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The graphical presentations below depict the analysis of the Bank’s overall credit risk exposure as at December 31, 2011 based on different factors. Industry Sector distribution of the Advances Portfolio is given under Sustainability Supplement.

Credit Risk Mitigation and Control

The Bank believes that credit risk management should be a value enhancing activity that goes beyond regulatory compliance encompassing:

1. An appropriate credit risk environment which seeks risk optimisation;
2. A sound credit approval and granting process;
3. An appropriate credit administration, measurement and monitoring process; and
4. Adequate controls over credit risk on a continuous basis.

Comprehensive Credit Policy and Lending Guidelines of the Bank provide clear guidelines for the Lending Officers and always supports an effective credit risk management culture which promotes transparency of lending decisions at all times. A well-defined approval hierarchy enriched with high ethical standards, established procedures and credit risk limits function as the core credit risk mitigating mechanism in the overall credit culture of the Bank. The credit exposures to be assumed by the Bank are subjected to a thorough risk evaluation to ensure an optimum risk-reward pay off to the Bank. Further, as a general policy, the Bank will assume credit exposures with short to medium term maturities thus reducing the overall credit risk in the portfolios, to a great

extent. The Bank’s credit portfolio is also subjected to continuous review at various levels which provide an early warning on any impending deterioration of the Bank’s credit quality. The overall credit risk exposure on certain risk categories (i.e. single borrower, industrial/service sectors, special products etc.) are monitored and controlled through establishment of prudential limits, within the risk appetite framework of the Bank.

At individual exposure level, most common traditional credit risk mitigant is the collaterals provided by the borrowers. These include Mortgage over properties, Lien over deposits, Guarantees etc. The Bank as a policy obtain professional valuations when fixed assets are taken as collateral and these values are periodically monitored by the Lending Officers.

MARKET RISK

The Bank encounters, risk of losses in 'On Balance-Sheet’ and ‘Off-Balance Sheet’ positions arising from movements in market prices and this is defined as Market Risk as per Basel II. Banks are exposed to Market Risk not only due to trading activities, but also due to engaging in non-trading activities such as Lending, Corporate Investments and Equity Investments.

The primary objective of the Market Risk Management Unit (MRMU) of Integrated Risk Management Department (IRMD) is to ensure that the rewards are optimised in Bank’s business transactions which are exposed to various market risks while maintaining the down side risks under control within approved policy limits/parameters and guidelines. In order to achieve this, MRMU constantly maintains a close working relationship with the risk assuming business lines and control/monitoring functions within the Bank.

Market Risk Management Structure

MRMU functions within the IRMD of the Bank and is responsible for risk identification, measurement, monitoring, control and management reporting in relation to Market Risk. Treasury Middle Office is an integral part of MRMU and independently evaluates and monitors the transactions carried out by the Bank’s Treasury from a risk perspective. Overall market risk parameters and exposures of the Bank are monitored by MRMU and periodically reported to Assets and Liabilities Committee (ALCO), Executive Integrated Risk Management Committee (EIRMC) and Board Integrated Risk Management Committee (BIRMC) through the Chief Risk Officer. In addition, MRMU also monitors liquidity risk related exposures of the Bank, and reports to ALCO to manage the Bank’s liquidity at the desired level.