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CANARA BANK (A Govt of India Undertaking) [Head Office: Bangalore]

SCHEDULE 17 - NOTES ON ACCOUNTS FOR 2004-2005

[1] Investments:

1.1 The Bank had transferred securities with a Book Value of Rs.5981.49 Crores during the year from AFS category to HTM category in accordance with one time permission granted by Reserve Bank of India. Percentage of investments held under Held to Maturity category (excluding exempted categories) to total investments as on 31-03-2005 due to such transfer of Government Securities is 33.77% (Previous year 19.18%). The percentage of investments under Held to Maturity category excluding the exempted categories and the transfer mentioned above as on 31.03.2005 is 17.81%, which is within the permissible limit of 25% as per RBI guidelines. Such securities were transferred at market value as on the date of transfer and the depreciation being the difference between the market value and book value as on the date of transfer amounting to Rs.381.24 Crores has been provided in the Profit & Loss Account.

1.2 The securities earlier purchased from Canbank Financial Services Ltd. (CANFINA), a wholly owned subsidiary of the bank, included under Other Assets (being investment overdue for redemption) amounted to Rs.227.04 Crores (Previous year 240.63 Crores) at face value. Out of the above, securities with a face value of Rs.200 Crores (Previous year Rs.200 crores) have not been registered or have been withheld/cancelled by two PSUs by linking to their claims against CANFINA.

While the recovery of the amount from the said PSUs is being pursued, the Bank has secured its exposure with certain securities having a market value of Rs.237.07 Crores as on 31st March 2005 (Previous year Rs.222.02 Crores) and these securities are either registered in the name of the Bank or lien is noted on those securities.

[2] The Bank is maintaining a contingent provision for envisaged shortfall in servicing the dues of three PSUs by CANFINA for which settlement has been reached. During this year, the payments made against such settlement have been met by CANFINA. Considering the outstanding liability on account of the above settlement and the amount earmarked for the above payments, the excess provision of Rs.249.09 crores has been written back by the Bank. The available provision is adequate to meet the further liability.

[3] Expenditure on Special Voluntary Retirement Scheme (SVRS):

The Bank implemented a Special Voluntary Retirement Scheme (SVRS) during the financial year 2000-2001 and 2001-2002. In accordance with the guidelines of the Reserve Bank of India, the total expenditure (comprising of exgratia and contribution to Gratuity & Pension Fund) aggregating to Rs.908 Crore (Previous Year Rs.908 Crore) is amortized over a period of five years considering the future benefit arising there from. Accordingly, the balance amount of Rs.190.79 Crore (Previous Year Rs.181.68 Crore) has been charged to current years Profit and Loss Account.

[4] Inter-Branch Transactions:

The initial matching of entries received at Head Office for the purpose of reconciliation under Inter-Branch transactions upto 31.03.2005 has been done. The Bank is continuing its efforts to reconcile and reduce the remaining outstanding entries.

[5] Premises:

Premises include certain properties capitalized aggregating to Rs.113.13 Crore (previous year Rs.131.01 Crore) in respect of which conveyance deeds are pending execution.

[6] Wage Revision:

In terms of the understanding reached between Indian Banks Association and workmens union and Officers Association, a sum of Rs. 230 Crores has been provided towards wage arrears.

[7] Accounting Standards:

In compliance of the guidelines issued by the Reserve Bank of India regarding disclosure requirements of the various Accounting Standards issued by the Institute of Chartered Accountants of India, the following information is disclosed:

7.1 Segment Reporting Accounting Standard-17:

7.1.1 Part A: Business Segments: [Rs. in Crore]

Banking Operations Business Segments 31.3.2005 Revenue Results (Operating Profit) Unallocated Provisions 7996.41 1872.51 31.3.2004 7144.71 1542.48

Treasury Operations 31.3.2005 1119.39 712.82 31.3.2004 1935.12 1316.24 31.3.2005

Total 31.3.2004 9079.83 2858.72 -21.56

9115.80 2585.33 0.00

Income Taxes Provisions & Contingencies Extraordinary Items Net Profit Other Information Segment Assets Unallocated Corporate Assets * Total Assets Segment Liabilities Unallocated Corporate Liabilities Capital & Reserves * Total Liabilities 103679.08 93163.63 138.58 99.98 98481.18 89402.99 10585.60 8926.49

170.00 1305.82 0.00 1109.51

330.00 1212.27 0.00 1338.01

109066.788 1121.47 110188.25 103817.66 378.55 5992.04 110188.25

98329.48 872.24 99201.72 93263.61 807.23 5130.88 99201.72

(* Excluding Revaluation Reserve)

There are no significant residual operations carried on by the Bank.

7.1.2 Part B: Geographical Segments: [Rs. in Crore]

Domestic Operations 31.3.2005 Revenue Assets 9035.24 107443.18 31.3.2004 9021.28 97158.86

Foreign Operations 31.3.2005 80.56 2745.07 31.3.2004 58.55 12042.86 31.3.2005

Total 31.3.2004 9115.80 110188.25 9079.83 99201.72

7.1.3. The Bank has recognized Business Segments as Primary reporting segment and Geographical Segments as Secondary segment in line with RBI guidelines on compliance with Accounting Standard 17.

7.1.4. Primary Segments Business Segments: a) Banking Operations

b) Treasury Operations 7.1.5. Secondary Segments Geographical Segments: a) Domestic Operations

b) Foreign Operations 7.1.6. Banking Operations consist of Corporate Banking, Retail Banking, Personal and Commercial Banking, Cash Management Services, Forex Operations, Deposits and allied services such as Credit Cards, Depository Participant Services, Marketing of Insurance products etc. and Investments in Government securities maintained under SLR.

7.1.7. Treasury Operations consist of dealing in Non-SLR securities and Money Market Operations.

7.1.8. Pricing of Inter-segmental transfers:

Banking Operations is a primary resource mobilizing unit and Treasury Operations compensates the former for funds lent by it taking into consideration the average cost of Deposits and Borrowings.

7.1.9. Allocation of Costs: a) Expenses directly attributable to a particular segment are allocated to a specific segment

b) Expenses not directly attributable to a specific segment are allocated in proportion to the average funds deployed in the specific segment. 7.2. Related Party Disclosure Accounting Standard-18:

List of Related Parties:

7.2.1 Key Management Personnel i) Shri R V Shastri, Chairman & Managing Director

(Retired on Superannuation on 31.10.2004)

ii) Shri V P Shetty, Chairman & Managing Director

(From 01.11.2004 to 03.03.2005)

iii) Shri N Kantha Kumar, Executive Director (Till 19.01.2005)

iv) Shri B Swaminathan, Executive Director (From 22.01.2005) 7.2.2 Subsidiaries i) Indo-Hong Kong International Finance Ltd.

ii) Canbank Investment Management Services Ltd.

iii) Canbank Venture Capital Fund Ltd.

iv) Canbank Financial Services Ltd.

v) Canbank Factors Ltd.

vi) Canbank Computer Services Ltd.

vii) GILT Securities Trading Corporation Ltd. 7.2.3 Joint Ventures i) Commercial Bank of India LLC 7.2.4 Associates i) Canfin Homes Ltd.

ii) Commonwealth Trust (India) Ltd.

iii) CARE Ltd

iv) Regional Rural Banks sponsored by the Bank

a) Chitradurga Gramin Bank

b) Tungabhadra Gramin Bank

c) Kolar Gramin Bank

d) Sahyadri Gramin Bank

e) South Malabar Gramin Bank

f) Jamuna Gramin Bank

g) Aligarh Gramin Bank

h) Etah Gramin Bank

7.2.5 Disclosure about transactions with Key Management Personnel is as under: Remuneration to Key Management Personnel Rs.10,45,530.82

(Previous Year: Rs.9,86,451/-)

7.2.6 Transactions with the Joint Venture are as under:

COMMERCIAL BANK OF INDIA LLC. [Rs. in Crore]

PARTICULARS Interest received during the year Placement from Canara Bank, International Division, Mumbai Sub-ordinated loan from Canara Bank

31.03.2005 0.02 7.66 3.50

7.2.7 Transactions with the Associates are as under:

CANFIN HOMES LTD. [Rs. in Crore]

PARTICULARS Advances Deposits Interest received during the year Interest paid during the year Rent received during the year Bank Charges received during the year 31.03.2005 274.67 24.00 10.68 2.84 0.41 0.17 31.03.2004 156.47 25.00 7.57 2.76 0.44 0.11

7.3 Earnings Per Share Accounting Standard-20: [Amount in Rs.]

Sl No. 1 2

Particulars Basic EPS Diluted EPS

2004-2005 27.06 27.06

2003-2004 32.63 32.63

Computation of Basic EPS: [Amount in Rs.]

Particulars A B C D Net Profit for the year attributable to Equity Shareholders (Rs. in Crore) Number of Equity Shares Basic Earnings per Share (A/B) (Rs.) Nominal Value per Share (Rs.)

2004-2005 1109.51 41 Crore 27.06 10/-

2003-2004 1338.01 41 Crore 32.63 10/-

7.4 Deferred Tax Assets and Liabilities Accounting Standard-22:

The Bank has recognized Deferred Tax Assets / Liabilities (DTA / DTL) and has accounted for the Net Deferred Tax as on 31.03.2005 as under:

Major components of Deferred Tax Assets and Deferred Tax Liabilities are as under: [Rs. in Crore]

Deferred Tax Assets Particulars 31.03.2005 Provision for Diminution in value of Securities Interest accrued but not due on securities Expenditure on Voluntary Retirement Scheme Leave Encashment Capital Gains / Losses Depreciation on Fixed Assets Provision for interest on FDR Others Deferred Tax Asset / Liability Nil Nil Nil 57.63 Nil 17.41 17.35 15.19 107.58 31.03.2004 Nil Nil Nil 45.70 40.46 14.48 Nil Nil 100.64

Deferred Tax Liability 31.03.2005 27.67 280.91 Nil Nil Nil Nil Nil Nil 308.58 31.03.2004 27.14 288.92 25.18 Nil Nil Nil Nil 11.22 352.46

7.5 Financial Reporting of Interests in Joint Ventures Accounting Standard 27

Investments include Rs.36.57 Crore (at the prevalent rate) representing the Banks interest in the Commercial Bank of India LLC

(Incorporated in Russia) wherein the Bank is having 40% share.

As required by AS 27 the aggregate amount of the assets, liabilities, income and expenses related to the Banks interest in jointly controlled entity is disclosed as under:
31.03.2005 Capital & Liabilities Capital Reserves & Surplus Deposits Borrowings Other Liabilities Total Capital & Liabilities Assets Cash and Balance with Central Bank of Russia Balance with Banks and money at call & short notice Investments Advances Fixed Assets Other Assets Total Assets 72800 1419600 7771600 7307600 4000 136400 16712000 0.32 6.21 34.00 31.97 0.02 0.59 73.11 In US Dollars 8000000 (-) 67600 1081200 7500000 198400 16712000 Rs. in Crores* 35.00 (-)0.30 4.73 32.81 0.87 73.11 Expenditure Interest Expended Operating Expenses Provisions & Contingencies Total Expenditure Loss 64000 460800 8000 532800 33600 0.28 2.02 0.03 2.33 0.15 Income Income Interest Earned Other Income Total Income 471600 27600 499200 2.06 0.12 2.18 31.03.2005 In US Dollars Rs. in Crores*

* The above figures have been translated at USD 1 = Rs.43.745.

The above figures are as per un audited accounts of the joint venture as the audited accounts are only prepared upto 31st December 2004.

7.7 Impairment of Assets Accounting Standard 28

In the opinion of the Bank there is no impairment of its Fixed Asset to any material extent as at 31.03.2005 requiring recognition in terms of Accounting Standard 28.

8 Country Risk Exposure:

In respect of Foreign Exchange transactions, where the banks net funded exposure computed as per the guidelines of the RBI, with each country for the year ended 31st March 2005 exceeded 1% of the total assets of the Bank, the required provision is made.

Risk category-wise country exposure Insignificant category (A1) a. The net funded exposure on United Kingdom as at 31st March 2005 is Rs.2434.08 Crores

b. The aggregate provision held is Rs.2.12 Crores.

9 Additional Disclosure:

9.1. In terms of Reserve Bank of India guidelines, the following additional disclosures have been made.
Sl. No A B C D Particulars Shareholding by the Government of India Capital Adequacy Ratio Capital Adequacy Ratio Tier I Capital Capital Adequacy Ratio Tier II Capital 2004-2005 73.17% 12.78% 7.29% 5.49% 2003-2004 73.17% 12.66% 7.81% 4.85%

9.2 The following data as compiled by the Management is relied upon by the Auditors:
Particulars A B C D E F G Percentage of Net Non-Performing Advances to Net Advances Interest income as a percentage to average working funds Non-interest income as a percentage to average working funds Operating Profit as a percentage to average working funds Return on Assets Business (deposits plus advances) per employee [Rs. in lacs] Profit per employee [Rs. in lacs] 2004-2005 1.88% 7.28% 1.48% 2.48% 1.01% 351.12 2.48 2003-2004 2.89% 7.92% 2.34% 3.23% 1.34% 297.58 2.97

9.3 Details of Provisions & Contingencies made during the year: [Rs. in Crore]

Particulars Provision for Standard Assets Bad and Doubtful Debts Taxation (Net of deferred tax )

31.03.2005 31.00 806.89 170.00

31.03.2004 18.00 1238.63 330.00

Wage Arrears Investment Depreciation Others / Contingencies (Net) TOTAL

230.00 458.39 (220.46) 1475.82

----(65.92) 1520.71

Details of movement in provisions in accordance with Accounting Standard 29: [Rs. in Crore]
Opening as on 01.04.2004 116.00 1432.46 5.20 1464.53 --426.35 126.88 Provision made during the year 31.00 806.89 2.81 220.82 230.00 --41.28 Provisions reversed / adjusted --1110.81 2.85 0.53 --249.09 13.00 Closing as on 31.03.2005 147.00 1128.54 5.16 1684.82 230.00 177.26 155.16

Particulars Provision for Standard Assets Bad and Doubtful Debts Investments Taxation Wage Arrears Provision for Contingencies of Subsidiaries Miscellaneous Provisions

9.4. Subordinated Debts: [Rs. in Crore]

Particulars Amount of Subordinated Debt raised for Tier II Capital 31.03.2005 2579.60 31.03.2004 2000.00

9.5 Maturity Pattern of Assets & Liabilities: [Rs. in Crore]

Maturity Pattern (Time Buckets) A 1-14 days B 15-28 days C Foreign Currency Loans & Advances Investments 6831.33 (5083.04) 3878.96 (2662.99) 138.97 (413.72) 145.53 (378.40) 1381.68 (656.36) 2703.38 (661.41) 392.84 (1191.57) Deposits 5738.20 (3502.32) 3545.19 (3502.32) 8287.37 (7491.87) 7657.00 (7031.61) Borrowings Liabilities 13.12 (87.62) 0.00 (0.41) 1558.70 (1445.22) 243.11 (649.84) Assets 2594.06 (3648.13) 613.81 (822.43) 3018.99 (3685.02) 1714.59 (1574.60) 635.15 (229.46)

29 days to 7311.33 (5854.79) 3 months Over 3 D months to 6 4480.91 (3549.08) months E Over 6 8118.59 (6950.48)

88.41 (102.26) 1477.47 (2668.74) 0.97 (120.64) 752.30 (1257.73) 1119.69 (2352.43)

13238.53 (9730.27) 1.70 (434.81)

months to one year Over one F year to 3 years Over 3 G years to 5 years Over 5 H years TOTAL

15592.27 (11314.17) 6299.76 (6869.49) 7908.25 (5354.59)

3603.85 (3628.31)

30144.28 (24790.00) 8458.87 (7012.00) 19838.98 (23284.17)

5.71 (5.11)

1694.49 (2916.52)

293.07 (1055.07)

4492.69 (4267.62) 25194.94 (24595.60)

3.34 (3.38) 0.92 (0.67)

13.00 (0.00) 808.00 (0.00)

319.73 (40.03) 505.04 (207.25)

60421.40(48438.63) 38053.88(35792.99) 96908.42(86344.56) 114.17(754.90) 7666.76 (11290.48 ) 9694.44 (11261.99 )

Previous year figures are given in Brackets.

9.6. Movement in NPA: [Rs. in Crore]

31.03.2005 Particulars Gross Opening Balance ADD: Additions during the year Total LESS: Reductions during the year Closing Balance 3126.84 1318.80 4445.64 2075.09 2370.55* Net 1378.31 218.82 1597.13 471.85 1125.28 Gross 2474.78 1890.00 4364.78 1237.94 3126.84 Net 1453.88 494.03 1947.91 569.60 1378.31 31.03.2004

9.7. Movement of Provisions held towards NPA: [Rs. in Crore]

Particulars Opening Balance ADD: Provisions made during the year Sub-total LESS: Write off of bad debts/ Write Back of excess provisions Closing Balance 31.03.2005 1432.46 806.89 2239.35 1110.81 1128.54* 31.03.2004 724.84 1238.63 1963.47 531.01 1432.46

9.8 Movement of Provisions held towards Depreciation on Investments: [Rs. in Crore]

Particulars 31.03.2005 31.03.2004

Opening Balance Add (a) Appropriation from Investment Fluctuation Reserve during the year (b) Provision made during the year Less (a) Transfer to Investment Fluctuation Reserve during the year (b) Provision written back during the year Closing Balance

5.20

28.50

2.81

2.27

(2.85) 5.16

(25.57) 5.20

9.9. Lending to sensitive sectors:

A. Advances to Capital Market

A1. Fund based [Rs. in Crore]

Particulars 1 2 3 4 Individuals Share and Stock Brokers Market Makers IPO Financing Total Advances to Capital Market All other Borrowers against security of shares 31.03.2005 8.55 20.10 0.19 0.18 29.02 424.16 31.03.2004 9.54 90.95 0.01 2.08 102.57 264.70

A2. Non-Fund based [Rs. in Crore]

Particulars 1 2 Financial Guarantees issued to Stock Exchanges on behalf of Stock Brokers Other Financial Guarantees to the above Total Financial Guarantees 31.03.2005 31.70 188.43 220.13 31.03.2004 129.50 151.83 281.33

B. Advances to Real Estate [Rs. in Crore]

Particulars 31.03.2005 31.03.2004

1 2 3 4

Commercial Property Land & Buildings Developers Mortgages other than individual Housing Loans Others Total Exposure to Real Estate Sector

105.63 81.89 4.24 11.77 203.54

99.19 120.32 15.03 5.88 240.42

9.10. Investment exposure to Capital market. [Rs. in Crore]

Particulars A B C Investments in Equity Shares Investments in Convertible Bonds & Debentures Units of equity oriented mutual funds TOTAL 31.03.2005 295.07 ---48.20 343.27 31.03.2004 208.85 --86.08 294.93

9.11. Information in respect of restructuring etc., undertaken during the year:

a) Corporate Debt Restructuring: [Rs. in Crore]

Particulars Total amount of loan assets subjected to restructuring under CDR Total amount of Standard assets subjected to restructuring under CDR Total amount of Sub Standard assets subjected to restructuring under CDR Total amount of Doubtful assets subjected to restructuring under CDR 31.03.2005 124.56 72.48 12.44 39.64 31.03.2004 289.88 208.62 14.62 66.64

b) Others: [Rs. in Crore]

Particulars Total amount of loan assets subjected to restructuring, etc The amount of Standard assets subjected to restructuring, etc. The amount of Sub-standard assets subjected to restructuring etc. The amount of Doubtful assets subjected to restructuring etc. 31.03.2005 335.74 304.83 22.98 7.93 31.03.2004 383.23 383.23 0.00 0.00

9.12 Details of Financial Assets sold during the year to Asset Reconstruction Company is as under:
No. of Accounts referred to ARCs Amount involved No. of Offers received Book Liability Amount Offered No. of Accounts settled Book Liability Amount settled 46 Rs.535.28 Crores 7 Rs.98.56 Crores Rs.16.64 Crores 5 Rs.55.93 Crores Rs.11.45 Crores

9.13 Derivative contracts:Outstanding Derivative contracts as on 31st March 2005: Quantitative Disclosures: Investments : [Rs. in Crore]
Sl. No. 1 Particulars Derivatives (Notional Principal Amount) a) For hedging b) For trading 2 Marked to Market Positions [1] a) Asset (+) b) Liability (-) 3 4 Credit Exposure [2] Likely impact of one percentage change in interest rate (100*PV01) a) on hedging derivatives b) on trading derivatives 5 Maximum and Minimum of 100*PV01 observed during the year a) on hedging b) on trading NA NA NA 0.00 39.25 Nil Nil 0.82 0.30 7.22 -7.16 47.22 Nil 76.55 Nil 1975.00 Currency Derivatives Interest Rate Derivatives

NA : Not Available

Qualitative Disclosure:

The Treasury Risk Management Comprehensive Policy on the use of derivative instruments to hedge risks has been approved by the Board of Directors wherein transactions in IRS and FRAs are permitted. The policy comprehensively provides for an efficient risk management structure and reporting system.

MIS

The Bank prepares a statement on derivatives as on the end of every month and place the statement to the ALCO (Main). All the transactions entered into / wound up are reported to the Investment Committee / ALCO for information. Exceptional reporting is made to the Board of Directors for information, ratification or orders.

9.14 Ready Forward Contracts (REPOS) in Government securities (excluding Liquidity Adjustment Facility with RBI) carried out during the year) [Rs. in Crore]
Minimum outstanding during the year Securities sold under Repos Securities purchased under reverse Repos 507.54 Maximum outstanding during the year 602.95 Daily Average outstanding during the year 3.04 As on 31.03.2005 -----

9.15 Non SLR Investment Portfolio:

9.15.1 Issuer composition of Non SLR Investments [Rs. in Crore]

Extent of private placement (4) 738.42 2553.41 425.61 597.00 416.87 1443.59 6174.90 Extent of below investment grade securities (5) 45.00 182.28 3.00 6.24 0.00 93.00 329.52 Extent of unrated securities (6) 8.50 18.00 10.00 0.00 0.00 379.96 416.46 Extent of unlisted securities (7) 250.96 1792.42 165.00 136.60 4.50 579.91 2929.39

No. (1) 1. 2. 3. 4. 5. 6. 7. PSUs FIs Banks

Issuer (2)

Amount (3) 797.65 2625.32 428.57 780.63 416.87 3499.18 5.08 8543.14

Private Corporates Subsidiaries / Joint Ventures Others Provision held towards depreciation Total

Columns 5 to 7 represent Debentures & Bonds only

9.15.2 Non-Performing Non SLR Investments (including amount lying in SA): [Rs. in Crore]
Particulars Opening Balance * Additions during the year Reduction during the year Closing Balance Total Provisions held 78.60 19.04 13.48 84.16 84.16 31.03.2005

* Opening balance has undergone change due to inclusion of NPA Securities matured lying in Sundry Assets

9.16 Credit Exposure exceeded the Prudential exposure Limits:

The Bank has not exceeded the prudential credit exposure limits in respect of any group accounts. However, in respect of following accounts, the exposure ceiling of 15% of capital funds stipulated for individual borrowers has been exceeded:
Sl.No. 1. 2. 3. 4. 5. 6. BHEL Indian Oil Corporation National Housing Bank Power Finance Corporation HUDCO HDFC Name of the borrower

In addition to the above, in respect of one borrowal account, though limits were sanctioned in excess of the exposure limits, the same has not been availed.