbers touched record levels as did the bottom line. The year also saw good growth in bank lines in both the sectors.

The monsoon has been more than adequate this year. However the impact of the growing economy and increasing purchasing power of the rural population has meant a steep rise in prices of all agro commodities. Riding this boom the Agri Business of your Bank has shown a robust growth with the total portfolio slated to cross Rs. 4300 crore this year, up from last years portfolio of Rs. 3200 crore. This is a growth of 35% year-on-year. Your Bank also ensured to reach the targeted norms for lending to the Agri sector as laid out by the regulator for the second year running.

The Agri business rode on an impressive growth in the tractor loans, commodity funding which doubled in portfolio size and an impressive growth in the working capital facilities to agro-processing sector. Delinquency levels in this portfolio have also been at all time lows and are even better than some of the other urban oriented advances indicating the financial strength of clients associated with agriculture who are riding the commodity price boom.

The Agri business has also become the corner stone for your Banks targets for meeting financial inclusion and lending to the weaker sections of the society such as small and marginal farmers, village artisans and other socially deprived sectors identified by the government. These advances now have crossed a level of 8% of your Banks total advances. Your Bank is in the process of identifying more target segments in this sector to reach out to.

In the Home Finance business while there was strong growth in the first half of the year, the second half of the year saw stabilisation and slight drop in demand from customers. Your Bank introduced innovative new products during the year such as part tenure fixed home loans and loan against property. Your Bank branches continued to play an important part and evolved into a stable contributor month on month. There was an increased focus on existing Bank customers and their contribution among the secured asset products went up.

The Personal Finance business saw good growth and established your Bank as one of the leading lenders of unsecured loans in the market. High-ticket products continued to be the focus and were the biggest contributor to the overall volumes. The Personal Finance business also added new products to their existing bouquet of financial services for businessmen. Working capital products in Rs. 50 lacs to Rs. 1.5 crore range (both fund based as well as non-fund based) were some of the new offerings.

Your Bank resolved several NPA accounts pertaining to stressed assets acquisition. Supreme Court upheld the NPA assignment between banks and other financial institutions. This landmark judgment will further help in resolving several NPA accounts, which were litigated in several courts for the past few years. The NPA portfolio sale by banks continued to be sluggish and the serious pricing mismatch between the buyers and sellers continued, this year as well.

Your Bank continued to invest in large single asset transactions, with good prospects of turnaround in stressed companies. Further, your Bank has diversified in buying large retail NPA loans from other banks.

During the year, your Bank saw a robust growth in its overall advances portfolio. This was primarily driven by the overall growth of the corporate sector, spurred by strong domestic consumption demand for their products post the recessionary period. A robust NPA management practice and strong internal controls, aided by a strong economic growth, has led to a reduction in your Banks gross/net NPAs.

On Treasury side, your Bank has an active proprietary desk trading in all products such as Fixed Income, Money Markets, Derivatives, Foreign Exchange and Bullion. The Treasury plays an important role in balance sheet management and implementation of Funds Transfer Price between various business units. In the area of Debt Capital Markets (DCM) your Bank offered the following products: syndication of loans, bonds, mezzanine financing, promoter funding and acquisition financing and securitisation. During the year, your Banks Treasury started Correspondent Banking Division to build and leverage on relationships with offshore banks for improving quality and international reach for its customers.

Your Banks credit card business has issued 1.5 lac cards and is in its third year of operations. The card design and product benefits have received overwhelming response from customers. The customer spends across all variants of cards have been amongst the top three in industry. The premium range of our products – VISA Platinum and VISA Signature have driven the spends growth in the portfolio and it contributes to 34% of the spends while accounting for 12% of customer base. This has reaffirmed the customer acceptability of the product. Credit card business clocked Rs. 600 crore of total spends in the year with a book size of Rs. 300 crore. Industry credit cards spends has shown sign of growth after last years recessionary economic conditions.

Your Bank entered into a strategic arrangement with PVR Cinemas, one of the elite name in entertainment industry, to distribute credit card products aimed at upmarket customers. This partnership opens up the opportunity to tap new customer segment hitherto untapped by your Bank.

Your Banks technology team concentrated on innovation to provide new products and conveniences to the customers. This ranged from mobile to mobile payments (IMPs) to providing ATMs at remote locations on an "air card".

System upgrades for continuous improvement in customer experience were a focus. The excellence of the CRM and Call Center which were rolled out across the Kotak Group, were recognized by awards from the Indian Banking Association and Asian Bankers Technology Summit respectively.

In preparation of the planned Core Banking upgrade, the technology foundation has been enhanced. Service Oriented Architecture was introduced with the use of a world class product for system integration. Standard frameworks for digitization and internal development expedite deployment of new systems.

SUBSIDIARIES

Your Banks subsidiaries are established players in the different areas of financial services, viz. car finance, investment banking, stock broking, asset management and life insurance.

While the Indian economy continued its growth path the businesses in which the subsidiaries operate had its own share of challenges on account of market fragmentation, change in market mix, dramatic regulatory changes and the like.

Kotak Mahindra Prime Limited, the car finance company continues to have robust growth in lending coupled with fall in delinquencies. Kotak Securities Limited, the stock broking company continued to face adverse effects of changes in mix in market volumes shifting to the low-yield equity derivative segment. The company also continues to face competition in the market place due to continuous entry of new players. Kotak Mahindra Capital Company Limited had a relatively better year, thanks to handling primary issues. But nevertheless, the investment banking industry continues to face pressure. Kotak Mahindra Asset Management Company Limited faced an outflow of a large portion of liquid funds. Coupled with changes in regulations in the mutual fund industry it had to tweak its business strategy. Kotak Mahindra Old Mutual Life Insurance Limited had to deal with regulatory changes that changed the direction of the industry. Business strategy, product mix and management of costs had to be continuously worked upon to stay on course. Due to range bound secondary equity markets and net outflows in many India dedicated International funds, the International subsidiaries reported drop in profits.

The various activities of the subsidiaries are outlined in the Management Discussion and Analysis section appended to this Report.

In terms of the general exemption granted by the Central Government vide their General Circular No.2/2011 dated 8th February 2011 under Section 212(8) of the Companies Act, 1956, abridged Annual Report which consists of the financial statements of your Bank on standalone basis as well as consolidated financial statements of the group for the year ended 31st March 2011, have been sent to all the members of the Bank. It does not contain Annual Reports of the Banks subsidiary companies. The Bank will make available full Annual Report (including the Annual Reports of all subsidiaries) upon request by any member of the Bank. These Annual Reports will be available on the Banks website viz. URL : http://ir.kotak.com/annual-reports and will also be available for inspection by any member at the Registered Office of the Bank.

CORPORATE GOVERNANCE

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section entitled Corporate Governance has been included in this Annual Report. The Bank has implemented number of recommendations given in the "Corporate Governance Voluntary Guidelines 2009" by the Ministry of Corporate Affairs and is examining the possibility of implementing the remaining recommendations.

DIRECTORS

Mr. Asim Ghosh retires by rotation at the Twenty Sixth Annual General Meeting and is eligible for re-appointment.

Mr. Prakash Apte and Mr. Amit Desai were appointed with effect from 18th March 2011 and Mr. N.P. Sarda with effect from 1st April 2011 as Additional Directors of the Bank. Pursuant to the proviso to Section 260 of the Companies Act, 1956, they hold office as Directors up to the date of this Annual General Meeting but are eligible to be appointed as Directors. In terms of Section 257 of the Companies Act, 1956 the Bank has received notice in writing from members along with a requisite deposit of Rs. 500/- each proposing the candidature of Mr. Prakash Apte, Mr. Amit Desai and Mr. N. P. Sarda for their appointment as Directors.

Mr. Prakash Apte is presently the Non-Executive Chairman of Syngenta India Limited with considerable experience in agricultural sector. Mr. Amit Desai is an eminent professional with 30 years experience. Mr. N.P. Sarda is a Chartered Accountant for more than 40 years and past President of ICAI.

Mr. Anand Mahindra, Mr. Cyril Shroff and Mr. Shivaji Dam have retired as Directors of the Bank effective 21st March 2011 due to completion of their eight years tenure pursuant to the provisions of Section 10A(2A)(i) of the Banking Regulation Act, 1949. Your Directors place on record their appreciation for the valuable advice and guidance rendered by each one of them during their tenure as Directors of the Bank.

The Board of Directors of the Bank, at its meeting held on 5th May 2011, has re-appointed Mr. Uday Kotak as Whole-time Director of the Bank designated as Executive Vice-Chairman and Managing Director for a period from 22nd March 2012 to 31st December 2014, subject to the approval of the shareholders and of the Reserve Bank of India. Mr. Dipak Gupta and Mr. C. Jayaram have been re-appointed as Whole- time Directors of the Bank designated as Joint Managing Directors for a period from 1st January 2012 to 31st December 2014, subject to the approval of the shareholders and of the Reserve Bank of India. The approval of the shareholders in this regard is being sought at the ensuing Annual General Meeting of the Bank.

AUDITORS

Messrs S. R. Batliboi & Co., Chartered Accountants, auditors of your Bank, retire on the conclusion of Twenty Sixth Annual General Meeting.

Pursuant to the guidelines issued by the Reserve Bank of India, an audit firm is allowed to continue as the Statutory Central Auditor of a bank for a continuous period of four years only. Accordingly, it is proposed to appoint, subject to regulatory approvals, Messrs S. B. Billimoria & Co., Chartered Accountants as the statutory auditors of the Bank for the current financial year in place of Messrs S. R. Batliboi & Co. who have completed four years as the statutory auditors. The approval of the shareholders in this regard is being sought at the ensuing Annual General Meeting of the Bank.

STATUTORY INFORMATION

The Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1998, are not applicable to your Bank.

EMPLOYEES

The employee strength of your Bank along with its subsidiaries as of 31st March 2011 was around 20,500 as compared to around 20,000 employees a year ago.

The Bank standalone had around 11,000 employees as of 31st March 2011. 102 employees employed throughout the year and 23 employees employed for part of the year were in receipt of remuneration of Rs. 60 lacs or more per annum.

Your Bank was adjudged amongst Top 25 in Indias Best Companies to Work For in 2010 by The Great Places to Work Institute and continues to be amongst Top 25 Best Employers in India consistently from 2007 till date as adjudged by the AON Hewitt Best Employers Survey.

While your Bank and its subsidiaries continued to focus on various initiatives to provide the best employment experience to the employees, new and innovative products and processes were introduced to further enhance both quality and productivity of our human capital. Substantial investments were made in training and developing employees across levels to improve productivity, service quality, personal effectiveness and supervisory capability. Structured leadership development programs and customized courses in association with leading academic institutions were also rolled out to groom future leaders and build a talent pool that has depth in knowledge and competence.

The best in class Talent Management practices and HR processes have enabled the organization to build a cadre of highly committed and engaged employees who consistently excel in delivering our customer value proposition.

In accordance with the provisions of Section 217(2A) of the Companies Act, 1956 and the rules framed thereunder, the names and other particulars of employees are set out in the annexure to the Directors Report. In terms of the provisions of Section 219 (1)(b)(iv) of the Companies Act, 1956, the Directors Report is being sent to all the shareholders of the Bank excluding the aforesaid annexure. The annexure is available for inspection at the Registered Office of the Bank. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of the Bank.

DIRECTORS RESPONSIBILITY STATEMENT

The Directors, based on the representations received from the operational management, confirm in pursuance of Section 217 (2AA) of the Companies Act, 1956 that:

(i) your Bank has, in the preparation of the annual accounts for the year ended 31st March 2011, followed the applicable accounting standards along with proper explanations relating to material departures, if any;

(ii) they have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at 31st March 2011 and of the profit of your Bank for the financial year ended 31st March 2011;

(iii) they have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities; and

(iv) the annual accounts have been prepared on a going concern basis.

ACKNOWLEDGEMENTS

Your Directors would like to place on record their gratitude for the valuable guidance and support received from the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority and other Government and Regulatory agencies. Your Directors acknowledge the support of the shareholders and also wish to place on record their appreciation of employees for their commendable efforts, teamwork and professionalism.

For and on behalf of the Board of Directors

Dr. Shankar Acharya Place: Mumbai,

Chairman Date : 5th May 2011


Mar 31, 2010

The Directors present their Twenty Fifth Annual Report together with the audited accounts of your Bank for the year ended 31st March 2010.

FINANCIAL HIGHLIGHTS

(A) Kotak Mahindra Bank Limited - Consolidated financial highlights:

31st March 2010 31st March 2009 Rs. crore Rs. crore

Total income 10,053.30 7,218.27

Total expenditure, excluding provisions and contingencies 7,639.71 5,940.90

Operating Profit 2,413.59 1,277.37

Provisions and contingencies, excluding provision for tax 510.73 261.16

Profit before tax 1,902.86 1,016.21

Provision for taxes 575.50 363.53

Profit after tax 1,327.36 652.68

Less: Share of minority interest 18.00 3.73

Add: Share in Profit of Associates (2.36) 3.44

Consolidated Profit for the Group 1,307.00 652.39

Earnings per Equity Share

Basic (Rs.) 37.68 18.90

Diluted (Rs.) 37.28 18.87

(B) Kotak Mahindra Bank Limited - Standalone financial highlights:

31st March 2010 31st March 2009

Rs. crore Rs. crore

Total Income 3,883.86 3,338.77

Total expenditure, excluding provisions and contingencies 2,586.86 2,743.02

Operating Profit 1,297.00 595.75

Provisions and contingencies, excluding tax provisions 485.89 169.69

Profit before tax 811.11 426.06

Provision for taxes 250.00 149.96

Profit after tax 561.11 276.10

Add: Surplus brought forward from the previous year 648.94 528.17

Amount available for appropriation 1,210.05 804.27

Appropriations:

Statutory Reserve under Section 17 of the Banking Regulation Act, 1949 140.28 69.03

General Reserve 28.06 13.81

Transfer to Investment Reserve Account 1.19 41.70

Transfer to Capital Reserve 6.96 2.97

Transfer to Special Reserve 40.00 -

Proposed Dividend 29.66 25.96

Corporate Dividend Tax (2.01) 1.86

Surplus carried to Balance Sheet 965.91 648.94

DIVIDEND

Your Directors are pleased to recommend a dividend of Rs. 0.85 per share (previous year Rs. 0.75 per share), entailing a payout of Rs. 27.65 crore including dividend distribution tax (previous year Rs. 27.82 crore). The dividend would be paid to all the shareholders, whose names appear on the Register of Members/Benefcial Holders list on the Book Closure date.

CAPITAL

The Bank has a high Capital Adequacy Ratio (‘CAR). The CAR (under Basel II) as at 31st March 2010 was 18.35% with Tier I being 15.42%. At a consolidated level the CAR was 19.3% under Basel II.

During the year, your Bank has not issued any Capital under Tier II. As on 31st March 2010, outstanding Unsecured, Redeemable Non-Convertible, Subordinated Debt Bonds was Rs. 465.70 crore and outstanding Unsecured, Non-Convertible, Redeemable Debt Capital Instruments Upper Tier II stood at Rs. 338.05 crore.

SUB-DIVISION OF EQUITY SHARES

In order to facilitate more liquidity of your Banks Equity Shares in the stock markets and to make it affordable for the small investors to invest in the Equity Shares of your Bank, on the occasion of the 25th year of the organization, the Board of Directors of your Bank at its meeting held on 11th May 2010, has approved sub-division (stock-split) of each Equity Share having a face value of Rs.10 into two Equity Shares of face value of Rs. 5 each, subject to the approval of the shareholders at the forthcoming Annual General Meeting of your Bank and approval of all concerned regulatory/statutory authority(ies).

OPERATIONS

India has bounced back strongly on the backdrop of strong domestic demand and growth in almost all sectors of the economy. As the clouds of uncertainty moved away your Bank re-assessed its expansion plans on the Branch Banking Business and added 32 branches and 105 ATMs and ended the year with 249 Branches and 492 ATMs. The regulatory changes offering limited free usage of ATMs to customers across all ATMs of banks has helped, as your Bank has benefted by higher usage of the network. Your Bank is now present in 145 locations across the country. Your Bank added over half a million new customers this year.

The advantage of a growing network was clearly visible in the CASA growth rates, Asset Distribution, Mutual Fund & other equity products and Insurance penetration. Your Bank also saw a robust growth in transaction income which grew by over 100% compared to last financial year.

The strategy of your Bank of leveraging the Bank branches for distribution of asset products continued to improve quality of earnings by reducing acquisition costs and improving credit quality. The results in this area have been very heartening. The growth was spread across all products ranging from Home Loans, Personal Loans, Commercial Loans, Credit Cards, loans to small business and referrals for Car Loans.

A holistic proposition on Trade Services coupled with Credit facilities helped your Bank create a Profitable segment of customers. Your Bank also launched 2 commercial branches aimed at servicing the specifc needs of its trade customers.

In the Retail Institutional business your Bank received empanelment from some states and was able to add many reputed Trusts, Associations, Educational Institutions and Societies to its list of clients. The Corporate Salary Accounts business continued to add to its marquee clients across the country and has shown a steady growth in deposits.

Your Bank developed and launched customer centric product programs specifcally aimed at HNIs and NRIs. These product programs with its enhanced and enriched features make its unique offerings in the respective customer segments. Your Bank has also put in signifcant investment in technology to provide world class experience to these specifc customer segments. Your Bank successfully launched best in class, Private Banking System for its Privy League customers. A new micro site was created for this segment of customers. It has also successfully re-launched its upgraded site for Non Resident Indians. This website provides a compendium of information required by NRIs across banking and investment and loan products. Non Resident segment continues to be a major thrust area for the business. There has been a growth of 46% on the NRI deposits. Your Bank was also selected as a strategic partner to Overseas Indians Facilitation Centre an initiative of Ministry of Overseas Indian Affairs. Your Bank also operationalised its Representative Offce in Dubai.

On Investment Advisory side, this year saw the market volumes going through huge gyrations. The uncertainty among customers impacted distribution volumes for Mutual Fund and Insurance products. In spite of all these changes in the environment your Bank succeeded in growing its third party distribution volumes for Mutual Funds and Insurance. Your Bank continues to offer a best in class bouquet of investment products to its customers.

Several new products, features and services were added during the year. A lower variant current account product for the micro and small business enterprise was launched. Priority banking was extended to NRIs. All branches of your Bank were ASBA (Application Supported by Blocked Account) enabled. Your Bank was chosen as one of the few banks to accept applications under the New Pension Schemes. Your Bank now accepts NPS applications across 150 branches. Customized "One View page" and customized Net offers were launched based on each individual customers relationship with your Bank. In Phone Banking a new state of the art IP based call centre solution was installed this has helped in faster response rates to customer calls and optimizing call centre resources across multiple locations.

This year saw your Bank embarking on a journey to use "Service" as a differentiator in the highly competitive banking space. In line with this philosophy your Bank took big strides in improving Customer Satisfaction levels by raising its Service Quality standards. Implementation of world class CRM platform which began last year was successfully completed during the year. The benefts from such robust sales and service oriented Customer Relationship Program enables your Bank to strive for best in class sales productivity and high service standards. Coupled with this technology driven platform, your Bank also launched process driven program titled "SPIRIT" which focuses on quality and consistency for service delivery across all channels.

Focus on "transaction security" has always been at the centre while designing and implementing business solutions which encourages customer to use alternate channels like Net banking, ATMs, Mobile/SMS banking, Home banking etc. During the year, several improvements to existing features like, On line password generation, two factor authentication, improved features for security of fund transfers, PIN based IVR were introduced. A very fne balancing act between security and process controls vis-à-vis customer service is a critical aspect of this business and requires continuous evaluation of processes and features keeping in mind customer feedback.

As we move ahead, the primary focus for your Bank would be to ensure enhanced Customer Profitability by achieving better Cross Sales through well defned Customer Engagement Programs and Higher Service Quality Standards. Having emerged as the most critical distributor for the entire groups products across Liabilities, Assets and Investment products the business will continue to expand by adding more branches and drive productivity, effciency and through put across products, locations, channels and act as the one stop shop for all customers of the Group.

Your Bank continued its in depth coverage of large corporate and mid market corporate clients during the year. Your Bank was able to build signifcant franchise with many well known, reputed large corporate groups during this year while focusing on deepening existing clients through an array of customized offerings.

The year saw mixed trend in credit demand from the corporate and mid market business segments both for working capital and term facilities. The last quarter saw a surge in credit demand as compared to the earlier quarters. This is in keeping with the economic and corporate investment cycle. Your Bank was able to tap this opportunity and increase its share of business by offering a variety of products and services.

Trade Finance volumes grew by over 80% vis-à-vis last year. The fund based trade assets nearly doubled this year as compared to last year and the non fund based trade assets grew by around 60%. Your Banks dedicated team of trade fnance experts strives to provide structured solutions to suit to the customers needs. The in-depth understanding of the customers business and the superior delivery models has helped in achieving high levels of customer satisfaction.

Your Bank added 225 new cash management service customers during the year by offering them technology driven solutions to effectively enhance and optimize their cash fows and liquidity through an entire suite of CMS products and services. This has been made possible through constant innovation and a high degree of customization to cater to the dynamic and evolving industry scenario.

The Commercial Vehicle and Infrastructure sectors showed remarkable resilience to get back into the growth mode all through the year, picking up momentum on the way. This has resulted in higher than budgeted disbursement numbers and bottom line in the Commercial Vehicle and Infrastructure divisions. Freight rates and order book size have increased which has improved realisations consequent to better operator and contractor margins. GDP numbers and the emphasis on infrastructure as a policy measure should spur the growth in both these sectors, going forward. The businesses have been realigned to meet the growth demands both on the retail and strategic customer segments.

Despite the fear of a bad monsoon and a rising food prices infation, the Agri sector continued to show resilience in repayments. In this backdrop, the Agri business continued to show growth and crossed Rs. 3150 crores this year, up from Rs. 2365 crores in the last year, in the process crossing the required 18% of the Net Bank Credit stipulated by Reserve Bank of India for the frst time.

The focus of the Agri business continued in activities like Tractor loans, crop loans, agriculture project fnancing, working capital facilities to agriculture and agro processing facilities where it consolidated its presence in its existing markets. The Agri business also built up business volumes in fresh segments like gold loans and microfnance loans in the rural sector as part of the financial inclusion initiatives of your Bank.

The year started cautiously with declining demand in the Home Finance business, as the customer adopted a policy of wait and watch. However, post the stable election results the market received a boost. Your Bank has taken great strides in achieving robust sales and Profit numbers. Competitive pricing resulted in an upsurge in disbursements as compared to previous years. There was a major focus on Bank branches as a channel for sourcing Home Finance business.

In the Personal Finance business, there was an opportunity for lenders to capitalize on the latent loan demand in the market and focus on high-ticket products, with most lenders still being wary of the low-ticket unsecured segments. Collection effciencies showed an improved trend. Your Bank continued its stress on quality based underwriting for fresh bookings.

It has been a roller coaster year for the Asset Reconstruction business. The frst half of the financial year was challenging one in terms of resolution. However in the second half, with markets easing and several of the assets having been sold, substantial amount of recoveries were made. If the buoyancy in the market continues, your Bank hopes to recover substantial amount in the coming financial year, as well. Acquisition of new portfolio continued to be lukewarm, but the same is expected to improve in the coming financial year.

On Treasury side, your Bank has an active proprietary desk trading in all products such as Fixed Income, Money Markets, Derivatives, Foreign Exchange and Bullion. The Treasury plays an important role in balance sheet management and implementation of Funds Transfer Price between various business units. In the area of Debt Capital Markets (DCM) your Bank offered the following products: syndication of loans, bonds, mezzanine fnancing, promoter funding and acquisition fnancing and securitisation.

Your Bank launched credit card business and reached the milestone of 1 lac cards in the frst year of operations. The card design and product benefts have received overwhelming response from customers. The customer spends across all variants of cards have been amongst the top three in industry. This has reaffrmed the customer acceptability of the product. Credit Card business clocked Rs. 511 crore of total spends in the year with a book size of Rs. 281 crore. Industry credit cards spends growth rate has witnessed slowdown owing to current market conditions.

Your Bank entered into a Strategic arrangement with Bharti Group for their foray into the retail business along with Walmart to distribute Credit Card products in their retail outlets, targeting both individual and business users. This partnership opens up the opportunity to tap new markets and new customer segment hitherto untapped by your Bank. The card aimed at business users offers one of its kind 14-day credit free cycle that starts afresh on every purchase.

After consolidation of the data centers last year, the primary focus this year has been on facilitating "green energy" initiatives. As a part of this strategy a transformational project of "virtualizing" a majority of the servers in the data center, was executed. Thereby saving on power consumption and enabling redeployment of the existing servers for future expansion. There was continued focus on enhancement of customer experience across all channels. Interactions with Corporate customer applications were also enhanced. Innovative technology solutions were introduced to support new product offerings. As in the previous years, your Banks technology continued to be recognized for its excellence. Your Bank received awards for storage virtualization and e-Governance.

SUBSIDIARIES

Your Bank along with its subsidiaries offers complete financial solutions to its customers. The key business segments where the subsidiaries operate include investment banking, stock broking, car fnance, asset management and life insurance.

Due to improved business environment, the lending businesses have reported good Profits compared to last year. The life insurance subsidiary, Kotak Mahindra Old Mutual Life Insurance Limited has continued to report Profit. Kotak Mahindra Capital Company Limited, Kotak Mahindra Asset Management Company Limited, Kotak Securities Limited and the international subsidiaries posted higher Profits due to strong capital markets and the good domestic economic growth.

The various activities of the subsidiaries are outlined in the Management Discussion and Analysis section appended to this Report. In terms of the approval granted by the Central Government vide their letter dated 16th February 2010 under Section 212(8) of the Companies Act, 1956, abridged Annual Report which consists of the financial statements of your Bank on standalone basis as well as consolidated financial statements of the group for the year ended 31st March 2010, have been sent to all the members of the Bank. It does not contain Annual Reports of the Banks subsidiary companies. The Bank will make available full Annual Report (including the Annual Reports of all subsidiaries) upon request by any member of the Bank. These Annual Reports will be available on the Banks website and will also be available for inspection by any member at the Registered Offce of the Bank.

EMPLOYEE STOCK OPTION SCHEME

The stock options granted to the employees currently operate under two schemes, namely Kotak Mahindra Equity Option Scheme 2005 ("Scheme 2005") and Kotak Mahindra Equity Option Scheme 2007 (Scheme 2007). The disclosures below are in respect of the year ended 31st March 2010.

Options granted during the year Scheme 2005 - Nil

Scheme 2007 - 1,53,020 options

Pricing Formula ESOP Scheme 2005 & 2007 - The Exercise Price shall be a price, as may be determined by the Board/ESOP/ Compensation Committee, equivalent to or discounted up to 50% of the Average Market Price. The Average Market Price for this purpose would mean the average of the closing price of Equity Shares of the Bank, during two weeks period prior to the date of the meeting of Board/ESOP/Compen sation Committee at which Plan Series under the Scheme is approved, on the Stock Exchange, where there was highest trading volume during the said two week period, on which the Equity Shares of the Bank are listed.

Plan Series means a documented plan framed by Board/ESOP/Compensation Committee for each tranche of grant of Options, to all Eligible Employees, at a specifc Exercise Price (which is determined by the Board/ESOP/Compensation Committee for the purpose of that particular Plan Series) and other terms and conditions as mentioned in that Plan Series.

The Board/ESOP/Compensation Committee under special circumstances decides that the Exercise Price shall be Rs. 10/- per share. In such cases, the immediately succeeding Directors Report/Corporate Governance Report shall carry details of the same.

Options in force at the beginning of the year Scheme 2005 - 33,79,670 options

Scheme 2007 - 84,77,297 options

Options Vested during the year Scheme 2005 - 5,77,320 options

Scheme 2007 - 20,66,136 options

Options exercised during the year Scheme 2005 - 7,19,750 options

Scheme 2007 - 17,52,868 options

Total number of shares arising as a result of exercise Scheme 2005 - 7,19,750 equity shares of Rs. 10/- each

of options Scheme 2007 - 17,52,868 equity shares of Rs. 10/- each

Options lapsed Scheme 2005 - 1,65,620 options

Scheme 2007 - 4,70,324 options

Variation of terms of options No variations made in the terms of the options granted except in respect of Scheme 2005 with respect to recovery from the relevant eligible employees, the Fringe Beneft Tax on exercise of options as permitted by regulations.

Money realized by exercise of options Exercise amount received:

Scheme 2005 - Rs. 13,20,87,500/-

Scheme 2007 - Rs. 60,66,21,265/-

Total number of options in force Scheme 2005 - Outstanding options - 24,94,300

Scheme 2007 - Outstanding options - 64,07,125

Details of options granted during the year to Nil

(i) Senior management personnel

(ii) Any other employee who receives a grant in any Nil one year of options amounting to 5% or more of options granted during that year

(iii) Identifed emplo yees who were granted option, Nil during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conver sions) of the Company at the time of grant

Diluted Earnings Per Share (EPS) pursuant to issue of *The diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of shares on exercise of options calculated in accordance options calculated in accordance with AS20 is Rs. 37.28 (Consolidated) and with AS-20 Earnings Per Share Rs. 16.00 (Standalone).

Where the company has calculated the employee *Had the Bank (Consolidated) followed the fair value method for accounting the

compensation cost using the intrinsic value of stock stock option compensation expense would have been higher by Rs. 43.41 crore

options, the difference between the employee with consequent lower Consolidated Profits. On account of the same the diluted

compensation cost so computed and the employee EPS of the Bank (Consolidated) would have been less by Rs. 0.82 per share.

compensation cost that shall have been recogn ized if it had used the fair value of the opti ons, shall be disclosed. The impact of this difference on Profits and on EPS of the Company shall also be disclosed.

Weighted - average exercise prices and weighted *The weighted average price of the stock options exercised is Rs. 298.75 and the

- average fair values of options shall be disclosed weighted average fair value is Rs. 262.29.

separately for options whose exercise price either equals or exc eeds or is less than the market price of the stock.

*Note: Above fgures are derived by considering the options granted and exercised by employees of the Bank and its subsidiaries.

A description of the method and signifcant assumptions used during the year to estimate the fair values of options, including the following weighted – average information:

A. Stock price

It is the closing market price on the National Stock Exchange of India Limited prior to the meeting of the Board in which the options are granted.

B. Volatility

Volatility is a measure of the amount by which a price has fuctuated or is expected to fuctuate during a period. The measure of volatility used in the Black-Scholes option-pricing model is the annualized standard deviation of the continuously compounded rates of return on the stock over a period of time.

Accordingly, daily volatility of the Banks stock price on the NSE for the period corresponding to the respective expected live of the different vests, prior to the grant date has been considered.

C. Risk free interest rate

The risk-free interest rate being considered for the calculation is the interest rate applicable for maturity equal to the expected life of the options based on the zero-coupon yield curve for Government Securities as on the date of the respective grant.

D. Time to Maturity/Expected Life of options

The minimum life of a stock option is the vesting period and the maximum life is vesting period plus the exercise period. The Expected life of the options has been calculated as the average of the two extremes – the minimum life and the maximum life. Since each vest has been considered as a separate grant, the expected life has been calculated for each vest separately.

E. Dividend yield

The dividend yield for each grant has been derived by dividing the dividend per share by the market price per share.

Weighted average information in respect of above assumptions has been provided in note 12 of Schedule 17 of the notes to accounts to the consolidated financial statement of the Bank.

CORPORATE GOVERNANCE

Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section entitled ‘Corporate Governance has been included in this Annual Report. The Bank has implemented number of recommendations given in the "Corporate Governance Voluntary Guidelines 2009" by the Ministry of Corporate Affairs and is examining the possibility of implementing the remaining recommendations.

DIRECTORS

Mr. Shishir Bajaj resigned as a Director of the Bank with effect from 26th October 2009. Your Directors place on record their appreciation for the valuable advice and guidance rendered by Mr. Bajaj during his tenure as a Director of the Bank.

Mr. Anand Mahindra and Mr. Cyril Shroff, Directors of the Bank retire by rotation at the Twenty Fifth Annual General Meeting and are eligible for re-appointment.

Dr. Sudipto Mundle was appointed as an Additional Director of the Bank with effect from 27th October 2009 and, pursuant to the proviso to Section 260 of the Companies Act, 1956, holds offce as a Director up to the date of this Annual General Meeting but is eligible to be appointed as a Director. In terms of Section 257 of the Companies Act, 1956 the Bank has received notice in writing from a member along with a requisite deposit of Rs. 500/- proposing the candidature of Dr. Sudipto Mundle for his appointment as a Director.

Dr. Sudipto Mundle, a Ph. D in Economics was a Director in the Strategy & Policy Department, Asian Development Bank. He is an Emeritus Professor (Hon.) at National Institute of Public Finance and Policy, a Member of the National Statistical Commission, and President of PREETI Foundation. In his earlier career, Dr. Mundle was Reserve Bank of India Chair Professor at the National Institute of Public Finance and Policy, New Delhi and served in other academic institutions including the Indian Institute of Management, Ahmedabad and Centre for Development Studies, Trivandrum. He was also an Economic Adviser in the Ministry of Finance. Dr. Mundle has extensive experience in economic work and provision of development assistance, including projects and policy loans for agriculture, infrastructure, including irrigation, fnance, education and health, technical assistance, and regional cooperation assistance in many countries in Asia.

AUDITORS

Messrs S. R. Batliboi & Co., Chartered Accountants, auditors of your Bank, retire on the conclusion of Twenty Fifth Annual General Meeting and are eligible for re-appointment. You are requested to appoint auditors for the current financial year and to fx their remuneration.

STATUTORY INFORMATION

The Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1998, are not applicable to your Bank.

EMPLOYEES

The employee strength of your Bank along with its subsidiaries as of 31st March 2010 was around 20,000 as compared to around 18,000 employees a year ago.

The Bank standalone had around 8,800 employees as of 31st March 2010. 224 employees employed throughout the year and 36 employees employed for part of the year were in receipt of remuneration of Rs. 24 lacs or more per annum.

Your Bank has in place policies relating to employee service conditions, welfare and training which are reviewed on an ongoing basis by your Banks Management Committee.

Your Bank continues to focus on training its employees on a continuing basis by deputation to reputed training institutions by holding workshops on various areas including Regulatory Compliance, Risk Management, Customer Care and Communication, Trade Finance, Foreign Exchange Rules and Treasury.

In accordance with the provisions of Section 217(2A) of the Companies Act, 1956 and the rules framed thereunder, the names and other particulars of employees are set out in the annexure to the Directors Report. In terms of the provisions of Section 219 (1)(b)(iv) of the Companies Act, 1956, the Directors Report is being sent to all the shareholders of the Bank excluding the aforesaid annexure. The annexure is available for inspection at the Registered Offce of the Bank. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Offce of the Bank.

DIRECTORS RESPONSIBILITY STATEMENT

The Directors, based on the representations received from the operational management, confrm in pursuance of Section 217 (2AA) of the Companies Act, 1956 that:

(i) your Bank has, in the preparation of the annual accounts for the year ended 31st March 2010, followed the applicable accounting standards along with proper explanations relating to material departures, if any;

(ii) they have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at 31st March 2010 and of the Profit of your Bank for the financial year ended 31st March 2010;

(iii) they have taken proper and suffcient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities; and

(iv) the annual accounts have been prepared on a going concern basis.

ACKNOWLEDGEMENTS

Your Directors would like to place on record their gratitude for the valuable guidance and support received from the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority and other Government and Regulatory agencies. Your Directors acknowledge the support of the shareholders and also wish to place on record their appreciation of employees for their commendable efforts, teamwork and professionalism.

For and on behalf of the Board of Directors

Dr. Shankar Acharya

Place : Mumbai,

Chairman Date : 11th May 2010