Bank of baroda

Our results of operations depend to a great extent on our net interest income, and volatility in interest rates and
other market conditions could adversely impact our business and financial results.
In the first six months of fiscal 2006, net interest income represented 45.75% of our interest income and 39.64% of our
total income. Volatility and changes in market interest rates could affect the interest we earn on our assets differently
from the interest we pay on our liabilities. The difference could result in an increase in interest expense relative to
interest income leading to a reduction in net interest income. Accordingly, volatility in interest rates could adversely
affect our business and financial performance. An increase in interest rates also may adversely affect the rate of
growth of important sectors of the Indian economy such as the corporate, retail and agricultural sectors, which may
adversely impact our business.
Interest rates are sensitive to many factors beyond our control, including RBI’s monetary policy, deregulation of the
financial sector in India, domestic and international economic and political conditions and other factors. On October 25,
2005, the reverse repo rate (which is the overnight rate at which commercial banks place funds with RBI) was raised
from 5.00% to 5.25%.
Under the regulations of RBI, we are required to maintain a minimum specified percentage, currently 25.0% (Statutory
Liquidity Ratio), of our net demand and time liabilities in government or other approved securities with RBI. As of
September 30, 2005, 36.21% of our net demand and time liabilities and 79.85% of our total domestic investments were
in these securities. Yields on these investments, as well as yields on our other interest earning assets, are dependent
to a large extent on interest rates. In a rising interest rate environment, especially if the increase was sudden or sharp,
we could be adversely affected by the decline in the market value of our government securities portfolio and other fixed
income securities and may be required to further provide for depreciation in the “Available for Sale” and “Held for
Trading” categories. As on Sepetmber 30, 2005, we had 0.08% of our domestic investments in the “Held for Trading”
category, 42.58% in the “Held to Maturity” category and 57.34% in the “Available for Sale” category.

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