Bank of baroda

We may be unable to sustain the growth rate of our retail banking business.
We have achieved significant growth in our retail loan business in India in recent years. Our dedicated retail banking
department started operations from October 1, 2002. Between March 31, 2003 and March 31, 2005, our retail advances
grew at a CAGR of 53.39%, from Rs. 27,128 million to Rs. 63,830 million. As of September 30, 2005, retail loans
represented 17.26% of our total outstanding domestic credit. This compares with 16.96%, 13.50% and 8.70% of our
total outstanding domestic credit as of March 31, 2005, March 31, 2004 and March 31, 2003, respectively. Our present
business strategy reflects continued focus on further growth in this sector. We intend to grow our income from this
sector by offering new products and services and by cross-selling to our customers. While we anticipate continued
demand in this area, we cannot assure you that our retail portfolio will continue to grow at the rates we have recently
experienced.

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We face challenges in our new businesses.
We intend to diversify our products and services, particularly in retail banking. For example, we have recently started
distributing non-life insurance (i.e., property and casualty) policies of third parties. We intend to enter into the life
insurance business. Selling our own products may require us, our Subsidiaries or our joint ventures to take balance
sheet risk in these areas. The new products that we may develop and sell may not be profitable and are subject to start-
up risks and as well as general risks and costs associated with the respective businesses.
We have concentrations of loans to certain customers and to certain groups of customers and credit losses
from these customers or groups could adversely affect our business and financial condition.
As of September 30, 2005, our total exposure was Rs. 665,982.90 million. Our total exposure includes outstanding
funded exposure and non-funded exposure (sanctioned limits or outstanding, whichever is higher for both). Our exposure
to our 10 largest borrowers in the aggregate accounted for approximately 14.41% of our total exposure as of September
30, 2005. Our exposure to our largest single borrower (excluding food credit) as of September 30, 2005 accounted for
approximately 1.77% of our total exposure and 19.37% of our capital funds (comprising Tier I and Tier II capital as
defined in Indian banking regulations). Our exposure to our largest borrower group (excluding food credit) as of September
30, 2005 accounted for approximately 1.77% of our total exposure and 19.36% of our capital funds. Credit losses on
these large borrowers and group exposures could adversely affect our business and financial condition.
Our internal policies limit our credit exposure to any particular industry to 10% of global credit of the Bank as at the end
of the previous quarter except for the real estate and infrastructure sectors where the limit is 20%. The top five
industries that are not related to food accounted for 23.56% and 26.36% of our gross credit exposure as of March 31,
2005 and September 30, 2005, respectively. We determine our industry-wise exposures by aggregating our fund based
exposures within each industry. As of September 30, 2005, our five largest industry exposures were the infrastructure,
textile, iron and steel, chemicals and dyes, and engineering industries (including both direct and indirect lending to
corporate borrowers, housing development authorities and state governments) and which in the aggregate constituted
45.94% of our total fund based domestic exposures in respect of accounts larger than Rs. 10 million. Our aggregate
funded domestic exposure to the top five borrowers in these industries together represented 38.19% of our aggregate
funded credit exposure to these industries in respect of accounts larger than Rs. 10 million. Financial difficulties in
these industries could adversely affect our business and financial condition. As of September 30, 2005, 9.74% of our
rated domestic standard advances were to borrowers that we rate as being in the moderate safety grade (BBB) and
12.60% of our rated domestic standard advances were to borrowers that we rate as below safety grade under our
internal rating system. Our sub-investment grade borrowers, in particular, could be especially vulnerable if economic
conditions worsen or economic growth rates were to slow, which could adversely affect our business and financial
condition.