Speech delivered by Shri K. V. Kamath,Chairman of the Sixth Annual General Meeting held at Vadodara on Monday, May 29, 2000

Ladies and Gentlemen,

I thank you for electing me to chair the proceedings of this meeting. On behalf of the Board of Directors, it gives me immense pleasure to welcome you to the Bank's Sixth Annual General Meeting : the first in the New Millennium. The hall where this meeting is being held has recently been renovated. The venue provides us with good ambience to conduct this meeting and I trust that you would find it quite pleasant and comfortable.

The Annual Report containing the Report of the Directors, the Management Discussion and Analysis, the Report of the Statutory Auditors and the annual accounts for the year ended March 31, 2000 was sent to all shareholders and has been with you for some time. Various disclosures made in the Annual Report highlight our endeavour to bring about greater transparency and in presentation of accounts to our Members. As good corporate governance, we have also furnished a wealth of information for the guidance of our shareholders. With your kind permission, I will take them as read. For the first time, we have also published the annual accounts drawn up as per the United States Generally Accepted Accounting Principles (US GAAP).

Before taking up the Agenda of the meeting, let me briefly recall the highlights of the Bank's performance during Fiscal 2000 and look at the prospects for the current fiscal.

American Depositary Shares

The Members may recall that, at the extra-ordinary general meeting held on February 21, 2000, they had approved issuance of further capital by the Bank. Today, I am extremely happy to state that the Bank successfully completed the fresh issue of capital on March 31, 2000. The Bank was the first from India to tap the international market for its American Depositary Shares (ADSs). You will find it heartening that a record of sort has been created by your Bank to have completed the entire process of raising capital from international market in just 64 days. It really makes all of us proud.

The issue generated very good response both from institutional investors as well as retail from Europe, North America and S. E. Asia and an overall book of USD 2.2 billion was built in a short time of one week. Almost one-third of the book was from retail investors. The ADSs priced at USD 11 with underlying two equity shares were listed at the New York Stock Exchange (NYSE) on March 28, 2000 : the first from any bank or financial institution to list on the NYSE in the new millennium. The first deal was struck on that date at USD 14, which was at 27 per cent premium to the issue price. The investors' interest continues - indicating the inherent strength of the Bank as evidenced by the fact that despite all round fall in prices both at the NYSE and at the NASDAQ, the Bank's ADSs, have been quoted consistently at a premium of about 35 to 50 per cent to their issue price. Currently, the Bank's ADSs are traded at around USD 15.

Bank's share price movements and Market Capitalisation in India

Even in the domestic markets, the shares of the Bank have found a lot of buying interest. The price of the Bank's share, which was range-bound around Rs. 25 to Rs. 30 in April 1999 has moved up to touch a peak level of Rs. 275 in March 2000. The share is currently quoted in the range of Rs. 205 - Rs. 215. Even at this price, the PE multiple works out to 32, which compares well with the average PE multiple of about 12 in the banking industry. The market capitalisation correspondingly moved up substantially from Rs. 450 crores as at March 31, 1999 to over Rs. 5,000 crores on March 31, 2000, thereby adding to the shareholders' value.

Dividend

In view of the good results posted by the Bank during the year, the Board of Directors has recommended stepping up of the rate of dividend from 12 to 15 per cent for 1999-2000. I am confident that the Members will approve the Board's recommendation.

The underlying 3,18,18,180 equity shares issued in respect of the ADSs issued by the Bank will, however, not be entitled for the dividend for the year ended March 31, 2000 in terms of the issue prospectus.

Performance of the Bank

During 1999-2000 the Bank recorded substantial progress in all areas of its operations. The deposits level of Rs. 9,866 crores and loan book of Rs. 4,417 crores as at March 31, 2000 have placed the Bank in a leadership position amongst new generation private sector banks. The Bank's share in the incremental growth in deposits and advances of the banking industry during the year worked out to about three per cent each. The net profit of the Bank at Rs. 105 crores, after providing for all required provisions, showed an incremental growth of 66 per cent.

The expansion of both 'clicks and brick' in the form of branches and internet accounts during the year had been unprecedented. The Bank set up additional 26 branches, 7 extension counters and more than 100 ATM centres. The Internet based Infinity accounts zoomed in numbers from about 4,000 accounts at the beginning of 1999-2000 to cross one lakh mark by March 31, 2000. Besides these, a number of innovative products were introduced. A few of them are : Corporate-Infinity product to assist corporates to track their accounts and perform most of the routine banking transactions ; payment of utility bills through the Internet ; on-line account opening for non resident Indians (NRIs) ; Call Centres to facilitate telephone banking for customers convenience ; Internet-based Credit Cards in association with VISA International - the Card is accepted for transactions by about 1,10,000 merchant establishments in India and in Nepal and at over 18 million establishments all over the world ; electronic Bill Presentment and Payment services in association with Infosys Technologies Limited ; tie up with mutual funds to enable customers and investors to invest in and as well as redeem their investment in mutual funds, through the branches of the Bank ; and at the year end structured and operationalised an unique Internet-based banking product 'bank@campus' specifically tailor-made to suit the requirements of college students ; and for kids a special savings product under the brand name 'Kid-e Bank Account' to inculcate banking habits at a young age, while helping them to learn to handle computers and become familiar with Internet. The recent tie-ups so far during this year include arrangements with Ford India for purchase of their cars by NRIs for gifting to their residents or relatives in India through the Bank's Infinity account and also an on-line shopping which is facilitated through the tie up with Rediff.com.

In all these initiatives, the Bank along with the ICICI group made full use of business applications provided by modern technology to offer its customers facilities of e-commerce. Increasingly, banking operations were web-enabled to provide ease of access and operations to customers. The Bank operationalised its B2B and B2C solutions, which have quickly caught on with the customers.

The word 'wireless' with which we are familiar has begun to be put to uses that are more commercial. The Wireless Application Protocol (WAP) will usher in a new era and come to be used in a large way for business transactions in future. The Bank has commenced using WAP technology and towards this end has tied up with cellular telephone companies for providing mobile banking services to customers.

While we achieved rapid growth in our business, we maintained a careful watch on the health of our assets. We have tempered our progress with prudence, which we believe is our hallmark. In this respect, the Risk Management Department in the Bank continuously monitors various risks that are inherent in the system and which the Bank is exposed to, like any other banks. The department, under the supervision of the Audit and Risk Management Committee of the Board and the CEO has put in place the time tested credit rating module and other risk mitigating measures, including those arising out of operational risks. These are constantly being reviewed and fine-tuned to meet the need for increasing the risk cover as volumes build up.

The Bank keeps itself abreast of all commercially viable opportunities available to it and has successfully tapped such business opportunities. This, we believe has added to the shareholders' wealth, as reflected in the market perception of the Bank's stock.

It would be our endeavour to continue working with the same tempo with which we had worked during the preceding year, bringing to our customers added value products and making life much more simpler and easier while they undertake everyday banking transactions for both business and personal purposes.

Employees Stock Option Scheme

The progress of the Bank in a short period of six years would not have been possible without the dedication of staff members of the Bank and the team spirit displayed by staff of both the Bank and ICICI. The Bank has ensured that all its employees are given adequate training. During 1999-2000, on an average 37 hours of training was given to employees, which compares well with the best globally. The pay scales of employees were recently rationalised to align them with the levels of remuneration of a few of the comparable banks.

Further, in order to attract talent and motivate its staff, the Bank has introduced an Employee Stock Option Scheme. The Scheme drawn up in accordance with the guidelines prescribed by the Securities and Exchange Board of India (SEBI) has been implemented effective February 21, 2000. In all 17,13,000 stock options have been granted to 426 employees and Directors of the bank and ICICI Limited. Of these, 3 senior managerial personnel of the Bank were granted 81,250 stock options.

The list, which may be treated as part of the Report of the Directors, giving details of stock options granted to senior managerial personnel as also the certificate of the Statutory Auditors, subject to above reference, on the Employee Stock Option Scheme as required under the guidelines of SEBI is available for inspection by the Members. These are available for perusal at this venue with the Company Secretary and the copies are available at the Registered Office for perusal by the Members during the business hours on all working days.

The current year being the first in which the stock option scheme was implemented, there have been no instances of vesting of stock options, exercise of stock options for conversion to the underlying equity shares, lapse of stocks option due to passage of time, variation of terms in the Scheme, etc., since its introduction. No employee or director has been give stock options amounting to 5 per cent or more of the options granted during the year. Further, no employee or director has been granted stock options equal to or exceeding 1 per cent of the issued capital of the Bank at the time of grant of stock options.

Corporate Governance

The Bank is committed to follow the tenets of good corporate governance. Right from its inception, the Bank has assiduously practised good governance. It has set up among other committees of the Board, a Compensation Committee which looks into and recommends to the Board the amount of compensation payable to the executive directors, the fees payable to other directors and framing the internal guidelines for and management of the employee stock option scheme. The Nomination Committee reviews the functioning of the members of the Board. The Audit and Risk Committee reviews and monitors audit of branches and overall systems and procedures. The Committee also monitors periodically risk management measures to control risks like market risks, operational risks, liquidity risks, etc.

Exemption of certain branches from yearly audit

Members may recall that they had approved at the last Annual General Meeting in terms of Section 228 of the Companies Act, 1956, the proposal of the Bank to seek exemption of certain branches from yearly audit.

The Bank has since received the approval of the Government of India exempting 19 of its branches which had in their books outstanding total advances amounting to Rs. 1.00 crore or less, per branch from the purview of yearly audit. As required in terms of the approval of the Government, the Order exempting these branches would be read out at this meeting. With the net work of branches and extension counters increasing to 97 during 1999-2000, we are contemplating seeking approval of the government for including additional branches to the above list of 19 branches. I may assure the Members that satisfactory arrangements are made for the scrutiny and checking of accounts of these branches at regular intervals, by responsible persons who are competent to scrutinise and check accounts and also that these branches would be subject to audit at least once in a period of three years.

The Future

The Indian economy was quite clearly on the upward path as evidenced by an expected growth of around 5.9 per cent in 1999 - 2000. This was brought about mainly by a high growth rate in the industrial sector of 8 per cent compared with just 3.9 per cent in 1998-99. This growth came under stable inflationary conditions with the Wholesale Price Index increasing by a mere 3.1 per cent in 1999-2000 as against 5.9 per cent in 1998-99. The higher growth in the industrial sector was supported by an increase of 21.9 per cent in bank credit.

It is estimated that the Indian economy would grow by 6.5 to 7 per cent in 2000-2001, which has to be supported by a growth rate of at least 8 per cent in the industrial sector (on a higher base of 1999-2000). The Reserve Bank of India has provided the right impulses, on April 1, 2000 itself, to propel the economy further in 2000-2001 by reducing the Cash Reserve Ratio and Bank Rate by 1 percentage point each, which has helped in lowering interest rates by 50200 basis points.

However, with growing competition with other savings instruments, especially mutual funds, there would be pressure on the supply of funds for banks. Demand for funds, on the other hand, would be higher because of increased needs of the industrial sector as well as of the government (whose expected borrowings are close to Rs. 117 billion). Therefore, there could be some pressure on liquidity, and interest rates during the second half of the year. Inflation too has already started rising to a 73-week high of 6.3 per cent as on May 6, 2000. Further, with closer integration into the world economy, with the process of globalisation, we need to monitor the developments taking place elsewhere apart from those within the country. The recent decision of the Federal Reserve of New York to raise interest rates is also indicative of interest rates rising in the rest of the world.

We, in India and more particularly banks like ours, cannot afford to ignore these changes. There is, therefore, some compulsion to think hard on these issues. The future would continue to be dynamic, vibrant, competitive and challenging to banks.

Banking and payment systems are expected to grow rapidly in the years to come. Thanks to the straight through processing facilitated by technology, banks like ours which have leveraged advanced banking technology for their activities are expected to garner much of this business flows. Further banks that are able to sense the direction of changes and attune their business processes in the right direction, stand to post good results and surge ahead. We are confident that, with our expertise that we have built so far, we would be able to steer clear and take advantages of many emerging opportunities that the environment is likely to provide.

Acknowledgement

Our customers, shareholders, correspondent banks, service providers, regulatory authorities, staff, the investing community, ICICI and other group companies continue to be sources of strength to the Bank. They have at all times encouraged us, extended their support and added to the stature of the bank. The Bank has greatly benefited by their association, which has helped us to scale greater heights in the banking horizon.

I thank you for giving me a patient hearing.

With these words, I now proceed to take up the Agenda of the Meeting. I trust that the Members would, as usual, extend their wholehearted support in approving the business before this meeting.

Note : This does not purport to be the complete proceedings at the Annual General Meeting