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SBI INTERNATIONAL (MAURITIUS) LTDANNUAL REPORT AND FINANCIAL STATEMENTS 31 MARCH 2008

CONTENTS PAGES

ANNUAL REPORT 2 - 4

MANAGEMENT DISCUSSION AND ANALYSIS 5 – 20

STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING 21

SECRETARY’S REPORT TO THE MEMBERS 22

AUDITORS’ REPORT 23

BALANCE SHEET 24

INCOME STATEMENT 25

STATEMENT OF CHANGES IN EQUITY 26

CASH FLOW STATEMENT 27

NOTES TO THE FINANCIAL STATEMENTS 28 - 53

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SBI INTERNATIONAL (MAURITIUS) LTDANNUAL REPORT

The Directors present their Annual Report and the audited financial statements of SBI International (Mauritius) Ltd ("the Bank") for the year ended 31 March 2008.

INCORPORATION AND PRINCIPAL ACTIVITYThe Bank is incorporated in Mauritius under the Mauritius Companies Act 2001. Its registered office address is 7th Floor, Harbour Front Building, President John Kennedy Street, Port Louis. The principal activity of the bank is international banking. The Bank is a single office bank with no subsidiary or branch and having no shareholding or interest in any other company.

GOING CONCERNThe directors confirm that they are satisfied that the Bank has adequate resources to continue in business for the foreseeable future and hence, they continue to adopt the ‘going concern’ basis for preparing the accounts.

RESULTS AND DIVIDENDThe Bank’s results and the financial statements for the year ended 31 March 2008 are set out on page 24 to 53. The Auditor’s report on these financial statements is on page 23. The operating profit of the Bank, before provisions and taxes grew by 116.71% to reach a level of USD 6.744 million. The net income available to shareholders grew by 102.19% and stood at USD 5.455 million. The directors are proposing to recommend a dividend of USD1.5 million at 9.23% for the current year at the forthcoming Annual Meeting.

GUIDELINE ON PUBLIC DISCLOSURE OF INFORMATIONThe financial statements have been prepared in accordance with the Guideline on Public Disclosure of Information issued by the Bank of Mauritius. As the segment ‘A’ business is not significant in relation to the entire business of the Bank, segmental information has not been provided in accordance with the exemption provided under the Guideline on Segmental Reporting under a Single Banking Licence Regime.

SHARE CAPITALDuring the year, the stated capital of the Bank was increased by USD 15 Mio by issuing 100,000 shares of face value USD 62.50 each, at a premium of USD 87.50 per share. As at 31 March 2008, both the authorised and issued share capital of the Bank was at a level of USD 25 million. 98% of the share capital is held by the State Bank of India and the remaining 2% is held by the State Investment Corporation Ltd, Mauritius.

STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTSMauritius Companies Act 2001 requires the Directors to prepare financial statements for each financial year which present fairly the financial position of the Bank, its financial performance and cash flows. In preparing those financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;• make judgements and estimates that are reasonable and prudent;• state whether International Financial Reporting Standards have been followed, subject to any material

departures disclosed and explained in the financial statements; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that

the Bank will continue in business.

The Directors confirm that they have complied with the above requirements in preparing the financial statements. The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Bank and to enable them to ensure that the financial statements comply with the Mauritius Companies Act 2001. They are also responsible for safeguarding the assets of the Bank and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

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DIRECTORS AND DIRECTORS’ REMUNERATION

The Directors of the Bank from 01 April 2007 to 31 March 2008 were:

Non-Executive

Mr S K Hariharan (Chairman)Mr K Sitaramam (From 28th December 2007)Mr T C A Ranganathan (From 24th October 2007)Mr Yogesh Agarwal (From 28th February 2007 to 25th September 2007)Mr Madhukarlall BaguantMr Couldip Basanta Lala

Executive

Mr Venkatraman Srinivasan (Managing Director)

The salaries and benefits paid to the Executive Directors and the fees paid to the Non-Executive local Directors during the year are as disclosed in the notes to the Financial Statements. Except for the salary and perquisites paid to the Executive Directors as full time employees, no other bonuses are payable to them.

The Directors who served the Bank’s Board during the year had no personal interest in the capital of the Bank at anytime. It is also noted that no Director of the Bank had at any point of time any personal interest in any loan proposal or any other business of the Bank and did not derive any direct or indirect benefit to themselves there from.

SERVICE CONTRACTS

Mr Srinivasan is on secondment from State Bank of Travancore, an associate bank of the parent bank i.e. State Bank of India, and his posting is for a period of three years commencing from 17th November 2006.

COMMITTEESExecutive CommitteeSupplementing the Board, the Bank also has an Executive Committee which meets regularly, to discuss and review emerging issues related to business and general matters. It consists of the two independent local Directors and the Managing Director. It reviews the performance of the Bank at frequent intervals, with special emphasis on achievement of the Budgeted goals, follow up of non-performing loans, steps for cost control etc. The minutes of the meetings are perused by the Board.

Audit CommitteeThe audit committee of the Board comprises the two independent directors of the Bank. The committee meets at least four times in a year corresponding to the reporting of the banks quarterly results and reviews the financial statements before they are approved by the Board. The Audit Committee also reviews the effectiveness of internal audit and also compliance of the Bank with the relevant rules and regulations, at periodic intervals.

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STATEMENT OF CORPORATE GOVERNANCE PRACTICES

The Directors have adopted and will continue to adopt the best international practices in the governance of the Bank.

Of the directors, only the Managing Director is directly engaged in the day to day management of the Bank. There exists a clear cut demarcation of functions and responsibility between the Management and the Board and the functioning of the Board is demonstrably independent of the Management. There are two sub-committees of the Board, namely, the Executive Committee and the Audit Committee to supplement the Board’s functions. The Managing Director and the senior officials are responsible for the day to day management of the Bank. There exists a clear cut delegation of financial powers and responsibility to the different levels of Senior Management.

MANAGEMENT DISCUSSION AND ANALYSIS

GLOBAL ECONOMY

At the beginning of 2007, the economic mood was generally positive. Risk premiums were at historic low levels and the general perception pointed to another year of continued strong global economic growth. However the conditions in the financial markets took a U-turn after four years of robust GDP and trade growth, steadily increasing commodity prices, low bond market spreads, gradually changing interest rates and relatively stable exchange rates. The collapse of the sub-prime mortgage market, a critical segment of the US mortgage business, was the trigger point of the current systemic crisis which eventually led to a housing recession and liquidity crunch in the financial markets during the second half of 2007. The sudden onset of the liquidity crunch and overnight changes in the risk perceptions adversely affected the financial stability, threatening the viability of smaller financial institutions even in well regulated markets like Germany and UK. The US Federal Reserve has projected losses of USD 150 billion which are directly related to sub-prime crisis. In addition to the above, the third challenge to the global economy was thrown by the rising price of oil, which in dollar terms rose to an all time high, close to the inflation-adjusted peak of early 1980s. In short, uncertainty and extreme volatility was the name of the game in the global economy during 2007.

The impact of the increased turbulence in the equity markets, commodity prices and exchange rates has been, hitherto, relatively limited on developing countries. Aggregate growth in developing countries continues to be strong mainly because of strong domestic momentum in most of them, and is partially offsetting weaker US domestic demand, which is now expected to remain subdued well into 2008. World growth eased from 3.9% in 2006 to 3.6% in 2007, with the slowdown led by members of the Organisation for Economic Co-operation and Development (OECD). The growth of United States slowed down from 2.9% in 2006 to 2.2% in 2007 on account of weakening housing market and credit squeeze. However, the developing countries grew by a healthy 7.4% in 2007 against 7.5% in 2006 led by the growth recorded by China and India. If these two countries are excluded, activity in low and middle income countries slipped by 0.2% to 5.7% in the year. The growth in Euro community and Japan was 2.7% and 2% respectively in 2007, as against 2.8% and 2.2% in the previous year. The growth outlook has been estimated to moderate across all regions of the world during 2008 by the World Bank. While the weak domestic demand will keep the US growth below 2% during 2008, the growth in Europe and Japan will ease to 2.1% and 1.8% due to currency appreciation. OECD import demand is projected to slide from 6.8% in 2007 to 5.4% during 2008, slowing export growth in developing countries by a point to 11% and reducing their growth to 7.1%. The OECD countries are expected to recover during the course of 2009 as stability in financial markets would help revive the consumer and business confidence.

INDIAN ECONOMY

The affairs of Indian economy will continue to have a bearing on the performance of the Bank since a majority of the Bank’s assets are India based. After an impressive 9.6 per cent GDP growth in 2006-07, the Indian economy is headed towards 8.7 per cent growth in the current fiscal as per the economic survey. Both, the agriculture and manufacturing activity are expected to fall from 3.8% and 12% during 2006-07 to 2.6% and 9.4% respectively during 2007-08. Indian exports and imports stood at USD 115.08 billion and USD 181.63 billion respectively during the first three quarters of 2007-08 registering a growth of 24.6% and 27.3% respectively over the corresponding period of previous year. The forex reserves of India continue to rise and were at USD 309.16 billion as on 28/03/2008 as against USD 199.18 billion as on 30/03/2007. India has been relatively immune to the US credit woes till now but high interest rates, rising oil prices, widening trade deficit and a strong rupee might still put a spoke in the wheel of India’s phenomenal growth recorded during the last few years. Further, the US downturn can take the wind out of the sails of Indian exports. Standard & Poor’s outlook on India puts its growth in the range of 8.1%-8.6% for the current fiscal. Despite the above factors Indian economy will still be the fastest growing major economy after China. However, the Indian government should rein in the rising inflation and revive investors’ falling confidence in the equity market to keep itself on the high growth trajectory due to steep increase in food prices.

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MAURITIAN ECONOMY

Mauritian economy has grown by 5.6% in 2007 as per the National Accounts Estimates. Exclusive of sugar, the growth rate was 6.3%. The growth has been mainly propelled by the construction activity on the island though the manufacturing activity and agriculture, fishing sectors have slowed down. The economy is expected to grow by around 6% in 2008 with sugar sector expected to rebound by 18% after a decline of 12.8% in 2007. Total exports for the year 2007 amounted to MUR 69,482 million and imports at MUR 121,081 million resulting into a trade deficit of MUR 51,599 Million, which is 24.4% higher than the previous year figure. India with a share of 21.2%, emerged as the number one trade partner of Mauritius in imports as it became the main supplier of petroleum products. UK with a share of 33.8% was the topmost export destination for the country. The investments, exclusive of investment on aircraft, have grown to 12.1% in 2007 as compared to 5.6% in 2006. The private sector forms the bulk of the share in investments and its share has gone up from 68.3% in 2006 to 77.3% in 2007. The private sector participation has increased mainly due to investment in hotels and Integrated Resort Scheme (IRS) Projects. Notwithstanding the above, high rate of inflation and abrupt currency movements remained the sore points of the Mauritian economy. While, the rate of inflation continued to be high at 8.8% during 2007, the Rupee appreciated by more than 25% against dollar during the last one year.

On the regulatory front, Bank of Mauritius, the Central Bank and the regulator, launched the Monetary Policy Committee in April 2007, which was granted enough powers for the formulation of the Monetary Policy. The committee met at periodic intervals and decided on the key repo rate.

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Performance of the Bank

1.1 Highlights of Performance(Amount in USD Millions)

FOR THE YEAR 2007-08 2006-07 Change (%)Total Income 6.631 3.893 70.33Total Expenditure 0.897 0.995 (9.85)Net Profit 5.455 2.698 102.19Earnings per Share (Weighted) (USD)

31.46 16.86 24.44

Return on Average Assets (%) 1.54 1.31 17.56Return on Equity (%) 13.11 11.91 10.08

As on 31st March 2008 2007 Change (%)Shareholder’s Equity 41.617 22.662 83.64Deposits 292.326 120.022 143.56Advances 283.874 113.189 150.80Total Assets 430.018 259.328 65.82Capital Adequacy (%) 15.10% 14.69% 2.79

The profit before taxes and provision grew by 116.71 % to USD 6.744 Million from last year’s level of USD 3.112 Million. The Net Profit at USD 5.455 Million, however, registered a growth of 102.19% over last year. While the Return on Equity rose to 13.11% from last years 11.91%, the Return on Average Assets maintained its rising trend and improved further to 1.54% from 1.31% as of last year.

Figure 1: Profitability Table

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(Amount in USD Millions)Areas of Performance 2007-08 2006-07 2005-06

Operating Income 6.631 3.893 3.493Operating Expense 0.897 0.995 0.821Operating Profit (before Taxes and Provision) 6.744 3.112 2.088ProductivityReturn on Equity (%) 13.11 11.91 10.08Return on average assets (%) 1.54 1.31 1.25Specific provision for credit losses / Average Loans (%) 0.23 0.45 0.45Net impaired Loans / Average Loans (%) - 0.54 0.55Capital ManagementTier one ratio (%) 14.67 14.43 22.46Total Capital Ratio (%) 15.10 14.69 22.67

1.2 Review by Financial Priority Areas

The individual Financial priority areas of the bank are Revenue Growth, Cost control, Credit Exposure and Credit Quality. These are separately discussed in the following subsections.

1.2.1 Revenue Growth

An overview of the performance of the Bank in this area is as under: (Amount in USD Millions)

2007-2008

2006-2007

2005-2006

Interest IncomeAdvances 10.341 4.259 4.549Money Market Placements 8.131 5.202 3.836Investments 1.766 1.591 0.473Others - 0.050 0.034Total 20.238 11.104 8.892Interest ExpenseDeposits 8.972 4.817 3.925Money Market Borrowings 4.866 2.618 2.140Subordinated Debt 0.429 0.385 0.358Total 14.267 7.820 6.423Net Interest Income 5.971 3.284 2.469Net Interest Income / Average Interest Earning Assets (%) 2.13 1.90 1.40Net Interest Income / Total Average Assets (%) 1.68 1.59 1.22Non Interest IncomeCommission 1.323 0.556 0.317Exchange 0.265 0.165 0.059Others 0.082 0.102 0.064Total 1.670 0.823 0.440Provision on loan/ losses written back (1.010) (0.214) 0.584Total Income (Net interest income plus Non interest Revenue) 6.631 3.893 3.493

Interest Income increased by 82.26% primarily due growth in advances with higher margins. Interest Expense also registered an increase of 82.44% mainly due to increase in deposits and borrowings. The Net Interest Income correspondingly registered a growth of 81.82% from USD 3.284 Million to USD 5.971 Million, due to build up of quality assets. The effective interest rate management and optimization of interest earnings has further increased the ratios of Net Interest Income to Average Interest earning Assets from 1.90 to 2.13 and Net Interest Income / Total Assets from 1.59 to 1.68. Non-Interest income registered a growth of 102.92% and rose from 0.823 Million to USD 1.670 Million. The ratio of Non-interest Income to Total Income was 25.18 percent compared to 21.14 percent in the previous year.

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Figure 2: Break up of Interest Income

Figure 3: Break Up of Interest Expenses

Figure 4: Non Interest Income Trend

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1.2.2 Cost Control (Amount in USD Millions)

2007-2008 2006-2007 2005-2006Staff Costs 0.223 0.253 0.214Rent, Rates and Taxes 0.197 0.135 0.136Communications 0.105 0.247 0.189Management Fees 0.135 0.124 0.074Depreciation 0.056 0.045 0.036Others 0.181 0.191 0.172Total 0.897 0.995 0.821

The operating costs remained under control, the overall cost decreased from last year’s, mainly due to significant decrease in communications expenses. The cost to income ratio further improved to 14.42% from the previous year’s 25.56%.

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1.2.3 Credit Exposure

The Bank has a proactive Credit Policy, which establishes the approach to credit, appraisal and sanction of credit proposals, documentation standards, and awareness of institutional concerns and strategies, while leaving enough room for flexibility and innovations. It describes the types of credit that may be undertaken by the Bank and lays down prudential exposure guidelines for avoiding credit concentrations for various types of entities, the factors affecting pricing, the post disbursal aspects of monitoring and follow up of credit. The policy also prescribes strategies for management of non-performing assets.

All credit exposures undertaken by the Bank are approved by the Board in accordance with the Loan Policy. There was no credit concentration to any entity or a group of related entities beyond the parameters prescribed by the Policy. Credit risk is normally mitigated by lending to highly rated corporates, and / or obtaining suitable collaterals and guarantees.

The Bank’s credit exposure as on 31 March, 2008, based on the classification by industry sector as per the Bank of Mauritius guidelines, was as under:

(Amount in USD Millions)Name of Sector 31/03/2008 31/03/2007 31/03/2006Agriculture and fishing - - -Manufacturing - EPZ 0.421 0.421 0.573Tourism - - -Construction - - -Business & Financial Services - - 0.320Traders - - -Global Licence Holders 6.00 1.026 -Personal 0.422 0.106 0.454Banks outside Mauritius - - -Other entities outside Mauritius 278.811 112.407 53.164Others - - 1.725Total Advances 285.654 113.960 56.236

1.2.4 Credit Quality

The Bank has been consistently applying the guidelines issued by Bank of Mauritius for identifying its non-performing assets and making appropriate provisions. In accordance with the guidelines, the credit quality for the last five years has been as follows:

(Amount in USD Millions)Year Ended Standard

AssetsImpaired

loansTotal

Assets31/03/2004 131.840 0.583 132.42331/03/2005 154.157 0.583 154.74031/03/2006 55.662 0.573 55.23531/03/2007 113.539 0.421 113.96031/03/2008 285.232 0.422 285.654

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MANAGEMENT DISCUSSION AND ANALYSIS (CONT’D)

Figure 5: Actual Level of Net NPAs Non-performing assets of the Bank is brought down steadily over the years through close follow up. In percentage terms, the Gross NPA was at 0.15% as compared to last year’s 0.39%, while Net NPA stood at 0% from last years 0.07%. Industry wise breakup of the credit quality in the current year are as under:

(Amount in USD Millions)Year Ended 31 March 2008 31/03/07 31/03/06

Gross amount of

Loans

Non performing

LoansSpecific

provisionGeneral

provisionTotal

provisionTotal

provisionTotal

provisionAgriculture and fishingManufacturing - EPZ 0.421 0.421 0.421 - 0.421 0.353 0.470Tourism - - - - - - -Construction - - - - - - -Business & Financial Services - - - - - - -Traders - - - - - - -Global Licence Holders 6.00 - - 0.050 0.050 0.010Personal 0.422 0.001 0.001 0.001 0.002 0.001 0.001Banks outside Mauritius - - - - - - -Other entities outside Mauritius 278.811 - - 1.307 1.307 0.406 0.202PNFC & Others - - - - - - -Total Advances 285.654 0.422 0.422 1.358 1.780 0.770 0.673

There has been no restructuring of any loan during the current year.

1.2.5 Investments

The Investment Policy of the Bank, approved by the Board, is framed with the objective of preservation of capital, optimization of profits and maintenance of liquidity. The Policy provides for making investments for meeting regulatory requirements; investments in securities for earning adequate returns while maintaining liquidity, which would be available for sale; investments in instruments having low tradability for maximizing earnings; and a trading portfolio to profit from price movements of tradable instruments. The Policy prescribes Risk Management of the investments made, including internal control systems, suitable caps on various categories of investments, review of investments, disinvestment mechanism, monitoring of investments - including monitoring of credit ratings, financials of the issuer, interest rates and factors having impact on the finances of the issuer. The Policy also permits investments in derivative instruments, such as Credit Linked Notes. During the financial year fresh Investments worth USD 15.0 were booked. However, investments in Credit Linked Notes

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totalling USD 16.0 Million were called back by the issuers, thereby leaving the Investment portfolio at USD 30.58 Million as at closing of the year. All investments are proposed to be held to maturity.

2. Capital Structure

The capital is a significant determinant of a bank’s safety and soundness. It acts as a cushion against the types of financial and operational risks a financial institution may face. The bank’s objectives when managing its capital, which is a broader concept than the ‘equity’ on the face of the balance sheets, are:

(i) To comply with the capital requirements set by the regulators of the banking markets where the Bank operates.

(ii) To safeguard the Bank’s ability to continue as a going concern so that it can continue to provide returns for shareholders.

(iii) To maintain a strong capital base to support the development of its business.

During the year, the stated capital of the Bank was increased by USD 15 Mio by issuing 100,000 shares of face value USD 62.50 each, at a premium of USD 87.50 per share. This initiative was mainly for maintaining a sound Capital Adequacy Ratio, to keep pace with the accelerated growth of business and to be complaint with the proposed Basel II guidelines. At present State Bank of India holds 98% of the Capital and the State Investment Corporation Limited, Mauritius, holds the balance of 2%.

2.1 Capital Adequacy

The Basel Committee on Banking Supervision on 15th November, 2005 issued an updated version of International Convergence of Capital Measurement and Capital Standards: A Revised Framework, commonly known as Basel II, as well as an updated version of the Amendment to the Capital Accord to incorporate market risks. This was followed up by a comprehensive version in June 2006.

The revised framework lays emphasis on the three mutually reinforcing pillars, viz minimum capital requirements, supervisory review of capital adequacy and market discipline. It builds on the current framework to align regulatory capital requirement more closely with the underlying risks and to provide banks and their supervisors with several options for assessment of capital adequacy. A significant innovation of the revised framework is the greater use of assessments of risk provided by banks' internal systems, as inputs to capital calculations. It requires banks to hold capital for the following three risk areas:

a) Credit Riskb) Market Riskc) Operational Risk

There are various approaches provided under Basel II to calculate and measure these risks as listed below:

a) Credit Risk: i) Standardized Approachii) Internal Rating Based – Foundation Approachiii) Internal Rating Based – Advanced Approach

b) Market Risk: i) Standardised Approach – Marked to Marketii) Internal Model Approach

c) Operational Risk: i) Basic Indicator Approachii) Standardised Approachiii) Advanced Measurement Approach

Last year, different working groups were set up by the Bank of Mauritius, on the above mentioned approaches. After proper examination, the Central Bank has issued the final guidelines on the different approaches for measurement and monitoring of the above risks during the current financial year. As Basel II regulations are to be implemented in the near future, Bank of Mauritius will start a parallel run to calculate the Capital Adequacy Ratio as per the new regulations starting 31st March 2008. Up to

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http://www.bis.org/publ/bcbs119.htm




now, the Bank of Mauritius has proposed to adopt the Standardised Approach for Credit risk and Market Risk, and the Basic Indicator Approach for Operational Risk.

The Capital adequacy ratio is the ratio which determines the capacity of the bank in terms of meeting the time liabilities and other risk such as credit risk, market risk and operational risk. In this connection, the Bank of Mauritius requires each bank to:

(a) Hold the minimum level of the regulatory Capital of MUR 200 Million (USD 7.74 Million at the current exchange rate of USD/MUR 25.85)

(b) Maintain a ratio of total regulatory capital to risk weighted assets (CAR) at or above the internationally agreed minimum of 10%.

The Bank’s regulatory capital is divided into two tiers:(i) Tier 1 Capital: Share Capital (net of book values of treasury shares), retained earnings and

reserves created by appropriations of retained earnings.(ii) Tier 2 Capital: Qualifying subordinated loan capital, collective impairment allowances and

unrealised gains arising on the fair valuation of equity instruments held as available for sale.

The risk weighted assets are measured by means of a hierarchy of five risk weights classified according to the nature of and reflecting an estimate of credit, market and other risks associated with each asset and counterparty, taking into account any eligible collateral or guarantees. A similar treatment is adopted for off-balance sheet exposure with some adjustments to reflect the more contingent nature of potential losses.

The table below summarises the composition of regulatory capital and the Capital Adequacy ratios of the Bank for the past three years.

(USD Millions)As on 31.03.2008 31.03.2007 31.03.2006Tier 1Share CapitalShare PremiumStatutory ReserveCapital ReserveRetained EarningsTotal

16.2508.7501.9970.641

13.97941.617

10.000-

1.1770.641

10.84422.661

10.000-

0.730 0.64110.09321.464

Tier 2General Provisions 1.358 0.417 0.204Subordinated Debt 8.082 6.804 6.189Total 9.440 7.221 6.393Total Gross Capital (Tier 1 plus Tier 2) 51.057 29.882 27.857Total Net Capital (Gross Capital less holdings of other banks’ capital instruments) 42.975 23.078 21.668

The Bank has a stated capital of USD 25 Million (including the share premium of USD 8.75 Million) and Reserves plus Retained Earnings of USD 14.074 Million as on 31st March, 2008. As per Bank of Mauritius Capital Adequacy guidelines, banks in Mauritius are required to maintain a minimum risk weighted capital adequacy ratio of 10 percent. Against that, the capital adequacy ratio of the Bank was 15.10 percent as given hereunder.

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http://en.wikipedia.org/wiki/Credit_(finance)

http://en.wikipedia.org/wiki/Capacity


(USD Millions)Risk Weighted On-Balance Sheet Assets

Amount Risk Weight

(%)

Weighted Amount

31.03.2008

Weighted Amount

31.03.2007

Weighted Amount

31.03.2006Claims on, or claims guaranteed or endorsed by, banks incorporated in group A & B countries (excluding those licensed under Banking Act 2004) with a residual maturity of one year or less

Claims on, or claims guaranteed or endorsed by, banks incorporated in Group B countries (excluding those licensed under Banking Act 2004) with a residual maturity of over one year

Claims on, or claims guaranteed or endorsed by, banks incorporated under Banking Act 2004

Residential Mortgages

Claims on non bank private sector

Investments

Fixed Assets

Other Assets

Total

(Gr A) 0.835 (Gr B) 132.921

0

2.000

0.137

181.131

30.519

0.158

3.484

20

20

100

20

50

100

100

100

100

0.16726.584

0

0.4

0.0685

181.131

30.519

0.158

3.484

242.512

0.04919.194

7

1.081

0.040

71.268

27.083

0.187

3.74

129.642

0.28018.74

1.552

0.040

40.578

28.102

0.132

0.572

89.996Risk Weighted Off balance sheet assetsGuaranteesDocumentary CreditsTotal

2.821 31.631

100100

2.821

31.63134.452

0.63021.64322.273

0.7520.9361.688

Risk Weighted Assets for Operational Risk

7.639 5.174 3.894

Total Risk Weighted Assets

283.719 157.089 95.578

Capital Adequacy Ratio 15.10% 14.69% 22.67%

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3. Risk Management Policies and Controls

Potential risk areas, which may have a significant impact on the financial status of the Bank, can be categorized in three categories:

Credit Risk - when the borrowers on whom the Bank has taken an exposure are unable to meet their commitments. This has been further elaborated under 3.1.

Market Risk - Liquidity Risk, Exchange Risk and Interest Rate are the three main market risks, which have again been elaborated separately in the subsequent paragraphs.

Operational Risk - is the risk of loss resulting from inadequate or failed internal processes, people or systems or from external events.

All risk management policies like Loan Policy, Credit Risk Assessment and Rating Policy, Liquidity Policy, Investment Policy, Interest Rate Risk Management Policy, are periodically reviewed and approved by the Board. Day to day monitoring of risks is done by the Executive Management, which reports periodically to the Board.

The Bank has established a Risk Management Committee (RCOM) headed by the Managing Director and comprising appropriate senior officials with risk management responsibilities. RCOM meets on a monthly basis, monitors the Bank’s risk profile reviews strategies of risk management, and provides guidance to the staff. The minutes of the proceedings of the RCOM are submitted to the Board.

3.1 Credit Risk

Credit Risk is the risk of loss due to the inability or unwillingness of a counter party to a financial commitment to fulfill its obligations. This risk can relate to on-balance sheet assets as well as off-balance sheet assets, such as guarantees, letters of credit, commitments and possibly derivative products.

A Credit Risk Assessment and Rating Policy has been approved by the Board. In terms of the Policy, the associated risk factors are to be considered while appraising loan. These are categorized broadly into financial, industrial, and management risks, and rated separately. These factors are duly weighted, aggregated and calibrated to arrive at single point indicator of the risk associated with the credit.

3.2 Interest Rate Risk

Interest Rate Risk represents the adverse impact that may occur on profits and market value of assets and liabilities due to fluctuation in interest rates. The Interest Rate Risk Management Policy, duly approved by the Board, spells out the identification, measurement and monitoring of interest rate risk for prudent management of interest risk positions and optimization of returns, while remaining within the tolerance limits set for various risk parameters. The policy also defines the role and responsibility of various functionaries of the Bank.

Appropriate hedging techniques are used as a means of managing and controlling interest rate risk. The Bank has provision and the means of using derivative financial instruments like forward rate agreements, interest options etc. These are used as and when the need arises.

The risk positions are monitored on a monthly basis by the executive management, and quarterly by the Board of Directors. During the year the positions were measured, managed and controlled prudentially so as to safeguard the Bank’s interest.

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3.3 Foreign Exchange Rate Risk

Foreign Exchange Rate Risk is the adverse impact that may occur on profits and market value of assets and liabilities due to fluctuation in exchange rates depending on the spot as well as forward positions created by commercial, inter-bank and proprietary trading transactions in any particular currency. As a means to prudent management of the risk, the Bank has set up Foreign Exchange Position limits, duly approved by the Board, both for daylight and overnight positions. In addition to these, cut loss limits have been set up on per deal and per day basis. Besides, suitable hedging techniques are also used for risk mitigation.

The Executive Management monitors the exchange positions and profits arising out of operations on daily basis, and quarterly reports are submitted to the board. Any exception is promptly reported to the Board for ratification.

3.4 Liquidity Risk

Managing liquidity is a fundamental requirement of safe and sound management of a bank. Prudent liquidity management involves management of assets and liabilities (on and off balance sheet) to ensure that cash inflows have an appropriate relationship to approaching cash outflows in a timely and cost effective manner.

The Bank has a well laid out process of liquidity planning which assesses potential future liquidity needs, taking into account changes in economic, political, regulatory or other operating conditions. A Liquidity Policy approved by the Board is in place which sets out the Bank’s liquidity philosophy and management, defines the liquidity tolerance parameters, the management and control procedures, as well as a contingency plan in the event of liquidity crisis, and a well defined role and responsibility of various functionaries of the Bank.

The Executive Management monitors the liquidity position of the Bank on a daily basis and reports to the Board on a quarterly basis.

During the year liquidity requirements were managed prudentially and within the tolerance parameters set by the Board.

3.5 Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems or from external events. The resultant losses can be financial, or non-financial like loss of reputation. Some of operational risks the Bank is exposed to in the ordinary course of business are in respect of settlement processing, documentation, accounting, legal/regulatory, technology and human error. It is to mitigate such risks that comprehensive systems and procedures have been set up by the Bank to be very meticulously followed with handling the business. The management ensures that all systems and procedures and policies are strictly adhered to and that they are being reviewed at regular intervals to adapt to any change in the processes and regulations.

A significant risk banks are facing today is the global phenomenon of money laundering. Banks have become major targets of money laundering operations as they provide a variety of financial services and instruments. The Bank, aware of it’s duties as a responsible corporate citizen, has a Anti Money Laundering Policy and “Know Your Customer’ Guidelines duly approved by the Board and in conformity with the relevant guidelines of the Bank of Mauritius. It comprehensively sets out the customer identification procedures, the procedures for on going monitoring of accounts and transactions, the identification, approach to and reporting of suspicious transactions. The Policy also provides for the education and training of the staff in this area. The Bank has completed the KYC verification in respect of all the accounts in its books and is adhering to the guidelines on an ongoing basis.

17


3.6 Information Technology and Customer Service

The Bank, with a view to extend world class banking services to its customers, has been always in the forefront of adopting Information Technology for its various operations. The Bank has fully computerised its operations and is linked to the global network of State Bank of India. This enables the Bank to effect express money transfers in Indian Rupees to any branch of SBI by Straight Through Processing. Like wise the Bank is also capable of electronically transferring funds in Indian Rupees to any Bank Branch in India using the Real Time Gross Settlement System (RTGS) or National Electronic Funds Transfer (NEFT) platform. Being a predominantly international bank, the Bank also facilitates fast and efficient transfer of funds across different geographies, through the Society for Worldwide International Financial Telecommunications (SWIFT) network.

The Bank provides Internet Banking facility to all its customers. The customers can access the website of the Bank www.sbimauritius.com for getting the various information including the fees and tariffs, downloading the requisite forms and also to post their requirements and feed back.

3.7 Inspection and Audit

KPMG conducts the internal audit of the Bank on a quarterly basis. The audit covers Credit Risk, including loans and advances, Interest Rate Risk, Foreign Exchange Risk, Operational Risk, Liquidity Risk, the operational areas falling under the respective risk categories, Regulatory Compliance and General Administration.

The reports submitted by KPMG are placed before the Audit Committee, the minutes of which are reviewed by the Board. The reports of the internal audit observe that the control environment is strong, well structured and is principally based on review and approval of all major transactions by senior management, and that dual control present in the structure reinforces the control environment.

Bank of Mauritius also conducts an annual inspection of the operations of the Bank and such an inspection with respect to the position prevailing on 31 March 2007 was conducted during the year. The management report of the same did not reveal any major areas of concern.

The parent bank, State Bank of India also conducts as an when it deems fit a comprehensive internal inspection and audit of the Bank’s operations by a team headed by a senior official from the Top Executive Grade. Such an inspection was last carried out in July 2006 and the report confirmed the overall excellence in the operations of the Bank.

4. Related Party Transactions Policies and Practices

The Bank of Mauritius Guidelines on Related Party Transactions defines related parties as bodies either corporate or natural persons who are related to a financial institution either because of ownership interest or those that are related otherwise like directors and officers. The latter may also have interest in the financial institution. The guideline covers three main aspects:

i) transactions subject to related party rules and requirements.ii) limits on transactions with related parties and their interests.iii) role of the Board of Directors and its Conduct Review Committee in establishing and

implementing appropriate policies on related party transactions and administering the process for handling the transactions.

As per the guidelines of the Bank of Mauritius on Related Party Transactions and applicable exemptions, the Bank has no related party exposure limit. However, all related party transactions are reported to the Bank of Mauritius along with market rates. The notes to the financial statements give the summary of transactions with the parent bank, State Bank of India and with other group members. These transactions are in the form of borrowings and placements, forex dealings, subordinated debt, on commercial terms and at market rates and also include management fees paid to the parent bank.

18

http://www.sbimauritius.com/


5. Corporate Governance

Corporate Governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Effective corporate governance practices are essential to achieving and maintaining public trust and confidence in the banking system.

The Bank is committed to the best international practices in Corporate Governance, and believes that proper Corporate Governance facilitates effective management and control of business enabling the Bank to deliver optimum results to all stakeholders.

A Board of Directors is constituted in accordance to the Articles of Association of the Bank and has all the powers necessary for managing, directing and supervising the management of the business and affairs of the Bank.

The Bank’s Board comprises of 6 members out of whom 4 are Inside Directors and two Independent Directors. Of the 4 Inside Directors, 3 are top executives of the parent bank (State Bank of India) stationed in Mumbai and have no direct role in the day to day operations or management of the Bank.

The function of management and running the day-to-day affairs of the Bank has been delegated and entrusted to the Director (Executive) stationed in Mauritius and holding the position of Managing Director. The details of the Directors as on 31st March 2008 are as below:

Inside Directors

Mr S.K.Hariharan (Chairman)Mr. K. SitaramamMr. T.C.A Ranganathan

Independent Directors

Mr Madhukarlall BaguantMr Couldip Basanta Lala

Inside Director functioning as Management

Mr V.Srinivasan (Managing Director)

There exists a clear cut demarcation of functions and responsibilities between the Management and the Board. The Board has two sub committees, viz,

(1) The Executive Committee comprising of the Independent Directors and the Managing Director and

(2) The Audit Committee, comprising of the two Independent Directors.

The Executive Committee meets at periodic intervals to review the performance of the Bank and the Audit Committee reviews Audit and Inspection reports and compliance of the various guidelines.

During the year under review, the Executive Committee met 3 times, the Audit Committee 4 times, and the Board 6 times. The following table gives the record of attendance at the meetings.

19

BOARD MEETING

Board CommitteesExecutive Committee

Audit Committee

No of Meetings held6 3 4

Meetings attended:Mr. S.K Hariharan 3 Mr. K Sitaramam(From 28.12.07)

2

Mr. T.C.A Ranganathan(From 24.10.07)

2

Mr. M. Baguant 6 3 4Mr. C.B. Lala 5 3 4Mr. V. Srinivasan 6 3 4

The Bank is committed to the highest standards of business integrity, transparency and professionalism and complies with the code of Banking Practices issued by the Bank of Mauritius and also the National Code of Corporate Governance for Mauritius.

20


STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL REPORTING

The financial statements for the Bank’s operations in Mauritius presented in this Annual Report have been prepared by Management, which is responsible for their integrity, consistency, objectivity and reliability. International Financial Reporting Standards of the International Accounting Standards Committee as well as the requirements of the Banking Act 2004 and the guidelines issued thereunder, have been applied and management has exercised its judgement and made best estimates where deemed necessary.

The Bank has designed and maintained its accounting systems, related internal controls and supporting procedures, to provide reasonable assurance that financial records are complete and accurate and that assets are safeguarded against loss from unauthorized use or disposal. These supporting procedures include careful selection and training of qualified staff, the implementation of organization and governance structures providing a well-defined division of responsibilities, authorisation levels and accountability for performance, and the communication of the Bank’s policies, procedures, manuals and guidelines of the Bank of Mauritius throughout the Bank.

The Bank’s Board of Directors oversees Management’s responsibility for financial reporting, internal controls, assessment and control of major risk areas, and assessment of significant and related party transactions.

The Inspection and Audit Department of the parent bank, whose functions come under the scrutiny of their Audit Committee, conducts a well-designed program of internal inspection and audit. Pursuant to the provisions of the Banking Act, the Bank of Mauritius makes such examination and inquiry into the operations and affairs of the Bank as it deems necessary.

The Bank’s external auditors Kemp Chatteris Deloitte, Chartered Accountants, have full and free access to the Board of Directors and the Audit Committee to discuss the audit and matters arising therefrom, such as their observations on the fairness of financial reporting and the adequacy of internal controls.

Approved by the Board of Directors on ______________________and signed on its behalf by:

____________________ _____________________ __________________Managing Director Director Director

21

SBI INTERNATIONAL (MAURITIUS) LTD

SECRETARY’S REPORT TO THE MEMBERS

We certify that we have filed with the Registrar of Companies all such returns as are required of the Company under the Mauritius Companies Act 2001.

CIM Corporate Services Ltd.Secretary

Date:

22

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OFSBI INTERNATIONAL (MAURITIUS) LTD

This report is made solely to the company's shareholders, as a body, in accordance with section 205 of the Mauritius Companies Act 2001. Our audit work has been undertaken so that we might state to the company's shareholders those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's shareholders as a body, for our audit work, for this report, or for the opinions we have formed.

Report on the Financial Statements

We have audited the financial statements of SBI International (Mauritius) Ltd (the “Bank”) on pages 24 to 53 which comprise the balance sheet as at 31 March 2008 and the income statement, statement of changes in equity and cash flow statement for the year then ended and a summary of significant accounting policies and other explanatory notes.

Directors’ responsibilities for the financial statements

The directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and in compliance with the requirements of the Mauritius Banking Act 2004, the Companies Act 2001 and the Financial Reporting Act 2004. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Bank’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements on pages 24 to 53 give a true and fair view of the financial position of the company as at 31 March 2008 and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and comply with the requirements of the Mauritius Companies Act 2001, Banking Act 2004 and the Financial Reporting Act 2004.

Report on other legal requirements

In accordance with the requirements of the Companies Act 2001, we report as follows:

• we have no relationship with, or interests in, the Bank other than in our capacities as auditors, • we have obtained all information and explanations that we have required; and• in our opinion, proper accounting records have been kept by the Bank as far as appears from our examination of those records.

In accordance with the requirements of the Banking Act 2004, we report as follows:

• in our opinion, the financial statements have been prepared on a basis consistent with that of the preceding year and are complete, fair and properly drawn up and comply with the provisions of the Banking Act 2004 and the regulations and guidelines of the Bank of Mauritius.

• the explanation or information called for or given to us by the officers or agents of the Bank were satisfactory.

Chartered Accountants

23

SBI INTERNATIONAL (MAURITIUS) LTDBALANCE SHEET AT 31 MARCH 2008 Restated Restated

31 March 31 March 31 MarchNote 2008 2007 2006

ASSETS USD USD USD

Cash resourcesCash and balance with Central Bank 5,677,912 1,458,710 441,995Balances with banks and interbank loans 2,135,866 768,383 1,729,168

7,813,778 2,227,093 2,171,163Securities, placements and other investments

Investments 4 30,576,894 27,081,301 28,099,873Placements with banks 4 39,016,868 72,070,000 89,570,130Other investments 4 2,155 1,814 1,650

69,595,917 99,153,115 117,671,653Loans and advancesRetail and personal 421,828 105,815 454,059Business 6,421,006 1,446,919 892,965Government - - 1,724,937Entities outside Mauritius 278,810,925 112,407,03

253,163,581

5 285,653,759 113,959,766

56,235,542

Provision for credit losses 5 (1,780,216) (770,516) (673,017)

283,873,543 113,189,250

55,562,525

OtherTangible fixed assets 6 158,315 187,395 131,587Other assets 7 68,576,509 44,571,119 17,952,916

68,734,824 44,758,514 18,084,503

TOTAL ASSETS 430,018,062 259,327,972

193,489,844

LIABILITIES AND SHAREHOLDERS’ EQUITY

DepositsPersonal 13,792,371 11,903,628 15,439,836Business 278,533,397 108,118,72

490,788,775

8 292,325,768 120,022,352

106,228,611

BorrowingsBanks in Mauritius 9 7,407,184 39,231,101 16,000,000Banks abroad 9 10,568,667 26,197,630 20,000,000Subordinated loans 9 8,082,246 6,803,761 6,189,444

26,058,097 72,232,492 42,189,444OtherCurrent tax 19 220,000 195,791 142,615Other liabilities 10 69,797,282 44,215,784 23,465,375

70,017,282 44,411,575 23,607,990Shareholders’ equityShare capital 11 16,250,000 10,000,000 10,000,000Share PremiumReserves and retained earnings

8,750,00016,616,915

-12,661,553

-11,463,799

41,616,915 22,661,553 21,463,799

EQUITY AND LIABILITIES 430,018,062 259,327,972

193,489,844

CONTINGENT LIABILITIESAcceptances, guarantees, letters of credit, endorsements and other obligations on account of customers, and spot foreign exchange contracts 12 34,792,398 22,718,723 3,313,220

24

Approved by the Board of Directors ________________________________and authorised for issue on:

__________________________ _______________________ _____________________Managing Director Director Director

SBI INTERNATIONAL (MAURITIUS) LTDINCOME STATEMENTFOR THE YEAR ENDED 31 MARCH 2008

Restated Restated31 March

200831 March

200731 March

2006Note USD USD USD

Interest Income

Loans 10,340,410 4,259,280 4,548,919Securities 13 1,766,284 1,592,355 472,524Placements and loans to banks 8,131,362 5,202,129 3,836,443Other 49,911 33,684

20,238,056 11,103,675 8,891,570Interest Expense

Deposits 8,972,325 4,816,799 3,924,478Borrowings from banks 4,866,039 2,617,766 2,140,363Interest on subordinated debt 429,084 385,123 358,012

14,267,448 7,819,688 6,422,853

Net interest Income 5,970,608 3,283,987 2,468,717Provision for credit impairment 14 (1,009,700) (214,774) 584,391

Net interest income after credit impairment 4,960,908 3,069,213 3,053,108

Other Income

Fee income and commissions 15 1,322,528 556,205 317,224Profits arising from dealings in foreign currencies 265,070 165,334 58,814Other 82,455 102,100 64,236

1,670,053 823,639 440,274

Net interest and other income 6,630,961 3,892,852 3,493,382

Non-interest expense

Salaries and human resource development 17 213,623 245,654 206,753Pension contributions and other staff benefits 17 9,643 7,533 7,258Depreciation 55,578 45,266 35,579Other 618,525 696,756 571,614

18 897,369 995,209 821,204

Net income before taxation 5,733,592 2,897,643 2,672,178Taxation 19 (278,230) (199,889) (147,556)

Net income available to ordinary shareholders 20 5,455,362 2,697,754 2,524,622

Average number of ordinary shares outstanding 173,388 160,000 160,000

Earnings per share 23 31.46 16.86 15.78

__________________________ _______________________ _____________________Managing Director Director Director

25

SBI INTERNATIONAL (MAURITIUS) LTDSTATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 MARCH 2008

Share Share Statutory Capital RetainedCapital Premium Reserve Reserve Earnings Total

Note USD USD USD USD USD USD

Balance at 1 April 2005 10,000,000 - 300,000 640,915 8,998,262 19,939,177

Profit for the year - - - - 2,524,622 2,524,622

Transfer - - 430,000 - (430,000) -

Dividend for financial year 31 March 2005 24 -

-- - (1,000,000) (1,000,000)

Balance at 31 March 2006 10,000,000 - 730,000 640,915 10,092,884 21,463,799

As previously stated at 31st March 2006 10,000,000 - 730,000 640,915 10,431,817 21,802,732

Effect of reversal of net gain on fair value of derivatives 16 - - - - (338,933) (338,933)

As restated at 31st March 2006 10,000,000 - 730,000 640,915 10,092,884 21,463,799

Profit for the year - - - 2,697,754 2,697,754

Transfer - - 447,000 - (447,000) -

Dividend for financial year 31 March 2006 24 - - - - (1,500,000) (1,500,000)

Balance at 31 March 2007 10,000,000 - 1,177,000 640,915 10,843,638 22,661,553

As previously stated at 31st March 2007 10,000,000 - 1,177,,000 640,915 11,463,363 23,281,278

Effect of reversal of net gain on fair value of derivatives 16 - - - - (619,725) (619,725)

As restated at 31st March 2006 10,000,000 - 1,177,000 640,915 10,843,638 22,661,553

Profit for the year - - - - 5,455,362 5,455,362

Transfer - - 820,000 - (820,000) -

Issue of share capital 6,250,000 8,750,000 - - - 15,000,000

Dividend for financial year 31 March 2007 24 - - - - (1,500,000) (1,500,000)

Balance at 31 March 2008 16,250,000 8,750,000 1,997,000 640,915 13,979,000 41,616,915

26

SBI INTERNATIONAL (MAURITIUS) LTDCASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2008

Restated Restated31 March

200831 March

200731 March

2006Note USD USD USD

CASH FLOWS FROM OPERATING ACTIVITIES

Net income before income taxes 5,733,592 2,897,643 2,672,178

Tax paid (254,021) (146,713) (55,483)

Net income after income taxes 5,479,571 2,750,930 2,616,695

Adjustments for:Provision and adjustments to income for credit losses 1,009,700 214,774 (584,391)Depreciation 55,578 45,266 35,579Exchange difference and change in faire value of derivatives 2,749,370 (2,097,744) 2,063,845(Loss)/profit on disposal of tangible fixed assets - 19 5,185

9,294,219 953,245 4,136,913

CHANGES IN OPERATING ASSETS AND LIABILITIES

Accrued interest receivable and payable (588,644) (41,415) 525,105Other assets (2,415) (4,882) 1,340Other liabilities (582,202) (3,773,517) 4,315,194

Net cash used in operating activities (1,173,261) (3,810,050) 4,841,639

CASH FLOWS FROM/(USED IN) FINANCING ACTIVITIES

Proceeds from Issues of Share Capital 15

,000,000 - -Deposits of non-bank customers 172,303,416 13,793,741 (31,383,984)Dividend paid on ordinary shares (1,500,000) (1,500,000) (1,000,000)Borrowing from banks (13,706,396) 15,599,198 (12,659,105)

Net cash from financing/(used in) activities 172,097,020 27,892,939 (45,043,089)

CASH FLOWS FROM/(USED IN) INVESTING ACTIVITIES

Placement with banks 12,200,000 (12,077,774) (2,122,226)Acquisition of investment securities held to maturity (3,495,934) - (28,099,755)Disposal of investment securities held to maturity - 1,018,408 -Loans and advances (171,693,993) (57,841,499) 105,127,378Acquisition of tangible fixed assets (26,499) (101,093) (14,703)Disposal of tangible fixed assets - - 14,505

Net cash (used in)/ from investing activities (163,016,426) (69,001,958) 74,905,199

Net change in cash and cash equivalents 17,201,992 (43,965,824) 38,840,662

Cash and cash equivalents at beginning of the year 19,653,243 63,619,067 24,778,405

Cash and cash equivalents at end of the year 21 36,854,795 19,653,243 63,619,067

27

SBI INTERNATIONAL (MAURITIUS) LTDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 200 8

1. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in accordance with the Banking Act 2004, International Financial Reporting Standards, Mauritius Companies Act 2001 and the Financial Reporting Act 2004 as applicable to banks and the regulations and guidelines issued by the Bank of Mauritius. As the segment ‘A’ business is not significant in relation to the entire business of the Bank, segmental information has not been provided, in accordance with the exemption provided under the Guideline on Segmental Reporting under a Single Banking Licence Regime. A summary of the more important accounting policies, which have been applied consistently, is set out below.

(a) Basis of preparation

The financial statements have been prepared under the historical cost convention, except for the revaluation of certain financial instruments.

(b) Foreign currency translation

The financial statements are presented in United States Dollar (“USD”).

Transactions denominated in other currencies are translated into USD at the rates of exchange ruling at the dates of transaction.

Monetary assets and liabilities at the balance sheet date which are expressed in other currencies are translated into USD at the mid rates of exchange ruling at the balance sheet date. Exchange gains and losses are dealt with through the income statement.

(c) Loans and advances

The following policies are consistently applied by the Bank for advances made:

(i) Provisions for credit losses have been based on the regular appraisal of loans and advances and in accordance with the guideline on Credit Impairment Measurement and Income Recognition issued by the Bank of Mauritius;

(ii) The Bank has made specific provisions in respect of all identified impaired loans;

(iii) Loans and advances are written down to estimated recoverable value when there is no realistic prospect of recovery;

(iv) Where loans and advances are deemed uncollectible, they are written off against the related provision for impairment. Subsequent recoveries are credited to the Income Statement if previously written off.

(v) A portfolio provision for credit losses is maintained on loans and advances that have not been individually assessed for impairment in order to allow for potential losses not specifically identified but which experience indicates are present in the portfolio of loans and advances. The portfolio provision is estimated based upon historical patterns of losses as adjusted on the basis of relevant observable data that reflect current economic conditions in each component of the portfolio of loans and advances. The charge for portfolio provision is recognised in the Income Statement.

(d) Investments and investment income

Investments in debt securities with fixed maturity where management has both the intent and the ability to hold to maturity are classified as held-to-maturity. Management determines the appropriate classification of its investments at the time of the purchase.

Held-to-maturity investments are carried at amortised cost using the effective yield method, less any provision for impairment.Interest earned whilst holding investment securities is reported as interest income.

28

SBI INTERNATIONAL (MAURITIUS) LTDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008

(l) Interest income and expense

Interest income and expense are recognised in the income statement on an accrual basis. Interest is suspended when advances are overdue by more than 90 days and are excluded from interest income until received.

(m) Fees and commission income

Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred and recognised as an adjustment to the effective interest rate on the loans. Loan syndication fees are recognised as revenue when the syndication has been completed.

(n) Pension obligations

The Bank operates a defined contribution plan, the assets of which are held with State Insurance Corporation of Mauritius Ltd. The pension plan is funded by payments from the Bank.

The Bank’s contributions to the defined contribution pension plan are charged to the income statement in the year to which they relate.

(o) Comparative figures

Comparative figures have generally been restated or reclassified, as necessary, to conform to the current year’s presentation. (See note 16)

(q) Related Parties

For the purpose of these financial statements, parties are considered to be related to the Bank if they have the ability, directly or indirectly, to control the Bank or exercise significant influence over the Bank in making financial and operating decisions, or vice versa, or if they and the Bank are subject to common control. Related parties may be individuals or other entities.

30

SBI INTERNATIONAL (MAURITIUS) LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008

1. ADOPTION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

In the current year, the Bank has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (“IASB”) and the International Financial Reporting Interpretations Committee (“IFRIC”) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1st April 2007. The adoption of these new and revised Standards and Interpretations has not resulted in changes to the Bank’s accounting policies that have affected the amounts reported for the current or prior years.

The Bank has adopted IFRS 7 Financial Instruments Disclosures which is effective for annual reporting periods beginning on or after 1 April 2007 and the consequential amendments to IAS 1 Presentation of financial statements. The impact of the adoption of IFRS and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding financial instruments.

At the date of authorisation of these financial statements, the following relevant Standards and Interpretations were in issue but not yet effective:

IAS 1 Presentation of Financial Statements – Comprehensive revision including requiring a statement of comprehensive income

IAS 1 Presentation of Financial Statements – Amendments relating to disclosure of puttable instruments and obligations arising on liquidation

IAS 23 Amendments to IAS 23 – Capitalisation of Borrowing costsIAS 32 Financial Instruments: Presentation – Amendments relating to puttable instruments

and obligations arising on liquidationIFRS 8 Operating segmentsIFRIC 11 Group and Share Treasury TransactionsIFRIC 12 Service Concession ArrangementsIFRIC 13 Customer Loyalty ProgrammeIFRIC 14 IAS 19 – The limit on a Defined Benefit Asset, Minimum Funding Requirements and

their Interaction.

The directors anticipate that the adoption of these Standards and Interpretations in future periods will not have a material impact on the financial statements of the Bank.

2. ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

The preparation of financial statements in accordance with IFRS requires the directors and management to exercise judgement in the process of applying the accounting policies. It also requires the use of accounting estimates and assumptions that may affect the reported amounts and disclosures in the financial statements. Judgements and estimates nttisppts

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SBI INTERNATIONAL (MAURITIUS) LTDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 200 8

3. USE OF FINANCIAL INSTRUMENTS

Strategy in using financial instruments

By its nature the Bank’s activities are principally related to the use of financial instruments. The Bank accepts deposits from customers at fixed rates and for various periods and seeks to earn above average interest margins by investing these funds in high quality assets. The Bank seeks to increase these margins by consolidating short-term funds and lending for longer periods at higher rates whilst maintaining sufficient liquidity to meet all claims that might fall due.

The Bank also seeks to raise its interest margins by obtaining above average margins, net of provisions, through lending to commercial and retail borrowers with a range of credit standing. Such exposures involve not just on-balance sheet loans and advances but the Bank also enters into guarantees and other commitments such as letters of credit and performance, and other bonds.

Capital adequacy

To monitor the adequacy of its capital the Bank uses certain ratios. These ratios measure capital adequacy by comparing the Bank’s eligible capital with its balance sheet assets, off-balance-sheet commitments and market and other risk positions at weighted amounts to reflect their relative risk.

Market Risk

The Bank takes on exposure to market risks, which is the risk that the fail value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates of prices such as interest rates, credit spreads, and foreign exchange rates.

The market risks arising from the banking book are concentrated in our Treasury and monitored frequently. Regular reposts are submitted to the Board of Directors for monitoring. The risks primarily arise from the interest rate management of the entity’s banking assets and liabilities. Non- trading portfolios also consist of foreign exchange arising from the bank’s held-to-maturity investment.

32

SBI INTERNATIONAL (MAURITIUS) LTD NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2008 Interest rate risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce losses in the vent that unexpected movements arise. The Board sets limits on the level of mismatch of interest rate repricing that may be undertaken, which monitored daily by the Treasury department.

Up to 1 1-3

months3-12

months 1-5 yearsOver 5 Years

Non Interest Total

month Bearing

As at March 2008USD000'

s USD000's USD000'sUSD000'

s USD000's USD000's USD000's

ASSETS:

Cash Resources 0 0 7,813 7,813

Investment Securities 7,500 11,000 12,077 2 30,579

Placement with Related bank 20,017 2,000 2,000 24,017

Placement with other banks 15,000 15,000

Loan to related bank 8,082 8,082

Loans and advances 113,243 104,084 57,920 3 120 422 275,792

Tangible fixed assets 0

Other assets 13,708 26,854 22,890 5,283 68,735

Total Financial Assets 177,550 143,938 94,887 3 120 13,520 430,018

LIABILITIES:

Deposits 158,484 91,819 19,357 22,665 292,325Borrowing from banks in Mauritius 5,500 1,907 7,407

Borrowings from banks abroad 10,000 569 10,569

Subordinated Loan 8,082 8,082

Other Liabilities 13,643 37,248 14,202 4,925 70,018

Total Liabilities 177,627 130,974 43,559 30,747 0 5,494 388,401

Total Interest repricing Gap -77 12,964 51,328 -30,744 120 8,026 41,617

As at March 2007

Total Financial Assets 60,437 113,795 64,362 14,806 187 5,741 259,328

Total Financial Liabilities 79,900 88,564 40,623 24,649 0 2,931 236,667

Total Interest Repricing Gap -19,463 25,231 23,739 -9,843 187 2,810 22,661

33

SBI INTERNATIONAL (MAURITIUS) LTDNOTES TO THE FINANCIAL STATEMENTS (CONT'D)FOR THE YEAR ENDED 31 MARCH 2008

The table below summarises the average interest rates for interest sensitive financial instruments.

2007-08 2006-07 2005-06% % %

ASSETSBalances with Banks 5.98 5.56 4.36Investments 6.32 5.85 4.80Advances 5.52 5.44 4.40

2007-08 2006-07 2005-06% % %

LIABILITIESDeposits 4.33 4.06 3.24Borrowings from Banks 5.01 4.83 4.17

34


Credit risk

The Bank takes on exposure to credit risk, which is the risk that a counterparty will cause a financial loss for the bank by failing to discharge an obligation. Credit risk is the most important risk for the Bank’s business: management therefore carefully manages its exposure to credit risk. Credit exposures arise principally in lending activities that lead to loans and advances, and investment activities that bring debt securities and other bills into the Bank’s asset portfolio. There is also credit risk in off-balance sheet financial instruments, such as loan commitments. The credit risk management and control are centralized in credit risk management team of Bank and reported to the Board of Directors on a half yearly basis.

Credit Risk Management

Loans and advancesIn measuring credit risk of loan and advances to customers and to banks at a counterparty level, the Bank reflects three components (i) the “probability of default” by the client or counterparty on its contractual obligations; (ii) current exposures to the counterparty and its likely future development, from which the Bank derive the “exposure at default”;

(i) The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty. They have been developed internally and combine statistical analysis with credit officer judgment and are validated, where appropriate, by comparison with externally available data.

Risk limit control and mitigation policies

The Bank manages limits and controls concentrations of credit risk wherever they are identified – in particular, to individual counter parties and groups, and to industries and countries.

The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups of borrowers, and to geographical and industry segments. Such risks are monitored on a revolving basis and subject to an half-yearly or more frequent review, when considered necessary. Limits on the level of credit risk by product, industry sector and by country are approved by the Board of Directors.

Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrower to meet interest and capital repayment obligation and by changing these lending limits where appropriate.

Some other specific control and mitigation measure are outline below.

(a) CollateralThe Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advances, which is common practice. The principal collateral types for loans and advances are:Mortgages over residential properties;Charges over business assets such as premises, inventory and accounts receivable;Charges over financial instruments such as debt securities and equities,

Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured. In addition, in order to minimize the credit loss the Bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances.

Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument.

35


(b) Credit-related commitmentsThe primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry risk as loans.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

Impairment and provisioning policies

The internal and external rating systems focus more on credit-quality mapping from the inception of the lending and investment activities. In contrast, impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at the balance sheet date based on objective evidence of impairment. Due to the different methodologies applied, the amount of incurred credit losses provided for in the financial statements are usually lower than the amount determined from the expected loss model that is used for internal operational management and banking regulation purposes.

The impairment provision shown in the balance sheet at year-end is derived from each of the four rating grades. However, the majority of the impairment provision comes from the bottom two grading. The table below shows the percentage of the Bank's on-and off-balance sheet items relating to loans and advances and the associated impairment provision for each of the Bank's internal rating categories:

The internal rating tool assists management to determine whether objective evidence of impairment exists under IAS 39, based on the following criteria set out by the Bank:

Delinquency in contractual payments of principal or interest; Cash flow difficulties experienced by the borrower (eg equity ratio, net income

percentage of sales); Breach of loan covenants or conditions; Initiation of bankruptcy proceedings; Deterioration of the borrower's competitive position; Deterioration in the value of collateral; and Downgrading below investment grade level.

36


Maximum exposure to credit risk before collateral held or other credit enhancements

2008 2007Credit risk exposures relating to on-balance sheet assets are as follows:Treasury bills and other eligible bills 0 0Loans and advances to banks 102,685,410 42,589,171Loans and advances to customers:Loans to individuals:Overdrafts 278,145 23,545Credit Cards 0 0Term Loans 143,683 82,270Mortgages 0 0Loans to corporate entities:Large corporate customers 176,125,515 69,817,862Small and medium size enterprises 0 0Other 6,421,006 1,446,919Trading assetsDebt Securities 0 0Derivative Financial InstrumentsFinancial assets designated at fair value:Debt Securities 0 0Loans and advances to banks 0 0Loans and advances to customers 0 0Investment SecuritiesDebt Securities 0 0Pledged Assets 0 0Other assets 0 0

285,653,759 113,959,767Credit risk exposures relating to off-balance sheet items are as follows:Financial guarantees 0 0Loan Commitments and other credit related liabilites 151,177,857 31,075,763

As at 31 March 151,177,857 31,075,763

The above table represents a worse case scenario of credit risk exposure to the Bank at 31 March 2008 and 2007, without taking into account of any collateral held or other credit enhancements attached. For on-balance sheet assets set out above are based on net carrying amounts as reported in the balance sheet. As shown above, 63.90% of the total maximum exposure is derived from loans and advances to large corporate entities; 35.95% from loan and advances to Banks; 0.15% represents loans to individuals.

Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from its loan and advances portfolio based on the following:

• 99.85% of the loan and advances portfolio are considered to be neither past due nor impaired.

• The Bank has introduced a more stringent selection process upon granting loans and advances;

• More than 53.45% of the loan and advances portfolio to banks and corporate entities are rated by external agencies. Most of the Loans to corporate are secured against first charge on moveable and immoveable assets of the Company.

• 100% of the loans to Banks are against the undertaking of the concerned Banks

37


Loans and Advances

Loans and advancesLoans and advances are summarised as follows:

31-Mar-08 31-Mar-07Loans and advances

Loans and advances Loans and advances Loans and advances

to customers to banks to customers to banksNeither past due nor impaired 182,546,306 102,685,410 70,949,589 42,589,171Past due but not impaired 0 0 0 0Individually impaired 422,043 0 421,006 0

Gross 182,968,349 102,685,410 71,370,595 42,589,171Less: allowance for impairment 1,780,216 0 770,516 0.00

Net 181,188,133 102,685,410 70,600,079 42,589,171

The total impairment provision for loans and advances is USD 1,780,216 of which USD 422,043 represents the individually impaired loans and the remaining amount of USD 1,358,173 represents the portfolio provision.

During the year ended 31 March 2008, the Bank’s total loans and advances increased by 151% as a result of the expansion of the lending business, especially on Indian Companies. When entering into new markets or new industries, in order to minimize the potential increase of credit risk exposure, the Bank focused more on the business with large corporate enterprises or banks with good credit rating providing sufficient collateral.

(a) Loans and advances neither past due or impaired

Loans and advances neither past due or impaired31-Mar-08 Individual Corporate Entities

Overdrafts Term Loans Large Corporate Loans and advances Otherscustomers to banks

Investment Grade 278,145 142,646 176,125,515 102,685,410 6,000,000Standard Monitoring 0 0 0 0 0Special Monitoring 0 0 0 0 0Sub-Standard 0 0 0 0 0Total 278,145 142,468 176,125,515 102,685,410 6,000,000

Loans and advances neither past due or impaired31-Mar-07 Individual Corporate Entities

Overdrafts Term Loans Large Corporate Loans and advances Otherscustomers to banks

Investment Grade 23,545 82,270 70,843,774 41,563,259 1,025,913Standard Monitoring 0 0 0 0.00 0.00Special Monitoring 0 0 0 0.00 0.00Sub-Standard 0 0 0 0.00 0.00Total 23,545 82,270 70,843,774 41,563,259 1,025,913

38


(b) Loans and Advances individually impairedLoans and Advances to customersThe individually impaired loans and advances to customers before taking into consideration the cash flows from collateral held is USD 422,043. The breakdown of the gross amount of individually impaired loans and advances by class, along with the fair value of related collateral held by the Bank as security are as follows:

31-Mar-08 Individual Corporate Entities TotalOverdrafts Term Loans Large Corporate Others

CustomersIndividually impaired loans 0 1,037 0 421,006 422,043

Fair value of collateral 0 0 0 553,191 553,191

31-Mar-07 Individual Corporate Entities TotalOverdrafts Term Loans Large Corporate Others

CustomersIndividually impaired loans 0 0 0 421,006 421,006

Fair value of collateral 0 0 0 470,769 470,769

The total gross amount of individually impaired loans and advances to banks as at 31 March 2008 was USD 422,043. No collateral is held by the Bank as far as the impaired loan of USD 1,037 is concerned. Further though securities have been pledged to the Bank for the impaired loan of USD 421,006, there is little prospect that the amount will be received in the short term. Hence a full impairment provision has been provided against the gross amount.

Concentration of risks of financial assets with credit risk exposures

The Following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorized by geographical region as of 31 March 2008. For this table, the Bank has allocated exposures to regions based on the country of domicile of our counterparties.

India Mauritius South Africa Maldives Others Total

Treasury bills and other eligible bills 0 0 0 0 0

Loans and advances to banks 94,603,163 0 0 0 8,082,246 102,685,410

Loans and advances to customers 0 6,421,006 0 0 0 6,421,006

Loans to individuals: -

Overdrafts 0 278,145 0 0 0 278,145

Term Loans 0 143,683 0 0 0 143,683

Loans to corporate entities: -

Large Corporate customers 124,221,766 14,000,000 20,000,000 17,903,750 176,125,515

Others -

Trading assets-debt securities 0 0 0 0 0 -

Derivative financial instrument 0 0 0 0 0 -

Financial assets designated at fair value: -

Debt Securities 0 0 0 0 0 -

Loans and advances to Banks 0 0 0 0 0 -

Loans and advances to customers 0 0 0 0 0 -

Investment securities-debt securities 0 0 0 0 0 -

Pledged Assets 0 0 0 0 0 -

Other Asset 0 0 0 0 0 -

As at 31 March 2008 218,824,929 6,842,834 14,000,000 20,000,000 25,985,996 285,653,759

As at 31 March 2007 101,603,272 1,552,733 0 4,000,000 6803761 113,959,766

39


(b) The following table breaks down the Bank’s main credit exposure at their carrying amounts, as categorized by the industry sectors of our counterparties.

Financial Institutions Manufacturing Tourism Construction Others Total

Treasury bills and other eligible bills 0 0 0 0 0 0

Loans and advances to banks 102,685,410 0 0 0 0 102,685,410

Loans and advances to customers 0 0 0 0 6,421,006 6,421,006

Loans to individuals:

Overdrafts 0 0 0 0 278,145 278,145

Term Loans 0 0 0 136,973 6,710 143,683

Loans to corporate entities:

Large Corporate customers 23,650,693 132,474,822 20,000,000 0 0 176,125,515

Others 0 0 0 0 0 0

Trading assets-debt securities 0 0 0 0 0 0

Derivative financial instrument 0 0 0 0 0 0

Financial assets designated at fair value:

Debt Securities 0 0 0 0 0 0

Loans and advances to Banks 0 0 0 0 0 0

Loans and advances to customers 0 0 0 0 0 0

Investment securities-debt securities 0 0 0 0 0 0

Pledged Assets 0 0 0 0 0 0

Other Asset 0 0 0 0 0 0

As at 31 March 2008 126,336,103 132,474,822 20,000,000 136,973 6,705,861 285,653,759

As at 31 March 2007 71,839,071 36,567,962 4,000,000 78,818 1,473,915 113,959,766

40

SBI INTERNATIONAL (MAURITIUS) LTDNOTES TO THE FINANCIAL STATEMENTS (CONT'D)FOR THE YEAR ENDED 31 MARCH 200 8

3. USE OF FINANCIAL INSTRUMENTS (CONT'D)

Currency risk

The Bank takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board of Directors sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. The table below summarises the Bank’s exposure to foreign currency exchange rate risk at 31 March 2008. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorised by currency.

United GreatStates Dollar

BritainPound EURO Others Total

USD000’s USD000’s USD000’s USD000’s USD000’sAssets:

Cash Resources 5,775 489 9 1,541 7,814Investments securities 24,500 - 2 6,077 30,579Placements with related banks 22,610 - 1,407 - 24,017Placements with other banks 15,000 - - - 15,000Loan to related bank - - 8,082 - 8,082Loans and advances 222,641 - 24,407 28,744 275,792Tangible fixed assets 158 - - - 158Other assets 29,105 14,499 655 24,317 68,576

Total assets 319,789 14,988 34,562 60,679 430,018

Liabilities:

Deposits 183,177 35,205 40,679 33,265 292,326Borrowing from banks in Mauritius 5,500 1,907 - - 7,407Borrowings from banks abroad 10,093 - 475 - 10,568Subordinated loan - - 8,082 - 8,082Other liabilities 35,978 1,182 297 32,561 70,018

Total liabilities 234,748 38,294 49,533 65,826 388,401

Net on balance sheet position 85,041 (23,306) (14,971) (4,147) 41,617

As at 31 March 200 7

Total assets 207,245 21,685 17,361 13,037 259,328Total liabilities 121,335 52,988 33,394 28,949 236,666


As at 31 March 200 6

Total assets 168,758 12,341 6,811 5,580 193,490Total liabilities 118,331 24,373 17,475 11,847 172,026


41


3. USE OF FINANCIAL INSTRUMENTS (CONT'D)

Liquidity risk

The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loan draw downs, guarantees and from margin. The Bank does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The Board sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of inter bank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand.

The table below analyses assets and liabilities of the Bank into relevant maturity groupings based on the remaining period at balance sheet date to the contractual maturity date.

Up to 1-3 3-12 1-5 Over 51 month months months years years Total

USD000’s USD000’s USD000’s USD000’s USD000’s USD000’sAssets:Cash Resources 7,814 - - - - 7,814Investment securities - 60 - 30,519 - 30,579Placements with related banks 20,017 4,000 - - - 24,017Placements with other banks 15,000 - - - - 15,000Loan to related bank 8,082 - - - - 8,082Loans and advances 69,761 55,366 1,021 72,235 77,409 275,792Tangible fixed assets - - - - 158 158Other assets 5,104 63,472 - - - 68,576

Total assets 125,778 122,898 1,021 102,754 77,567 430,018

Liabilities:Deposits 158,484 91,819 19,358 22,665 - 292,326Borrowing from banks in Mauritius 5,500 1,907 - - - 7,407Borrowings from banks abroad 568 - - 10,000 - 10,568Subordinated loan - - - 8,082 - 8,082Other liabilities 4,926 65,092 - - - 70,018

Total liabilities 169,478 158,818 19,358 40,747 - 388,401

Net liquidity gap (43,700) (35,980) (18,337) 62,007 0 41,617

As at 31 March 200 7 Total assets 51,739 89,288 25,650 76,058 16,593 259,328Total liabilities 91,675 94,274 33,874 16,843 - 236,666

Net liquidity gap (39,936) (4,986) (8,224) 59,215 16,593 22,662

As at 31 March 200 6 Total assets 76,403 43,645 4,609 68,619 214 193,922Total liabilities 59,919 70,301 14,285 27,521 - 172,119

Net liquidity gap 16,484 (26,656) (9,676) 41,098 214 21,464

42


4. SECURITIES, PLACEMENTS AND OTHER INVESTMENTS

Remaining term to maturity

31 March 200831 March

200731 March

2006Within 1 – 5 No specific

12 months Years Maturity Total Total TotalUSD USD USD USD USD USD

Investment Securities held to maturity Credit linked notes - 24,500,000 - 24,500,000 22,000,000 23,000,000Syndicated term notes - 6,016,546 - 6,016,546 5,081,301 5,099,873Debentures and bonds - - - - -Others 60,348 - 2,155 62,503 1,814 1,650

60,348 30,516,546 2,155 30,579,049 27,083,115 28,101,523Placements with banks 39,016,868 - 39,016,868 72,070,000 89,570,130

Total securities and placements 39,077,216 30,516,546 2,155 69,595,917 99,153,115 117,671,653

5. LOANS AND ADVANCES

(a) Remaining term to maturity

31 March 31 March 31 March2008 2007 2006USD USD USD

Within 3 months 133,208,208 37,001,004 12,908,084Over 3 to 6 months - 13,766,456 425,000Over 6 to 12 months 2,801,395 4,040,799 1,629,544Over 1 to 5 years 72,235,188 41,976,193 41,192,660Over 5 years 77,408,967 17,175,314 80,254

Total 285,653,758 113,959,766 56,235,542

(b) Credit concentration of risk by industry sectors

Total credit facilities including guarantees, acceptances and other similar commitments extended by the bank to any one customer or group of closely-related customers for amounts aggregating more than 15% of its capital base, classified by industry sectors:


Name of sector

Entities outside Mauritius 339,931,899 135,244,000 35,200,000Other 40,000,000 30,000,000 13,000,000

Total 379,931,899 165,244,000 48,200,000

43


5. LOANS AND ADVANCES (CONT’D)

(c) Allowance for credit losses

-----------------31 March 2008------------------31 March

200731 March

2006Specific Portfolio

Provision Provision Total Total TotalUSD USD USD USD USD

Balance at beginning of year 353,075 417,441 770,516 673,017 1,257,408Provision for credit losses for the year 68,968 940,732 1,009,700 214,774 (584,391)Loans written off out of allowance - - - (117,275) -

422,043 1,358,173 1,780,216 770,516 673,017

(d) Provision for credit losses by industry sectors

Grossamount Impaired Specific Portfolio Total

31 March 31 March2007 2006

of Loans Loans Provision Provision Provision Total TotalUSD USD USD USD USD USD USD

Agriculture andfishing - - - - - - -Manufacturing ofwhich:EPZ 421,006 421,006 421,006 - 421,006 353,076 469,974Tourism - - - - - -Construction - - - - - -Financial and Business Services - - - - - -Traders -Global LicenceHolders 6,000,000 - - 50,000 50,000 10,259 -Personal 421,828 1,037 1,037 1,425 2,462 823 856Banks outside Mauritius - - - - - -Other entities outside Mauritius 278,810,924 - - 1,306,748 1,306,748 406,358 202,187Other - - - - - -

285,653,758 422,043 422,043 1,358,173 1,780,216 770,516 673,017

-------------------- 31 March 2008 --------------------

44


6. TANGIBLE FIXED ASSETS

Office Office MotorFurniture Equipment Vehicles Total

USD USD USD USDCOST

At 01 April 2005 40,872 258,315 211,204 510,391Additions 231 14,472 - 14,703Disposals - - (107,305) (107,305)

At 31 March 2006 41,103 272,787 103,899 417,789Additions 26,157 74,936 - 101,093Disposals (832) (63,599) - (64,431)

At 31 March 2007 66,428 284,124 103,899 454,451Additions 1,805 24,694 - 26,499Disposals - (637) - (637)

At 31 March 2008 68,233 308,181 103,899 480,313

ACCUMULATED DEPRECIATION

At 01 April 2005 40,738 177,315 120,185 338,238Charge for the year 154 21,160 14,265 35,579Disposals - - (87,615) (87,615)

At 31 March 2006 40,892 198,475 46,835 286,202Charge for the year 2,662 31,192 11,412 45,266Disposals (830) (63,582) - (64,412)

At 31 March 2007 42,724 166,085 58,247 267,056Charge for the year 5,563 40,885 9,130 55,578Disposals - (636) - (636)

At 31 March 2008 48,287 206,334 67,377 321,998

NET BOOK VALUE

At 31 March 2008 19,946 101,847 36,522 158,315

At 31 March 2007 23,704 118,039 45,652 187,395

At 31 March 2006 211 74,312 57,064 131,587

7. OTHER ASSETS Restated Restated


Accrued interest receivable 5,065,080 2,573,023 1,459,304Foreign exchange deals (bought) 61,030,456 40,805,139 16,341,685Derivative Assets 2,441,455 1,155,854 109,942Other 39,518 37,103 41,985

Total 68,576,509 44,571,119 17,952,916

45


8. DEPOSITS31 March 31 March 31 March

2008 2007 2006USD USD USD

Maturity:

Demand 43,988,821 16,669,126 16,211,525Time deposits with remaining term to maturity:Within 3 months 206,314,240 84,448,636 64,635,805Over 3 up to 6 months 7,535,471 17,037,666 10,729,520Over 6 up to 12 months 11,822,474 1,828,204 3,319,944Over 1 to 5 years 22,664,762 38,720 11,331,817

292,325,768 120,022,352 106,228,611

9. BORROWINGS

(a) Banks in Mauritius 31 March 31 March 31 March

2008 2007 2006USD USD USD

Borrowings with remaining maturity:

Within 3 months 7,407,184 24,246,220 16,000,000Over 3 up to 6 months - 7,492,440 -Over 6 months up to 12 months - 7,492,441 -

7,407,184 39,231,101 16,000,000

Currency

USD 5,500,000 20,500,000 16,000,000GBP 1,907,184 18,731,101 -

7,407,184 39,231,101 16,000,000

(b) Banks abroad31 March 31 March 31 March

2008 2007 2006USD USD USD

Borrowings with remaining maturity

Within 3 months 568,667 16,197,630 10,000,000Over 3 to 6 months - - -Over 1 to 5 years 10,000,000 10,000,000 10,000,000

10,568,667 26,197,630 20,000,000Currency

USD 10,568,667 25,000,000 20,000,000EUR - 1,197,630

10,568,667 26,197,630 20,000,000

46


9. BORROWINGS (CONT’D)

(c) Subordinated Loans

These loans are unsecured obligations of the bank and are subordinated to the claims of the bank’s depositors and other creditors.

31 March 31 March 31 MarchMaturity date Interest rate Terms 2008 2007 2006

(%) USD USD USD

12 April 2009 5.75% 9 years 8,082,246 6,803,761 6,189,444

The above borrowing is denominated in EURO.

10. OTHER LIABILITIES Restated Restated31 March 31 March 31 March

2008 2007 2006USD USD USD

Interest payable 4,494,928 2,591,515 1,519,211Foreign exchange deals (sold) 61,030,456 40,805,139 16,341,685Derivative Liability 4,061,511 26,541 1,038,373Remittances received 184,162 718,168 4,547,004Drafts Issued 20,755 69,137 14,352Others 5,470 5,284 4,750

69,797,282 44,215,784 23,465,375

11. STATED CAPITAL 31 March 31 March 31 March

2008 2007 2006USD USD USD

Authorised Capital400,000 Ordinary Shares of USD 62.50 each 25,000,000 25,000,000 25,000,000

Issued and fully paidAt 01st April 07: 160,000 Ordinary shares of USD

62.50 each Issued during the year: 100, 000 Ordinary Shares

of USD 62.50 Each

10,000,000

6,250,000

10,000,000

-

10,000,000

-

16,250,000 10,000,000 10,000,000Share Premium

100,000 Ordinary Shares issued at a premium of USD 87.50 each

8,750,000 - -

12. CONTINGENT LIABILITIES AND COMMITMENTS

31 March 31 March 31 March 2008 2007 2006

Contingent liabilities USD USD USD

Guarantees on account of customers 2,820,714 629,773 1,462,383Letters of credit and other obligations on account of customers 31,631,292 21,642,960 936,232Other contingent items 340,392 445,990 914,605

34,792,398 22,718,723 3,313,220Commitments

Undrawn credit facilities 108,315,000 40,472,616 36,575,063

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SB I INTERNATIONAL (MAURITIUS) LTD NOTES TO THE FINANCIAL STATEMENTS (CONT'D))FOR THE YEAR ENDED 31 MARCH 200 8

13. INTEREST INCOME FROM SECURITIES

31 March 31 March 31 March 2008 2007 2006USD USD USD

Investment securities 1,766,284 1,592,355 472,524

14. PROVISION FOR CREDIT IMPAIRMENT


Charge for specific provision 68,968 1,449 -Increase/(decrease) in portfolio provision 940,732 213,325 (584,391)

1,009,700 214,774 (584,391)

The interest element attributable to the loans and advances on which specific provision has been made has not been recognised as income, unless realised.

15. FEE INCOME AND COMMISSIONS


Loan-related - Letters of credit and acceptances 1,092,701 35,768 12,701Guarantees 25,422 13,102 13,467Other 204,405 507,335 291,056

1,322,528 556,205 317,224

16. DERIVATIVES

USDTotalNotional Principal Positive

Fair Value

Negative NetCross Currency Swap

2008 61,030,456 2,441,455 (3,797,913) (1,356,458)

2007 (Restated) 41,480,543 1,147,304 (26,541) 1,120,763

2006 (Restated) 17,335,860 - (1,039,288) (1,039,288)

The Bank had taken Cross Currency Swaps to mitigate the forex risk and interest rate risks. These are backed by underlying transactions that are held to maturity. In 2006 and 2007, the Bank had booked the notional positive value in the fair value of derivatives as income by way of net gain on fair value of derivatives, which had been corrected this year by restating income of the respective years and consequently the retained earnings.

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17. STAFF COSTS31 March 31 March 31 March

2008 2007 2006USD USD USD

Wages, salaries and other benefits 213,623 245,654 206,753Pension costs – defined contribution plan 9,643 7,533 7,258

223,266 253,187 214,011

18. NON-INTEREST EXPENSE


Staff costs (Note 17) 223,266 253,187 214,011Other operating expense 683,746 742,022 607,193

897,369 995,209 821,204

19. TAXATION

The Bank is assessable to income tax in Mauritius at the rate of 15% (2007: 22.5% and 2006: 25.0%), but is entitled to a foreign tax credit of the higher of the foreign taxes paid and 80% of the Mauritius tax chargeable on Segment B income. Expenses have been allocated to Segment A (income from domestic operations) and Segment B (foreign source operations) on the basis of income generated by the respective segments.

19A. CURRENT TAXATION 31 March 31 March 31 March

200 8 2007 2006USD USD USD

Accounting profit 5,733,592 2,897,643 2,672,178

Tax on Accounting profit at the applicable TaxRate @ 15% (2007: 22.5% and 2006: 25.0%) 860,039 651,970 668,045Net tax effect of non-taxable income, non-allowable expenses, foreign tax credit and other items (640,039) (456,179) (525,430)

Current tax provision for the year 220,000 195,791 142,615

19B. TAX EXPENSE 31 March 31 March 31 March

2008 2007 2006USD USD USD

Current tax provision for the year 200,000 195,791 142,615Under provision in previous year 58,230 4,098 4,941

Total tax expense 278,230 199,889 147,556

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20. NET INCOME AVAILABLE TO ORDINARY SHAREHOLDERS


The net income for the year is arrived at after charging:

Auditors’ remuneration - audit services 5,250 5,000 4,750- other services - -

Depreciation (Note 6) 55,578 45,266 35,579 Directors’ fees - non-executive 10,400 21,300 13,200 - executive 9,700 39,574 33,535

21. CASH AND CASH EQUIVALENTS31 March 31 March 31 March

2008 2007 2006USD USD USD

Assets

Cash and balances with central banks 5,677,912 1,458,710 441,995Balances with banks 2,135,866 768,383 1,729,168Placements 37,016,868 57,870,000 87,447,904

44,830,646 60,097,093 89,619,067

Liabilities

Borrowings:Banks in Mauritius 7,407,184 24,246,220 16,000,000Banks abroad 568,667 16,197,630 10,000,000

7,975,851 40,443,850 26,000,000

Cash and cash equivalents 36,854,795 19,653,243 63,619,067

22. RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.

A number of banking transactions are entered into with related parties in the normal course of business. These include loans and management fees. These transactions were carried out on commercial terms and at market rates. The volumes of related party transactions, outstanding balances at the year, and relating expense and income for the year are as follows:


(a) Balances with related banks: 1,289,902 449,385 305,246

The above bank balances do not bear interest.

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SBI INTERNATIONAL (MAURITIUS) LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 200 8

22. RELATED PARTY TRANSACTIONS (CONT’D)


(b) Placement with related banks:At beginning of year 19,870,000 77,090,000 40,600,000Amounts advanced during the year 2,225,802,752 6,101,935,163 5,529,891,394Amounts received during the year (2,223,757,804) (6,161,299,644) (5,494,939,698)Interest income 2,101,920 2,144,481 1,538,304

At end of year 24,016,868 19,870,000 77,090,000

Interest income earned 2,101,920 2,144,481 1,538,304


(c) Loan to related banks:At beginning of year 6,803,761 6,189,444 6,622,764Amounts granted during the year - - -Amounts received during the year (513,559) (431,141) (392,213)Interest income and exchange difference 1,792,044 1,045,458 (41,107)

At end of year 8,082,246 6,803,761 6,189,444

Interest income earned 513,559 431,141 392,213

The loan to SBI Frankfurt is unsecured and is denominated in EURO and interest is receivable at the rate of 6.25%. The loan was disbursed on 12 April 2000 and is for a maximum duration of 8 years.


(d) Borrowing from related banks:At beginning of year 26,197,630 20,000,000 11,844,224Amounts received during the year 1,303,912,790 88,746,422 41,759,340Amounts repaid during the year ((1,321,420,061) (83,745,986) (34,459,127)Interest expense 1,309,641 1,197,194 855,563

At end of year 10,000,000 26,197,630 20,000,000

Interest expense incurred 1,309,641 1,197,194 855,563

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SBI INTERNATIONAL (MAURITIUS) LTDNOTES TO THE FINANCIAL STATEMENTS (CONTINUED)FOR THE YEAR ENDED 31 MARCH 200 8

22. RELATED PARTY TRANSACTIONS (CONT’D)

31 March 31 March 31 March 200 8 2007 2006USD USD USD

(e) Loan from parent banks:At beginning of year 6,803,761 6,189,444 6,622,764Amounts repaid during the year (472,475) (396,650) (358,012)Interest expense and exchange difference 1,750,960 1,010,967 (75,308)

At end of year 8,082,246 6,803,761 6,189,444

Interest expense incurred 472,475 396,650 358,012

The loan from the State Bank of India, the parent bank, has been used to fund the loan granted to SBI Frankfurt. The loan is unsecured and is denominated in EURO and interest is payable at the rate of 5.75%. The loan was disbursed on 12 April 2000 and is of a duration of a maximum of 9 years. However, the loan may be repaid earlier provided that the corresponding subordinated loan placed with the SBI Frankfurt is paid back.

(f) Management fees:Payable to parent bank 115,044 124,424 73,659

(g) Compensation of key management personnelShort-term benefits 60,345 59,792 45,248Post-employment benefits 1,719 1,082 1,487

62,064 60,874 46,735

(h) Short Term Foreign Currency Loans to Parent banks 62,987,047 35,785,410 5,245,330

23. EARNINGS PER SHARE

The calculation of earnings per share is based on the profit for the year of USD 5,455,362(31 March 2007 – USD2,697,754 and 31 March 2006 – USD2,524,622) and on weighted average number of shares outstanding during the year, i.e. 173,388 (31st March 2007 and 31st March 2006 – 100,000) ordinary shares.

24. DIVIDEND31 March 31 March 31 March

200 8 2007 2006USD USD USD

Paid USD9.38 - (USD 9.38 for 2007 and USD 6.25 for 2006 ) per ordinary share on 03rd October 2007 (2006- 18 September 2006 and 2005 - 31 August 2005) 1,500,000 1,500,000 1,000,000

25. HOLDING AND ULTIMATE HOLDING COMPANY

The directors consider the State Bank of India, incorporated in the Republic of India as its holding and ultimate holding company.

26. FUNCTIONAL CURRENCY

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The financial statements are presented in United States Dollars which is the currency in which the majority of the Bank’s transactions are denominated.

27. INCORPORATION

The Bank is incorporated in Mauritius under the Mauritius Companies Act 2001. Its registered office address is 7th Floor, Harbour Front Building, President John Kennedy Street, Port Louis. The principal activity of the bank is international banking. The Bank is a single office bank with no subsidiary or branch and having no shareholding or interest in any other company.

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