Shriram City Union Finance Limited - Karvy
Shriram City Union Finance Limited - Karvy
Shriram City Union Finance Limited - Karvy
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Draft ProspectusDated July 21, 2011<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>A Public <strong>Limited</strong> Company Incorporated under the Companies Act, 1956 (Registered as a Non-Banking Financial Company within the meaning of the Reserve Bank of India Act, 1934 (2 of 1934))Registered Office: 123, Angappa Naicken Street, Chennai- 600 001, Tamil Nadu; Corporate Office: 221, Royapettah High Road, Mylapore, Chennai - 600004, Tamil Nadu;Tel. No.: + 91 44 4392 5300; Fax: +91 44 4391 5351; Website: www.shriramcity.in Compliance Officer and Contact Person: Mr. C. R. Dash; E-mail: sect@shriramcity.inPublic Issue by <strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Company <strong>Limited</strong>, (“Company” or “Issuer”) of Secured Non-Convertible Debentures of face value of ` 1,000 each,(“NCDs”), aggregating upto ` 37,500 lakhs with an option to retain over-subscription up to ` 37,500 lakhs for issuance of additional NCDs aggregating to a total of upto ` 75,000 lakhs, hereinafter referred to as the “Issue”.GENERAL RISKInvestors are advised to read the risk factors carefully before taking an investment decision in the Issue. For taking an investment decision, the investors must rely on their own examination of theIssuer and the Issue including the risks involved. Specific attention of the investors is invited to the section titled “Risk Factors” on pages 1 to 19 of this Draft Prospectus.ISSUER’S ABSOLUTE RESPONSIBILITYThe Issuer , having made all reasonable inquiries, accepts responsibility for, and confirms that this Draft Prospectus contains all information with regard to the Issuer and the Issue, which is materialin the context of the Issue, that the information contained in this Draft Prospectus is true and correct in all material respects and is not misleading in any material respect, that the opinions andintentions expressed herein are honestly held and that there are no other facts, the omission of which makes this Draft Prospectus as a whole or any of such information or the expression of any suchopinions or intentions misleading in any material respect.CREDIT RATINGThe NCDs proposed to be issued under this Issue have been rated CARE AA by CARE for an amount of upto ` 75,000 Lakhs vide its letter dated July 14, 2011, and CRISILAA-/Stable by CRISIL for an amount of upto ` 75,000 Lakhs vide its letter dated July 14, 2011. The rating of the NCDs by CARE indicates high degree of safety regardingtimely servicing of financial obligations and carrying very low credit risk. The rating of NCDs by CRISIL indicates high degree of safety regarding timely servicing offinancial obligations.The ratings provided by CRISIL and/or CARE may be suspended, withdrawn or revised at any time by the assigning rating agency and should be evaluated independentlyof any other rating. These ratings are not a recommendation to buy, sell or hold securities and investors should take their own decisions. Please refer to page 26 this Draft Prospectus for therationale for the above ratings.PUBLIC COMMENTSThis Draft Prospectus is open for public comments. All comments on this Draft Prospectus are to be forwarded to the attention of Mr.C.R. Dash, Compliance Officer at the following address: 221,Royapettah High Road, Mylapore, Chennai, Tamil Nadu- 600 004; Tel. No.: + 91 44 4392 5300; Fax: +91 44 4391 5351; E-mail: sect@shriramcity.in. All comments MUST be received bythe Issuer within 7 working days of hosting this Draft Prospectus on the website of the Designated Stock Exchange. Comments by post, fax and email shall be accepted, however please note that allcomments by post must be received by the Issuer by 5 p.m. on the 7 th working day from the date on which this Draft Prospectus is hosted on the website of the Designated Stock ExchangeLISTINGThe NCDs offered through this Draft Prospectus are proposed to be listed on the National Stock Exchange of India <strong>Limited</strong> (“NSE”) and the Bombay Stock Exchange <strong>Limited</strong>, (“BSE”). OurCompany has obtained an ‘in-principle’ approvals for the Issue from the NSE vide their letter dated [●] and from BSE vide their letter dated [●]. For the purposes of the Issue, NSE shall be theDesignated Stock Exchange.LEAD MANAGERS TO THE ISSUECO-LEAD MANAGER TOTHE ISSUEREGISTRAR TO THEISSUEJM Financial Consultants Private<strong>Limited</strong>141 Maker Chambers IIINariman PointMumbai – 400 021Tel : + 91 22 6630 3030Fax: +91 22 2204 2137Email: scuf.ncd@jmfinancial.inInvestor Grievance Email:grievance.ibd@jmfinancial .inWebsite: www.jmfinancial.inContact Person : Ms. LakshmiLakshmananCompliance Officer: Mr. ChintalSakariaSEBI Registration No.:INM000010361ISSUE OPENS ON : [●]A. K. Capital Services <strong>Limited</strong>30-39, Free press HouseFree Press Journal Marg215 Nariman PointMumbai – 400 021Tel: +91 22 6754 6500/6634Fax: +91 22 6610 0594Email:shriramcitydipo@akgroup.co.inInvestor Grievance Email:investor.grievance@akgroup.co.inWebsite: www.akcapindia.comContact Person: Mr. Hitesh ShahSEBI Registration No:INM000010411ICICI Securities <strong>Limited</strong>ICICI Centre, H.T. Parekh Marg,ChurchgateMumbai- 400 020Tel: +91 22 2288 2460Fax: +91 22 2282 6580Email:scufbondissue@icicisecurities.comInvestor Grievance Email:customercare@icicisecurities.comWebsite: www.icicisecurities.comContact Person: Mr. ManvendraTiwariSEBI RegistrationNo:INM000011179ISSUE PROGRAMME*ISSUE CLOSES ON : [●]<strong>Karvy</strong> Investor Services <strong>Limited</strong>Regent Chambers, 2 nd floorNariman Point, Mumbai – 400021Tel : +91 22 2289 5000Fax: +91 22 3020 4040Email:shriramcityunion@karvy.comInvestor Grievance Email:cmg@karvy.comrajnish.rangari@karvy.comWebsite: www.karvy.comContact Person: Mr. Omkar BarveSEBI Registration No: INM000008365Integrated Enterprises (India)<strong>Limited</strong>2 nd Floor, ‘Kences Towers’No.1 Ramakrishna StreetNorth Usman Road, T NagarChennai – 600 017Tel: +91 44 2814 0801Fax: +91 44 2814 2479Website:corpserv@iepindia.comContact Person: Mr. K Suresh BabuEmail: corpserv@iepindia.comSEBI Registration No.:INR000000544* The subscription list for the Issue shall remain open for subscription at the commencement of banking hours and close at the close of banking hours on the dates indicated above or earlier or onsuch date as may be decided at the discretion of the duly authorised committee of Directors of our Company subject to necessary approvals. In the event of such early closure of subscription list ofthe Issue, our Company shall ensure that notice of such early closure is given on such early date of closure through advertisement/s in a leading national daily newspaper.IDBI Trusteeship Services <strong>Limited</strong> has by its letter dated July 4, 2011 given its consent for its appointment as Debenture Trustee to the Issue and for its name to be included in this Draft Prospectusand in all the subsequent periodical communications sent to the holders of the Debentures issued pursuant to this Issue.A copy of the final Prospectus shall be filed with the Registrar of Companies, Chennai, Tamil Nadu, in terms of section 56 and section 60 of the Act, along with the requisite endorsed/certifiedcopies of all requisite documents. For further details please refer to the section titled “Material Contracts and Documents for Inspection” beginning on page 186 of this Draft Prospectus.
TABLE OF CONTENTSSECTION I : GENERAL ................................................................................................................................................................................iDefinitions / Abbreviations ................................................................................................................................................................................iForward Looking Statements......................................................................................................................................................................... viiiSECTION II : RISK FACTORS....................................................................................................................................................................1SECTION III : INTRODUCTION ..............................................................................................................................................................20General Information ........................................................................................................................................................................................20Summary of Business, Strength & Strategy ....................................................................................................................................................28The Issue .........................................................................................................................................................................................................33Summary Financial Information......................................................................................................................................................................35Capital Structure..............................................................................................................................................................................................47Objects of the Issue .........................................................................................................................................................................................58Statement of Tax Benefits ...............................................................................................................................................................................59SECTION IV : ABOUT THE ISSUER COMPANY AND THE INDUSTRY .........................................................................................63Industry............................................................................................................................................................................................................63Our Business....................................................................................................................................................................................................82History, Main Objects And Key Agreements..................................................................................................................................................98Our Management...........................................................................................................................................................................................109Our Promoter.................................................................................................................................................................................................121Our Subsidiary...............................................................................................................................................................................................121SECTION V : FINANCIAL INFORMATION.........................................................................................................................................128Financial Statements ......................................................................................................................................................................................128Disclosures on Existing Financial Indebtedness .............................................................................................................................................129Material Developments .................................................................................................................................................................................135SECTION VI : ISSUE RELATED INFORMATION ..............................................................................................................................136Terms of the Issue .........................................................................................................................................................................................136Issue Structure ...............................................................................................................................................................................................139Issue Procedure..............................................................................................................................................................................................151SECTION VII : LEGAL AND OTHER INFORMATION .....................................................................................................................164Pending Proceedings and Statutory Defaults .................................................................................................................................................164Regulations and Policies................................................................................................................................................................................175Summary of Key Provisions of Articles Of Association...............................................................................................................................183Material Contracts and Documents For Inspection .......................................................................................................................................186DECLARATION .........................................................................................................................................................................................188
SECTION I : GENERALDEFINITIONS / ABBREVIATIONSCompany related termsTerm"SCUFL", "Issuer", “the Company”and “our Company”AOA/Articles / Articles of AssociationBoard / Board of DirectorsDINESOP 2006ESOP 2008Equity SharesFitchLoan AssetsMemorandum / MOANet Interest Margins/NIMNet Loan AssetsNAVNBFCNPAPromoter(s)` / Rs./ INR/ RupeesSCLDescription<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>, a company incorporated under theCompanies Act, 1956, registered as a Non-Banking Financial Company withthe Reserve Bank of India under Section 45-IA of the Reserve Bank of IndiaAct, 1934, and having its Registered Office at 123, Angappa NaickenStreet, Chennai-600001, Tamil Nadu, IndiaArticles of Association of our CompanyThe Board of Directors of our Company and includes any Committee thereoffrom time to timeDirector Identification NumberThe Company Employee Stock Option Scheme of the year 2006, namely, “SCUFEmployee Stock Option Scheme 2006”The Company Employee Stock Option Scheme of the year 2008, namely, “SCUFEmployee Stock Option Scheme 2008”Equity shares of face value of ` 10/- each of our CompanyFitch Ratings India Private <strong>Limited</strong>Assets under financing activitiesMemorandum of Association of our CompanyInterest income net off the amount of outgoing interest paid by the Companyon its liabilitiesAssets under financing activities net of provision for non-performing assetsNet Asset ValueNon-Banking Financial Company as defined under Section 45-IA of the RBIAct, 1934Non Performing Asset<strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong> and <strong>Shriram</strong> Retail holdingsPrivate <strong>Limited</strong>The lawful currency of the Republic of India<strong>Shriram</strong> Capital <strong>Limited</strong>i
TermSEHPLSHFLSRHPL<strong>Shriram</strong> Chits<strong>Shriram</strong> GroupStatutory AuditorSubsidiary“We”, “us” and “our”Description<strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong><strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong><strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong>Entities operating under the brand name of “<strong>Shriram</strong> Chits” namely, <strong>Shriram</strong>Chits Private <strong>Limited</strong>, <strong>Shriram</strong> Chits Tamilnadu Private <strong>Limited</strong>, <strong>Shriram</strong> ChitsKarnataka Private <strong>Limited</strong>, and <strong>Shriram</strong> Chits Maharashtra Private <strong>Limited</strong>Entities operating under the “<strong>Shriram</strong>” brand nameOur statutory auditor being M/s Pijush Gupta & Co.Subsidiary of our Company namely <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong>Our Company and/or its Subsidiary, unless the context otherwise requiresIssue related termsTermAllotment / AllottedAllotteeApplication FormBankers to the Issue/Escrow CollectionBanksBase IssueBasis of AllotmentCARECRISILCo-Lead ManagerDebentures / NCDsDescriptionUnless the context otherwise requires, the allotment of the NCDs pursuant to theIssue to the AllotteesThe successful applicant to whom the NCDs are being/have been allottedThe form used by an applicant to apply for NCDs being issued through theProspectusThe bank(s) with whom Escrow Accounts will be opened as specified on page[●] of this Draft ProspectusPublic Issue of NCDs by our Company aggregating upto ` 37,500 lakhsThe basis on which NCDs will be allotted to applicants under the Issue andwhich is described in “Issue Procedure – Basis of Allotment” on page 161 of thisDraft Prospectus.Credit Analysis and Research <strong>Limited</strong>CRISIL <strong>Limited</strong><strong>Karvy</strong> Investor Services <strong>Limited</strong>Secured, Redeemable, Non-Convertible Debentures offered through this DraftProspectus aggregating upto ` 37,500 lakhs with an option to retain oversubscriptionupto ` 37,500 lakhs for issuance of additional NCDs aggregating toa total of upto ` 75,000 lakhs.ii
TermDebenture Holder (s)Debt Listing AgreementDebt RegulationsDeemed Date of AllotmentDepositories ActDepository(ies)DP / Depository ParticipantDesignated Stock ExchangeDraft Prospectus / Draft OfferDocumentEarly Redemption (Call) DateEarly Redemption (Call) PeriodEarly Redemption (Put) DateEarly Redemption (Put) PeriodEscrow AgreementEscrow AccountInstitutional PortionDescriptionThe holders of the NCDsThe listing agreement entered into/to be entered into between our Company andthe relevant stock exchange(s) in connection with the listing of debt securities ofour Company.SEBI (Issue and Listing of Debt Securities) Regulations, 2008, issued by SEBI,effective from June 6, 2008 as amended from time to timeThe date of issue of the Allotment Advice / regret.The Depositories Act, 1996, as amended from time to timeNational Securities Depository <strong>Limited</strong> (NSDL) and /or Central DepositoryServices (India) <strong>Limited</strong> (CDSL)A depository participant as defined under the Depositories ActNational Stock Exchange of India <strong>Limited</strong>This draft prospectus dated [●] filed with the NSE for receiving public commentsin accordance with the provisions of the Act and the Debt RegulationsThe date, 48 months after the expiry of the Deemed Date of Allotment , afterwhich our Company has the right to exercise its Call Option with respect toOption I NCDsThe period of 30 days from the Early Redemption (Call) Date within which ourCompany has the right to exercise its Call Option with respect to Option I NCDsThe date, 48 months after the expiry of the Deemed Date of Allotment Date,after which a holder of Option I NCDs has the right to exercise his Put Optionwith respect to the Option I NCDs held by himThe period of 30 days from the Early Redemption (Put) Date within which aholder of Option I NCDs has the right to exercise his Put Option with respect tothe Option I NCDs held by himAgreement dated [●] entered into amongst our Company, the Registrar, theEscrow Collection Bank(s) and the Lead Managers for collection of theapplication amounts and for remitting refunds, if any, of the amounts collected, tothe applicants on the terms and conditions contained thereinAccounts opened in connection with the Issue with the Escrow Collection Banksand in whose favour the applicant will issue cheques or bank drafts in respect ofthe application amount while submitting the applicationPortion of applications received from Category I of persons eligible toapply for the issue which includes Public Financial Institutions, StatutoryCorporations, Commercial Banks, Co-operative Banks and Regional RuralBanks which are authorised to invest in the NCDs, Provident Funds, Pensioniii
TermIssueIssue Opening DateIssue Closing DateLead BrokersLead ManagersMarket LotNon-Institutional PortionOptionsProspectus / Offer DocumentPut OptionRegistrar to the IssueDescriptionFunds and Superannuation Funds and Gratuity Funds which are authorised toinvest in the NCDs, Venture Capital funds registered with SEBI, InsuranceCompanies registered with the IRDA, National Investment Fund and MutualFundsPublic Issue by our Company of NCDs aggregating upto ` 37,500 lakhs with anoption to retain over-subscription upto 37,500 lakhs for issuance of additionalNCDs aggregating to a total of upto ` 75,000 lakhs.[●][●][●]JM Financial Consultants Private <strong>Limited</strong>, A. K. Capital Services <strong>Limited</strong> andICICI Securities <strong>Limited</strong>One NCDCategory II of persons eligible to apply for the issue which includesCompanies, Bodies Corporate and Societies registered under the applicable lawsin India and authorised to invest in NCDs, Public/Private Charitable/ReligiousTrusts which are authorised to invest in the NCDs, Scientific and/or IndustrialResearch Organisations which are authorised to invest in the NCDs, PartnershipFirms in the name of the partners and <strong>Limited</strong> liability partnerships formed andregistered under the provisions of the <strong>Limited</strong> Liability Partnership Act, 2008(No. 6 of 2009)Options being offered to the applicants as stated in the section titled ‘IssueRelated Information’ beginning on page 136 of this Draft ProspectusThe Prospectus dated [●] issued and filed/to be filed with the ROC in accordancewith the Debt Regulations containing inter alia the coupon rate for the NCDs andcertain other informationThe right of holders of Option I NCDs to seek redemption of such Option INCDs held by them at the expiry of 48 months, from the Deemed Date ofAllotmentIntegrated Enterprises (India) <strong>Limited</strong>Senior CitizenAny person who has completed the age of 60 years as on the date of theProspectusTrustees / Debenture TrusteeTrustees for the Debenture Holders in this case being IDBI Trusteeship Services<strong>Limited</strong>.∗ The subscription list shall remain open for a period as indicated herein, with an option for early closure orextension by such period, as may be decided by the duly authorised committee of Directors of our Company, subjectto necessary approvals. In the event of such early closure of subscription list of the Issue, our Company shall ensureiv
that notice of such early closure is given on such early date of closure through advertisement/s in a leading nationaldaily newspaper.Technical & Industry TermsTermALMALCOCARKYC NormsMSMENon-Deposit Accepting NBFCDirectionsNBFC-DNBFC-NDPrudential NormsPublic Deposit DirectionsSMEConventional / General TermsDescriptionAsset Liability ManagementAsset - Liability CommitteeCapital Adequacy Ratio computed on the basis of applicable RBIrequirementsCustomer identification procedure for opening of accounts and monitoringtransactions of suspicious nature followed by NBFCs for the purpose ofreporting it to appropriate authorityMicro Small and Medium EnterprisesNon-Banking Financial (Non-Deposit Accepting or Holding) CompaniesPrudential Norms (Reserve Bank) Directions, 2007NBFC registered as a deposit accepting NBFCNBFC registered as a non-deposit accepting NBFCNon-Banking Financial (Deposit Accepting or Holding) CompaniesPrudential Norms (Reserve Bank) Directions, 2007The Non-Banking Financial Companies Acceptance of Public Deposits(Reserve Bank) Directions, 1998Small and Medium EnterprisesTermAGMASActBSECAGRCDSLDRREGMDescriptionAnnual General MeetingAccounting StandardThe Companies Act, 1956, as amended from time to timeBombay Stock Exchange <strong>Limited</strong>Compounded Annual Growth RateCentral Depository Services (India) <strong>Limited</strong>Debenture Redemption ReserveExtraordinary General Meetingv
TermEPSFDI PolicyFEMAFEMA RegulationsFII/FIIsDescriptionEarnings Per ShareFDI in an Indian company is governed by the provisions of the FEMA readwith the FEMA Regulations and the Foreign Direct Investment PolicyForeign Exchange Management Act, 1999, as amended from time to timeForeign Exchange Management (Transfer or Issue of Security by a PersonResident Outside India) Regulations, 2000, as amended from time to timeForeign Institutional Investor(s)Financial Year / FY Financial Year ending March 31GDPGoIHUFIFRSIFSCIndian GAAPIRDAIT ActMCAMICRMSENECSNEFTNRINSDLNSEPANRBIRBI ActGross Domestic ProductGovernment of IndiaHindu Undivided FamilyInternational Financial Reporting StandardsIndian Financial System CodeGenerally Accepted Accounting Principles in IndiaInsurance Regulatory and Development AuthorityThe Income Tax Act, 1961, as amended from time to timeMinistry of Corporate Affairs, Government of IndiaMagnetic Ink Character RecognitionMadras Stock Exchange <strong>Limited</strong>National Electronic Clearing ServicesNational Electronic Funds TransferNon Resident IndianNational Securities Depository <strong>Limited</strong>National Stock Exchange of India <strong>Limited</strong>Permanent Account NumberThe Reserve Bank of IndiaThe Reserve Bank of India Act, 1934, as amended from time to timevi
TermROCRTGSSBISCRASCRRSEBIDescriptionRegistrar of CompaniesReal Time Gross SettlementState Bank of IndiaSecurities Contracts (Regulation) Act, 1956, as amended from time to timeThe Securities Contracts (Regulation) Rules, 1957, as amended from time totimeThe Securities and Exchange Board of India constituted under the Securitiesand Exchange Board of India Act, 1992SEBI ActTDSWDMThe Securities and Exchange Board of India Act, 1992 as amended from timeto timeTax Deducted at SourceWholesale Debt Marketvii
FORWARD LOOKING STATEMENTSCertain statements contained in this Draft Prospectus that are not statements of historical fact constitute “forwardlookingstatements.” Investors can generally identify forward-looking statements by terminology such as “aim”,“anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “objective”, “plan”, “potential”,“project”, “pursue”, “shall”, “should”, “will”, “would”, or other words or phrases of similar import. All statementsregarding our Company’s expected financial condition and results of operations and business plans and prospects areforward-looking statements. These forward-looking statements include statements as to our Company’ businessstrategy, revenue and profitability, planned projects and other matters discussed in this Draft Prospectus that are nothistorical facts. These forward-looking statements and any other projections contained in this Draft Prospectus(whether made by our Company or any third party) are predictions and involve known and unknown risks,uncertainties, assumptions and other factors that may cause our Company’s actual results, performance orachievements to be materially different from any future results, performance or achievements expressed or impliedby such forward-looking statements or other projections. All forward-looking statements are subject to risks,uncertainties and assumptions about our Company that could cause actual results to differ materially from thosecontemplated by the relevant forward-looking statement. Important factors that could cause actual results to differmaterially from our Company’s expectations include, among others:• General economic and business conditions in India and globally;• Our ability to successfully implement our strategy, our growth and expansion plans and technologicalchanges;• Our ability to compete effectively and access funds at competitive cost;• Changes in the value of Rupee and other currency changes;• Unanticipated turbulence in interest rates, equity prices or other rates or prices; the performance of thefinancial and capital markets in India and globally;• Availability of funds and willingness of our lenders to lend;• Changes in political conditions in India;• The rate of growth of our Loan Assets;• The outcome of any legal or regulatory proceedings we are or may become a party to;• Changes in Indian and/or foreign laws and regulations, including tax, accounting, banking, securities,insurance and other regulations; changes in competition and the pricing environment in India; and regionalor general changes in asset valuations;• Any changes in connection with policies, statutoty provisions, regulations and/or RBI directions inconnection with NBFCs, including laws that impact our lending rates and our ability to enforce ourcollateral;• Performance of the sectors and industries that our financial products cater to namely the automobileindustry, the small enterprises finance sector sector etc.• Changes in the value of gold prices in connection with our loans against gold.viii
• Emergence of new competitors;• Performance of the Indian debt and equity markets;• Occurrence of natural calamities or natural disasters affecting the areas in which our Company hasoperations; and• Other factors discussed in this Draft Prospectus, including under the section titled “Risk Factors” beginningon page 1 of this Draft Prospectus.All forward-looking statements are subject to risks, uncertainties and assumptions about our Company that couldcause actual results and valuations to differ materially from those contemplated by the relevant statement.Additional factors that could cause actual results, performance or achievements to differ materially include, but arenot limited to, those discussed under the sections titled “Industry” and “Our Business”. The forward-lookingstatements contained in this Draft Prospectus are based on the beliefs of management, as well as the assumptionsmade by and information currently available to management. Although our Company believes that the expectationsreflected in such forward-looking statements are reasonable at this time, it cannot assure investors that suchexpectations will prove to be correct or will hold good at all times. Given these uncertainties, investors are cautionednot to place undue reliance on such forward-looking statements. If any of these risks and uncertainties materialise, orif any of our Company’s underlying assumptions prove to be incorrect, our Company’s actual results of operationsor financial condition could differ materially from that described herein as anticipated, believed, estimated orexpected. All subsequent forward-looking statements attributable to our Company are expressly qualified in theirentirety by reference to these cautionary statements. Neither our Company, our Directors and Officers nor any oftheir respective affiliates have any obligation to update or otherwise revise any statements reflecting circumstancesarising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions donot come to fruition.ix
PRESENTATION OF FINANCIAL AND OTHER INFORMATIONGeneralIn this Draft Prospectus, unless the context otherwise indicates or implies, references to “you,” “offeree,”“purchaser,” “subscriber,” “recipient,” “investors” and “potential investor” are to the prospective investors in thisOffering, references to our “Company”, the “Company” or the “Issuer” are to <strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>.In this Draft Prospectus, references to “US$” is to the legal currency of the United States and references to “Rs.”, “`”and “Rupees” are to the legal currency of India. All references herein to the “U.S.” or the “United States” are to theUnited States of America and its territories and possessions and all references to “India” are to the Republic of Indiaand its territories and possessions, and the "Government", the "Central Government" or the "State Government" areto the Government of India, central or state, as applicable.Unless otherwise stated, references in this Draft Prospectus to a particular year are to the calendar year ended onDecember 31 and to a particular “fiscal” or “fiscal year” are to the fiscal year ended on March 31.Unless otherwise stated all figures pertaining to the financial information in connection with our Company are on anunconsolidated basis.Presentation of Financial InformationOur Company publishes its financial statements in Rupees. Our Company’s financial statements are prepared inaccordance with Indian GAAP and the Companies Act.The Reformatted Unconsolidated Summary Financial Statements and the Reformatted Consolidated SummaryFinancial Statements are included in this Draft Prospectus and collectively referred to hereinafter as the“Reformatted Summary Financial Statements”. The examination reports on the Reformatted Summary FinancialStatements, as issued by our Company’s Statutory Auditor, M/s Pijush Gupta & Co, are included in this DraftProspectus in the section titled “Financial Information” beginning at page 128.Any discrepancies in the tables included herein between the amounts listed and the totals thereof are due to roundingoff.Unless stated otherwise, macroeconomic and industry data used throughout this Draft Prospectus has been obtainedfrom publications prepared by providers of industry information, government sources and multilateral institutions.Such publications generally state that the information contained therein has been obtained from sources believed tobe reliable but that their accuracy and completeness are not guaranteed and their reliability cannot be assured.Although the Issuer believes that industry data used in this Draft Prospectus is reliable, it has not been independentlyverified.x
SECTION II : RISK FACTORSProspective investors should carefully consider the risks and uncertainties described below, in addition to the otherinformation contained in this Draft Prospectus before making any investment decision relating to the NCDs. If any ofthe following risks or other risks that are not currently known or are now deemed immaterial, actually occur, ourbusiness, financial condition and result of operation could suffer, the trading price of the NCDs could decline andyou may lose your all or part of your interest and / or redemption amounts. Unless otherwise stated in the relevantrisk factors set forth below, we are not in a position to specify or quantify the financial or other implications of anyof the risks mentioned herein. The ordering of the risk factors is intended to facilitate ease of reading and referenceand does not in any manner indicate the importance of one risk factor over another.This Draft Prospectus contains forward looking statements that involve risk and uncertainties. Our Company’sactual results could differ materially from those anticipated in these forward looking statements as a result ofseveral factors, including the considerations described below and elsewhere in this Draft Prospectus.Investors are advised to read the following risk factors carefully before making an investment in the NCDs offeredin this Issue. You must rely on your own examination of our Company and this Issue, including the risks anduncertainties involved.INTERNAL RISK FACTORSRisks relating to our Company and its Business1. Our financial performance is particularly vulnerable to interest rate volatility.Our results of operations are substantially dependent upon the level of our Net Interest Margins. Incomefrom our financing activities is the largest component of our total income, and constituted 87.73% and92.95% of our total income in fiscal 2010 and fiscal 2011, respectively. As of March 31, 2011, our assetsunder management were ` 799,804.88 lakhs. We borrow funds on both fixed and floating rates. Volatilityin interest rates can materially and adversely affect our financial performance. In a rising interest rateenvironment, if the yield on our interest-earning assets does not increase simultaneously with or to the sameextent as our cost of funds, or, in a declining interest rate environment, if our cost of funds does not declinesimultaneously or to the same extent as the yield on our interest-earning assets, our net interest income andnet interest margin would be adversely impacted. Additional risks arising from increasing interest rates,among others, include:• increases in the rates of interest charged on various loans in our loan portfolio, which could result inthe extension of loan maturities and higher monthly installments due from borrowers which, in turn,could result in higher rates of default;• reductions in the volume of product finance loans, auto loans, personal loans, loans against gold and/orloans to small enterprise finance segment as a result of clients' inability to service high interest ratepayments; and• reduction in the value of fixed income securities held in our investment portfolio.Accordingly, our operations are susceptible to fluctuations in interest rates. Interest rates are highlysensitive and fluctuations thereof are dependent upon many factors which are beyond our control, includingthe monetary policies of the RBI, de-regulation of the financial services sector in India, domestic andinternational economic and political conditions, inflation and other factors. Rise in inflation, andconsequent changes in Bank rates, Repo rates and Reverse Repo rates by the RBI has led to an increase ininterest rates on loans provided by banks and financial institutions, and market interest rates in India havebeen volatile in recent periods.1
2. Our business requires substantial capital, and any disruption in funding sources would have a materialadverse effect on our liquidity and financial condition.As a finance company, our liquidity and ongoing profitability are, in large part, dependent upon our timelyaccess to, and the costs associated with, raising capital. Our funding requirements historically have beenmet from a combination of term loans from banks and financial institutions, issuance of redeemable nonconvertibledebentures, public deposits, the issue of subordinated bonds and commercial paper. Thus, ourbusiness depends and will continue to depend on our ability to access diversified funding sources. Ourability to raise funds on acceptable terms and at competitive rates continues to depend on various factorsincluding our credit ratings, the regulatory environment and policy initiatives in India, developments in theinternational markets affecting the Indian economy, investors' and/or lenders' perception of demand fordebt and equity securities of NBFCs, and our current and future results of operations and financialcondition.Changes in economic and financial conditions or continuing lack of liquidity in the market could make itdifficult for us to access funds at competitive rates. As an NBFC, we also face certain restrictions on ourability to raise money from international markets which may further constrain our ability to raise funds atattractive rates.Such conditions may occur again in the future and may lead to a disruption in our primary funding sourcesat competitive costs and would have a material adverse effect on our liquidity and financial condition.3. High levels of customer defaults could adversely affect our business, financial condition and results ofoperations.Our business involves lending money and accordingly we are subject to customer default risks includingdefault or delay in repayment of principal or interest on our loans. Customers may default on theirobligations to us as a result of various factors including bankruptcy, lack of liquidity, lack of business andoperational failure. If borrowers fail to repay loans in a timely manner or at all, our financial condition andresults of operations will be adversely impacted.In addition, our customer portfolio principally consists of the under-banked community who does nottypically have easy access to financing from commercial banks or other organized lenders and often havelimited credit history. Such borrowers generally are less financially resilient than larger corporateborrowers, and, as a result, they can be more adversely affected by declining economic conditions. Inaddition, a significant majority of our client base belongs to the low or middle income group. In addition,we may not receive updated information regarding any change in the financial condition of our customersor may receive inaccurate or incomplete information as a result of any fraudulent misrepresentation on thepart of our customers. Furthermore, unlike several developed economies, a nationwide credit bureau hasonly recently become operational in India, so there is less financial information available about thecreditworthiness of our customers. It is therefore difficult to carry out precise credit risk analyses on ourclients. Although we follow certain procedures to evaluate the credit profile of our customers at the time ofsanctioning a loan, we generally rely on the referrals from the current or past customers of our Company orthose of other entities in the <strong>Shriram</strong> Group. Although we believe that our risk management controls aresufficient, we cannot be certain that they will continue to be sufficient or that additional risk managementpolicies for individual borrowers will not be required. Failure to continuously monitor the loan contracts,particularly for individual borrowers, could adversely affect our credit portfolio which could have amaterial and adverse effect on our results of operations and financial condition.4. We may not be able to recover, on a timely basis or at all, the full value of collateral or amounts whichare sufficient to cover the outstanding amounts due under defaulted loans.For our two-wheeler and other vehicle loans, the two-wheeler/vehicle is typically hypothecated in favour ofour Company for the tenure of the loan. The value of the vehicle, however, is subject to depreciation,deterioration, and/or reduction in value on account of other extraneous reasons, over the course of time.Consequently, the realizable value of the collateral for the credit facility provided by us, when liquidated,2
may be lower than the outstanding loan from such customers. The hypothecated vehicles, being movableproperty, may be difficult to locate or seize in the event of any default by our customers. There can also beno assurance that we will be able to sell such vehicles provided as collateral at prices sufficient to cover theamounts under default. In addition, there may be delays associated with such process.In connection with loans against gold provided by us, the gold jewellery and/or ornaments are provided assecurity. An economic downturn or sharp downward movement in the price of gold could result in a fall incollateral values. In the event of any decrease in the price of gold, customers may not repay their loans andthe collateral gold jewellery securing the loans may have decreased significantly in value, resulting inlosses which we may not be able to support. No assurance can be given that if the price of gold decreasedsignificantly, our financial condition and results of operations from this business product would not beadversely affected. The impact on our financial position and results of operations of a hypothetical decreasein gold values cannot be reasonably estimated because the market and competitive response to changes ingold values is not pre-determinable. Additionally, we may not be able to realise the full value of ourcollateral, due to, among other things, defects in the quality of gold or wastage on melting gold jewelleryinto gold bars. In addition, failure by our employees to properly appraise the value of the collateral providesus with no recourse against the borrower.For the personal loans and loans to small enterprises business, in connection with a customer who is also anexisting customer of ‘<strong>Shriram</strong> Chits’ we typically create a lien over the chit deposits of such customer. Ifthe value of the chit deposits is insufficient to cover the entire loan amount, we typically also requireimmovable or movable property to be provided for the remaining value of the loan amount. In cases wherethe customer is unable to provide such immovable or movable property as security, the applicant is alsorequired to furnish a guarantee from typically an existing or a former customer. Any deterioration in thevalue of such additional security or our failure to enforce such guarantees or to enforce such charges in atimely manner or at all could adversely affect our operations and profitability.Any default in repayment of the outstanding credit obligations by our customers may expose us to losses. Afailure or delay to recover the expected value from sale of collateral security could expose us to a potentialloss. Any such losses could adversely affect our financial condition and results of operations. Furthermore,enforcing our legal rights by litigating against defaulting customers is generally a slow and potentiallyexpensive process in India. Accordingly, it may be difficult for us to recover amounts owed by defaultingcustomers in a timely manner or at all.5. Our significant indebtedness and the conditions and restrictions imposed by our financing arrangementscould restrict our ability to conduct our business and operations in the manner we desire.As of March 31, 2011, we had outstanding secured debt of ` 656,951.01 lakhs and unsecured debt of `75,827.43 lakhs and we will continue to incur additional indebtedness in the future. Most of our borrowingsare secured by our immovable and other assets. Our significant indebtedness could have several importantconsequences, including but not limited to the following:• a portion of our cash flow may be used towards repayment of our existing debt, which will reducethe availability of our cash flow to fund working capital, capital expenditures, acquisitions andother general corporate requirements;• our ability to obtain additional financing in the future at reasonable terms may be restricted or ourcost of borrowings may increase due to sudden adverse market conditions, including decreasedavailability of credit or fluctuations in interest rates;• fluctuations in market interest rates may affect the cost of our borrowings as some of ourindebtedness are at variable interest rates;• there could be a material adverse effect on our business, financial condition and results ofoperations if we are unable to service our indebtedness or otherwise comply with financial andother covenants specified in the financing agreements; and• we may be more vulnerable to economic downturns, may be limited in our ability to withstand3
competitive pressures and may have reduced flexibility in responding to changing business,regulatory and economic conditions.Some of our financing agreements also include various conditions and covenants that require us to obtainlender consents prior to carrying out certain activities and entering into certain transactions. Failure to meetthese conditions or obtain these consents could have significant consequences on our business andoperations. Specifically, under some of our financing agreements, we require, and may be unable to obtain,consents from the relevant lenders for, among others, the following matters: entering into any scheme ofmerger; spinning-off of a business division; selling or transferring all or a substantial portion of our assets;making any change in ownership or control or constitution of our Company; making amendments in ourMemorandum and Articles of Association; creating any further security interest on the assets upon whichthe existing lenders have a prior charge; and raising funds by way of any fresh capital issue. Our financingagreements also typically contain certain financial covenants including the requirement to maintain, amongothers, specified debt-to-equity ratios, debt-to-net worth ratios, or Tier I to Tier II capital ratios that may behigher than statutory or regulatory requirements. These covenants vary depending on the requirements ofthe financial institution extending the loan and the conditions negotiated under each financing document.Such covenants may restrict or delay certain actions or initiatives that we may propose to take from time totime.A failure to observe the covenants under our financing arrangements or to obtain necessary consentsrequired thereunder may lead to the termination of our credit facilities, acceleration of all amounts dueunder such facilities and the enforcement of any security provided. Any acceleration of amounts due undersuch facilities may also trigger cross default provisions under our other financing agreements. If theobligations under any of our financing documents are accelerated, we may have to dedicate a substantialportion of our cash flow from operations to make payments under such financing documents, therebyreducing the availability of cash for our working capital requirements and other general corporate purposes.Further, during any period in which we are in default, we may be unable to raise, or face difficulties raising,further financing. Any of these circumstances could adversely affect our business, credit rating andfinancial condition and results of operations. Moreover, any such action initiated by our lenders could resultin the price of our NCDs being adversely affected.6. Our entire customer base comprises individual and/or small enterprise segment borrowers, whogenerally are more likely to be affected by declining economic conditions than larger corporateborrowers.Individual and small enterprise segment borrowers generally are less financially resilient than largercorporate borrowers, and, as a result, they can be more adversely affected by declining economicconditions. In addition, a significant majority of our customer base belongs to the low to medium incomegroup and/or the small enterprises finance sector. Furthermore, unlike several developed economies, anationwide credit bureau has only recently become operational in India, so there is less financialinformation available about individuals, particularly our focus customer segment from the low to mediumincome group who typically have limited access to other financing sources. It is therefore difficult to carryout precise credit risk analyses on our customers. Although we believe that our risk management controlsare sufficient, we cannot be certain that they will continue to be sufficient or that additional riskmanagement policies for individual borrowers will not be required. Failure to maintain sufficient creditassessment policies, particularly for individual borrowers, could adversely affect our credit portfolio whichcould have a material and adverse effect on our results of operations and financial condition.7. We face increasing competition in our business which may result in declining margins if we are unableto compete effectively.We face competition in all our lines of businesses. Our primary competitors are other NBFCs, public sectorbanks, private sector banks, co-operative banks and foreign banks and the unorganized financiers whoprincipally operate in the local markets. Over the past few years, the retail financing area has seen the entryof banks, both nationalized as well as foreign. Banks have access to low cost funds which enables them toenjoy higher margins and / or offer finance at lower rates. NBFCs do not have access to large quantities oflow cost deposits, a factor which can render them less competitive. In addition, interest rate deregulation4
and other liberalization measures affecting the retail and small enterprises finance sector, together withincreased demand for capital by individuals as well as small enterprises, have resulted in an increase incompetition.All of these factors have resulted in us facing increased competition from other lenders in each of our linesof businesses, including commercial banks and other NBFCs. Our ability to compete effectively willdepend, to some extent, on our ability to raise low-cost funding in the future. Furthermore, as a result ofincreased competition in the finance sector, finance products are becoming increasingly standardized andvariable interest rate and payment terms and lower processing fees are becoming increasingly common inthe finance sector in India. There can be no assurance that we will be able to react effectively to these orother market developments or compete effectively with new and existing players in the increasinglycompetitive finance industry. Increasing competition may have an adverse effect on our net interest marginand other income, and, if we are unable to compete successfully, our market share may decline.If we are unable to compete effectively with other participants in the finance sector, our business, futurefinancial performance and the trading price of the NCDs may be adversely affected.8. Since we handle high volume of cash and gold jewellery in a dispersed network of branches, we areexposed to operational risks, including employee negligence, fraud, petty theft, burglary andembezzlement, which could harm our results of operations and financial position.Our transactions in connection with loans against gold, personal loans and loans to the small enterprisesfinance segment involve cash and gold jewellery. Large cash and gold jewellery transactions expose us tothe risk of fraud by employees, agents, customers or third parties, theft, burglary and misappropriation orunauthorized transactions by our employees. Our insurance policies, security systems and measuresundertaken to detect and prevent these risks may not be sufficient to prevent or deter such activities in allcases, which may adversely affect our operations and profitability. Further, we may be subject to regulatoryor other proceedings in connection with any unauthorized transaction, fraud or misappropriation by ourrepresentatives and employees, which could adversely affect our goodwill. The nature and size of the itemsprovided as collateral allow these items to be misplaced or mis-delivered, which may have a negativeimpact on our operations and result in losses.9. We may not be able to successfully sustain our growth strategy.We have demonstrated consistent growth in our business and in our profitability. Our Assets UnderManagement have grown by a compounded annual growth rate, or CAGR, of 46% from ` 250,686.49 lakhsas of March 31, 2007 to ` 799,804.88 lakhs as of March 31, 2011. Our capital adequacy ratio as of March31, 2011 computed on the basis of applicable RBI requirements was 20.53%, compared to the RBI stipulatedminimum requirement of 12.00%. Our Tier I capital as of March 31, 2011 was ` 119,419 lakhs. Our GrossNPAs as a percentage of Total Loan Assets were 1.86% as of March 31, 2011. Our Net NPAs as apercentage of Net Loan Assets was 0.43% as of March 31, 2011. Our total income increased from `34,805.91 lakhs in fiscal 2007 to ` 132,091.19 lakhs in fiscal 2011 at a CAGR of 45%. Our net profit aftertax increased from ` 5,162.16 lakhs in fiscal 2007 to ` 24,058.85 lakhs in fiscal 2011, at a CAGR of 50%.Our growth strategy includes growing our loan book and expanding our customer base. There can be noassurance that we will be able to sustain our growth strategy successfully or that we will be able to expandfurther or diversify our product portfolio. If we grow our loan book too rapidly or fail to make properassessments of credit risks associated with new borrowers, a higher percentage of our loans may becomenon-performing, which would have a negative impact on the quality of our assets and our financialcondition.We also face a number of operational risks in executing our growth strategy. We have experienced growthin each of our lines of business particularly in connection with loans to the small enterprises segment andloans against gold businesses, our branch network has expanded significantly, we are entering into new,smaller towns and cities within India as part of our growth strategy and gradually introducing all ourproducts in each of our branches.5
Our rapid growth exposes us to a wide range of increased risks, including business risks, such as thepossibility that a number of our impaired loans may grow faster than anticipated, as well as operationalrisks, fraud risks and regulatory and legal risks. Moreover, our ability to sustain our rate of growth dependssignificantly upon our ability to manage key issues such as selecting and retaining key managerialpersonnel, maintaining effective risk management policies, continuing to offer products which are relevantto our target base of clients, developing managerial experience to address emerging challenges andensuring a high standard of client service. We will need to recruit new employees, who will have to betrained and integrated into our operations. We will also have to train existing employees to adhere properlyto internal controls and risk management procedures. Failure to train our employees properly may result inan increase in employee attrition rates, require additional hiring, erode the quality of customer service,divert management resources, increase our exposure to high-risk credit and impose significant costs on us.10. We have no prior operating experience in the housing finance business and accordingly, we may not beable to successfully implement our growth strategy to foray into the housing finance business.Our Company incorporated a wholly owned subsidiary namely <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong> inNovember 2010, with a view of entering the housing finance sector. We have applied to National HousingBank (wholly owned by the Reserve Bank of India), for a certificate of registration under the NationalHousing Bank Act, 1987, to carry on business of a housing finance institution. The aforesaid Subsidiary willcommence operations once it is registered with the National Housing Bank. <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong>will typically target middle-income customers in semi-urban locations.We cannot assure that our foray into the housing finance business would yield favorable or expected resultsas our overall profitability and success will be subject to various factors including, among others, ourability to obtain necessary statutory and/or regulatory approvals and licenses in connection with the saidbusiness, our ability to effectively recruit, retain and motivate appropriate managerial talent, ourinexperience in the housing finance sector and ability to compete with banks, housing finance companiesand other financial institutions that are already well established in this market segment as well as our abilityto effectively absorb additional infrastructure costs.Our housing finance business will require significant capital investments and commitments of time fromour senior management, there also can be no assurance that our management will be able to develop theskills necessary to successfully manage these new business areas. Our inability to effectively manage anyof these issues could materially and adversely affect our business and impact our future financialperformance.11. We may experience difficulties in expanding our business into new regions and markets in India andintroducing our complete range of products in each of our branches.As part of our growth strategy, we continue to evaluate attractive growth opportunities to expand ourbusiness into new regions and markets in India. Factors such as competition, culture, regulatory regimes,business practices and customs and customer requirements in these new markets may differ from those inour current markets and our experience in our current markets may not be applicable to these new markets.In addition, as we enter new markets and geographical regions, we are likely to compete not only withother banks and financial institutions but also the local unorganized or semi-organized private financiers,who are more familiar with local regulations, business practices and customs and have strongerrelationships with customers.As a part of our growth strategy, we propose to target establishing our operations through new branches incities and towns where we historically had relatively limited operations, such as in eastern and northernparts of India, and to further consolidate our position and operations in western and southern parts of India.We target to gradually introduce our entire range of product offerings, namely (i) product finance loans, (ii)pre-owned and new vehicles loans, (iii) personal loans, (iv) loans against gold, and (v) loans to smallenterprises at each of our existing branches across India.Our business may be exposed to various additional challenges including obtaining necessary governmentalapprovals, identifying and collaborating with local business and partners with whom we may have no6
previous working relationship; successfully gauging market conditions in local markets with which wehave no previous familiarity; attracting potential customers in a market in which we do not have significantexperience or visibility; being susceptible to local taxation in additional geographical areas of India andadapting our marketing strategy and operations to different regions of India in which different languagesare spoken. Our inability to expand our current operations may adversely affect our business prospects,financial conditions and results of operations.12. A large number of our branches are located in southern India, and any downturn in the economy in thestates in India where we operate, or any change in consumer preferences in that region could adverselyaffect our results of operations and financial condition.We have a strong concentration of our business in south India with 248 of our 559 branches as on March31, 2011, located in the states of Tamil Nadu, Andhra Pradesh and Karnataka. Any adverse change in thepolitical and/or economic environment in the states of Tamil Nadu, Andhra Pradesh and Karnataka or anyunfavourable changes in the regulatory and policy regime in the said region could adversely affect ourmanufacturing operations, financial condition and/or profitbility. Further, any changes in consumerpreferences in the said region could also affect our operations and profitability.13. Any downgrade of our credit ratings would increase borrowing costs and constrain our access to capitaland lending markets and, as a result, would negatively affect our net interest margin and our business.In relation to our long-term debt instruments, we currently have ratings of CARE AA from Credit Analysisand Research <strong>Limited</strong> (“CARE”), AA-(ind) from Fitch Ratings India Private <strong>Limited</strong>, (“Fitch”) andCRISIL AA- /Stable from CRISIL. In relation to our short-term debt instruments, we have also receivedratings of CARE A1+ from CARE, F1+(ind) from Fitch, and CRISIL A1+ from CRISIL. Our fixed depositprogramme has been rated as CARE AA (FD) by CARE, and tAA- (ind) by Fitch. The NCDs proposed tobe issued under this Issue have been rated CARE AA by CARE for an amount of upto ` 75,000 Lakhs videits letter dated July 14, 2011, and CRISIL AA-/Stable by CRISIL for an amount of upto ` 75,000 Lakhsvide its letter dated July 14, 2011. The rating of the NCDs by CARE indicates high degree of safetyregarding timely servicing of financial obligations and carrying very low credit risk. The rating of NCDs byCRISIL indicates high degree of safety regarding timely servicing of financial obligations.Any downgrade of our credit ratings would increase borrowing costs and constrain our access to capital anddebt markets and, as a result, would negatively affect our net interest margin and our business. In addition,downgrades of our credit ratings could increase the possibility of additional terms and conditions beingadded to any additional financing or refinancing arrangements in the future. Any such adverse developmentcould adversely affect our business, financial condition and results of operations. A large number of ourbranches are located in southern India and any downturn in the economy of southern India or adversechange in consumer preferences in that region could adversely affect our results of operations14. If we are unable to manage the level of NPAs in our Loan Assets, our financial position and results ofoperations may suffer.Our Gross NPAs as a percentage of Total Loan Assets were 1.86 % and 2.27 % as of March 31, 2011 andMarch 31, 2010 respectively, while our Net NPAs as a percentage of Net Loan Assets were 0.43 % and0.71 % as of March 31, 2011 and March 31, 2010, respectively. We cannot be sure that we will be able toimprove our collections and recoveries in relation to our NPAs or otherwise adequately control our level ofNPAs in future. Moreover, as our loan portfolio matures, we may experience greater defaults in principaland/or interest repayments. Thus, if we are not able to control or reduce our level of NPAs, the overallquality of our loan portfolio may deteriorate and our results of operations may be adversely affected.Furthermore, our current provisions may not be adequate when compared to the loan portfolios of otherfinancial institutions. Moreover, there also can be no assurance that there will be no further deterioration inour provisioning coverage as a percentage of Gross NPAs or otherwise, or that the percentage of NPAs thatwe will be able to recover will be similar to our past experience of recoveries of NPAs. In the event of anyfurther deterioration in our NPA portfolio, there could be an even greater, adverse impact on our results ofoperations.7
15. A decline in our capital adequacy ratio could restrict our future business growth.As per RBI notification dated February 17, 2011, all deposit taking NBFCs have to maintain a minimumcapital adequacy ratio, consisting of Tier I and Tier II capital, which shall not be less than 15.00% of itsaggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items w.e.f.March 31, 2012. Our capital adequacy ratio computed on the basis of applicable RBI requirements was20.53 % as of March 31, 2011, with Tier I capital comprising 16.36 %. If we continue to grow our loanportfolio and asset base, we will be required to raise additional Tier I and Tier II capital in order to continueto meet applicable capital adequacy ratios with respect to our business. There can be no assurance that wewill be able to raise adequate additional capital in the future on terms favorable to us or at all and this mayadversely affect the growth of our business.16. System failures or inadequacy and security breaches in computer systems may adversely affect ourbusiness.Our business is increasingly dependent on our ability to process, on a daily basis, a large number oftransactions. Our financial, accounting or other data processing systems may fail to operate adequately orbecome disabled as a result of events that are wholly or partially beyond our control including a disruptionof electrical or communications services.Our ability to operate and remain competitive will depend in part on our ability to maintain and upgradeour information technology systems on a timely and cost-effective basis. The information available to andreceived by our management through our existing systems may not be timely and sufficient to manage risksor to plan for and respond to changes in market conditions and other developments in our operations. Wemay experience difficulties in upgrading, developing and expanding our systems quickly enough toaccommodate our growing customer base and range of products.Our operations also rely on the secure processing, storage and transmission of confidential and otherinformation in our computer systems and networks. Our computer systems, software and networks may bevulnerable to unauthorized access, computer viruses or other malicious code and other events that couldcompromise data integrity and security.Any failure to effectively maintain or improve or upgrade our management information systems in a timelymanner could materially and adversely affect our competitiveness, financial position and results ofoperations. Moreover, if any of these systems do not operate properly or are disabled or if there are othershortcomings or failures in our internal processes or systems, it could affect our operations or result infinancial loss, disruption of our businesses, regulatory intervention or damage to our reputation. In addition,our ability to conduct business may be adversely impacted by a disruption in the infrastructure that supportsour businesses and the localities in which we are located.17. We may not be able to maintain our current levels of profitability due to increased costs or reducedspreads.Our business strategy involves a relatively high level of ongoing interaction with our customers. Webelieve that this involvement is an important part of developing our relationship with our customers,identifying new cross-selling opportunities and monitoring our performance. However, this level ofinvolvement also entails higher levels of costs and also requires a relatively higher gross spread, or margin,on the finance products we offer in order to maintain profitability. There can be no assurance that we willbe able to maintain our current levels of profitability if the gross spreads on our finance products were toreduce substantially, which could adversely affect our results of operations.18. As part of our business strategy we assign or securitize a substantial portion of our Loan Assets to banksand other institutions. Any deterioration in the performance of any pool of receivables assigned orsecuritized to banks and other institutions may adversely impact our financial performance.8
As part of our means of raising and/or managing our funds, we assign or securitize a substantial portion ofthe receivables from our loan portfolio to banks and other institutions. Such assignment or securitizationtransactions are conducted on the basis of our internal estimates of our funding requirements, which mayvary from time to time. In fiscal 2007, 2008, 2009, 2010 and 2011 we securitized/assigned assets of a bookvalue of ` 80,493.74 lakhs, ` 75,781.80 lakhs, ` 88,844.37 lakhs, ` 30,000 lakhs, and ` 117,915.72 lakhsrespectively. Any change in statutory and/regulatory requirements in relation to assignments orsecuritizations by financial institutions, including the requirements prescribed by RBI and the Governmentof India, could have an adverse impact on our assignment or securitization transactions. Any adversechanges in the policy and/or regulations in connection with securitization of assets by NBFCs and/or newcirculars and/or directions issued by the RBI in this regard, affecting NBFCs or the purchasers of assets,would affect the securitization market in general and our ability to securitise and/or assign our assets.We are also required to provide a credit enhancement for the securitization/assignment transactions by wayof either fixed deposits or corporate guarantees and the aggregate credit enhancement amount outstandingas on March 31, 2011 was ` 15,436.40 lakhs by way of cash collateral. In the event a relevant bank orinstitution does not realize the receivables due under such Loan Assets, such bank or institution would haverecourse to such credit enhancement, which could have a material adverse effect on our results ofoperations and financial condition.19. We face asset-liability mismatches which could affect our liquidity and consequently may adverselyaffect our operations and profitability.We face potential liquidity risks due to varying periods over which our assets and liabilities mature. As istypical for NBFCs, a portion of our funding requirements is met through short-term funding sources such asbank loans, working capital demand loans, cash credit, short term loans and commercial papers. However,each of our products differs in terms of the average tenor, average yield, average interest rates and averagesize of loan. The average tenor of our products may not match with the average tenor of our liabilities.Consequently, our inability to obtain additional credit facilities or renew our existing credit facilities, in atimely and cost-effective manner or at all, may lead to mismatches between our assets and liabilities, whichin turn may adversely affect our operations and financial performance. Further, mismatches between ourassets and liabilities are compounded in case of pre-payments of the financing facilities we grant to ourcustomers.20. Any change in control of our Promoters and/or any disassociation of our Company from the <strong>Shriram</strong>Group could adversely affect our operations and profitability.As of June 31, 2011, SCL holds 50.99 % of the paid up share capital of our Promoter <strong>Shriram</strong> RetailHoldings Private <strong>Limited</strong>, (“SRHPL”), and the remaining shares in SRHPL were held by certain strategicinvestors. SEHPL and SRHPL hold 36.04% and 17.20% of the paid up share capital of our Company as onMarch 31, 2011, respectively. If SCL ceases to exercise control over SRHPL as a result of any transfer ofshares or otherwise, our ability to derive any benefit from the brand name “<strong>Shriram</strong>” and our goodwill as apart of the <strong>Shriram</strong> Group of companies may be adversely affected, which in turn could adversely affectour business and results of operations. Any such change of control could also significantly influence ourbusiness policies and operations.We benefit in several ways from other entities under the <strong>Shriram</strong> Group. We leverage on the <strong>Shriram</strong>Group’s ecosystem to reach out to our prospective customers and our focus has been in maximizing ourassociation with the “<strong>Shriram</strong>” brand name and the synergies offered by the infrastructure, of other entitiesin the <strong>Shriram</strong> Group. Our customer base over the years has comprised of customers of other entities in the<strong>Shriram</strong> Group. The large customer bases and wide-spread network of branches of entities such as <strong>Shriram</strong>Transport <strong>Finance</strong> Company <strong>Limited</strong>, (one of the largest organized asset financing NBFCs in India), andentities operating under the “<strong>Shriram</strong> Chits” brand name has continued to provide us with a large platformof target customers. Further, typically loans provided to chit depositors of <strong>Shriram</strong> Chits are partly orentirely secured by the deposits made with <strong>Shriram</strong> Chits. Accordingly, any disassociation of our Companyfrom the <strong>Shriram</strong> Group and/or our inability to have access to the infrastructure provided by other9
companies in the <strong>Shriram</strong> Group could adversely affect our ability to attract customers and to expand ourbusiness, which in turn could adversely affect our goodwill, operations and profitability.21. The trade mark/service mark and logo in connection with the “<strong>Shriram</strong>” brand which we use is licensedto us and consequently, any termination or non-renewal of such license may adversely affect ourgoodwill, operations and profitability.Pursuant to a license agreement dated April 1, 2010 between our Company and <strong>Shriram</strong> Ownership Trust,(“SOT”) we are entitled to use the brand name “<strong>Shriram</strong>” and the associated mark. In this regard, ourCompany has to pay to SOT, 0.25% on the gross turnover of our Company for the first year of the licenseagreement. Royalty rates for the subsequent years will be decided mutually on or before April 1 st of therespective financial years. Along with the royalty, our Company also is required to pay to SOT amounts byway of reimbursement of actual expenses incurred by SOT in respect of protection and defence of theCopyright. The agreement is valid for a period of three years from the date of execution thereof, subject toany pre-mature termination thereof by SOT in accordance with the terms and conditions of the agreement.In the event such license agreement is terminated or is not renewed or extended in the future, we may notbe entitled to use the brand name “<strong>Shriram</strong>” and the associated mark in connection with our businessoperations. Consequently, we will not be able to derive the goodwill that we have been enjoying under the“<strong>Shriram</strong>” brand. Further, if the commercial terms and conditions including the consideration payablepursuant to the said agreement are revised unfavorably, our Company may be required to allocate largerportions of its profits and/or revenues towards such consideration, which would adversely affect ourprofitability.We operate in a competitive environment and we believe that our brand recognition is a significantcompetitive advantage to us. If the license and user agreement is not renewed or terminated, we may needto change our name, trade mark/service mark or the logo. Any such change could require us to incuradditional costs and may adversely impact our goodwill, business prospects and results of operations.22. We have certain contingent liabilities which may adversely affect our financial condition.As of March 31, 2011, we had certain contingent liabilities not provided for, including the following:• Guarantees issued by the company –`6.81 lakhs• Guarantees issued by others –` 1,942.77 lakhsFor further information on such contingent liabilities, see Annexure VI to our Reformatted ConsolidatedSummary Financial Statements. In the event that any of these contingent liabilities materialize, ourfinancial condition may be adversely affected.23. We are involved in various legal and other proceedings that if determined against us could have amaterial adverse effect on our financial condition and results of operations.We are currently involved in a number of legal proceedings arising in the ordinary course of our business.These proceedings are pending at different levels of adjudication before various courts and tribunals,primarily relating to civil suits and tax disputes. For further information relating to certain significant legalproceedings that we are involved in, please refer to the section titled “Pending Proceedings and StatutoryDefaults” beginning on page 164 of this Draft Prospectus.An adverse decision in these proceedings could materially and adversely affect our business, financialcondition and results of operations.10
24. We may have to comply with strict regulations and guidelines issued by regulatory authorities in India.We are regulated principally by and have reporting obligations to the RBI. We are also subject to thecorporate, taxation and other laws in effect in India. The regulatory and legal framework governing us maycontinue to change as India’s economy and commercial and financial markets evolve. In recent years,existing rules and regulations have been modified, new rules and regulations have been enacted andreforms have been implemented which are intended to provide tighter control and more transparency inIndia’s asset finance sector. Further, RBI may increase the minimum capital adequacy requirement fordeposit taking NBFCs such as us.Compliance with many of the regulations applicable to our operations may involve significant costs andotherwise may impose restrictions on our operations. If the interpretation of the regulators and authoritiesvaries from our interpretation, we may be subject to penalties and the business of our Company could beadversely affected. There can be no assurance that changes in these regulations and the enforcement ofexisting and future rules by governmental and regulatory authorities will not adversely affect our businessand future financial performance.25. Our ability to assess, monitor and manage risks inherent in our business differs from the standards ofsome of our counterparts in India and in some developed countries.We are exposed to a variety of risks, including liquidity risk, interest rate risk, credit risk, operational riskand legal risk. The effectiveness of our risk management is limited by the quality and timeliness ofavailable data.Our hedging strategies and other risk management techniques may not be fully effective in mitigating ourrisks in all market environments or against all types of risk, including risks that are unidentified orunanticipated. Some methods of managing risks are based upon observed historical market behavior. As aresult, these methods may not predict future risk exposures, which could be greater than the historicalmeasures indicated. Other risk management methods depend upon an evaluation of information regardingmarkets, customers or other matters. This information may not in all cases be accurate, complete, current,or properly evaluated. Management of operational, legal or regulatory risk requires, among other things,policies and procedures to properly record and verify a number of transactions and events. Although wehave established these policies and procedures, they may not be fully effective. Our future success willdepend, in part, on our ability to respond to new technological advances and evolving NBFC and retailfinance sector standards and practices on a cost-effective and timely basis. The development andimplementation of such technology entails significant technical and business risks. There can be noassurance that we will successfully implement new technologies or adapt our transaction-processingsystems to customer requirements or evolving market standards.26. Our Promoters have significant control in our Company, which will enable them to influence theoutcome of matters submitted to shareholders for approval, and their interests may differ from those ofother holders of Equity Shares.As of June 30, 2011, our Promoters SEHPL and SRHPL beneficially owned 36.04% and 17.20%,respectively, of our paid-up equity share capital. See “Capital Structure”. Our Promoters have the ability tocontrol our business including matters relating to any sale of all or substantially all of our assets, the timingand distribution of dividends and the election or termination of appointment of our officers and directors.This control could delay, defer or prevent a change in control of our Company, impede a merger,consolidation, takeover or other business combination involving our Company or discourage a potentialacquirer from making a tender offer or otherwise attempting to obtain control of our Company even if it isin our Company’s best interest. In addition, for so long as our Promoters continue to exercise significantcontrol over our Company, it may influence the material policies of our Company in a manner that couldconflict with the interests of our other shareholders. The Promoters may have interests that are adverse tothe interests of our other shareholders and may take positions with which we or our other shareholders donot agree.11
27. We have entered into certain related party transactions and may continue to do so in the future.We have entered into transactions with related parties, within the meaning of AS 18 as notified by theCompanies (Accounting Standards) Rules, 2006. These transactions include royalty paid to <strong>Shriram</strong>Ownership Trust pursuant to the License Agreement dated April 1, 2010 between our Company and<strong>Shriram</strong> Ownership Trust in connection with the use of the brand name "<strong>Shriram</strong>" and the associated mark.For further information on our related party transactions please see the section titled “FinancialInformation”. Such transactions may give rise to current or potential conflicts of interest with respect todealings between us and such related parties. Additionally, there can be no assurance that any dispute thatmay arise between us and related parties will be resolved in our favor.28. Any failure by us to identify, manage, complete and integrate acquisitions, divestitures and othersignificant transactions successfully could adversely affect our results of operations, business andprospects.As part of our business strategy, we may acquire complementary companies or businesses, divest non-corebusinesses or assets, enter into strategic alliances and joint ventures and make investments to further ourbusiness. In order to pursue this strategy successfully, we must identify suitable candidates for andsuccessfully complete such transactions, some of which may be large and complex, and manage theintegration of acquired companies or employees. We may not fully realize all of the anticipated benefits ofany such transaction within the anticipated timeframe or at all. Any increased or unexpected costs,unanticipated delays or failure to achieve contractual obligations could make such transactions lessprofitable or unprofitable. Managing business combination and investment transactions requires varyinglevels of management resources, which may divert our attention from other business operations, may resultin significant costs and expenses and charges to earnings. The challenges involved in integration include:• combining product offerings and entering into new markets in which we are not experienced;• consolidating and maintaining relationships with customers;• consolidating and rationalizing transaction processes and corporate and IT infrastructure;• integrating employees and managing employee issues;• coordinating and combining administrative and other operations and relationships with thirdparties in accordance with applicable laws and other obligations while maintaining adequatestandards, controls and procedures;• achieving savings from infrastructure integration; and• managing other business, infrastructure and operational integration issues.29. Our success depends in large part upon our management team and key personnel and our ability toattract, train and retain such persons.Our ability to sustain our rate of growth depends significantly upon our ability to manage key issues suchas selecting and retaining key managerial personnel, developing managerial experience to address emergingchallenges and ensuring a high standard of client service. In order to be successful, we must attract, train,motivate and retain highly skilled employees, especially branch managers and product executives. If wecannot hire additional qualified personnel or retain them, our ability to expand our business will beimpaired and our revenue could decline. We will need to recruit new employees, who will have to betrained and integrated into our operations. We will also have to train existing employees to adhere properlyto internal controls and risk management procedures. Failure to train and motivate our employees properlymay result in an increase in employee attrition rates, divert management resources and subject us toincurring additional human resource related expenditure. Hiring and retaining qualified and skilledmanagers are critical to our future, as our business model depends on our credit-appraisal and asset12
valuation mechanism, which are personnel-driven operations. Moreover, competition for experiencedemployees in the finance sector can be intense. While we have an incentive structure and two employeestock option schemes namely, ESOP 2006 and ESOP 2008, designed to encourage employee retention, ourinability to attract and retain talented professionals, or the resignation or loss of key management personnel,may have an adverse impact on our business and future financial performance.30. We are exposed to fluctuations in the market values of our investment and other asset portfolio.Recent turmoil in the financial markets has adversely affected economic activity globally, including inIndia. Continued deterioration of the credit and capital markets could result in volatility of our investmentearnings and impairments to our investment and asset portfolio, which could negatively impact ourfinancial condition and reported income.31. Our results of operations could be adversely affected by any disputes with our employees.As of March 31, 2011, we employed 2,318 employees. Currently, none of our employees are members ofany labor union. While we believe that we maintain good relationships with our employees, there can be noassurance that we will not experience future disruptions to our operations due to disputes or other problemswith our work force, which may adversely affect our business and results of operations.32. Our inability to obtain, renew or maintain our statutory and regulatory permits and approvals requiredto operate our business may have a material adverse effect on our business.We require certain statutory and/or regulatory permits and approvals for our business. Our Companyincorporated a wholly owned subsidiary namely <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong> in November 2010,with a view of entering the housing finance sector. We have applied to National Housing Bank (whollyowned by the Reserve Bank of India), for a certificate of registration under the National Housing Bank Act,1987, to carry on business of a housing finance institution. Failure to obtain the same will adversely affectour proposed business in the housing finance sector. In the future, we will be required to renew suchpermits and approvals and obtain new permits and approvals for any proposed operations. There can be noassurance that the relevant authorities will issue any of such permits or approvals in a timely manner or atall, and/or on favorable terms and conditions. Failure by us to comply with the terms and conditions towhich such permits or approvals are subject, and/or to renew, maintain or obtain the required permits orapprovals may result in the interruption of our operations and may have a material adverse effect on ourbusiness, financial condition and results of operations.33. We are subject to supervision and regulation by the RBI as a deposit-taking NBFC, and changes inRBI’s regulations governing us could adversely affect our business.We are subject to the RBI’s guidelines on financial regulation of NBFCs, including capital adequacy,exposure and other prudential norms. The RBI also regulates the credit flow by banks to NBFCs andprovides guidelines to commercial banks with respect to their investment and credit exposure norms forlending to NBFCs. The RBI’s regulations of NBFCs could change in the future which may require us torestructure our activities, incur additional costs or could otherwise adversely affect our business and ourfinancial performance.The RBI, from time to time, amends the regulatory framework governing NBFCs to address, inter-alia,concerns arising from certain divergent regulatory requirements for banks and NBFCs. Pursuant to twonotifications dated December 6, 2006, (Notifications No. DNBS. 189 / CGM (PK)-2006 and DNBS.190 /CGM (PK)-2006), the RBI amended the NBFC Acceptance of Public Deposits (Reserve Bank) Directions,1998, reclassifying deposit taking NBFCs, such as us. We are also subject to the requirements of the NonBanking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank)Directions, 2007, issued by the RBI on February 22, 2007, as amended.The laws and regulations governing the banking and financial services industry in India have becomeincreasingly complex and cover a wide variety of issues such as interest rates, liquidity, securitization,investments, ethical issues, money laundering and privacy. In some cases, there are overlapping regulations13
and enforcement authorities. Moreover, these laws and regulations can be amended, supplemented orchanged at any time such that we may be required to restructure our activities and incur additional expensesto comply with such laws and regulations, which could materially and adversely affect our business and ourfinancial performance. For instance, RBI has vide recent circular dated May 3, 2011 clarified that bankfinance to NBFCs would not be classified as priority sector lending, which has affected profitability ofNBFCs engaged in money lending activities.Compliance with many of the regulations applicable to our operations in India and/or outside India,including any restrictions on investments, lending and other activities currently being carried out by ourCompany, involves a number of risks, particularly in areas where applicable regulations may be subject tovarying interpretations. If the interpretation of the regulators and authorities varies from our interpretation,we may be subject to penalties and our business could be adversely affected. We are also subject to changesin Indian laws, regulations and accounting principles and practices. There can be no assurance that the lawsgoverning the Indian financial services sector will not change in the future or that such changes or theinterpretation or enforcement of existing and future laws and rules by governmental and regulatoryauthorities will not adversely affect our business and future financial performance.34. Our insurance coverage may not adequately protect us against losses.We maintain such insurance coverage that we believe is adequate for our operations. Our insurancepolicies, however, may not provide adequate coverage in certain circumstances and are subject to certaindeductibles, exclusions and limits on coverage. We maintain general liability insurance coverage includingcoverage for errors or omissions. We cannot, however, assure you that the terms of our insurance policieswill be adequate to cover any damage or loss suffered by us or that such coverage will continue to beavailable on reasonable terms or will be available in sufficient amounts to cover one or more large claimsor that the insurer will not disclaim coverage as to any future claim.A successful assertion of one or more large claims against us that exceeds our available insurance coverageor changes in our insurance policies including premium increases or the imposition of a larger deductible orco-insurance requirement could adversely affect our business, financial condition and results of operations.35. There is ambiguity on whether or not NBFCs are required to comply with the provisions of state moneylending laws, which if interpreted unfavorably by statutory/regulatory authorities or courts of law couldadversely affect our operations and profitability.There is ambiguity on whether or not NBFCs are required to comply with the provisions of state moneylending laws that establish ceilings on interest rates. We also carry out operations in several states such asAndhra Pradesh, Tamil Nadu, Madhya Pradesh, and Maharashtra, where there are money lending statutesin operation. The relevant state money lending statutes provide penalties for non-compliance with suchstatutes, including civil and criminal consequences. In the event that the government of any state in Indiarequires us to comply with the provisions of their respective state money lending laws or imposes anypenalty against us, our Directors or our officers, including for prior non-compliance, our business, results ofoperations and financial condition may be adversely affected.36. We do not own most of our branch offices and our registered office. Any failure on our part to executeand/or renew leave and license agreements and/or lease deeds in connection with such offices or failureto locate alternative offices in case of termination of the leases and/or leave and license arrangements inconnection with any branch could adversely affect our operations and profitability.Our Registered Office and most of our branches are located on leased and/or licensed premises. If any ofthe owners of these premises does not renew an agreement under which we occupy the premises or if anyof the owners seeks to renew an agreement on terms and conditions unfavorable to us, we may suffer adisruption in our operations or increased costs, or both, which may adversely affect our business and resultsof operations.14
Risks Relating to the Utilization of Issue Proceeds37. The fund requirement and deployment mentioned in the Objects of the Issue have not been appraised byany bank or financial institution.We intend to use the proceeds of the Issue, after meeting the expenditures of and related to the Issue, forour various financing activities including lending and investments, subject to applicable statutory and/orregulatory requirements, to repay our existing loans and our business operations including for our capitalexpenditure and working capital requirements. For further details, please refer to the section titled “Objectsof the Issue” beginning on page 58 of this Draft Prospectus. The fund requirement and deployment is basedon internal management estimates and has not been appraised by any bank or financial institution. Themanagement will have significant flexibility in applying the proceeds received by us from the Issue.Further, as per the provisions of the Debt Regulations, we are not required to appoint a monitoring agencyand therefore no monitoring agency has been appointed for this Issue.Risks Relating to the NCDs38. Changes in interest rates may affect the price of our NCDs.All securities where a fixed rate of interest is offered, such as our NCDs, are subject to price risk. The priceof such securities will vary inversely with changes in prevailing interest rates, i.e. when interest rates rise,prices of fixed income securities fall and when interest rates drop, the prices increase. The extent of fall orrise in the prices is a function of the existing coupon, days to maturity and the increase or decrease in thelevel of prevailing interest rates. Increased rates of interest, which frequently accompany inflation and/or agrowing economy, are likely to have a negative effect on the price of our NCDs.39. You may not be able to recover, on a timely basis or at all, the full value of the outstanding amountsand/or the interest accrued thereon in connection with the NCDs.Our ability to pay interest accrued on the NCDs and/or the principal amount outstanding from time to timein connection therewith would be subject to various factors inter-alia including our financial condition,profitability and the general economic conditions in India and in the global financial markets. We cannotassure you that we would be able to repay the principal amount outstanding from time to time on the NCDsand/or the interest accrued thereon in a timely manner or at all. Although our Company will createappropriate security in favour of the Debenture Trustee for the NCD holders on the assets adequate to ensureat least 100% asset cover for the NCDs, which shall be free from any encumbrances, the realizable value ofthe assets charged as security, when liquidated, may be lower than the outstanding principal and/or interestaccrued thereon in connection with the NCDs. A failure or delay to recover the expected value from a saleor disposition of the assets charged as security in connection with the NCDs could expose you to a potentialloss.40. If we do not generate adequate profits, we may not be able to maintain an adequate DebentureRedemption Reserve, (“DRR”) for the NCDs issued pursuant to this Draft Prospectus.Section 117C of the Act states that any company that intends to issue debentures must create a DRR towhich adequate amounts shall be credited out of the profits of the company until the debentures areredeemed. The Ministry of Corporate Affairs has, through its circular dated April 18, 2002, (“Circular”),specified that the quantum of DRR to be created before the redemption liability actually arises in normalcircumstances should be ‘adequate’ to pay the value of the debentures plus accrued interest, (if not alreadypaid), till the debentures are redeemed and cancelled. The Circular however further specifies that, forNBFCs like our Company, (NBFCs which are registered with the RBI under Section 45-IA of the RBIAct), the adequacy of the DRR will be 50% of the value of debentures issued through the public issue.Accordingly, our Company is required to create a DRR of 50% of the value of debentures issued throughthe public issue. As further clarified by the Circular, the amount to be credited as DRR will be carved outof the profits of the company only and there is no obligation on the part of the company to create DRR if15
there is no profit for the particular year. Accordingly, if we are unable to generate adequate profits, theDRR created by us may not be adequate to meet the 50% of the value of the NCDs. This may have abearing on the timely redemption of the NCDs by our Company.41. Any downgrading in credit rating of our NCDs may affect the value of NCDs and thus our ability toraise further debts.The NCDs proposed to be issued under this Issue have been rated CARE AA by CARE for an amount ofupto ` 75,000 Lakhs vide its letter dated July 14, 2011, and CRISIL AA-/Stable by CRISIL for an amountof upto ` 75,000 Lakhs vide its letter dated July 14, 2011. The rating of the NCDs by CARE indicates highdegree of safety regarding timely servicing of financial obligations and carrying very low credit risk. Therating of NCDs by CRISIL indicates high degree of safety regarding timely servicing of financialobligations. The ratings provided by CRISIL and/or CARE may be suspended, withdrawn or revised at anytime by the assigning rating agency and should be evaluated independently of any other rating. Theseratings are not a recommendation to buy, sell or hold securities and investors should take their owndecisions. Please refer to page 26 for the rationale for the above ratings..42. There is no active market for the NCDs on the stock exchanges. As a result the liquidity and marketprices of the NCDs may fail to develop and may accordingly be adversely affected.There can be no assurance that an active market for the NCDs will develop. If an active market for theNCDs fails to develop or be sustained, the liquidity and market prices of the NCDs may be adverselyaffected. The market price of the NCDs would depend on various factors inter alia including (i) the interestrate on similar securities available in the market and the general interest rate scenario in the country, (ii) themarket price of our Equity Shares, (iii) the market for listed debt securities, (iv) general economicconditions, and, (v) our financial performance, growth prospects and results of operations. Theaforementioned factors may adversely affect the liquidity and market price of the NCDs, which may tradeat a discount to the price at which you purchase the NCDs and/or be relatively illiquid.43. There may be a delay in making refunds to applicants.We cannot assure you that the monies refundable to you, on account of (a) withdrawal of your applications,(b) our failure to receive minimum subscription in connection with the Base Issue, (c) withdrawal of theIssue, or (d) failure to obtain the final approval from the NSE and/or BSE for listing of the NCDs, will berefunded to you in a timely manner. We however, shall refund such monies, with the interest due andpayable thereon as prescribed under applicable statutory and/or regulatory provisions.B. EXTERNAL RISK FACTORS44. Our two-wheeler and other vehicle loans businesses are dependent on the automobile and transportationindustry in India.Our two-wheeler and other vehicle loans businesses to a large extent depend on the continued growth in theautomobile and transportation industry in India, which are influenced by a number of extraneous factorswhich are beyond our control, inter-alia including (a) the macroeconomic environment in India, (b) thedemand for transportation services, (c) natural disasters and calamities, and (d) changes in regulations andpolicies in connection with motor vehicles. Such factors may result in a decline in the sales or value of newand pre-owned vehicles. Correspondingly, the demand for availing finance for new and pre-owned vehiclesmay decline, which in turn may adversely affect our financial condition and the results of our operations.Further, the ability of vehicle owners and/or operators to perform their obligations under existing financingagreements may be adversely affected if their businesses suffer as a result of the aforesaid factors.45. Our loans to the small enterprises is dependent on the performance of the small enterprises sector inIndia, competition from public sector banks and financial institutions and other NBFCs, andgovernment policies and statutory and/or regulatory reforms in the small enterprises finance sector.16
As on March 31, 2011, 24 % of our Assets Under Management were represented by loans to the smallenterprises segment. In recognition of the contribution and vast potential of the small enterprises financesector in the economy, provision of adequate credit to this sector continues to be an important element ofbanking policy, particularly after the initiation of structural reforms in 1991. According to the Ministry of<strong>Finance</strong>, Government of India, small and medium enterprises sector contribute about 40% of totalmanufacturing and 34% of total exports and is crucial to India's economic growth, employment generationand entrepreneurial development, (Source: Ministry Website). The Government of India has from time totime taken economic policy initiatives to promote this sector and enhance credit to small and mediumenterprises. Some of the initiatives of the Government towards MSME financing include setting up ofcredit guarantee fund trust for small industries, risk sharing facility, venture capital funding, micro credit,etc. The small enterprises finance sector currently is catered to largely by public sector banks, publicfinancial institutions and local unorganized private financiers.Any change in statutory and/or regulatory requirements in connection with the small enterprises financesector, change in government policies, slow down in liberalization and reforms affecting the sector couldaffect the performance of small enterprises, which would affect the demand for finance in this sector, whichin turn would affect the results of our operations from loans to the small enterprises finance sector.Further, progressive reforms, policy, statutory and/regulatory provisions in connection with the sector couldenable easier access to finance to small enterprises from banks, NBFCs and other financial institutionswhich in turn could result in increased competition for our Company in relation to loans issued to smallenterprises. Our inability to manage such competition could adversely affect our results of operations fromloans to the small enterprises finance sector.46. Increase in competition from our peer group in the finance sector may result in reduction of our marketshare, which in turn may adversely affect our profitability.We have been increasingly facing competition from domestic and foreign banks and NBFCs in each of ourlines of businesses. Some of our competitors are very aggressive in underwriting credit risk and pricingtheir products and may have access to funds at a lower cost, wider networks and greater resources than ourCompany. Our financial condition and results of operations are dependent on our ability to obtain andmaintain low cost funds and to provide prompt and quality services to our customers. If our Company isunable to access funds at a cost comparable to or lower than our competitors, we may not be able to offerloans at competitive interest rates to our customers.While our Company believes that it has historically been able to offer competitive interest rates on theloans extended to our customers, there can be no assurance that our Company will be able to continue to doso in the future. An increase in competition from our peer group may result in a decline in our marketshare, which may in turn result in reduced incomes from our operations and may adversely affect ourprofitability.47. Our growth depends on the sustained growth of the Indian economy. An economic slowdown in Indiaand abroad could have a direct impact on our operations and profitability.Macroeconomic factors that affect the Indian economy and the global economic scenario have an impact onour business. The quantum of our disbursements is driven by the growth in demand for vehicles, capital bysmall enterprises and loans by individuals. Any slow down in the Indian economy may have a direct impacton our disbursements and a slowdown in the economy as a whole can increase the level of defaults therebyadversely impacting our Company’s profitability, the quality of its portfolio and growth plans.48. Political instability or changes in the government could delay further liberalization of the Indianeconomy and adversely affect economic conditions in India generally, which could impact our business.17
Since 1991, the Government has pursued a policy of economic liberalization, including significantlyrelaxing restrictions on the private sector. There can be no assurance that these liberalization policies willcontinue in the future as well. The rate of economic liberalization could change and specific laws andpolicies affecting financial services companies, foreign investment, currency exchange rates and othermatters affecting investments in Indian companies could change as well. A significant slowdown in India’seconomic liberalization and deregulation policies could disrupt business and economic conditions in India,thus affecting our business. Any political instability in the country, including any change in theGovernment, could materially impact our business adversely.49. Civil unrest, terrorist attacks and war would affect our business.Terrorist attacks and other acts of violence, war or conflicts, particularly those involving India, as well asthe United States of America, the United Kingdom, Singapore and the European <strong>Union</strong>, may adverselyaffect Indian and global financial markets. Such acts may negatively impact business sentiment, whichcould adversely affect our business and profitability. India has from time to time experienced and continuesto experience, social and civil unrest, terrorist attacks and hostilities with neighbouring countries. Also,some of India’s neighbouring countries have experienced or are currently experiencing internal unrest.This, in turn, could have a material adverse effect on the Indian economy and in turn may adversely affectour operations and profitability and the market for the NCDs.50. Our business may be adversely impacted by natural calamities or unfavourable climatic changes.India, Bangladesh, Pakistan, Indonesia, Japan and other Asian countries have experienced naturalcalamities such as earthquakes, floods, droughts and a tsunami in recent years. Some of these countrieshave also experienced pandemics, including the outbreak of avian flu. These economies could be affectedby the extent and severity of such natural disasters and pandemics which could, in turn affect the financialservices sector of which our Company is a part. Prolonged spells of abnormal rainfall, draught and othernatural calamities could have an adverse impact on the economy, which could in turn adversely affect ourbusiness and the price of our NCDs.51. Any downgrading of India's sovereign rating by an international rating agency (ies) may affect ourbusiness and our liquidity to a great extent.Any adverse revision to India's credit rating for domestic and international debt by international ratingagencies may adversely impact our ability to raise additional finances at favourable interest rates and othercommercial terms. This could have an adverse effect on our growth, financial performance and ouroperations.PROMINENT NOTES1. This is a public issue of NCDs by our Company aggregating upto ` 37,500 lakhs with an option to retainover-subscription upto ` 37,500 lakhs for issuance of additional NCDs, aggregating to a total of ` 75,000lakhs.2. For details on the interest of our Company’s Directors, please refer to the sections titled “OurManagement” and “Capital Structure” beginning on pages 109 and 47 of this Draft Prospectus, respectively.3. Our Company has entered into certain related party transactions, within the meaning of AS 18 as notifiedby the Companies (Accounting Standards) Rules, 2006, as disclosed in the section titled “FinancialInformation” beginning on page 128 of this Draft Prospectus.4. Any clarification or information relating to the Issue shall be made available by the Lead Managers, theCo-Lead Manager and our Company to the investors at large and no selective or additional informationwould be available for a section of investors in any manner whatsoever.18
5. Investors may contact the Registrar to the Issue, Compliance Officer, the Lead Managers and the Co-LeadManager for any complaints pertaining to the Issue. In case of any specific queries on allotment/refund,Investor may contact Registrar to the Issue.6. In the event of oversubscription to the Issue, allocation of NCDs will be as per the "Basis of Allotment" setout on page 161 of this Draft Prospectus.7. Our Equity Shares are listed on the NSE and BSE.8. Some of our privately placed non convertible debentures are listed in BSE.9. As of March 31, 2011, we had certain contingent liabilities not provided for, including the following:• Guarantees issued by the company – `6.81 lakhs• Guarantees issued by others – `1,942.77 lakhsFor further information on such contingent liabilities, see Annexure VI to our Reformatted UnconsolidatedSummary Financial Statements.10. For further information relating to certain significant legal proceedings that we are involved in, see“Pending Proceedings and Statutory Defaults” beginning on page 164 of this Draft Prospectus.19
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>SECTION III : INTRODUCTIONGENERAL INFORMATIONDate of Incorporation: March 27, 1986. Our Company was incorporated as a public limited company under theprovisions of the Act.Registered Office:123, Angappa Naicken Street, Chennai, Tamil Nadu - 600 001.Corporate Office:221, Royapettah High Road, Mylapore, Chennai, Tamil Nadu – 600 004 Tel.: + 91 44 4392 5300; Fax: +91 44 43915351.Registration:Corporate Identification Number: L65191TN1986PLC012840 issued by the Registrar of Companies, Chennai, TamilNadu.Our Company holds a certificate of registration dated April 17, 2007, bearing registration no. 07-00458 issued by theRBI to carry on the activities of a NBFC under section 45 IA of the RBI Act, 1934.Compliance Officer (and Company Secretary):The details of the person appointed to act as Compliance Officer for the purposes of this Issue is set out below:Mr. C. R. DashCompany Secretary<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>221, Royapettah High RoadMylapore, ChennaiTamil Nadu – 600 004Tel.: + 91 44 4392 5300Fax: +91 44 4391 5351Email: sect@shriramcity.inInvestors may contact the Registrar to the Issue or the Compliance Officer in case of any pre-Issue or post-Issue relatedmatters such as non-receipt of Allotment Advice, demat credit, refund orders or interest on application money.20
Lead Managers:JM Financial Consultants Private<strong>Limited</strong>141 Maker Chambers IIINariman PointMumbai - 400 021Tel: + 91 22 6630 3030Fax: +91 22 2204 2137Email: scuf.ncd@jmfinancial.inInvestor Grievance Email:greivance.ibd@jmfinancial.inWebsite: www.jmfinancial.inContact Person: Ms. LakshmiLakshmananCompliance Officer: Mr. ChintalSakariaSEBI Registration No.:INM000010361A. K. Capital Services <strong>Limited</strong>30-39, Free press HouseFree Press Journal Marg215, Nariman PointMumbai-400021Tel: +91 22 6754 6500/6634Fax: +91 22 6610 0594Email:shriramcitydipo@akgroup.co.inInvestor Grievance Email:investor.grievance@akgroup.co.inWebsite: www.akcapindia.comContact Person: Mr. Hitesh ShahSEBI Registration No:INM000010411ICICI Securities <strong>Limited</strong>ICICI Centre, H.T. Parekh Marg,ChurchgateMumbai- 400 020Tel: +91 22 2288 2460Fax: +91 22 2282 6580Email:scufbondissue@icicisecurities.comInvestor Grievance Email:customercare@icicisecurities.comWebsite: www.icicisecurities.comContact Person: Mr. ManvendraTiwariCompliance Officer: Mr. Subir SahaSEBI Registration No:INM000011179Co-Lead Managers:<strong>Karvy</strong> Investor Services <strong>Limited</strong>Regent Chambers, 2 nd floorNariman Point, Mumbai – 400021Tel : +91 22 2289 5000Fax: +91 22 3020 4040Email: shriramcityunion@karvy.comInvestor Grievance Email:cmg@karvy.com; rajnish.rangari@karvy.comWebsite: www.karvy.comContact Person: Mr. Omkar BarveCompliance Officer: Mr. Rajnish RangariSEBI Registration No: INM000008365Debenture Trustee:IDBI Trusteeship Services <strong>Limited</strong>Asian Building, Ground Floor17, R Kamani MargBallard EstateMumbai – 400 001Tel: +91 22 4080 7000Fax: + 91 22 6631 1776Website: www.idbitrustee.co.inContact Person: Ms. Brindha VEmail: brindha@idbitrustee.co.inSEBI Registration No.: IND000000460IDBI Trusteeship Services <strong>Limited</strong> has by its letter dated July 4, 2011 given its consent for its appointment asDebenture Trustee to the Issue and for its name to be included in this Draft Prospectus and in all the subsequentperiodical communications sent to the holders of the Debentures issued pursuant to this Issue.21
Registrar to the IssueIntegrated Enterprises (India) <strong>Limited</strong>2 nd Floor, ‘Kences Towers’No.1 Ramakrishna StreetNorth Usman Road, T NagarChennai – 600 017Tel: +91 44 2814 0801Fax: +91 44 2814 2479Website:corpserv@iepindia.comContact Person: Mr. K Suresh BabuEmail: corpserv@iepindia.comSEBI Registration No.: INR000000544Statutory Auditor:Our statutory auditor being:M/s Pijush Gupta & CoChartered AccountantsP-199, C.I.T. Road, Scheme IV-MKolkata - 700 010Email: pijushgupta.ca@gmail.comTel: +91 33 2353 6859Firm registration number: 309015ECredit Rating Agencies:Credit Analysis & Research <strong>Limited</strong>4 th Godrej Coliseum,Somaiya Hospital Road,Off Eastern Express HighwaySion (East),Mumbai – 400 022Tel: +91 22 6754 3456Fax: +91 22 6754 3457CRISIL <strong>Limited</strong>CRISIL House, Central Avenue,Hiranandani Business Park,Powai,Mumbai – 400 076Tel: +91 22 3342 3000Fax: +91 22 3342 3050Legal Advisor to the Issue:J Sagar AssociatesVakils House,18, Sprott RoadBallard EstateMumbai- 400 001Tel: +91 22 4341 8500Fax: +91 22 6656 1515Bankers to the Issue:[●]22
Bankers to our CompanyANDHRA BANKCorporate <strong>Finance</strong> Branch,16 th , Earnest House,NCPA Marg,Nariman Point,Mumbai – 400 021Tel: +91 22 2288 4877Fax: +91 22 2288 5841BANK OF INDIAChennai Corporate Banking Branch,IV Floor, Tarapore Towers, 826,Anna Salai, Chennai - 600 002.Tel: +91 44 2851 0661Fax: +91 44 2852 1912CREDIT AGRICOLE CORPORATE ANDINVESTMENT BANKWestminster Building 2 nd Floor,New No. 70, Dr. Radhakrishnann Salai,Mylapore, Chennai 600 004Tel: +91 44 6635 1001Fax: +91 44 2847 4619CENTRAL BANK OF INDIAIndustrial <strong>Finance</strong> Branch, No.49,Montieth Road, Egmore,Chennai -600 008.Tel: +91 44 2888 3186Fax: +91 44 2346 4231CITY UNION BANK LIMITED"Keerthis", First Floor, No.67, Mandaveli Street,Mandaveli,Chennai – 600 028.Tel: +91 44 2493 7874Fax: +91 44 2461 0024DENA BANKT Nagar Branch No.1,Thanikachalam Road,Chennai - 600017Tel: +91 44 2433 2656Fax: +91 44 2434 4870HDFC BANK LIMITEDCorporate Banking Department, 2 nd Floor, Process House,Kamala Mills Compound,Senapati Bapat Marg,Lower Parel, Mumbai - 400 013Tel: +91 22 2496 1616Fax: +91 22 2496 8135AXIS BANKGround Floor, Karumuthu Nilayam,No. 192, Anna Salai,Chennai -600 002Tel: +91 44 28577763Fax: +91 44 28544193BANK OF MAHARASHTRA16, East Mada Street,Chennai - 600 004Tel: +91 44 24338248Fax: +91 44 2461 4357CANARA BANKPrime Corporate Branch,Ground Floor Spencer Tower-I,No.770, Anna Salai,Chennai - 600 002Tel: +91 44 2849 7010Fax: +91 44 2849 7016CORPORATION BANKWhite Road Branch,38 & 39, Whites Road,Chennai - 600014Tel: +91 44 2852 4258Fax: +91 44 2852 2919DBS BANK LIMITEDDBS Building, 806 Annasalai,Chennai - 600002Tel: +91 44 6656 8824Fax: +91 44 6656 8899FEDERAL BANK LIMITED61, Anna Salai,Chennai - 600002Tel: +91 44 2851 2561Fax: +91 44 2852 3058THE HONGKONG AND SHANGHAI BANKINGCORPORATION LIMITEDNagabrahma Towers, No.76.Cathedral RoadChennai - 600 086Tel: +91 44 4391 2064Fax: +91 44 2811 184523
ICICI BANK LIMITED3 rd FloorNo.1, Cenotaph RoadTeynampetChennai 600 018Tel: +91 44 4231 6978Fax: +91 44 4231 6960INDIAN BANKNo.66, Rajaji Salai, Chennai - 600 001Tel: +91 44 2521 5368Fax: +91 44 2521 0342INDUSIND BANK1 st Floor, IndusInd House,425, Dadasaheb Bhadkamkar Marg,Opera House, Mumbai - 400 004Tel: +91 22 4345 7534Fax: +91 22 4345 7530INDIAN OVERSEAS BANKCommercial & Institutional Credit Branch, "AurasCorporate Centre", 98-A, Dr. Radhakrishnan Salai,Mylapore, Chennai - 600 004Tel: +91 44 2847 8634Fax: +91 44 2847 8633IDBI Bank <strong>Limited</strong>No.115, Anna Salai,P.B. No. 805, Saidapet,Chennai - 600 015Tel: +91 44 22355201Fax: +91 44 22355226JAMMU & KASHMIR BANKVoltax International Centre,No. 52, Armenian Street, ParrysChennai – 600 001Tel: + 91 44 2533 0478Fax: +91 44 2535 9131ING VYSYA BANKRegional Office: No. 185, Anna Salai,02 nd Floor, Chennai - 600 006Tel: +91 44 2852 8377Fax: +91 44 2859 3322ORIENTAL BANK OF COMMERCESpencer Plaza, Ground Floor, 769, Anna Salai,Chennai - 600 002Tel: +91 44 2849 2940Fax: +91 44 2849 8031PUNJAB NATIONAL BANKNo.10,Raja Street, T. Nagar, Chennai - 600 017Tel: +91 44 2432 3928Fax: +91 44 2434 1050THE SOUTH INDIAN BANK LIMITEDIndustrial <strong>Finance</strong> Branch, No. 110,Raheja Towers, 177,Anna Salai, Chennai - 600 002Tel: +91 44 2860 3964Fax: +91 44 2860 3963KARUR VYSYA BANK LIMITEDKamanwala Chambers,Sir P.M. Road,Fort, Mumbai 400 001Tel: +91 22 2266 5467Fax: +91 22 2261 2761KOTAK MAHINDRA BANK LIMITED04th Floor, Kotak Infiniti, Building No.21,Infinity Park, Gen A.K. Vaidya Marg, Malad (E),Mumbai - 400 097Tel: +91 22 6605 4139Fax: +91 22 67259063STANDARD CHARTERED BANKOrigination & Client Coverage,19, Rajaji Salai, 4 th Floor,Chennai - 600 001Tel: +91 44 2534 9450Fax: +91 44 2534 9186SMALL INDUSTRIES DEVELOPMENT BANKOF INDIAOverseas Towers, No. 756L,Anna Salai (Opp. TVS), Chennai - 600 002Tel: +91 44 2841 3716Fax: +91 44 2852 069224
STATE BANK OF BIKANER AND JAIPUR1 st Floor, Giriraj Bldg.,73, Sant Tukaram Road,Danabunder, Masjid (E),Mumbai 400 009Tel: +91 22 2348 7020Fax: +91 22 2348 1944STATE BANK OF MAURITIUS LIMITEDPrince Arcade, 4th Floor, 22-A,Cathedral Road, Chennai - 600 086Tel: +91 44 2811 0943Fax: +91 44 2811 6445STATE BANK OF MYSOREBranch 224-C, Mittal Court, 4 th Floor,Nariman Point, Mumbai - 400 021Tel: +91 22 2288 5577Fax: +91 22 2282 3895STATE BANK OF INDIAIndustrial <strong>Finance</strong> Branch,Mumbai 'The Arcade" 2nd floor,World Trade Centre,Cuffe Parade, Coloba,Mumbai - 400 005Tel: +91 22 2216 1955Fax: +91 22 2216 0918STATE BANK OF TRAVANCORE556 Anna Salai, Teynampet,Chennai - 600 018Tel: +91 44 2435 9432Fax: +91 44 2435 1671TAMIL NADU MERCANTILE BANK738, Anna Salai,(Near District Central Library),Chennai - 600 002Tel: +91 44 2841 2205Fax: +91 44 2841 2208STATE BANK OF PATIALACommercial Branch, Atlanta,First Floor, Nariman Point,Mumbai - 400 021Tel: +91 22 2285 1762Fax: +91 22 2285 6626SYNDICATE BANK170 Eldams Road, TeynampetChennai - 600 018Tel: +91 44 2432 3212Fax: +91 44 2435 2182UNION BANK OF INDIA12/13, Kodambakkam High Road,Nunqambakkam,Chennai - 600 034Tel: +91 44 2346 0749Fax: +91 44 2346 0751VIJAYA BANK168 Mount Road,Chennai - 600 002Tel: +91 44 2852 1746Fax: +91 44 2852 5231UNITED BANK OF INDIAUnited Bank of India, No. 25, Sir P.M. Road,Fort, Mumbai - 400 001Tel: +91 22 2202 0431Fax: +91 22 2281 0440YES BANK LIMITED143/1, Nungambakkam High Road,Chennai - 600 034Tel: +91 44 2831 9000Fax: +91 44 2831 900125
ImpersonationAs a matter of abundant precaution, attention of the investors is specifically drawn to the provisions of sub-section(1) of section 68A of the Act, relating to punishment for fictitious applications.Minimum SubscriptionIf our Company does not receive the minimum subscription of 75 % of the Base Issue, i.e. ` 28,125 lakhs, prior toallotment, the entire subscription shall be refunded to the applicants within 30 days from the date of closure of theIssue. If there is delay in the refund of subscription by more than 8 days after our Company becomes liable to refundthe subscription amount, our Company will pay interest for the delayed period at rates prescribed under sub-sections(2) and (2A) of Section 73 of the Companies Act, 1956.Credit Rating and RationaleThe NCDs proposed to be issued under this Issue have been rated CARE AA by CARE for an amount of upto `75,000 Lakhs vide its letter dated July 14, 2011, and CRISIL AA-/Stable by CRISIL for an amount of upto ` 75,000Lakhs vide its letter dated July 14, 2011. The rating of the NCDs by CARE indicates high degree of safetyregarding timely servicing of financial obligations and carrying very low credit risk. The rating of NCDs by CRISILindicates high degree of safety regarding timely servicing of financial obligations.RationaleThe rationale for the aforementioned credit rating issued by CARE is as follows:The rating factors in the strong business growth of the Company with good profitability and asset qualityparameters. The rating also factors in the strengths that the Company derives from the <strong>Shriram</strong> Group franchise,SCUF’s position as a niche player in the semi urban and rural areas, diversified product portfolio, adequatecapitalization and strong resource raising capability with diversified funding base and experienced management.The rating is however constrained on account of regional concentration of the Company’s business and evolvingnature of the management information system. SCUF’s ability to maintain asset quality and raise capital to sustaingrowth are the key rating sensitivities.CARE’s ratings are opinions on credit quality and are not recommendations to sanction, renew, disburse or recallthe concerned bank facilities or to buy, sell or hold any security. CARE has based its ratings on informationobtained from sources believed by it to be accurate and reliable. CARE does not, however, guarantee the accuracy,adequacy, or completeness of any information and is not responsible for any errors or omissions or for the resultsobtained from the use of such information. Most entities whose bank facilities/instruments are rated by CARE havepaid a credit rating fee, based on the amount and type of bank facilities/instruments.The rationale for the aforementioned credit rating issued by CRISIL is as follows:The rating reflects the Company’s following strengths, (i) synergies derived from association with the <strong>Shriram</strong>Group, (ii) healthy capitalization and (iii) adequate earnings. The aforementioned strengths are partially offset by theCompany’s following weaknesses, (i) exposure to potential asset quality risks from lending to low income groupsegments and (ii) geographical concentration in lending portfolio.CRISIL rating reflects CRISIL's current opinion on the likelihood of timely payment of the obligations under therated instrument and does not constitute an audit of the rated entity by CRISIL. CRISIL ratings are based oninformation provided by the issuer or obtained by CRISIL from sources it considers reliable. CRISIL does notguarantee the completeness or accuracy of the information on which the rating is based. A CRISIL rating is not arecommendation to buy, sell, or hold the rated instrument; it does not comment on the market price or suitability fora particular investor. All CRISIL ratings are under surveillance. Ratings are revised as and when circumstances so26
warrant. CRISIL is not responsible for any errors and especially states that it has no financial liability whatsoeverto the subscribers / users / transmitters / distributors of this product.Utilisation of Issue proceedsOur Board of Directors certifies that:• all monies received out of the Issue shall be credited/transferred to a separate bank account other than thebank account referred to in sub-section (3) of Section 73 of the Act;• details of all monies utilised out of the Issue referred above shall be disclosed under an appropriate separatehead in our balance sheet indicating the purpose for which such monies have been utilised;• details of all unutilised monies out of the Issue, if any, shall be disclosed under an appropriate head in ourbalance sheet indicating the form in which such unutilised monies have been invested; and• we shall utilize the Issue proceeds only upon creation of security as stated in this Draft Prospectus in thesection titled “Issue Structure” beginning on page 139 of this Draft Prospectus.• the Issue proceeds shall not be utilized towards full or part consideration for the purchase or any otheracquisition, inter alia by way of a lease, of any property.Issue ProgrammeThe subscription list for the Issue shall remain open for subscription at the commencement of banking hours andshall close at the close of banking hours on the dates indicated below or earlier or on such date, as may be decided atthe discretion of the Board of Directors or any committee of the Board of Directors of our Company subject tonecessary approvalsISSUE OPENS ON [●], 2011ISSUE CLOSES ON [●], 2011The subscription list for the Issue shall remain open for subscription at the commencement of banking hours andclose at the close of banking hours on the dates indicated above or earlier or on such date as may be decided at thediscretion of the Committee of Directors of our Company subject to necessary approvals. In the event of such earlyclosure of subscription list of the Issue, our Company shall ensure that notice of such early closure is given on suchearly date of closure through advertisement/s in a leading national daily newspaper.27
SUMMARY OF BUSINESS, STRENGTH & STRATEGYFrost & Sullivan India Private <strong>Limited</strong> has used due care and caution in preparing the report titled “Analysis ofMSME Loan Markets for NBFCs – July 2011”. Information has been obtained from sources that Frost & SullivanIndia Private <strong>Limited</strong> considers reliable. However, Frost & Sullivan India Private <strong>Limited</strong> does not guarantee theaccuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for theresults obtained from the use of such information. No part of the said report may be published / reproduced in anyform without Frost & Sullivan India Private <strong>Limited</strong>’s prior written approval. Frost & Sullivan India Private<strong>Limited</strong> is not liable for investment decisions which may be based on the views expressed in the said report.OverviewOur Company is a deposit-accepting NBFC registered with RBI, offering (i) financing for two wheelers, appliancesand other commercial goods, (“Product <strong>Finance</strong>”), (ii) pre-owned and new vehicle loans, (iii) personal loans, (iv)loans against gold, and (v) loans to the small enterprise finance segment.Our current lines of business and organisational structure are as follows:According to the Frost and Sullivan report titled “Analysis of MSME Loan Markets for NBFCs – July 2011”, ourCompany is the largest small enterprise finance company in India. In the small loan segment (loans of `1 lakh -10lakh) our Company has a dominant share of 95%. Our Company also leads the total Indian micro, small and mediumenterprises market with 53 % share.Our Company was established in 1986 and we have a track record of twenty five years in the financial servicessector in India. Since 2005 we have focused on the retail financing segment. Our Company has been registered as adeposit-taking NBFC with the RBI since September 4, 2000 under Section 45IA of the Reserve Bank of India Act,1934.We are a part of the <strong>Shriram</strong> Group of companies which has a strong presence in financial services in India,including commercial vehicle financing, consumer finance, life and general insurance, stock broking, chit funds anddistribution of financial products such as life and general insurance products and mutual fund products, as well as agrowing presence in other businesses such as property development, engineering projects and informationtechnology.28
We leverage on the <strong>Shriram</strong> Group’s ecosystem to reach out to our prospective customers and our focus has been inmaximizing our association with the “<strong>Shriram</strong>” brand name and the synergies offered by the infrastructure, of otherentities in the <strong>Shriram</strong> Group. Our customer base over the years has significantly comprised of customers of otherentities in the <strong>Shriram</strong> Group. The large customer bases and wide-spread network of business outlets of entities suchas, <strong>Shriram</strong> Transport <strong>Finance</strong> Company <strong>Limited</strong>, (one of the largest organized asset financing NBFCs in India), andentities operating under the “<strong>Shriram</strong> Chits” brand name, has continued to provide us with a large platform of targetcustomers.Over the last 25 years our Company has established a pan-India presence, with 559 branches and 91 other businessoutlets as of March 31, 2011, across 17 states in India, with a significant presence in south India. As on March 31,2011, our total employee strength was 2,318. We operate in a ‘hub-and spoke’ business model, whereresponsibilities from loan origination to recoveries of loans are vested in each of our business outlets, under thegeneral supervision and control of our head office in Chennai. Our business outlet networks are interconnected andeach business outlet is connected to our head office through an ERP platform developed by Take Solution <strong>Limited</strong>,Chennai.We have demonstrated consistent growth in our business and in our profitability. Our Assets Under Managementhave grown by a compounded annual growth rate, or CAGR, of 46% from ` 250,686.49 lakhs as of March 31, 2007to ` 799,804.88 lakhs as of March 31, 2011. Our capital adequacy ratio as of March 31, 2011 computed on the basisof applicable RBI requirements was 20.53%, compared to the RBI stipulated minimum requirement of 15.00%. OurTier I capital as of March 31, 2011 was ` 119,419.00 lakhs. Our Gross NPAs as a percentage of Total Loan Assetswere 1.86% as of March 31, 2011. Our Net NPAs as a percentage of Net Loan Assets was 0.43% as of March 31,2011.Our total income increased from ` 34,805.91 lakhs in fiscal 2007 to ` 132,091.19 lakhs in fiscal 2011 at a CAGR of45%. Our net profit after tax increased from ` 5,162.16 lakhs in fiscal 2007 to ` 24,058.85 lakhs in fiscal 2011, at aCAGR of 50%. A summary of our assets under management, net non performing assets, total income and net profitafter tax for the corresponding periods specified below are as follows:ParticularsAssets UnderManagementNet Non performingassets` In LakhsAs at March As at March As at March As at March As at March31, 2007 31, 2008 31, 2009 31, 2010 31, 2011250,686.49 336,889.78 462,950.89 521,550.18 799,804.882,561.44 2,495.70 3,590.35 3,322.73 2,982.76For the For the For the For the For theFinancial Financial Financial Financial FinancialYear Ended Year Ended Year Ended Year ended year endedMarch 31, March 31, March 31, March 31, March 31,2007 2008 2009 20102011Total Income 34,805.91 62,318.76 93,393.75 110,284.71 132,091.19Net Profit after Tax 5,162.16 8,763.50 11,700.77 19,425.86 24,058.85Our StrengthsWe believe that the following are our key strengths:Diversified Portfolio of ProductsOur Company’s product portfolio comprises (i) Product <strong>Finance</strong> loans, (ii) pre-owned and new vehicles loans, (iii)personal loans, (iv) loans against gold, and (v) loans to small enterprise finance segment. Each of our productsdiffers in terms of the average tenor, average yield, average interest rates and average size of loan. As on March 31,2011 approximately 15 % of our Assets Under Management comprised product finance loans, 24 % of our AssetsUnder Management comprised vehicle loans, 9 % of our Assets Under Management comprised personal loans, 28 %29
of our Assets Under Management comprised loans against gold, and 24 % of our Assets Under Managementcomprised loans to small enterprise finance segment. Our diverse revenue streams reduce our dependence on anyparticular product, thus enabling us to spread and mitigate our risk exposure to any particular industry, business orcustomer segment.Pan-India Presence, Strong Foot-hold in Southern India and Synergies with Other <strong>Shriram</strong> Group EntitiesAs of March 31, 2011, we had 559 branches and 91 other business outlets across 17 states in India, with a significantpresence in south India. As on March 31, 2011, our total employee strength was 2,318. We have a strong foothold insouth India. We leverage on the <strong>Shriram</strong> Group’s ecosystem to solicit our customers and our focus has been inmaximizing our association with the “<strong>Shriram</strong>” brand name and the synergies offered by the infrastructure, of otherentities in the <strong>Shriram</strong> Group. Our customer base over the years has significantly comprised of customers of otherentities in the <strong>Shriram</strong> Group. The large customer bases and wide-spread network of business outlets of entities suchas, <strong>Shriram</strong> Transport <strong>Finance</strong> Company <strong>Limited</strong>, (one of the largest organized asset financing NBFCs in India), andentities operating under the “<strong>Shriram</strong> Chits” brand name, has continued to provide us with a large platform of targetcustomers. We believe the under-banked community, especially the small enterprise finance segment often do nothave sufficient movable and/or immovable property to provide as security or collateral for loans. Our relationshipand knowledge of customers’ requirements also enables us to minimize our risks while extending loans to suchunder-banked communities. For instance, loans provided to chit depositors of <strong>Shriram</strong> Chits, are partly or entirelysecured by the deposits made with <strong>Shriram</strong> Chits. <strong>Shriram</strong> Chits has several years of experience of collecting chitdeposits from self-employed professionals, wholesale/retail dealers, merchants, builders, manufacturers and smalland medium scale business operators, which provides us a with an extensive database of potential borrowers,specially for our loans to the small enterprise finance segment.Hub and Spoke Business Model with Efficient Credit Policies and ProceduresWe operate in a ‘hub-and spoke’ business model, where the responsibilities from loan origination to recoveries ofloans are vested in each of our business outlets, under the general supervision and control of our head office inChennai. Our business outlet networks are interconnected and each business outlet is connected to our head officethrough an ERP platform developed by Take Solution <strong>Limited</strong>, Chennai. The ERP platform enables ourmanagement to monitor each loan right from its origination to final closure of accounts.Our head office and senior management is primarily responsible for the broad policy formulation for our businesses.However, the decision making process in connection with loans is decentralized and majorly vested in our businessoutlets, which ensures speedy credit approvals and more efficient turn around times in processing loans.We focus on closely monitoring our assets and borrowers through our officials at each business outlet. Our branchofficials develop relationships with our target customer base, which enables us to capitalize on local knowledge. Wefollow stringent credit policies, including limits on customer exposure, to ensure the asset quality of our loans andthe security provided for such loans. Further, we have nurtured a culture of accountability by making our productexecutives responsible for loan administration and monitoring as well as recovery of the loans they originate. Wehave a dedicated team of officials at each business outlet who are responsible for (i) loan origination, (ii) creditevaluation, (iii) pre-lending field investigations where our officials personally visit our prospective customers attheir homes or offices, and (v) post lending credit appraisal. The team of officials responsible for origination of aloan is also responsible for the timely servicing of loans, recoveries, and monitoring the performance of each loanfrom origination to closure of the loan. We offer incentivized salary structures to such officials, where theirincentives are linked to recovery of installments of the principal amount and interest on the loans. We believe ourefficient credit policies, credit approval procedures, credit delivery process and relationship-based loanadministration and monitoring methodology have aided in increasing our customer loyalty and earn repeat businessand customer referrals.Our stringent credit policies and relationship based model has helped us maintain relatively low NPA levels. OurGross NPAs as a percentage of Total Loan Assets were 1.86 % as of March 31, 2011. Our Net NPAs as a percentageof Net Loan Assets was 0.43 % as of March 31, 2011.30
Access to a range of cost effective funding sourcesWe fund our capital requirements through a variety of sources. Our fund requirements are currently predominantlysourced through term loans from banks, issue of redeemable non-convertible debentures on a private placementbasis, and cash credit from banks including working capital loans. We access funds from a number of creditproviders, including nationalized banks, private Indian banks and foreign banks, and our track record of prompt debtservicing has allowed us to establish and maintain strong relationships with these financial institutions. We have alsoplaced commercial paper, as and when required in the past. As a deposit-taking NBFC, we are also able to mobilizeretail fixed deposits at competitive rates. We have also raised subordinated loans eligible for Tier II capital. We alsoundertake securitization/assignment transactions to increase the efficient use of our capital and as a cost effectivesource of funds.In relation to our long-term debt instruments, we currently have ratings of CARE AA from Credit Analysis andResearch <strong>Limited</strong> (“CARE”), AA-(ind) from Fitch Ratings India Private <strong>Limited</strong>, (“Fitch”) and CRISIL AA-/Stable from CRISIL. In relation to our short-term debt instruments, we have also received ratings of CARE A1+from CARE, F1+(ind) from Fitch, and CRISIL A1+ from CRISIL. Our fixed deposit programme has been rated asCARE AA (FD) by CARE, and tAA- (ind) by Fitch. The NCDs proposed to be issued under this Issue have beenrated CARE AA by CARE for an amount of upto ` 75,000 Lakhs vide its letter dated July 14, 2011, and CRISILAA-/Stable by CRISIL for an amount of upto ` 75,000 Lakhs vide its letter dated July 14, 2011. The rating of theNCDs by CARE indicates high degree of safety regarding timely servicing of financial obligations and carrying verylow credit risk. The rating of NCDs by CRISIL indicates high degree of safety regarding timely servicing offinancial obligations.We believe that we have been able to achieve a relatively stable cost of funds despite the difficult conditions in theglobal and Indian economy and the resultant reduced liquidity and an increase in interest rates, primarily due to ourimproved credit ratings, (as evidenced by the recent upgrade in our ratings by Fitch and CARE). We believe we areable to borrow from a range of sources at competitive rates.Experienced senior management teamOur Board consists of 12 Directors, (including representatives of the TPG Group), with extensive experience in thefinancial services sectors. Our senior and middle management personnel have significant experience and in-depthindustry knowledge and expertise. Our management promotes a result-oriented culture that rewards our employeeson the basis of merit. In order to strengthen our credit appraisal and risk management systems, and to develop andimplement our credit policies, we have hired a number of senior managers who have extensive experience in theIndian banking and financial services sector and in specialized finance firms providing loans to retail customers. Webelieve that the in-depth industry knowledge and loyalty of our management and professionals provide us with adistinct competitive advantage.StrategyOur key strategic priorities are as follows:Further expand operations by growing our business outlet network and introducing full range of products in allbusiness outletsWe intend to continue to strategically expand our operations in target markets establishing additional businessoutlets. Our customer origination and servicing efforts strategically focus on building long term relationships withour customers and address specific issues and local business requirements of potential customers in a particularregion. We have a strong concentration of our business in south India with 248 of our 559 branches as on March 31,2011, located in the states of Tamil Nadu, Andhra Pradesh and Karnataka. 91 % of our Assets Under Managementas on March 31, 2011 were represented by loans originated in the states of Tamil Nadu, Karnataka and AndhraPradesh. However, we have continued to make efforts to expand and penetrate into other regions in India.Currently, we have succeeded in opening business outlets in 17 different states in India. We propose to targetestablishing our operations through new business outlets in cities and towns where we historically had relativelylimited operations, such as in eastern and northern parts of India, and to further consolidate our position and31
operations in western and southern parts of India. Our focus would be to typically target Tier II and Tier III cities,where we believe that demand for our products will grow steadily in the near future.As an internal policy, we typically introduce our products in a particular location only after having evaluated theregional market and the demand for each individual product. Currently, not all of our business outlets offer our fullrange of products. As a part of our strategy we target to gradually introduce our entire range of product offerings,namely (i) Product <strong>Finance</strong> loans, (ii) pre-owned and new vehicles loans, (iii) personal loans, (iv) loans against gold,and (v) small enterprise finance segment at each of our existing business outlets across India.Continue growth in the Loans to Small Enterprises <strong>Finance</strong> SegmentOur Company started offering customized loans to small enterprises finance segment in 2006 and has continuallyfocused on expanding our customer base for this product since then. We see a significant opportunity for ourCompany to expand our customer base in small enterprise finance segment. According to the Frost and Sullivanreport titled “Analysis of MSME Loan Markets for NBFCs – July 2011”, our Company is the largest smallenterprise finance company in India. In the small loan segment (loans of `1 lakh -10 lakh) our Company has adominant share of 95 %. Our Company also leads the total Indian micro, small and medium enterprises market with53 % share. As a strategy, we will continue to leverage on the infrastructure provided by entities operating under the‘<strong>Shriram</strong> Chits’ brand name. <strong>Shriram</strong> Chits has several years of experience of collecting chit deposits from selfemployedprofessionals, wholesale/retail dealers, merchants, builders, manufacturers and small and medium scalebusiness operators, which provides us a with an extensive database of potential borrowers, specially for our loans tothe small enterprises segment. We also propose to extend such loans to our existing customer base for our otherproducts and propose to introduce small enterprises segment loans in all our current business outlets as well as innew business outlets that we open in the future.Increase focus on loans against gold businessSince 2007 we have been providing personal and business loans secured by gold jewellery and ornaments, primarilyto individuals who possess gold jewellery but do not have access to formal credit within a reasonable time, or towhom credit may not be available at all, to meet their short-term requirements. We propose to utilize our existingbusiness outlet networks, our existing customer base as well as the infrastructure offered by other <strong>Shriram</strong> Groupentities, to expand our reach and customer base for loans against gold. We expect to establish this product in newmarkets and to target potential customers using the <strong>Shriram</strong> Group’s eco-system, to include customers whootherwise continue to rely on the unorganized sector for timely funding requirements. We propose to capitalize onthe “<strong>Shriram</strong>” brand name and our good-will with our existing customers to further develop our business for thisproduct.Continue to implement advanced processes and systemsWe have invested in our technology systems and processes to create a stronger organization and ensure goodmanagement of customer credit quality. Our information technology strategy is designed to increase our operationaland managerial efficiency. We aim to increasingly use technology in streamlining our credit approval,administration and monitoring processes to meet customer requirements on a real-time basis. We continue toimplement technology led processing systems to make our appraisal and collection processes more efficient,facilitate rapid delivery of credit to our customers and augment the benefits of our relationship based approach. Wealso believe that deploying strong technology systems will enable us to respond to market opportunities andchallenges swiftly, improve the quality of services to our customers, and improve our risk management capabilities.Foray into Housing <strong>Finance</strong> BusinessOur Company incorporated a wholly owned subsidiary namely <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong> in November 2010,with a view of entering the housing finance sector. We have applied to National Housing Bank (wholly owned by theReserve Bank of India), for a certificate of registration under the National Housing Bank Act, 1987, to carry onbusiness of a housing finance institution. We believe that offering housing finance will help us expand our productportfolio and we are well positioned to enter into this business through our established infrastructure, our existingcustomer base as well as through leveraging our association with other entities in the <strong>Shriram</strong> Group. The aforesaidSubsidiary will commence operations once it is registered with the National Housing Bank. As a part of its strategy,<strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong> will typically target middle-income customers in semi-urban locations.32
THE ISSUEThe following is a summary of the Issue. This summary should be read in conjunction with, and is qualified in itsentirety by, more detailed information in the chapter titled “Terms of the Issue” beginning on page 136 of this DraftProspectus.Common Terms of NCDsIssuer<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>IssueStock Exchangesproposed for listing ofthe NCDsIssuance and TradingTrading LotDepositoriesSecurityRatingPublic Issue by our Company of NCDs aggregating upto ` 37,500 lakhs with an option toretain over-subscription upto ` 37,500 lakhs for issuance of additional NCDs aggregatingto a total of upto ` 75,000 lakhs.NSE and BSECompulsorily in dematerialised formOne NCDNSDL and CDSLSecurity for the purpose of this Issue will be created in accordance with the terms ofthe Debenture Trust Deed. For further details please refer to the section titled “IssueStructure” beginning on page 139 of this Draft Prospectus.The NCDs proposed to be issued under this Issue have been rated CARE AA by CAREfor an amount of upto ` 75,000 Lakhs vide its letter dated July 14, 2011, and CRISILAA-/Stable by CRISIL for an amount of upto ` 75,000 Lakhs vide its letter dated July14, 2011. The rating of the NCDs by CARE indicates high degree of safety regardingtimely servicing of financial obligations and carrying very low credit risk. The rating ofNCDs by CRISIL indicates high degree of safety regarding timely servicing of financialobligations.Issue Schedule ∗Pay-in dateDeemed Date ofAllotmentThe Issue shall be open from [●], 2011 to [●], 2011 with an option to close earlierand/or extend upto a period as may be determined by our Board.3 (three) Business Days from the date of reciept of application or the date of realisationof the cheques/demand drafts, whichever is later.Deemed date of allotment shall be the date of issue of the Allotment Advice / regret.*The subscription list shall remain open for a period as indicated, with an option for early closure or extension by such period, upto a period of30 days from date of opening of the Issue, as may be decided by the Board of Directors of our Company. In the event of such early closure ofsubscription list of the Issue, our Company shall ensure that notice of such early closure is given on such early date of closure throughadvertisement/s in a leading national daily newspaper.The specific terms of each instrument are set out below:Options I IIFrequency of Interest Payment Annual AnnualMinimum Application` 10,000/- (10 NCDs) (for all options of NCDs, namely Options I andOption II either taken individually or collectively)In Multiples of ` 1,000 (1 NCD) ` 1,000 (1 NCD)Face Value of NCDs(` / NCD)` 1,000 ` 1,00033
Options I IIIssue Price (` / NCD) ` 1,000 ` 1,000Mode of Interest Payment Through Various options available Through Various optionsavailableCoupon (%) for NCD Holders in[●]% per annum[●]% per annumCategory I and Category IICoupon (%) for NCD holders in the[●]% per annum[●]% per annumReserved Individual PortionCoupon (%) for NCD holders in the[●]% per annum[●]% per annumUnreserved Individual PortionEffective Yield (per annum)For NCD holders in the ReservedIndividual Portion – [●]%For NCD holders in the UnreservedIndividual Portion – [●]%For all other NCD holders – [●]%Put and call optionExercisable at the end of 48 monthsfrom the Deemed Date of AllotmentTenor 60 months* 36 monthsRedemption Date60 months from the Deemed Dateof Allotment*For NCD holders in the ReservedIndividual Portion – [●]%For NCD holders in theUnreserved Individual Portion –[●]%For all other NCD holders – [●]%Nil36 months from the Deemed Dateof Allotment.Redemption Amount (`/NCD)Nature of IndebtednessCRISILRepayment of the Face Value plusany interest that may have accruedat the Redemption Date, or at thedate of early redemption if any PutOption or Call Option is exercised,as the case may be*Pari Passu with other securedcreditors and priority overunsecured creditorsCredit Rating'AA-/Stable' for an amount of upto` 75,000 LakhsRepayment of the Face Valueplus any interest that may haveaccrued at the Redemption Date.Pari Passu with other securedcreditors and priority overunsecured creditors'AA-/Stable' for an amount ofupto ` 75,000 LakhsCARE'CARE AA' for an amount of upto `75,000 LakhsDeemed Date of AllotmentDeemed date of allotment shall bethe date of issue of the AllotmentAdvice / regret.* Subject to the exercise of the put and/or call option'CARE AA' for an amount of upto` 75,000 LakhsDeemed date of allotment shall bethe date of issue of the AllotmentAdvice / regret.34
SUMMARY FINANCIAL INFORMATIONThe following tables present an extract of Reformatted Consolidated Summary Financial Statements and theReformatted Unconsolidated Summary Financial Statements. The Reformatted Consolidated Summary FinancialStatements and the Reformatted Unconsolidated Summary Financial Statements should be read in conjunction withthe examination report thereon issued by our Statutory Auditors and statement of significant accounting policies andnotes to accounts on the Reformatted Consolidated Summary Financial Statements and the ReformattedUnconsolidated Summary Financial Statements contained in the section titled “Financial Information” beginning onpage 128 of this Draft Prospectus.A. SUMMARY INFORMATION OF OUR UNCONSOLIDATED ASSETS AND LIABILITIESA.Assets(` in lakhs)Particulars As at March 31,2011 2010 2009 2008 2007Fixed and IntangibleAssets(Net) (including CWIP) 2,944.43 2,044.52 3,721.98 5,108.06 5,570.48BInvestments 551.45 101.45 606.45 604.98 664.03CDeferred Tax Asset (Net) 1,581.66 1,122.70 313.05 - -DCurrent Assets, Loans &Advances 936,121.22 621,545.53 539,518.62 373,141.11 215,885.47FTotal (A+B+C+D) 941,198.76 624,814.20 544,160.10 378,854.15 222,119.98GLiabilitiesSecured Loans 656,951.01 413,610.55 390,445.43 262,795.40 130,384.22HUnsecured Loans 75,827.43 53,103.69 41,831.33 37,127.45 20,246.27IDeferred Tax Liability (Net) - - - 632.99 2,973.32JCurrent Liabilities 70,089.54 46,393.55 33,125.35 29,048.76 31,165.45KProvisions 17,123.50 11,706.08 7,783.75 4,269.76 2,457.10LTotal (G+H+I+J+K) 819,991.48 524,813.87 473,185.86 333,874.36 187,226.3635
M(` in lakhs)Particulars As at March 31,2011 2010 2009 2008 2007Net Worth (F-L) 121,207.28 100,000.33 70,974.24 44,979.79 34,893.62(i)(ii)(iii)(iv)(v)(vi)Represented ByShare Capital 4,953.69 4,915.47 4,585.68 6,444.48 6,238.98Share application moneypending allotment - 0.71 - - -Stock Option Outstanding 1,887.27 2,281.04 1,637.97 542.08 -Optionally Convertible warrants - - 2,700.00 232.20 560.00Reserves and Surplus 114,366.32 92,803.11 62,050.59 37,761.03 28,096.77Less : MiscellaneousExpenditure (to theextent not written off oradjusted) - - - - 2.13Total (i+ii+iii+iv+v-vi) 121,207.28 100,000.33 70,974.24 44,979.79 34,893.6236
B. SUMMARY INFORMATION OF OUR UNCONSOLIDATED PROFIT AND LOSS ACCOUNT(` in lakhs)ParticularsFor the year ended March 31,2011 2010 2009 2008 2007A. Incomei Income from Operations 131,800.12 107,205.35 92,357.73 61,072.29 33,592.29ii Other Income 291.07 3,079.36 1,036.02 1,246.47 1,213.62Total Income 132,091.19 110,284.71 93,393.75 62,318.76 34,805.91B. Expenditurei Financial Expenses 58,848.26 51,759.01 49,048.65 30,848.93 17,124.52ii Personnel Expenses 4,367.02 3,611.63 3,582.75 2,274.74 935.51iii Operating & Other Expenses 20,470.16 14,163.60 12,882.73 10,273.02 6,034.77iv Depreciation and amortization 747.41 464.77 1,018.23 1,127.52 373.35v Impairment loss/(Reversal) on Fixedassets & stock - - 1,186.81 - -vi Share & Debenture Issue expenseswritten off- - - 2.13 1.69vii Provisions & Write offs (net)11,598.25 11,659.84 7,701.05 5,093.96 2,392.75Total Expenditure 96,031.10 81,658.85 75,420.22 49,620.30 26,862.59C. Net Profit Before Taxation (A-B) 36,060.09 28,625.86 17,973.53 12,698.46 7,943.32D. Provision for taxationCurrent tax 12,460.20 9,972.11 7,055.25 6,134.29 2,902.09Deferred tax (458.96) (809.65) (946.04) (2,340.33) (191.70)Wealth tax 1.76Fringe Benefit Tax 161.79 141.00 70.77Fringe Benefit Tax of earlier Year 37.54Total Tax 12,001.24 9,200.00 6,272.76 3,934.96 2,781.16E. Net Profit after Taxation (C-D) 24,058.85 19,425.86 11,700.77 8,763.50 5,162.16Balance in Profit & Loss Accountbrought forward 22,730.09 12,003.01 8,412.03 4,471.38 2,264.3537
Particulars(` in lakhs)For the year ended March 31,2011 2010 2009 2008 2007F. Balance Available forAppropriations 46,788.94 31,428.87 20,112.80 13,234.88 7,426.51G. AppropriationsDividend - Cumulative RedeemablePreference Shares - - 63.17 141.59 145.15Equity Shares - Interim dividend 1,236.25 982.28 501.85 391.00 271.00Equity Shares - Proposed finaldividend 1,733.79 1,474.64 1,375.92 1,332.15 782.00Preference Shares - Proposed finaldividend 0.08 9.41Tax on dividend 205.33 166.94 96.02 316.92 192.87Tax on proposed dividend 281.26 244.92 233.84 - -Transfer to statutory reserve 4,810.00 3,890.00 2,340.00 1,761.11 1,032.43Transfer to general reserve 2,410.00 1,940.00 1,170.00 880.00 522.27Transfer to Capital RedemptionReserve - - 2,328.98 - -Total Appropriations10,676.63 8,698.78 8,109.79 4,822.85 2,955.13H. Balance carried to Balance Sheet(F-G) 36,112.31 22,730.09 12,003.01 8,412.03 4,471.3838
C. SUMMARY INFORMATION OF OUR UNCONSOLIDATED CASH FLOW STATEMENTParticularsFor the year ended March 31,(` in lakhs)2011 2010 2009 2008 2007A. Cash flow from operating activitiesNet profit before taxation 36,060.09 28,625.86 17,973.53 12,698.46 7,943.32Depreciation and amortization 747.41 464.77 1,018.23 1,127.52 373.35Share and debenture issue expenses writtenoff - - - 2.13 1.69(Profit) / loss on sale of fixed assets (net) 13.78 1.60 0.12 3.35 0.96Lease equalization Adjustments (11.49)(Profit) / loss on sale of current and longterm investments (net) - - 0.08 - -Interest income on current and long terminvestments and interest income on fixeddeposits (270.70) (1,203.65) (258.14) (228.64) (302.65)Dividend income - (444.91) (56.47) (46.06) (65.27)Employees Stock option compensation cost 471.68 751.53 1,111.28 542.09 -Provision for impairment - - 1,186.81 - -Provision for hedging contracts (546.62) - 994.18 811.68 -Provisions for non performing assets andbad debts written off 10,136.82 12,165.62 7,809.37 5,174.98 2,482.15Provisions for standard assets 1,714.89 - - - -Provision for gratuity 40.82 15.88 6.46 104.70 28.48Provision for leave encashment 27.48 9.87 1.51 13.60 1.77Provision for diminution in value ofinvestments - - - - 2.99Operating profit before working capitalchanges 48,395.65 40,386.57 29,786.96 20,203.81 10,455.31Movements in working capital:(Increase) / decrease in current assets:(Increase) / decrease in assets underfinancing activities (233,365.56) (111,057.72)(101,492.75)(108,713.56)(88,184.89)(Increase) / decrease in sundry debtors - 89.03 (13.21) 102.25 (60.52)(Increase) / decrease in lease assets - net ofsales - - - - 8.89(Increase) / decrease in other current assets (11,530.50) (5,552.81) (29.55) (94.98) 306.0639
Particulars(Increase) / decrease in other loans andadvances(` in lakhs)For the year ended March 31,2011 2010 2009 2008 2007(931.92) 4,708.39 2,239.18 (2,111.58) (1,734.19)Increase / (decrease) in current liabilities 23,690.91 13,272.04 4,078.50 (2,119.00) 10913.48Cash generated from operations (173,741.42) (58,154.50) (65,430.87) (92,733.06)(68,295.86)Direct taxes paid (net of refunds) (11,127.69) (9,197.57) (6,450.11) (6,522.66) (3,154.36)Net cash used in operating activities (A) (184,869.11) (67,352.07) (71,880.98) (99,255.72)(71,450.22)B. Cash flows from investing activitiesInvestment in Fixed deposits (net) 7,992.17 (12,665.70) (5,855.70) 52.63 42.27Purchase of fixed assets and intangibles (1,663.61) (1,058.11) (879.02) (670.26) 13.80Proceeds from sale of fixed assets 2.52 2,269.20 59.93 1.81 (368.18)Purchase of Investment (200.00) - - - -Investment in subsidiary company (250.00) - (4.55) (4.99) -Proceeds from sale of investment insubsidiary company - - - 4.55 -Proceeds from sale of investments - 1,905.00 3.00 59.50 -Interest received on current and long terminvestments and interest on fixed deposits 270.70 1,203.65 258.14 228.64 302.65Dividend received - 444.91 56.47 46.06 65.27Net cash used in investing activities (B) 6,151.78 (7,901.05) (6,361.73) (282.06) 55.81C. Cash Flows from financing activitiesProceeds from issue of equity share capitalincluding securities premium & Shareapplication 133.05 10,317.48 12,985.41 3,288.00 19,200.00Proceeds from issue of share warrants - - 2,467.80 (327.80) 560.00Increase / (decrease) in bank borrowings(net) 180,566.59 (3,271.15) 70,101.92 114,921.35 52,645.77Increase / (decrease) in long termborrowings(net) 62,773.87 26,436.27 57,548.11 17,489.83 840.64Increase / (decrease) in fixed deposits (net) (45.64) (12.06) (52.87) (214.31) 2.84Increase / (decrease) in subordinate debts(net) 269.38 11,284.42 13,681.75 8,170.49 10,915.2840
ParticularsFor the year ended March 31,(` in lakhs)2011 2010 2009 2008 2007Increase / (decrease) in redeemable nonconvertible debentures (net) - - (3,500.00) 3,500.00 -Increase / (decrease) in unsecured loans 22,500.00 - (5,425.00) 5,425.00 (247.50)Dividend paid (2,710.89) (2,358.20) (1,897.26) (1,324.00) (959.32)Tax on dividend (450.25) (400.77) (322.44) (225.01) (134.55)Net cash from financing activities (C) 263,036.11 41,995.99 145,587.42 150,703.55 82,823.16Net increase / (decrease) in cash andcash equivalents (A + B + C) 84,318.77 (33,257.14) 67,344.72 51,165.77 11,428.75Cash and Cash Equivalents at thebeginning of the year 116,711.86 149,969.00 82,624.28 31,458.51 20,029.76Cash and Cash Equivalents at the end ofthe year 201,030.63 116,711.86 149,969.00 82,624.28 31,458.51Components of Cash and CashEquivalentsCash and Cash Equivalents at the end ofthe year as per Balance SheetAs at March 31,2011 2010 2009 2008 2007216,540.14140,208.46 160,879.51 88,001.90 38,101.96Less: Balance in Current account held forunpaid dividendsLess : Fixed deposits held for unpaiddividendsLess : Fixed deposits held for more thanthree months22.1151.0017.03 20.87 22.78 20.47106.00 807.34 597.58 527.80Less : Fixed Deposit under Lien 15436.40 23373.57 10,082.30 4,757.26 6,095.18201,030.63116,711.86 149,969.00 82,624.28 31,458.5141
D. SUMMARY INFORMATION OF OUR CONSOLIDATED ASSETS AND LIABILITIESAssets(` in lakhs)Particulars As at March 31, 2011A. Fixed and Intangible Assets(Net) (including CWIP) 2,947.16B Investments 301.45C Deferred Tax Asset (Net) 1,581.66D Current Assets, Loans & Advances 936,363.41E Total (A+B+C+D) 941,193.68LiabilitiesF Secured Loans 656,951.01G Unsecured Loans 75,827.43H Current Liabilities 70,108.22I Provisions 17,123.50J Total (F+G+H+I) 820,010.16K Net Worth (F-K) 121,183.52Represented By(i) Share Capital 4,953.69(ii) Stock Option Outstanding 1,887.27(iii) Reserves and Surplus 114,366.32(iv)Less : Miscellaneous Expenditure (to the extent not written off oradjusted)23.76Total (i+ii+iii+iv+v-vi) 121,183.5242
E. SUMMARY INFORMATION OF OUR CONSOLIDATED PROFIT AND LOSS ACCOUNTA. IncomeParticulars(` in lakhs)For the year ended March31,2011i Income from Operations 131,800.12ii Other Income 291.07Total Income 132,091.19B. Expenditurei Financial Expenses 58,848.26ii Personnel Expenses 4,367.02iii Operating & Other Expenses 20,470.16iv Depreciation and amortization 747.41v Provisions & Write offs (net) 11,598.25Total Expenditure 96,031.10C. Net Profit Before Taxation (A-B) 36,060.09D. Provision for taxationCurrent tax 12,460.20Deferred tax (458.96)Total Tax 12,001.24E. Net Profit after Taxation (C-D) 24,058.85Balance in Profit & Loss Account brought forward 22,730.09F. Balance Available for Appropriations 46,788.94G. AppropriationsEquity Shares - Interim dividend 1,236.25Equity Shares - Proposed final dividend 1,733.79Tax on dividend 205.33Tax on proposed dividend 281.26Transfer to statutory reserve 4,810.0043
Particulars(` in lakhs)For the year ended March31,2011Transfer to general reserve 2,410.00Total Appropriations 10,676.63H. Balance carried to Balance Sheet (F-G) 36,112.3144
F. SUMMARY INFORMATION OF OUR CONSOLIDATED CASH FLOW STATEMENT(` in lakhs)Particulars Total As at March 31, 2011A. Cash flow from operating activitiesNet Profit before taxation 36,060.09Depreciation and amortisation 747.42(Profit)/loss on sale of assets(net) 13.78income on fixed deposits (270.70)Employees Stock option compensation cost 471.68Provision for hedging contracts (546.62)Provision for non performing assets and bad debts written off 10,136.80Contingent Provision against Standard assets 1,714.89Provision for gratuity 40.82Provision for leave encashment 27.48Operating profit before working capital changes 48,395.64Movements in working capital:(Increase) / decrease in assets under financing activities (233,365.55)(Increase) / decrease in other current assets (11,530.50)(Increase)/decrease in other loans and advances (931.92)Increase / (decrease) in current liabilities 23,709.59Cash generated from operations (173,722.74)Direct taxes paid ( net of refunds) (11,127.69)Net cash used in operating activities (A) (184,850.43)B. Cash flows from investing activitiesInvestment in Fixed deposits (net) 7,992.17Purchase of fixed and intangible assets (1,666.35)Proceeds from sale of fixed assets 2.52Interest on fixed deposit 270.70Pre-operative Expenditure (21.03)Preliminary Expenditure (2.73)Net cash used in investing activities (B) 6,575.28C. Cash Flows from financing activitiesProceeds from issue of equity share capital including securitiespremium and Share Application Money 133.05Increase/ (decrease) in bank borrowings(net) 180,566.59Increase/ (decrease) in long term borrowings (net) 62,773.87Increase/ (decrease) in fixed deposits (net) (45.64)Increase/ (decrease) in subordinate debts (net) 269.38Increase / (decrease) in unsecured loans 22,500.00Dividend paid (2,710.89)Tax on dividend (450.25)Net cash from financing activities (C) 263,036.11Net increase / (decrease) in cash and cash equivalents (A + B + C) 84,560.9745
(` in lakhs)Particulars Total As at March 31, 2011Cash and Cash Equivalents at the beginning of the period 116,711.86Cash and Cash Equivalents at the end of the year 201,272.83Components of Cash and Cash EquivalentsCash and Cash Equivalents at the end of the year as perBalance Sheet 216,782.34Less: Balance in Current account held for unpaid dividends 22.11Less: Fixed deposits held for more than three months 51.00Less: Fixed deposit under lien 15,436.40201,272.8346
CAPITAL STRUCTUREDetails of share capitalThe share capital of our Company as at date of this Draft Prospectus is set forth below:Share Capital` in LakhsAUTHORISED SHARE CAPITAL60,000,000 Equity Shares of ` 10/- each 6,000.004000,000 Cumulative Redeemable Preference Shares of ` 100/- each 4,000.00TOTAL 10,000.00ISSUED49,733,379 Equity Shares of ` 10 /- each 4, 973.33SUBSCRIBED49,733,379 Equity Shares of ` 10 /- each 4, 973.33PAID-UP SHARE CAPITAL49,733,379 Equity Shares of ` 10/- each 4,973.33TOTAL 4, 973.33Changes in the authorised capital of our Company as on the date of this Draft Prospectus:Sr. FY AlterationNo.1. 1987 The Authorised Share capital of our Company was increased from ` 2,500,000 divided into 25,000Equity shares of `100/- each to ` 5,000,000 divided into 50,000 Equity shares of ` 100/- each.2. 1988 The Authorised Share capital of our Company was increased from ` 5,000,000 divided into 50,000Equity shares of `100/- each to ` 20,000,000 divided into 2,000,000 Equity shares of ` 10/- each.3. 1990 The Authorised Share capital of our Company was reorganised and increased from ` 20,000,000divided into 2,000,000 Equity shares of ` 10/- each to ` 60,000,000 divided into 6,000,000 Equityshares of `10/- each4. 1990 The Authorised Share capital of our Company was reorganised ` 60,000,000 divided into 6,000,000Equity shares of `10/- each to ` 45,000,000 divided into 4,500,000 Equity shares of `10/- each and `15,000,000 divided into 1,500,000 preference shares of `10/- each.5. 1994 The Authorised Share capital of our Company was increased from ` 60,000,000 divided into4,500,000 Equity shares of `10/- each and 1,500,000 preference shares of `10/- each to `100,000,000 divided into 8,500,000 Equity shares of `10/- each and 1,500,000 preference shares of`10/- each.6. 1997 The Authorised Share capital of our Company was increased from ` 100,000,000 divided into8,500,000 Equity shares of `10/- each and 1,500,000 preference shares of `10/- each to `200,000,000 divided into 15,000,000 Equity Shares of `10/- each and 5,000,000 redeemablepreference shares of `10/- each7. 1998 The Authorised Share capital of our Company was increased from ` 200,000,000 divided into15,000,000 Equity Shares of `10/- each and 5,000,000 redeemable preference shares of `10/- each to` 250,000,000 divided into 15,000,000 Equity shares of `10/- each and 1,000,000 CumulativeRedeemable Preference shares of `100/- each with redemption period of 5 years carrying dividendsby the Board.8. 2000 The Authorised Share capital of our Company was increased from ` 250,000,000 divided into15,000,000 Equity shares of `10/- each and 1,000,000 Cumulative Redeemable Preference shares of`100/- each to ` 350,000,000 divided into 15,000,000 Equity shares of `10/- each and 2,000,00047
Sr.No.FY AlterationCumulative Redeemable Preference shares of `100/- each with redemption period of 5 years carryingdividends by the Board.9. 2001 The Authorised Share capital of our Company was increased from ` 350,000,000 divided into15,000,000 Equity shares of `10/- each and 2,000,000 Cumulative Redeemable Preference shares of`100/- each to ` 450,000,000 divided into 15,000,000 Equity shares of `10/- each and 3,000,000Cumulative Redeemable Preference shares of `100/- each with redemption period of 5 years carryingdividends by the Board.10. 2002 The Authorised Share capital of our Company was increased from ` 4,50,000,000 divided into15,000,000 Equity shares of `10/- each and 3,000,000 Cumulative Redeemable Preference shares of`100/- each to ` 550,000,000 divided into 25,000,000 Equity shares of `10/- each and 3,000,000Cumulative Redeemable Preference shares of `100/- each with redemption period of 5 years carryingdividends by the Board.11. 2003 The Authorised Share capital of our Company was increased from ` 550,000,000 divided into25,000,000 Equity shares of `10/- each and 3,000,000 Cumulative Redeemable Preference shares of`100/- each to ` 850,000,000 divided into 45,000,000 Equity shares of `10/- each and 4,000,000Cumulative Redeemable Preference shares of `100/- each with redemption period of 5 years carryingdividends by the Board.12. 2008 The Authorised Share capital of our Company was increased from ` 850,000,000 divided into45,000,000 Equity shares of `10/- each and 4,000,000 Cumulative Redeemable Preference shares of`100/- each to ` 1,000,000,000 divided into 60,000,000 Equity shares of `10/- each and 4,000,000Cumulative Redeemable Preference shares of `100/-each.Equity Share Capital History of our CompanyDate of AllotmentNumber of sharesissued and allottedCumulativePaid-up capitalin (`)48Nature of IssueIssue Price(`)Premium (`)March 27, 1986 20 2,000 Subscribers to the Memorandum 100/- NilApril 7, 1986 4,980 500,000 Further Issue 100/- NilMay 14, 1986 1,000 600,000 Further Issue 100/- NilMay 30, 1986 4,000 1,000,000 Further Issue 100/- NilAugust 2, 1986 1,000 1,100,000 Further Issue 100/- NilSeptember 6,1986 5,000 1,600,000 Further Issue 100/- NilNovember 29,1986 4,000 2,000,000 Further Issue 100/- NilMarch 7,1987 3,500 2,350,000 Further Issue 100/- NilApril 14,1987 3,500 2,700,000 Further Issue 100/- NilNovember 21, 1987 8,000 3,500,000 Further Issue 100/- NilJune 11, 1988 15,000 5,000,000 Further Issue 100/- NilOctober 29, 1988 10,000 6,000,000 Rights Issue 100/- NilDecember 30, 1988 150,000 7,500,000 Rights Issue 10/- NilMarch 27, 1989 240,000 9,900,000 Rights Issue 10/- NilJanuary 22, 1991 990,000 19,800,000 Rights Issue 10/- NilJune 10, 1993 1,980,000 39,600,000 Rights Issue 10/- NilJune 14, 1994 40,000 40,000,000 Preferential Issue 10/- NilDecember 22, 1994 2,000,000 60,000,000 Public Issue 10/- 10/-February 19, 1996 1,500,000 75,000,000 Bonus Issue Nil NilSeptember 12, 2003 19,600,000 271,000,000 Preferential Issue 10/- 5.35/-December 22, 2006 4,000,000 311,000,000 Preferential Issue 10/- 150/-December 27, 2006 4,000,000 351,000,000 Preferential Issue 10/- 150/-
Date of AllotmentNumber of sharesissued and allottedCumulativePaid-up capitalin (`)Nature of IssueIssue Price(`)Premium (`)December 29, 2006 4,000,000 391,000,000 Preferential Issue 10/- 150/-March 20, 2008 2,055,000 411,550,000 Preferential Issue10/- 150/-(Conversion of Warrants)May 14, 2008 1,837,500 429,925,000 Preferential Issue 10/- 390/-May 16, 2008 1,412,500 444,050,000 Preferential Issue 10/- 390/-June 27, 2008 1,445,000 458,500,000 Preferential Issue10/- 150/-(Conversion of Warrants)January 30, 2009 6,800 458,568,000 ESOP $ 10/- 25/-May 29, 2009 7,050 458,638,500 ESOP $ 10/- 25/-587,500 464,513,500 Preferential Issue10/- 390/-November 6, 2009(Conversion of Warrants)November 9, 2009 662,500 471,138,500 Preferential Issue10/- 390/-(Conversion of Warrants)2,000,000 491,138,500 Preferential Issue10/- 390/-November 11,2009(Conversion of Warrants)January 6, 2010 10,100 491,239,500 ESOP $ 10/- 25/-March 30, 2010 30,750 491,547,000 ESOP $ 10/- 25/-May 31, 2010 27,184 491,818,840 ESOP $ 10/- 25/-June 30, 2010 20,572 492,024,560 ESOP $ 10/- 25/-August 13, 2010 83,126 492,855,820 ESOP $ 10/- 25/-September 17, 2010 39,957 493,255,390 ESOP $ 10/- 25/-October 19,2010 34,050 493,595,890 ESOP $ 10/- 25/-November 8,2010 33,150 493,927,390 ESOP $ 10/- 25/-December 04, 2010 20,350 494,130,890 ESOP $ 10/- 25/-December 31,2010 49,150 494,622,390 ESOP $ 10/- 25/-January 31, 2011 48,200 495,104,390 ESOP $ 10/- 25/-March 2, 2011 14,810 495,252,490 ESOP $ 10/- 25/-March 31, 2011 11,628 495,368,770 ESOP $ 10/- 25/-April 30, 2011 1,48,400 496,852,770 ESOP $ 10/- 25/-June 7, 2011 43,550 497,288,270 ESOP $ 10/- 25/-June 29, 2011 4,552 497,333,790 ESOP $ 10/- 25/-Total 49,733,379 497,333,790$Equity shares allotted to the employees of our Company as fully paid up under the Company’s ESOP 2006 onexercise of vested options.Notes:1. On March 20, 2008, the Company issued and allotted 2,055,000 Equity Shares of ` 10/- each at a premium of `150/- per Equity share on conversion of warrants to <strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong>2. On June 27, 2008, the Company issued and allotted 1,445,000 Equity Shares of ` 10/- each at a premium of `150/- per Equity share on conversion of warrants to <strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong>.3. On November 6, 2009, the Company issued and allotted 587,500 Equity Shares of ` 10/- each at a premium of `390/- per Equity share on conversion of warrants to Asiabridge fund I LLC4. On November 9, 2009 the Company issued and allotted 662,500 Equity Shares of ` 10/- each at a premium of `390/- per Equity share on conversion of warrants to Van Gogh <strong>Limited</strong>.49
5. On November 11, 2009, the Company issued and allotted 2,000,000 Equity Shares of ` 10/- each at a premium of` 390/- per Equity share on conversion of warrants, to Bessemer Venture Partners Trust (1,250,000) and IDBITrusteeship Services <strong>Limited</strong> (India Advantage Fund VI)(750,000) .Share holding pattern of our Company as on June 30, 2011:Sr.NoCategory ofShareholderNumberofshareholdersTotalnumberof EquitySharesNumber ofshares held indematerializedformTotal shareholding asa % of total numberof Equity Shares% ofshares(A+B)% ofshares(A+B+C)Shares pledged orotherwiseencumberedNumber of As a %shares(A) Shareholding ofPromoters andPromoter Group(A)(1) Indian (1)(a) Individuals/Hindu0 0 0 0 0 0.00 0.00Undivided Family(b) Central0 0 0 0 0 0.00 0.00Government/StateGovernment(s)(c) Bodies Corporate 2 26,477,663 26,477,663 53.24 53.24 0.00 0.00(d) Financial0 0 0 0 0 0.00 0.00Institutions/Banks(e) Any Other 0 0 0 0 0 0.00 0.00Sub Total A (1) 2 26,477,663 26,477,663 53.24 53.24 0.00 0.00(2) Foreign(a) Individuals (Non-0 0 0 0 0 0.00 0.00ResidentIndividuals/ForeignIndividuals)(b) Bodies Corporate 0 0 0 0 0 0.00 0.00(c) Institutions/FII 0 0 0 0 0 0.00 0.00(d) Any Other 0 0 0 0 0Sub Total A (2) 0 0 0 0.00 0.00 0.00 0.00Total Shareholding2 26,477,663 26,477,663 53.24 53.24 0.00 0.00of Promoters andPromoter Group(A)= (A)(1)+(A)(2)(B) Public shareholding(1) Institutions(a) Mutual Funds/ UTI 5 21,891 21,616 0.04 0.04 0.00 0.00(b) Financial Institutions2 100,125 100,125 0.20 0.20 0.00 0.00/ Banks(c) Central0 0 0 0 0 0.00 0.00Government/StateGovernment(s)(d) Venture Capital0 0 0 0 0 0.00 0.00Fund(e) Insurance0 0 0 0 0 0.00 0.00Companies(f) Foreign Institutional12 7,492,395 7,492,395 15.07 15.07 0.00 0.00Investors(g) Foreign Venture0 0 0 0 0 0.00 0.00Capital Investor(h) Any other 0 0 0 0 0 0.00 0.00Sub-Total (B)(1) 19 7,614,411 7,614,136 15.31 15.31 0.00 0.00(2) Non-institutions50
Sr.NoCategory ofShareholderNumberofshareholdersTotalnumberof EquitySharesNumber ofshares held indematerializedformTotal shareholding asa % of total numberof Equity Shares% ofshares(A+B)% ofshares(A+B+C)Shares pledged orotherwiseencumberedNumber of As a %shares(a) Bodies Corporate 108 141,679 135,429 0.28 0.28 0.00 0.00(b) Individuals 0 0 0 0 0 0.00 0.00(i) Individualshareholders holdingnominal share capitalup to ` 1 Lakh4,926 1,284,898 906,748 2.58 2.58 0.00 0.00(ii)(c)(C)Individualshareholders holdingnominal share capitalin excess of ` 1 LakhAny otherNon ResidentIndians12 173,859 173,859 0.35 0.35 0.00 0.0021 21,353 21,353 0.04 0.04 N.A N.ATrust 2 3,700,124 3,700,124 7.44 7.44 N.A N.AClearing Members 24 19,392 19,392 0.04 0.04 N.A N.AOverseas Corporate3 10,300,000 10,300,000 20.71 20.71 N.A N.ABodiesSub-Total (B) (2) 5,096 15,641,305 15,256,905 31.45 31.45 N.A N.ATotal PublicShareholding (B) =(B)(1)+(B)(2)5,115 23,255,716 22,871,041 46.76 46.76 N.A N.ATOTAL (A) + (B) 5,117 49,733,379 49,348,704 100 100 0.00 0.00Shares held bycustodians andagainst whichDepository receiptshave been issuedC1 Promoter and0 0 0 0 0 0.00 0.00Promoter GroupC2 Public 0 0 0 0 0 0.00 0.00Total C=C1+C2 0 0 0 0 0 0.00 0.00GRAND TOTAL(A)+(B)+(C)5,117 49,733,379 49,348,704 100 100 0.00 0.00List of top ten holders of Equity Shares of our Company as on June 30, 2011:Sr. NoName ofshareholders1. <strong>Shriram</strong>EnterpriseHoldingsPrivate<strong>Limited</strong>2. <strong>Shriram</strong>RetailHoldingsPrivate<strong>Limited</strong>3. Van Gogh<strong>Limited</strong>AddressMookambika Complex, No.4,Lady Desika Road, Mylapore,Chennai -600 004.Mookambika Complex, No.4,Lady Desika Road, Mylapore,Chennai -600 004.HDFC Bank <strong>Limited</strong>, CustodyServices, Lodha- I ThinkTechno Campus Office Floor-51PercentageTotal Number of Equity Shares held Holding(%)17,921,462 36.048,556,201 17.206,625,000 13.32
Sr. NoName ofshareholdersAddress8, Next to Kanjurmarg railwaystation, Kanjurmarg (East)Mumbai- 400 042Total Number of Equity Shares heldPercentageHolding(%)4. NorwestVenturesPartners XFII Mauritius5. IDBITrusteeshipServices<strong>Limited</strong>6. BessemerVenturePartnersTrust7. AcaciaPartners LP8. AsiabridgeFund I LLC9. AcaciaInstitutionalPartners LP10. MorganStanleyMauritiusCompany<strong>Limited</strong>C/o Standard Chartered Bank,Securities Services, 23-25 M.G.Road, Fort Mumbai- 400 001ICICI Bank <strong>Limited</strong>, 1 st FloorSMS Department 414 EmpireHouse S B Marg Lower Parel,Mumbai- 400 013Deutsche Bank AG, DB House,Hazrimal Somani Marg, PostBox No. 1142, Fort Mumbai -400 001Citibank N.A. CustodyServices, 3 rd Floor, Trent House,G Block, Plot No. 60, BandraKurla Complex, Bandra (East)Mumbai-400 051Citibank N.A. CustodyServices, 3 rd Floor, Trent House,G Block, Plot No. 60, BKCBandra (East) Mumbai-400 051Citibank N.A. CustodyServices, 3 rd Floor, Trent House,G Block, Plot No. 60, BKCBandra (East) Mumbai-400 051HSBC Securities Services<strong>Limited</strong>, 2 nd Floor “SHIV” Plotno 139-140 B Western ExpressHighway, Sahar Road JunctionVile Parle (East), Mumbai- 4000574,342,179 8.733,700,054 7.442,500,000 5.031,555,728 3.131,175,000 2.36543,000 1.09431,092 0.87List of top ten holders of debt instruments, as on July 18, 2011:1. List of top ten holders of Secured Redeemable Non Convertibles Debentures (issued on private placementbasis) of face value ` 1,00,000/- per debenture as on July 18, 2011 (ISIN :INE722A07067):Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. Corporation Bank 500 500.002. Allahabad Bank 400 400.003. Central Bank of India 200 200.004. Trustees Central Bank of India Employees 200 200.0052
Sr. No. Name of holder Number ofinstrumentsPension Fund5. Trustees Central Bank of India EmployeesPension FundAggregate Amount (`. in lacs)100 100.002. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,00,000/- per debenture as on July 18, 2011 (ISIN :INE722A07075):Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. Corporation Bank 500 500.002. Allahabad Bank 400 400.003. Central Bank of India 200 200.004. Trustees Central Bank of India Employees200 200.00Pension Fund5. Trustees Central Bank of India EmployeesPension Fund100 1003. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,00,000/- per debenture as on July 18, 2011 (ISIN :INE722A07083):Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. Corporation Bank 750 750.002. Allahabad Bank 600 600.003. Central Bank of India 300 300.004. Trustees Central Bank of India Employees300 300.00Pension Fund5. Trustees Central Bank of India EmployeesPension Fund150 150.004. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,00,000/- per debenture as on July 18, 2011 (ISIN :INE722A07091):Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. Corporation Bank 750 750.002. Allahabad Bank 600 600.003. Central Bank of India 300 300.004. Trustees Central Bank of India Employees300 300Pension Fund5. Trustees Central Bank of India EmployeesPension Fund150 1505. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,00,000/- per debenture as on July 18, 2011 (ISIN :INE722A07109):Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. Central Bank of India 400 400.002. Bank of Baroda 200 200.0053
6. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,00,000/- per debenture as on July 18, 2011 (ISIN :INE722A07117):Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. Central Bank of India 400 400.002. Bank of Baroda 200 200.007. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,00,000/- per debenture as on July 18, 2011 (ISIN :INE722A07125):Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. Central Bank of India 600 600.002. Bank of Baroda 300 300.008. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,00,000/- per debenture as on July 18, 2011 (ISIN :INE722A07133):Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. Central Bank of India 600 600.002. Bank of Baroda 300 300.009. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,000,000/- per debenture as on July 18, 2011 (ISIN :INE722A07141):Sr. No. Name of holder Number ofinstruments1. Standard Chartered Bank (Mauritius)<strong>Limited</strong>-DebtAggregate Amount (`. in lacs)1,750 17,500.0010. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,000,000/- per debenture as on July 18, 2011 (ISIN :INE722A07158):Sr. No. Name of holder Number ofinstruments1. Reliance Capital Trustee Company <strong>Limited</strong>A/c Reliance Dual Advantage Fixed tenureFund Plan A2. Reliance Capital Trustee Company <strong>Limited</strong>A/c Reliance Fixed Horizon Fund XIXSeries 203. Reliance Capital Trustee Company <strong>Limited</strong>A/c Reliance Fixed Horizon Fund XIXSeries 194. Reliance Capital Trustee Company <strong>Limited</strong>A/c Reliance Fixed Horizon Fund XIXSeries 135. Reliance Capital Trustee Company <strong>Limited</strong>A/c Reliance Monthly Income Plan54Aggregate Amount (`. in lacs)220 2,200.00210 2100.00160 1,600.0085 850.0075 750.00
11. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,000,000/- per debenture as on July 18, 2011 (ISIN :INE722A07166):Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. United India Insurance Company <strong>Limited</strong>100 1,000.00Employees Provident Fund2. Board of Trustees for Bokaro Steel70 700.00Employees Provident Fund3. ING Vysya Bank <strong>Limited</strong> 30 300.0012. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,000,000/- per debenture as on July 18, 2011 (ISIN :INE722A07174)Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. Bank of Maharashtra 190 1,900.002. Board of Trustees for Bokaro Steel20 200.00Employees Provident Fund3. The Jalgaon People’s Co operative Bank20 200.00<strong>Limited</strong>4. The Thane District Central Co operative8 80.00Bank Staff Provident Fund5. Iris Mercantile Private <strong>Limited</strong> 5 50.006. Dhwani Mercantile Private <strong>Limited</strong> 3 30.007. Shrikrishna Baburao Malpekar 2 208. Jacobs H and G private <strong>Limited</strong> Employees1 10.00Provident Fund9. Ushma Niren Nagri 1 10.0013. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,000,000/- per debenture as on July 18, 2011 (ISIN :INE722A07182)Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. Jharkhand Gramin Bank 50 500.0014. List of top ten holders of Secured Redeemable Non-Convertible Debentures (issued on private placementbasis) of face value ` 1,000,000/- per debenture as on July 18, 2011 (ISIN :INE722A07190)Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. Nederlandse Financierings-Maatschappij2,500 25,000.00Voor Ontwikkelingslanden N.V. (FMO)2. Deutsche Bank AG 250 2,500.0055
15. List of top ten holders of Commercial Paper of face value ` 500,000/- as on July 18, 2011 (ISIN:INE722A14089)Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. ICICI Prudential Life Insurance Company1,000 5000.00<strong>Limited</strong>2. UTI-Treasury Advantage Fund 500 2,500.003. UTI-FMP-Yearly Series August 10 400 2,000.004. UTI FIIF Annual Interval Plan II 200 1,000.0016. List of top ten holders of Commercial Paper of face value ` 500,000/- as on July 18, 2011 (ISIN:INE722A14097)Sr. No. Name of holder Number ofinstruments1. TATA Trustee Company <strong>Limited</strong> A/cTATA Mutual Fund A/c TATA FixedMaturity Plan- Scheme 27 Scheme AAggregate Amount (`. in lacs)1500 7,50017. List of top ten holders of Commercial Paper of face value ` 500,000/- as on July 18, 2011 (ISIN:INE722A14105)Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. UTI-FMP- Yearly Series September 2010 300 1,500.002. UTI-FIIF Annual Interval Plan S-III 200 1,000.003. Cholamandalam Ms General InsuranceCompany <strong>Limited</strong>100 500.0018. List of top ten holders of Commercial Paper of face value ` 500,000/- as on July 18, 2011 (ISIN:INE722A14113)Sr. No. Name of holder Number ofinstruments1. TATA Trustee Company <strong>Limited</strong> A/cTATA Mutual Fund A/c TATA FixedMaturity Plan Series 27 Scheme BAggregate Amount (`. in lacs)300 1,500.0019. List of top ten holders of Commercial Paper of face value ` 500,000/- as on July 18, 2011 (ISIN:INE722A14154)Sr. No. Name of holder Number ofinstruments1. Kotak Mahindra Trustee Company <strong>Limited</strong>A/c Kotak Floater Short Term SchemeAggregate Amount (`. in lacs)2,000 10,000.0020. List of top ten holders of Commercial Paper of face value ` 500,000/- as on July 18, 2011 (ISIN:INE722A14147)Sr. No. Name of holder Number ofAggregate Amount (`. in lacs)instruments1. UTI Liquid Cash Plan 1,000 5,000.0056
Employee Stock Option SchemesPursuant to a special resolution dated October 30, 2006 passed by the shareholders of our Company, our Companyhas formulated an employee stock option scheme in 2006, namely, “SCUF Employee Stock Option Scheme 2006”,(“ESOP 2006”). As on the date of this Draft Prospectus, our Company had issued 1,355,000 stock options under theESOP 2006, of which nil stock options have lapsed, 602,000 stock options are unvested, 119,621 stock options arevested and unexercised and 633,379 stock options have been vested and exercised for Equity Shares. Under theESOP 2006 the exercise price for stock options is ` 35 per Equity Share to be issued upon the exercise of such stockoptions.Pursuant to a special resolution dated May 3, 2008 passed by the shareholders of our Company, our Company hasformulated an employee stock option scheme in 2008, namely, “SCUF Employee Stock Option Scheme 2008”,(“ESOP 2008”). As on the date of this Draft Prospectus, our Company has not granted any stock options under theESOP 2008. Under the ESOP 2008 the exercise price for stock options is ` 112 per Equity Share to be issued uponthe exercise of such stock options.Debt - Equity ratio:The debt-equity ratio prior to this Issue is based on a total outstanding consolidated debt of ` 732,778.44 lakhs andconsolidated shareholder funds amounting to ` 121,207.28 lakhs as on March 31, 2011. The debt equity ratio postthe Issue, (assuming subscription of NCDs aggregating to ` 75,000 lakhs would be 6.66 times, is based on a totaloutstanding debt of ` 807,778.44 lakhs and shareholders fund of ` 121,207.28 lakhs as on March 31, 2011.(` in lakhs)Particulars# Prior to the Issue Post Issue*Secured loans as on March 31, 2011 656,951.01 731,951.01Unsecured loans as on March 31,201175,827.43 75,827.43Total Debt 732,778.44807,778.44Share capital as on March 31, 2011 4,953.69 4,953.69Stock Option outstanding as onMarch 31, 20111,887.27 1,887.27Reserves as on March 31, 2011 114,366.32 114,366.32Total Shareholders Fund 121,207.28 121,207.28Debt Equity Ratio (Number oftimes) 6.05 6.66# On a consolidated basis.* The debt-equity ratio post the Issue is indicative and is on account of assumed inflow of ` 75,000 lakhs from theIssue as on March 31, 2011 and does not include contingent and off-balance sheet liabilities. The actual debt-equityratio post the Issue would depend upon the actual position of debt and equity on the date of allotment.For details on the total outstanding debt of our Company, please refer to the section titled “Disclosures on ExistingFinancial Indebtedness” beginning on page 129 of this Draft Prospectus.57
OBJECTS OF THE ISSUEThe funds raised through this Issue, after meeting the expenditures of and related to the Issue, will be used for ourvarious financing activities including lending and investments, subject to applicable statutory and/or regulatoryrequirements, to repay our existing loans and our business operations including for our capital expenditure andworking capital requirements.The Main Objects clause of the Memorandum of Association of our Company permits our Company to undertakethe activities for which the funds are being raised through the present Issue and also the activities which ourCompany has been carrying on till date.Further, in accordance with the Debt Regulations, our Company will not utilize the proceeds of the Issue forproviding loans to or acquisitions of shares of any person who is a part of the same group as our Company or who isunder the same management as our Company.The Issue proceeds shall not be utilized towards full or part consideration for the purchase or any other acquisition,inter alia by way of a lease of any property.Further, the Company undertakes that Issue proceeds from NCDs allotted to banks shall not be used for anypurpose which may be in contravention of the RBI guidelines on bank financing to NBFCs.Interim Use of ProceedsThe management of our Company, in accordance with the policies formulated by it from time to time, will haveflexibility in deploying the proceeds received from the Issue. Pending utilization of the proceeds out of the Issue forthe purposes described above, our Company intends to temporarily invest funds in high quality interest bearingliquid instruments including money market mutual funds, deposits with banks or temporarily deploy the funds ininvestment grade interest bearing securities as may be approved by the Board. Such investment would be inaccordance with the investment policies approved by the Board or any committee thereof from time to time.Monitoring of Utilization of FundsThere is no requirement for appointment of a monitoring agency in terms of the SEBI (Issue and Listing of DebtSecurities) Regulations, 2008. Our Board shall monitor the utilization of the proceeds of the Issue. For the relevantFinancial Years commencing from FY 2012, our Company will disclose in our financial statements, the utilizationof the net proceeds of the Issue under a separate head along with details, if any, in relation to all such proceeds of theIssue that have not been utilized thereby also indicating investments, if any, of such unutilized proceeds of the Issue.We shall utilize the proceeds of the Issue only upon the execution of the documents for creation of security as statedin this Draft Prospectus in the section entitled “Terms of the Issue - Security” on page 149 and upon the listing of theNCDs.58
STATEMENT OF TAX BENEFITSUnder the current tax laws, the following tax benefits interalia, will be available to the Debenture Holders asmentioned below. The tax benefits are given as per the prevailing tax laws and may vary from time to time inaccordance with amendments to the law or enactments thereto. The Debenture Holder is advised to consider in hisown case the tax implications in respect of subscription to the Debentures after consulting his tax advisor asalternate views are possible. We are not liable to the Debenture Holder in any manner for placing reliance upon thecontents of this statement of tax benefits.To our Debenture HolderA. INCOME-TAXITo the Resident Debenture Holder1. Interest on NCD received by Debenture Holders would be subject to tax at the normal rates of tax in accordancewith and subject to the provisions of the I.T. Act. No income tax is deductible at source as per the provisions ofsection 193 of the Income Tax Act (IT Act) on interest on debentures in respect of the following:(a) In case the payment of interest on debentures to resident individual Debenture Holder in the aggregate during thefinancial year does not exceed ` 2,500 provided the debentures are listed on a recognized stock exchange in Indiaand the interest is paid by an account payee cheque.(b) When the Assessing Officer issues a certificate on an application by a Debenture Holder on satisfaction that thetotal income of the Debenture holder justifies no/lower deduction of tax at source as per the provisions of Section197(1) of the I.T. Act; and that certificate is filed with our Company BEFORE THE PRESCRIBED DATE OFCLOSURE OF BOOKS FOR PAYMENT OF DEBENTURE INTEREST.(c) When the resident Debenture Holder with PAN (not being a company or a firm or a senior citizen) submits adeclaration in the prescribed Form 15G verified in the prescribed manner to the effect that the tax on his estimatedtotal income of the previous year in which such income is to be included in computing his total income will be nil asper the provisions of section 197A (1A) of the I.T. Act. HOWEVER under section 197A (1B) of the I.T. Act, Form15G cannot be submitted nor considered for exemption from deduction from tax at source if the aggregate of incomeof the nature referred to in the said section, viz. dividend, interest, etc as prescribed therein, credited or paid or likelyto be credited or paid during the Previous year in which such income is to be included exceeds the maximumamount which is not chargeable to tax, as may be prescribed in each year’s <strong>Finance</strong> Act. To illustrate, as onApril 1, 2011, the maximum amount of income not chargeable to tax in case of individuals (other than womenassesses, senior citizens and super senior citizens) and HUFs is ` 180,000; in the case of every individual being awoman resident in India and below the age of 60 years at any time during the previous year is ` 190,000; in the caseof every individual being a resident in India, who is of the age of 60 years or more but less than 80 years at any timeduring the previous year (Senior Citizen) is ` 250,000; and in the case of every individual being a resident in India,who is of the age of 80 years or more at any time during the previous year (Super Senior Citizen) is ` 500,000 forPrevious Year 2011-12. Senior citizens, who are 60 or more years of age at any time during the financial year, enjoythe special privilege to submit a self-declaration in the prescribed Form 15H for non deduction of tax at source inaccordance with the provisions of section 197A (1C) of the I.T. Act even if the aggregate income credited or paid orlikely to be credited or paid exceeds the maximum amount not chargeable to tax i.e. ` 250,000 for FY 2011-12provided that the tax due on total income of the person is NIL. In all other situations, tax would be deducted atsource as per prevailing provisions of the I.T. Act; Form No.15G WITH PAN / 15H WITH PAN / Certificateissued u/s 197(1) has to be filed with our Company before the prescribed date of closure of books for paymentof debenture interest.59
(d) On any security issued by a company in a dematerialized form and is listed on recognized stock exchange inIndia. (w.e.f. 01.06.2008).2. Under section 2(29A) of the I.T. Act, read with section 2(42A) of the I.T. Act, a listed debenture is treated as along term capital asset if the same is held for more than 12 months immediately preceding the date of its transfer.Under section 112 of the I.T. Act, capital gains arising on the transfer of long term capital assets being listedsecurities are subject to tax at the rate of 10% of capital gains calculated without indexation of the cost ofacquisition. The capital gains will be computed by deducting cost of acquisition of the debenture and expenditureincurred in connection with such transfer from the full value of sale consideration.In case of an individual or HUF, being a resident, where the total income as reduced by such long-term capital gainsis below the maximum amount which is not chargeable to income-tax, then, such long-term capital gains shall bereduced by the amount by which the total income as so reduced falls short of the maximum amount which is notchargeable to income-tax and the tax on the balance of such long-term capital gains shall be computed at the ratementioned above.3. Short-term capital gains on the transfer of listed debentures, where debentures are held for a period of not morethan 12 months would be taxed at the normal rates of tax in accordance with and subject to the provisions of the I.T.Act. The provisions relating to maximum amount not chargeable to tax, surcharge and education cess described atpara 2 above would also apply to such short term capital gains.4. In case the debentures are held as stock in trade, the income on transfer of debentures would be taxed as businessincome or loss in accordance with and subject to the provisions of the I.T. Act.5. HOWEVER IN CASE WHERE TAX HAS TO BE DEDUCTED @ SOURCE WHILE PAYINGDEBENTURE INTEREST, THE COMPANY IS NOT REQUIRED TO DEDUCT SURCHARGE,EDUCATION CESS : AND SECONDARY AND HIGHER EDUCATION CESS.II To the Non Resident Indians1. A non resident Indian has an option to be governed by Chapter XII-A of the I.T. Act, subject to the provisionscontained therein which are given in brief as under:a) Under section 115E of the I.T. Act, interest income from debentures acquired or purchased with or subscribed toin convertible foreign exchange will be taxable at 20%, whereas, long term capital gains on transfer of suchDebentures will be taxable at 10% of such capital gains without indexation of cost of acquisition. Short-term capitalgains will be taxable at the normal rates of tax in accordance with and subject to the provisions contained therein.b) Under section 115F of the I.T. Act, subject to the conditions and to the extent specified therein, long term capitalgains arising to a non-resident Indian from transfer of debentures acquired or purchased with or subscribed to inconvertible foreign exchange will be exempt from capital gain tax if the net consideration is invested within sixmonths after the date of transfer of the debentures in any specified asset or in any saving certificates referred to inclause (4B) of section 10 of the I.T. Act in accordance with and subject to the provisions contained therein.c) Under section 115G of the I.T. Act, it shall not be necessary for a non-resident Indian to file a return ofincome under section 139(1) of the I.T. Act, if his total income consists only of investment income as defined undersection 115C and/or long term capital gains earned on transfer of such investment acquired out of convertibleforeign exchange, and the tax has been deducted at source from such income under the provisions of Chapter XVII-B of the I.T. Act in accordance with and subject to the provisions contained therein.d) Under section 115H of the I.T. Act, where a non-resident Indian becomes a resident in India in any subsequentyear, he may furnish to the Assessing Officer a declaration in writing along with return of income under section 139for the assessment year for which he is assessable, to the effect that the provisions of Chapter XII-A shall continueto apply to him in relation to the investment income (other than on shares in an Indian Company) derived from anyforeign exchange assets in accordance with and subject to the provisions contained therein. On doing so, the60
provisions of Chapter XII-A shall continue to apply to him in relation to such income for that assessment year andfor every subsequent assessment year until the transfer or conversion (otherwise than by transfer) into money ofsuch assets.2. In accordance with and subject to the provisions of section 115I of the I.T. Act, Non-Resident Indian may opt notto be governed by the provisions of Chapter XII-A of the I.T. Act. In that case, please refer to para A (2, 3 and 4) forthe tax implications arising on transfer of debentures.3. Under Section 195 of the I.T. Act, the company is required to deduct tax at source at the rate of 20% oninvestment income and at the rate of 10% on any long-term capital gains as prescribed in section 115E; at thenormal rates for Short Term Capital Gains if the payee Debenture Holder is a Non Resident Indian. 2% educationcess and 1% secondary and higher education cess on the total income tax is also deductible.4. As per section 90(2) of the I.T. Act read with the circular no. 728 dated October 30, 1995 issued by the CBDT, inthe case of a remittance to a country with which a Double Tax Avoidance Agreement (DTAA) is in force, the taxshould be deducted at the rate provided in the <strong>Finance</strong> Act of the relevant year or at the rate provided in the DTAA,whichever is more beneficial to the assessee.5. Alternatively, to ensure non deduction or lower deduction of tax at source, as the case may be, the DebentureHolder should furnish a certificate under section 197(1) of the I.T. Act, from the Assessing Officer before theprescribed date of closure of books for payment of debenture interest.III To the Foreign Institutional Investors (FIIs):In accordance with and subject to the provisions of section 115AD of the I.T. Act on transfer of debentures by FIIs,long term capital gains are taxable at 10% (plus applicable surcharge and education and secondary and highereducation cess) and short-term capital gains are taxable at 30% (plus applicable surcharge and education andsecondary and higher education cess). The cost indexation benefit will not be available.Further, benefit of provisions of the first proviso of section 48 of the I.T. Act will not apply. Income other thancapital gains arising out of debentures is taxable at 20% in accordance with and subject to the provisions containedtherein. In addition to the aforesaid tax, in case of foreign corporate FIIs where the income exceeds ` 1,00,00,000 asurcharge of 2% of such tax liability is also payable. A 2% education cess and 1% secondary and higher educationcess on the total income tax (including surcharge) is payable by all categories of FIIs.In accordance with and subject to the provisions of section 196D(2) of the I.T. Act, no deduction of tax at source isapplicable in respect of capital gains arising on the transfer of debentures by FIIs.The provisions at para II (4 and 5) above would also apply to FIIs.IV. To the Other Eligible Institutions:All mutual funds registered under Securities and Exchange Board of India or set up by public sector banks or publicfinancial institutions or authorised by the Reserve Bank of India are exempt from tax on all their income, includingincome from investment in Debentures under the provisions of Section 10(23D) of the I.T. Act subject to and inaccordance with the provisions contained therein.B. WEALTH TAXWealth-tax is not levied on investment in debentures under section 2(ea) of the Wealth-tax Act, 1957.C. GIFT TAXGift-tax is not levied on gift of debentures in the hands of the donor as well as the donee because the provisions ofthe Gift-tax Act, 1958 have ceased to apply in respect of gifts made on or after October 1, 1998. HOWEVER, IFANY INDIVIDUAL OR HUF, RECEIVES THESE DEBENTURES OF THE AGGREGATE VALUE OVER` 50,000 FROM ANY PERSON OR PERSONS WITHOUT CONSIDERATION OR RECEIVES THESE61
DEBENTURES FOR A CONSIDERATION WHICH IS LESS THAN AGGREGATE FAIR MARKETVALUE OF THE DEBENTURES BY AN AMOUNT EXCEEDING FIFTY THOUSAND RUPEES, THEREWILL BE LIABILITY TO INCOME TAX TO THE EXTENT PROVIDED IN SEC.56(2)(VII) OF THEINCOME TAX ACT 1961 TO SUCH RECEIVER. HOWEVER, THE DEBENTURES RECEIVED ASGIFTS FROM ANY RELATIVE AS DEFINED IN SEC.56(2)(VII) OF THE INCOME TAX ACT WILLNOT ATTRACT INCOME TAX LIABILITY IN THE HANDS OF THE RECEIVER.D. REQUIREMENT TO FURNISH PERMANENT ACCOUNT NUMBER UNDER I.T. ACT1. Sec.139A(5A):Subsection (5A) of Sec.139A lays down that every person whose income tax has been deducted at source underchapter XVII B of the Income Tax Act shall furnish his Permanent Account Number to the person responsible fordeduction of tax at source.2. Sec.206AA:(1) Notwithstanding anything contained in any other provisions of I.T. Act, any person entitled to receive any sumor income or amount, on which tax is deductible under Chapter XVIIB (hereinafter referred to as deductee) shallfurnish his Permanent Account Number to the person responsible for deducting such tax (hereinafter referred to asdeductor), failing which tax shall be deducted at the higher of the following rates, namely:—(i) at the rate specified in the relevant provision of this Act; or(ii) at the rate or rates in force; or(iii) at the rate of twenty per cent.(2) No declaration under sub-section (1) or sub-section (1A) or sub-section (1C) of section 197A shall be validunless the person furnishes his Permanent Account Number in such declaration.(3) In case any declaration becomes invalid under sub-section (2), the deductor shall deduct the tax at source inaccordance with the provisions of sub-section (1).(4) Where the Permanent Account Number provided to the deductor is invalid or does not belong to the deductee,it shall be deemed that the deductee has not furnished his Permanent Account Number to the deductor and theprovisions of sub-section (1) shall apply accordingly.62
SECTION IV : ABOUT THE ISSUER COMPANY AND THE INDUSTRYINDUSTRYThe information in this section is derived from various government publications and other industry sources. Neitherwe, nor any other person connected with the issue has verified this information. Industry sources and publicationsgenerally state that the information contained therein has been obtained from sources generally believed to bereliable, but their accuracy, completeness and underlying assumptions are not guaranteed and their reliabilitycannot be assured and accordingly, investment decisions should not be based on such information.In connection with the report by CRISIL Research titled "CRISIL - Retail <strong>Finance</strong> - Auto – May 2010", CRISIL<strong>Limited</strong> has used due care and caution in preparing the aforementioned report. Information has been obtained byCRISIL from sources it considers reliable. However, CRISIL does not guarantee the accuracy, adequacy orcompleteness of any information and is not responsible for any errors or omissions or for the results obtained fromthe use of such information. No part of the aforementioned report may be published / reproduced in any formwithout CRISIL’s prior written approval. CRISIL is not liable for any investment decisions which may be based onthe views expressed in the aforementioned report. CRISIL Research operates independently of, and does not haveaccess to information obtained by CRISIL’s Rating Division, which may, in its regular operations, obtaininformation of a confidential nature that is not available to CRISIL Research.Frost & Sullivan India Private <strong>Limited</strong> has used due care and caution in preparing the report titled “Analysis ofMSME Loan Markets for NBFCs – July 2011”. Information has been obtained from sources that Frost & SullivanIndia Private <strong>Limited</strong> considers reliable. However, Frost & Sullivan India Private <strong>Limited</strong> does not guarantee theaccuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for theresults obtained from the use of such information. No part of the said report may be published / reproduced in anyform without Frost & Sullivan India Private <strong>Limited</strong>’s prior written approval. Frost & Sullivan India Private<strong>Limited</strong> is not liable for investment decisions which may be based on the views expressed in the said report.Indian EconomyIndia is the world’s largest democracy by the population size with an estimated population of approximately 11,900Lakhs (July 2011 estimate). It is also one of the fastest growing economies in the world with the real growth rate ofGDP being 8.5% (Source: Press Information Bureau, Government of India, Press Note dated May 31, 2011). TheInternational Monetary Fund has projected India’s year on year growth at 8.2% for 2011(Source: World EconomicOutlook Projections – International Monetary Fund – June 2011).Structure of India’s Financial Services IndustryThe RBI is the central regulatory and supervisory authority for the Indian financial system. SEBI and the IRDAregulate the capital markets and insurance sector, respectively. A variety of financial intermediaries in the public andprivate sectors participate in India’s financial sector, including the following:• Commercial banks;• NBFCs ;• Specialized financial institutions like the National Bank for Agriculture and Rural Development(NABARD), Export-Import Bank of India (EXIM Bank), the Small Industries Development Bank of India(SIDBI) and the Tourism <strong>Finance</strong> Corporation of India (TFCI);• Securities brokers;• Investment banks;• Insurance companies;• Mutual funds; and• Venture capital funds.63
Non-Banking <strong>Finance</strong> Companies (NBFCs)Non-Banking <strong>Finance</strong> Companies (NBFCs) are an integral part of the country’s financial system, catering to a largemarket of niche customers and have emerged as one of the major purveyors of retail and SME credit in India. It is aheterogeneous group of institutions (other than commercial and co-operative banks) performing financialintermediation in a variety of ways such as accepting deposits, making loans and advances, providing leasing/hirepurchase services, among others. There are over 12,000 NBFCs in India, (Source: Reserve Bank of India, AnnualReport, August 2009) mostly in the private sector.The RBI defines an NBFC as a company registered under the Companies Act, 1956 and engaged in the business ofloans and advances, acquisition of shares, stock, bonds, debentures, and securities issued by the GoI or localgovernment authorities, or other securities of like marketable nature, leasing, hire-purchase, insurance business, chitbusiness. However, this excludes institutions whose principal business is in the agricultural or industrial sector, orin the sale, purchase and construction of immovable property. A non-banking entity that has as its principal line ofbusiness the receipt of deposits, under any scheme or arrangement, or the extension of loans, in any manner, is alsoconsidered an NBFC.Gradually, NBFCs have become recognized as complementary to the banking sector due to their customer-orientedservices, simplified procedures, attractive rates of return on deposits, flexibility and timeliness in meeting the creditneeds of specified sectors, among other reasons. NBFCs have traditionally extended credit across the countrythrough their widespread geographical presence, with NBFCs supplying credit in segments such as equipmentleasing, hire purchase, and consumer finance. These are areas which warrant infusion of financing due to theexisting demand-supply gap. NBFCs have provided a more flexible source of financing and have been able todisburse funds to a gamut of clientele, from local individual customers to a variety of corporate clientele. NBFCscan be divided into deposit taking NBFCs, i.e., those which accept deposits from the public and non-deposit takingNBFCs, i.e., those which do not accept deposits from the public.The activities carried out by NBFCs in India can be grouped as follows:NBFCFund Based Activities• Equipment Leasing• Hire Purchase• Bill Discounting• Loans / Investments• Venture Capital• Factoring• Equity Participation• Short Term Loans• Inter CorporateLoansFee based Activities• Investment Banking• PortfolioManagement• Wealth Management• CorporateConsulting• Project Consulting• Loan / LeaseSyndication• Advisory ServicesEven though NBFCs perform functions similar to those of banks, there are a few differences:(i)(ii)(iii)NBFCs cannot accept demand deposits;NBFCs are not a part of the payment and settlement system and as such cannot allow their customers tooperate accounts through the issuance of cheques; andDeposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available forNBFC depositors.64
Initially, the NBFCs registered with the RBI could only operate as equipment leasing companies, hire purchasecompanies, loan companies and investment companies. However, effective December 6, 2006, NBFCs registeredwith the RBI have been reclassified as (i) asset finance companies (“AFCs”); (ii) investment companies (“IC”); and(iii) loan companies (“LC”). Further, RBI through a notification dated February 12, 2010, introduced a fourthcategory of NBFCs namely, Infrastructure <strong>Finance</strong> Company (“IFC”), which are predominantly engaged in thebusiness of infrastructure financing. Efforts have been made to integrate NBFCs into the mainstream financial sectorby strengthening the prudential guidelines relating to income recognition, asset classification and provisioning. Anumber of measures to enhance the regulatory and supervisory standards of NBFCs in order to put them on par withcommercial banks were undertaken by the RBI over a period of time including the alignment of interest rates,allowing diversification of businesses e.g. issuance of co-branded cards and distribution of mutual fund andinsurance products, regulation of systemically important NBFCs and introduction of a fair practices code andcorporate governance.Retail <strong>Finance</strong> – AutomobilesAutomotive Industry OverviewIn terms of global scale, the Indian automotive industry is the second largest two-wheeler market in the world, thefourth largest heavy commercial vehicle market in the world and the eleventh largest passenger vehicle market in theworld. As one of the largest industrial sectors in India, it contributes nearly 17.0% to total indirect taxes. Althoughthe automotive industry provides direct and indirect employment to over 130 lakh people, the penetration levels forvehicles in India are among the lowest in the world. [Source: Society of Indian Automobile Manufacturers (SIAM) ].According to SIAM, the demand for automobiles in India is projected to grow by 12% -15% by 2011-2012 ascompared to 2010-2011. The forecasts made by SIAM in this regard are as follows:Automobile segments2011-12 growth over 2010-11 (per cent)Passenger cars 16-18%Utility vehicles 12-14%Light Commercial Vehicles (goods) 18-21%Medium and Heavy Commercial Vehicles (goods) 10-12%Commercial vehicles (buses) 8-10%Motorcycles 11-13%Scooters 15-17%Three wheelers (Cargo) 4-6%Three wheelers (passengers) 10-12%Automobile Industry 12-15%Source: SIAM – Demand Forecasts for Indian Automobile Industry2011-2012According to the Automotive Mission Plan 2006-2016, prepared by the Ministry of Industries & Public Enterprises,Government of India, (“Automotive Mission Plan”), India is emerging as one of the world’s fastest growingpassenger car markets and the second largest two wheeler manufacturer. The growth of the Indian middle class withincreasing purchasing power along with robust growth in economy in recent years has attracted major global automanufacturers to Indian market. The Indian automotive industry after de-licensing has grown approximately at a rateof 17%.Passenger vehicles segment grew at 14.00 % during April 2011 over same month last year. Passenger cars grew by13.18 %, utility vehicles grew by 6.25 % and Vans grew by 37.39 % in April 2011 as compared to same month lastyear. The overall commercial vehicles segment registered growth of 8.22 % in April 2011 as compared to the samemonth last year. While medium and heavy commercial vehicles registered only a marginal growth rate of 0.70 %,light commercial vehicles grew at 14.43 %. Three wheelers sales recorded a growth rate of only 1.94 % in April65
2011. Two Wheelers registered a healthy growth of 26.44 % in April 2011. Mopeds, motorcycles and scooters grewby 15.68 %, 23.39 % and 48.06 % respectively in April 2011. [Source SIAM]In the month of April 2011 overall automobile exports registered a growth rate of 29.62 %. Passenger Vehiclesregistered growth at 12.66 % in the month. Commercial Vehicles, Three Wheelers and Two Wheelers segmentsrecorded growth of 36.01 %, 36.95 % and 32.77 % respectively in April 2011. [Source SIAM]The domestic market share between passenger cars, commercial vehicles, two wheelers and three wheelers for 2010-2011 were as follows:Segment wise Market Share in 2010–11Commercial Vehicles4.36%Three Wheelers3.39%Passenger Vehicles16.25%Tw o Wheelers76.00%Source: SIAMTwo Wheeler IndustryThe two-wheeler industry's domestic sales volumes are expected to grow by 20-22 % in 2010-11, driven by a strongrural demand, an improvement in the financing scenario and new model launches.Segment-wise change in demand for two-wheelers [Source: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011]1. Motorcycles: The motorcycles segment is the largest in the two-wheelers industry, accounting for almost79 % of total domestic sales. The segment primarily targets the urban and rural male population in the agegroup of 16-45 years. Penetration of motorcycles has been higher in the urban markets compared to therural markets due to easy availability of finance in the former and an increased focus on the establishmentof dealers, service and distribution networks in these areas. On the flipside, the introduction of ultra lowcostcars and the declining cost of ownership would pose a threat to motorcycle demand over the long term.The entry of new players and the launch of new models in the ungeared scooter segment is also likely toaffect the demand for motorcycles. Going forward, higher disposable incomes due to the restructuring ofpersonal income tax slabs, loan waivers for farmers and pay commission hikes are likely to drivemotorcycle demand.2. Ungeared scooters: The target market for ungeared scooters in urban areas has mainly been the femalepopulation in the age group of 18-30 years and to some extent, the male population in the age group of 16-45 years. In the long run, the growth potential for this segment would be higher due to the current lowerpenetration levels and a low base over the previous year. Convenient riding, increasing urban incomes,continuing urbanisation and an increase in the number of educated women and workforce population woulddrive demand for ungeared scooters. In many households, ungeared scooters are preferred as a secondvehicle after cars, which is a major demand driver. Lower dependence on finance, which relativelyinsulates the segment from such issues, also aids demand.3. Mopeds: The major target customers for this segment are low-income, self-employed professionals andshopkeepers in urban areas. Although demand for mopeds has been rising, the prospects of any significantincrease are capped due to increase in substitution by ungeared scooters, limited regional presence and lackof player interest.66
Overall Demand Drivers in the Two Wheeler Industry [Source: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011]1. Demographic trends: Going forward, growth in two-wheeler demand would come mainly from risingpopulation in the relevant age and income groups (which is defined as population in the age group of 16-45years and income bracket of ` 0.1-0.5 million) and increasing use of personal transport. Growth in relevantpopulation in urban areas is expected to have slowed down to about 5 % during 2005 to 2010, while it isexpected to increase to 7.3 % in rural areas. Two-wheelers are estimated to have fairly penetrated therelevant population in both the rural and urban markets. However, growth in demand is mainly expected tocome from rural markets.2. Need for mobility and shift in preferred mode of transport: A growing population and rising economicactivity is expected to increase consumers' need for mobility. Other contributors to mobility are anincreasing female workforce, especially in urban areas, and the rising trend of drifting away fromagricultural employment in rural areas. Thus, there is likely to be a modal shift in demand for transport.Going ahead, the share of private modes of transport is expected to increase in comparison to public modesof transport. In rural markets, demand for transport arises from rudimentary means like walking, bicycles,animal-drawn vehicles and tractors. Going ahead, we expect dependence on walking and bicycles to shift infavour of two-wheelers and buses. Thus, increasing need for mobility and the substitution effect will driverural demand for two-wheelers. Urban markets are likely to stagnate as here the shift is expected to be infavour of four-wheelers from two-wheelers and public modes.3. Improving finance disbursement to support two-wheeler demand: Players have come out with schemessuch as Direct Cash Collection (DCC) systems where cash is collected every month on a door-to-door basisand loans are given to people who do not have access to formal payment options like a bank account. Suchschemes along with the increasing risk appetite of two-wheeler players are expected to support sales in theindustry.Cars and Utility Vehicles IndustryThe domestic cars and utility vehicles (UV) industry grew by 33 % during the first half of 2010-11 primarily backedby higher disposable incomes, easy availability of finance and price-competitive model launches by players. Theindustry's domestic volumes are expected to grow by 23-25 % for 2010-11. In 2010-11, car and UV domestic salesvolume increased by 28.7 per cent and 27.4 per cent, respectively. Sales volume increased on account of increasedconfidence among consumers with economic recovery and reduced uncertainty over income growth. In 2011- 12,car sales volume is forecasted to further grow by 15-17 per cent and UV sales volumes to grow by 9-10 per cent.The volume growth would mainly be driven by the small car segment, which has become the focal area for manyoriginal equipment manufacturers. [Source: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011]Segment-wise assessment of demand driversThe small car segment accounts for the largest proportion (about 78 %) of overall domestic car sales volumes. Themid-size segment, which accounts for about 20 % of domestic car sales, depends on upgradation demand andadditional demand. An expected rise in corporate profitability, better financing environment and improved customersentiment would drive growth in the industry. Domestic sales in higher segments (the executive, premium andluxury segments) are expected to grow at 19-21 % in 2010-11 owing to the availability of internationally-renownedbrands and the perceived prestige attached to bigger cars and due to improved business confidence and bettercorporate profitability. International brands are likely to enhance their presence in India in these segments. [Source:CRISIL – Retail <strong>Finance</strong> – Auto – May 2011]Domestic utility vehicle (UV) sales are likely to be driven by strong growth in the personal UV segment, on the backof new model launches and an increase in the addressable market, driven by the increase in per capita income.Higher-end sports utility vehicle sales will also grow aggressively, due to the launch of new models and the statusascribed to owning one. However, sales of commercial UVs are expected to grow at a moderate rate. [Source:CRISIL – Retail <strong>Finance</strong> – Auto – May 2011]67
Overall demand drivers for the passenger cars industry [Source: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011]1. Increase in affordability: Growth in passenger car sales is mainly driven by greater affordability, whichenhances the aspiration levels of the consumers. The following factors determine affordability:2. Growth in addressable market, led by increase in disposable income: Addressable households in Indiatrebled during 2003-04 to 2008-09, led by an increase in per capita income. During 2003-04 to 2007-08,there was a huge increase in the addressable market due to higher affordability, led by rise in per capitaincome. However, in 2008-09, the size of the addressable market rose on account of a decline in car prices,which was in turn the result of a reduction in excise duty on small cars from 16 % to 8 %.Over the next 5 years, increase in per capita income and a reduction in entry-level prices of cars will be themajor drivers for the increase in affordability. A fall in car prices due to a rise in competition in the smallcar segment, with the launch of ultra low-cost cars are likely to substantially increase the addressablemarket in 2009-10.3. New launches: There is a significant increase in car sales after the launch of new models, as customers aretempted to prepone their decision to purchase the vehicle. With competition intensifying, the number ofnew launches has gone up, which will continue to drive demand. New launches at competitive prices acrosssegments, which are less penetrated, would also woo customers for new purchases.4. Increase in dealerships and easy access to finance: The widening of distribution networks by automakerswill push up car sales, as a large number of households will be added to the target population. Typically,these households have the potential to buy a car, but defer the decision due to lack of sales and serviceinfrastructure. With most urban centres covered by dealership networks, car manufacturers are setting upnew dealerships in smaller towns to increase penetration and sales in semi-urban and rural areas. Enhancedpenetration of financing will also help the rise in passenger car sales across all segments. Mostmanufacturers are targeting rural and semi-urban areas to increase sales volumes due to the rise indisposable incomes in these areas. Along with increasing the number of dealerships, manufacturers areproviding easy accessibility to finance in these markets to enable customers to purchase cars.5. Reduction in excise duty: A cut in excise duty on cars, which if passed on by original equipmentmanufacturers, increases affordability for buyers. In December 2008, excise duty on small cars (cars thatare less than 4,000 mm long and have an engine capacity below 1,200 cc and 1,500 cc for petrol cars anddiesel cars, respectively) was cut to 8 % from 12 %. For other cars and UVs, the duty was reduced to 20 %from 24 %. The decline in small-car prices led to increase in demand on account of the lower cost ofownership and growth in the addressable market.6. Reduction in holding period increases demand for a second car: A decline in the average holding periodwill also increase passenger car sales, mainly in the mainstream/ small car/ mid-size segments. The averageholding period has shrunk to 3-4 years in 2008-09 from 5-6 years in 2000-01, implying frequentupgradations to advanced models from the same or higher segment. Also, the concept of a second car is onthe rise in urban areas. With more than one working member in a family, the need for personaltransportation is an impetus for purchasing more than one car.Commercial Vehicles IndustryThe commercial vehicle industry is segmented into “light commercial vehicles” (for vehicles with gross vehicleweight of less than 7.5 tons) and “medium and heavy commercial vehicles” (for vehicles weighing more than 7.5tons). The performance of the medium and heavy commercial vehicle industry bears a high correlation withindustrial growth and is driven by economic development, improved road infrastructure (such as the GoldenQuadrilateral) for long haulage transportation and a favorable regulatory environment (in this regard, demandcreated in the years 2006-2007 was attributable to the strict enforcement of overloading restrictions and age norms).In turn, the performance of the light commercial vehicle industry tends to be less cyclical in nature and is driven byGDP growth and demand for last mile distribution. The market share of light commercial vehicles increased rapidly- the introduction of a sub-one ton carrier by certain players created a new segment typically occupied by three-68
wheelers and similar forms of intra-city transport, resulting in significant growth in the commercial vehicle marketas a whole.Total domestic sales in the commercial vehicle industry reached 6,76,048 units in 2010-11. From 2004-05 to 2010-11, domestic sales had grown at a healthy CAGR of 13.4%. The reduction in domestic sales was attributed to theslowdown in economic development, credit availability and costs, an increase in fuel prices, in addition to the baseeffect due to the one-time demand created in 2006-07 by the strict enforcement of overloading restrictions. [Source:SIAM]Domestic commercial Vehicle Sales VolumesUnits800,000600,000400,000318,43010.2%351,041CAGR : 13.4%33.3%4.9%467,765 490,494-21.7%384,19438.7%532,72127.0%676,408200,00002004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11Source: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011Numbers in italics represent change over previous yearSource: Society of Indian Automobile Manufacturers ("SIAM")After a stable second quarter in fiscal 2009, the automotive sector in India suffered severe contraction in demand inthe third quarter of fiscal 2009, arising from major financial and other market upheavals. This, along withcontraction in freight movement in many segments of the industry, led to a massive drop in the medium and heavycommercial vehicle segment demand. High interest rates and peak commodity prices also affected the industry andthe supply chain. In the third quarter of fiscal 2009, industry commercial vehicle sales were down 44.0% andpassenger vehicle sales dropped by as much as 16.5% against the comparable quarter of the previous year. Theeconomy grew 5.3% in the December 2008 quarter from a year earlier, below forecasts of 6.2% and the previousquarter's 7.6% as the global economic crisis cut demand and exports. As a result, 2008-2009 volumes declined21.7%. With the Indian economy gaining momentum and rising GDP growth, the sales of the commercial vehiclesincreased by 38.7% in 2009-10 and by 27.0% in 2010-11.Over the long term, the commercial vehicle industry and consequently, commercial vehicle financing, is expected tocontinue to show growth in light of the following factors:Modernization of trucking industry. A replacement boom is likely to be triggered by stricter enforcement ofregulations banning trucks beyond 15 years and overloading, as well as the introduction by transport associations ofa voluntary retirement scheme for old trucks with better financing options. An anticipated replacement demand for11 Lakh new as well as pre-owned trucks will require financing of ` 1,07,80,000 Lakhs. (Source: Society of IndianAutomobile Manufacturers)Structural shift to hub-and-spoke model and improving road infrastructure. All commercial vehicle segments areexpected to experience a boost from the fast-evolving hub- and spoke-structure of the freight industry. Longdistancehaulage between hubs is typically serviced by heavy commercial vehicles on highways which continue tobenefit from the Golden Quadrilateral and road development projects, with freight distribution from the hub to thelocal warehouse at the end of the spoke requiring medium commercial vehicles and distribution over the last milerequiring small commercial vehicles.Growing freight capacity. GDP growth rate continues to drive incremental freight capacity, which is estimated toincrease at 1.25 times of GDP growth.69
Growth of construction industry. The share of the construction industry in GDP has increased from 6.1% in 2002-03 to 6.9% in 2006-07. This increase has been largely propelled by government spending. Because a substantialportion of construction investment is spent on equipment, this construction boom heralds a similar expansion in theneed for construction vehicles. The Indian construction industry is dominated by small contractors that performover 90.0% of projects. These local players often lack adequate access to institutional finance, creating enormousopportunities in the area of construction equipment financing. (Source: Government of India Planning CommissionEleventh Five Year Plan)Vehicle <strong>Finance</strong> Industry – OverviewStrong growth in underlying asset sales, improvement in finance penetration and increase in the average ticket sizeare the primary factors driving the growth of the Indian vehicle finance market. The vehicle finance disbursementsare expected to grow at around 23% in 2011-2012. Amongst individual segments, the cars and utility vehiclesegments are expected to grow the fastest. Disbursements in the new car and utility vehicle finance industry areexpected to grow by 26% in 2011-2012. Over the next five years, the vehicle finance disbursements are projected togrow at 22% CAGR. [CRISIL – Retail <strong>Finance</strong> – Auto – May 2011]Two Wheeler <strong>Finance</strong> IndustryUnlike passenger cars and commercial vehicles, market sentiment in the two-wheeler finance industry is expected toremain subdued in the next 2 years. High operating expenses and a high probability of defaults, despite healthygrowth in sales volume, are expected to restrain many financiers from re-entering or becoming aggressive in themarket. Currently, only captive financiers and some NBFCs and few private banks are lending to the two-wheelerbuyers. Small ticket size, high operating expenses and high probability of defaults is expected to keep severalfinanciers wary of the market in the next 12-18 months. [CRISIL – Retail <strong>Finance</strong> – Auto – May 2011].The two-wheeler finance disbursements in 2010-11 are expected to grow at 18%, reaching ` 99 billion. A 21.3 %rise in underlying sales volume in 2010-11 over 2009-10 supports this positive growth. Deterioration in asset qualityand increased operating expenses has led many financiers to withdraw from some markets, particularly in thenorthern and eastern regions of India, [CRISIL – Retail <strong>Finance</strong> – Auto – May 2011]. The growth in two-wheelerfinance disbursements over 2008-2009 to 2014-2015 can be summarized as follows:` billion 2008-09 E 2009-10 E 2010-11 P 2011-12 P 2014-15 P70CAGR (2010-11to 2014-1 5)New TW finance market 72 84 99 114 150 11.1%New TW market size 295 380 478 531 657 8.3%E: Estimated; P: ProjectedSource: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011Disbursements towards two-wheelers are expected to grow moderately by 11 % annually over the next 4 yearsmainly supported by underlying assets volume growth. [CRISIL – Retail <strong>Finance</strong> – Auto – May 2011].Domestic sales volume of two-wheelers recorded a growth of 21.3 % in 2010-2011 with strong performance acrossall segments. The aforesaid growth rate was primarily on account of a low base effect of previous year and growingdemand from rural areas. The domestic demand for two wheelers is expected to grow at a CAGR of 8-10 % cent till2014-2015. However, growing sales in rural markets will negatively affect the percentage of vehicles financed, asconsumers in these markets prefer to pay in cash for the vehicle purchased. <strong>Finance</strong> penetration which has fallen to30 % in 2010-11 from 37 % in 2008-09, is expected to improve marginally to 31 % by 2011-12. However, withplayers expected to increase their level of finance provided on account of better risk appetite, finance penetrationlevels are expected to increase marginally and reach a level of around 33 % till 2014-15. [CRISIL – Retail <strong>Finance</strong> –Auto – May 2011].
Players are now adopting stringent norms, including adequate check on past track record and proper documentation.Average Loan to Value (LTV) ratio in the two-wheeler finance industry, which had dropped to 65 % in 2008-09, isestimated to have increased marginally to 69 % in 2010-11. Stringent credit appraisal norms, better informationabout customers due to Credit Information Bureau of India <strong>Limited</strong> (CIBIL) and increase in risk appetite offinanciers are expected to increase levels of finance provided in the industry. This is expected to translate into higherLTV ratio for the industry with the LTV ratio expected to reach a level of 70 % by 2011-12 and remain constantthereon. [CRISIL – Retail <strong>Finance</strong> – Auto – May 2011].Drivers for two-wheeler finance market%80%65% 67% 69% 70% 70%60%40%20%37%33% 30% 31% 33%0%2008-09E 2009-10E 2010-11P 2011-12P 2014-15P<strong>Finance</strong> penetrationLTVE- Estimated; P- Projected;Source: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011Car and Utility Vehicle <strong>Finance</strong> IndustryStrong recovery in underlying car and UV sales and decline in financiers risk aversion towards borrowers has led toa strong growth in loan disbursements towards the sector. Disbursements in the new car and UV finance industry areestimated to have grown by 44 % in 2010-11. The industry is expected to register a growth of 23-24 % in 2011-12.The growth can mainly be attributed to swift recovery in the economy which has boosted consumer confidence,thereby leading to higher car sales and increased willingness on the part of financiers to lend. Average ticket size forcar loans is also estimated to have increased on account of higher value car sales. [Source: CRISIL – Retail <strong>Finance</strong>– Auto – May 2011]Aggregate disbursements towards cars and UVs are forecasted to register a CAGR of 21 % till 2014-15. Continuedgrowth in underlying vehicle demand, increase in finance penetration and higher LTV would drive thedisbursements growth in the next four years. [Source: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011]Growth in car and UV finance disbursements` billion 2008-09 E 2009-10 E 2010-11 P 2011-12 P 2014-15 PCAGR (2010-11to 2014-1 5)New Car finance market 246 330 482 598 1,051 21.5%New UV finance market 78 109 149 181 288 17.8%New car and UV financemarket 324 439 632 779 1,339 20.7%E: Estimated; P: ProjectedSource: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011<strong>Finance</strong> penetrationThe percentage of vehicles financed for cars and UVs increased from 68 % and 60 % in 2008-09 to 74 % and 61 %in 2010-11. The aggressive interest rate schemes and decline in risk aversion amongst players is expected to lead toan increase in the finance penetration in the cars and UV segment to improve to 80% and 69% by 2014-15. Increase71
in competition and strong growth in underlying asset are expected to aid the growth of finance penetration goingforward. [Source: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011]<strong>Finance</strong> Penetration%90%80%70%60%50%80%74% 75%69%71%69%60%62% 61%63%2008-09E 2009-10E 2010-11P 2011-12P 2014-15PCarsUtility VehiclesSourceE- Estimated; P-ProjectedSource: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011Players have adopted stringent underwriting norms since the economic slowdown in 2008-09 which led to a numberof financiers facing high delinquency levels. However, improvement in business sentiments and reduction inuncertainty over income growth have increased the comfort level of financiers in lending. Also, better informationabout customers due to CIBIL has led to players increasing their LTV ratios for the segment. Hence, average LTVratio is estimated to have increased to 75 % and 70 % for cars and UVs, respectively. Over the next 4 years, weexpect LTV ratio for cars and UV segment to rise to 78 % and 72 % respectively. [Source: CRISIL – Retail <strong>Finance</strong>– Auto – May 2011]Average LTV Ratio%80%75%72%73%75%76% 78%70%65%60%72%71%70%67%68%2008-09E 2009-10E 2010-11P 2011-12P 2014-15PCarsUtility VehiclesE: Estimated; P: ProjectedSource: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011Commercial Vehicle <strong>Finance</strong>Continued economic growth and strong credit appraisal mechanisms are expected to maintain the industry's growthmomentum in the next 4 years. Led by a robust growth of 28 % in underlying vehicle domestic sales volume, thecommercial vehicle finance industry is estimated to have recorded a strong growth of 44 % in disbursements in2010-11. Disbursements are expected to remain buoyant over the medium term on account of revival of sales,decline in risk aversion levels and increase in average ticket size for players. Commercial vehicles disbursements areprojected to grow by 22 per cent and 19 per cent in 2011-12 and 2012-13, respectively owing to healthy growth inunderlying sales volume and higher LTVs. The industry is expected to register a CAGR of 19 % in disbursements,reaching a level of around ` 795 billion by 2014-15. [Source: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011]72
Growth in CV finance disbursements` billion 2008-09 E 2009-10 E 2010-11 P 2011-12 P 2014-15 PCAGR (2010-11to 2014-1 5)New LCV finance market 48 71 103 131 248 24.5%New MHCV financemarket 146 201 289 347 547 17.3%New CV finance market 194 272 392 479 795 19.3%E- Estimated; P – ProjectedLCV – Light Commercial Vehicle; MHCV – Medium and Heavy Commercial VehicleSource: CRISIL – Retail <strong>Finance</strong> – Auto – May 2011Financiers are expected to marginally increase LTVs given their growing confidence in the transporter's earningpotential and repayment capabilities and consequently, increase their disbursements. CRISIL Research forecastsaverage LTV ratio to increase from 74 % in 2009-10 to 75 % in 2010-11. However, credit appraisal mechanisms areexpected to remain stringent in the next 2 years due to the anxiety of deterioration in asset quality. Small fleetoperators and first-time users continue to remain at a higher risk from the financier’s perspective. On this backdrop,we expect LTV levels to increase to a level of around 78 % by 2014-15. [Source: CRISIL – Retail <strong>Finance</strong> – Auto –May 2011]Commercial vehicle finance industry is already highly penetrated in terms of credit availed. Typically, more than 95% of vehicles are purchased on finance. <strong>Finance</strong> penetration had decreased marginally in 2008-09. However, thefinance penetration levels have improved in 2009-10. This represents a huge dependence on finance industry.<strong>Finance</strong> penetration levels are expected to remain high at a level of around 98 % by 2014-15. [Source: CRISIL –Retail <strong>Finance</strong> – Auto – May 2011]Micro Small and Medium Enterprises (MSME) <strong>Finance</strong>MSME SectorMicro, Small and Medium Enterprises (MSMEs), including khadi and village/rural enterprises credited withgenerating the highest rates of employment growth, account for a major share of industrial production and exports.They also play a key role in the development of economies with their effective, efficient, flexible and innovativeentrepreneurial spirit. The socio-economic policies adopted by India since the Industries (Development andRegulation) Act, 1951 have laid stress on MSMEs as a means to improve the country’s economic conditions.[Ministry of MSME Annual Report 2010-11]The MSME sector contributes significantly to the manufacturing output, employment and exports of the country. Itis estimated that in terms of value, the sector accounts for about 45 % of the manufacturing output and 40 % of thetotal exports of the country. The sector is estimated to employ about 59 million persons in over 26 million unitsthroughout the country. Further, this sector has consistently registered a higher growth rate than the rest of theindustrial sector. [Ministry of MSME Annual Report 2010-11]In recognition of the contribution and vast potential of the MSME sector in the economy, provision of adequatecredit to this sector continues to be an important element of banking policy, particularly after the initiation ofstructural reforms in 1991. The Government of India has from time to time taken economic policy initiatives topromote this sector and enhance credit to small and medium enterprises. Some of the initiatives of the Governmenttowards MSME financing include setting up of credit guarantee fund trust for small industries, risk sharing facility,venture capital funding, micro credit, etc.73
Performance of MSMEs - Units, Investment, Production, Employment & ExportsSI.No.YearTotalMSMEs(lakhnumbers)FixedInvestment(` Crore)74Production(` crore)CurrentPricesEmployment(lakh person)Exports (`crore)1 1992-93 73.51 109,623 84,413 174.84 17,784(4.07) (9.24) (4.71) (5.33) (28.10)2 1993-94 76.49 115,795 98,796 182.64 25,307(4.07) (5.63) (17.04) (4.46) (42.30)3 1994-95 79.60 123,790 122,154 191.40 29,068(4.07) (6.90) (23.64) (4.79) (14.86)4 1995-96 82.84 125,750 147,712 197.93 36,470(4.07) (1.58) (20.92) (3.42) (25.46)5 1996-97 86.21 130,560 167,805 205.86 39,248(4.07) (3.82) (13.60) (4.00) (7.62)6 1997-98 89.71 133,242 187,217 213.16 11,112(4.07) (2.05) (11.57) (3.55) (13.23)7 1998-99 93.36 135,482 210,454 220.55 48,979(4.07) (1.68) (12.41) (3.46) (10.21)8 1999-00 97.15 139,982 233,760 229.10 54,200(4.07) (3.32) (11.07) (3.88) (10.66)9 2000-01 101.10 146,845 261,297 238.73 69,797(4.07) (4.90) (11.78) (4.21) (28.78)10 2001-02 105.21 154,349 282,270 249.33 71,244(4.07) (5.11) (8.03) (4.44) (2.07)11 2002-03 109.49 162,317 314,850 260.21 86,013(4.07) (5.16) (11.54) (4.36) (20.73)12 2003-04 113.95 170,219 364,547 271.42 97,644(4.07) (4.87) (15.78) (4.31) (13.52)13 2004-05 118.59 178,699 429,796 282.57 124,417(4.07) (4.98) (17.90) (4.11) (27.42)14 2005-06 123.42 188,113 497,842 294.91 150,242(4.07) (5.27) (15.83) (4.37) (20.76)15 2006-07 261.01 500,758 709,398 594.61 182,538(111.48) (166.20) (42.49) (101.62) (21.50)16** 2007-08 272.79 558,190 790,759 626.34 202,017(4.51) (11.47) (11.47) (5.34) (10.67)17** 2008-09 285.16 621,753 880,805 659.35 NA(4.53) (11.39) (11.39) (5.35)
SI.No.YearTotalMSMEs(lakhnumbers)FixedInvestment(` Crore)Production(` crore)CurrentPricesEmployment(lakh person)Exports (`crore)18** 2009-10 298.08 693,835 982,919 695.38 NA(4.53) (11.59) (11.59) (5.47)The figures in brackets show the percentage growth over the previous year. The data for the period up to 2005-06 is of small scale industries(SSl). Subsequent to 2005-06, data with reference to micro, small and medium enterprises (MSME5) are being compiled.*Projected (Source: S&D Division — Office of the DC (MSME))Comparison of the MSME Sector with the Overall Industrial Growth in IndiaThe MSME sector has maintained a higher rate of growth vis-à-vis the overall industrial sector as would beclear from the comparative growth rates of production for both the sectors during last five years as incorporated inthe following table:Growth rates of 2001-02base IIP (%age)Over all IndustrialGrowth rates of sector(%age) #2002-03 8.68 5.702003-04 9.64 7.002004-05 10.88 8.402005-06 12.32 8.202006-07 12.6 11.602007-08 13.00* 8.502008-09 Not Available 2.802009-10 Not Available 10.40*: Projected, IIP — Index of industrial Production#: Source- M/o Statistics and P1 website – http://www.mospi.gov.inThe total employment from the MSME sector in the country as per the Fourth Census of MSMEs with referenceyear 2006-07 was 594.61 lakh numbers. As per the estimates compiled for the year 2009-10, the MSME sectoremployed 695.38 lakh persons.EmploymentNo. in lakh person8007006005004003002001000695.38659.35594.61626.34294.912005-06 2006-07 2007-08 2008-09 2009-10Note1. Projected data for the year 2007-08 to 2009-102. Data for 2005-06 pertain to small scale industries (SSI) only75
The size of the registered MSME sector is estimated to be 1,563,974 of the total working enterprises. The totalproportion by micro, small and medium enterprises were 94.94%, 4.89% and 0.17% respectively. About 45.23%(7.07 lakh) of the units were located in rural areas. 67.10 % of the enterprises in the registered MSME sector wereengaged in manufacturing/ assembling/processing, whereas 16.78 % of the units were engaged in services activities.The remaining 16.13 % of the enterprises were engaged in the repair and maintenance.Distribution by Nature of ActivityNo. in lakhManufacturing/ Assembling/ Processing 10.50 (67.10%)Services 2.62 (16.78%)Repairing & Maintenance 2.52 (16.13%)Total 15.64 (100%)The MSME industry envisions that the sector will have a healthy growth with a large number of enterprises beingset up and their upward graduation into small and medium enterprises. This would be accompanied by enhancementof their contribution to the GDP, manufacturing output, employment and exports.The economic externalities which affect the MSME sector are the following:(i)(ii)(iii)(iv)(v)(vi)(vii)(viii)Overall domestic and global growth trends;Domestic tax regime, particularly advent of Goods and Service Tax and Direct Tax Code;Policies governing the credit flow to the sector;Trade policies, including free trade agreements with other countries;Labour policies, particularly multiplicity of labour laws and procedures for compliance of various labourregulations;Availability of infrastructure facilities, including power, water, roads, etc.;Availability of critical raw material at competitive prices;Availability of skilled manpower for manufacturing, services, marketing, etc.Credit to the MSME sectorCredit availability to MSMEs remains one of the major concerns. Although, the Government of India has takenseveral steps to increase the lending of this Sector, this remains even now the most difficult problem faced by theMSME.There is a cyclical nature of availability of funds to the MSME sector. This is determined by larger issues ofinternational and domestic monetary policies, fiscal policies and other parameters beyond the pale of the sector. Intimes of a liquidity crunch, lack of liquidity in the financial system, even though caused by external factors, canquite dry up the flow of credit to the sector. The major dependence of the sector is working capital requirementwhich directly impacts the production cycle. As stated elsewhere, the tolerance threshold levels of this sector arevery low. Hence, any liquidity crunch has an immediate and disastrous impact. During the last global economiccrisis, this was seen to be a problem area, affecting the MSMEs for their day-today requirement of working capital.The MSME thus need to be insulated from such credit squeezes in times of adverse monetary conditions.Credit Guarantee Fund SchemeThe Government of India launched the Credit Guarantee Fund Scheme for Micro and Small Enterprises in August,2000, with the objective of making available credit to micro and small enterprises (MSEs), particularly microenterprises, for loans up to ` 100 lakh without collateral/third party guarantees. The Scheme is being operatedthrough the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) set up jointly by theGovernment of India and Small Industries Development Bank of India (SIDBI). The Scheme covers collateral freecredit facility (term loan and/ or working capital) extended by eligible member lending institutions (MLIs) to newand existing micro and small enterprises up to ` 100 lakh per borrowing unit. The guarantee cover provided is up to75% of the credit facility up to `50 lakh with an incremental guarantee of 50% of the credit facility above `50 lakhand up to `100 lakh (85% for loans up to ` 5 lakh provided to micro enterprises, 80% for MSEs owned/ operated by76
women and all loans to the North Eastern Region of India). As on 31st December 2010, there were 115 eligiblelending institutions registered as MLIs of the Trust comprising 27 Public Sector Banks, 17 Private Sector Banks, 61Regional Rural Banks (RRBs), 2 foreign banks and 8 other Institutions. Cumulatively 476,452 proposals have beenapproved for guarantee cover for a total sanctioned loan amount of ` 20,109.36 crore.In spite of various initiatives taken by the Government of India, banks and financial institutions, MSMEs facecertain challenges. These problems relate to the issue of collaterals, cost of loans, delay in receivables, obsoletetechnology, marketing, etc. The MSME sector is still under banked to a large extent and barring certain publicfinancial institutions and public sector banks, lending in this sector has traditionally been addressed by theunorganized players in most regions in India.Outstanding Bank Credit to Micro and Small EnterprisesAs on lastreportingFriday ofMarch77AllScheduledCommercialBanksPercentage ofMSE Creditto Net BankCreditPublic SectorBanksPrivateSector BanksForeignBanks1 2 3 4 5 62005 67,800 8,592 6,907 83,498 8.82006 82,434 10,421 8,430 1,01,285 7.5(21.6) (21.3) (22.1) (21.3)2007 1,02,550 13,136 11,637 1,27,323 7.2(24.4) (26.1) (38.0) (25.7)2008 1,51,137 46,912 15,489 2,13,538 11.6(47.7) (257.1) (33.1) (67.7)2009 1,91,408 46,656 18,063 2,56,127 11.3(26.6) 0.0 (16.6) (19.9)2010 2,78,398 64,534 21,080 3,64,012 13.4(Provisional) (45.4) (38.3) (16.7) (42.1)Source: Reserve Bank of India.Note:1. Figure in parentheses indicates year-on-year growth.2. The high growth witnessed during 2008 is on account of re-classification of MSEs as per MSMED Act, 2006.Firstly, the investment limit of small (manufacturing) was raised from `1 crore to `5 crore and small (services)was added to include enterprises with investment limit between `1 0 lakh to `2 crore. Secondly, the coverage ofservice enterprises was broadened to include small road and water transport operators, small business,professional and self-employed and all other service enterprises as per definition provided under MSMED Act,2006.3. Vide circular RPC.CO.Plan.C.24/04.09.01/2009-10 dated September 18, 2009, retail trade (credit limit notexceeding `20 lakh) has also been included under the ambit of MSE Sector.Role of NBFCs in the MSME finance sectorFunding through banks requires extensive documentation; funding through unorganized sources is expensive. NBFCloans provide ideal mid way between bank lending and unorganized sector. The growth drivers for NBFCs engagedin MSME finance can be summarized as follows:• Swift Loan Processing due to minimal documentation and flexibility of disbursement process;• Customized repayment schedules, based on customer requirement at a lower interest rate than informalsources• Huge untapped market and the lack of adequate penetration by banks• Extensive network of branches which leads to better customer service
[Source: Analysis of MSME Loan Markets for NBFCs – Frost & Sullivan – July 2011]Most of the loans given to MSME sectors by NBFCs have a tenure of 2-3 years and it is only since 2008 the markethas witnessed significant size and growth. While loans to MSMEs are considered relatively risky (mostly unsecuredand to under-banked community), there is no concrete data to validate it due to the young life of this market.MSME LOAN MARKET FOR NBFCS:Source: Analysis of MSME Loan Markets for NBFCs – Frost & Sullivan – July 2011NBFCs loan disbursals to MSMEs have grown at 75.8 % CAGR from Fiscal 2009 to Fiscal 2011. MSME loanmarket is expected to increase at a CAGR of over 50.0% from 2011 to 2013 and further continue growing at 30-35per cent from 2013 to 2015. Thereafter growth in this segment is expected to stabilise post 2015 around 20 % peryear for the next five years. [Source: Analysis of MSME Loan Markets for NBFCs – Frost & Sullivan – July 2011]Loans Against GoldIndia is one of the largest markets for gold and accounts for around 10% of total world gold stock with an annualdemand of around 700 tonnes. [Source: Gold Loans Market in India 2010 - IMaCS Research and Analytics].Gold Loans have continued emerging as a key gold based financial product and as of Fiscal 2010, the organised goldloans market in India is estimated at around ` 350-400 billion with a compounded annual growth of around 40%during Fiscal 2002-2010. At this level, the gold loans portfolio translates into a marginal 1.2% of the value of totalgold stock in India. The market is significantly under-penetrated and is expected to continue growing at the rate of35-45% going forward. Gold loans in India have largely been concentrated in South India, which holds the largestproportion of gold portfolio and is typically more open to borrowing against gold as compared to consumers inNorthern and Western India, which are averse to pledging their gold holdings - considered as a symbol of familypride and honour. As of Fiscal 2010, the gold loans market is largely concentrated between two categories oflenders; south based NBFCs specialised in gold loans accounting for around 32 % of total market and scheduledcommercial banks holding another 58% of the market. The rest of the gold loans portfolio is constituted by severalsmall co-operative banks. [Source: Gold Loans Market in India 2010 - IMaCS Research and Analytics]Role of NBFCs in the Gold Loan MarketDue to their ability to service the customer requirements, the specialised NBFCs command superior yields (20-24%)as compared to their banking competitors (at 8-12%). [Source: Gold Loans Market in India 2010 - IMaCS Researchand Analytics]. Even with attractive yields in the gold loans segment, banks typically lack adequate focus on the78
segment and the ability to provide flexible service offerings such as quick disbursal and low levels of documentationto meet the requirements of gold loans customers. Given these limitations, banks find it difficult to service thedemand of non-agriculture client base which is largely un-organised and are hesitant of going through the processesand formalities of banks, even if it means getting loans at significantly lower rates of interest. [Source: Gold LoansMarket in India 2010 - IMaCS Research and Analytics]Several large pan-India NBFCs have marked their entry into the segment. These NBFCs are currently in a verycautious and preparatory mode and are expected to take a few years to ramp up their capabilities in gold loanssegment. A few of these NBFCs have strong knowledge of local market conditions in South India, brand presenceand an ability to replicate the business model and service offerings of large specialised NBFCs and are to be closelywatched at in this space. [Source: Gold Loans Market in India 2010 - IMaCS Research and Analytics]IMaCS Research and Analytics believe gold loans market holds immense potential in India and specialised NBFCswill continue to be a leading force in the segment over the next 4-5 years. These NBFCs are expected to be able tomaintain their commanding position in the space, work aggressively to increase their branch presence and brandimage, establish operations beyond South India and develop alternate product and fee based offerings for the largecustomer franchise.The following chart illustrates gold demand trends in India since 1991:Lending against gold is one of the popular instruments based on gold and it works well with Indian ruralhousehold’s mindset, which typically view gold as an important saving instrument that is liquid and can be intoconverted into cash instantly to meet any urgent expense needs. The market is very well established in the Southernstates of India, which account for the highest accumulated gold stock. Further, traditionally gold holders in SouthernIndia are more open to accept and exercise the option of pledging gold as compared to other regions in the countrywhich are reluctant to pledge jewellery or ornaments for borrowing money.Size and Potential of Gold Loans Market in IndiaThe organised gold loans market in India is estimated at around ` 350-400 billion in Fiscal 2010. At this size, theorganised gold loans market translates into 1.2% of the value of total gold stock in India and signifies a hugely underpenetrated market with a large potential. The organised segment has registered a growth of 35-45% and is expectedto continue growing at the same rate over the next few years and reach a portfolio size of ` 520-550 billion by Fiscal2011. [Source: Gold Loans Market in India 2010 - IMaCS Research and Analytics]79
There are no official estimates available on the size of this market which is marked with the presence of numerouspawnbrokers, money lenders and cooperative societies operating on a local level. These players are quite active inrural areas of India and provide loans against jewellery to families at interest rates in excess of 30 %. Theseoperators have a strong understanding of the local customer base and offer an advantage of immediate liquidity tocustomers in need, without requirements of any elaborate formalities and documentation. However, these players arelargely un-regulated leaving the customers vulnerable to exploitation at the hands of these moneylenders and pawnbrokers.Going forward, we believe that as organised players, particularly NBFCs, become more aggressive in thegold loans market, a significant part of the gold loans should shift from the un-organised lenders to the organisedlenders, thus fuelling a strong growth in the organised market. Further, the growth would be even higher if thecustomer attitude towards gold pledging becomes more positive aided by government regulations and aggressivepromotion by banks and finance companies. [Source: Gold Loans Market in India 2010 - IMaCS Research andAnalytics]A typical Gold Loan customer expects high loan-to-value ratios, easy access, low levels of documentation andformalities, quick approval and disbursal of loans, lockers to ensure safety of their pledged gold and a team of expertvaluers. Specialized NBFCs have created a niche in the Gold Loans capabilities by meeting these requirements ofthe typical gold loan customers, who require Gold Loans primarily to meet their urgent cash requirements[Source:Gold Loans Market in India 2010 - IMaCS Research and Analytics]NBFCs specializing in Gold Loans continue to perform strongly in the Gold Loans market and the overall statisticsdemonstrate that the relative share of traditional gold finance NBFCs in the market has not changed significantlyover the last three years. In fiscal 2010, the Gold Loans market was largely concentrated between two categories oflenders: south Indian based NBFCs specializing in Gold Loans which held approximately 32% and SCBs whichheld 58% of the total market. The rest of the Gold Loans portfolio was held by several small co-operative banks.[Source: Gold Loans Market in India 2010 - IMaCS Research and Analytics]Outlook of the Gold Loans Market in IndiaAs the market is currently under-penetrated, it is expected that the Gold Loans market will offer enoughopportunities for portfolio expansion and retain attractive margins for all existing specialised NBFCs, banks andnew entrants [Source: Gold Loans Market in India 2010 - IMaCS Research and Analytics]The branch expansion and marketing initiatives of various specialized NBFCs are anticipated to give a strong boostto the acceptability of gold loans and lead to further growth in the gold loans market. [Source: Gold Loans Market inIndia 2010 - IMaCS Research and Analytics]80
NBFCs in the Indian gold loans marketSource: Gold Loans Market in India 2010 - IMaCS Research and AnalyticsIn addition, it is anticipated that the large public sector banks in southern India will continue to be amongst theleading lenders, but considering the various regulatory and operational processes, it would be challenging for thebanks to match the flexible service regime of the specialised NBFCs (Source: Gold Loans Market in India 2010 -IMaCS Research and Analytics).New NBFC entrants in the market are currently in a cautious preparatory mode to enter the Gold Loans market but itwill take some time for these NBFCs to emerge as formidable competitors to specialized existing NBFCs. [Source:Gold Loans Market in India 2010 - IMaCS Research and Analytics]This is because it will take time for these new NBFCs to build the requisite focus, infrastructure (valuers, lockers,etc,) and branch network (Source: IMaCS Industry Report 2009). Specialized NBFCs are expected to continue tohold their share of the Gold Loans market with their ability to provide superior and niche servicing capabilities totheir existing and future customers. The following factors will be crucial in contributing to the continued growth ofspecialized NBFCs:• ability to maintain their strong hold in the southern India markets in terms of reach and customer services;• strengthening brand image in the target customer segments with a special emphasis on markets beyond thesouthern region in India;• developing related products such as education loans and offering fee based services such as moneytransfers or financial products distribution; and• capturing a strong market position in other regions of India, including in the northern and western regionsSource: Gold Loans Market in India 2010 - IMaCS Research and Analytics81
OUR BUSINESSFrost & Sullivan India Private <strong>Limited</strong> has used due care and caution in preparing the report titled “Analysis ofMSME Loan Markets for NBFCs – July 2011”. Information has been obtained from sources that Frost & SullivanIndia Private <strong>Limited</strong> considers reliable. However, Frost & Sullivan India Private <strong>Limited</strong> does not guarantee theaccuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for theresults obtained from the use of such information. No part of the said report may be published / reproduced in anyform without Frost & Sullivan India Private <strong>Limited</strong>’s prior written approval. Frost & Sullivan India Private<strong>Limited</strong> is not liable for investment decisions which may be based on the views expressed in the said report.OverviewOur Company is a deposit-accepting NBFC registered with RBI, offering (i) financing for two wheelers, appliancesand other commercial goods, (“Product <strong>Finance</strong>”), (ii) pre-owned and new vehicle loans, (iii) personal loans, (iv)loans against gold, and (v) loans to the small enterprise finance segment.Our current lines of business and organisational structure are as follows:According to the Frost and Sullivan report titled “Analysis of MSME Loan Markets for NBFCs – July 2011”, ourCompany is the largest small enterprise finance company in India. In the small loan segment (loans of `1 lakh -10lakh) our Company has a dominant share of 95%. Our Company also leads the total Indian micro, small and mediumenterprises market with 53 % share.Our Company was established in 1986 and we have a track record of twenty five years in the financial servicessector in India. Since 2005 we have focused on the retail financing segment. Our Company has been registered as adeposit-taking NBFC with the RBI since September 4, 2000 under Section 45IA of the Reserve Bank of India Act,1934.We are a part of the <strong>Shriram</strong> Group of companies which has a strong presence in financial services in India,including commercial vehicle financing, consumer finance, life and general insurance, stock broking, chit funds anddistribution of financial products such as life and general insurance products and mutual fund products, as well as agrowing presence in other businesses such as property development, engineering projects and informationtechnology.82
We leverage on the <strong>Shriram</strong> Group’s ecosystem to reach out to our prospective customers and our focus has been inmaximizing our association with the “<strong>Shriram</strong>” brand name and the synergies offered by the infrastructure, of otherentities in the <strong>Shriram</strong> Group. Our customer base over the years has significantly comprised of customers of otherentities in the <strong>Shriram</strong> Group. The large customer bases and wide-spread network of business outlets of entities suchas, <strong>Shriram</strong> Transport <strong>Finance</strong> Company <strong>Limited</strong>, (one of the largest organized asset financing NBFCs in India), andentities operating under the “<strong>Shriram</strong> Chits” brand name, has continued to provide us with a large platform of targetcustomers.Over the last 25 years our Company has established a pan-India presence, with 559 branches and 91 other businessoutlets as of March 31, 2011, across 17 states in India, with a significant presence in south India. As on March 31,2011, our total employee strength was 2,318. We operate in a ‘hub-and spoke’ business model, whereresponsibilities from loan origination to recoveries of loans are vested in each of our business outlets, under thegeneral supervision and control of our head office in Chennai. Our business outlet networks are interconnected andeach business outlet is connected to our head office through an ERP platform developed by Take Solution <strong>Limited</strong>,Chennai.We have demonstrated consistent growth in our business and in our profitability. Our Assets Under Managementhave grown by a compounded annual growth rate, or CAGR, of 46% from ` 250,686.49 lakhs as of March 31, 2007to ` 799,804.88 lakhs as of March 31, 2011. Our capital adequacy ratio as of March 31, 2011 computed on the basisof applicable RBI requirements was 20.53%, compared to the RBI stipulated minimum requirement of 15.00%. OurTier I capital as of March 31, 2011 was ` 119,419.00 lakhs. Our Gross NPAs as a percentage of Total Loan Assetswere 1.86% as of March 31, 2011. Our Net NPAs as a percentage of Net Loan Assets was 0.43% as of March 31,2011.Our total income increased from ` 34,805.91 lakhs in fiscal 2007 to ` 132,091.19 lakhs in fiscal 2011 at a CAGR of45%. Our net profit after tax increased from ` 5,162.16 lakhs in fiscal 2007 to ` 24,058.85 lakhs in fiscal 2011, at aCAGR of 50%. A summary of our assets under management, net non performing assets, total income and net profitafter tax for the corresponding periods specified below are as follows:ParticularsAssets UnderManagementNet Non performingassets` In LakhsAs at March As at March As at March As at March As at March31, 2007 31, 2008 31, 2009 31, 2010 31, 2011250,686.49 336,889.78 462,950.89 521,550.18 799,804.882,561.44 2,495.70 3,590.35 3,322.73 2,982.76For the For the For the For the For theFinancial Financial Financial Financial FinancialYear Ended Year Ended Year Ended Year ended year endedMarch 31, March 31, March 31, March 31, March 31,2007 2008 2009 20102011Total Income 34,805.91 62,318.76 93,393.75 110,284.71 132,091.19Net Profit after Tax 5,162.16 8,763.50 11,700.77 19,425.86 24,058.85Our StrengthsWe believe that the following are our key strengths:Diversified Portfolio of ProductsOur Company’s product portfolio comprises (i) Product <strong>Finance</strong> loans, (ii) pre-owned and new vehicles loans, (iii)personal loans, (iv) loans against gold, and (v) loans to small enterprise finance segment. Each of our productsdiffers in terms of the average tenor, average yield, average interest rates and average size of loan. As on March 31,2011 approximately 15 % of our Assets Under Management comprised product finance loans, 24 % of our AssetsUnder Management comprised vehicle loans, 9 % of our Assets Under Management comprised personal loans, 28 %83
of our Assets Under Management comprised loans against gold, and 24 % of our Assets Under Managementcomprised loans to small enterprise finance segment. Our diverse revenue streams reduce our dependence on anyparticular product, thus enabling us to spread and mitigate our risk exposure to any particular industry, business orcustomer segment.Pan-India Presence, Strong Foot-hold in Southern India and Synergies with Other <strong>Shriram</strong> Group EntitiesAs of March 31, 2011, we had 559 branches and 91 other business outlets across 17 states in India, with a significantpresence in south India. As on March 31, 2011, our total employee strength was 2,318. We have a strong foothold insouth India. We leverage on the <strong>Shriram</strong> Group’s ecosystem to solicit our customers and our focus has been inmaximizing our association with the “<strong>Shriram</strong>” brand name and the synergies offered by the infrastructure, of otherentities in the <strong>Shriram</strong> Group. Our customer base over the years has significantly comprised of customers of otherentities in the <strong>Shriram</strong> Group. The large customer bases and wide-spread network of business outlets of entities suchas, <strong>Shriram</strong> Transport <strong>Finance</strong> Company <strong>Limited</strong>, (one of the largest organized asset financing NBFCs in India), andentities operating under the “<strong>Shriram</strong> Chits” brand name, has continued to provide us with a large platform of targetcustomers. We believe the under-banked community, especially the small enterprise finance segment often do nothave sufficient movable and/or immovable property to provide as security or collateral for loans. Our relationshipand knowledge of customers’ requirements also enables us to minimize our risks while extending loans to suchunder-banked communities. For instance, loans provided to chit depositors of <strong>Shriram</strong> Chits, are partly or entirelysecured by the deposits made with <strong>Shriram</strong> Chits. <strong>Shriram</strong> Chits has several years of experience of collecting chitdeposits from self-employed professionals, wholesale/retail dealers, merchants, builders, manufacturers and smalland medium scale business operators, which provides us a with an extensive database of potential borrowers,specially for our loans to the small enterprise finance segment.Hub and Spoke Business Model with Efficient Credit Policies and ProceduresWe operate in a ‘hub-and spoke’ business model, where the responsibilities from loan origination to recoveries ofloans are vested in each of our business outlets, under the general supervision and control of our head office inChennai. Our business outlet networks are interconnected and each business outlet is connected to our head officethrough an ERP platform developed by Take Solution <strong>Limited</strong>, Chennai. The ERP platform enables ourmanagement to monitor each loan right from its origination to final closure of accounts.Our head office and senior management is primarily responsible for the broad policy formulation for our businesses.However, the decision making process in connection with loans is decentralized and majorly vested in our businessoutlets, which ensures speedy credit approvals and more efficient turn around times in processing loans.We focus on closely monitoring our assets and borrowers through our officials at each business outlet. Our branchofficials develop relationships with our target customer base, which enables us to capitalize on local knowledge. Wefollow stringent credit policies, including limits on customer exposure, to ensure the asset quality of our loans andthe security provided for such loans. Further, we have nurtured a culture of accountability by making our productexecutives responsible for loan administration and monitoring as well as recovery of the loans they originate. Wehave a dedicated team of officials at each business outlet who are responsible for (i) loan origination, (ii) creditevaluation, (iii) pre-lending field investigations where our officials personally visit our prospective customers attheir homes or offices, and (v) post lending credit appraisal. The team of officials responsible for origination of aloan is also responsible for the timely servicing of loans, recoveries, and monitoring the performance of each loanfrom origination to closure of the loan. We offer incentivized salary structures to such officials, where theirincentives are linked to recovery of installments of the principal amount and interest on the loans. We believe ourefficient credit policies, credit approval procedures, credit delivery process and relationship-based loanadministration and monitoring methodology have aided in increasing our customer loyalty and earn repeat businessand customer referrals.Our stringent credit policies and relationship based model has helped us maintain relatively low NPA levels. OurGross NPAs as a percentage of Total Loan Assets were 1.86 % as of March 31, 2011. Our Net NPAs as a percentageof Net Loan Assets was 0.43 % as of March 31, 2011.84
Access to a range of cost effective funding sourcesWe fund our capital requirements through a variety of sources. Our fund requirements are currently predominantlysourced through term loans from banks, issue of redeemable non-convertible debentures on a private placementbasis, and cash credit from banks including working capital loans. We access funds from a number of creditproviders, including nationalized banks, private Indian banks and foreign banks, and our track record of prompt debtservicing has allowed us to establish and maintain strong relationships with these financial institutions. We have alsoplaced commercial paper, as and when required in the past. As a deposit-taking NBFC, we are also able to mobilizeretail fixed deposits at competitive rates. We have also raised subordinated loans eligible for Tier II capital. We alsoundertake securitization/assignment transactions to increase the efficient use of our capital and as a cost effectivesource of funds.In relation to our long-term debt instruments, we currently have ratings of CARE AA from Credit Analysis andResearch <strong>Limited</strong> (“CARE”), AA-(ind) from Fitch Ratings India Private <strong>Limited</strong>, (“Fitch”) and CRISIL AA-/Stable from CRISIL. In relation to our short-term debt instruments, we have also received ratings of CARE A1+from CARE, F1+(ind) from Fitch, and CRISIL A1+ from CRISIL. Our fixed deposit programme has been rated asCARE AA (FD) by CARE, and tAA- (ind) by Fitch. The NCDs proposed to be issued under this Issue have beenrated CARE AA by CARE for an amount of upto ` 75,000 Lakhs vide its letter dated July 14, 2011, and CRISILAA-/Stable by CRISIL for an amount of upto ` 75,000 Lakhs vide its letter dated July 14, 2011. The rating of theNCDs by CARE indicates high degree of safety regarding timely servicing of financial obligations and carrying verylow credit risk. The rating of NCDs by CRISIL indicates high degree of safety regarding timely servicing offinancial obligations.We believe that we have been able to achieve a relatively stable cost of funds despite the difficult conditions in theglobal and Indian economy and the resultant reduced liquidity and an increase in interest rates, primarily due to ourimproved credit ratings, (as evidenced by the recent upgrade in our ratings by Fitch and CARE). We believe we areable to borrow from a range of sources at competitive rates.Experienced senior management teamOur Board consists of 12 Directors, (including representatives of the TPG Group), with extensive experience in thefinancial services sectors. Our senior and middle management personnel have significant experience and in-depthindustry knowledge and expertise. Our management promotes a result-oriented culture that rewards our employeeson the basis of merit. In order to strengthen our credit appraisal and risk management systems, and to develop andimplement our credit policies, we have hired a number of senior managers who have extensive experience in theIndian banking and financial services sector and in specialized finance firms providing loans to retail customers. Webelieve that the in-depth industry knowledge and loyalty of our management and professionals provide us with adistinct competitive advantage.StrategyOur key strategic priorities are as follows:Further expand operations by growing our business outlet network and introducing full range of products in allbusiness outletsWe intend to continue to strategically expand our operations in target markets establishing additional businessoutlets. Our customer origination and servicing efforts strategically focus on building long term relationships withour customers and address specific issues and local business requirements of potential customers in a particularregion. We have a strong concentration of our business in south India with 248 of our 559 branches as on March 31,2011, located in the states of Tamil Nadu, Andhra Pradesh and Karnataka. 91 % of our Assets Under Managementas on March 31, 2011 were represented by loans originated in the states of Tamil Nadu, Karnataka and AndhraPradesh. However, we have continued to make efforts to expand and penetrate into other regions in India.Currently, we have succeeded in opening business outlets in 17 different states in India. We propose to targetestablishing our operations through new business outlets in cities and towns where we historically had relativelylimited operations, such as in eastern and northern parts of India, and to further consolidate our position and85
operations in western and southern parts of India. Our focus would be to typically target Tier II and Tier III cities,where we believe that demand for our products will grow steadily in the near future.As an internal policy, we typically introduce our products in a particular location only after having evaluated theregional market and the demand for each individual product. Currently, not all of our business outlets offer our fullrange of products. As a part of our strategy we target to gradually introduce our entire range of product offerings,namely (i) Product <strong>Finance</strong> loans, (ii) pre-owned and new vehicles loans, (iii) personal loans, (iv) loans against gold,and (v) small enterprise finance segment at each of our existing business outlets across India.Continue growth in the Loans to Small Enterprises <strong>Finance</strong> SegmentOur Company started offering customized loans to small enterprises finance segment in 2006 and has continuallyfocused on expanding our customer base for this product since then. We see a significant opportunity for ourCompany to expand our customer base in small enterprise finance segment. According to the Frost and Sullivanreport titled “Analysis of MSME Loan Markets for NBFCs – July 2011”, our Company is the largest smallenterprise finance company in India. In the small loan segment (loans of `1 lakh -10 lakh) our Company has adominant share of 95 %. Our Company also leads the total Indian micro, small and medium enterprises market with53 % share. As a strategy, we will continue to leverage on the infrastructure provided by entities operating under the‘<strong>Shriram</strong> Chits’ brand name. <strong>Shriram</strong> Chits has several years of experience of collecting chit deposits from selfemployedprofessionals, wholesale/retail dealers, merchants, builders, manufacturers and small and medium scalebusiness operators, which provides us a with an extensive database of potential borrowers, specially for our loans tothe small enterprises segment. We also propose to extend such loans to our existing customer base for our otherproducts and propose to introduce small enterprises segment loans in all our current business outlets as well as innew business outlets that we open in the future.Increase focus on loans against gold businessSince 2007 we have been providing personal and business loans secured by gold jewellery and ornaments, primarilyto individuals who possess gold jewellery but do not have access to formal credit within a reasonable time, or towhom credit may not be available at all, to meet their short-term requirements. We propose to utilize our existingbusiness outlet networks, our existing customer base as well as the infrastructure offered by other <strong>Shriram</strong> Groupentities, to expand our reach and customer base for loans against gold. We expect to establish this product in newmarkets and to target potential customers using the <strong>Shriram</strong> Group’s eco-system, to include customers whootherwise continue to rely on the unorganized sector for timely funding requirements. We propose to capitalize onthe “<strong>Shriram</strong>” brand name and our good-will with our existing customers to further develop our business for thisproduct.Continue to implement advanced processes and systemsWe have invested in our technology systems and processes to create a stronger organization and ensure goodmanagement of customer credit quality. Our information technology strategy is designed to increase our operationaland managerial efficiency. We aim to increasingly use technology in streamlining our credit approval,administration and monitoring processes to meet customer requirements on a real-time basis. We continue toimplement technology led processing systems to make our appraisal and collection processes more efficient,facilitate rapid delivery of credit to our customers and augment the benefits of our relationship based approach. Wealso believe that deploying strong technology systems will enable us to respond to market opportunities andchallenges swiftly, improve the quality of services to our customers, and improve our risk management capabilities.Foray into Housing <strong>Finance</strong> BusinessOur Company incorporated a wholly owned subsidiary namely <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong> in November 2010,with a view of entering the housing finance sector. We have applied to National Housing Bank (wholly owned by theReserve Bank of India), for a certificate of registration under the National Housing Bank Act, 1987, to carry onbusiness of a housing finance institution. We believe that offering housing finance will help us expand our productportfolio and we are well positioned to enter into this business through our established infrastructure, our existingcustomer base as well as through leveraging our association with other entities in the <strong>Shriram</strong> Group. The aforesaidSubsidiary will commence operations once it is registered with the National Housing Bank. As a part of its strategy,<strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong> will typically target middle-income customers in semi-urban locations.86
Our Company’s ProductsProduct <strong>Finance</strong> LoanOur product finance loans comprise of two wheeler loans, loans for purchase of electrical appliances and other whiteand brown goods. The average tenor for our Product <strong>Finance</strong> loans is typically 24 months and the average yieldtypically ranges between 24-26%. As on March 31, 2011, the Assets Under Management for Product <strong>Finance</strong> loanswas ` 116,584.39 lakhs, which represented 15 % of our total Assets under Management as at that date.Pre-owned and New Vehicle LoansOur Company offers a variety of loans to finance the purchase of new and pre-owned passenger and commercialvehicles includes three wheelers, four wheelers, used and new cars. Our financing products are principally targetedat the financing of new passenger and commercial vehicles, although we also provide financing for pre-ownedpassenger and commercial vehicles. Our Company’s executives are stationed at the showrooms of various passengerand commercial vehicle dealers and are responsible right from bringing in the customer, credit verification and loanorigination to recovery of the loan. The average tenor for our vehicle loans is typically 30 months and the averageyield typically ranges between 22-24%. As on March 31, 2011, the Assets Under Management for vehicle loans was` 193,530.59 lakhs, which represented 24 % of our total Assets Under Management as at that date.Personal LoansWe provide personal loans to our existing and old customers as well as to customers of other <strong>Shriram</strong> Group entities.Our officials reach out directly to our personal loan customers and visit them at their doorstep to carry out loanorigination and credit evaluation, so as to ensure speedy processing of loans. We target customer segments who donot have easy access to bank or other modes of financing for immediate short or medium term funding requirements,within reasonable time or at all. The average tenor for such loans is typically 30 months with average yieldstypically ranging between 24-27%. As on March 31, 2011, the Assets Under Management for personal loans was `71,548.15 lakhs, which represented 9 % of our total Assets Under Management as at that date. .Loans against GoldSince 2007 we have been providing personal and business loans secured by gold jewellery and ornaments, primarilyto individuals who possess gold jewellery but do not have access to formal credit within a reasonable time, or towhom credit may not be available at all, to meet their short-term requirements. Our gold loans are for an averagetenure of 4 months and provide a typical average yield of 18-20%. As on March 31, 2011, the Assets UnderManagement for loans against gold was ` 220,472.81 lakhs, which represented 28 % of our total Assets UnderManagement as at that date. .Small Enterprise <strong>Finance</strong> SegmentOur Company started offering customized loans to small enterprises segment in 2006 and we have continuallyfocused on expanding our customer base for this product since then. According to the Frost and Sullivan report titled“Analysis of MSME Loan Markets for NBFCs – July 2011”, our Company is the largest small enterprise financecompany in India. In the small loan segment (loans of `1 lakh -10 lakh) our Company has a dominant share of 95 %.Our Company also leads the total Indian micro, small and medium enterprises market with 53 % share.Currently, our Company offers business loans to the small enterprises segment for an average tenor of 36 monthsand an average yield of 22-24%. Our target customers in the small enterprises segment typically comprises selfemployedprofessionals, wholesale and retail dealers, merchants, builders, small and medium scale manufacturingconcerns, catering services, tour operators, etc. Our small enterprises segment is typically customized to suit therequirements of our customers after having assessed and understood their business model. As on March 31, 2011,87
the Assets Under Management for loans to the small enterprises finance segment was ` 195,329.92 lakhs, whichrepresented 24 % of our total Assets Under Management as at that date.We believe that the small enterprises finance segment is still under banked to a large extent and barring certainpublic financial institutions and public sector banks, lending in this sector has traditionally been addressed by theunorganized players in most regions in India. Accordingly, we see a significant opportunity for our Company toexpand our customer base in small enterprises segment.The <strong>Shriram</strong> Group, particularly <strong>Shriram</strong> Chits has a large number of customers under the small enterprisessegment. Our Company does business with various vendors and dealers of <strong>Shriram</strong> Group. We plan to tap thispotential small enterprises segment and increase the size of our small enterprises segment portfolio by continuing tooffer customized products to our target customers.Our Company’s OperationsBusiness Outlet NetworkAs of March 31, 2011, we had a wide network of 559 branches and 91 other business outlets across India and 2,318employees, across 17 states in India. We have a strong concentration of our business in south India in the states ofTamil Nadu, Andhra Pradesh and Karnataka. We propose to target establishing our operations through new businessoutlets in cities and towns where we historically had relatively limited operations, such as in eastern and northernparts of India, and to further consolidate our position and operations in western and southern parts of India. As aninternal policy, we typically introduce our products in a particular location only after having evaluated the regionalmarket and the demand for each individual product. Currently, not all of our business outlets offer our full range ofproducts. As a part of our strategy we target to gradually introduce our entire range of product offerings at each ofour existing business outlets across India.A typical business outlet comprises 3 to 6 employees, including the branch manager. As of March 31, 2011, all ofour business outlets were connected to servers at our corporate office to enable real time information with respect toour loan disbursement and recovery administration. Our customer origination efforts strategically focus on buildinglong term relationships with our customers, address specific issues and local business requirements of potentialcustomers in a specific region.Strategic PartnershipsSince the retail financing and Small Enterprise <strong>Finance</strong> Segment continue to be influenced by the unorganizedlending sector in semi-urban regions, we from time to time, enter into agreements and memorandum ofunderstanding with local private financiers to cater to such markets. Currently, we have entered into a memorandumof understanding dated January 2, 2010 with M/s. Hari & Company Investment Madras Private <strong>Limited</strong>, (“HAC”),whereby HAC identifies the prospective customers desirous of availing finance, verifies the credit worthiness ofsuch customers, evaluates the loan proposals, disburses the loan amounts, obtains all necessary documentation inconnection with the loan proposal, collects installments and penalties for all customers, assists in creation of thecharge in connection with the loan and follows up on recovery of loan amounts, repossession of assets and/orenforcement of the security interest on such loans. Our Company in turn provides the necessary funds for financingthe target customers and maintains the policy and procedures and banking transactions in connection with suchloans. The aforesaid memorandum of understanding is valid for a period of five years. HAC is entitled to anincentivized revenue sharing based payment in connection with each loan originated and serviced by HAC.Customer Evaluation, Credit Appraisal and DisbursementInitial EvaluationDue to our customer profile, in addition to a credit evaluation of the borrower, we rely on guarantor arrangements,the availability of security, referrals from existing relationships and close client relationships in order to manage ourasset quality.88
All customer origination and evaluation, loan disbursement, loan administration and monitoring as well as loanrecovery processes are carried out by our executives at each business outlet, who are responsible for (i) loanorigination, (ii) credit evaluation, (iii) pre-lending field investigations and (iv) post lending credit appraisal. Theteam of officials responsible for origination of a loan is also responsible for the timely servicing of loans, recoveries,and monitoring performance of each loan from origination to closure of the loan. We offer incentivized salarystructures to such officials where their incentives are directly linked to recovery of installments of the principalamount and interest on the loans. We do not utilize or engage direct selling or other marketing and distributionagents or appraisers to carry out these processes. We follow certain procedures for the evaluation of thecreditworthiness of potential borrowers. The credit appraisal process is as follows:When a customer is identified and the requisite information for a financing proposal is received, a branch manageror our branch executive personally visits such customer at their homes and/or place of business to assess the loanrequirements and creditworthiness of such customer. We also require an applicant to provide appropriate referencesfrom existing or former customers. The proposal form requires the customer to provide information on the age,address, employment details and annual income of the customer, as well as information on outstanding loans. Theapplicant is required to provide proof of identification and residence for verification purposes. Generally, where thecustomer is unable to provide sufficient immovable or movable property to secure the entire value of the loan, theapplicant is also required to furnish a guarantee from an existing or a former customer. Detailed information relatingto such guarantor is also required to be provided.Credit policiesWe follow stringent credit policies to ensure the asset quality of our loans and the security provided for such loans.Any deviation from such credit policies in connection with a loan application requires prior approval from our headoffice. In connection with a customer who is also an existing customer of ‘<strong>Shriram</strong> Chits’ we generally create a lienover the chit deposits of such customer. If the value of the chit deposits is in-sufficient to cover the entire loanamount, we generally also require immovable or movable property to be provided for the remaining value of theloan amount. In cases where the customer is unable to provide such immovable or movable property as security, theapplicant is also required to furnish a guarantee from an existing or a former customer. For our two-wheeler andvehicle loans, the two-wheeler/vehicle is hypothecated in favour of our Company for the tenure of the loan. Fromtime to time, our management lays down loan approval parameters which are linked to the value of the underlyingsecurity and/or collateral. The borrower is charged prepayment charges in the event of termination of the loan byprepayment. Security received from the borrower, including unutilized post-dated cheques, if any, is released onrepayment of all dues or on collection of the entire outstanding loan amount, provided no other existing right or lienfor any other claim exists against the borrower.Approval ProcessAfter having verified the credentials of an applicant, our branch executive is responsible for signaling any earlywarning signals to the relevant branch manager and the disbursement team.The branch manager evaluates the loan proposal based on supporting documentation and various other factors. Theprimary criterion for approval of a loan proposal is based on the past reference of the prospective customer eitherfrom an existing or a past customer of our Company or of another <strong>Shriram</strong> Group entity, report of our branchexecutive and guarantee if required furnished by the customer. In addition, our branch managers may also considerother factors in the approval process such as the location and the time period of residence, past repayment recordand income sources.The branch manager is authorized to approve a loan if the proposal meets the criteria established for the approval ofa loan. The applicant is intimated of the outcome of the approval process, as well as the amount of loan approved,the terms and conditions of such financing, including the rate of interest (annualized) and the application of suchinterest during the tenure of the loan.DisbursementMargin money and other charges are collected prior to loan disbursements. The disbursing officer retains evidenceof the applicant’s acceptance of the terms and conditions of the loan as part of the loan documentation. For vehicle89
loans and two-wheeler loans, a chassis print of the vehicle is also obtained and maintained in the loan file. Therelevant Regional Transport Office (RTO) endorsement forms are also required to be executed by the borrower priorto the disbursement of the loan.Prior to the loan disbursement, the loan officer ensures that a Know Your Customer checklist is completed by theapplicant. The loan officer verifies such information provided and includes the records in the relevant loan file. Theloan officer is also required to ensure that the contents of the loan documents are explained in detail to the borrowereither in English or in the local language of the borrower and a statement to such effect is included as part of theloan documentation. The borrower is provided with a copy of the loan documents executed by him. Although ourcustomers have the option of making payments by cash or cheque, we may require the applicant to submit postdatedcheques covering an initial period prior to any loan disbursement.Loan administration and monitoringThe borrower (and guarantor, if required) execute(s) the security creation documents and the loan agreement settingout the terms of the loan. A loan repayment schedule is attached as a schedule to the loan agreement, whichgenerally sets out periodical repayment terms. Repayments are made in periodical installments. Loans disbursed arerecovered from the customer in accordance with the loan terms and conditions agreed with the customer. We trackloan repayment schedules of our customers, on a monthly basis, based on the outstanding tenure of the loans, thenumber of installments due and defaults committed, if any. This data is analyzed based on the loans disbursed andlocation of the customer. The official originating the loan is responsible for monitoring the quality of the underlyingsecurity and/or collateral and timely repayment of loans. Typically, the loan official’s remuneration is incentivizedand linked to the recovery of installments from the customer.Our management information systems department operates out of our head office and monitors compliance with theterms and conditions for credit facilities through our ERP system. We monitor the completeness of documentation,creation of security etc. through regular visits to the business outlets by our regional as well as head officeexecutives and internal auditors. All borrower accounts are reviewed at least once a year, with a higher frequency ofreviews for the larger exposures and delinquent borrowers. The branch managers review collections regularly andpersonally contact borrowers that have defaulted on their loan payments. Branch managers are assisted by theofficers responsible for loan origination, who are also responsible for the collection of installments from eachborrower serviced by them. We believe that close monitoring of debt servicing efficiency enables us to maintainhigh recovery ratios.Collection and RecoveryWe believe that our loan recovery procedure is particularly well-suited to our target market for each of our products.The entire collection operation is administered in-house through our branch officials and we do not outsource loanrecovery and collection operations. In case of default, the reasons for the default are identified by the officerresponsible for each loan and appropriate action is initiated, such as requiring partial repayment and/or seekingadditional guarantees or collateral.In the event of a default on three loan installments, the relevant officer is required to make a personal visit to theborrower to determine the gravity of the loan recovery problem.We may initiate the process for repossession of the underlying asset and/or enforcement of the charge if required.Our officers are trained to repossess assets and/or enforce the security interest and no external agency is involved insuch processes. Repossessed assets are held at designated secured facilities for eventual disposal. The notice to thecustomer specifies the outstanding amount to be paid within a specified period, failing which the asset may bedisposed of and/or the charge enforced. In the event there is a short fall in the recovery of the outstanding amountfrom enforcement of the charge, legal proceedings against the customer may be initiated.Asset QualityWe maintain our asset quality through the establishment of prudent credit norms, the application of stringent creditevaluation tools, limiting customer and security exposure and direct interaction with customers. In addition to ourcredit evaluation and recovery mechanism, our asset-backed lending model and adequate asset cover has helped90
maintain low gross and net NPA levels. Our historical Assets Under Management for each segment and Net NPAsof our business have been as follows:ParticularsAssets UnderManagement forProduct <strong>Finance</strong>Loan LoansAssets UnderManagement forVehicle LoansAssets UnderManagement forPersonal LoansAssets UnderManagement forLoans Against GoldAssets UnderManagement forSmall Enterprise<strong>Finance</strong> SegmentLoansOther Assets UnderManagementTotal Assets UnderManagementNet Nonperforming assets` In LakhsAs at March As at March As at March As at March As at March31, 2007 31, 2008 31, 2009 31, 2010 31, 201173,904.25 1,38,519.97 98,219.95 79,422.24 1,16,584.391,25,459.69 1,01,631.66 2,14,126.71 2,07,372.26 1,93,530.5923,337.61 37,814.52 39,755.51 49,785.79 71,548.151,519.19 13,436.18 34,751.82 85,478.36 2,20,472.8124,157.05 4,35,85.85 70,294.50 99,197.48 1,95,329.922,308.70 1,901.60 5,802.41 294.05 2,339.012,50,686.49 3,36,889.78 4,62,950.89 5,21,550.18 7,99,804.882,561.44 2,495.70 3,590.35 3,322.73 2,982.76Classification of AssetsThe Prudential Norms Directions, 2007, read with the NBFC Acceptance of Public Deposits Directions, 1998, asamended, prescribed by the RBI, among other matters, require us to observe the classification of our asset; treatmentof NPAs; and provisioning against NPAs.An asset is termed as an NPA if interest or installments of the principal amount remain overdue for a period of 180days or more. Each deposit-accepting NBFC is required to classify its lease/hire purchase assets, loans, advancesand other forms of credit into the following classes, namely:Standard assets: An asset in respect of which no default in repayment of principal or payment of interest isperceived and which does not disclose any problem nor carry more than normal risk attached to the business.Sub-standard assets: An asset will be classified as an NPA for a period not exceeding 18 months or where the termsof the agreement regarding interest and / or principal have been renegotiated or rescheduled after commencement ofoperations, until the expiry of one year of satisfactory performance under the renegotiated or rescheduled terms.Doubtful assets: An asset which remains a sub-standard asset for a period exceeding 18 months.Loss assets (a) An asset which has been identified as loss asset by the NBFC or its internal or external auditor or bythe RBI during the inspection of the NBFC, to the extent that it is not written off by the NBFC; and (b) an assetwhich is adversely affected by a potential threat of non-recoverability due to either erosion in the value of security ornon availability of security or due to any fraudulent act or omission on the part of the borrower.91
For further information on the Prudential Norms Directions, 2007, refer to the section titled “Regulations andPolicies” beginning on page 175 this Prospectus.Our Audit Committee has constituted a policy for making provisions in excess of the amounts prescribed by RBIand we may make further provisions if we determine that it is prudent for a known and identified risk. Based on ourpolicy our provisions as of March 31, 2011 stood at ` 9,983.42 lakhs as compared to the RBI required minimumprovision of ` 9,249.10 lakhs.The following table sets forth, as of the dates indicated, data regarding our NPAs:Period Gross NPA (`in lakhs)March 31,2007March 31,2008March 31,2009March 31,2010March 31,2011Net NPA (` inlakhs)Total LoanAssets (` inlakhs)Net LoanAssets (1) (` inlakhs)% of GrossNPA to TotalLoan Assets% of NetNPA to NetLoan Assets4,040.66 2,561.44 171,048.30 169,569.09 2.36 1.514,228.66 2,495.70 274,857.78 273,124.82 1.54 0.917,784.03 3,590.35 375,395.10 371,201.42 2.07 0.9710,753.30 3,322.73 473,135.02 465,704.45 2.27 0.7112,966.18 2,982.76 698,919.09 688,935.67 1.86 0.43Our Gross NPAs as a percentage of Total Loan Assets were 1.86% as of March 31, 2011. Our Net NPAs as apercentage of Net Loan Assets was 0.43% as of March 31, 2011. We believe that our eventual write-offs arerelatively low because of our relationship based customer origination and customer support, prudent loan approvalprocesses, including adequate collateral being obtained and our ability to realize such collateral in a timely manner.Funding SourcesWe have expanded our sources of funds in order to reduce our funding costs, protect interest margins and maintain adiverse funding portfolio. This will enable us to achieve funding stability and liquidity. Our sources of fundingcomprise term loans including term loans from banks and financial institutions, cash credit from banks, redeemablenon-convertible debentures on a private placement basis, subordinated bonds, short term commercial paper, publicdeposits, and inter-corporate deposits.BorrowingsThe following table sets forth the principal components of our secured loans as of the dates indicated:As of March 31` In LakhsSECURED LOANS 2007 2008 2009 2010 2011Redeemable non-convertibledebentures60,968.50 69,106.39 127,741.10 154,073.77 219,877.64Term loans:- Term loans from banks 41,453.74 115,755.02 143,562.74 104,634.17 295,677.28- Term loans from financialinstitutions, and corporate1,161.00 10,513.00 9,426.40 9,530.00 6,500.00Cash credit from banks includingworking capital demand loans26,800.92 67,420.99 109,715.19 145,372.61 134,896.0992
The following table sets forth the principal components of our unsecured loans as of the dates indicated:As of March 31,` In LakhsUNSECURED LOANS 2007 2008 2009 2010 2011Fixed deposits 379.98 165.67 112.80 100.74 55.10Inter-corporate depositsSubordinated debtNil19,866.29925.0028,036.78Nil41,718.53Nil53,002.95Nil53,272.33Redeemable non-convertible debentures Nil 3,500.00 Nil Nil NilCommercial paper Nil 4,500.00 Nil Nil 22,500Term loans:- Term loans from banks Nil Nil Nil Nil Nil- Term loans from corporate Nil Nil Nil Nil NilIncreasingly, we have depended on the issue of redeemable non-convertible debentures on a private placement basis,term loans from banks, term loans from financial institutions and corporates and cash credit from banks includingworking capital demand loans as the primary sources of our funding. We believe that we have developed stable longterm relationships with our lenders, and established a track record of timely servicing of our debts, and have beenable to secure fixed rate long term loans of three to five years tenure to stabilize our cost of borrowings.In fiscal 2011, total repayment of bank borrowings was ` 92,866.16 lakhs. As of March 31, 2011, loans from banksaggregated ` 430,573.37 lakhs, as compared to ` 250,006.78 lakhs as of March 31, 2010.In fiscal 2011, net redemption of redeemable non-convertible debentures was ` 76,112.67 lakhs. As of March 31,2011, the aggregate outstanding amount of secured redeemable non-convertible debentures was ` 219,877.64 lakhsas compared to ` 154,073.77 lakhs as of March 31, 2010.Our short term fund requirements are primarily funded by cash credit from banks including working capital loans.Cash credit from banks including working capital loans outstanding as of March 31, 2011 was ` 134,896.09 lakhs.As of March 31, 2011 our outstanding subordinated debt amounted to ` 53,272.33 lakhs, compared to ` 53,002.95lakhs as of March 31, 2010. The debt is subordinated to our present and future senior indebtedness. Based on thebalance term to maturity, as of March 31, 2011, ` 28,712 lakhs of the discounted book value of subordinated debt isconsidered as Tier II under the guidelines issued by the RBI for the purpose of capital adequacy computation.As of March 31, 2011, outstanding commercial paper amounted to ` 22,500 lakhs.We are registered as a deposit-taking NBFC with the RBI under Section 45IA of the Reserve Bank of India Act,1934, which authorizes us to accept deposits from the public. We do not, however, depend on deposits as ourprimary source of funding. As of March 31, 2011, we had fixed deposits outstanding of ` 55.10 lakhs, compared to `100.74 lakhs as of March 31, 2010, respectively.Securitization/assignment of Portfolio against financing activitiesWe also undertake securitization/assignment transactions to increase and efficiently utilize our capital, and as a costeffective source of funds. We sell part of our assets under financing activities from time to time throughsecuritization transactions as well as through direct assignment transactions. Our securitization/assignmenttransactions involve provision of additional collateral and deposits or bank/ corporate guarantee.In fiscal 2011, total book value of Loan Assets securitized/assigned was ` 117,915.72 lakhs.93
We continue to provide administration services for the securitized/assigned portfolio, the expenses for which areprovided for, at the outset of each transaction. The gains arising out of securitization/assignment, which varyaccording to a number of factors such as the tenor of the securitized/assigned portfolio, the yield on the portfoliosecuritized/assigned and the discounting rate applied are treated as income over the tenure of agreements as per RBIguidelines on securitization of standard assets. Loss, if any, is recognized upfront.The following tables set forth certain information with respect to our securitization/assignment transactions:Total number of Loan Assetssecuritized/assignedTotal book value of Loan Assetssecuritized/assignedSale consideration received forsecuritized/assigned assetsGain on account ofsecuritization/assignmentFor the Financial Year Ended March 31,` In Lakhs2007 2008 2009 2010 2011438,457.00 398,691 314,685 146,402.00 178,502.0080,493.74 75,781.80 88,844.37 30,000.00 117,915.7291,302.42 83,539.14 91,874.15 30,000.00 126,737.0110,808.68 7,757.34 13,182.64 2,554.73 27,163.76As on March 31` In Lakhs2007 2008 2009 2010 2011-Fixed Deposit 5,711.93 46,95.88 10,017.54 7,373.57 15,436.40-Guarantees given by third16.69 - 3,117.77 1,942.77 1,942.77partiesWe are required to provide credit enhancement for the securitization/assignment transactions by way of either fixeddeposits or corporate guarantees and the aggregate credit enhancement amount outstanding as on March 31, 2011was ` 1,5436.40 lakhs. In the event a relevant bank or institution does not realize the receivables due under suchLoan Assets, such bank or institution would have recourse to such credit enhancement.Capital AdequacyWe are subject to the capital adequacy ratio (“CAR”) requirements prescribed by the RBI. We are currently requiredto maintain a minimum CAR of 15.00%, as prescribed under the Prudential Norms Directions, 2007, based on ourtotal capital to risk-weighted assets. As per RBI notification dated February 17, 2011, all deposit taking NBFCs haveto maintain a minimum capital ratio, consisting of Tier I and Tier II capital, which shall not be less than 15.00% ofits aggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet items w.e.f. March31, 2012. As a part of our governance policy, we ordinarily maintain capital adequacy higher than the statutorilyprescribed CAR. As of March 31, 2011, our capital adequacy ratio computed on the basis of applicable RBIrequirements was 20.53%, compared to the minimum capital adequacy requirement of 15.00% stipulated by the RBI.The following table sets out our capital adequacy ratios computed on the basis of applicable RBI requirements as ofthe dates indicated:Credit RatingThe following table sets forth certain information with respect to our credit ratings as on the date of this DraftProspectus:94As of March 31,2007 2008 2009 2010 2011Capital adequacy ratio23.95 20.25 25.74 26.28 20.53(%)……………………………………………………….Tier 1 capital……………………………………………. 29,464.00 39,265.00 70,662.00 98,585.00 1,19,419.00
Credit RatingAgencyCAREInstruments Ratings Limit in ` LacsNon ConvertibleDebenturesCARE AA 27,500CARE Fixed Deposit CARE AA(FD) 1,000CARE Short Term Debt CARE A1+ 37500CRISILNon ConvertibleDebenturesCRISIL AA- / STABLE2,000CRISIL Short Term Debt CRISIL A1 + 32,000Fitch Long Term Rating AA-(ind) 75,000Fitch Long Term Bank Loans AA-(ind) 5,35,600Fitch Term Deposit Programme tAA-(ind) 800Fitch Short Term F1+(ind) 40,000The NCDs proposed to be issued under this Issue have been rated CARE AA by CARE for an amount of upto `75,000 Lakhs vide its letter dated July 14, 2011, and CRISIL AA-/Stable by CRISIL for an amount of upto ` 75,000Lakhs vide its letter dated July 14, 2011. The rating of the NCDs by CARE indicates high degree of safety regardingtimely servicing of financial obligations and carrying very low credit risk. The rating of NCDs by CRISIL indicateshigh degree of safety regarding timely servicing of financial obligations.Risk ManagementWe have developed a strong risk-assessment model in order to maintain adequate asset quality. The key risks andrisk-mitigation principles we apply to address these risks are summarized below:Interest Rate RiskOur results of operations are dependent upon the level of our net interest margins. Net interest income is thedifference between our interest income and interest expense. Since our balance sheet consists of rupee assets andpredominantly rupee liabilities, movements in domestic interest rates constitute the primary source of interest raterisk. We assess and manage the interest rate risk on our balance sheet through the process of asset liabilitymanagement. We borrow funds at fixed and floating rates of interest, while we extend credit at fixed rates. In theabsence of proper planning and in a market where liquidity is limited, our net interest margin may decline, whichmay impact our revenues and ability to exploit business opportunities.We have developed stable long term relationships with our lenders, and established a track record of timelyservicing our debts. This has enabled us to become a preferred customer with most of the major banks and financialinstitutions with whom we do business. Moreover, our valuation capabilities enable us to invest in good qualityassets with stable, attractive yields. Some of our loans are classified as priority sector assets by the RBI, which whensecuritized, find a ready market with various financial institutions, including our lenders.Liquidity RiskLiquidity risk arises due to non-availability of adequate funds or non-availability of adequate funds at an appropriatecost, or of appropriate tenure, to meet our business requirements. This risk is minimized through a mix of strategies,including asset securitization/assignment and temporary asset liability gap.95
We monitor liquidity risk through our Asset Liability Management (“ALM”) function with the help of liquidity gapreports. This involves the categorization of all assets and liabilities into different maturity profiles, and evaluatingthese items for any mismatches in any particular maturities, especially in the short-term. The ALM policy hascapped the maximum mismatches in the various maturities in line with RBI guidelines and ALCO guidelines.To address liquidity risk, we have developed expertise in mobilizing long-term and short-term funds at competitiveinterest rates, according to the requirements of the situation. For instance, we structure our indebtedness toadequately cover the average three-year tenure of loans we extend. As a matter of practice, we generally do notdeploy funds raised from short term borrowing for long term lending.Credit riskCredit risk is the risk of loss that may occur from the default by our customers under the loan agreements with us.As discussed above, borrower defaults and inadequate collateral may lead to higher NPAs.We lend on a relationship-based model, and we believe that our high loan recovery ratios indicate the effectivenessof this approach for our target customer base. We also employ advanced credit assessment procedures, whichinclude verifying the identity and checking references of the proposed customer thoroughly at the lead generationstage. Our extensive local presence also enables us to maintain regular direct contact with our customers. In thisregard, we assign personal responsibility to each member of the lead generation team for the timely recovery of theloans they originate, closely monitoring their performance against our Company's standards, and maintain clientwise exposure limits.EmployeesAs of March 31, 2011 our total employee strength was 2,318.We have built a highly capable workforce primarily by recruiting and training fresh graduates. As our businessmodel does not require extensive background in banking or the financial services industry, we prefer to hire andtrain fresh graduates in the particular operational aspects of our business. Moreover, we prefer to hire our workforcefrom the locality in which they will operate, in order to benefit from their knowledge of the local culture, language,preferences and territory. We emphasize both classroom training and on-the-job skills acquisition. Post recruitment,an employee undergoes induction training to gain an understanding of our Company and our operations. Our productexecutives are responsible for customer origination, loan administration and monitoring as well as loan recovery andthis enables them to develop strong relationships with our customers. We believe our transparent organizationalstructure ensures efficient communication and feedback and drives our performance-driven work culture.In a business where personal relationships are an important driver of growth, executive attrition may lead to loss ofbusiness. We therefore endeavor to build common values and goals throughout our organization, and strive to ensurea progressive career path for promising employees and retention of quality intellectual capital in our Company. Weprovide a performance-based progressive career path for our employees. For instance, we introduced two employeestock option plans for eligible employees at branch manager level and above. We believe our attrition rates areamong the lowest in the industry at managerial levels.Intellectual PropertyPursuant to a License Agreement dated April 1, 2010 between our Company and <strong>Shriram</strong> Ownership Trust,(“SOT”), we are licensed to use the name "<strong>Shriram</strong>" and the associated mark for which our Company has to pay toSOT, 0.25% on the gross turnover of our Company for the first year of the License Agreement. Royalty rates for thesubsequent years will be decided mutually on or before April 1 st of the respective financial years. Along with theroyalty, our Company is also required to pay to SOT amounts by way of reimbursement of actual expenses incurredby SOT in respect of protection and defence of the Copyright. The License Agreement is valid for a period of threeyears from the date of execution thereof.96
TechnologyWe use information technology as a strategic tool in our business operations to improve our overall productivity. Webelieve that our information systems enable us to manage our nationwide operations network well and to effectivelymonitor and control risks.All our business outlets are online, connected through an ERP software developed by Take Solution <strong>Limited</strong>Chennai and all our business outlets with our Central Server located at Chennai.PropertyOur registered office is at 123, Angappa Naicken Street, Chennai -600001, Tamil Nadu, India. Our corporateoffice is at 221, Royapettah High Road, Mylapore, Chennai- 600004, Tamil Nadu, India. As of March 31, 2011, wehad 559 branches and 91 other business outlets across India. We enter into lease and/or leave and license agreementsin connection with the premises required for our business outlet.CollaborationsExcept as disclosed herein, our Company has not entered into any collaboration, any performance guarantee orassistance in marketing by any collaborators.97
Brief background of our CompanyHISTORY, MAIN OBJECTS AND KEY AGREEMENTSOur Company was incorporated as a private limited company, <strong>Shriram</strong> Hire-Purchase <strong>Finance</strong> Private <strong>Limited</strong>, onMarch 27, 1986, under the provisions of the Companies Act, 1956. Further with effect from October 29, 1988, thestatus of our Company was changed to a public limited company. The name of our Company was changed from<strong>Shriram</strong> Hire-Purchase <strong>Finance</strong> <strong>Limited</strong> to <strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong> and a fresh certificate of incorporationdated April 10, 1990 was issued by the ROC, Chennai, Tamil Nadu. Subsequently, our Company has obtained acertificate of registration as a Deposit-Accepting Financing Company, dated April 17, 2007, bearing registration no.07-00458 issued by the RBI to carry on activities of a NBFC under section 45 IA of the RBI Act, 1934.Change in registered office of our CompanyThere has been no change in the registered office of our Company in the last five years preceding the date of this DraftProspectus.Main objects of our CompanyThe main objects of our Company as contained in our Memorandum of Association are:• To lend money on security on movable or immovable properties or any shares or securities of any nature orwithout security and to negotiate loans.• To Undertake and carry on the business of financing, hire-purchase contracts relating to property or assets ofany description either fixed or movable and in particular relating to Houses, Lands, Government Bonds,Goods, Chattels, Motorcars, Motor-Buses, Motor-lorries, Auto-Rickshaws, Omnibuses, Tricycles, Scooters,Bicycles, Unicycles, Quadricycles, Velocipedes, Carriages and Vehicles of all kinds whether mechanicallypropelled by steam, oil, gas, petrol or electricity or otherwise, Tractors, bullion, stocks, Shares, television sets,machineries of all kinds, pump-sets, refrigerators, electric and electronic goods and on other householdarticles.• To draw, accept, endorse, discount, buy, sell and deal in bills of exchange, promissory notes, bondsDebentures and other negotiable instruments and securities.• To issue on commission, subscribe for, take acquire and hold, sell, exchange and deal in Shares, stock, bonds,obligations or securities of any Government, local authority or Company.• To acquire, improve, manage, work, develop, exercise all rights in respect of leases and mortgages and to sell,dispose of, turn to account and otherwise deal with property of all kinds, and in particular, land,buildings, concessions, patents, business concerns and undertakings.• Generally to carry on and undertake any business or operation, commonly carried on or undertaken bycapitalists, financiers.• To borrow or take deposits of money at interest or otherwise from any person or persons, local authority ofGovernment and advance, lend or deposit any such money or other moneys of the Company for the time beingon such security or otherwise as the Company may deem expedient. But the Company shall not do anybanking business, as defined in the Banking Regulations Act, 1949.• The Company shall either singly or in association with other Bodies Corporate-act as Asset ManagementCompany/ Manager/ Fund Manager in respect of any scheme of Mutual Fund whether Open-End Scheme orClosed-End Scheme, floated/to be floated by any Trust/Mutual Fund (whether offshore or onshore)/Companyby providing management of Mutual Fund for both offshore and onshore Mutual Funds, Financial Servicesconsultancy, exchange of research and analysis on commercial basis. Constitute any trust and to subscribe and98
act as, and to undertake and carry on the office or offices and duties of trustees, custodian trustees, executors,administrators, liquidators, receivers, treasures, attorneys, nominees and agents; and to manage the funds of allkinds of trusts and to render periodic advice on investments, finance, taxation and to invest these funds fromtime to time in various forms of investments including shares, term loans and debentures etc. Carry on andundertake the business of portfolio investment and Management, for individuals as well as large CorporateBodies and/or such other bodies as approved by the Government, in Equity Shares, Preference Shares, Stock.Debentures (both convertible and non-convertible), Company deposits, bonds unit. loans, obligations andsecurities issued or guaranteed by Indian or Foreign Governments, States, Dominions, Sovereigns,Municipalities or Public Authorities and/or any other financial instruments, and to provide a package ofInvestment/Merchant Banking Services by acting as Managers to Public issue of securities, to act asunderwriters, issue house and to carry on the business of Registrar to Public issue/various investment schemesand to act as Brokers to Public Issue. Without prejudice to the generality of the foregoing to acquire anyshares, stocks, debentures, debenture-stock, bonds, units of any Mutual Fund Scheme or any other statutorybody including Unit Trust of India, obligations or securities by original subscription, and/or through marketsboth primary, secondary or otherwise participation in syndicates, tender, purchase, (through any stockexchange, OTC exchange Of privately), exchange or otherwise and to subscribe for the same whether or notfully paid-up, either conditionally or otherwise, to guarantee the subscription thereof and to exercise and toenforce all rights and powers conferred by or incidental to the ownership thereof and to advance, deposit orlend money against securities and properties to or with any company, body corporate, firms, person orassociation or without security and on such terms as may be determined from time to time. To engage inMerchant Banking activities, Venture Capital, acquisitions, amalgamations and all related merchant bankingactivities including loan Syndication.• To carry on the business as manufacturers, exporters, importers, contractors, sub-contractors, sellers, buyers,lesser or lessees and agents for wind electric generators and turbines, hydro turbines, thermal turbines, solarmodules and components and parts including rotor blades, braking systems, tower, nacelle, control unit,generators, etc. and to set up wind farms for the company and/or other singly or jointly and also to generate,acquire by purchase in bulk, accumulate, sell distribute and supply electricity and other power (subject to andin accordance with the laws in force from time to time);• To carry on business of an investment company or an Investment Trust Company, to undertake and transacttrust and agency investment, financial business, financiers and for the purpose to lend or invest money ornegotiate loans in any form or manner, to draw, accept , endorse, discount, buy, sell and deal in bills ofexchange, hundies, promissory notes and other negotiable instruments and securities and also to issue oncommission , to subscribe for, underwrite, take, acquire and hold, sell and exchange and deal in shares stocks,bonds or debentures or securities of any Government or Public Authority or Company, gold and silver andbullion and to form, promote, subsidize and assist companies, syndicates and partnership to promote andfinance industrial enterprises and also to give any guarantees for payment of money or performance of anyobligation or undertaking, to advances, loans and subscribe to the capital of industrial undertakings and toundertake any business transaction or operation commonly carried on or undertaken by capitalists, promoters,financiers and underwriters.• To act as investors, guarantors, underwriters and financers with the object of financing industrial enterprises,to lend or deal with the money either with or without interest or security including in current or depositaccount with any bank or banks, other person or persons upon such terms, conditions and manner as mayfrom time to time be determined and to receive money on deposit or loan upon such terms and conditions asthe Company may approve. Provided that the Company shall not do any banking business as defined underthe Banking Regulations Act, 1949;• To act as investors, guarantors, underwriters and financiers with the object of financing industrialenterprises, to lend or deal with the money either with or without interest or security including in current ordeposit account with any bank or banks, other person or persons upon such terms, conditions and manneras may from time to time be determined and to receive money on deposit or loan upon such terms,conditions and manner as may from time to time be determined and to receive money on deposit or loanupon such terms and conditions as the Company may approve. Provided that the Company shall not do anybanking business as defined under the Banking Regulations Act, 1949.99
• To carry on in India or elsewhere the business of consultancy services in various fields, such as, general,administrative, commercial, financial, legal, economic, labour and industrial relations, public relations,statistical, accountancy, taxation and other allied services, promoting, enhancing, propagating the activity ofinvestment in securities, tendering necessary services related thereto, advising the potential investors orinvestment activities, acting as brokers, sub-brokers, investment consultant and to act as marketing agents,general agents, sub-agents for individuals/bodies corporate/institutions for marketing of shares, securities,stocks, bonds, fully convertibles debentures partly convertible debentures, Non-convertible debentures,debenture stocks, warrants, certificates, premium notes, mortgages, obligations, inter corporate deposits, callmoney deposits, public deposits, commercial papers, general insurance products, life insurance products andother similar instruments whether issued by government, semi government, local authorities, public sectorundertakings, companies, corporations, co-operative societies, and other similar organisations at national andinternational levels;Key terms of our Material AgreementsKEY TERMS OF THE MATERIAL CONTRACTS1. Investor agreement dated May 13, 2008 between Western India Trustee and Executor Company<strong>Limited</strong>, in its capacity as the trustee of India Advantage Fund – VI, (“Investor”) and <strong>Shriram</strong> <strong>City</strong><strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>, (“Company”), (“Investor Agreement”).Pursuant to the Investor Agreement, the Investor has subscribed to 750,000 equity shares constituting1.69% of the equity share capital of our Company post the preferential allotment of equity shares to theInvestor, certain other investors, <strong>Shriram</strong> Capital <strong>Limited</strong> and <strong>Shriram</strong> Enterprise Holding <strong>Limited</strong>, (“PostPreferential Issue Equity Share Capital”) and warrants. The shares and the warrants subscribed by theInvestor in one or more tranches would, on a fully diluted basis, aggregate to 2.85% of the Post PreferentialIssue Equity Share Capital of our Company. The salient features of the Investor Agreement are as follows:(a) Investor rights:(i) Right to appoint independent director: The Investor has a right to appoint an independent director on theBoard of our Company, with mutual consent of our Company, as long as the shareholding of the Investor,together with its affiliates equals to or exceeds 7% of the paid up equity share capital of our Company.(ii) Right to appoint observer: The Investor has a right to appoint an observer who will be entitled to attend anyand all of the meetings of the Board and the committees, as long as the shareholding of the Investor and itsaffiliates is equal to or exceeds 7% of the paid up equity share capital of our Company.(iii) Pre-emptive right on further issues of capital: If our Company should undertake a further issue of equityshares or any other instrument convertible to equity shares, the Investor is entitled to be offered equityshares in a manner so as to enable the Investor to maintain its shareholding percentage in our Company atthe same level as it had prior to such further issue. This right is available to the Investor as long as theshareholding of the Investor and its affiliates is equal to or exceeds 5% of the paid up equity share capitalof our Company.(iv) Information Rights: Customary information rights are available to the Investor as long as the shareholdingof the Investor together with its affiliates in our Company is equal to or exceeds 7% of the paid up equityshare capital of our Company. If the shareholding of the Investor, together with its affiliates in ourCompany falls below 7% of the paid up equity share capital of our Company and thereafter the Investor orits affiliates acquire additional shares of our Company so as to take the shareholding of the Investor in our100
Company equal to or more than 7% of the paid up equity share capital of our Company, the informationrights will no longer be available to the Investor.(b) Investor not considered to be promoters: The Investor is merely a financial investor in our Company.Our Company shall take all actions to ensure that the Investor shall not be considered or classified to be apromoter or any ‘person acting in concert’ of the promoter of our Company. The Investor is not in controlof our Company.(c) Term and Termination: The Agreement may be terminated and the transactions contemplated by theAgreement may be abandoned if closing does not take place on or before such time as mutually agreed tobetween the parties. . Either party may terminate this Investment Agreement any time before the date onwhich closing shall have taken place in the event that the other party commits a breach of its obligationsunder this Investment Agreement and such breach is not remedied by the defaulting party within 60 days ofnotice of such breach.This Agreement shall terminate in the event that the shareholding of the Investor in our Company (whichincludes warrants on a fully diluted basis and shares purchased by the Investor in an open market) and itsaffiliates falls below 5% of the paid up share capital of our Company.(d) Governing Law: Indian Law.(e) Dispute Resolution: Arbitration will be carried out in accordance with the Arbitration and ConciliationAct, 1996 and the place of arbitration is Mumbai. All proceedings will be conducted in English Language.2. Investor agreement dated May 12, 2008 between Bessemer Ventures Partners, (“Investor”) and<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>, (“Company”), (“Investor Agreement”)Pursuant to the Investor Agreement, the Investor has subscribed to 12,50,000 equity shares constituting2.81% of the equity share capital of our Company post the preferential allotment of equity shares to theInvestor, certain other investors, <strong>Shriram</strong> Capital <strong>Limited</strong> and <strong>Shriram</strong> Enterprise Holding <strong>Limited</strong>, (“PostPreferential Issue Equity Share Capital”) and 12,50,000 warrants each convertible to one equity share ofour Company. The shares and the warrants subscribed by the Investor in one or more tranches would, on afully diluted basis, aggregate to 4.75% of the Post Preferential Issue Equity Share Capital of our Company.The salient features of the Investor Agreement are as follows:(a) Investor Rights:(i) Right to appoint observer: The Investor has a right to appoint an observer to the Board.(ii) Pre-emptive right on further issues of capital: If our Company should undertake any further issue of equityshares and/or any other instrument convertible into equity shares, the Investor is entitled to be offered suchequity shares and/or other instruments on the same terms as the proposed issuance so as to enable to theInvestor to maintain its shareholding in our Company at the same level as it had prior to such further issue.This right is available to the Investor as long as the shareholding of the Investor in our Company is morethan 5% of the paid up equity share capital of our Company.(iii) Information rights: As long as the shareholding of the Investor is more than 7% of the paid-up equity sharecapital of our Company, the Investor is entitled to customary information rights as set out in the InvestorAgreement. In the event that the shareholding of the Investor falls below 7%, and thereafter the Investoracquires additional shares of our Company so as to take the shareholding of the Investor in our Company tomore than 7%, the information rights will no longer be available to the Investor. However, notwithstanding101
the information rights of the Investor, our Company shall publish any unpublished price sensitiveinformation before providing it to the Investor and the Investor agrees that these information rights shallremain suspended during the time the Board withholds the publication of such price sensitive information.(b) Investor not to be considered Promoters: The Investor is merely a financial investor in our Company.Our Company shall take all actions to ensure that the Investor is not considered or classified to be a‘promoter’ of our Company or as a person acting in concert with the promoter of our Company. TheInvestor is not in control of our Company and the investment by the Investor is purely financial in nature.(c) Non termination of arrangements with connected persons: Our Company is required to seek priorwritten consent of the Investor before terminating any of its material contracts or arrangements with suchpersons described as ‘connected persons’ in the Investment Agreement, in relation to sharing ofinfrastructure or facilities.(d) Term and termination: Either party has the right to terminate this Agreement any time before the date onwhich closing shall have taken place due to a breach of the covenants of this Investment Agreement. In theevent the shareholding of the Investor (which shall include warrants on a fully diluted basis and anypurchase by the Investor of the shares of our Company in an open market) and its affiliates fall below 5%of the paid up share capital of our Company this Investment Agreement shall terminate.(e) Governing law: Indian law(f) Dispute resolution: Arbitration will be carried out in accordance with the Arbitration and Conciliation Act,1996 and the place of arbitration is Mumbai. All proceedings will be conducted in English Language.3. Investment agreement dated May 9, 2008 between Asiabridge Fund I LLC, (“Investor”) and <strong>Shriram</strong><strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>, (“Company”), (“Investment Agreement”)Pursuant to the Investor Agreement, the Investor has subscribed to 5,87,500 equity shares constituting1.32% of the equity share capital of our Company post the preferential allotment of equity shares to theInvestor, certain other investors, <strong>Shriram</strong> Capital <strong>Limited</strong> and <strong>Shriram</strong> Enterprise Holding <strong>Limited</strong>, (“PostPreferential Issue Equity Share Capital”) and 5,87,500 warrants each convertible to one equity share ofour Company. The shares and the warrants subscribed by the Investor in one or more tranches would, on afully diluted basis, aggregate to 2.23% of the Post Preferential Issue Equity Share Capital of our Company.The salient features of the Investor Agreement are as follows:(a) Investor Rights:(i) More favourable rights: Our Company shall not grant to the shareholders who may invest in our Companyin the future (“New Investors”), any terms which are more favourable than that of the existing Investors, solong as the New Investors are at par or less than 2.23% of the shareholding in our Company.(ii) Information Rights: The Investor is entitled to customary information rights as set out in the InvestorAgreement. In the event any information rights are provided to other investors participating in thepreferential allotment, the same rights shall be provided to the Investors.(b) Investor not to be considered as promoters: The Investor is merely a financial investor in our Company.Our Company shall take actions to ensure that the Investor shall not be considered/classified to be a‘promoter’ of our Company or any ‘person acting in concert’ with the promoter of our Company. TheInvestor is not in control of our Company and the investment by the Investor is purely financial in nature.102
(c) Term and termination: Either party has the right to terminate this Agreement any time before the date onwhich closing shall have taken place due to a breach of the covenants by the opposite party of thisInvestment Agreement.(d) Governing Law: Indian Law(g) Dispute Resolution: Arbitration will be in accordance with the Arbitration and Conciliation Act, 1996, andthe place of arbitration is Mumbai. All proceedings will be conducted in English Language.4. Investment agreement dated December 26, 2006 between Van Gogh <strong>Limited</strong>, (“Investor”) and<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>, (“Company”), (“Investment Agreement”) as amended by theSubscription and Amendment Agreement dated May 12, 2008 between the Investor and ourCompany, (“Amendment Agreement”)Pursuant to the Investment Agreement, our Company has issued and allotted 40,00,000 equity shares, to theInvestor in one or more tranches aggregating to 10.23% of the equity share capital of our Company, postthe preferential allotment of equity shares to the Investor and other financial investors investing in theequity shares of our Company (“Other New Investors-I”)pursuant to the resolution passed under the extraordinarygeneral meeting dated December 18, 2006, of our Company (“Post Preferential Issue EquityShare Capital-I”).Pursuant to the Amendment Agreement our Company has further issued and allotted to the Investor,6,62,500 equity shares constituting 1.5% of the equity share capital of our Company post the preferentialallotment of equity shares to the Investor, Other New Investors-I and other financial investors investing inthe equity shares of our Company (“Other New Investors – II”) pursuant to the preferential allotmentunder the extra-ordinary general meeting resolution dated May 3, 2008. Further, pursuant to theAmendment Agreement, our Company has issued and allotted 6,62,500 warrants to the Investor whichrepresent a right to apply for an aggregate of 6,62,500 equity shares of our Company(adjusted for anybonus issues, share splits, share consolidation or reduction of capital of our Company).The salient features of the Investment Agreement and the Amendment Agreement are as follows:(a) Indemnities: Our Company will indemnify (i) the Investor and its affiliates (entities which are eithercontrolled, in control of or in common control with the Investor) and employees and (ii) the Investor Group(as described in the Investment Agreement), against any losses arising out of misrepresentations or breachof any warranty, costs and expenses incurred by the Investors in respect of any claim.(b) Board of Directors: Our Company, the Investor and Other New Investors – I will jointly agree on a panelof six independent directors out of which three will be appointed by our Company for a period of five yearsand will not be eligible to retire by rotation. The Investor also has a right to appoint an observer who isentitled to attend any and all Board meetings.(c) Reserved matters: Our Company is required to seek consent from the Investor before passing anyresolution or taking any decisions with respect to a reserved matter. Reserved matters include approval ofan annual business plan/operating budget; any material deviations from the approved business plan;entering into or modifying transactions with connected persons/concerns; making investments or acquiringshares exceeding ` 5 crore; transfer or disposal of any material part of our Company’s business; changes inthe memorandum or articles of association of our Company; issue of new shares or convertible instruments(except in a case where the Investor has not exercised the pre-emptive rights offered to the Investor); anychange in the class rights, preferences and privileges of shareholders (including common equity, preferenceshares and other convertible instruments); voluntary delisting of the shares; any material change in thenature of business of our Company or commencement of a new line of business or entering into any joint103
venture, partnership or consortium arrangement; passing any resolution or taking any steps to have ourCompany wound up, liquidated or to dissolve our Company, including taking steps to effect arecapitalization, reclassification, split-off, spin-off or bankruptcy of our Company; undertaking a merger,amalgamation, demerger, spin-off, consolidation of or by our Company or an acquisition of anothercompany; to mortgage, pledge, hypothecate, grant security interest in, subject to any lien, any business orassets of our Company; appointment of the independent director and director appointed at the suggestion ofthe Other New Investors and Other New Investors - II; approval of any employee stock option scheme oremployee stock purchase scheme; any change in the name of our Company; and any commitment oragreement to do any of the foregoing;(d) Further Issue of Shares: In the event that our Company issues any further shares or other warrants,convertible instruments, or any options or any appreciation rights and other securities convertible intosecurities or otherwise to any person, (“Fresh Offering”) the following shall be applicable vis-à-vis theInvestor.(i) In case of a preferential issue: Our Company will offer such number of securities to the Investor, OtherNew Investors-I and Other New Investors – II in the Fresh Offering, which is equal to their shareholding inour Company prior to such Fresh Offering on the same terms as that of the Fresh Offering.If any of the Other New Investors-I and the Other New Investors – II decline to subscribe to their portion ofthe securities so offered, then such declined securities shall be offered proportionately to the Investor andthe non-declining Other New Investors-I and the non-declining Other New Investors – II in proportion totheir respective shareholding percentage prior to the Fresh Offering in our Company, on the same terms asthe proposed Fresh Offering.(ii) In case of a rights issue: If a whole or a part of the rights issue remains unsubscribed then the unsubscribedportion of the securities shall be proportionately offered to the Investor, the Other New Investors-I and theOther New Investors – II on the same terms as the proposed rights issue. Provided that, if any of the OtherNew Investors-I, the Other New Investors – II decline to subscribe such securities, our Company shall offersuch securities proportionately to the Investor, Other New Investor-I and the Other New Investor- II on thesame terms as the proposed rights issue.(e) Investor not to be considered as Promoter: The Investor is merely a financial investor in our Company.Our Company shall ensure that the Investor is not classified or considered to be a ‘promoter’ or a ‘personacting in concert’ with the promoter of our Company. The Investor is not in control of our Company andthe investment by the Investor is purely financial in nature.(f) Term and Termination: The rights of the Investor in connection with reserved matters stand terminatedupon the dilution threshold of the Investor (calculated as per the Amendment Agreement) falls below 7% asa result of the Investor selling any of the Investor’s shares or failing to exercise their pre-emptive rights atthe time of a further issue. The rights of the Investor in connection with further issue of shares standterminated upon the dilution threshold falling below 5% unless the same is caused due to securities notbeing offered to the Investor in accordance with the Investor’s pre-emptive right.5. Share subscription agreement dated September 12, 2008 between (i) Mr. R. Thyagarajan, Mr. TJayaraman, <strong>Shriram</strong> Capital <strong>Limited</strong> and <strong>Shriram</strong> Ownership Trust acting through its trusteesMr. R. Thyagarajan, Mr. Arun Duggal, Mr. D.A Prasanna, Mr. R. Kannan and Mr. D.V Ravi(collectively known as the “Founders”) and (ii) TPG India Investments I, Inc. (the “Investor”)and (iii) <strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong> (“SRHPL”), and (iv) <strong>Shriram</strong> EnterprisesHoldings Private <strong>Limited</strong> (“SRHPL”) and <strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong> (“Company”),(“Agreement”).104
Pursuant to the Agreement, the Investor has subscribed to 1,306,700 shares and 1,538,278 warrants ofSRHPL. Upon allotment of shares by SRHPL, the Investor shall hold 39.0% equivalent to 1,306,700shares of SRHPL. The salient features of the agreement are as follows:(a) Non-Compete: As long as the Investor directly or indirectly holds no less than 5% beneficial interestin the paid up share capital of our Company, whether through SRHPL, SEHPL or directly in ourCompany, neither the Founders nor any of their affiliates may work for, associate with or conductbusiness as a competitor of the Company or any future direct or indirect subsidiaries of the Company(directly or indirectly).Regardless of the beneficial interest of the Investor in our Company, (whether through SRHPL,SEHPL or directly in our Company), the Founders shall not, directly or indirectly, work for orassociate in any way (including but not limited to as proprietor, shareholder, partner or director) with,or conduct business as, a competitor of our Company or any of its future direct or indirect subsidiariesfor a period of five years from the later of (a) the date on which the Founders cease to have the right toappoint or nominate any Directors to the Board of all the Companies or (b) the date on which theFounders (taken together) cease to directly or indirectly hold at least 5% beneficial interest in the paidup share capital of the Company, whether through SRHPL, SEHPL or directly in our Company.(b) Lock in and Restrictions on Transfer: For a period of three years from the date of closing, theFounders shall not directly or indirectly effect or permit any transfer of shares of our Company,SEHPL or SRHPL or warrants issued by our Company to any person including the lenders of ourCompany, except with the prior written consent of the Investors. Such restrictionsThe restrictions for transfer of shares shall not apply to any inter-se transfer between the Promoter andtheir affiliates, provided that such affiliate signs a deed of adherence. The Founders may seek to createa pledge, lien or charge over the shares held by SRHPL and SEHPL and SRHPL upon completion ofthe merger of SEHPL with SRHPL (as contemplated in the Agreement) in our Company as security forshort term borrowings which pledge, lien or charge shall be subject to the prior written consent of theInvestor. The restrictions contemplated herein shall not in any manner apply to the transfer of shares of<strong>Shriram</strong> Capital <strong>Limited</strong> subject to it satisfying certain conditions as laid down in the Agreement.(c) Investor’s Right of First Refusal: Before transferring any of its shares and/or warrants in SCUFLand/or SRHPL, the Founder shall give a notice of such intention to transfer such shares and warrants(“Transfer Notice”) which inter-alia includes details of the offer price and the name of the proposedpurchaser to the Investor. If the Investor either fails to respond to the notice within 30 days or refusesto buy the shares, the Founder may transfer such shares and/or warrants to any person on terms andconditions no less favourable than indicated in the Transfer Notice.(d) Tag along rights: Tag along rights are provided for in the Agreement. In the event of a proposedtransfer of shares and/or warrants by the Investor or Founders to a third party, the transferringpercentage will be calculated and the non-transferring party is entitled to cause the proposed transfereeto purchase such number of shares and/or warrants held by the non-transferring party as equal to thetransferring percentage of the total number of shares and/or warrants held by the non-transferring partyas on the date of the proposed transfer. Transferring percentage means the ratio of the number of sharesand/or warrants proposed to be transferred by the transferring party and the total number of shareand/or warrants held by the transferring party.(e) Composition of the Board of Directors: Under the terms of the Agreement, the Board of ourCompany shall constitute 12 (twelve) directors out of which (i) three directors shall be the nominee ofthe Investor; (ii) three directors shall be the nominee of the Founders; (iii) one director shall be thenominee of IREDA; (iv) four independent directors to be nominated by the following existinginvestors investment agreements namely (a) Indopark Holdings <strong>Limited</strong> (b) CPIM Structured CreditFund A 1500 <strong>Limited</strong>; (c) CPIM Structured Credit Fund A 1000 <strong>Limited</strong> (d) CPIM Structured CreditFund A 20 <strong>Limited</strong> (e) Van Gogh <strong>Limited</strong> (f) Western India Trustee and Executor Company <strong>Limited</strong>.105
The Investor and Founders shall mutually agree upon and identify one individual who shall beindependent Director and who shall be the chairman of the Board. In the event that IREDA or any ofthe Existing Investors waive their right to nominate an independent Director on the Board of theCompanies or cease to be entitled to such right, the resulting vacancy in the office of independentdirectors of the Companies shall be filled in accordance to the terms of this Agreement. The ManagingDirector of the Companies shall be appointed by the Founders.(f) Quorum: The Chairman of the Board shall not have a casting vote. The quorum of any meeting of theBoard where any matter which requires the specific consent of the nominee(s) of the Investor or theFounders or both in accordance with the provisions of the Agreement is to be taken up shall be inaccordance with applicable law, of which at least one Director shall be the nominee(s) of the Investoror the Founders or both, as the case may be. The quorum of any meeting of the Board of Directorsother than those aforementioned shall be in accordance with the applicable law and shall comprise atleast one Director who shall be a nominee of the Investor and one Director who shall be a nominee ofthe Founders. In the absence of such quorum, the meeting of the Board of Directors shall bereconvened after one week. At such reconvened meeting, the quorum shall be in accordance withapplicable law and shall not require the presence of a nominee of the Investor and / or the Founders.However, it is clarified that at such meeting of the Board of Directors, there will be no discussion andno vote on matters which require either the specific consent of the nominee of the Investor or theFounders in terms of the Agreement. All decisions at any meeting of the Board shall be in accordancewith the vote of a simple majority save such decisions which require the specific consent of theFounders or the Investor, as the case may be.(g) Fundamental Issues: Any action with respect to customary fundamental issues shall require thespecific consent of the shareholders of SRHPL and SEHPL by way of an extraordinary resolutionand/or the consent of the Investor’s and the Founders’ nominee on the Board or Committee thereof, asthe case may be.(h) Indemnification: Our Company and the Founders jointly and severally agree to indemnify theInvestor in case of any material breach arising from the agreement.(i) Investor not to be considered Founder/Promoter: The Founders will ensure that the Investor willnot be classified as ‘promoter’ of any of our Company or its subsidiaries and the shares and warrantsallotted to the Investor at the time of closing are not subject to lock-in or any other restriction, whichare applicable to the promoters. SRHPL, SEHPL and the Founders will be considered as ‘personsacting in concert’ with the Investor solely for the purpose of the Agreement and the acquisition ofshares contemplated therein.(j) Investor’s Right to Exit:(i)Right to sell or transfer shares: The Investor has the right to freely transfer the beneficial interestheld by it in SCUFL whether directly or through shares/warrants of SRHPL to any personincluding third parties. In the event that the proposed transfer of such beneficial (direct or indirect)interest by the Investor is by way of placement with other investors of a block of shares/warrantsowned by the Investor, the SRHPL and SEHPL shall take necessary steps (including access toinformation and records) to facilitate such transfer by the Investor.In the event of the block of shares/warrants proposed to be transferred by the Investor is:• less than 25% of the fully diluted percentage beneficial ownership held by the Investor in SCUFL(whether directly or through SRHPL and SEHPL), the transfer of such shares and warrants by theInvestor shall be without any rights attached to such shares/warrants under this Agreement, subjectto the transferee executing a deed of adherence;• more than 25%, but less than 50% of the fully diluted percentage beneficial ownership held by theInvestor in SCUFL (whether directly or through SRHPL and SEHPL), the Investor shall beentitled to transfer such shares and warrants along with the Tag-along rights, Information Rights,Right of registration and right to nominate one director on the Board of Directors of SRHPL andSCUFL only, subject to the transferee executing a deed of adherence;106
• more than 50% of the fully diluted percentage of beneficial ownership held by the Investor inSCUFL (whether directly or through SRHPL and SEHPL), the Investor shall be entitled totransfer such shares and warrants with all rights attached to such shares or warrants under thisAgreement subject to the transferee executing a deed of adherence.(ii)Roll down of beneficial ownership of SCUFL: Any time after the expiry of two years from the dateof closing, the Investor may require SRHPL to distribute the shares/warrants held by SRHPL inour Company amongst the Founders and the Investor in proportion to their respective holdings inSRHPL. In the alternative, the Investor may require the merger of SRHPL with our Company toeffect such distribution and the Founders agree to use their best efforts to effect such distribution.(h)Drag along Rights: The Investor has the right but not the obligation to require the Founders tosell all or part of the any Shares or Warrants that the Founders hold in our Company and/orSRHPL. (Shares or Warrants mean any shares and warrants held by the Founders or the Investorin our Company and/or SRHPL, or any direct or indirect beneficial interest held by the Foundersor the Investor in the shares and warrants of our Company and/or SRHPL). The Investor maynotify the Founders of its decision to exercise this right by delivering a written notice (“ExitNotice”) to the Founders. The Founders may notify the name of a proposed purchaser,(“Proposed Purchaser”), terms and conditions of the purchase, including the price, (“ExitPrice”), for the purchase of all but not part of the Shares and Warrants held by the Investor within30 days from the receipt of the Exit Notice.The Investor may exercise its acceptance to sell all of its Shares and Warrants to the proposedpurchaser within 30 days of the receipt of the exit notice (“Acceptance Period”), by delivery of awritten notice.In the event the Investor, at its sole discretion, does not accept the offer for purchase, or theInvestor has failed to communicate its agreement to sell its Shares and Warrants to the proposedpurchaser at the end of the expiry of the Acceptance Period, the Investor may, within 180 days ofthe Acceptance Period, furnish a written notice (“Drag Notice”) giving the name of a proposedbuyer, (“Exit Buyer”), along with terms and conditions including price offered by the Exit Buyer,(“Drag Price”) to purchase all or part of the Shares and Warrants held by the Founders. The DragPrice shall not be less than the Exit Price and the fair market value calculated as on the date of theExit Notice.Upon delivery of the Drag Notice, the Founders are required to transfer the Shares and Warrantsas required by the Drag Notice to the Exit Buyer, upon the same terms and conditions (including,the Drag Price) as agreed by the Investor and the Exit Buyer. The Founder shall makerepresentations, warranties, covenants and agreements to the Exit Buyer comparable to those madeby the Investor and shall agree to the same conditions to the transfer as the Investor agrees. Allsuch representations, warranties, covenants and agreements shall be made by each Founder andInvestor severally and not jointly(i)Consequences of a material breach: In the event of a material breach of the provisions of thisAgreement, the non-defaulting parties are entitled to the following rights if such material breach isnot cured within 60 days of receipt of notice of such breach, (“Cure Period”) and the nondefaultingparty has not been compensated according to the provisions of the Agreement.(i) Put and Call Option: The non-defaulting party shall have the right to either require thedefaulting party, jointly and severally, to acquire any or all of the Shares and Warrants heldby the non-defaulting party in SRHPL (collectively, “Securities”) at a price equivalent to12.5% of the fair market value of the Securities, or cause the defaulting party to sell to thenon-Defaulting party any or all of the Securities then held by the defaulting party at a priceequivalent of 75% of the fair market value of the securities. The aforesaid premium ordiscount to the fair market value represents a reasonable assessment made by the defaulting107
party and the non-defaulting party representing the size of the liquidated damages payable tothe non-defaulting party owing to the breach on the part of the defaulting party.Within 30 days from the expiry of the Cure Period, the non-defaulting party shall issue anotice, (“Options Notice”) to the defaulting party setting out the details of the optionproposed to be exercised by the non-defaulting party, number of shares and/or warrants inrespect of which such option is proposed to be exercised and the price of each share and/orwarrant for such purpose. The sale or purchase of the Shares and/or Warrants, pursuant tosuch Option Notice shall be completed within 30 days from the date of the Option Notice.(ii) Merger of SCUFL with SRHPL: The non-defaulting party has the right to requisition theconvening of an extra-ordinary general meeting of the shareholders of our Company andSRHPL to effect and sanction the merger of SCUFL and SRHPL. For the purpose ofprotecting the non-defaulting party’s rights under this Agreement, SRHPL and the defaultingparty shall vote in favour of any resolution at such meeting of the shareholders of ourCompany and SRHPL to authorize, sanction or effect such merger.(j) Dispute Resolution: Arbitration in accordance with the Arbitration and Conciliation Act, 1996 and theplace of arbitration is Mumbai. Arbitration will be conducted in English Language.(k) Governing law: Indian Law.6. License Agreement dated April 1, 2010 between <strong>Shriram</strong> Ownership Trust, (“ SOT”) and ourCompany, (“License Agreement”):Pursuant to the License Agreement, SOT granted license to use the non exclusive copyright, relating to theexisting artistic work “SHRIRAM” logo, (“Copyright”) assigned in the favour of SOT by <strong>Shriram</strong> Capital<strong>Limited</strong>, to our Company and to reproduce the said work, in connection with the business activities of ourCompany in the territory of India during the term of the Copyright. The salient terms of the LicenseAgreement are as follows:(i) Consideration: A royalty of 0.25% on the gross turnover of our Company for the first year of theLicense Agreement will be paid by our Company to SOT. Royalty rates for the subsequent years willbe decided mutually on or before April 1 st of the respective financial years. Royalty will be paid by ourCompany to SOT with quarterly rates ending on June 30 th , September 30 th , December 31 st and March31 st with effect from date of the License Agreement. Along with the royalty, our Company will alsopay to SOT amounts by way of reimbursement of actual expenses incurred by SOT in respect ofprotection and defence of the Copyright.(ii) Duration: The License Agreement will remain in force for a period of three years and can be renewedthereafter by mutual consent. SOT may terminate the agreement if our Company breaches theprovisions of the License Agreement and fails to remedy such breach within 60 days of notice of suchbreach.(iii) Arbitration: In case of dispute or difference arising between the SOT and our Company shall bereferred to an arbitrator decided on a mutual consent and the decision of the arbitrator is final andbinding on both the parties. The place of arbitration shall be in Chennai.108
OUR MANAGEMENTBoard of DirectorsThe general superintendence, direction and management of our affairs and business are vested in our Board ofDirectors. Currently, we have 12 Directors on our Board.Details relating to DirectorsName, Designation,Age and DINMr. Arun DuggalChairmanAge: 64DIN: 00024262NationalityIndian/United States ofAmerica(Dualcitizenshipholder)Date ofAppointmentMay 25, 2007AddressA-4, 3 rd FloorWest-End ColonyNew Delhi- 110 021Other Directorships(i) Zuari Industries <strong>Limited</strong>;(ii) Patni Computers Systems <strong>Limited</strong>;(iii) Ecron Acunova <strong>Limited</strong> ( Namechange from Manipal Acunova<strong>Limited</strong>);(iv) Info Edge (India) <strong>Limited</strong> ;(v) Jubiliant Energy N.V, Canada;(vi) <strong>Shriram</strong> Properties <strong>Limited</strong>;(vii) Dish TV India <strong>Limited</strong>;(viii) <strong>Shriram</strong> Transport <strong>Finance</strong>Company <strong>Limited</strong>;(ix) Mundra Port and SpecialEconomic Zone <strong>Limited</strong>;(x) <strong>Shriram</strong> EPC <strong>Limited</strong>;(xi) Motrice <strong>Limited</strong>, Singapore;(xii) FIL Fund Management Private<strong>Limited</strong>;(xiii) Carzonrent (India) Private <strong>Limited</strong>;(xiv) The Bellwether Microfinance FundPrivate <strong>Limited</strong>;(xv) International Asset ReconstructionCompany Private <strong>Limited</strong>;(xvi) Blackstone Investment CompanyPrivate <strong>Limited</strong>;(xvii) Tanglewood Financial AdvisorsPrivate <strong>Limited</strong>;(xviii) <strong>Shriram</strong> Capital <strong>Limited</strong>; and(xix) Jubiliant Energy N.V, NetherlandsMr. R. KannanManaging DirectorAge:66DIN: 00140363Indian September 15,2005No. 20/32, 2 nd FloorSA-1 Abirami Camelia,4 th main RoadKasturbai NagarAdyar, Chennai- 600020(i) <strong>Shriram</strong> Properties andConstructions (Chennai) <strong>Limited</strong>;(ii) <strong>Shriram</strong> Permanent Fund <strong>Limited</strong>;and(iii) <strong>Shriram</strong> Entrepreneurial Ventures<strong>Limited</strong>Mr. MukundGovind DiwanIndependent DirectorAge:79DIN:00001097Indian June 15, 2007 Flat No. 3, GulmoharBuilding, 1 st Floor, VileParle Kalpataru CooperativeHousingSociety, off. SwamiVivekanand Road, VileParle (West), Mumbai-400 056109(i) Indian Institute of Public OpinionsPrivate <strong>Limited</strong>;(ii) DS Acturial Education ServicesPrivate <strong>Limited</strong>;(iii) VLS <strong>Finance</strong> <strong>Limited</strong>;(iv) G M Breweries <strong>Limited</strong>;(v) Dwarikesh Sugar Industries <strong>Limited</strong>;(vi) Marketing Research Corporation ofIndia <strong>Limited</strong>
Name, Designation,Age and DINMr. S.KrishnamurthyIndependentDirectorAge:72NationalityDate ofAppointmentAddressIndian April 28, 2005 Flat No. 2/B 2 nd Floor,SPL Uma Apartments,Old No. 169 New No.34 Luz Church RoadMylapore, Chennai -600 004Other Directorships(vii) <strong>Shriram</strong> Chits (Maharashtra)<strong>Limited</strong>; and(viii) GDA Trustee and Consultancy<strong>Limited</strong>(i)(i) Kerela Ayurveda <strong>Limited</strong>;(ii) Take Solutions <strong>Limited</strong>; and(iii) <strong>Shriram</strong> EPC <strong>Limited</strong>DIN: 00140414Mr. Vipen KapurIndependent DirectorAge:65DIN: 01623192Indian June 15, 2007No. A1-1201World SPA,Sector - 41,Gurgaon - 122002(i)Maxima Global Executive andSearch Singapore PTE <strong>Limited</strong>Mr. S.VenkatkrishananDirectorAge:81DIN: 00136608Indian July 28, 2000 34, Oliver Road,Mylapore,Chennai ,600 004(i) Galada <strong>Finance</strong> <strong>Limited</strong>;(ii) <strong>Shriram</strong> Transport <strong>Finance</strong>Company <strong>Limited</strong>;(iii) <strong>Shriram</strong> Housing <strong>Finance</strong> &Development Company <strong>Limited</strong>;(iv) Novochem Laboratories <strong>Limited</strong>;(v) Madras Shoe Fabric Company<strong>Limited</strong>;(vi) <strong>Shriram</strong> Credit Company <strong>Limited</strong>;(vii) <strong>Shriram</strong> Trade <strong>Finance</strong> <strong>Limited</strong>;(viii) <strong>Shriram</strong> Industrial HoldingsPrivate <strong>Limited</strong>;(ix) <strong>Shriram</strong> Exports Private <strong>Limited</strong>;(x) Ranjani Enterprises Private<strong>Limited</strong>;(xi) CharukesiInvestmentsPrivate<strong>Limited</strong>;(xii) Road Safety Club Private <strong>Limited</strong>;(xiii) Rambal Properties Private <strong>Limited</strong>;(xiv) <strong>Shriram</strong> Investments Holdings<strong>Limited</strong>(xv) <strong>Shriram</strong> Overseas InvestmentPrivate <strong>Limited</strong> (FormerlyDhanashri Investments Private<strong>Limited</strong>) and(xvi) Celindia <strong>Finance</strong> And InvestmentCompany Private <strong>Limited</strong>Mr. Ranvir DewanNon-ExecutiveIndependent DirectorAge; 57Citizen ofSingaporeDecember 1,2010 41, Ewe Boon Road#11/41, Crystal TowerSingapore - 259335110(i) PT Bank Tabunean PensiunanNasional (Indonesia); and(ii) <strong>Shriram</strong> Transport <strong>Finance</strong>Company <strong>Limited</strong>
Name, Designation,Age and DINNationalityDate ofAppointmentAddressOther DirectorshipsDIN: 01254350Mr. K. R.RamamoorthyNon-ExecutiveDirectorAge:70DIN:00058467Ms. LakshmiPraneshNon-ExecutiveIndependent DirectorAge: 66Indian December 1,2010Indian December 1,2010D-302M MantriGarden, MadhavanPark, JayanagarI-Block,BangaloreKarnataka-560 011Old 48, New 30,Rukmani RoadKalakshetra ColonyBesant Nagar, ChennaiTamil Nadu -600 090(i) FIL Trustee Company Private<strong>Limited</strong>;(ii) Ujjivan Financial Services Private<strong>Limited</strong>;(iii) GMR Power Corporation Private<strong>Limited</strong>;(iv) GMR Ambala- ChandigarhExpressways Private <strong>Limited</strong>;(v) The Clearing Corporation of India<strong>Limited</strong>;(vi) Subros <strong>Limited</strong>;(vii) Nilkamal Plastics <strong>Limited</strong>;(viii) Amrit Corp. <strong>Limited</strong>;(ix) GMR Infrastructure <strong>Limited</strong> and;(x)NilClear Corp Dealing Systems (India)<strong>Limited</strong>;DIN: 03333412Mr. Puneet BhatiaNon-executiveIndependent DirectorAge:44DIN: 00143973Indian December 1,2010 214B AraliasApartments, DLFPH-V, Old Golf ClubGurgaon - 122009(i)(ii)TPG Capital India Private <strong>Limited</strong>;<strong>Shriram</strong> Transport <strong>Finance</strong>Company;(iii) <strong>Shriram</strong> Holdings (Madras) Private<strong>Limited</strong>(iv) <strong>Shriram</strong> Capital <strong>Limited</strong>(v) <strong>Shriram</strong> Properties <strong>Limited</strong>Mr. G. S.SundararajanDirectorAge: 51DIN: 00361030Mr. Sunil VarmaDirectorAge: 67Indian December 31,2009Indian August 17,20078N, Shamshiba NargisDutt Road, Pali NakaBandra WestMumbai -400 050104 AradhanaApartmentsR.K.Puram Sec-13,New Delhi- 110 066(i) <strong>Shriram</strong> Capital <strong>Limited</strong>;;(ii) <strong>Shriram</strong> Credit Company <strong>Limited</strong>;(iii) <strong>Shriram</strong> General InsuranceCompany <strong>Limited</strong>;(iv) Vistaar Livelihood FinancialServices Private <strong>Limited</strong> and(v) <strong>Shriram</strong> Life Insurance Company<strong>Limited</strong>;(vi)(i) International Asset ReconstructionCompany Private <strong>Limited</strong>(ii) Vistaar Livelihood FinancialServices Private <strong>Limited</strong> and(iii) <strong>Shriram</strong> EPC <strong>Limited</strong>DIN: 01020611111
Profile of DirectorsProfile of DirectorsMr. Arun Duggal - ChairmanMr. Arun Duggal is the non-executive Chairman of our Board. Mr. Duggal holds a Bachelor’s degree in MechanicalEngineering from the Indian Institute of Technology, Delhi and a Master’s degree in Business Administration fromthe Indian Institute of Management, Ahmedabad. Mr. Duggal is an experienced international banker and has anexperience of approximately 33 years in the banking and finance industry. He has advised companies on financialstrategy, mergers and acquisitions and on various means of raising capital.He serves on the Board of Directors of Jubiliant Energy. Netherlands (Chairman of Audit Committee), PatniComputers (Chairman of Audit Committee), Fidelity Fund Management, Ecron Acunova, Zuari Industries, InfoEdge (Chairman of Audit Committee), Dish TV, Mundra Port, Motrice <strong>Limited</strong> (Singapore) (Chairman of AuditCommittee), <strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>, <strong>Shriram</strong> Capital <strong>Limited</strong> and others. He is also a member of theInvestment Committee of Axis Private Equity. He had a distinguished career with Bank of America for 26 years inthe US, Hong Kong, Japan, Philippines, etc. He was the Chief Executive of Bank of America in India from 1998 to2001.Currently, he is a visiting faculty at the Indian Institute of Management, Ahmedabad and teaching Venture Capital.Mr. R. Kannan- Managing DirectorMr. R. Kannan holds a degree in Bachelors in Arts from University of Madras. Mr. Kannan has approximately 50 yearsof experience in the banking and finance industry.He serves on the board of directors of <strong>Shriram</strong> Properties & Constructions (Chennai) <strong>Limited</strong>, <strong>Shriram</strong> Permanent Fund<strong>Limited</strong> and <strong>Shriram</strong> Entreprenuerial Ventures <strong>Limited</strong>.Mr. Mukund G. DiwanMr. Mukund G. Diwan holds a masters degree in Statistics from University of Mumbai, and is a fellow member of theInstitution of Actuaries, London (FIA) and the Institute of Actuaries of India. Mr. Diwan has a wide experience in theinsurance industry and expertise in carrying out Management and Actuarial consultant assignments. He has served as aChairman of the Life Insurance Corporation of India (LIC) and is working as a consulting actuary in the areas of lifeinsurance, general insurance and retirement benefits.He serves on the Boards of VLS <strong>Finance</strong> <strong>Limited</strong>, G.M. Breweries <strong>Limited</strong>, Dwarikesh Sugar Industries <strong>Limited</strong>,Marketing Research Corporation of India <strong>Limited</strong>, Sriram Chits (Maharashtra) <strong>Limited</strong>, GDA Trustee & Consultancy<strong>Limited</strong>, Indian Institute of Public Opinion Private <strong>Limited</strong>, DS Actual Education Services Private <strong>Limited</strong> and apartner in K.A. Pandit (Consulting Actuaries).Currently he is appointed as an Actuary for LIC, Nepal; LIC, Sri Lanka and a few companies in the Gulf.Mr. S. KrishnamurthyMr. S. Krishnamurthy holds a Master’s Degree in labor management and post graduate diploma in Industrial Relationsand Personnel Management from Madurai Kamaraj University and Personnel Management (IR&PM).. He is also acertified Associate of the Indian Institute of Bankers with a Bachelors Degree in General Laws from University ofMysore.Mr. Krishnamurthy is a senior banker with experience of approximately 40 years with the Reserve Bank of India and112
commercial banks. He was the chairman and chief executive officer of Tamil Nadu Mercantile Bank, Tuticorin for aperiod of 5 years and also served as General Manager (Vigilance & Inspection/Audit) with Indian Overseas Bank,Chennai for a period of 5 years. He was Banking Ombudsman, Chennai for a period of approximately 2 years.He serves on the Board of Kerala Ayurveda <strong>Limited</strong>, Take Solutions <strong>Limited</strong> and Sriram EPC <strong>Limited</strong>.Mr. Vipen KapurMr. Vipen Kapur holds bachelors degree in Commerce from University of Madras and is an Associate of the Instituteof Bankers, London. He has wide experience in the international banking sector and has served in various departmentsof the Standard Chartered (erstwhile Grindlays Bank). Mr. Kapur was the chief operations officer at the Al RushiadGroup in Saudi Arabia, Managing Director of Sinar Mas Group of Indonesia and President and chief executive officerof New Quest Corporation Private <strong>Limited</strong>.Mr. Kapur is the author of “Power through people and principles”, published by Tata Mcgraw Hill, which won theBest Book Award by Indian Society for Training and Development in the year 2001.He serves on the Board of Maxima Global Executive Search Singapore Pte. <strong>Limited</strong>.Mr. S. VenkatakrishnanMr. S. Venkatakrishnan is a Non-executive Director on our Board. He is a post graduate in Mathematics from MadrasUniversity and is also a member of the Indian Audit and Accounts Service, Government of India, where he has heldsenior positions in the <strong>Finance</strong>, Audit & Accounts department of the Government and other Public Undertakings. Healso functioned as BIFR Director in several companies for a period of five years. He has been an advisor to ourCompany for over ten years.He serves on the Board of <strong>Shriram</strong> Transport <strong>Finance</strong> Company <strong>Limited</strong>, <strong>Shriram</strong> Industrial Holdings Private <strong>Limited</strong>,<strong>Shriram</strong> Exports Private limited, Dhanasri Investments Private <strong>Limited</strong>, <strong>Shriram</strong> Housing <strong>Finance</strong> and DevelopmentCompany <strong>Limited</strong>, Sriram Credit Company, <strong>Shriram</strong> Trade <strong>Finance</strong> Company <strong>Limited</strong>, Sriram Investments Holdings<strong>Limited</strong> and others.Mr. Ranvir DewanMr. Ranvir Dewan is a Non-Executive Director on our Board. Mr. Dewan holds bachelors degree in Commerce (Hons)from <strong>Shriram</strong> College of Commerce, Delhi University, India. He is a fellow member of the Institute of CharteredAccountants in England & Wales (FCA) and a member of the Canadian Institute of Chartered Accountants (CA). Hehas over 30 years of experience in the finance and investment sector. Mr. Dewan joined TPG-Newbridge Capital inJuly 2006 and is currently the Head of Financial Institutions Group Operations. Previously, he was Executive VicePresident and Chief Financial Officer of Standard Chartered First Bank in Seoul, Korea. He has also spent over thirteenyears at Citibank in various senior positions in its international businesses. In his previous assignment, he was VicePresident and Regional Financial Controller of Citibank’s Global Consumer Bank with responsibilities covering 11countries in the Asia Pacific region. He has also held senior positions with KPMG in Canada and England where hespecialized in the audits of financial institutions.Mr. Dewan serves on the Boards of <strong>Shriram</strong> Transport <strong>Finance</strong> Company <strong>Limited</strong> in Chennai, India and PT BankTabunean Pensiunan Nasional Tbp (“BTPN”) in Jakarta, Indonesia and is a member of the Audit and Risk Committeesof Bank BTPN. Mr. Dewan is an advisor of Taishin Financial Holdings.Mr. K. R. RamamoorthyMr. K.R. Ramamoorthy holds a Bachelors degree in Economics and Law from University of Delhi and is a seniorFellow member of the Institute of Company Secretaries of India. Mr. Ramamoorthy is a senior banker withapproximately 40 years of commercial and banking experience in India. He has served as the Chairman and ManagingDirector of Corporation Bank and the Chairman and CEO of ING Vysya Bank.Mr. Ramamoorthy has served on various committees including those constituted by the Reserve Bank of India, SEBI113
and the Indian Banks Association. He has also served as Convener, Economic Affairs Panel, Confederation of IndianIndustry (CII), Karnataka.He serves on the Board of the Clearing Corporation of India <strong>Limited</strong>, Subros <strong>Limited</strong>, Amrit Corp. <strong>Limited</strong>, GMRInfrastructure <strong>Limited</strong>, , ClearCorp Dealings Systems (India) <strong>Limited</strong>, FIL Trustee Company Private <strong>Limited</strong>, UjjivanFinancial Services Private <strong>Limited</strong>, GMR Power Corporation Private <strong>Limited</strong> and GMR Ambala-ChandigarhExpressways Private <strong>Limited</strong>.Mrs. Lakshmi PraneshMrs. Lakshmi Pranesh holds a bachelors and a master’s degree in Mathematics from the University of Madras. She isan ex-officer of the Indian Administrative Services (I.A.S.) and has served as a government nominated director in manycorporations in the public sector viz. the Tamil Nadu Industrial Development Corporation, Small IndustriesDevelopment Corporation, Police Housing Corporation and Agro-Industries Corporation.Presently she does not hold directorships in any other company.Mr. Puneet BhatiaMr. Puneet Bhatia is Managing Director and Country Head - India for TPG Asia. Prior to joining TPG Asia in April2002, Mr. Bhatia was Chief Executive, Private Equity Group for GE Capital India (“GE Capital”), where he wasresponsible for conceptualizing and creating its direct and strategic private equity investment group. As ChiefExecutive, he handled a portfolio of almost a dozen companies including TCS, Patni Computers, BirlaSoft, SierraAtlantic, iGate, Indus Software and Rediff. He was also responsible for consummating some of GE Capital’s jointventures in India. Prior to this, Mr. Bhatia was with ICICI Bank <strong>Limited</strong> from 1990 to 1995 in the Project andCorporate <strong>Finance</strong> group and thereafter worked as Senior Analyst with Crosby Securities from 1995 to 1996covering the automobiles and consumer sectors. Mr. Bhatia is a native of and is based in India and currently servesas Director on the Board of <strong>Shriram</strong> Transport <strong>Finance</strong> Company <strong>Limited</strong>, TPG Capital India Private <strong>Limited</strong>,<strong>Shriram</strong> Holdings (Madras) Private <strong>Limited</strong>, <strong>Shriram</strong> Capital <strong>Limited</strong> and <strong>Shriram</strong> Properties <strong>Limited</strong> . Mr. Bhatiahas a B.Com Honors degree from the Sriram College of Commerce, Delhi and an M.B.A. from the Indian Instituteof Management, Calcutta.Mr. G.S. SundararajanMr. G.S. Sundararajan holds a bachelors degree in engineering from College of Agricultural Engineering, Tamil NaduAgricultural University, CBE and a post graduate diploma in management from the Indian Institute of Management,Ahmedabad. Mr. Sundararajan has served as the Managing Director and head of Citibank SME & Asset Based<strong>Finance</strong> business in India and as the Managing Director of Fullerton India Credit Company <strong>Limited</strong>.He is also the Managing Director of <strong>Shriram</strong> Capital <strong>Limited</strong>, and serves on the boards of <strong>Shriram</strong> Credit Company<strong>Limited</strong>, <strong>Shriram</strong> General Insurance Company <strong>Limited</strong>, <strong>Shriram</strong> Life Insurance Company <strong>Limited</strong> and VistaarLivelihood Financial Services Private <strong>Limited</strong>.Mr. Sunil VarmaMr. Sunil Varma is a fellow member of the Institute of Chartered Accountants of India and the Institute of Cost &Management Accountants India. He also holds a Bachelor’s degree in Arts (Maths and Economics) from PunjabUniversity. Mr. Varma has consulting experience of approximately 30 years with Price Waterhouse ManagementConsultants and the IBM Consulting group in India and overseas. He has also worked as a CFO in HCL Perot Systemsand MD Asia online <strong>Limited</strong> Hong Kong.He has advised companies on corporate governance, financial management, organizational strengthening, efficiencyimprovements, process re-engineering and business systems.He serves on the Board of Sriram EPC <strong>Limited</strong>, International Asset Reconstruction Company Private <strong>Limited</strong> andVistaar Livelihood Financial Services Private <strong>Limited</strong>.114
Remuneration of the DirectorsThe independent directors are paid sitting fees for attending the various meetings of the Board and of theCommittees of the Board as under:MeetingOverall limit per Director (`)Meetings of the Board 15,000Meetings of any committee of the Board 10,000Appointment and Remuneration of the Managing DirectorMr. R. Kannan has been appointed as the managing director of our Company for period of three (3) years with effectfrom September 15, 2010, pursuant to a resolution of the shareholders of our Company passed at their AGM held onJuly 30, 2010. Currently no remuneration is payable to our managing director as consented by him and authorised byan ordinary resolution passed by the shareholders of our Company at their general meeting held on July 30, 2010.Other terms of appointment of our Managing Director are as follows:1. The Managing Director shall not be paid any sitting fees for attending General Meetings and Meetings ofthe Board or Committee thereof.2. The Board may revise the existing or allow any other facilities/perquisites from time to time, within overallceiling limits.3. The Managing Director is not liable to retire by rotation.For further details refer to the section titled “Material Contracts and Documents for Inspection” beginning on page186 this Draft Prospectus.Borrowing Powers of the BoardPursuant to resolution passed by the shareholders of our Company at their AGM held on July 30, 2009, and inaccordance with provisions of Section 293 (1)(d) of the Act, the Board has been authorised to borrow sums ofmoney as they may deem necessary for the purpose of the business of our Company upon such terms and conditionsand with or without security as the Board of Directors may think fit, provided that money or monies to be borrowedtogether with the monies already borrowed by our Company (apart from temporary loans (including working capitalfacilities) obtained from our Company’s bankers in the ordinary course of business) shall not exceed ` 1,000,000lakhs.Interest of the DirectorsAll the directors of our Company, including our independent directors, may be deemed to be interested to theextent of fees, if any, payable to them for attending meetings of the board or a committee thereof as well as to theextent of other remuneration and reimbursement of expenses payable to them. All the non-executive independentdirectors of our Company are entitled to sitting fees for every meeting of the board or a committee thereof. Themanaging director of our Company is interested to the extent of remuneration paid for services rendered as anofficer or employee of our Company.115
All the directors of our Company, including independent directors, may also be deemed to be interested to theextent of Equity Shares, if any, held by them or by companies, firms and trusts in which they are interested asdirectors, partners, members or trustees and also to the extent of any dividend payable to them and otherdistributions in respect of the said Equity Shares.All our directors may be deemed to be interested in the contracts, agreements/arrangements entered into or to beentered into by our Company with any company in which they hold directorships or any partnership firm in whichthey are partners as declared in their respective declarations. Except as otherwise stated in this Draft Prospectusand statutory registers maintained by our Company in this regard, our Company has not entered into any contract,agreements or arrangements during the preceding two years from the date of this Draft Prospectus in which thedirectors are interested directly or indirectly and no payments have been made to them in respect of these contracts,agreements or arrangements which are proposed to be made with them.Our Company’s directors have not taken any loan from our Company.Debenture holding of Directors:None of our Directors are holding debentures of our Company.Changes in the Directors of our Company during the last three years:The Changes in the Board of Directors of our Company in the three years preceding the date of this Draft Prospectusare as follows:Name of the Director Date of Change ReasonMr. V. Parthasarathi November 2, 2009 ResignationDr. T.S. Sethurathnam January 30, 2010 ResignationShareholding of Directors, including details of qualification shares held by DirectorsAs per the provisions of our MOA and AOA, Directors are not required to hold any qualification shares.None of our Directors are holding shares in our Company.Corporate GovernanceOur Company has been complying with the requirements of the applicable regulations, including the listingagreement with the Stock Exchanges where our securities are listed and the SEBI Regulations, in respect ofcorporate governance including constitution of the Board and Committees thereof. The corporate governanceframework is based on an effective independent Board, separation of the Board’s supervisory role from theexecutive management team and constitution of the Board Committees, as required under law.The Board is constituted in compliance with the Companies Act , the listing agreement with Stock Exchangeswhere our securities are listed and in accordance with best practices in corporate governance. The Board functionseither as a full Board or through various committees constituted to oversee specific operational areas. The executivemanagement of our Company provides the Board detailed reports on its performance periodically.Details of various committees of the BoardOur Company has constituted the following committees:116
A. Audit CommitteeThe members of the Audit Committee as on March 31, 2011 are:1. Mr. Sunil Varma- Chairman2. Mr.S. Krishnamurthy3. Mr. S Venkatakrishnan4. Mr. Mukund Govind Diwan5. Mr. Ranvir Dewan6. Mrs. Lakshmi PraneshTerms of Reference:To oversee the financial reporting processTo recommend appointment and re-appointment of Auditors and their remunerationApproval of payment to Statutory Auditors for any other services rendered by the Statutory AuditorsReviewing, with the management, the Financial Statements before submission to the BoardTo ensure proper disclosure in the quarterly , half yearly and Audited Financial StatementsReviewing the adequacy of internal audit function including the structure of the internal audit department,staffing and seniority of the official heading the department, reporting structure , coverage and frequency ofinternal auditDiscussing with Internal Auditors on any significant findings and follow up there onReviewing the findings of any internal examinations by the Internal Auditors into matters where there issuspected fraud or irregularity or a failure of internal control systems of a material nature and reporting thematter to the BoardDiscussion with Statutory Auditors before the audit commences, about the nature and scope of audit as wellas post-audit discussion to ascertain any area of concern.To discuss with management, the senior internal audit executives and the Statutory Auditor/s, theCompany’s major risk exposures and guidelines and policies to govern the processes by which riskassessment and risk management is undertaken by the Company, including discussing the Company’smajor financial risk exposures and steps taken by management to monitor and mitigate such exposures andfrom time to time conferring with another Committee/s of the Board about risk exposures and policieswithin the scope of such other Committee’s oversight.To look into the reasons for substantial defaults in the payment to the depositors, debenture holders,shareholders (in case of non payment of declared dividends) and creditors, if any.To review the functioning of the Whistle Blower MechanismTo approve appointment of Chief Financial Officer (CFO) of the Company( person heading the financefunction or discharging that function) .To have management discussion and analysis of financial condition and results of operations;To review significant related party transactionsManagement letters/letters of internal control weaknesses issued by the Statutory Auditors117
Internal Audit Reports relating to internal control weaknessesTo review the appointment , removal and terms of remuneration of the Internal AuditorReviewing , with the management, performance of Statutory and Internal Auditors, adequacies of theinternal control systemsTo Carry out any other function as decided by the Board from time to timeB. Remuneration and Compensation CommitteeThe members of the Remuneration and Compensation Committee as on March 31, 2011 are:1. Mr. Vipen Kapur- Chairman2. Mr. S. Krishnamurthy3. Mr. Mukund Govind DiwanThe terms of reference of the Remuneration and Compensation Committee, inter alia, include: To determine salaries, benefits and stock options grants to Directors of the Company. To develop guidelines, review and approve the Remuneration Policy of the Company. To guide the management regarding the Company’s compensation, bonus, pension and other benefit plans,policies and practices and the talent management . To review and approve employment agreements , severance arrangements, change in control agreements andany other benefits, compensation or arrangements for the Directors of the Company To establish guidelines and to grant the stock options to employees and officers of the Company . To administer the Company’s stock incentive plans and other similar incentive plans and interpret andadopt rules for the operation thereof.C. Shareholders’ and Investors’ Grievance CommitteeThe members of the Shareholders’ and Investors’ Grievance Committee as on March 31, 2011 are:1. Mr. S. Venkatakrishnan- Chairman2. Mr. R. Kannan3. Mr. S. KrishnamurthyThe terms of reference of the Shareholders and Investors Grievance Committee, inter alia, include:Redressal of shareholders' and investors' complaints; Review the Shareholding pattern and Ownership .Facilitate better investor services and relations.Transfer of unclaimed Dividend/Deposits/Debentures/Subordinated Debt , to Investor Education andProtection FundListing of Securities on Stock Exchanges including Global depository receiptsReview of Secretarial audits, appointment of Secretarial Auditors and their remunerationAny other subject as may be assigned by the Board from time to time.118
To form Sub CommitteesD. Asset liability Management CommitteeThe members of the Asset liability Management Committee, (“ALCO”) as on March 31, 2011 are:1. Mr. R. Kannan- Chairman2. Mr. R. Chandra Sekhar3. Mrs. Subasri SriramThe terms of reference of the ALCO, inter alia, include:The ALCO is responsible for ensuring adherence to the limits set by the Board as well as for deciding thebusiness strategy of the Company in line with the Company’s budget and decided risk management objectives.The ALCO is the decision-making unit responsible for Balance Sheet planning from risk-return perspectiveincluding strategic management of interest rate and liquidity risks.Its functions include the following:Liquidity risk managementFunding and Capital PlanningForecasting and analyzing future business environment and preparation of contingency plansManagement of Market RiskProfit Planning and growth projectionE. Banking and <strong>Finance</strong> CommitteeThe members of the Banking and <strong>Finance</strong> Committee as on March 31, 2011 are:1. Mr. S. Venkatakrishnan - Chairman2. Mr. R. KannanThe terms of reference of the Banking and <strong>Finance</strong> Committee, inter alia, include:Banking operations including Open, Close, Operation of all types of Bank Accounts with any Bank andauthorize such person to do all or any of these activities.Authorise any person/s to accept and confirm the bank balancesBorrow money from bank or any other institution within the limit specified by the Board from time to timeeither by short term loan or long term loan by whatever name called.i.e, working capital loan, cash credit,working capital demand loan, short term loan, overdraft, term loan, commercial paper, debentures,securitization etc.Invest keep deposited or otherwise the funds of the Company in short term deposits and long term depositswith banks or any other institutions, in mutual funds or any other funds within the limit sanctioned by theBoard and authorize such person/s to do any such activities.119
Apply for listing of any instruments/ securities as may be required with any of the Stock exchanges.To authorize any person to sign the documents required for banking and borrowing of any nature and suchother activities.To do all such acts required for all types of banking and borrowing and authorize such other person/s to doany or all such activities.To sell down the assets of the Company.To appoint issuing and paying agents, merchant bankers, brokers and related agents for banking andborrowings.Any other activity related to banking and borrowing or any activity of business importance as may beratified by the Board.Payment of benefits and profit-share to EmployeesExcept entitlement to stock options under the ESOP 2006 and ESOP 2008, and payments in accordance with theterms of appointment of our employees, we have not paid or granted any amounts or benefits to our employees, inthe two years preceding the date of this Draft Prospectus. Our employees are not entitled to any share in the profitsof our Company.120
OUR PROMOTERProfile of our PromotersOur Promoters are <strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong> and <strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong>.A. <strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong><strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong> was incorporated as a private limited company under the Act on June29, 1995, vide a certificate of incorporation issued by the ROC, Chennai, Tamil Nadu. The registered office of ourPromoter is located at Mookambika Complex, No.4, Lady Desika Road, Mylapore, Chennai 600 004. Our Promoter isprimarily engaged in the business of investment promotion including facilitating strategic investor or private equityinvestor or third parties to invest in our Company.Our Promoter has not been named or set out as a promoter of any other company in any offer document, filing withstock exchange(s) or with any regulatory and/or statutory authorities. Further, besides holding shares of ourCompany, our Promoter does not directly or indirectly hold shares in the share capital of any company. There are nocommon pursuits between our Company and our Promoter.Interest of Promoter in our CompanyExcept as stated under the section titled “Financial Information” beginning on page 128 of this Draft Prospectus andto the extent of their shareholding in our Company, the Promoter does not have any other interest in our Company’sbusiness. Further, our Promoter has no interest in any property acquired by our Company in the last two years fromthe date of this Draft Prospectus, or proposed to be acquired by our Company.Our Promoter does not propose to subscribe to this Issue.Other than the payment of dividend on the shares held by our Promoter in the share capital of our Company, andissue of the following Equity Shares and warrants convertible into Equity Shares, interest paid on Inter-corporateDeposit, we have not paid or granted any amounts or benefits, in the two years preceding the date of this DraftProspectus.Details of Shares allotted to our Promoter during the last three Financial YearsSr.No.Nature of TransactionShareholding Pattern of our Promoter as on March 31, 2011:Date ofallotmentNo. ofSecuritiesIssue Price (`)1. Conversion of warrants issued on December 29, 2006 March 20, 2008 20,55,000 160/-2. Conversion of warrants issued on December 29, 2006 June 27, 2008 14,45,000 160/-Sr. Name of Shareholder No. of Shares Percentage Shareholding(%)No.1. <strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong> 999,990 99.992. Sri R. Thyagarajan and <strong>Shriram</strong> Retail10 0.01Holdings Private <strong>Limited</strong>Total 1,000,000 100.00121
Board of directors of our Promoter as on March 31, 20111. Mr. Chandrashekhar Ramasubramanian2. Mr. Ravi Venkatraman3. Mr. Murali SrinivasanChanges in the board of directorsThere have been no changes in the board of directors of our Promoter in the last three years preceding the date ofthis Draft Prospectus.Name of the Director Date of Change ReasonMr. Venkataraman Mahalingam May 27, 2005 ResignationFinancial Performance of our Promoter for the last three financial years(` in Lakhs)Particulars FY 2008 FY 2009 FY 2010Balance SheetSOURCES OF FUNDSShareholder Funds:Share Capital 1,000.00 1000.00 1000.00Unsecured Loan from Shareholder 2,682.50 4228.30 4228.30Reserves and Surplus 22,556.34 23265.25 23991.49Total 26,238.84 28493.55 29219.79APPLICATION OF FUNDSInvestments 2,6230.93 28,311.73 28,311.73Deferred Tax Asset (Net) Nil Nil NilCurrent AssetsCash and Bank Balances 7.80 181.74 907.99Loans & Advances 0.18 Nil0.18 0.18Less: Current Liabilities 0.07 0.10 0.12Net Current Assets 7.91 181.82 908.05Total 26,238.84 28,493.55 29,219.79Profit and Loss AccountINCOMEDividend Income 432.64 716.86 896.07Interest Received 0.00 0.00 0.00Total 432.64 716.86 896.07122
Particulars FY 2008 FY 2009 FY 2010EXPENDITUREInterest Paid 0.00 0.00 0.00Audit Fees 0.10 0.13 0.15Demat A/c Charges 0.00 0.36 0.13Filing Fees 6.50 1.06 0.02Postage & Courier Expenses 0.29 0.00 0.00Professional Charges Paid 0.00 6.25 169.53Miscellaneous Expenses 0.00 0.06 0.00Loss on sale of Shares 142.50 0.00 0.00Printing and Stationary Charges 0.00 0.04 0.00Bank Charges 0.03 0.04 0.01Total 149.42 7.94 169.84Net Profit Before Tax 283.22 708.92 726.23Add: Provision for Deferred Tax - - -Less : Provision for –Taxation - - -Net Profit After Tax 283.22 708.92 726.23Balance brought down from Previous Year 429.77 712.99 1421.91Less: Prior Period Tax - - -Less: Dividend Paid - - -Less: Transferred to General Reserve - - -Surplus carried over to Balance Sheet 712.99 1,421.91 2148.14B. <strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong><strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong> was incorporated as private limited companies under the Act on January24, 2006 vide a certificate of incorporation issued by the ROC, Chennai, Tamil Nadu. The registered office of ourPromoter is located at Mookambika Complex, No.4, Lady Desika Road, Mylapore, Chennai 600 004. Our Promoter isprimarily engaged in the business of investment promotion including facilitating strategic investor or private equityinvestors or third parties to invest in our Company.Our Promoter has not been named or set out as a promoter of any other company in any offer document, filing withstock exchange(s) or with any regulatory and/or statutory authorities. Further, besides holding shares of ourCompany, our Promoter does not directly or indirectly hold shares in the share capital of any company. There are nocommon pursuits between our Company and our Promoter.Interest of Promoter in our CompanyExcept as stated under the section titled “Financial Information” beginning on page 128 of this Draft Prospectus andto the extent of their shareholding in our Company, the Promoter does not have any other interest in our Company’sbusiness. Further, our Promoter has no interest in any property acquired by our Company in the last two years fromthe date of this Draft Prospectus, or proposed to be acquired by our Company.Our Promoter does not propose to subscribe to this Issue.Other than the payment of dividend on the shares held by our Promoter in the share capital of our Company, andissue of the following Equity Shares and warrants convertible into Equity Shares, interest paid on Inter-corporateDeposit, we have not paid or granted any amounts or benefits, in the two years preceding the date of this DraftProspectus.123
Details of Shares allotted to our Promoter during the last three Financial YearsThere have been no allotments to <strong>Shriram</strong> Retail Holdings private <strong>Limited</strong> during the last three Financial years.Shareholding Pattern of our Promoter as on March 31, 2011:Sr. Name of Shareholder No. of Shares Percentage Shareholding (%)No.1. <strong>Shriram</strong> Capital <strong>Limited</strong> 2,305,997 50.992. R. Thyagarajan and <strong>Shriram</strong> Capital<strong>Limited</strong>10 0.003. TPG India Investments INC. 2,215,575 49.00Total 4,521,582 100.00Board of directors of our Promoter as on March 31, 2011:1. Mr. Ravi Venkataraman2. Ms. Akhila SrinivasanChanges in the board of directorsThere have been no changes in the board of directors of our Promoter in the last three years preceding the date ofthis Draft Prospectus.Financial Performance of our Promoter for the last three financial years(` in Lakhs)Particulars FY 2008 FY 2009 FY 2010Balance SheetSOURCES OF FUNDSShareholder Funds:Share Capital 5.00 334.67 452.15Unsecured Loan 0.00 43,092.93 0.00Reserves and Surplus 0.00 33,730.94 61,678.24Total 5.00 77,158.54 62,130.39APPLICATION OF FUNDSInvestments 0.00 44,904.27 55,962.27Deferred Tax Asset (Net) 0.00 0.00 0.00Current AssetsCash and Bank Balances 4.55 32,021.61 939.82Other Current Assets 0.00 138.78 4,374.48Less: Current Liabilities 0.01 0.70 86.24Net Current Assets 4.54 32,159.70 5,228.06Miscellaneous ExpenditurePreliminary Expenses- To the extent not written off 0.10 0.06 0.03Profit and Loss account 0.35 94.51 940.03Total 5.00 77,158.54 62130.39Profit and Loss Account124
Particulars FY 2008 FY 2009 FY 2010INCOMEDividend Income 0.00 217.66 334.38Interest Received 0.00 296.05 449.00Other Income 0.00 0.02 0.01Total 0.00 513.74 783.39EXPENDITUREAudit Fees 0.01 0.15 0.15Filling Fees 0.04 58.65 0.07General Charges 0.002 0.11 1,400.34Demat A/c Charges 0.00 0.40 0.13Management Charges 0.00 548.31 120.00Bank Charges 0.004 0.02 0.01Advertisement Expenses 0.00 0.00 0.36Printing and Stationery 0.00 0.03 0.97Travelling Expenses 0.00 0.14 0.00Postage and Courier Expenses 0.00 0.00 0.61Professional Charges 0.00 0.01 20.14Preliminary Expenses written off 0.03 0.03 0.03Total 0.09 607.90 1,542.83Net Profit Before Tax (0.09) (94.15) (759.44)Less : Provision for –Taxation 0.00 0.00 86.07Less: Provision for Fringe Benefit Tax 0.00 0.002 0.00Balance brought down from Previous Year (0.26) (0.35) (94.51)Surplus carried over to Balance Sheet (0.35) (94.51) (940.03)125
OUR SUBSIDIARYAs on the date of this Draft Prospectus our Company has the following one subsidiary:1. <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong> (“SHFL”):SHFL was incorporated pursuant to a certificate of incorporation dated November 9, 2010, issued by theRegistrar of Companies, Chennai, Tamil Nadu , and commenced its operations, pursuant to a certificate ofcommencement of business dated January 21, 2011. The registered office is situated at123, AngappaNaicken Street, Chennai, Tamil Nadu 600001.Shareholding Pattern:As on the date of this Draft Prospectus the shareholding pattern of SHFL is as follows:Sr.No.Name of Shareholder Address No. Of EquityShares1. <strong>Shriram</strong> <strong>City</strong> <strong>Union</strong><strong>Finance</strong> <strong>Limited</strong>123, AngappaNaicken Street,Chennai, Tamil Nadu- 600 001.2. Subhasri Sriram No.5 (Old No. 23)29 th Cross Street, IndraNagar, Chennai, TamilNadu - 600 020.3. C.R. Dash Flat no. B/13,RaghamallikaApartment, No. 2,Jeevaratnam Nagar,Adyar, Chennai - 600020.4. Y.S. Chakravarthi Flat No. 302, BanjaraHeritage Apts RoadNo. 3, PanchavatiSociety, Banjara Hills,Hyderabad- 500 034.5. M. R. Vijaya Golden Emerald FlatsNo. 12, G4, MuthuKumaran Street,Venkatewara Nagar,Ambattur Chennai -600 053.6. Krithika Doraiswamy Flat No. 8, AnandhamFlats, new No. 343,Thachi AruchalamStreet, Mylapore,Chennai - 600 004.7. P Udhaya Geetha No. 5/10,Govindasamy StreetMGR Nagar, (JothiNagar),126Face value of PercentageEquity of EquityShares in (`) Share capital(%)249,999,994 10 99.991 10 0.000031 10 0.000031 10 0.000031 10 0.000031 10 0.000031 10 0.00003
Sr.No.Name of Shareholder Address No. Of EquitySharesChitlapakkam,Chennai -600 064.Face value ofEquityShares in (`)Percentageof EquityShare capital(%)Total 250,000,000 100Board of Directors:The board of directors of SHFL comprises of the following persons:1. Mr. Sujan Sinha-Managing Director;2. Mr. Subhasri Sriram; and3. Mrs. Y. S. Chakravarti;127
SECTION V : FINANCIAL INFORMATIONFINANCIAL STATEMENTSSr.ParticularsNo.1. Examination report on Reformatted Unconsolidated Summary FinancialStatements as at and for the financial years ended March 31, 2007, 2008, 2009,2010 and 2011 as issued by the Statutory Auditor2. Reformatted Unconsolidated Summary Financial Statements as at and for theyears ended for the financial years ended March 31, 2007, 2008, 2009, 2010and 20113. Examination report on Reformatted Consolidated Summary FinancialStatements as at and for the financial year ended March 31, 2011 as issued byStatutory Auditor4. Reformatted Consolidated Summary Financial Statements as at and for thefinancial year ended March 31, 2011.Page No.F-1F-4F-123F-126128
PIJUSH GUPTA & COC H A R T E R E D A C C O U N T A N T SP-199, C.I.T.ROAD, SCHEME IV-M, KOLKATA – 700 010TEL (033) 2353-6859, (0) 98311 91779 MAIL: pijushgupta.ca@gmail.comAuditors' ReportToThe Board of Directors<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>221, Royapettah High Road,Mylapore, ChennaiDear Sirs,1. We, Pijush Gupta & Co., have examined the attached Reformatted unconsolidated financial informationcomprising of Balance Sheet, Profit and Loss Accounts, Cash Flows and notes thereon of <strong>Shriram</strong> <strong>City</strong> <strong>Union</strong><strong>Finance</strong> <strong>Limited</strong>, ("Company" or “Issuer”) as at and for the years ended March 31, 2011, 2010, 2009, 2008 and2007, approved by the board of directors of the Company and as prepared by the Company in accordance withthe requirements of:a. paragraph B(1) of Part II of Schedule II to the Companies Act, 1956 ('the Act') andb. the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008,("Regulations"), issued by the Securities and Exchange Board of India, ("SEBI"), as amended from timeto time in pursuance of Section 11 of the Securities and Exchange Board of India Act, 1992 ("SEBIAct").Pijush Gupta & Co. is referred to as the "Auditors" and the references to the Auditors as "we", "us" or "our", inthis letter, shall be construed accordingly.2. We have examined such reformatted unconsolidated financial information taking into consideration:a. The terms of reference dated June 26, 2011 received from the Company and engagement letter ofauditors dated June 26, 2011 requesting us to carry out the assignment, in connection with the DraftProspectus/Prospectus (collectively referred to as “Offer Document”) being issued by the Company forits proposed public issue of secured non-convertible debentures ("NCDs"), having a face value ofRs.1000 each (referred to as the "Issue") andb. The ‘(Revised) Guidance Note on Reports in Company Prospectuses’ issued by the Institute of CharteredAccountants of India.Reformatted Unconsolidated Financial information as per audited unconsolidated financial statements:3. The reformatted unconsolidated financial information of the Company has been extracted by the managementfrom:a. the Unconsolidated balance sheet as at March 31, 2011, 2010, 2009, 2008 and 2007 and the relatedUnconsolidated profit and loss account and Unconsolidated cash flow statement for the year endedMarch 31, 2011, 2010, 2009, 2008 and 2007 (collectively referred to as the " Unconsolidated FinancialStatements") audited by us;b. In the course of our aforesaid audit we relied upon audit reports received from Branch Auditors who hadconducted audit of business regions of the company.These Audited Unconsolidated Financial Statements have been approved by the Board of Directors.F-1
4. In accordance with the requirements of Paragraph B of Part II of Schedule II of the Act, the SEBI Regulations,terms of our engagement agreed with you and statement of responsibilities of auditors, we further report that:a) The Reformatted Unconsolidated Summary Statement of Assets and Liabilities and the schedulesforming part thereof, Reformatted Unconsolidated Summary Statement of Profit and Loss and theschedules forming part thereof and the Reformatted Unconsolidated Summary Statement of Cash Flow(‘Reformatted Unconsolidated Summary Statements’) of the Company, including and as at and for theyears ended March 31, 2011, 2010, 2009, 2008 and 2007 , examined by us have been set out in AnnexureI to V to this report. These Reformatted Unconsolidated Summary Statements are after regrouping as inour opinion are appropriate and more fully described in Significant Accounting Policies and Notes (ReferAnnexure XIII)b) Based on the above, we state that:the Reformatted Unconsolidated Summary Statements have to be read in conjunction with thenotes given in Annexure XIII;the figures of earlier periods have been regrouped (but not restated retrospectively for change inaccounting policy), wherever necessary, to confirm to the classification adopted for theReformatted Unconsolidated Summary Statement as at/for the year ended March 31, 2011;there are no extraordinary items which need to be disclosed separately in the reformattedunconsolidated summary statements; andthere are no qualifications in the auditors’ reports, which require any adjustments to thereformatted consolidated summary statements.5. We have not audited any unconsolidated financial statements of the Company as of any date or for anyperiod subsequent to March 31, 2011. Accordingly, we express no opinion on the financial position,results of operations or cash flows of the Company as of any date or for any period subsequent to March31, 2011.Other unconsolidated Financial Information:6. At the Company’s request, we have also examined the following unconsolidated financial information proposedto be included in the Offer Document prepared by the Company and approved by the board of directors of theCompany and annexed to this report, relating to the Company for the years ended March 31, 2011, 2010, 2009,2008 and 2007 :i. Statement of contingent liabilities, enclosed as Annexure VIii. Statement of dividend paid/proposed, enclosed as Annexure VIIiii. Statement of accounting ratios relating to earnings per share, net asset value, return on net worth,enclosed as Annexure VIIIiv. Statement of Secured and Unsecured Loans including terms and conditions, enclosed as Annexure IX &Xv. Capitalization Statement as at March 31, 2011, enclosed as Annexure XIvi. Statement of tax shelters, enclosed as Annexure XII7. In our opinion, the reformatted unconsolidated financial information as disclosed in the annexure to this report,read with the respective significant accounting policies and notes disclosed in Annexure XIII, and after makingre-groupings as considered appropriate and disclosed, has been prepared in accordance with Paragraph B(1) ofPart II of Schedule II of the Act and the Regulations.F-2
8. This report should not be in any way construed as a reissuance or redating of any of the previous audit reportsissued by us or by any other firm of Chartered Accountants, nor should this report be construed as a newopinion on any of the Reformatted Unconsolidated Financial Statements referred to herein.9. We have no responsibility to update our report for events and circumstances occurring after the date of thereport for the financial position, results of operations or cash flows of the Company as of any date or for anyperiod subsequent to March 31, 2011.10. This report is intended solely for your information and for inclusion in the Offer Document in connection withthe Offering of the Company, and is not to be used, referred to or distributed for any other purpose without ourprior written consent.For Pijush Gupta & Co.Firm registration number: 309015EChartered AccountantsRamendra Nath DasPartnerMembership No.: 014125Chennai, July 21, 2011F-3
Annexure I<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Reformatted summary of Assets and LiabilitiesAssets(Rs. in lakhs)Particulars Schedule As at March 31,2011 2010 2009 2008 2007A.Fixed and Intangible Assets(Net)(including CWIP)12,944.43 2,044.52 3,721.98 5,108.06 5,570.48BInvestments2551.45 101.45 606.45 604.98 664.03C Deferred Tax Asset (Net) 1,581.66 1,122.70 313.05 - -DCurrent Assets, Loans &Advances3936,121.22 621,545.53 539,518.62 373,141.11 215,885.47F Total (A+B+C+D) 941,198.76 624,814.20 544,160.10 378,854.15 222,119.98LiabilitiesGSecured Loans4656,951.01 413,610.55 390,445.43 262,795.40 130,384.22HUnsecured Loans575,827.43 53,103.69 41,831.33 37,127.45 20,246.27I Deferred Tax Liability (Net) - - - 632.99 2,973.32JCurrent Liabilities670,089.54 46,393.55 33,125.35 29,048.76 31,165.45KProvisions717,123.50 11,706.08 7,783.75 4,269.76 2,457.10L Total (G+H+I+J+K) 819,991.48 524,813.87 473,185.86 333,874.36 187,226.36M Net Worth (F-L) 121,207.28 100,000.33 70,974.24 44,979.79 34,893.62Represented By(i)Share Capital84,953.69 4,915.47 4,585.68 6,444.48 6,238.98F-4
Annexure I<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Reformatted summary of Assets and Liabilities(ii)(iii)(Rs. in lakhs)Particulars Schedule As at March 31,2011 2010 2009 2008 2007Share application money pendingallotment - 0.71 - - -Stock Option Outstanding101,887.27 2,281.04 1,637.97 542.08 -(iv) Optionally Convertible warrants - - 2,700.00 232.20 560.00(v)(vi)Reserves and SurplusLess : Miscellaneous Expenditure(to the extent not written off oradjusted)911114,366.32 92,803.11 62,050.59 37,761.03 28,096.77- - - - 2.13Total (i+ii+iii+iv+v-vi) 121,207.28 100,000.33 70,974.24 44,979.79 34,893.62The accompanying statement of Significant Accounting Policies and Notes to Accounts on Summary Financial Statements areintegral part of this statement.As per our report of even dateFor Pijush Gupta & Co.Firm Registration No. 309015EChartered AccountantsFor and on behalf of the Board of Directors of<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> finance <strong>Limited</strong>Ramendra Nath Das R. Kannan S. VenkatakrishnanPartner Managing Director DirectorMembership No. 014125F-5
Annexure II<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Reformatted summary of Profit and Loss AccountParticularsSchedule(Rs. in Lacs)For the year ended March 31,2011 2010 2009 2008 2007A. Incomei Income from Operations 12 131,800.12 107,205.35 92,357.73 61,072.29 33,592.29ii Other Income 13 291.07 3,079.36 1,036.02 1,246.47 1,213.62Total Income 132,091.19 110,284.71 93,393.75 62,318.76 34,805.91B. Expenditurei Financial Expenses 14 58,848.26 51,759.01 49,048.65 30,848.93 17,124.52ii Personnel Expenses 15 4,367.02 3,611.63 3,582.75 2,274.74 935.51iii Operating & Other Expenses 16 20,470.16 14,163.60 12,882.73 10,273.02 6,034.77iv Depreciation and amortization 747.41 464.77 1,018.23 1,127.52 373.35v Impairment loss/(Reversal) onFixed assets & stock - - 1,186.81 - -vi Share & Debenture Issue expenseswritten off17 - - - 2.13 1.69viiProvisions & Write offs (net) 18 11,598.25 11,659.84 7,701.05 5,093.96 2,392.75Total Expenditure 96,031.10 81,658.85 75,420.22 49,620.30 26,862.59C. Net Profit Before Taxation (A-B) 36,060.09 28,625.86 17,973.53 12,698.46 7,943.32D. Provision for taxationCurrent tax 12,460.20 9,972.11 7,055.25 6,134.29 2,902.09Deferred tax (458.96) (809.65) (946.04) (2,340.33) (191.70)Wealth tax 1.76Fringe Benefit Tax 161.79 141.00 70.77Fringe Benefit Tax of earlier Year 37.54Total Tax 12,001.24 9,200.00 6,272.76 3,934.96 2,781.16E. Net Profit after Taxation (C-D) 24,058.85 19,425.86 11,700.77 8,763.50 5,162.16F-6
Annexure II<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Reformatted summary of Profit and Loss AccountParticularsSchedule(Rs. in Lacs)For the year ended March 31,2011 2010 2009 2008 2007Balance in Profit & Loss Accountbrought forward 22,730.09 12,003.01 8,412.03 4,471.38 2,264.35F. Balance Available forAppropriations 46,788.94 31,428.87 20,112.80 13,234.88 7,426.51G. AppropriationsDividend - CumulativeRedeemable Preference Shares - - 63.17 141.59 145.15Equity Shares - Interim dividend 1,236.25 982.28 501.85 391.00 271.00Equity Shares - Proposed finaldividend 1,733.79 1,474.64 1,375.92 1,332.15 782.00Preference Shares - Proposed finaldividend 0.08 9.41Tax on dividend 205.33 166.94 96.02 316.92 192.87Tax on proposed dividend 281.26 244.92 233.84 - -Transfer to statutory reserve 4,810.00 3,890.00 2,340.00 1,761.11 1,032.43Transfer to general reserve 2,410.00 1,940.00 1,170.00 880.00 522.27Transfer to Capital RedemptionReserve - - 2,328.98 - -Total Appropriations 10,676.63 8,698.78 8,109.79 4,822.85 2,955.13H. Balance carried to Balance Sheet(F-G) 36,112.31 22,730.09 12,003.01 8,412.03 4,471.38As per our report of even dateFor Pijush Gupta & Co.Firm Registration No. 309015EChartered AccountantsFor and on behalf of the Board of Directors of<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> finance <strong>Limited</strong>Ramendra Nath Das R. Kannan S. VenkatakrishnanPartner Managing Director DirectorMembership No. 014125Place: ChennaiDate: July 21, 2011C R DASHCompany SecretaryF-7
Annexure III<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Reformatted Summary of Cash Flow StatementParticularsFor the year ended March 31,(Rs in Lacs)2011 2010 2009 2008 2007A. Cash flow from operating activitiesNet profit before taxation 36,060.09 28,625.86 17,973.53 12,698.46 7,943.32Depreciation and amortization 747.41 464.77 1,018.23 1,127.52 373.35Share and debenture issue expenses writtenoff - - - 2.13 1.69(Profit) / loss on sale of fixed assets (net) 13.78 1.60 0.12 3.35 0.96Lease equalization Adjustments (11.49)(Profit) / loss on sale of current and longterm investments (net) - - 0.08 - -Interest income on current and long terminvestments and interest income on fixeddeposits (270.70) (1,203.65) (258.14) (228.64) (302.65)Dividend income - (444.91) (56.47) (46.06) (65.27)Employees Stock option compensation cost 471.68 751.53 1,111.28 542.09 -Provision for impairment - - 1,186.81 - -Provision for hedging contracts (546.62) - 994.18 811.68 -Provisions for non performing assets and baddebts written off 10,136.82 12,165.62 7,809.37 5,174.98 2,482.15Provisions for standard assets 1,714.89 - - - -Provision for gratuity 40.82 15.88 6.46 104.70 28.48Provision for leave encashment 27.48 9.87 1.51 13.60 1.77Provision for diminution in value ofinvestments - - - - 2.99F-8
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Annexure IIIReformatted Summary of Cash Flow Statement(Rs in Lacs)ParticularsFor the year ended March 31,2011 2010 2009 2008 2007Operating profit before working capitalchanges 48,395.65 40,386.57 29,786.96 20,203.81 10,455.31Movements in working capital:(Increase) / decrease in current assets:(Increase) / decrease in assets underfinancing activities (233,365.56) (111,057.72) (101,492.75) (108,713.56) (88,184.89)(Increase) / decrease in sundry debtors - 89.03 (13.21) 102.25 (60.52)(Increase) / decrease in lease assets - net ofsales - - - - 8.89(Increase) / decrease in other current assets (11,530.50) (5,552.81) (29.55) (94.98) 306.06(Increase) / decrease in other loans andadvances (931.92) 4,708.39 2,239.18 (2,111.58) (1,734.19)Increase / (decrease) in current liabilities 23,690.91 13,272.04 4,078.50 (2,119.00) 10913.48Cash generated from operations (173,741.42) (58,154.50) (65,430.87) (92,733.06) (68,295.86)Direct taxes paid (net of refunds) (11,127.69) (9,197.57) (6,450.11) (6,522.66) (3,154.36)Net cash used in operating activities (A) (184,869.11) (67,352.07) (71,880.98) (99,255.72) (71,450.22)B. Cash flows from investing activitiesInvestment in Fixed deposits (net) 7,992.17 (12,665.70) (5,855.70) 52.63 42.27Purchase of fixed assets and intangibles (1,663.61) (1,058.11) (879.02) (670.26) 13.80Proceeds from sale of fixed assets 2.52 2,269.20 59.93 1.81 (368.18)Purchase of Investment (200.00) - - - -Investment in subsidiary company (250.00) - (4.55) (4.99) -Proceeds from sale of investment insubsidiary company - - - 4.55 -Proceeds from sale of investments - 1,905.00 3.00 59.50 -Interest received on current and long terminvestments and interest on fixed deposits 270.70 1,203.65 258.14 228.64 302.65Dividend received - 444.91 56.47 46.06 65.27Net cash used in investing activities (B) 6,151.78 (7,901.05) (6,361.73) (282.06) 55.81F-9
Annexure III<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Reformatted Summary of Cash Flow StatementParticulars(Rs in Lacs)For the year ended March 31,2011 2010 2009 2008 2007C. Cash Flows from financing activitiesProceeds from issue of equity share capitalincluding securities premium & Shareapplication 133.05 10,317.48 12,985.41 3,288.00 19,200.00Proceeds from issue of share warrants - - 2,467.80 (327.80) 560.00Increase / (decrease) in bank borrowings(net) 180,566.59 (3,271.15) 70,101.92 114,921.35 52,645.77Increase / (decrease) in long termborrowings(net) 62,773.87 26,436.27 57,548.11 17,489.83 840.64Increase / (decrease) in fixed deposits (net) (45.64) (12.06) (52.87) (214.31) 2.84Increase / (decrease) in subordinate debts(net) 269.38 11,284.42 13,681.75 8,170.49 10,915.28Increase / (decrease) in redeemable nonconvertible debentures (net) - - (3,500.00) 3,500.00 -Increase / (decrease) in unsecured loans 22,500.00 - (5,425.00) 5,425.00 (247.50)Dividend paid (2,710.89) (2,358.20) (1,897.26) (1,324.00) (959.32)Tax on dividend (450.25) (400.77) (322.44) (225.01) (134.55)Net cash from financing activities (C) 263,036.11 41,995.99 145,587.42 150,703.55 82,823.16Net increase / (decrease) in cash and cashequivalents (A + B + C) 84,318.77 (33,257.14) 67,344.72 51,165.77 11,428.75Cash and Cash Equivalents at thebeginning of the year 116,711.86 149,969.00 82,624.28 31,458.51 20,029.76Cash and Cash Equivalents at the end ofthe year 201,030.63 116,711.86 149,969.00 82,624.28 31,458.51F-10
Annexure III<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Reformatted Summary of Cash Flow Statement(Rs in Lacs)Components of Cash and CashEquivalentsCash and Cash Equivalents at the end ofthe year as per Balance SheetAs at March 31,2011 2010 2009 2008 2007216,540.14 140,208.46 160,879.51 88,001.90 38,101.96Less: Balance in Current account held forunpaid dividendsLess : Fixed deposits held for unpaiddividendsLess : Fixed deposits held for more thanthree months22.11 17.03 20.87 22.78 20.4751.00 106.00 807.34 597.58 527.80Less : Fixed Deposit under Lien 15436.40 23373.57 10,082.30 4,757.26 6,095.18201,030.63 116,711.86 149,969.00 82,624.28 31,458.51As per our report of even dateFor Pijush Gupta & Co.Firm Registration No. 309015EChartered AccountantsFor and on behalf of the Board of Directors of<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> finance <strong>Limited</strong>Ramendra Nath Das R. Kannan S. VenkatakrishnanPartner Managing Director DirectorMembership No. 014125Place: ChennaiDate: July 21, 2011C R DASHCompany SecretaryF-11
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and Liabilities(Rs. in Lacs)Schedule 1 - Fixed and IntangibleAs at March 31,Assets(Net) 2011 2010 2009 2008 2007ASSETS FOR OWN USETangible Fixed AssetsBuilding 10.59 10.80 11.01 11.22 11.41Leasehold Improvements 681.68 374.89 287.54 229.02 -Furniture & Fixtures 790.93 417.94 317.97 94.63 283.86Vehicles 22.73 19.14 18.54 10.23 6.47Land - Freehold 1.76 1.76 72.89 131.70 131.70Land - Leasehold - - -Plant and Machinery 1230.25 927.61 3,009.38 4,631.26 5,137.04Intangible Fixed AssetsSoftware 206.49 292.38 4.65 - -TOTAL (A) 2,944.43 2,044.52 3,721.98 5,108.06 5,570.48ASSETS GIVEN ON LEASEPlant and Machinery - - - - -Vehicles - - - - -Land - - - - -Buildings - - - - -TOTAL (B) - - - - -TOTAL (A+B) 2,944.43 2,044.52 3,721.98 5,108.06 5,570.48F-12
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and Liabilities(Rs. in Lacs)As at March 31,Schedule 2 – Investments2011 2010 2009 2008 2007LONG TERM INVESTMENT (At cost)TradeShares : Fully paid up - -Unquoted - Preference Share - -Other Than TradeQuoted :A. Government Securities:13.05% GI Loan 2007 (Face Value-Rs. 55.70Lacs) - - - - 59.5012.25% GI Loan 2008 (Face Value Rs. 3 Lacs) - - - 3.08 3.086.13% GI Loan 2028(Face value -Rs.100 lacs) 101.45 101.45 101.45 101.45 101.45B.Equity Shares (Fully paid up)Unquoted :<strong>Shriram</strong> Life Insurance Company Ltd. - - 500.00 500.00 500.00(Face Value of Rs. 10/- each)<strong>Shriram</strong> Non Convention Energy Ltd. - - 5.00 0.45(Face Value of Rs. 10/- each)In wholly Owned Subsidiary<strong>Shriram</strong> Housing <strong>Finance</strong> Ltd.(Face Value of Rs. 10/- each) 250.00OthersHighmark Credit Information Services Pvt. Ltd(Face Value of Rs. 10/- each) 200.00551.45 101.45 606.45 604.98 664.03Book value of Quoted investments 101.45 101.45 101.45 104.53 164.03Market value of Quoted investments 83.52 83.52 83.52 86.69 143.43Book value of Unquoted investments 450.00 - 505.00 500.45 500.00Details of investments may be referred from the annual report of the respective yearsF-13
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and Liabilities(Rs. in Lacs)Schedule 3 - Current Assets, Loans &As at March 31,Advances 2011 2010 2009 2008 2007Assets under financing activities(a) Secured Loan- Considered good 617,967.11 418,113.82 327,961.52 235,141.98 146,105.68- Considered doubtful 7,066.95 4,950.58 3090.72 1,511.01 1,479.21(b)Unsecured Loans- Considered good 70,970.68 47,595.24 38,855.44 37,991.59 23,489.31- Considered doubtful 2,916.48 2,479.99 1,102.96 221.95 -698,921.22 473,139.63 371,010.64 274,866.53 171,074.20Sundry Debtors(Unsecured, considered Good)Debts outstanding for a period exceedingsix monthsOther debts - - 89.03 75.82 178.07Cash & Bank Balances- - 89.03 75.82 178.07(i) Cash on hand 6,025.87 3,590.69 1,515.96 1,686.20 1,676.56(ii) Remittances in transit - - 86.81 221.04 453.34(iii) Balances with scheduled banks in:Current accounts 95,526.87 93,150.93 37,527.09 36,694.58 15,619.07Deposit Accounts # 114,987.40 43,466.84 121,749.65 49,400.08 20,352.99216,540.14 140,208.46 160,879.51 88,001.90 38,101.96F-14
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and Liabilities(Rs. in Lacs)As at March 31,Schedule 3 - Current Assets, Loans &Advances 2011 2010 2009 2008 2007Other current assets(i) Interest accrued on fixed deposits andother loans and advances 324.96 1,262.84 413.71 325.18 177.57(ii) Other Assets 24.99 161.60 - - -(iii) Securitsation - Receivable 17,147.07 4,542.08 - 58.98 75.86(iv)Repossessed Assets - - - - 35.7517,497.02 5,966.52 413.71 384.16 289.18Other Loans and AdvancesSecured - Considered Goodloans to subsidiaries - - 4392.66 - -Unsecured- Considered GoodAdvances recoverable in cash or in kind orfor value to be received 1,547.91 2,065.94 2,274.95 4,319.43 3,156.69Advance- Capital Assets 108.93 12.60 50.00 4,128.96 2,209.76Advance tax (Net of provisions for IncomeTax) - - 262.19 1,030.88 783.51Prepaid expenses 952.29 24.00 38.21 202.35 29.79Security deposits 553.71 128.38 107.72 131.08 62.313,162.84 2,230.92 7,125.73 9,812.70 6,242.06Total 936,121.22 621,545.53 539,518.62 373,141.11 215,885.47# Includes Fixed deposits pledged withBanks as margin for securitization 15,436.40 7,373.57 9,941.77 4,299.21 4,149.75# Includes Fixed deposits pledged withBanks as as lien against loans taken - 16,000.00 140.53 458.05 1,945.43F-15
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and Liabilities(Rs. in Lacs)Schedule 4 - Secured LoansAs at March 31,2011 2010 2009 2008 2007Redeemable non convertibledebentures 219,877.64 154,073.77 127,741.10 69,106.39 60,968.56refer note 2(1)(a)(b) 2(1)(a)(b)(c) 2(1)(a) 2(1)(a) B(1)(i)Term loansi) From Financial institutions /Corporate 6,500.00 9,530.00 9,426.40 10,513.00 1,161.00refer note 2(1)(c)(i) 2(1) (d)(i) 2(1)(b)(i) 2(1)(b)(i) B(1)(ii)(iii)ii) From banks 295,677.28 104,634.17 143,562.74 115,755.02 41,453.74refer note 2(1)(c)(ii) 2(1)(d)(ii) 2(1)(b )(ii) 2(1)(b)(ii) B(1)(ii)(iii)(iv)Cash credit from banks 134,896.09 145,372.61 109,715.19 67,420.99 26,800.92refer note 2(1)(d) 2(1)(e) 2(1)(c) 2(1)(c) B(1)(v)656,951.01 413,610.55 390,445.43 262,795.40 130,384.22F-16
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and LiabilitiesSchedule 5 - Unsecured LoansAs at March 31,(Rs. in Lacs)2011 2010 2009 2008 2007Fixed deposits 55.10 100.74 112.80 165.67 379.98Inter corporate deposits - - - 925.00 -Subordinated debts 53,272.33 53,002.95 41,718.53 28,036.78 19,866.29Redeemable non-convertible debentures - - - 3,500.00 -Commercial papers 22,500.00 - - 4,500.00 -75,827.43 53,103.69 41,831.33 37,127.45 20,246.27F-17
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and LiabilitiesSchedule 6 - Current LiabilitiesAs at March 31,(Rs. in Lacs)2011 2010 2009 2008 2007Sundry Creditors 2,653.61 1,133.96 1,776.37 2,857.83 1,845.87Caution and lease deposits - - - - 44.44Interest accrued but not due on loans 32,818.43 28,902.17 21,543.25 13,595.42 15,045.02Unclaimed Redeemable PreferenceShares - - -Application money on Redeemablenon convertible debentures 967.07 117.27 172.09 392.23 303.87Application money on Subordinateddebts 107.47 4.00 43.11 216.33 151.05Investor Education and ProtectionFund shall be credited by thefollowing amounts (as and when due)Unclaimed Matured Deposits 20.83 21.01 19.79 13.71 19.98Unclaimed Matured Debentures 3,777.27 2,744.13 2,219.30 1,932.21 1,136.73Unclaimed Matured SubordinatedDebts 210.19 13.85 - - -Interest accrued and due on above 858.63 568.99 614.44 669.57 246.20Unclaimed dividend 22.11 17.03 20.87 22.78 20.47Temporary credit balance in bankaccounts 3,122.28 7,126.55 2,796.97 2,473.35 3,950.78Securitization deferred income 23,686.37 4,025.63 2,228.49 5,176.46 6,799.25Other liabilities 1,845.28 1,718.96 1,690.67 1,698.87 1,601.7970,089.5446,393.55 33,125.35 29,048.76 31,165.45F-18
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and LiabilitiesSchedule 7 - ProvisionsAs at March 31,(Rs. in Lacs)2011 2010 2009 2008 2007For non-performing assets 9,983.42 7,430.57 4,193.68 1,732.96 1,479.21For standard assets 1,714.89 - - - -For income tax (net of advance tax) 1,882.40 549.89 - - -For diminution in value of investments 17.93 17.93 17.93 17.93 21.73For hedging contracts 1,259.24 1,805.86 1,805.86 811.68 -For leave encashment and availment 54.23 26.75 16.88 15.37 1.77For gratuity 196.34 155.52 139.64 133.18 28.48Proposed dividend 1,733.79 1,474.64 1,375.92 1,332.15 782.00Dividend on preference shares - - - 0.08 9.41Corporate dividend tax 281.26 244.92 233.84 226.41 134.5017,123.50 11,706.08 7,783.75 4,269.76 2,457.10F-19
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and Liabilities(Rs. in Lacs)Schedule 8 - Share CapitalAs at March 31,2011 2010 2009 2008 2007AuthorizedEquity Share Capital 6,000.00 6,000.00 6,000.00 4,500.00 4,500.00Preference Share Capital 4,000.00 4,000.00 4,000.00 4,000.00 4,000.0010,000.00 10,000.00 10,000.00 8,500.00 8,500.00No. of equity Shares of Rs.10/- each 60,000,000 60,000,000 60,000,000 45,000,000 45,000,000No. of preference Shares of Rs.100/-each 4,000,000 4,000,000 4,000,000 4,000,000 4,000,000Issued, Subscribed & Fully Paid upEquity Shares 4,953.69 4,915.47 4,585.68 4,115.50 3,910.00No. of equity shares of Rs. 10/- each 49,536,877 49,154,700 45,856,800 41,155,000 39,100,000Preference Share Capital - - - 2,328.98 2,328.984,953.69 4,915.47 4,585.68 6,444.48 6,238.98F-20
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and Liabilities(Rs. in Lacs)Schedule 9 - Reserves and SurplusAs at March 31,2011 2010 2009 2008 2007Capital ReserveBalance as per last account 1,400.00 - - - -Add: Forfeiture of optionally convertible warrants - 1,400.00 - - -1,400.00 1,400.00 - - -Capital Redemption ReserveBalance as per last account 2,328.98 2,328.98 - - -Add : Transfer from Profit & Loss A/c - - 2,328.98 - -2,328.98 2,328.98 2,328.98 -Securities Premium AccountBalance as per last account 49,836.14 37,040.70 22,181.10 19,098.60 1,098.60Add: Amount received during the year 960.99 12,795.44 14,859.60 3,082.50 18,000.0050,797.13 49,836.14 37,040.70 22,181.10 19,098.60Investment Allowance ReserveBalance as per last Account - - - 7.90 7.90Less: Transfer to General Reserve - - - 7.90 -- - - - 7.90Statutory ReserveBalance as per last account 11,150.00 7,260.00 4,920.00 3,158.89 2,126.46Add: Transfer from Profit & Loss Account 4,810.00 3,890.00 2,340.00 1,761.11 1,032.4315,960.00 11,150.00 7,260.00 4,920.00 3,158.89Debenture Redemption ReserveBalance as per last account - - - - 25.00Less: Transfer to General Reserve - - - - 25.00- - - - -General ReserveBalance as per last account 5,357.90 3,417.90 2,247.90 1,360.00 812.73Add: Transfer from Investment AllowanceReserve 7.90 -Add: Transfer from Debenture RedemptionReserve - 25.00Add: Transfer from Profit & Loss Account 2,410.00 1,940.00 1,170.00 880.00 522.277,767.90 5,357.90 3,417.90 2,247.90 1,360.00Balance in Profit & Loss Account 36,112.31 22,730.09 12,003.01 8,412.03 4,471.38114,366.32 92,803.11 62,050.59 37,761.03 28,096.77F-21
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and Liabilities( Rs. in Lacs)Schedule 10 - Stock Option OutstandingAs at March 31,2011 2010 2009 2008 2007Employee stock option outstanding 2,079.09 2,882.26 2,990.73 3,006.12 -Less : Deferred employee compensation outstanding 191.82 601.22 1,352.76 2,464.04 -1,887.27 2,281.04 1,637.97 542.08 -F-22
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and Liabilities(Rs. in Lacs)Schedule 11- Miscellaneous Expenditure (to theAs at March 31,extent not written off or adjusted) 2011 2010 2009 2008 2007Issue expenses for equity shares - - - - 2.13- - - - 2.13F-23
Annexure V<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and LiabilitiesSchedule 12 - Income from OperationsFor the year ended March 31,(Rs. in Lacs)2011 2010 2009 2008 2007Income from financing activities 122,778.70 96,759.92 86,138.88 51,351.57 27,107.08Interest on margin money on securitization 799.12 749.99 405.96 457.44 260.15Gain on securitization / assignment 8,222.30 9,695.44 5,812.89 9,255.64 6,203.52Lease Rentals - - - 7.64 21.54131,800.12 107,205.35 92,357.73 61,072.29 33,592.29F-24
Annexure V<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and LiabilitiesSchedule 13 - Other IncomeFor the year ended March 31,2011 2010 2009 2008 2007Interest on deposits with banks * 264.57 1,197.52 251.85 221.73 288.89Sale of electricity - 500.59 476.13 583.08Profit on sale of assets 0.16 0.15 - 0.01 8.85Income from Long Term Investments (nontrade)- Profit on sale of investments - 1,400.00 - -- Interest on government securities 6.13 6.13 6.29 6.91 13.76Income from Current Investments (non trade)- Profit on sale of investments- Dividend - 444.91 56.47 46.06 65.27Commission/Referral fees Received 10.23 10.37 116.32 121.22 164.04Compensation Charges - - 24.74 242.54 -Miscellaneous Income 9.98 20.28 79.76 131.87 89.73291.07 3,079.36 1,036.02 1,246.47 1,213.62F-25
Annexure V<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and LiabilitiesSchedule 14 -Financial ExpensesFor the year ended March 31,(Rs. in Lacs)2011 2010 2009 2008 2007Interest on :- Debentures 18,256.28 17,817.36 12,863.43 8,777.67 8,917.22- Subordinated debts 7,456.74 6,764.46 4,460.21 2,971.95 1,463.89- Fixed deposits 6.03 10.42 11.56 36.35 43.96- Loans from banks # 18,914.70 15,549.18 19,430.72 9,944.02 1,688.79- Loans from institutions and others 1,243.82 962.59 1,670.87 453.36 110.34- Commercial paper 1,434.16 30.40 250.72 291.17 -Bank charges 1,535.79 3,289.78 2,700.70 1,591.33 720.08Processing and other charges 2413.69 907.39 1,684.45 971.18 278.30Brokerage & Commission 7587.05 6,427.43 5,975.99 5,811.90 3,901.9458,848.26 51,759.01 49,048.65 30,848.93 17,124.52F-26
Annexure V<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and Liabilities(Rs. In Lacs)Schedule 15 - Personnel ExpensesFor the year ended March 31,2011 2010 2009 2008 2007Salaries, allowances and Bonus 4,150.24 3,472.85 3,452.64 2,163.40 837.14Gratuity 40.51 14.60 9.24 31.77 24.49Contribution to provident and other funds 138.21 94.27 90.09 60.07 36.69Staff welfare 38.06 29.91 30.78 19.50 37.194,367.02 3,611.63 3,582.75 2,274.74 935.51F-27
Annexure V<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and LiabilitiesSchedule 16 - Operating and other ExpensesFor the year ended March 31,(Rs. in Lacs)2011 2010 2009 2008 2007Rent 1,007.21 689.58 476.63 526.83 268.32Electricity expenses 360.57 452.72 393.97 232.87 151.07Repairs & Maintenance- Plant & machinery - - 127.29 80.58 120.79- Others 437.90 1,176.79 759.43 723.26 790.72Rates, duties & Taxes 636.02 643.41 577.56 0.68 2.02Printing & stationery 1,649.92 835.83 748.39 838.55 626.03Travelling & conveyance 3,704.17 2,166.87 2,038.11 1,755.57 780.03Advertisement 520.06 49.84 61.04 63.53 70.05Business Promotion Expenses 3,495.02 2,533.95 2,257.86 1,880.57 673.62Sourcing Fees and other charges 1,444.79 1,123.68 949.88 443.61 515.14Royalty 364.24 304.08 269.55 147.50 79.24Directors' sitting fees 5.45 5.55 5.20 3.03 0.15Insurance 167.01 44.07 21.59 21.47 11.32Communication expenses 1,908.24 1,603.23 1,533.99 1,493.66 585.07Auditor's remuneration- Audit fees 7.65 7.58 6.05 4.50 6.44- Tax audit fees 3.10 2.59 2.08 1.50 1.52- Certification fee 4.60 7.41 5.10 2.25 4.59- <strong>Limited</strong> Review 5.88 4.65 4.55 2.25 2.49Professional charges 2,092.43 1,069.77 1,130.74 648.15 567.19Legal Expenses - 62.24 7.69 5.30 156.53Recovery Expenses 2,053.29 1,232.91 1,077.91 843.91 556.26Donations 1.00 - 65.00 41.50 1.60Loss on sale of assets 13.94 1.75 0.12 3.36 9.81Loss on sale of Long Term Investments (nontrade) - - 0.08 - -Miscellaneous expenses 587.67 145.10 362.92 508.59 54.7720,470.16 14,163.60 12,882.73 10,273.02 6,034.77F-28
Annexure V<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and Liabilities(Rs. in Lacs)Schedule 17 - Share & Debenture issue expensesFor the year ended March 31,written off 2011 2010 2009 2008 2007Issue expenses for equity shares - - - 2.13 1.69- - - 2.13 1.69F-29
Annexure V<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Statement of Assets and LiabilitiesSchedule 18 - Provisions & Write offsFor the year ended March 31,(Rs. in Lacs)2011 2010 2009 2008 2007Provision for non performing assets 2,552.85 3,236.89 2,460.72 253.75 212.67Provision for standard assets 1,714.89 - -Provision for diminution in value of investments - - - - 2.99Bad debts written off 7,583.97 8,928.73 5,348.64 4,921.23 2,269.48Bad debt recovery (253.46) (505.78) (108.31) (81.02) (92.39)11,598.25 11,659.84 7,701.05 5,093.96 2,392.75F-30
Annexure VI<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Ltd.,Statement of Contingent Liabilities(Rs. In Lacs)As on 31, MarchParticulars 2011 2010 2009 2008 2007Guarantees issued by the Company and out standing 6.81 6.81 6.81 6.81 6.81Guarantees issued by Others 1942.77 1942.77 3117.77 - -In respect of assets securitized - - - - 16.69In respect of derivative transaction - - - - 9.97F-31
Annexure VII<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Ltd.,Statement of Dividend in respect of Equity SharesParticulars 2011 2010 2009 2008 2007InterimRate of Dividend 25% 20% 10% 10% 10%Number of Equity Shares on whichinterim dividend paid 49449939 49113850 45850000 39100000 27100000Amount of Interim Dividend 1236.25 982.28 501.85 391.00 271.00Dividend Distribution tax 205.33 166.94 85.28 66.45 38.01Dividend Distribution tax Rate 16.609% 16.995% 16.995% 16.995% 14.025%Proposed Final Dividend for the Current YearRate of Dividend 35% 30% 30% 30% 20%Number of Equity Shares on whichfinal dividend paid 49536877 49154700 45856800 41155000 39100000Amount of Final Dividend 1733.79 1474.64 1375.92 1332.15 782.00Dividend Distribution tax Rate 16.2225% 16.609% 16.995% 16.995% 16.995%Dividend Distribution tax 281.26 244.92 233.84 226.40 132.90Note: For the year 2009 interim dividend includes 30% final dividend of 433500 (No. of shares 1445000)F-32
Annexure VII<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Ltd.,Statement of DividendStatement of Dividend in respect of Preference SharesParticulars 2011 2010 2009 2008 20075% - - - 4210 1761706% - - 2328980* 2018590 13432308% - - - 83260 2777309% - - - - 30235010% - - - 16270 2105012% - - - 2950 385013.50% - - - 200000 20000014% - - - 1900 275015% - - - 1800 1850Total shares 2328980 2328980 2328980Amount of dividend 63.17 141.67 154.56Dividend distribution Tax 10.74 24.07 21.96* During the financial year 2008-09 all Preference Shares are redeemedF-33
Annexure VIII<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Statement of Accounting Ratios[Calculation of Earnings Per Share (EPS)]Earnings per share calculation are done in accordance with Accounting Standard -20 "Earning PerShare" notified under Accounting Standards (AS) under Companies Accounting Standard Rules, 2006,as amendedParticularsAs at March 31,(Rs. in Lacs)2011 2010 2009 2008 2007A. Net Profit After Tax (Rs in Lacs) 24058.85 19425.86 11700.77 8763.5 5162.16B.Less: Preference dividend including tax on dividend(Rs in Lacs) - - 73.91 165.74 176.52C.Net Profit Attributable to Equity ShareholdersLacs)(Rs ina24058.85 19425.86 11626.86 8597.76 4985.64D.Weighted average number of Equity Share Outstandingduring the year/ period (for Basic EPS) (Lacs)b493.23 471.32 451.16 391.67 302.45E.(i) Equity Share arising on conversion of optionallyconvertible warrants (Lacs)c- - 59.28 1.45 0.89F.(ii) Equity Share for no consideration arising on grant ofStock option under ESOP (Lacs)d8.32 10.45 7.71 2.29 -G.Weighted average number of Equity Shares outstandingduring the year/ period (for Diluted EPS) (b+c+d) (Lacs)e501.55 481.77 518.15 395.41 303.34H. Earnings per share (Basics) (Rs.) (a/b) 48.78 41.22 25.77 21.95 16.48I. Earnings per share (Diluted) (Rs.) (a/e) 47.97 40.32 22.44 21.74 16.44F-34
Annexure VIII<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Statement of Accounting RatiosCalculation of Return on Net Worth (RONW)ParticularsSHAREHOLDERS FUNDSScheduleAs at March 31,(Rs. in Lacs)2011 2010 2009 2008 2007A. Share Capital 8 4953.69 4915.47 4585.68 6444.48 6238.98B. Share Application Money Pending Allotment - 0.71 - - -C. Stock Option Outstanding 10 1887.27 2281.04 1637.97 542.08 -D. Optionally Convertible Warrants - - 2700 232.2 560E. Reserve and Surplus 9 114366.32 92803.11 62050.59 37761.03 28096.77F.Less: Miscellaneous Expenditure (Notwritten off) - - - - 2.13G.Net Worth as at the end of the year/period 121207.28 100000.33 70974.24 44979.79 34893.62H. Net Profit after tax 24058.85 19425.86 11700.77 8763.5 5162.16I. Return on Net Worth (Annualized) (%) 19.85% 19.43% 16.49% 19.48% 14.79%F-35
Annexure VIII<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Statement of Accounting Ratios[Calculation of Net Asset Value (NAV) Per Equity Share]ParticularsSHAREHOLDERS FUNDSScheduleAs at March 31,(Rs. in Lacs)2011 2010 2009 2008 2007A. Share Capital 8 4953.69 4915.47 4585.68 6444.48 6238.98B.Share Application Money PendingAllotment - 0.71 - - -C. Stock Option Outstanding 10 1887.27 2281.04 1637.97 542.08 -D. Optionally Convertible Warrants - - 2700 232.2 560E. Reserve and Surplus 9 114366.32 92803.11 62050.59 37761.03 28096.77F.Less: Miscellaneous Expenditure (Notwritten off) - - - - 2.13G. Net Asset Value 121207.28 100000.33 70974.24 44979.79 34893.62H.Number of Equity shares outstanding atthe end of the year/ period 49536877 49154700 45856800 41155000 39100000I. Net asset Value per Equity Share (Rs.) 244.68 203.44 154.77 109.29 89.24F-36
Annexure IX<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Ltd.,SECURED LOANSA. Term loan from banksParticularsANDHRA BANKDate ofDisbursement31-Dec-08Disbursedamount (Rs. inlacs)Balance as onMarch 31st2011 (Rs. inlacs)InterestRate %10000.00 4371.95 12.25Repayment termsRepayable In 16 QuarterlyInstallments31-Mar-1125 Crs Each at the end Of 30-BANK OF MAHARASHTRA5000.00 5000.00 10.00 Jun-14 & 30-Sep-14CALYON BANK 2-Dec-10 3500.00 3500.00 9.49 Bullet Payment on 02-Dec-12CANARA BANK17-Dec-077500.00 1250.00 11.5035 Months 5 Half YearlyInstallments - 1.250Crs /InstallmentCANARA BANK 29-Jan-10 20000.00 20000.00 10.50 Bullet Payment on 18-Feb-12CANARA BANK 17 & 24-Sep-10 20000.00 20000.00 10.00 Bullet Payment on 24-Aug-13CANARA BANK 24-Sep-10 10000.00 10000.00 10.00 Bullet Payment on 24-Aug-13CORPORATION BANK 28-Dec-10 10000.00 10000.00 9.75 Bullet Payment on 28-Dec-13CORPORATION BANK 29-Mar-11 20000.00 20000.00 9.50 Bullet Payment on 29-Jun-11DBS BANK LTD 4-Mar-11 6000.00 6000.00 9.20 Bullet Payment on 07-Oct-11DBS BANK LTD 24-Sep-10 5000.00 5000.00 8.65 Bullet Payment on 24-Sep-13DBS BANK LTD 26-Oct-10 8000.00 8000.00 8.90 Bullet Payment on 26-Oct-11HDFC BANK22-Mar-105000.00 5000.00 8.25Tenor-18 Months(3 EqualInstallment At The End Of12Th,15Th & 18Th)22-Mar-1125 Months-(Oct11, Apr12,ICICI BANK25000.00 25000.00 8.75 Oct12, Apr13 - 62.5 CrsIDBI BANK 22-Mar-11 20000.00 20000.00 9.50 Bullet Payment on 22-Jun-11IDBI BANK 22-Mar-11 4000.00 4000.00 9.50 Bullet Payment on 22-Jun-11ING VYSYA BANK 26-Mar-09 1000.00 333.28 10.50 Monthly Emi 27.70 LacsING VYSYA BANK25-Mar-104300.00 2866.67 8.20Half YearlyInstallment(Rs.71666666) - 35MonthsKARUR VYSYA BANK31-Jul-092500.00 625.00 9.50Tenro-24 Months(Repaid In 4Equal Half Yearly InstallmentsOf Rs.6.25 Cr)ORIENTAL BANK OFCOMMERCEORIENTAL BANK OFCOMMERCESTATE BANK OF INDORESTATE BANK OFMAURITIUS31-Mar-1028-Mar-1131-Mar-097-Feb-112000.00 2000.00 9.5010000.00 10000.00 10.005000.00 1397.73 12.501500.00 1500.00 10.50Repayable In 24 MonthlyInstallments (208.33 Lac)In 4 Quarterly Installment Of25 Cr-36 Months(25 Crs-Jun13, Sep 13, Dec 13 & Mar 14)11 Quarterly Installment-(Rs.4.50Cr) And Last One(5Cr)8 Quarterly Installments -31.25 MillionF-37
Annexure IX<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Ltd.SECURED LOANSA. Term loan from banksParticularsDate ofDisbursementDisbursedamount (Rs. inlacs)Balance as onMarch 31st2011 (Rs. inlacs)InterestRate %Repayment termsSTATE BANK OF MYSORE 27-Nov-10 10000.00 9999.38 9.50 Bullet Payment on 27-Nov-13STATE BANK OF PATIALA 28-Feb-09 5000.00 2000.00 10.25 10 Qtrly installment (5.00 Crs)STATE BANK OF PATIALA 21-Dec-10 10000.00 10000.00 10.75 Bullet Payment on 21-Dec-13Repayment At The End Of22-Mar-11Every 12 Months In 3 AnnualSTATE BANK OF PATIALA15000.00 15000.00 9.75 Equal Instalments-3YearsSTATE BANK OF23-Dec-10TRAVANCORE10000.00 9999.97 10.50 Bullet Payment on 23-Dec-12SYNDICATE BANK 3-Jan-11 15000.00 15000.00 10.00 Bullet Payment on 03-Jan-13UNION BANK OF INDIA 22-Nov-10 15000.00 15000.00 9.75 Bullet Payment on 22-Nov-12UNION BANK OF INDIA 4-Jan-11 15000.00 15000.00 10.50 Bullet Payment on 04-Jan-1327-Dec-0812 Quarterly Installments ForUNITED BANK OF INDIA2500.00 833.30 11.00 36 MonthsRepayable In 36 Months With30-Mar-11An Initial Moratorium PeriodOf 12 Months & Thereafter ItVIJAYA BANK9000.00 9000.00 10.50 Should Be Repaid In 24 EmiYES BANK 28-Feb-11 8000.00 8000.00 9.25 Bullet Payment on 28-Feb-14Total 295677.28B. Term loan from institutionsParticularsDate ofdisbursementDisbursedamount (Rs. inlacs)Balance as onMarch 31st2011 (Rs. inlacs)Repayment termsSIDBI 10-Aug-10 10000.00 6500.00 10.00 Repayable on 10-Aug-13F-38
Annexure IXC. Cash Credit from Banks(Including WCDL)ParticularsDate ofdisbursementDisbursed amount(Rs. in lacs)Balance as on March 31st2011 (Rs. in lacs)Interest Rate %AXIS BANK 23-Aug-06 10000.00 9.08 11.75%BANK OF INDIA 11-Jun-09 20000.00 10185.07 9.60%BANK OF MAHARASHTRA 19-Mar-06 5000.00 4997.40 10.50%CANARA BANK 24-Nov-09 5000.00 4088.27 11.00%CENTRAL BANK OF INDIA 24-Mar-09 10000.00 3532.29 10.50%CITY UNION BANK 10-Nov-10 1400.00 78.13 11.50%CORPORATION BANK 28-Dec-10 5000.00 3522.68 9.75%DBS BANK 29-Apr-10 100.00 5.91 10.00%DENA BANK 5-Mar-07 15000.00 10713.18 10.45%IDBI BANK 10-Oct-08 1000.00 90.30 11.25%INDUSIND BANK 31-May-10 7500.00 120.56 10.60%ING VYSYA BANK 23-Mar-10 500.00 5.70 10.00%JAMMU & KASHMIR BANK LTD., 15-Mar-11 10000.00 8013.44 11.00%KOTAK MAHINDRA BANK 21-Aug-09 5000.00 1014.64 10.60%ORIENTAL BANK OF18-Sep-06COMMERCE5000.00 3662.67 10.00%PUNJAB NATIONAL BANK 4-Aug-07 5000.00 9.16 13.00%SOUTH INDIAN BANK 25-Jun-10 1000.00 40.33 12.00%STATE BANK OF INDIA 13-Mar-09 15000.00 7539.90 12.00%STATE BANK OF PATIALA 24-Feb-09 5000.00 48.11 12.75%STATE OF BIKANUR AND JAIPUR 8-Sep-10 100.00 40.59 11.50%TAMILNADU MERCANTILE20-Aug-07BANK5000.00 19.89 11.50%UNION BANK OF INDIA 25-Mar-08 5000.00 2766.09 12.00%UNITED BANK OF INDIA 25-Mar-09 7500.00 3292.02 9.00%YES BANK - ac 200 25-Mar-10 2000.00 10.74 11.00%WCDLHSBC BANK 23-Dec-09 10000.00 10000.00 8.15%HSBC BANK 23-Dec-09 5000.00 5000.00 8.05%SOUTH INDIAN BANK 25-Jun-10 5000.00 4989.92 7.75%STATE BANK OF BIKANER &22-Dec-10JAIPUR2400.00 2400.00 9.50%STANDARD CHARTERED BANK 25-Oct-10 5000.00 5000.00 8.90%CENTURION CC BANK 31-Dec-10 2400.00 2400.00 9.50%CANARA BANK 9-Dec-10 15000.00 15000.00 9.80%DBS 4-Mar-11 1400.00 1400.00 9.20%FEDERAL 1-Mar-11 5000.00 5000.00 9.90%STATE BANK OF MYSORE 18-Mar-11 4900.00 4900.00 9.30%IDBI 22-Mar-11 15000.00 15000.00 9.50%Total 134896.09F-39
Annexure IXD. Privately placed Redeemable NCDParticularsDate ofdisbursementDisbursedamount (Rs. inlacs)Balance as onMarch 31st2011 (Rs. inlacs)InterestRate %CORPORATION BANK 24-Sep-09 2500.00 2500.00 10.75CENTRAL BANK OF INDIA 17-Sep-09 1000.00 1000.00 10.75CENTRAL BANK PENSIONFUNDCENTRAL BANKPROVIDENT FUND17-Sep-09 1000.00 1000.00 10.7517-Sep-09 500.00 500.00 10.75ALLAHABAD BANK 23-Sep-09 2000.00 2000.00 10.75Repayment terms3.5 years 1st 20% 4th year2nd 20% 4.5 years 30% and5th year30%3.5 years 1st 20% 4th year2nd 20% 4.5 years 30% and5th year30%3.5 years 1st 20% 4th year2nd 20% 4.5 years 30% and5th year30%3.5 years 1st 20% 4th year2nd 20% 4.5 years 30% and5th year30%3.5 years 1st 20% 4th year2nd 20% 4.5 years 30% and5th year30%A.K.CAPITAL SERVICES 6-Oct-09 2000.00 2000.00 10.75 Repayable on 07-Oct-14BANK OF BARODA 6-Oct-09 1000.00 1000.00 10.75 Repayable on 07-Oct-14STANDARD CHARTERED22-Apr-10 17500.00 14583.33 7.82BANKHalf yearly instalment-3 yearsRELIANCE MUTUAL FUND 5-Jul-10 7500.00 7500.00 9.00 Repayable on 05-Jan-13ING VYSYA BANK 23-Nov-10 2000.00 2000.00 10.50In 3 Equal installments in5th/6th/ 7th Year fromdeemed date of allotmentING VYSYA BANK 13-Dec-10 1000.00 1000.00 10.60 Repayable on 13-Dec-17ING VYSYA BANK 13-Dec-10 1500.00 1500.00 10.60 Repayable on 13-Dec-17JHARKAND GRAHIM BANK 4-Feb-11 500.00 500.00 10.75 Repayable on 04-Feb-21DEUTSCHE BANK 30-Mar-11 27500.00 27500.00 9.00 Repayable on 30-Mar-17Total 64583.33E. Privately placed Redeemable Non Convertible Debenture of Rs. 1,000 eachParticularsBalance as on March31st 2011 (Rs. in lacs)Repayment termsRetail Debentures 155294.31 Redeemable at par over a period 12 to 160 monthsF-40
Annexure X<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>UNSECURED LOANSA. Fixed DepositsParticularsBalance as onMarch 31st2011 (Rs. inlacs)55.10Repayment termsRedeemable at parover a period 12 to 60monthsB. Subordinated Debts53,272.33Total 53,327.43Redeemable at parover a period 60 to216 monthsC. Commercial PaperParticularsUTI MUTUAL FUNDICICI PRUDENTIAL LIFEINSURANCETATA MUTUAL FUNDCHOLAMANDALAM MSGENERAL INSURANCECOMPANY LTD.TATA TRUSTEE COMPANYLTD.UTI - FIIF ANNUAL INTERVALPLAN S-IIIDate ofdisbursement13-Sep-1013-Sep-1013-Sep-108-Oct-108-Oct-108-Oct-10Disbursed amount(Rs. in lacs)Balance ason March31st 2011(Rs. in lacs)InterestRate %5500.00 5500.00 8.665000.00 5000.00 8.667500.00 7500.00 8.66500.00 500.00 8.671500.00 1500.00 8.241000.00 1000.00 8.67UTI-FMP-YEARLY SERIES8-Oct-101500.00 1500.00 8.67Total 22500.00Repayment termsRepayable on 12-Sep-11Repayable on 12-Sep-11Repayable on 07-Sep-11Repayable on 07-Oct-11Repayable on 19-Sep-11Repayable on 07-Oct-11Repayable on 07-Oct-11F-41
Annexure XI<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Capitalization statementDebtParticulars(Rs. In Lacs)Pre Issue as at March 31,2011 (Audited) As adjusted for IssueShort Term Debt 160552.61 160552.61Long Term Debt 572225.83 647225.83Total 732778.44 807778.44Shareholders FundShare Capital 4953.69 4953.69Share Application Money pending allotment - -Stock Option Outstanding 1887.27 1887.27Reserve & Surplus (Refer Annexure IV - Schedule 10) 114366.32 114366.32Less: Miscellaneous Expenditure - -Total of Shareholders Fund 121207.28 121207.28Long Term Debt / equity Ratio 6.05 6.66F-42
Annexure - XII<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Statement of Tax Shelter(Rs. in Lacs)ParticularsFor the year endedMarch 31For the year ended 31st March2011 2010 2009 2008 2007Profit as per accounting books(business) 36,060.09 27,225.86 17,973.53 12,698.46 7,943.32Profit as per accounting books(investments) 1,400.00Total profit as per accountingbooks 36,060.09 28,625.86 17,973.53 12,698.46 7,943.32Tax rate on business income 33.22% 33.99% 33.99% 33.99% 33.66%Tax rate on investment income 11.33%Tax on accounting profit 11,978.26 9,412.69 6,109.20 4,316.21 2,673.72Permanent DifferencesDonation 0.50 32.50 13.25 0.80Exempt Dividend Income (444.91) (56.47) (46.06) (65.27)Disallowance u/s 14A 500.00Capital gains on sale of fixed assets 2,193.38 2,797.00Others 13.94 200.00 0.20 24.34 15.52Sub Total (A) 14.44 2,448.47 (23.77) 2,788.53 (48.95)Temporary DifferencesDepreciation and Lease adjustments 0.03 (97.37) 1,804.92 859.39 516.21Service tax write off 783.14 173.41Provision for standard assets 1,714.89Leave Encashment, Gratuity &Bonus 68.30 25.75 7.97 140.16 23.38Derivative provision (546.62) 994.18 811.68Others 199.84 (0.42) (34.03) 14.42Sub Total (B) 1,436.44 (72.04) 2,807.07 2,560.34 727.42Net Adjustments (A+B) 1,450.88 2,376.43 2,783.30 5,348.87 678.47Tax Impact on Net Adjustments 481.95 559.42 946.04 1,818.08 228.37Total Taxation 12,460.21 9,972.11 7,055.25 6,134.29 2,902.09Current Tax Provision for the year 12,460.20 9,972.11 7,055.25 6,134.29 2,902.09Notes:-1. Profits after tax are often affected by the tax shelters which are available.2. Some of these are of a relatively permanent nature while others may be limited in point of time.3. Tax provisions are also affected by timing differences which can be reversed in future.F-43
Annexure XIIISignificant Accounting PoliciesBack Ground<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong> (SCUFL) was incorporated on 27 th March 1986, as a Private <strong>Limited</strong>Company and became a Public <strong>Limited</strong> Company on 29 th October 1988. The Company is a Non-Banking <strong>Finance</strong>Company registered with Reserve Bank of India (RBI)a. Basis of preparationThe financial statements have been prepared under historical cost convention on an accrual basis and inaccordance with generally accepted accounting principles in India and specifically to comply in all materialrespects with the notified Accounting Standards (AS) issued under the Companies Accounting Standard Rules2006 and the relevant provisions of the Companies Act 1956. (‘The Act’) and the guidelines issued by theReserve Bank of India (‘RBI’) as applicable to a Non Banking <strong>Finance</strong> Company (‘NBFC’). The Accountingpolicies are consistent with those used in the previous year.b. Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting principles requiresmanagement to make estimates and assumptions that affect the reported amounts of assets and liabilities anddisclosure of contingent liabilities at the date of the financial statements and the results of operations during thereporting year end. Although these estimates are based upon management’s best knowledge of current events andactions, actual results could differ from these estimates. Any revisions to the accounting estimates are recognizedprospectively in the current and future years.F-44
c. Fixed Assets, Depreciation / Amortization and Impairment of assetsFixed AssetsFixed assets are stated at cost less accumulated depreciation/amortization and impairment losses, if any. Costcomprises the purchase price and any attributable cost of bringing the asset to its working condition for itsintended use. Borrowing costs relating to acquisition of fixed assets are included to the extent they relate to theperiod till such assets are ready to be put to use.Depreciation / AmortizationDepreciation is provided pro rata on Straight Line Method (‘SLM’), which reflect the management’s estimate ofthe useful lives of the respective fixed assets and are greater than or equal to the corresponding rates prescribed inSchedule XIV of the Act. The assets for which higher rates are applied are as follows:Particulars Rates (SLM) Schedule XIV rates (SLM)Windmills 10% 5.28%Computer Software 33.33% 16.21%Leasehold improvement is amortized over the primary period of lease subject to a maximum of 60 months. Allfixed assets individually costing Rs.5000 or less are fully depreciated in the year of installation.Impairment of assetsThe carrying amount of assets is reviewed at each balance sheet date if there is any indication of impairmentbased on internal/external factors. An impairment loss is recognized wherever the carrying amount of an assetexceeds its recoverable amount. The recoverable amount is the greater of the assets’ net selling price and value inuse.After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining usefullife.A previously recognized impairment loss is increased or reversed depending on changes in circumstances.However the carrying value after reversal is not increased beyond the carrying value that would have prevailed bycharging usual depreciation if there was no impairment.Up to year ended March 31, 2007Fixed Assets and Depreciation:-Fixed assets have been stated at historical cost less depreciation. Depreciation has been provided under straightline method at rates prescribed under the Companies Act, 1956. Assets costing Rs.5000/- or less are fullydepreciated in the year of purchase.F-45
d. InvestmentsInvestments intended to be held for not more than a year are classified as current investments. All otherinvestments are classified as long-term investments. Current investments are carried at lower of cost and fairvalue determined on an individual investment basis. Long Term Investments are carried at cost. Provision fordiminution in the value of long term investments is made to recognize decline in value other than temporary innature.e. Assets under financing activitiesAssets under Financing Activities are stated at the amount advanced including finance charges accrued and expensesrecoverable, as reduced by the amounts received up to Balance sheet date and assets securitized. Non PerformingAssets are written off / provided for, as per management estimates, subject to the minimum provision required as perNon-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions2007.Provision @0.25% on standard Asset is made as required under Reserve bank of India (RBI) notification No.DNBS.222/CGM (US-2011) Dated January 17, 2011 for the year 2010-11.Up to year ended March, 31, 2008Provisioning / Write – off of assetsLoans, hire purchase and lease receivables are written off / provided for , as per management estimates, subject to theminimum provision required as per Non – Banking Financial Companies Prudential Norms (Reserve Bank) Directions,1998.Up to the year ended March, 31, 2007Receivables under Hire Purchase and Financial Lease AgreementsReceivables under Hire Purchase and Financial Lease Agreements are stated at agreement value including expensesrecoverable reduced by installment received and unearned finance income as required under Accounting Standard AS -19 issued by the Institute of Charted Accountants of India and shown net of assets securitized.f. Foreign currency translationForeign currency transactions are accounted at the exchange rate prevailing on the date of transactions. Foreigncurrency monetary items on the Balance Sheet date are restated at the closing exchange rates. All Exchangedifferences are dealt within the profit & loss account.F-46
g. Revenue recognitioni. Income from Financing Activities is recognised on the basis of internal rate of return. This includesAdditional <strong>Finance</strong> Charges which is accounted when received because of uncertainty of realization.ii.iii.iv.Gain arising on securitization/direct assignment of assets is recognized over the tenure of agreements asper guideline on securitization of standard assets issued by RBI. Loss (if any) is recognized upfront.The Prudential norms for income recognition prescribed under Non-Banking Financial (Deposit Acceptingor Holding) Companies Prudential Norms (Reserve Bank) Directions 2007 are followed.Income from services is recognized as per the terms of the contract on accrual basis.v. Interest Income on deposit accounts with banks is recognized on a time proportion basis taking intoaccount the amount outstanding and the rate applicable.vi.vii.Dividend is recognized as Income when right to receive is established by the date of balance sheet.Profit / Loss on sale of investments is recognized at the time of actual sale / redemption.Up to the year ended March 31, 2010Income from power generation is recognized on supply of power to the grid as per the terms of the PowerPurchase Agreements with State Electricity Boards.Up to the year ended March 31, 2007Income from financial lease is recognized on the basis of Internal Rate of Return and thecorresponding assets are booked as receivable in accordance with Accounting Standard AS-19issued by the institute of Chartered Accountants of India. Lease rentals is respect of assets leasedup to 31.03.2011are recognized as per “Guidance Note on Accounting for Leases (Revised)”issued by the Institute of Chartered Accountants of India and in respect of these assets leaseequalization/adjustment accounts are created for the shortfall in capital recovery and adjusted inlease rental income/fixed assets. Interest on Hypothecation loans, Personal loans, Microfinanceand Hire Purchase finance charges are recognized on the basis of Internal Rate of Return.Additional finance charges are treated to accrue only on realization, due to uncertainty ofrealization and are accounted for accordingly.F-47
h. Employee benefitsProvident FundAll the employees of the Company are entitled to receive benefits under the Provident Fund, a defined contributionplan in which both the employee and the Company contribute monthly at a stipulated rate. The Company has noliability for future Provident Fund benefits other than its annual contribution and recognizes such contributions asan expense in the year it is incurred.GratuityThe Company provides for the gratuity, a defined benefit retirement plan covering all employees. The planprovides for lump sum payments to employees at retirement, death while in employment or on separation fromemployment as per Provisions of payment of Gratuity Act 1972 . The Company accounts for liability of futuregratuity benefits based on an external actuarial valuation on projected unit credit method carried out annually forassessing liability as at the balance sheet date.Leave EncashmentShort term compensated absences are provided for based on estimates. Long term compensated absences areprovided for based on actuarial valuation. The actuarial valuation is done as per projected unit credit method.Actuarial gains/losses are immediately taken to profit and loss account and are not deferred.i. Income TaxTax expense comprises of current tax, deferred tax and fringe benefit tax. Current income tax and fringe benefittax is measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income TaxAct, 1961. Deferred income taxes reflects the impact of current year timing differences between taxable incomeand accounting income for the year and reversal of timing differences of earlier years.Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balancesheet date. Deferred tax assets are recognized only to the extent that there is reasonable certainty that sufficientfuture taxable income will be available against which such deferred tax assets can be realized. In situations wherethe Company has unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognized only ifthere is virtual certainty supported by convincing evidence that they can be realized against future taxable profits.The un-recognized deferred tax assets are re-assessed by the Company at each balance sheet date and arerecognized to the extent that it has become reasonably certain or virtually certain, as the case may be that sufficientfuture taxable income will be available against which such deferred tax assets can be realized.The carrying cost of the deferred tax assets are reviewed at each balance sheet date. The Company writes downthe carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain,as the case may be, that sufficient future taxable income will be available against which deferred tax asset can berealized. Any such write down is reversed to the extent that it becomes reasonably certain or virtually certain, asthe case may be, that sufficient future taxable income will be available.F-48
j. Segment reportingThe company operates in one reportable segment.k. Earnings per shareBasic earnings per share is calculated by dividing the net profit or loss for the period attributable to equityshareholders (after deducting attributable taxes) by the weighted average number of equity shares outstandingduring the year.For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable to equityshareholders and the weighted average number of shares outstanding during the period are adjusted for the effectsof all dilutive potential equity shares.l. Cash and cash equivalentsCash and cash equivalents in the cash flow statement which is prepared in accordance with Accounting Standard (AS)3 issued by the Institute of Chartered Accountants of India(ICAI) comprise cash at bank, cash in hand and short terminvestments with an original maturity of three months or less.m. Expenses on deposits / debenturesExpenses on mobilization of deposits / debentures are charged to Profit & Loss account in the year in which they areincurred.Upto year ended March, 31 2007Expenses on mobilization of deposits / debenture have been charges to Profit & Loss account in the year in whichthey are incurred. However, expenses incurred up to 31 st March 2003 are charged to Profit and Loss Account on thebasis of duration of deposits / debenture.n. ProvisionsA provision is recognized when the Company has a present obligation as a result of past event; it is probable thatoutflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made.Provisions are not discounted to its present value and are determined based on best estimate required to settle theobligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the currentbest estimates.o. Derivative instrumentsAccounting for derivative contracts, other than those covered under AS-11, are marked to market and the net lossafter considering the offsetting effect on the underlying hedge item is charged to profit and loss account. Net gainsare ignored.F-49
p. Employee stock compensation costsMeasurement and disclosure of the employee share-based payment plans is done in accordance with SEBI(Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 and the Guidance Noteon Accounting for Employee Share-based Payments, issued by the ICAI. The Company measures compensationcost relating to employee stock options using the intrinsic value method. Compensation expense is amortized overthe vesting period of the option on a straight line basis.Up to year ended March. 31, 2007l. Equity Shares and Preference Shares Issue ExpensesEquity Shares and Preference Shares and Debenture issue Expenses are written off over a period of 10 years.Up to the year ended March 31, 2010m. LeasesAssets taken on operating lease are not capitalized in the books of the Company and the lease rental payments arecharged to Profit and Loss accounts.F-50
2010 - 20112. Notes to Accounts1. Particulars of Secured Loansa) Privately placed Redeemable Non-convertible Debentures of Rs.1, 000/- each (Retail)As at March 31,2011 As at March 31,2010NumberAmountNumberAmount (Rs. in lacs)(Rs. in lacs)1,55,29,431 1,55,294.31 1,34,07,377 1,34,073.77Secured by equitable mortgage of title deeds of immovable property. Further secured by charge on plant andmachinery, furniture and other fixed assets of the Company, charge on Company’s hypothecation loans, other loans,advances and investments of the Company subject to prior charges created or to be created in favor of the Company’sbankers, financial institutions and others.These Debentures are redeemable at par over a period of 12 months to 160 months from the date of allotment dependingon the terms of the agreement. The earliest date of redemption is April 1, 2011 (March 31, 2010; April 1, 2010). Thelast date of redemption is October 25, 2017 (March 31, 2010; October 25, 2017).Debentures may be bought back subject to applicable statutory and /or regulatory requirements, upon the terms andconditions as may be decided by the Company. The Company may grant loan against the security of Non ConvertibleDebentures upon the terms and conditions as may be decided by the Company and subject to applicable statutory and/orregulatory requirements.F-51
) Privately Placed Redeemable Non-Convertible Debenture (Institutional)Amount (Rs. In lacs)Date ofAllotment/renewalFaceValueNumberAs atMarch31, 2011As atMarch31, 2010Redeemable at par on23.04.2009 100000 1000 - 10000.00 23.04.201024.09.2009 100000 2500 2500.00 2500.00 30.09.201417.09.2009 100000 1000 1000.00 1000.00 30.09.201417.09.2009 100000 1000 1000.00 1000.00 30.09.201417.09.2009 100000 500 500.00 500.00 30.09.201423.09.2009 100000 2000 2000.00 2000.00 30.09.201406.10.2009 100000 2000 2000.00 2000.00 07.10.201406.10.2009 100000 2000 1000.00 1000.00 07.10.201422.04.2010 1000000 1458 14583.33 - 22.04.201305.07.2010 1000000 750 7500.00 - 05.01.201323.11.2010 1000000 200 2000.00 - 23.11.201713.12.2010 1000000 100 1000.00 - 13.12.201713.12.2010 1000000 150 1500.00 - 13.12.201704.02.2011 1000000 50 500.00 - 04.02.202130.03.2011 1000000 2750 27500.00 - 30.03.2017Total 64583.33 20000.00Secured by specific assets covered under hypothecation loan agreements and by way of exclusive charge and equitablemortgage of title deeds of immovable property.F-52
c) Term Loans:i. From Financial Institutions/Corporate :As at March 312011(Rs. In lacs)As at March 312010Secured by an exclusive charge by way of hypothecation of assets underfinancing.6500.00 9530.00Total 6500.00 9530.00ii. From Banks :Secured by an exclusive charge by way of hypothecation of assetsunder financing.295677.28 104634.17Total295677.28 104634.17d) Cash Credit from BanksAs at March 312011(Rs. In lacs)As at March 31 2010Cash Credit from Banks 134896.09 145372.61Secured by an exclusive charge by way of hypothecation of receivables relating to assets under financing.2.Subordinated DebtThe Company has as on 31.03.2011 subordinated debt bonds amounting to Rs. 53272.33 Lacs (March 31,2010:Rs. 53002.95 Lacs) with coupon rate of 7.00% to 13.00% Per annum which are redeemable over a period of 60month to 216 month.3. Gratuity and other post-employment benefit plans:The Company has an unfunded defined benefit gratuity plan. Every employee who has completed five years ormore of service gets a gratuity on separation at 15 days basic salary (last drawn salary) for each completed year ofserviceConsequent to the adoption of revised AS 15 ‘Employee Benefits’ issued by the ICAI the followingdisclosures have been made as required by the standard:F-53
Profit and Loss accountNet employee benefit expense (recognized in Employee Cost)Gratuity(Rs. in Lacs)ParticularsMarch 31 2011 March 31 2010Current service cost 4.84 21.49Interest cost on benefit obligation 12.44 12.38Expected return on plan assets N.A N.ANet actuarial (gain) / loss recognized in the year 23.23 (19.27)Past service cost NIL NILNet benefit expense 40.51 14.60Actual return on plan assets N.A N.ABalance sheetDetails of Provision for gratuityGratuity(Rs in Lacs)ParticularsMarch 31 2011 March 31 2010Defined benefit obligation 196.34 155.52Fair value of plan assets N.A N.ATotal 196.34 155.52Less: Unrecognized past service cost NIL NILPlan asset / (liability) (196.34) (155.52)F-54
Changes in the present value of the defined benefit obligation are as follows:(Rs. In Lacs)GratuityParticularsMarch 31 2011 March 31 2010Opening defined benefit obligation 155.52 139.64Interest cost 12.44 12.38Current service cost 4.84 21.49Benefits paid -- 1.28Actuarial (gains) / losses on obligation 23.54 (19.27)Closing defined benefit obligation 196.34 155.52The Company would not contribute any amount to gratuity in 2011-12 as the scheme is unfunded.The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:(Rs. In Lacs)GratuityParticularsMarch 31 2011 March 31 2010% %Investments with insurer NA NAThe principal assumptions used in determining gratuity obligations for the company’s plan are shownbelow:(Rs. InLacs)GratuityParticulars March 31 2011 March 31 2010Discount Rate 8.25% 7.75%Increase in compensation cost 5.00% 5.00%Employee Turnover 2.00% 3.25%F-55
The estimates of future salary increases considered in actuarial valuation, are on account of inflation,seniority, promotion and other relevant factors such as supply and demand in the employment market.Amounts for the current and previous years are as follows:Particulars March 31 2011 March 31 2010 March 31 2009 March 31 2008Defined Benefit obligation 196.34 155.52 139.64 133.18Plan Assets N.A N.A N.A N.ASurplus/Deficit (196.34) (155.52) (139.64) (133.18)Experience adjustment on PlanLiabilities (29.63) (19.27) (39.51) 53.10Experience adjustment on PlanAssets N.A N.A N.A N.A4. Related Party DisclosuresRelated Parities have been identified by the Management and relied upon by the auditors.Subsidiary : <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong> (from 9 th November 2010)<strong>Shriram</strong> Non-Conventional Energy <strong>Limited</strong> (till 26 th June 2009)Enterprises having significantinfluence over the Company: <strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong><strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong><strong>Shriram</strong> Capital <strong>Limited</strong><strong>Shriram</strong> Ownership TrustTPG India Investments I Inc.Key Managerial Personnel : R Kannan Managing DirectorF-56
Enterprises havingsignificant influenceover the CompanySubsidiary(Rs. in Lacs)Total2011 2010 2011 2010 2011 2010Payments -Royalty 338.15# 304.08* - - 338.15# 304.08*Data Sourcing fees 206.40# 160.53* - - 206.40# 160.53*Service Charges 1238.39# 963.15* - - 1238.39# 963.15*Reimbursement of Business PromotionExpenses33.09 * 44.12* - - 33.09* 44.12*Equity dividend 985.68$ 896.07$ - - 985.68$ 896.07$Equity dividend 470.59@ 334.38@ - - 470.59@ 334.38@Investments in Equity shares - - 250.00^ - 250.00^ --ReceiptsSale of investments - 1900.00* - - - 1900.00*Balance outstanding at the year endShare Capital 1792.15* 1792.15# - - 1792.15* 1792.15#Share Capital 855.62@ 855.62@ - - 855.62@ 855.62@Investment in Shares - - 250.00^ - 250.00^ -Outstanding Expenses - 41.84* - 41.84** Denotes transactions with <strong>Shriram</strong> Capital <strong>Limited</strong>$ Denotes transactions with <strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong>@#^Denotes transactions with <strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong>Denotes transactions with <strong>Shriram</strong> Ownership Trust <strong>Limited</strong>Denotes transactions with <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong>5. In accordance with the Reserve Bank of India circular no. RBI/2006-07/225 DNBS (PD) C.CNo.87/03.02.2004/2006-07 dated January 4,2007, the Company has created a floating charge on the statutoryliquid assets comprising of investment in Government Securities to the extent of Rs. 101.45 Lacs ( March31,2010: Rs: 101.45Lacs) in favour of trustees representing the public deposit holders of the Company.F-57
6. Earnings per share (Rs. in lacs)ParticularsNet Profit after tax and Share of loss of Associates as per profitand loss account (Rs. in lacs)(A)Weighted average number of equity shares for calculating BasicEPS (in lacs) (B)Weighted average number of equity shares for calculating DilutedEPS (in lacs) (C)Basic earnings per equity share (in Rupees) (Face value of Rs. 10/-per share) (A) / (B)Diluted earnings per equity share (in Rupees) (Face value of Rs.10/- per share) (A) / (C)Year endedMarch 31 2011Year ended March 31201024058.85 19425.86493.23 471.32501.55 481.7748.78 41.2247.97 40.32ParticularsYear ended March31 2011(Rs. in lacs)Year ended March31 2010Weighted average number of equity shares for calculating EPS (inlacs)Add : Equity shares arising on conversion of optionally convertiblewarrants (in lacs)Add : Equity shares for no consideration arising on grant of stockoptions under ESOP (in lacs)Weighted average number of equity shares in calculation dilutedEPS (in lacs)493.23 471.32- --8.32 10.45501.55 481.77Deferred Tax Liabilities /Asset (Net)The breakup of deferred tax asset / liabilities is as under:-(Rs. in lacs)ParticularsAs at March 31 2011 As at March 31 2010Deferred Tax LiabilitiesTiming difference on account of :Differences in depreciation in block of fixed assets as per taxbooks and financial books85.63 92.32Gross Deferred Tax Liabilities (A) 85.63 92.32F-58
Deferred Tax AssetTiming difference on account of :Service Tax Provision 515.90 527.89Additional Provision against standard assets 569.65 0.00Leave Encashment Provision 18.01 9.09Gratuity Provision 65.22 52.86Derivative Provision 418.29 613.81Bonus Provision 13.78 11.42Estimated Disallowances 66.44Gross Deferred Tax Assets (B) 1667.29 1215.02Deferred Tax Liabilities/(Asset) (Net) (A-B) (1581.66) (1122.70)(Rs. in lacs)8. Capital commitmentsAs at March 312011As at March 31 2010Estimated amount of contracts remaining to be executed oncapital account and not provided for (net of advances)61.78 2.809. Contingent Liabilities not provided forAs at March 312011(Rs. in lacs)As at March 31 2010a. Guarantees issued by the Company 6.81 6.81b. Guarantees issued by others 1942.77 1942.7710. Income Tax/Wealth Tax/Service Tax/Fringe Benefit TaxDisputed Wealth Tax/Service Tax demands contested in appeal as on March 31 st , 2011. Wealth tax – Rs.176.00 lacs (March 31 st 2010: Rs.176 lacs)Service Tax - Rs.1553.08 Lacs (March 31 st 2010: Rs.1553.08 lacs)However provision is made in the books for any liability that may arise.11. Employee Stock Option Plan:Date of grant October 19 2007Date of Board Approval October 19 2007Date of Shareholder’s approval October 30 2006Number of options granted 1355000F-59
Method of Settlement (Cash/Equity)EquityGraded vesting period:After 1 year of grant dateAfter 2 years of grant dateAfter 3 years of grant dateAfter 4 years of grant dateExercisable periodVesting Conditions10% of options granted20% of options granted30% of options granted40% of options granted10 years from vesting dateon achievement of pre –determined targetsThe details of Stock Option Plan are summarized below:As at March 31 2011 As at March 31 2010Number ofSharesWeightedAverageExercisePrice(Rs.)Number ofSharesWeighted AverageExercise Price(Rs.)Outstanding at the beginning of the year 1272800 35.00 1320700 35.00Add: Granted during the year 27500 - -Less: Forfeited during the year - - -Less: Exercised during the year 382177 35.00 47900 35.00Less: Expired during the year - - -Outstanding at the end of the year 918123 35.00 1272800 35.00Exercisable at the end of the year - - -Weighted average remaining contractual life(in years)Weighted average fair value of optionsgranted- 9.55 - 10.55- 227.42 - 227.42The details of exercise price for stock options outstanding at the end of the year are:As atRange ofexerciseprices(Rs.)No. of optionsoutstandingWeighted averageremainingcontractual life ofoptions (in years)Weighted averageExercise Price(Rs.)March 31 2011 35 9,18,123 9.55 35March 31 2010 35 12,72,800 10.55 35F-60
Stock Options grantedThe weighted average fair value of stock options granted was Rs.227.42. The Black Scholes model has been used forcomputing the weighted average fair value of options considering the following inputs:Yr 1 Yr 2 Yr 3 Yr 4Exercise Price (Rs.) 35.00 35.00 35.00 35.00Expected Volatility (%) 55.36 55.36 55.36 55.36Historical Volatility NA NA NA NALife of the options granted (Vesting and exercise period) inyears1.50 2.50 3.50 4.50Expected dividends per annum (Rs.) 3.00 3.00 3.00 3.00Average risk-free interest rate (%) 7.70 7.67 7.66 7.67Expected dividend rate (%) 0.84 0.84 0.84 0.84The expected volatility was determined based on historical volatility data equal to the NSE volatility rate of Bank Niftywhich is considered as a comparable peer group of the Company. To allow for the effects of early exercise it wasassumed that the employees would exercise the options within six months from the date of vesting in view of theexercise price being significantly lower than the market price.Effect of the employee share-based payment plans on the profit and loss account and on its financial position:As at March 312011(Rs. in lacs)As at March 31 2010Compensation cost pertaining to equity-settled employee share-basedpayment plan included above471.68 751.53Liability for employee stock options outstanding as at year end 2079.09 2882.26Deferred compensation cost 191.82 601.22F-61
Since the enterprise used the intrinsic value method the impact on the reported net profit and earnings pershare by applying the fair value based method is as follows:In March 2005,the ICAI issued a guidance note on “Accounting for Employees Share Based Payments” applicable toemployee based share plan the grant date in respect of which falls on or after April 1 2005. The said guidance noterequires that the proforma disclosures of the impact of the fair value method of accounting of employee stockcompensation accounting in the financial statements. Applying the fair value based method defined in the saidguidance note the impact on the reported net profit and earnings per share would be as follows:Year ended March31 2011(Rs. in lacs)Year ended March 312010Profit as reported (Rs. in lacs) 24058.85 19425.86Add: Employee stock compensation under intrinsic valuemethod (Rs. in lacs)Less: Employee stock compensation under fair value method(Rs. in lacs)471.68 751.53473.70 754.75Proforma profit (Rs. in lacs) 24056.83 19422.64Less Preference Dividend - -Proforma Net Profit for Equity Shareholders 24056.83 19422.64Earnings per shareBasic (Rs.)- As reported 48.78 41.22- Proforma 48.77 41.21Diluted (Rs.)- As reported 47.97 40.32- Proforma 47.96 40.31F-62
12. SecuritizationThe information on securitization & direct assignment activity of the Company as an originator for the year March31 2011 and March 31 2010 is given below:Year ended March31 2011Year ended March 312010Total number of assets securitized 178502 146402Total book value of assets securitized (Rs. in lacs) 117915.72 30000.00Sale consideration received for the securitised assets (Rs. inlacs)126737.01 30000.00Net gain on account of securitization (Rs. in lacs) 27163.76 2554.73Outstanding credit enhancement- Deposit withbanks/corporate15436.40 7373.57Outstanding Credit enhancement – Assets under financing 1900.63 2735.1313. Derivative Instruments:The Notional principal amount of derivative transactions outstanding as on March 31 2011 for interest rateswaps Rs.12500 lacs (March 31 2010 – 12500 lacs).14. Supplementary Statutory Information14.1 Managing Director’s RemunerationThe computation of profits under section 349 of the Act has not been given as no remuneration / commissionis payable to the Managing Director.(Rs.in lacs)14.2 Expenditure in foreign currency (On cash basis)Year ended March31 2011Year ended March 312010Subscription Fees 0.09 0.0815. Additional information pursuant to the provisions of paragraphs 3 4C and 4D of Part II of schedule VIto the ActThe Company does not have licensed capacity as it is a Non Banking <strong>Finance</strong> Company.16. Previous Year ComparativesThe figures for the previous year have been regrouped and reclassified, wherever necessary to conform to currentyear’s classification.F-63
2009 – 20102. Notes to Accounts1. Particulars of Secured Loansa) Privately placed Redeemable Non-convertible Debentures (Retail)As at March 31,2010 As at March 31,2009Face Value(Rs.)NumberAmount(Rs.in lacs)NumberAmount (Rs.inlacs)1,000 1,34,07,377 1,34,073.77 1,00,74,110 1,00,741.10These Debentures are redeemable at par over a period of 12 months to 160 months from the date of allotment dependingon the terms of the agreement. The earliest date of redemption is 01.04.2010 (March 31,2009; 01.04.2009). The lastdate of redemption is 25.10.2017 (March 31, 2009; 25.10.2017).b) Privately Placed Redeemable Non-Convertible Debenture (Institutional)Amount (Rs. in lacs)Date ofAllotment/renewalFaceValueNumberAs atMarch31, 2010As atMarch31, 2009Redemption date28.03.2008 1,000 5,00,000 - 5,000.00 15.04.200928.05.2008 1,000 12,50,000 - 12,500.00 28.10.200917.12.2008 10,00,000 950 - 9,500.00 17.12.200923.04.2009 10,00,000 1,000 10,000.00 - 23.04.201024.09.2009 10,00,000 250 2,500.00 - 30.09.201417.09.2009 10,00,000 100 1,000.00 - 30.09.201417.09.2009 10,00,000 100 1,000.00 - 30.09.201417.09.2009 10,00,000 50 500.00 - 30.09.201423.09.2009 10,00,000 200 2,000.00 - 30.09.201406.10.2009 10,00,000 200 2,000.00 - 07.10.201406.10.2009 10,00,000 200 1,000.00 - 07.10.2014Total 20,000.00 27,000.00These Debentures are redeemable at par at respective dates given above.F-64
c) All Debentures under (a) and (b) above are secured by exclusive mortgage of office premise and further secured bycharge on Plant and Machinery, Furniture and other fixed assets of the Company, charge on Company’s book debts,loans, advances and other investments of the Company subject to prior charges created or to be created in favour ofthe Company’s bankers, financial institutions and others.d) Term Loans:As at March 31,2010(Rs. in lacs)As at March 31,2009i. From Financial Institutions/Corporate:(a)Secured by an exclusive charge by way ofhypothecation of assets under financing.9,530.00 9,103.00(b)Secured by an exclusive charge by way ofhypothecation of specific charge on Land, Plant &Machinery and Receivables relating to theWindmills-- 323.40Total 9,530.00 9,426.40(Rs. in lacs)As at March 31,2010As at March 31,2009ii. From Banks :(a)Secured by an exclusive charge by way ofhypothecation of assets under financing. 1,04,634.17 1,40,150.93(b)(c)TotalSecured by an exclusive charge by way ofhypothecation of specific charge on Land, Plant &Machinery and Receivables relating to the WindmillsSecured by an exclusive charge by way ofhypothecation of specific charge on Land, Plant &Machinery relating to the Bio Mass Plant-- 1,448.70-- 1,963.11104634.17 1,43,562.74F-65
e) Cash Credit from Banks(Rs. in lacs)As at March 31,2010As at March 31,2009Cash Credit from Banks 1,45,372.61 1,09,715.19Secured by an exclusive charge by way of hypothecation of receivables relating to assets under financing.2. Gratuity and other post-employment benefit plans:The Company has an unfunded defined benefit gratuity plan. Every employee who has completed five years ormore of service gets a gratuity on separation at 15 days salary (last drawn salary) for each completed year ofservice.Consequent to the adoption of revised AS 15 ‘Employee Benefits’ issued by the ICAI, the following disclosureshave been made as required by the standard :Profit and Loss accountNet employee benefit expense (recognized in Employee Cost)(Rs. in lacs)GratuityParticularsMarch 31, 2010 March 31, 2009Current service cost 21.49 35.29Interest cost on benefit obligation 12.38 13.37Expected return on plan assets N.A N.ANet actuarial (gain) / loss recognized in the year (19.27) (39.51)Past service cost NIL NILNet benefit expense 14.60 9.15Actual return on plan assets N.A N.AF-66
Balance sheetDetails of Provision for gratuity(Rs in Lacs)GratuityParticularsMarch 31, 2010 March 31, 2009Defined benefit obligation 155.52 139.64Fair value of plan assets N.A N.ATotal 155.52 139.64Less: Unrecognized past service cost NIL NILPlan asset / (liability) (155.52) (139.64)Changes in the present value of the defined benefit obligation are as follows:(Rs. in Lacs)GratuityParticularsMarch 31, 2010 March 31, 2009Opening defined benefit obligation 139.64 133.18Interest cost 12.38 13.37Current service cost 21.49 35.29Benefits paid 1.28 (2.69)Actuarial (gains) / losses on obligation (19.27) (39.51)Closing defined benefit obligation 155.52 139.64The Company would not contribute any amount to gratuity in 2010-11 as the scheme is unfunded.The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:Gratuity(Rs. In Lacs)ParticularsMarch 31, 2010 March 31, 2009% %Investments with insurer NA NAThe principal assumptions used in determining gratuity obligations for the company’s plan are shownbelow:F-67
Gratuity(Rs. In Lacs)Particulars March 31, 2010 March 31, 2009Discount Rate 7.75% 7.75%Increase in compensation cost 5.00% 5.00%Employee Turnover 3.25% 3.25%The estimates of future salary increases, considered in actuarial valuation, take account of inflation,seniority, promotion and other relevant factors, such as supply and demand in the employment marketAmounts for the current period are as follows:(Rs. in lacs)ParticularsMarch 31, 2010 March 31, 2009 March 31, 2008Defined benefit obligation 155.52 139.64 133.18Plan assets N.A N.A N.ASurplus / (deficit) (155.52) (139.64) (133.18)Experience adjustments on plan liabilities (19.27) (39.51) 53.10Experience adjustments on plan assets N.A N.A. N.A3. Related Party DisclosuresRelated Parities have been identified by the Management and relied upon by the auditors.Subsidiary : <strong>Shriram</strong> Non-Conventional Energy <strong>Limited</strong> (till 26 th June 2009)Enterprises having significantinfluence over the Company: <strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong><strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong><strong>Shriram</strong> Capital <strong>Limited</strong><strong>Shriram</strong> Ownership TrustTPG India Investments I Inc.Key Managerial Personnel : R Kannan, Managing DirectorF-68
(Rs. In Lacs)Enterprises havingsignificant influence over SubsidiaryTotalthe Company2010 2009 2010 2009 2010 2009PaymentsRoyalty 304.08* 269.55* - - 304.08* 269.55*Data Sourcing fees 160.53* 135.70* - - 160.53* 135.70*Service Charges 963.15* 814.18* - - 963.15* 814.18*Equity dividend - - - -Reimbursement of BusinessPromotion Expenses44.12* - - - 44.12* -Equity dividend 896.07# 716.86# - - 896.07# 716.86#Equity dividend 334.38@ 217.67@ - - 334.38@ 217.67@Investments in shares - - - -Loan to Subsidiary - - 4,392.66^ 4,392.66^Receipts - -Sale of investments 1,900.00* - - - 1,900.00* -Subscription of equity shares - - - -Subscription to optionallyconvertible warrantsConversation of Warrants intoEquity / Securities Premium1,400.00@ - - 1,400.00@2,080.80# - - 2,080.80#Interest Received - 78.00^ 78.00^Balance outstanding at the yearend-Share Capital 1,792.15# 1,792.15# - 1,792.15# 1,792.15#Share Capital 855.62@ 544.17@ - 855.62@ 544.17@Share Warrants - 1,400.00@ - - 1,400.00@Investment in Shares - - 5.00^ - 5.00^Outstanding Expenses 41.84* 60.90* - 41.84* 60.90*Interest receivable on Loan toSubsidiary- 60.32^ 60.32^F-69
* Denotes transactions with <strong>Shriram</strong> Capital <strong>Limited</strong># Denotes transactions with <strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong>@^Denotes transactions with <strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong>Denotes transactions with <strong>Shriram</strong> Non Conventional Energy <strong>Limited</strong>4. Earnings Per Share (Rs. In Lacs)ParticularsYear ended Year ( endedMarch 31, 2010 March 31, 2009Net Profit after tax as per profit and loss account (Rs. in lacs) 19,425.86 11,700.77Less : Preference Dividend 0.00 73.91Net Profit for Equity Shareholders (A) 19,425.86 11,626.86Weighted average number of equity shares for calculating Basic EPS (in lacs) (B) 471.32 451.16Weighted average number of equity shares for calculating Diluted EPS (in lacs)(C)Basic earnings per equity share (in Rupees) (Face value of Rs. 10/- per share) (A)/ (B)Diluted earnings per equity share (in Rupees) (Face value of Rs. 10/- per share)(A) / (C)481.77 518.1541.22 25.7740.32 22.44ParticularsYear endedMarch 31, 2010(Rs. in lacs)Year endedMarch 31, 2009Weighted average number of equity shares for calculating EPS (in lacs) 471.32 451.16Add : Equity shares arising on conversion of optionally convertible warrants (inlacs)Add : Equity shares for no consideration arising on grant of stock options underESOP (in lacs)-- 59.2810.45 7.71Weighted average number of equity shares in calculation diluted EPS (in lacs) 481.77 518.15F-70
5. Deferred Tax Liabilities/(Asset) (Net)(Rs. in lacs)The breakup of deferred tax asset / liabilities is as under:- As at March 31,2010As at March 31,2009Deferred Tax LiabilitiesTiming difference on account of :Differences in depreciation in block of fixed assets as per tax booksand financial books92.32 881.85Gross Deferred Tax Liabilities (A) 92.32 881.85Deferred Tax AssetTiming difference on account of :Expenses disallowed under Income Tax Act, 1961 601.20 581.09Provision for hedging contracts 613.81 613.81Gross Deferred Tax Assets (B) 1,215.02 1,194.90Deferred Tax Liabilities/(Asset) (Net) (A-B) (1,122.70) (313.05)(Rs. in lacs)6. Capital commitmentsEstimated amount of contracts remaining to be executed on capital accountand not provided for (net of advances)As at March 31,2010As at March 31,20092.80 NIL(Rs. in lacs)As at March 31, As at March 31,7. Contingent Liabilities not provided for20102009Guarantees issued by the Company 6.81 6.81Guarantees issued by others 1,942.77 3,117.77Income Tax/Wealth Tax/Service Tax/Fringe Benefit TaxDisputed Income tax/Wealth Tax/Service Tax/Fringe Benefit Tax demands contested in appeal as on March 31 st ,2010 amount to Rs.1,553.08 lacs (March 31 st 2009: Rs.1,554.83 lacs. However provision is made in the books forany liability that may arise.F-71
8. The Company during the year converted 32,50,000 warrants issued on preferential basis into equity sharesof Rs.10/- each at a premium of Rs.390/-. The company forfeited 35,00,000 warrants for non exercise ofoption and the amount of Rs.1,400 lacs was transferred to Capital Reserve.9. Employee Stock Option PlanSeries IDate of grant October 19, 2007Date of Board Approval October 19, 2007Date of Shareholder’s approval October 30, 2006Number of options granted 13,27,500Method of Settlement (Cash/Equity)After 1 year of grant dateAfter 2 years of grant dateAfter 3 years of grant dateAfter 4 years of grant dateExercisable periodVesting ConditionsEquity10% of options granted20% of options granted30% of options granted40% of options granted10 years from vesting dateon achievement of pre –determined targetsF-72
The details of Series I have been summarized below:As at March 31, 2010 As at March 31, 2009Number ofSharesWeightedAverageExercisePrice(Rs.)Number ofSharesWeighted AverageExercise Price(Rs.)Outstanding at the beginning of the year 13,20,700 35.00 Nil -Add: Granted during the year - - 13,27,500 35.00Less: Forfeited during the year - - Nil -Less: Exercised during the year 47,900 35.00 6,800 35.00Less: Expired during the year Nil - Nil -Outstanding at the end of the year 12,72,800 35.00 13,20,700 35.00Exercisable at the end of the year - - - -Weighted average remaining contractual life(in years)- 10.55 - 11.55Weighted average fair value of options granted - 227.42 - 227.42The details of exercise price for stock options outstanding for Series I at the end of the year are:As atRange ofexercisepricesNumber of optionsoutstandingWeighted averageremaining contractual lifeof options (in years)Weighted averageexercise priceMarch 31, 2010 Rs.35/- 12,72,800 10.55 Rs.35/-March 31, 2009 Rs.35/- 13,20,700 11.55 Rs.35/-F-73
Stock Options grantedSeries I:The weighted average fair value of stock options granted was Rs.227.42. The Black Scholes model has been used forcomputing the weighted average fair value of options considering the following inputs:Yr 1 Yr 2 Yr 3 Yr 4Exercise Price (Rs.) 35.00 35.00 35.00 35.00Expected Volatility (%) 55.36 55.36 55.36 55.36Historical Volatility NA NA NA NALife of the options granted (Vesting and exerciseperiod) in years1.50 2.50 3.50 4.50Expected dividends per annum (Rs.) 3.00 3.00 3.00 3.00Average risk-free interest rate (%) 7.70 7.67 7.66 7.67Expected dividend rate (%) 0.84 0.84 0.84 0.84The expected volatility was determined based on historical volatility data equal to the NSE volatility rate of Bank Niftywhich is considered as a comparable peer group of the Company. To allow for the effects of early exercise, it wasassumed that the employees will exercise the options within six months from the date of vesting in view of the exerciseprice being significantly lower than the market price.Effect of the employee share-based payment plans on the profit and loss account and on its financial position:(Rs. in lacs)As at March31, 2010As at March 31,2009Compensation cost pertaining to equity-settled employee share-basedpayment plan included above751.53 1,111.28Liability for employee stock options outstanding as at year end 2,882.26 2,990.73Deferred compensation cost 601.22 1,352.76F-74
Since the enterprise used the intrinsic value method the impact on the reported net profit and earnings pershare by applying the fair value based method is as follows:In March 2005, ICAI has issued a guidance note on “Accounting for Employees Share Based Payments” applicable toemployee based share plan the grant date in respect of which falls on or after April 1, 2005. The said guidance noterequires that the proforma disclosures of the impact of the fair value method of accounting of employee stockcompensation accounting in the financial statements. Applying the fair value based method defined in the saidguidance note, the impact on the reported net profit and earnings per share would be as follows:Year ended March31, 2010(Rs. in lacs)Year ended March31, 2009Profit as reported (Rs. in lacs) 19,425.86 11,700.77Add: Employee stock compensation under intrinsic valuemethod (Rs. in lacs)Less: Employee stock compensation under fair value method(Rs. in lacs)751.53 1,111.28754.75 1,116.04Proforma profit (Rs. in lacs) 19,422.64 11,696.01Less Preference Dividend - 73.91Proforma Net Profit for Equity Shareholders 19,422.64 11,622.10Earnings per shareBasic (Rs.)- As reported 41.22 25.77- Proforma 41.21 25.76Diluted (Rs.)- As reported 40.32 22.44- Proforma 40.31 22.43F-75
10. SecuritizationThe information on securitization & direct assignment activity of the Company as an originator for the year March31, 2010 and March 31, 2009 is given below:Year ended March31, 2010(Rs. In Lacs)Year ended March31, 2009Total number of assets securitized 1,46,402 3,14,685Total book value of assets securitized (Rs. in lacs) 30,000.00 88,844.37Sale consideration received for the securitized assets (Rs. inlacs)30,000.00 91,874.15Net gain on account of securitization (Rs. in lacs) 2,554.73 13,182.64Outstanding credit enhancement- Deposit withbanks/corporate7,373.57 10,017.54Outstanding Credit enhancement – Assets under financing 2,735.13 1,762.0311. Derivative Instruments:The Notional principal amount of derivative transactions outstanding as on March 31, 2010 for interestrate swaps Rs.12,500 lacs (March 31, 2009 – 12,500 lacs).12. Supplementary Statutory Information12.1 Managing Director’s RemunerationThe computation of profits under section 349 of the Act has not been given as no remuneration /commission is payable to the Managing Director.(Rs .in lacs)12.2 Expenditure in foreign currency (On cash basis)Year ended March31, 2010Year ended March 31,2009Subscription Fees 0.08 0.0813. Additional information pursuant to the provisions of paragraphs 3, 4C and 4D of Part II of scheduleVI to the ActF-76
13.1 Licensed Capacity, Installed capacity, Actual production and SalesClass ofGoodsUnitsLicensedCapacity asat March 31,InstalledCapacity as atMarch 31, (inKW)Actual Production andSales for the year endedMarch 31, (in units)Sales Value(Rs. in lacs)2010 2009 2010 2009 2010 2009 2010 2009Electricity -Windmill34 - NA - 12,550 1,71,19,786 500.59F-77
2008 – 20092. Notes to Accounts1. Particulars of Secured Loansa) Privately placed Redeemable Non-convertible Debentures of Rs.1,000/- each(Rs. in lacs)Debentures are redeemable over a period of 12 months to 160 months from the date of allotment depending on theterms of the agreement.Privately Placed Redeemable Non-Convertible Debenture of Rs.1000/- eachAs at March 31, 2009 As at March 31, 2008Number 1,00,74,110 64,10,639Amount 1,00,741.10 64,106.39Date ofAllotment/renewal As at March 31,2009Amount (Rs. in lacs)As at March 31,2008(Rs. in lacs)Redemption date28.03.2008 5,000.00 5,000.00 15.04.200928.05.2008 12,500.00 - 28.10.200917.12.2008 9,500.00 - 17.12.2009Total 27,000.00 5,000.00The above mentioned privately placed Non-Convertible Debentures are secured by exclusive mortgage of officepremise. Further secured by charge on Plant and Machinery, Furniture and other fixed assets of the Company, charge onCompany’s book debts, loans, advances and other investments of the Company subject to prior charges created or to becreated in favour of the Company’s bankers, financial institutions and others.F-78
) Term Loans:As at March 31,2009(Rs. in lacs)As at March 31, 2008i. From Financial Institutions/Corporate:(a)Secured by an exclusive charge by way ofhypothecation of receivables relating toLoans 9,103.00 10,100.00(b)323.40 413.00Secured by an exclusive charge by way ofhypothecation of specific charge on Land, Plant& Machinery and Receivables relating to theWindmillsTotal 9,426.40 10,513.00As at March 31,2009(Rs. in lacs)As at March 31, 2008ii. From Banks :(a)(b)(c)TotalSecured by an exclusive charge by way ofhypothecation of receivables relating to LoansSecured by an exclusive charge by way ofhypothecation of specific charge on Land, Plant& Machinery and Receivables relating to theWindmillsSecured by an exclusive charge by way ofhypothecation of specific charge on Land, Plant& Machinery relating to the Bio Mass Plant1,40,150.93 1,11,568.531,448.70 1,910.781,963.11 2,275.711,43,562.74 1,15,755.02c) Cash Credit from BanksAs at March 31,2009(Rs. in lacs)As at March 31, 2008Cash Credit from Banks 1,09,715.19 67,420.99Secured by an exclusive charge by way of hypothecation of receivables relating to LoansFF-79
2. FiFixed DepositsIn accordance with the Reserve Bank of India circular no.RBI/2006-07/ 225 DNBS (PD) C.C No.87/03.02.004/2006-07 dated January 4, 2007, the Company has created a floating charge on the statutory liquidassets comprising of investment in Government Securities to the extent of Rs101.45 lacs in favour of trusteesrepresenting the public deposit holders of the Company.3. Subordinated DebtThe Company has raised during the year subordinated debt bonds amounting toRs.13,813.75 lacs (March 31, 2008: Rs. 8,170.49 lacs) with coupon rate of 11.5% to 13% per annum whichare redeemable over a period of 62 months to 73 months.4. Cash & Cash Equivalents(Rs. in lacs)Particulars Year ended March 31, Year ended March 31,20092008Cash & Bank balance (as per schedule 8 ) 1,60,803.74 87,605.23Less : Fixed deposits having original maturitygreater than 3 months or pledged with banks or lien markeddeposits10,813.87 4,958.17Balance considered as cash & cash equivalents forflow statementcash1,49,989.87 82,647.065. Gratuity and other post-employment benefit plans:The Company has an unfunded defined benefit gratuity plan. Every employee who has completed fiveyears or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for eachcompleted year of service.Consequent to the adoption of revised AS 15 ‘Employee Benefits’ issued by the ICAI, the followingdisclosures have been made as required by the standard:F-80
Profit and Loss accountNet employee benefit expense (recognized in Employee Cost)Gratuity(Rs. in lacs)GratuityParticularsMarch 31, 2009 March 31, 2008Current service cost 35.29 45.67Interest cost on benefit obligation 13.37 5.93Expected return on plan assets N.A N.ANet actuarial (gain) / loss recognized in the year (39.51) 53.10Past service cost NIL NILNet benefit expense 9.15 104.70Actual return on plan assets N.A N.ABalance sheetDetails of Provision for gratuityGratuity(Rs in Lacs)GratuityParticularsMarch 31, 2009 March 31, 2008Defined benefit obligation 139.64 133.18Fair value of plan assets N.A N.ATotal 139.64 133.18Less: Unrecognized past service cost NIL NILPlan asset / (liability) (139.64) (133.18)F-81
Changes in the present value of the defined benefit obligation are as follows:(Rs. in Lacs)GratuityGratuityParticularsMarch 31, 2009 March 31, 2008Opening defined benefit obligation 133.18 28.48Interest cost 13.37 5.93Current service cost 35.29 45.67Benefits paid (2.69) NILActuarial (gains) / losses on obligation (39.51) 53.10Closing defined benefit obligation 139.64 133.18The Company would not contribute any amount to gratuity in 2009-10 as the scheme is unfunded.The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:GratuityGratuityParticularsMarch 31, 2009 March 31, 2008% %Investments with insurer NA NAThe principal assumptions used in determining gratuity obligations for the company’s plan are shownbelow:GratuityGratuityParticulars March 31, 2009 March 31, 2008Discount Rate 7.75% 8%Increase in compensation cost 5.00% 5%Employee Turnover 3.25% 10%F-82
The estimates of future salary increases, considered in actuarial valuation, take account of inflation,seniority, promotion and other relevant factors, such as supply and demand in the employment market.Amounts for the current period are as follows:( Rs. In Lacs)ParticularsMarch 31, 2009 March 31, 2008Defined benefit obligation 139.64 133.18Plan assets N.A N.ASurplus / (deficit) (139.64) (133.18)Experience adjustments on plan liabilities (39.51) 53.10Experience adjustments on plan assets N.A. NAThe current year being the first year of adoption of AS 15 (revised) by the Company, the previous year comparativeinformation has not been furnished.F-83
6. Segment Reporting(Rs. in lacs)Year ended March 31, 2009 Year ended March 31, 2008ParticularsFinancingActivitiesUnallocatedreconcilingitemsTotalFinancingActivitiesUnallocatedreconcilingitemsTotalSegment Revenue 92,893.16 500.59 93,393.75 61,842.63 476.13 62,318.76Segment Results(Profit before tax andafter interest onFinancing Segment)Less: Interest onunallocatedreconciling items19,785.18 (1,552.74) 18,232.43 13,366.42 (347.14) 13,019.28- 258.90 258.90 - 320.82 320.82Net profit before tax 17,973.53 12,698.46Less: Income taxes 6,272.76 3,934.96Net profit 11,700.77 8,763.50Other Information:Segment assets 5,33,858.67 9,726.13 5,43,584.80 3,69,451.13 8,372.14 3,77,823.27Unallocated corporateassets- 575.82 575.82 1,030.88 1,030.88Total Assets 5,33,858.67 10,301.95 5,44,160.62 3,69,451.13 9,403.02 3,78,854.15Segment liabilities 4,69,776.83 1,799.79 4,71,576.62 3,28,489.90 4,752.31 3,33,241.21Unallocated corporateliabilities- - - - 632.99 632.99Total Liabilities 4,69,776.83 1,799.79 4,71,576.62 3,28,489.90 5,384.30 3,33,874.20Capital expenditure 879.02 - 879.02 670.25 - 670.25Depreciation 285.12 1,919.93 2,205.05 394.40 733.12 1,127.52Other non - cashexpenses9,922.91 - 9,922.91 6,652.54 6,652.54F-84
7. Related Party DisclosuresRelated Parities have been identified by the Management and relied upon by the auditors.Subsidiary : <strong>Shriram</strong> Non-Conventional Energy <strong>Limited</strong> (From 10 th January2009)Enterprises having significant influence overthe Company :<strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong><strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong><strong>Shriram</strong> Capital <strong>Limited</strong>Key Managerial Personnel : R Kannan, Managing DirectorF-85
Enterprises havingsignificant influenceover the CompanySubsidiary(Rs in Lacs)Total2009 2008 2009 2008 2009 2008PaymentsRoyalty 269.55* 147.50* - - 269.55* 147.50*Data Sourcing fees 135.70* 63.38* - - 135.70* 63.38*Service Charges 814.18* 380.24* - - 814.18* 380.24*Equity dividend - 162.60* - - - 162.60*Equity dividend 716.86# 432.64# - - 716.86# 432.64#Equity dividend 217.67@ - - - 217.67@ -Investments in shares - - - 4.99^ - 4.99^Loan to Subsidiary - - 4392.66^ - 4392.66^ -ReceiptsSale of investments - - - 4.54^ - 4.54^Subscription of equity shares - - - - - -Subscription to optionally convertiblewarrantsConversation of Warrants into Equity /Securities Premium1400.00@ - - - 1400.00@ -2080.80# 2959.20# - - 2080.80# 2,959.20#Interest Received 78.00^ - 78.00^ -Balance outstanding at the year endShare Capital 542.00* 542.00*Share Capital 1,792.15# 1,647.65# 1,792.15# 1,647.65#Share Capital 544.17@ - 544.17@ -Share Warrants 1,400.00@ 232.20# 1,400.00@ 232.20#Investment in Shares 5.00^ 0.45^ 5.00^ 0.45^Outstanding Expenses 60.90* 174.28* 60.90* 174.28*Interest receivable on Loan toSubsidiary60.32^ - 60.32^ -F-86
* Denotes transactions with <strong>Shriram</strong> Capital <strong>Limited</strong># Denotes transactions with <strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong>@^Denotes transactions with <strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong>Denotes transactions with <strong>Shriram</strong> Non Conventional Energy <strong>Limited</strong>8. Earnings per share(Rs. in lacs)Particulars Year ended March 31, Year ended March 31, 20082009Net Profit after tax as per profit and loss account (Rs. in lacs) 11,700.77 8,763.50Less : Preference Dividend 73.91 165.74Net Profit for Equity Shareholders (A) 11,626.86 8,597.76Weighted average number of equity shares for calculatingBasic EPS (in lacs) (B)Weighted average number of equity shares for calculatingDiluted EPS (in lacs) (C)Basic earnings per equity share (in Rupees) (Face value of Rs.10/- per share) (A) / (B)Diluted earnings per equity share (in Rupees) (Face value ofRs. 10/- per share) (A) / (C)451.16 391.67518.15 395.4125.77 21.9522.44 21.74ParticularsYear ended March 31,2009(Rs. in lacs)Year ended March 31,2008Weighted average number of equity shares for calculating EPS(in lacs)Add : Equity shares arising on conversion of optionallyconvertible warrants (in lacs)Add : Equity shares for no consideration arising on grant of stockoptions under ESOP (in lacs)Weighted average number of equity shares in calculation dilutedEPS (in lacs)451.16 391.6759.28 1.457.71 2.29518.15 395.41F-87
9. Consolidated Financial StatementsThe Company has further acquired 45,500 equity shares of M/s. <strong>Shriram</strong> Non Conventional Energy <strong>Limited</strong>(SNEL) during the year and consequently SNEL has become wholly owned subsidiary with effect from 10 thJanuary 2009. This investment is intended to be temporary since the subsidiary is acquired and held exclusivelywith a view to dispose it in the near future. Complying with Accounting Standard 21 issued by the Institute ofChartered Accountants of India consolidated accounts are therefore not presented. The Company has at itsExtra Ordinary General Meeting of the shareholders held on May 11, 2009 obtained the approval of theshareholders to sell the shares held as Investments in its wholly owned subsidiary.10. Deferred Tax Liabilities/(Asset) (Net)(Rs. in lacs)The breakup of deferred tax asset / liabilities is as under:- As at March 31,2009As at March 31, 2008Deferred Tax LiabilitiesTiming difference on account of :Differences in depreciation in block of fixed assets as pertax books and financial books881.85 1,495.39Gross Deferred Tax Liabilities (A) 881.85 1,495.39Deferred Tax AssetTiming difference on account of :Expenses disallowed under Income Tax Act, 1961 581.09 586.51Provision for hedging contracts 613.81 275.89Gross Deferred Tax Assets (B) 1194.90 862.40Deferred Tax Liabilities/(Asset) (Net) (A-B) (313.05) 632.99(Rs. in lacs)11. Capital CommitmentsEstimated amount of contracts remaining to be executed oncapital account and not provided for (net of advances)As at March 31,2009As at March 31, 2008NIL 276.84F-88
(Rs. in lacs)As at March 31, As at March 31, 200812. Contingent Liabilities not provided for2009Guarantees issued by the Company 6.81 6.81Income Tax/Wealth Tax/Service Tax/Fringe Benefit TaxDisputed Income tax/Wealth Tax/Service Tax/Fringe Benefit Tax demands contested in appeal as on March 31 st ,2009 amount to Rs.1554.83 lacs (March 31 st 2008: Rs.1,603.12 Lacs. However provision is made in the booksfor any liability that may arise.13. The Company during the year converted 14,40,000 warrants issued to <strong>Shriram</strong> Enterprise Holdings Private<strong>Limited</strong> into equity shares of Rs.10/- each at a premium of Rs.150/-. The total amount of Rs. 2167.50 lacsreceived from the said preferential allotment was utilized for the purpose of increasing the net worth andworking capital of the Company. The company has further issued 35,00,000 warrants to <strong>Shriram</strong> RetailHoldings Private <strong>Limited</strong> on a preferential basis with an option to convert into equity shares of Rs.400/-each (including securities premium of Rs.390/-) within 18 months from the date of issue i.e. May 16,2008.14. Employee Stock Option PlanSeries IDate of grant October 19, 2007Date of Board Approval October 19, 2007Date of Shareholder’s approval October 30, 2006Number of options granted 13,27,500Method of Settlement (Cash/Equity)After 1 year of grant dateAfter 2 years of grant dateAfter 3 years of grant dateAfter 4 years of grant dateEquity10% of options granted20% of options granted30% of options granted40% of options grantedExercisable periodVesting Conditions10 years from vesting dateon achievement of pre –determined targetsF-89
The details of Series I have been summarized below:As at March 31, 2009 As at March 31, 2008Number ofSharesWeightedAverageExercisePrice(Rs.)Number ofSharesWeighted AverageExercise Price(Rs.)Outstanding at the beginning of the year Nil NilAdd: Granted during the year 13,27,500 Rs. 35.00 13,27,500 Rs. 35.00Less: Forfeited during the year Nil - Nil -Less: Exercised during the year 6,800 Rs.35.00 - -Less: Expired during the year - - - -Outstanding at the end of the year 13,20,700 Rs. 35.00 13,27,500 Rs. 35.00Exercisable at the end of the year - -Weighted average remaining contractual life(in years)11.55 12.55Weighted average fair value of options granted Rs. 227.42 Rs. 227.42The details of exercise price for stock options outstanding for Series I at the end of the year are:As atRange ofexercisepricesNumber of optionsoutstandingWeighted averageremainingcontractual life ofoptions (in years)Weighted average exercise priceMarch 31, 2009 Rs.35/- 13,27,500 11.55 Rs.35/-March 31, 2008 Rs.35/- 13,27,500 12.55 Rs.35/-F-90
Stock Options grantedSeries I:The weighted average fair value of stock options granted was Rs.227.42/-. The Black Scholes model has been used forcomputing the weighted average fair value of options considering the following inputs:Yr 1 Yr 2 Yr 3 Yr 4Exercise Price (Rs.) 35.00 35.00 35.00 35.00Expected Volatility (%) 55.36 55.36 55.36 55.36Historical Volatility NA NA NA NALife of the options granted (Vesting and exercise period) inyears1.50 2.50 3.50 4.50Expected dividends per annum (Rs.) 3.00 3.00 3.00 3.00Average risk-free interest rate (%) 7.70 7.67 7.66 7.67Expected dividend rate (%) 0.84 0.84 0.84 0.84The expected volatility was determined based on historical volatility data equal to the NSE volatility rate of Bank Niftywhich is considered as a comparable peer group of the Company. To allow for the effects of early exercise, it wasassumed that the employees will exercise the options within six months from the date of vesting in view of the exerciseprice being significantly lower than the market price.Effect of the employee share-based payment plans on the profit and loss account and on its financial position:As at March31, 2009(Rs. in lacs)As at March31, 2008Compensation cost pertaining to equity-settled employee share-based paymentplan included above1,111.28 542.08Liability for employee stock options outstanding as at year end 2,990.73 3,006.12Deferred compensation cost 1,352.76 2,464.04F-91
Since the enterprise used the intrinsic value method the impact on the reported net profit and earnings pershare by applying the fair value based method is as follows:In March 2005, ICAI has issued a guidance note on “Accounting for Employees Share Based Payments” applicable toemployee based share plan the grant date in respect of which falls on or after April 1, 2005. The said guidance noterequires that the proforma disclosures of the impact of the fair value method of accounting of employee stockcompensation accounting in the financial statements. Applying the fair value based method defined in the saidguidance note, the impact on the reported net profit and earnings per share would be as follows:Year ended March31, 2009(Rs. in lacs)Year ended March31, 2008Profit as reported (Rs. in lacs) 11,700.77 8,763.50Add: Employee stock compensation under intrinsic value method(Rs. in lacs)Less: Employee stock compensation under fair value method (Rs. inlacs)1,111.28 542.081,116.04 544.40Proforma profit (Rs. in lacs) 11,696.01 8,761.18Less Preference Dividend 73.91 165.74Proforma Net Profit for Equity Shareholders 11,622.10 8,595.44Earnings per shareBasic (Rs.)- As reported 25.77 21.95- Proforma 25.76 21.95Diluted (Rs.) - -- As reported 22.44 21.74- Proforma 22.43 21.74F-92
15. SecuritisationThe Company sells loans through securitisation and direct assignment. The information on securitisation & directassignment activity of the Company as an originator for the year March 31, 2009 and March 31, 2008 is givenbelow:Year endedMarch 31, 2009Year ended March 31,2008Total number of loan assets securitized 3,14,685 3,98,691Total book value of loan assets securitised (Rs. in lacs) 88,844.37 75,781.80Sale consideration received for the securitised assets (Rs. inlacs)91,874.15 83,539.14Net gain on account of securitization (Rs. in lacs) 3,029.78 7,757.34The information on securitisation & direct assignment activity of the Company as an originator as on March 31, 2009and March 31, 2008 is given in the table below :As at March 31,2009(Rs. in Lacs)As at March 31, 2008Outstanding credit enhancement- Deposit with banks/corporate 10,017.54 4,695.88Outstanding Credit enhancement - Receivables 1,762.03 3,200.8616. Derivative Instruments:The Notional principal amount of derivative transactions outstanding as on March 31, 2009 for interest rate swapsRs.12,500 lacs (March 31, 2008 – 50,000 lacs).17. Supplementary Statutory Information17.1 Managing Director’s RemunerationThe computation of profits under section 349 of the Act has not been given as no remuneration / commission ispayable to the Managing Director.(Rs.in lacs)17.2 Expenditure in foreign currency (On cash basis)Year ended March31, 2009Year ended March 31,2008Travelling - 1.67Others 0.08 Nil0.08 1.67F-93
18. Additional information pursuant to the provisions of paragraphs 3, 4C and 4D of Part II of schedule VI tothe Act18.1 Licensed Capacity, Installed capacity, Actual production and SalesClass ofGoodsUnitsLicensedCapacity as atMarch 31,InstalledCapacity as atMarch 31, (inKW)Actual Production andSales for the year endedMarch 31, (in units)Sales Value(Rs. in lacs)2009 2008 2009 2008 2009 2008 2009 2008Electricity- Windmill34 NA NA 12,550 12,550 1,71,19,786 1,65,56,603 500.59 476.1319. Based on the intimation received by the Company, none of the suppliers have confirmed to be registeredunder The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. Accordingly, nodisclosures relating to amounts unpaid as at the year end together with interest paid /payable arerequired to be furnished.F-94
2007 – 20082. Notes to Accounts1. Particulars of Secured Loansa) Privately placed Redeemable Non-convertible Debentures of Rs.1,000/- each(Rs. in lacs)As at March 31,2008As at March 31, 2007Number 64,10,639 60,96,856Amount 64,106.39 60,968.56Debentures are redeemable over a period of 12 months to 160 months from the date of allotment depending on theterms of the agreement.Privately Placed Redeemable Non-Convertible Debenture of Rs.1000/- eachDate ofAllotment/renewal As at March 31,2008Amount (Rs. in lacs)As at March 31,2007(Rs. in lacs)Redemption date28.03.2008 5,000.00 Nil 15.04.2009The above mentioned privately placed Non-Convertible Debentures are secured by exclusive mortgage of officepremise. Further secured by charge on Plant and Machinery, Furniture and other fixed assets of the Company,charge on Company’s book debts, leased assets, loans, advances and other investments of the Company subject toprior charges created or to be created in favour of the Company’s bankers, financial institutions and others.F-95
) Term Loans:As at March 31,2008(Rs. in lacs)As at March 31, 2007i. From Financial Institutions/Corporate:(a)Secured by an exclusive charge by way ofhypothecation of receivables relating toLoans 10,100.00 700.00(b)413.00 461.00Secured by an exclusive charge by way ofhypothecation of specific charge on Land,Plant & Machinery and Receivables relating tothe WindmillsTotal 10,513.00 1,161.00(Rs. in lacs)ii. From Banks :(a)(c)Secured by an exclusive charge by way ofhypothecation of receivables relating toLoansSecured by an exclusive charge by way ofhypothecation of specific charge on Land,Plant & Machinery and Receivables relatingto the WindmillsAs at March 31,2008As at March 31, 20071,11,568.53 37,716.001,910.78 2,370.19(d)TotalSecured by an exclusive charge by way ofhypothecation of specific charge on Land,Plant & Machinery relating to the Bio MassPlant2,275.71 1,367.551,15,755.02 41,453.74c) Cash Credit from Banks(Rs. in lacs)Cash Credit from BanksAs at March 31,2008As at March 31, 200767,420.99 26,800.92Secured by an exclusive charge by way of hypothecation of receivables relating to LoansF-96
2. Subordinated DebtThe Company has raised during the year subordinated debt bonds amounting to Rs. 8,170.49 lacs (March31, 2007: Rs. 10,920.89 lacs) with coupon rate of 11.5% per annum which are redeemable over a periodof 62 months to 73 months.3. Cash & Cash Equivalents(Rs. in lacs)Particulars Year ended March 31, Year ended March 31, 20072008Cash & Bank balance (as per schedule 8 ) 87,605.23 36,489.78Less : Fixed deposits having original maturitygreater than 3 months or pledged with banks or lien markeddepositsBalance considered as cash & cash equivalents forcash flow statement4,958.17 5,010.8082,647.06 31,478.98Gratuity and other post-employment benefit plans:The Company has an unfunded defined benefit gratuity plan. Every employee who has completed fiveyears or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for eachcompleted year of service.Consequent to the adoption of revised AS 15 ‘Employee Benefits’ issued by the ICAI, the followingdisclosures have been made as required by the standard:Profit and Loss accountNet employee benefit expense (recognized in Employee Cost)(Rs. in lacs)GratuityParticularsMarch 31, 2008Current service cost 45.67Interest cost on benefit obligation 5.93Expected return on plan assetsN.ANet actuarial (gain) / loss recognized in the year 53.10Past service costNILNet benefit expense 104.70Actual return on plan assetsN.AF-97
Balance sheetDetails of Provision for gratuity(Rs in Lacs)GratuityParticularsMarch 31, 2008Defined benefit obligation 133.18Fair value of plan assetsN.ATotal 133.18Less: Unrecognized past service costNILPlan asset / (liability) (133.18)Changes in the present value of the defined benefit obligation are as follows:(Rs..in Lacs)GratuityParticulars March 31, 2008Opening defined benefit obligation 28.48Interest cost 5.93Current service cost 45.67Benefits paidNILActuarial (gains) / losses on obligation 53.10Closing defined benefit obligation 133.18The Company would not contribute any amount to gratuity in 2008-09 as the scheme is unfunded.The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:GratuityParticulars March 31, 2008%Investments with insurerNAF-98
The principal assumptions used in determining gratuity obligations for the company’s plan are shownbelow:GratuityParticulars March 31, 2008Discount Rate 8%Increase in compensation cost 5%Employee Turnover 10%The estimates of future salary increases, considered in actuarial valuation, take account of inflation,seniority, promotion and other relevant factors, such as supply and demand in the employment market.Amounts for the current period are as follows:(Rs. In Lacs)Particulars March 31, 2008Defined benefit obligation 133.18Plan assetsSurplus / (deficit) (133.18)Experience adjustments on plan liabilities 53.10Experience adjustments on plan assetsThe current year being the first year of adoption of AS 15 (revised) by the Company, the previous year comparativeinformation has not been furnished.NANAF-99
5. Segment ReportingYear ended March 31, 2008 Year ended March 31, 2007(Rs. In Lacs)ParticularsFinancingActivitiesUnallocatedreconcilingitemsTotalFinancingActivitiesUnallocatedreconcilingitemsTotalSegment Revenue 61,843 476 62,319 34,223 583 34,806Segment Results (Profitbefore tax and after intereston Financing Segment)13,366 (347) 13,019 8,078 195 8,273Less: Interest onunallocated reconcilingitems- 321 321 - 330 330Net profit before tax 12,698 7,943Less: Income taxes 3,935 2,781Net profit 8,763 5,162Other Information:Segment assets 3,69,451 8,372 3,77,823 2,13,998 7,340 2,21,338Unallocatedassetscorporate1,031 1,031 784 784Total Assets 3,69,451 9,403 3,78,854 2,13,998 8,124 2,22,122Segment liabilities 3,73,469 4,752 3,78,221 2,14,798 4,351 2,19,149Unallocatedliabilitiescorporate633 633 2,973 2,973Total Liabilities 3,73,469 5,385 3,78,854 2,14,798 7,324 2,22,122Capital expenditure - -Depreciation 395 733 1,128 117 256 373Other non - cash expenses 6,004 6,004 1,860 1,860F-100
6. Related Party DisclosuresRelated Parities have been identified by the Management and relied upon by the auditors.Subsidiary : <strong>Shriram</strong> Non-Conventional Energy <strong>Limited</strong> (upto March 20, 2008)Enterprises having significant influence overthe Company :<strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong><strong>Shriram</strong> Capital <strong>Limited</strong> (formerly known as <strong>Shriram</strong> FinancialServices Holding Private <strong>Limited</strong>)Key Managerial Personnel : R Kannan, Managing DirectorEnterprises havingsignificant influence overthe CompanySubsidiary(Rs in Lacs)Total2008 2007 2008 2007 2008 2007PaymentsRoyalty 147.50 79.24 - - 147.50 79.24Data Sourcing fees 63.38 73.59 - - 63.38 73.59Service Charges 380.24 441.55 - - 380.24 441.55Equity dividend 595.24 595.24 - - 595.24 595.24Investments in shares - - 4.99 4.99 -ReceiptsSale of investments - - 4.54 - 4.54 -Subscription of equityshares- -Subscription to optionallyconvertible warrants560.00-- -560.00-Conversation of Warrantsinto Equity / SecuritiesPremium2,959.20 - - - 2,959.20 -F-101
7. LeasesIn case of assets given on leaseFinancial lease including hire purchaseThe Company has given vehicles on finance lease. The lease term is for 3 to 5 years. There is no escalation clause in thelease agreement. There are no restrictions imposed by lease arrangements.(Rs. in lacs)As at March 31,2008As at March 31, 2007Total gross investment in the lease NIL 6166.73Less : Unearned finance income NIL 589.35Less: Unguaranteed residual value NIL NILPresent value of minimum lease payments NIL 5577.38Gross investment in the lease for the period :Not later than one year [Present value of minimum leaseNIL 5024.56payments receivable Rs. NIL as on March 31, 2008 (March 31,2007: Rs.4560.18 lacs)]Later than one year but not later than five years [Present value ofNIL 1142.17minimum lease payments Rs. NIL as on March 31, 2008 (March31, 2007 : Rs. 1017.19 lacs)]Later than five years [Present value of minimum lease paymentsNil as on March 31, 2008 (March 31, 2007: Nil)]NILNilIn case of assets taken on leaseRent Rs.164 lacs (March 31,2007 : Rs. 129 lacs) represents lease payments in respect of cancellable leases as perrespective agreements. There are no separate amounts for minimum lease payments and contingent rents. There is nosub-lease.8. InvestmentsIn accordance with the Reserve Bank of India circular no.RBI/2006-07/ 225 DNBS (PD) C.C No.87/03.02.004/2006-07 dated January 4, 2007, the Company has created a floating charge on the statutory liquidassets comprising of investment in Government Securities to the extent of Rs.104.53 lacs in favour of trusteesrepresenting the public deposit holders of the Company.F-102
9. Earnings per shareParticularsYear ended March Year ended March31, 200831, 2007Net Profit after tax as per profit and loss account (Rs. in lacs) 8,763.50 5,162.16Less : Preference Dividend 165.74 176.52Net Profit for Equity Shareholders (A) 8,597.76 4,985.64Weighted average number of equity shares for calculating Basic EPS (inlacs) (B)Weighted average number of equity shares for calculating Diluted EPS(in lacs) (C)Basic earnings per equity share (in Rupees) (Face value of Rs. 10/- pershare) (A) / (B)Diluted earnings per equity share (in Rupees) (Face value of Rs. 10/- pershare) (A) / (C)391.67 302.45395.41 303.3421.95 16.4821.74 16.44ParticularsYear ended March31, 2008Year ended March31, 2007Weighted average number of equity shares for calculating EPS (in lacs) 391.67 302.45Add : Equity shares arising on conversion of optionally convertiblewarrants (in lacs)Add : Equity shares for no consideration arising on grant of stock optionsunder ESOP (in lacs)Weighted average number of equity shares in calculation diluted EPS (inlacs)1.45 0.892.29 -395.41 303.34F-103
10. Deferred Tax Liabilities (Net)The break up of deferred tax asset / liabilities is as under:- As at March 31,2008(Rs. in Lacs)As at March 31,2007Deferred Tax LiabilitiesTiming difference on account of :Differences due to accelerated amortisation of intangiblesunder Income Tax ActDifferences in depreciation in block of fixed assets as per taxbooks and financial books- 7.071,495.39 1,657.12Effect of lease accounting - 788.47Others - 530.84Gross Deferred Tax Liabilities (A) 1,495.39 2,983.50Deferred Tax AssetTiming difference on account of :Expenses disallowed under Income Tax Act, 1961 586.51 10.18Provision for securitizationProvision for hedging contracts 275.89 0.00Gross Deferred Tax Assets (B) 862.40 10.18Deferred Tax Liabilities (Net) (A-B) 632.99 2,973.32(Rs. in lacs)11. Capital CommitmentsEstimated amount of contracts remaining to be executed oncapital account and not provided for (net of advances)As at March 31,2008As at March 31,2007276.84 1,126.88(Rs. in lacs)12. Contingent Liabilities not provided forAs at March 31, As at March 31, 20072008Guarantees issued by the Company 6.81 6.81In respect of assets securitized NIL 16.69In respect of derivative transaction NIL 9.97F-104
Income Tax/Wealth TaxDisputed Income tax/Wealth Tax demands contested in appeal as on March 31 st , 2008 amount toRs.1,603.12 lacs(March 31 st 2007: Rs.1,397.89 Lacs. In view of favourable appellate decisions in respectof earlier years on similar issues, the company is confident of getting full relief. Hence the amount is notconsidered as contingent liability.Service TaxThe applicability of Service tax has been challenged in respect of its hire purchase/lease activities andhas obtained a stay in its favour granted by Madras High Court. However provision is made in the booksfor any liability that may arise.13. The Company during the year converted 20,55,000 warrants issued to <strong>Shriram</strong> Enterprise HoldingsPrivate <strong>Limited</strong> into equity shares of Rs.10/- each at a premium of Rs.150/-. The total amount of Rs.3,082.50 lacs received from the said preferential allotment was utilized for the purpose of increasing thenet worth and working capital of the Company.14. Employee Stock Option PlanSeries IDate of grant October 19, 2007Date of Board Approval October 19, 2007Date of Shareholder’s approval October 30, 2006Number of options granted 13,27,500Method of Settlement (Cash/Equity)After 1 year of grant dateAfter 2 years of grant dateAfter 3 years of grant dateAfter 4 years of grant dateEquity10% of options granted20% of options granted30% of options granted40% of options grantedExercisable periodVesting Conditions10 years from vesting dateon achievement of pre –determined targetsF-105
The details of Series I have been summarized below:As at March 31, 2008 As at March 31, 2007Number ofSharesWeightedAverageExercisePrice(Rs.)Number ofSharesWeightedAverageExercisePrice(Rs.)Outstanding at the beginning of the year Nil Nil -Add: Granted during the year 13,27,500 Rs. 35.00 Nil -Less: Forfeited during the year Nil - Nil -Less: Exercised during the yearLess: Expired during the year - -Outstanding at the end of the year 13,27,500 Rs. 35.00 -Exercisable at the end of the year - -Weighted average remaining contractual life (inyears)12.55 -Weighted average fair value of options granted Rs. 227.42 -The details of exercise price for stock options outstanding for Series I at the end of the year are:As atRange of exercisepricesNumber ofoptionsoutstandingWeighted averageremaining contractual lifeof options (in years)Weighted averageexercise priceMarch 31, 2008 Rs.35/- 13,27,500 12.55 Rs.35/-March 31, 2007 NIL NIL NIL NILF-106
Stock Options grantedSeries I:The weighted average fair value of stock options granted was Rs.227.42/-. The Black Scholes model has been usedfor computing the weighted average fair value of options considering the following inputs:Yr 1 Yr 2 Yr 3 Yr 4Exercise Price (Rs.) 35.00 35.00 35.00 35.00Expected Volatility (%) 55.36 55.36 55.36 55.36Historical Volatility NA NA NA NALife of the options granted (Vesting and exercise period) inyears1.50 2.50 3.50 4.50Expected dividends per annum (Rs.) 3.00 3.00 3.00 3.00Average risk-free interest rate (%) 7.70 7.67 7.66 7.67Expected dividend rate (%) 0.84 0.84 0.84 0.84The expected volatility was determined based on historical volatility data equal to the NSE volatility rate of Bank Niftywhich is considered as a comparable peer group of the Company. To allow for the effects of early exercise, it wasassumed that the employees will exercise the options within six months from the date of vesting in view of the exerciseprice being significantly lower than the market pricEffect of the employee share-based payment plans on the profit and loss account and on its financial position:(Rs. in Lacs)As at March31, 2008As at March31, 2007Compensation cost pertaining to equity-settled employee share-basedpayment plan included above542.08 -Liability for employee stock options outstanding as at year end 3,006.12 -Deferred compensation cost 2,464.04 -F-107
Since the enterprise used the intrinsic value method the impact on the reported net profit and earnings pershare by applying the fair value based method is as follows:In March 2005, ICAI has issued a guidance note on “Accounting for Employees Share Based Payments” applicable toemployee based share plan the grant date in respect of which falls on or after April 1, 2005. The said guidance noterequires that the proforma disclosures of the impact of the fair value method of accounting of employee stockcompensation accounting in the financial statements. Applying the fair value based method defined in the saidguidance note, the impact on the reported net profit and earnings per share would be as follows:Year ended March31, 2008Year ended March31, 2007Profit as reported (Rs. in lacs) 8,763.50 5,162.16Add: Employee stock compensation under intrinsic value method (Rs. inlacs)542.08 -Less: Employee stock compensation under fair value method (Rs. in lacs) 544.40 -Proforma profit (Rs. in lacs) 8,761.18 5,162.16Less Preference Dividend 165.74 176.52Proforma Net Profit for Equity Shareholders 8,595.44 4,985.64Earnings per share -Basic (Rs.) -- As reported 21.95 16.48- Proforma 21.95 16.48Diluted (Rs.) - -- As reported 21.74 16.44- Proforma 21.74 16.44F-108
15. SecuritisationThe Company sells loans through securitisation and direct assignment. The information on securitisation & directassignment activity of the Company as an originator for the year March 31, 2008 and March 31, 2007 is given below:Year ended March31, 2008Year ended March31, 2007Total number of loan assets securitized 3,98,691 4,38,457Total book value of loan assets securitised (Rs. in lacs) 75,781.80 80,493.74Sale consideration received for the securitised assets (Rs. in lacs)83,539.14 91,302.42Net gain on account of securitization (Rs. in lacs) 7,757.34 10,808.68The information on securitisation & direct assignment activity of the Company as an originator as on March 31, 2008and March 31, 2007 is given in the table below :As at March 31,2008(Rs. in Lacs)As at March 31, 2007Outstanding credit enhancement- Deposit with banks/corporate 4,695.88 5,711.93Outstanding Credit enhancement - Receivables 3,200.86 1,906.6916. Derivative Instruments:The Notional principal amount of derivative transactions outstanding as on March 31, 2008 for interestrate swaps Rs.50,000 lacs (March 31, 2007 – 5,000). The interest rate swaps is to hedge against exposureto variable interest outflow on loans.17. During the year ended March 31, 2008, the Company has reassessed the balance useful life of itsWindmills and Leasehold improvement (Furniture & fixtures ). Based on such reassessment, the estimatedbalance useful life has reduced from 6 years to 3 years and 16 years to 5 years respectively. Accordingly,the Company has provided additional depreciation amounting to Rs.505.34 lacs in respect of these assetsduring the year.F-109
18. Supplementary Statutory Information18.1 Managing Director’s RemunerationThe computation of profits under section 349 of the Act has not been given as no remuneration / commission ispayable to the Managing Director.(Rs. in lacs)18.2 Expenditure in foreign currency (On cash basis)Year ended March 31,2008Year ended March31, 2007Travelling 1.67 NilOthers Nil Nil1.67 Nil19. Additional information pursuant to the provisions of paragraphs 3, 4C and 4D of Part II of schedule VI tothe Act19.1 Licensed Capacity, Installed capacity, Actual production and SalesClass ofGoodsUnitsLicensedCapacity as atMarch 31,InstalledCapacity as atMarch 31, (inKW)Actual Production andSales for the year endedMarch 31, (in units)Sales Value(Rs. in lacs)2008 2007 2008 2007 2008 2007 2008 2007Windmill 34 NA NA 12,550 12,550 1,65,56,603 2,06,05,220 476.13 583.0820. The Company has initiated the process of identification of ‘suppliers’ registered under the “The Micro,Small and Medium Enterprises Development (‘MSMED’) Act, 2006” by obtaining confirmations fromsuppliers. Based on the intimation received by the Company, none of the suppliers have confirmed to beregistered under MSMED Act, 2006. Accordingly, no disclosures relating to amounts unpaid as at theyear end together with interest paid /payable are required to be furnished.F-110
2006 – 2007B) Notes to AccountsParticulars of Secured Loans are as follows:-i) Redeemable Non Convertible Debentures are redeemable at par between six months and one hundredsixty months from the date of allotment depending on the terms of issue and are secured by charge oncompany’s buildings, plant & machinery, receivables, leased assets, lease rentals including futurereceivables other than assets specifically charged to banks / institutions / other lenders, referred to (ii),(iii), (iv) and (v) below.ii) Term Loan from Banks / Institution to the extent of Rs. 38416.00 lacs are secured by hypothecation ofall the present and future receivables covered by specific Hire Purchase /lease/Loan Agreements.iii) Term Loan from Banks and Institution to the extent of Rs. 2831.19 lacs are secured by specific chargeon Land, Plant & Machinery and Sundry Debtors relating to Windmills.iv) Term Loan from Banks to the extent of Rs.1367.55 lacs is secured by specific charge on Land,Machinery & Receivable relating to Biomass Plant.v) Cash Credit from Banks are secured by hypothecation of all present and future receivables coveredby specific Hire Purchase/Lease/Loan Agreements.2. The company has created floating charge on its Statutory Liquid Assets to the extent of Rs.158.70 lacs infavor of trustees representing public deposit holders of the Company.3. The Company has issued 35,00,000 warrants on Preferential basis with an option to convert into EquityShares of Rs.160/- each including Premium of Rs.150/- within 18 months from the date of issue i.e 29 thDecember, 2006.4. In view of the circular number 9/2002 dated 18th April 2002 issued by the Department of Company Affairs,no Debenture Redemption Reserve is required to be created in case of privately placed debentures. Sincethe debentures issued by the company are privately placed, the Debenture Redemption Reserve of Rs. 25Las created during the year 2000-2001 is transferred to the General Reserve.5. In the opinion of the Board of Directors, Receivable and Debtors, have a value on realisation in theordinary course of business, at least equal to the amount at which they are stated.6. The Company does not have any dues payable to small scale industries.F-111
7. Contingent Liabilities:(Rs. In Lacs)As on 31.03.2007 As on 31.03.2006i. Income Tax NIL 160.63ii. Guarantees 6.81 116.11iii. In respect of assets securitised 16.69 958.40iv. In respect of derivative transaction 9.97 NILDisputed Income Tax / Wealth Tax demand contested in appeals not provided for Rs.1397.89 lacs. In theopinion of the Management there is no contingent liability, for the said disputed tax demand, in view offavourable appellate decision in the company’s own cases in respect of earlier years.Estimated amount of contracts on capital account not provided for is Rs.1126.88 lacs.8. Securitization:The company sells loans through securitization and direct assignment. The information on securitizationactivity of the company as on organizer for the year March 31, 2007 and March 31,2006 is given belowAs on 31 stMarch 2007As on 31 stMarch 2006Total number of agreements securitised (Nos) 438457 188082Total book value of loan assets securitised (Rs, in lacs) 80493.74 34907.38Sale consideration for the securitised assets (Rs. In lacs) 91302.42 38734.72Net gain on account of securitisation (Rs. In lacs) 10808.68 3827.34The information on securitization activity of the company as an originator as on March 31,2007 andMarch 31, 2006 is given in the table below.As on 31 st March 2007As on 31 st March2006Outstanding credit enhancement – Deposits withBanks/Corporates5711.93 2321.72Outstanding credit enhancement – Receivables 1906.69 --F-112
9. Expenses in respect of common branches and infrastructure are shared by the Company with otherCompanies. The expenses/ recoveries are booked under respective Account heads.10. The Company is engaged primarily in the business of financing and accordingly there are no separatereportable segments as per Accounting Standard AS - 17 “ Segment Reporting “ issued by TheInstitute of Chartered Accountants of India.11. The Particulars of power generation by wind mills are as follows :For the Year Ended31.03.2007For the Year ended31.03.2006Licensed Capacity Not Applicable Not ApplicableInstalled Capacity(As Certified by the management)12550kw12800 kwUnits Generated 2,06,05,220 Units 1,73,32,680 UnitsUnits Sold 2,06,05,220 Units 1,73,32,680 Units12. Earnings per share:For the Year EndedParticulars Unit 31.03.2007 31.03.2006Opening No.of shares Nos. (Lacs) 271 271Total No of shares outstanding Nos. (Lacs) 391 271Weighted Average No of shares outstanding for Basic EPS Nos. (Lacs) 302.45 271Weighted Average No of shares outstanding for Diluted EPS Nos. (Lacs) 303.34 271Profit After Tax Rs. (Lacs) 5162.16 3167.29Less. Preference Dividend Rs. (Lacs) 105.60 211.88Net Profit for Equity Shareholders Rs. (Lacs) 5056.56 2955.41Basic Earning Per Share Rs. 16.48 10.91Diluted Earning per share Rs. 16.44 10.91F-113
13. Related Party transactionsNames of related parties where control exists irrespective of whether anytransactions have occurred or nota. Significant influence over the Company <strong>Shriram</strong> Enterprises Holding Private<strong>Limited</strong><strong>Shriram</strong> Financial Services HoldingsPrivate <strong>Limited</strong>b .Key Management PersonnelR.Kannan( Previous Year - Akhilesh KumarSingh)Related Party Disclosure(Rs. In lacs)Holding company or group of individuals having control orsignificant influence over the Company and relatives of suchindividualsPayments 2007 2006Royalty 79.24 47.85Data Sourcing Fees 73.59 48.03Service Charges 441.55 288.20Equity Dividend 595.24 496.04Subscription to optionally Convertible Warrants 560 --Remuneration to Managing Director -- 5.3814 . Particulars of Receivables are as follows on Hire Purchase and Financial Lease (for advances on orafter 01/04/2001)As on 31 st March 2007(Rs. in lacs)RECEIVABLESNot Later than 1YearLater than 1 year but notlater than 5 yearsGROSS INVESTMENTS 6166.73 5024.56 1142.17Less : UNEARNED INCOME 589.35 464.37 124.98NET PRESENT VALUE 5577.37 4560.18 1017.19F-114
15. Details of Deferred Tax Liability:(Rs in Lacs)Deferred Tax Liabilities Mar 31,2007 Mar 31,2006Differences due to accelerated amortization of intangibles underIncome Tax ActDifference in depreciation and other difference in block of fixed assetsas per tax books and financial books7.07 12.531657.12 1660.69Effects of lease accounting 788.47 975.18Others 530.84 521.41Gross Deferred Tax Liabilities 2983.5 3169.82Deferred Tax AssetsEffect of expenditure debited to profit and loss account in the current10.18 4.8yearBut allowed for tax purpose in following yearsGross Deferred Tax Assets 10.18 4.8Net Deferred Tax Liability 2973.32 3165.02F-115
18. Schedule to the Balance Sheet of a Non-Banking Financial (Deposit Accepting of Holding) Company[As required in terms of paragraph 13 of Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 2007](Rs. In lacs)Particulars As on 31.03.,2011 As on 31.03. 2010 As on 31.03.2009 As on 31.03.2008 As on 31.03. 2007Liabilities side :1 Loans and advances availed bythe NBFCs inclusive of interestaccrued thereon but not paid :AmountoutstandingAmountoutstandingAmountoutstandingAmountoutstandingAmountoutstandingAmountoverdueAmountoverdueAmountoverdueAmountoverdueAmountoverdue(a) Debentures : Secured 242299.99 4487.39 173984.77 3300.41 144720.26 2826.03 81076.87 2597.38 75594.27 1377.10Unsecured nil nil nil nil nil nil 3669.88 nil nil nil(other than falling within themeaning of public deposits*)(b) Deferred Credits nil nil nil nil nil nil nil nil nil nil(c) Term Loans 302979.72 nil 114676.66 nil 153594.21 nil 126803.37 nil 42799.21 nil(d) Inter-corporate loans andborrowings nil nil nil nil nil nil 959.41 nil nil nil(e) Commercial Paper 22500.00 nil nil nil nil nil 4500.00 nil nil nil(f) Public Deposits* 90.85 27.05 139.50 28.92 155.19 27.50 210.43 18.11 441.35 25.81(g) Other Loans - HP Refinance nil nil nil nil nil nil nil nil nil nil- Cash Credit from banks 134965.79 nil 145453.74 nil 109771.11 nil 67420.99 nil 26800.92 nil- Others - Subordinated Debts 68701.99 352.48 64830.99 18.65 48647.97 nil 32101.36 nil 21651.38 nil- ICD nil nil nil nil nil nil nil nil nil nil* Please see Note 1 below2 Break-up of (1)(f) above(Outstanding public depositsinclusiveof interest accrued thereon butnot paid):(a) In the form of Unsecureddebenture nil nil nil nil nil nil nil nil nil nil(b) In the form of partly secureddebenture i.e. debentures wherethere is a shortfall in the valuenil nil nil nil nil nil nil nil nil nilof security(c) Other Public deposit 90.85 27.05 139.50 28.92 155.19 27.50 210.43 18.11 441.35 25.81* Please see Note 1 belowF-116
3(Rs. In lacs)As on March 31,Particulars2011 2010 2009 2008 2007Amount outstandingAsset side :Break-up of Loans and advances including bills receivables [other than thoseincluded in (4) below](a) secured 625034.06 423064.40 1215.04 8.75 25.90(b) Unsecured 71548.15 50075.23 39958.40 nil nil4 Break-up of Lease Assets and stock on hire counting towards AFC activities(l) Lease assets including lease rentals under sundry debtors:(a) Financial lease nil nil nil nil 2485.26(b) Operating lease nil nil nil nil nil(ii) Stock on hire including hire charges under sundry debtors:(a) Assets on hire nil nil nil nil 3117.30(b) Repossessed Assets nil nil nil nil nil(iii) Other loans counting towards AFC activities(a) Loans where assets have been repossessed nil nil nil nil 35.75(b) Loans other than (a) above nil nil 335118.24 237502.50 131177.55F-117
(Rs. In lacs)ParticularsAmount outstanding as on March 31,2011 2010 2009 2008 20075 Break-up of Investments:Current Investments:1 Quoted:(l) Shares: (a) Equity nil nil nil nil nil(b) Preference nil nil nil nil nil(ii) Debentures and Bonds nil nil nil nil nil(iii) Units of mutual funds nil nil nil nil nil(iv) Governments Securities nil nil nil nil nil(v) Others (please specify) nil nil nil nil nil2 Unquoted:(l) Shares: (a) Equity 450.00 nil nil nil nil(b) Preference nil nil nil nil nil(ii) Debentures and Bonds nil nil nil nil nil(iii) Units of mutual funds nil nil nil nil nil(iv) Governments Securities nil nil nil nil nil(v) Others (please specify) nil nil nil nil nilLong term Investments:1 Quoted:(l) Shares: (a) Equity nil nil nil nil nil(b) Preference nil nil nil nil nil(ii) Debentures and Bonds nil nil nil nil nil(iii) Units of mutual funds nil nil nil nil nil(iv) Governments Securities 101.45 101.45 101.45 104.53 164.03(v) Others (please specify) nil nil nil nil nilF-118
(Rs. In lacs)ParticularsAmount outstanding as on March 31,2011 2010 2009 2008 20072 Unquoted:(l) Shares: (a) Equity nil nil 505.00 500.45 500.00(b) Preference nil nil nil nil nil(ii) Debentures and Bonds nil nil nil nil nil(iii) Units of mutual funds nil nil nil nil nil(iv) Governments Securities nil nil nil nil nil(v) Others (please specify) nil nil nil nil nilF-119
6Borrower group-wise classification of all assets financed as in (3) and (4) above Please see Note 2 belowAs on March 31, 2011 As on March 31, 2010 As on March 31, 2009 As on March 31, 2008 As on March 31, 2007CategoryAmount net of provisionsSecured Unsecured Secured Unsecured Secured Unsecured Secured Unsecured Secured Unsecured1 Related Parties**(a) Subsidiaries nil nil nil nil 4369.66 nil nil nil nil nil(b) Companies in the same group nil nil nil nil nil nil nil nil nil nil(c) Other related parties nil nil nil nil nil nil nil nil nil nil2 Other than related parties 617967.11 68631.67 418113.82 47595.24 328872.90 38855.44 237578.64 37991.59 169773.06 nilTotal 617967 68631.67 418113.82 47595.24 333242.56 38855.44 237578.64 37991.59 169773.06 nilF-120
7 Investor group-wise classification of all investments(current and long term) in shares and Securities(both quoted and unquoted):CategoryYear ended March 31,2011MarketValue/ BookBreak-up valueorfair valueor NAV**(net ofprovisions)Please see Note 3 belowYear ended March 31, Year ended March 31,20102009MarketMarketValue/ Book Value/ BookBreak-up value Break-up valueororfair valueor NAV**(net ofprovisions)fair valueor NAV**(net ofprovisions)Year ended March 31,2008MarketValue/ BookBreak-up valueorfair valueor NAV**(net ofprovisions)Year ended March 31,2007MarketValue/ BookBreak-up valueorfair valueor NAV**(net ofprovisions)1 Related Parties**(a) Subsidiaries nil nil nil nil 5.00 5.00 nil nil nil nil(b) Companies in the samegroup nil nil nil nil nil nil nil nil nil nil(c) Other related parties nil nil nil nil nil nil nil nil nil nil2 Other than related parties 533.52 533.52 83.52 83.52 583.52 583.52 587.14 587.05 643.43 642.30Total 533.52 533.52 83.52 83.52 588.52 588.52 587.14 587.05 643.43 642.30** As per Accounting Standard of ICAI(please seeNote3)F-121
8 Other information : Year ended March 31,2011 2010 2009 2008 2007Particulars Amount Amount Amount Amount Amount(l) Gross Non-Performing Assets(a) Related Parties nil nil nil nil Nil(b) Other than related parties 12966.18 10753.30 7784.03 4228.66 4040.66(ii) Net Non-Performing Assets(a) Related Parties nil nil nil nil Nil(b) Other than related parties 2982.76 3322.73 3590.35 2495.70 2561.44(iii) Assets acquired in satisfaction of debt nil nil nil nil NilNotes:1. As defined in Paragraph 2(1)(xii) of the Non-Banking Financial Companies Acceptances of Public Deposits (Reserve Bank) Directions, 1998.2. Provisioning norms shall be applicable as prescribed in the Non-Banking Financial (Deposit Accepting or Holding) Companies Prudential Norms(Reserve Bank) Directions, 2007.3. All Accounting Standards and Guidance Notes issued by ICAI are applicable including for valuation of investments and other assets as also assetsacquired in satisfaction of debt. However, market value in respect of quoted investments and break-up/fair value/NAV in respect of unquoted investmentsshould be disclosed irrespective of whether they are classified as long term or current in column (5) above.For Pijush Gupta & Co. For and on behalf of the Board of Directors ofFirm Registration No. 309015E<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Chartered AccountantsRamendra Nath DasPartnerMembership No. 014125R. Kannan S.VenkatakrichnanManagingDirector DirectorPlace: Chennai C R DashDate: July 21, 2011 Company SecretaryF-122
PIJUSH GUPTA & COC H A R T E R E D A CC O U N T A N T SP-199, C.I.T.ROAD, SCHEME IV-M, KOLKATA – 700 010TEL (033) 2353-6859, (0) 98311 91779 MAIL: pijushgupta.ca@gmail.comAuditors' ReportToThe Board of Directors<strong>Shriram</strong> <strong>City</strong> <strong>Finance</strong> <strong>Limited</strong>221, Royapettah High Road,Mylapore, ChennaiDear Sirs,1. We, Pijush Gupta & Co., have examined the attached Reformatted Consolidated financial informationcomprising of Consolidated Balance Sheet, Consolidated Profit and Loss Accounts, Consolidated Cash Flowsand Consolidated notes therein of <strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong> (‘Company’ or ‘Issuer’), and itssubsidiary <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong> (Collectively referred to as "Group") as at and for the yearended March 31, 2011, approved by the board of directors of the Company and as prepared by the Companyin accordance with the requirements of:a. paragraph B(1) of Part II of Schedule II to the Companies Act, 1956 ('the Act') andb. the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008("Regulations") issued by the Securities and Exchange Board of India ("SEBI"), as amended fromtime to time in pursuance of Section 11 of the Securities and Exchange Board of India Act, 1992("SEBI Act").Pijush Gupta & Co. is referred to as the "Auditors" and the references to the Auditors as "we", "us" or "our",in this letter, shall be construed accordingly.2. We have examined such reformatted consolidated financial information taking into consideration:a. the terms of reference dated June 26, 2011 received from the Company and statement ofresponsibilities of auditors dated June 26 ,2011 requesting us to carry out the assignment, inconnection with the Draft Prospectus/Prospectus (collectively referred to as “Offer Document”)being issued by the Company for its proposed public issue of secured non-convertible debentures("NCDs"), having a face value of Rs. 1000 each (referred to as the "Issue") andb. The Revised Guidance Note on Reports in Company Prospectuses issued by the Institute of CharteredAccountants of India.F-123
Reformatted Consolidated financial information as per audited Consolidated financial statements:3. The Reformatted Consolidated financial information of the Group has been extracted by the managementfrom the Consolidated balance sheet of the Group as at March 31, 2011, and the related Consolidated profitand loss account and Consolidated cash flow statement for the year ended March 31, 2011, (Collectivelyreferred to as the "Audited Consolidated Financial Statements") audited by us..For our examination, we placed reliance on -a. The financial statements of <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong> for the year ended March 31,2011, audited and reported upon by R. Shankar, Chartered Accountants, Auditors of the saidsubsidiary for the financial year ended March 31, 2011, andb. Audit reports received from Branch Auditors who had conducted audit of business regions ofthe company.These Audited Consolidated Financial Statements have been approved by the board of directors.4. In accordance with the requirements of Paragraph B of Part II of Schedule II of the Act, the SEBIRegulations, terms of our engagement agreed with you and statement of responsibilities of auditors, wefurther report that:a. The Reformatted Consolidated Summary Statement of Assets and Liabilities and the schedulesforming part thereof, Reformatted Consolidated Summary Statement of Profit and Loss and theschedules forming part thereof and the Reformatted Consolidated Summary Statement of Cash Flow("Reformatted Consolidated Summary Statements") of the Group, as at March 31, 2011 examinedby us, have been set out in Annexure I to V to this report. These Reformatted Consolidated SummaryStatements are after regrouping as in our opinion is appropriate and more fully described in SignificantAccounting Policies and Notes (Refer Annexure XIII)b. Based on the above we state that:the Reformatted Consolidated Summary Statements have to be read in conjunction with the notesgiven in Annexure XIII;there are no extraordinary items which need to be disclosed separately in the reformattedconsolidated summary statements; andthere are no qualifications in the auditors’ reports, which require any adjustments to thereformatted consolidated summary statements.5. We have not audited any consolidated financial statements of the Group as of any date or for anyperiod subsequent to March 31, 2011. Accordingly, we express no opinion on the financial position,results of operations or cash flows of the Group as of any date or for any period subsequent to March31, 2011.F-124
Other consolidated Financial Information:6. At the Company’s request, we have also examined the following consolidated financial information proposedto be included in the Offer Document prepared by the management and approved by the board of directors ofthe Company and annexed to this report relating to the Group for the year ended March 31, 2011 :i. Statement of contingent liabilities, enclosed as Annexure VIii. Statement of dividend paid/proposed, enclosed as Annexure VIIiii. Statement of accounting ratios relating to earnings per share, net asset value, return on net worth,enclosed as Annexure VIIIiv. Statement of Secured and Unsecured Loans including terms and conditions, enclosed as Annexure IX& Xv. Capitalization Statement as at March 31, 2011, enclosed as Annexure XIvi. Statement of tax shelters, enclosed as Annexure XII7. In our opinion, the Reformatted consolidated financial information as disclosed in the annexure to this report,read with the respective significant accounting policies and notes disclosed in Annexure XIII, as consideredappropriate and disclosed, has been prepared in accordance with Paragraph B(1) of Part II of Schedule II ofthe Act and the Regulations.8. This report should not be in any way construed as a reissuance or redating of any of the previous audit reportsissued by us or by any other firm of Chartered Accountants, nor should this report be construed as a newopinion on any of the Reformatted Consolidated Financial Statements referred to herein.9. We have no responsibility to update our report for events and circumstances occurring after the date of thereport for the financial position, results of operations or cash flows of the Group as of any date or for anyperiod subsequent to March 31, 2011.10. This report is intended solely for your information and for inclusion in the Offer Document in connectionwith the Offering of the Company, and is not to be used, referred to or distributed for any other purposewithout our prior written consent.For Pijush Gupta & Co.Firm registration number: 309015EChartered AccountantsRamendra Nath DasPartnerMembership No.: 014125Chennai, July 21, 2011F-125
Annexure I<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Reformatted Consolidated summary of Assets and LiabilitiesAssets(Rs. in lacs)Particulars Schedule As at March 31, 2011A. Fixed and Intangible Assets(Net) (including CWIP) 1 2,947.16B Investments 2 301.45C Deferred Tax Asset (Net) 1,581.66D Current Assets, Loans & Advances 3 936,363.41E Total (A+B+C+D) 941,193.68LiabilitiesF Secured Loans 4 656,951.01G Unsecured Loans 5 75,827.43H Current Liabilities 6 70,108.22I Provisions 7 17,123.50J Total (F+G+H+I) 820,010.16K Net Worth (F-K) 121,183.52Represented By(i) Share Capital 8 4,953.69(ii) Stock Option Outstanding 10 1,887.27(iii) Reserves and Surplus 9 114,366.32(iv)Less : Miscellaneous Expenditure (to the extent not writtenoff or adjusted)11 23.76Total (i+ii+iii+iv+v-vi) 121,183.52The accompanying statement of Significant Accounting Policies and Notes to Accounts on Summary FinancialStatements are integral part of this statement.As per our report of even dateFor Pijush Gupta & Co.For and on behalf of the Board of Directors ofFirm Registration No. 309015E<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> finance <strong>Limited</strong>Chartered AccountantsRamendra Nath Das R. Kannan S. VenkatakrishnanPartner Managing Director DirectorMembership No. 014125Place: ChennaiDate: July 21, 2011C R DASHCompany SecretaryF-126
Annexure II<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Reformatted Consolidated summary of Profit and Loss AccountA. IncomeParticularsSchedule(Rs. in lacs)For the year endedMarch 31,2011i Income from Operations 12 131,800.12ii Other Income 13 291.07Total Income 132,091.19B. Expenditurei Financial Expenses 14 58,848.26ii Personnel Expenses 15 4,367.02iii Operating & Other Expenses 16 20,470.16iv Depreciation and amortization 747.41v Provisions & Write offs (net) 17 11,598.25Total Expenditure 96,031.10C. Net Profit Before Taxation (A-B) 36,060.09D. Provision for taxationCurrent tax 12,460.20Deferred tax (458.96)Total Tax 12,001.24E. Net Profit after Taxation (C-D) 24,058.85Balance in Profit & Loss Account brought forward 22,730.09F. Balance Available for Appropriations 46,788.94G. AppropriationsEquity Shares - Interim dividend 1,236.25Equity Shares - Proposed final dividend 1,733.79Tax on dividend 205.33Tax on proposed dividend 281.26Transfer to statutory reserve 4,810.00Transfer to general reserve 2,410.00Total Appropriations 10,676.63H. Balance carried to Balance Sheet (F-G) 36,112.31F-127
The accompanying statement of Significant Accounting Policies and Notes to Accounts on Summary FinancialStatements are integral part of this statement.As per our report of even dateFor Pijush Gupta & Co.Firm Registration No. 309015EChartered AccountantsFor and on behalf of the Board of Directors of<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> finance <strong>Limited</strong>Ramendra Nath Das R. Kannan S. VenkatakrishnanPartnerManaging Director DirectorMembership No. 014125Place: ChennaiC R DASHDate: July 21, 2011 Company SecretaryF-128
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Consolidated Cash Flow Statement for the Year ended March 31, 2011Annexure III(Rs. in lacs)Particulars Total As at March 31, 2011A. Cash flow from operating activitiesNet Profit before taxation 36,060.09Depreciation and amortization 747.42(Profit)/loss on sale of assets(net) 13.78income on fixed deposits (270.70)Employees Stock option compensation cost 471.68Provision for hedging contracts (546.62)Provision for non performing assets and bad debts written off 10,136.80Contingent Provision against Standad assets 1,714.89Provision for gratuity 40.82Provision for leave encashment 27.48Operating profit before working capital changes 48,395.64Movements in working capital:(Increase) / decrease in assets under financing activities (233,365.55)(Increase) / decrease in other current assets (11,530.50)(Increase)/decreae in other loans and advances (931.92)Increase / (decrease) in current liabilities 23,709.59Cash generated from operations (173,722.74)Direct taxes paid ( net of refunds) (11,127.69)Net cash used in operating activities (A) (184,850.43)B. Cash flows from investing activitiesInvestment in Fixed depostis (net) 7,992.17Purchase of fixed and intangible assets (1,666.35)Proceeds from sale of fixed assets 2.52Interest on fixed deposit 270.70Pre-operative Expenditure (21.03)Preliminary Expenditure (2.73)Net cash used in investing activities (B) 6,575.28C. Cash Flows from financing activitiesProceeds from issue of equity share capital including securitiespremium and Share Application Money 133.05Increase/ (decrease) in bank borrowings(net) 180,566.59Increase/ (decrease) in long term borrowings (net) 62,773.87Increase/ (decrease) in fixed deposits (net) (45.64)Increase/ (decrease) in subordinate debts (net) 269.38Increase / (decrease) in unsecured loans 22,500.00Dividend paid (2,710.89)Tax on dividend (450.25)Net cash from financing activities (C) 263,036.11F-129
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Consolidated Cash Flow Statement for the Year ended March 31, 2011Annexure III(Rs. in lacs)ParticularsTotal As at March 31,2011Net increase / (decrease) in cash and cash equivalents (A + B + C) 84,560.97Cash and Cash Equivalents at the beginning of the period 116,711.86Cash and Cash Equivalents at the end of the year 201,272.83Components of Cash and Cash EquivalentsCash and Cash Equivalents at the end of the year as perBalance Sheet 216,782.34Less: Balance in Current account held for unpaid dividends 22.11Less: Fixed deposits held for more than three months 51.00Less: Fixed deposit under lien 15,436.40201,272.83As per our report of even dateFor Pijush Gupta & Co.Firm Registration No: 309015EChartered AccountantsFor and on behalf of the Board of Directors of<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Ramendra Nath Das R Kannan S VenkatakrishnanPartner Managing Director DirectorMembership No : 014125Place : ChennaiDate: July 21, 2011C R DashCompany SecretaryF-130
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Consolidated Statement of Assets and Liabilities(Rs. in lacs)Schedule 1 - Fixed and Intangible Assets(Net) As at March 31,2011ASSETS FOR OWN USETangible Fixed AssetsBuilding 10.59Leasehold Improvements 681.68Furniture & Fixtures 791.09Vehicles 22.73Land - Freehold 1.76Plant and Machinery 1232.82Intangible Fixed AssetsSoftware 206.49TOTAL (A) 2,947.16F-131
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Consolidated Statement of Assets and Liabilities(Rs. in lacs)Schedule 2 - Investments As at March 31, 2011LONG TERM (at cost)TradeShares : Fully paid upOther Than TradeQuoted :A. Government Securities:6.13% GI Loan 2028(Face value -Rs.100 lacs) 101.45B.Equity Shares (Fully paid up)OthersHighmark Credit Information Services Pvt. Ltd(Face Value of Rs. 10/- each) 200.00301.45Book value of Quoted investments 101.45Market value of Quoted investments 83.52Book value of Unquoted investments 200.00Details of investments may be referred from the annual report of the respective yearsF-132
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Consolidated Statement of Assets and Liabilities(Rs. in lacs)Schedule 3 - Current Assets, Loans & Advances As at March 31, 2011Assets under financing activitiesSecured Loans-Consider good 617,967.11-Consider doubtful 7,066.95Unsecured Loans-Consider good 70,970.68-Consider doubtful 2,916.48698,921.22Cash & Bank Balancesi) Cash on hand 6,025.90ii) Balances with scheduled banks in:- Current accounts 95,769.03- Deposit Accounts # 114,987.40216,782.33Other current assetsi) Interest accrued on fixed deposits and other loans and advances 324.96iii) Other Assets 24.99iv) Securitsation- Receivable 17147.0717,497.02Other loans and advancesUnsecured- Considered GoodAdvances recoverable in cash or in kind or for value to be received 1,547.91Advance- Capital Assets 108.93Prepaid expenses 952.29Security deposits 553.713162.84Total 936,363.41# Includes Fixed deposits pledged with Banks as margin for securitisation 15,436.40F-133
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Consolidated Statement of Assets and Liabilities(Rs. in lacs)Schedule 4 - Secured Loans As at March 31, 2011Redeemable non convertible debentures 219,877.64refer notes to account2(2)(a)(b)Term loansi) From Financial institutions / Corporate 6,500.00refer notes to account2(2)( c)(i)ii) From banks 295,677.28refer notes to account2(2)(c )(ii)Cash credit from banks 134,896.09refer notes to account2(2)(d)656,951.01Schedule 5 - Unsecured Loans As at March 31, 2011Fixed deposits 55.10Subordinated debts 53,272.33Commercial papers 22,500.00Total 75,827.43F-134
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Consolidated Statement of Assets and LiabilitiesSchedule 6 - Current Liabilities(Rs. in lacs)As at March31,2011Sundry creditors 2,653.61Interest accrued but not due on loans 32,818.43Application money on Redeemable non convertible debentures 967.07Application money on Subordinated debts 107.47- Unclaimed Matured Deposits 20.83- Unclaimed Matured Debentures 3,777.27- Unclaimed Matured Subordinated Debts 210.19- Interest accrued and due on above 858.63- Unclaimed dividend 22.11Temporary credit balance in bank accounts 3,122.28Securitization deferred income 23,686.37Other liabilities 1,863.9670,108.22(Rs. in lacs)Schedule 7 - ProvisionsAs at March 31,2011For non-performing assets 9,983.42For standard assets 1,714.89For income tax (net of advance tax) 1,882.40For diminution in value of investments 17.93For hedging contracts 1,259.24For leave encashment and availment 54.23For gratuity 196.34Proposed dividend 1,733.79Corporate dividend tax 281.2617,123.50F-135
Annexure IV<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Consolidated Statement of Assets and Liabilities(Rs. in lacs)Schedule 8 - Share Capital As at March 31, 2011AuthorisedEquity Share Capital 6,000.00Preference Share Capital 4,000.0010,000.00No. of equity Shares of Rs.10/- each 60,000,000No. of preference Shares of Rs.100/- each 4,000,000Issued, Subscribed & Fully Paid upEquity Shares 4,953.69No. of equity shares of Rs. 10/- each 49,536,8774,953.69F-136
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Consolidated Statement of Assets and LiabilitiesAnnexure IV(Rs. in lacs)Schedule 9 - Reserves and Surplus As at March 31, 2011Capital ReserveBalance as per last account 1,400.00Forfeiture of optionally convertible warrants -1,400.00Capital Redemption ReserveBalance as per last account 2,328.98Add : Transfer from Profit & Loss A/c -2,328.98Securities Premium AccountBalance as per last account 49,836.14Add: Amount received during the year 960.9950,797.13Statutory ReserveBalance as per last account 11,150.00Add: Transfer from Profit & Loss Account 4,810.0015,960.00General ReserveBalance as per last account 5,357.90Add: Transfer from Profit & Loss Account 2,410.007,767.90Balance in Profit & Loss Account 36,112.31114,366.32(Rs. in lacs)Schedule 10 - Stock Option Outstanding As at March 31,2011Employee stock option outstanding 2,079.09Less : Deferred employee compensation outstanding 191.821887.27F-137
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Consolidated Statement of Assets and LiabilitiesAnnexure IVSchedule 11- Miscellaneous Expenditure (to the extent notwritten off or adjusted)(Rs. in lacs)As at March 31, 2011Issue expenses for equity sharesPreliminary and Incorporation expenditure 2.73Pre Operative expenditure:Rent 16.79Deprecation and amortization 0.01Printing & stationery 0.43Travelling & conveyance 0.35Communication expenses 0.19Audit fees 0.10Professional charges. 0.60Legal & professional charges 0.09Miscellaneous expenses 2.4723.76F-138
Annexure V<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Consolidated Statement of Profit and Loss AccountSchedule 12 - Income from Operations(Rs. in lacs)For the year ended March 31,2011Income from financing activities 122,778.70Interest on margin money on securitization/assignments 799.12Gain on securitization/ assignments 8,222.30131,800.12Schedule 13 - Other Income(Rs. in lacs)For the year ended March 31,2011Interest on deposits with banks 264.57Profit on sale of assets 0.16Income from Long Term Investments (non trade)- Interest on government securities 6.13Income from Current Investments (non trade)Commission /Referral fees received 10.23Miscellaneous Income 9.98291.07F-139
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Consolidated Statement of Profit and Loss AccountSchedule 14 - Financial ExpensesAnnexure V(Rs. in lacs)For the year ended March 31,2011Interest on :- Debentures 18,256.28- Subordinated debts 7,456.74- Fixed deposits 6.03- Loans from banks 18,914.70- Loans from institutions and others 1,243.82- Commercial paper 1,434.16Bank charges 1,535.79Brokerage and Commission 7,587.05Processing and other charges 2,413.6958,848.26Schedule 15 - Personnel Expenses(Rs. in lacs)For the year ended March 31,2011Salaries, other allowances and bonus 4,150.24Gratuity 40.51Contribution to provident and other funds 138.21Staff welfare 38.064,367.02F-140
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Consolidated Statement of Profit and Loss AccountSchedule 16 - Operating and other ExpensesAnnexure V(Rs. in lacs)For the year ended March 31,2011Rent 1,007.21Electricity expenses 360.57Repairs & Maintenance 437.90Rates, Duties and Taxes 636.02Printing & stationery 1,649.92Travelling & conveyance 3,704.17Advertisement 520.06Business Promotion 3,495.02Sourcing fees and other charges 1,444.79Royalty 364.24Directors' sitting fees 5.45Insurance 167.01Communication expenses 1,908.24Payment to auditorAs Auditor:- Audit fees 7.65- Tax audit fees 3.10- Certification fee & Other services 4.60- <strong>Limited</strong> Review 5.88Professional charges 2,092.43Legal & Recovery Expenses 2,053.29Donations 1.00Loss on sale of assets 13.94Miscellaneous expenses 587.6720,470.16F-141
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Schedules to the Reformatted Consolidated Statement of Profit and Loss AccountSchedule 17 - Provisions & Write offsAnnexure V(Rs. in lacs)For the year ended March 31,2011Provision for non performing assets 2,552.85Provision for standard assets 1,714.89Bad debts written off 7,583.97Bad debt recovery (253.46)11,598.25F-142
Annexure VI<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Ltd.,Statement of Contingent Liabilities(Rs. in lacs)Particulars As on March 31, 2011Guarantees issued by the Company and out standing 6.81Guarantees issued by Others 1942.77F-143
Annexure VII<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Ltd.,Statement of Dividend in respect of Equity Shares(Rs. in lacs)Particulars 2011InterimRate of Dividend 25%Number of Equity Shares on which interim dividend paid 49449939Amount of Interim Dividend 1236.25Dividend Distribution tax 205.33Dividend Distribution tax Rate 16.609%Final Dividend for the previous yearRate of Dividend 35%Number of Equity Shares on which Final dividend paid 49536877Amount of Final Dividend 1733.79Dividend Distribution tax Rate 16.222%Dividend Distribution tax 281.26F-144
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Statement of Accounting RatiosCalculation of Earning Per Share (EPS)ParticularsAnnexure VIIIPage 1 of 3(Rs. in lacs)As at March31,2011A. Net Profit After Tax (Rs in Lakhs) 24058.85B. Less: Preference dividend including tax on dividend (Rs inLakhs) -C. Net Profit Attributable to Equity Shareholders (Rs in Lakhs)a 24058.85D. Weighted average number of Equity Share Outstanding during theyear/ period (for Basic EPS) (Lakhs) b 493.23E. (i) Equity Share arising on conversion of optionally convertiblewarrants (Lakhs)c -F. (ii) Equity Share for no consideration arising on grant of Stockoption under ESOP (Lakhs) d 8.32G. Weighted average number of Equity Shares outstanding during theyear/ period (for Diluted EPS) (b+c+d) (Lakhs) e 501.55H. Earnings per share (Basics) (Rs.) (a/b) 48.78I. Earnings per share (Diluted) (Rs.) (a/e) 47.97F-145
Annexure VIIIPage 2 of 3<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Statement of Accounting RatiosCalculation of Return on Net Worth (RONW)ParticularsSHAREHOLDERS FUNDSSchedule(Rs. in lacs)As at March 31,2011A. Share Capital 9 4953.69B. Share Application Money Pending Allotment -C. Stock Option Outstanding 11 1887.27D. Optionally Convertible Warrants -E. Reserve and Surplus 10 114366.32F. Less: Miscellaneous Expenditure (Not written off) 23.76G. Net Worth as at the end of the year/ period 121183.52H. Net Profit after tax 24058.85I. Return on Net Worth (Annualized) (%) 19.85%F-146
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Statement of Accounting RatiosCalculation of Net Asset Value (NAV) Per Equity ShareParticularsSHAREHOLDERS FUNDSScheduleAnnexure VIIIPage 3 of 3(Rs. in lacs)As at March 31,2011A. Share Capital 9 4953.69B. Share Application Money Pending Allotment -C. Stock Option Outstanding 11 1887.27D. Optionally Convertible Warrants -E. Reserve and Surplus 10 114366.32F. Less: Miscellaneous Expenditure (Not written off) 23.76G. Net Asset Value 121183.52H.Number of Equity shares outstanding at the end of theyear/ period 49536877I. Net asset Value per Equity Share (Rs.) 244.63F-147
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Ltd.,Annexure IXSecured LoansTerm loan from banksParticularsANDHRA BANKDate ofDisbursement31-Dec-08Disbursedamount (Rs. inlacs)Balance as onMarch 31st2011 (Rs. inlacs)InterestRate %10000.00 4371.95 12.25Repayment termsRepayable In 16 QuarterlyInstallments31-Mar-1125 Crs Each at the end Of 30-BANK OF MAHARASHTRA5000.00 5000.00 10.00 Jun-14 & 30-Sep-14CALYON BANK 2-Dec-10 3500.00 3500.00 9.49 Bullet Payment on 02-Dec-12CANARA BANK17-Dec-077500.00 1250.00 11.5035 Months 5 Half YearlyInstallments - 1.250Crs /InstallmentCANARA BANK 29-Jan-10 20000.00 20000.00 10.50 Bullet Payment on 18-Feb-12CANARA BANK 17 & 24-Sep-10 20000.00 20000.00 10.00 Bullet Payment on 24-Aug-13CANARA BANK 24-Sep-10 10000.00 10000.00 10.00 Bullet Payment on 24-Aug-13CORPORATION BANK 28-Dec-10 10000.00 10000.00 9.75 Bullet Payment on 28-Dec-13CORPORATION BANK 29-Mar-11 20000.00 20000.00 9.50 Bullet Payment on 29-Jun-11DBS BANK LTD 4-Mar-11 6000.00 6000.00 9.20 Bullet Payment on 07-Oct-11DBS BANK LTD 24-Sep-10 5000.00 5000.00 8.65 Bullet Payment on 24-Sep-13DBS BANK LTD 26-Oct-10 8000.00 8000.00 8.90 Bullet Payment on 26-Oct-11HDFC BANK22-Mar-105000.00 5000.00 8.25Tenor-18 Months(3 EqualInstallment At The End Of12Th,15Th & 18Th)22-Mar-1125 Months-(Oct11, Apr12,ICICI BANK25000.00 25000.00 8.75 Oct12, Apr13 - 62.5 CrsIDBI BANK 22-Mar-11 20000.00 20000.00 9.50 Bullet Payment on 22-Jun-11IDBI BANK 22-Mar-11 4000.00 4000.00 9.50 Bullet Payment on 22-Jun-11ING VYSYA BANK 26-Mar-09 1000.00 333.28 10.50 Monthly Emi 27.70 LacsING VYSYA BANK25-Mar-104300.00 2866.67 8.20Half YearlyInstallment(Rs.71666666) - 35MonthsKARUR VYSYA BANK31-Jul-092500.00 625.00 9.50Tenro-24 Months(Repaid In 4Equal Half YearlyInstallments Of Rs.6.25 Cr)ORIENTAL BANK OFCOMMERCEORIENTAL BANK OFCOMMERCE31-Mar-1028-Mar-112000.00 2000.00 9.5010000.00 10000.00 10.00Repayable In 24 MonthlyInstallments (208.33 Lac)In 4 Quarterly Installment Of25 Cr-36 Months(25 Crs-Jun13, Sep 13, Dec 13 & Mar 14)F-148
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Ltd.,Annexure IXSecured LoansTerm loan from banksParticularsDate ofDisbursementDisbursedamount (Rs. inlacs)Balance as onMarch 31st2011 (Rs. inlacs)InterestRate %Repayment terms11 Quarterly Installment-(Rs.4.50Cr) And Last One(5Cr)8 Quarterly Installments -31.25 MillionSTATE BANK OF INDORE 31-Mar-09 5000.00 1397.73 12.50STATE BANK OF7-Feb-11MAURITIUS1500.00 1500.00 10.50STATE BANK OF MYSORE 27-Nov-10 10000.00 9999.38 9.50 Bullet Payment on 27-Nov-13STATE BANK OF PATIALA 28-Feb-09 5000.00 2000.00 10.25 10 Qtrly installment (5.00 Crs)STATE BANK OF PATIALA 21-Dec-10 10000.00 10000.00 10.75 Bullet Payment on 21-Dec-13STATE BANK OF PATIALA 22-Mar-11 15000.00 15000.00 9.75Repayment At The End OfEvery 12 Months In 3 AnnualEqual Instalments-3YearsSTATE BANK OFTRAVANCORE 23-Dec-10 10000.00 9999.97 10.50 Bullet Payment on 23-Dec-12SYNDICATE BANK 3-Jan-11 15000.00 15000.00 10.00 Bullet Payment on 03-Jan-13UNION BANK OF INDIA 22-Nov-10 15000.00 15000.00 9.75 Bullet Payment on 22-Nov-12UNION BANK OF INDIA 4-Jan-11 15000.00 15000.00 10.50 Bullet Payment on 04-Jan-13UNITED BANK OF INDIA 27-Dec-08 2500.00 833.30 11.0012 Quarterly Installments For36 MonthsVIJAYA BANK 30-Mar-11 9000.00 9000.00 10.50Repayable In 36 Months WithAn Initial Moratorium PeriodOf 12 Months & Thereafter ItShould Be Repaid In 24 EmiYES BANK 28-Feb-11 8000.00 8000.00 9.25 Bullet Payment on 28-Feb-14Total 295677.28Term loan from institutionsParticularsDate ofDisbursementDisbursedamount (Rs. inlacs)Balance as onMarch 31st2011 (Rs. inlacs)Repayment termsSIDBI 10-Aug-10 10000.00 6500.00 10.00 Repayable on 10-Aug-13F-149
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Ltd.,Cash Credit from Banks(including WCDL)ParticularsDate ofDisbursementDisbursed amount (Rs. in lacs)Balance as on March31st 2011 (Rs. in lacs)Annexure IXInt. Rate %AXIS BANK 23-Aug-06 10000.00 9.08 11.75%BANK OF INDIA 11-Jun-09 20000.00 10185.07 9.60%BANK OF MAHARASHTRA 19-Mar-06 5000.00 4997.40 10.50%CANARA BANK 24-Nov-09 5000.00 4088.27 11.00%CENTRAL BANK OF INDIA 24-Mar-09 10000.00 3532.29 10.50%CITY UNION BANK 10-Nov-10 1400.00 78.13 11.50%CORPORATION BANK 28-Dec-10 5000.00 3522.68 9.75%DBS BANK 29-Apr-10 100.00 5.91 10.00%DENA BANK 5-Mar-07 15000.00 10713.18 10.45%IDBI BANK 10-Oct-08 1000.00 90.30 11.25%INDUSIND BANK 31-May-10 7500.00 120.56 10.60%ING VYSYA BANK 23-Mar-10 500.00 5.70 10.00%JAMMU & KASHMIR BANK LTD., 15-Mar-11 10000.00 8013.44 11.00%KOTAK MAHINDRA BANK 21-Aug-09 5000.00 1014.64 10.60%ORIENTAL BANK OF COMMERCE 18-Sep-06 5000.00 3662.67 10.00%PUNJAB NATIONAL BANK 4-Aug-07 5000.00 9.16 13.00%SOUTH INDIAN BANK 25-Jun-10 1000.00 40.33 12.00%STATE BANK OF INDIA 13-Mar-09 15000.00 7539.90 12.00%STATE BANK OF PATIALA 24-Feb-09 5000.00 48.11 12.75%STATE OF BIKANUR AND JAIPUR 8-Sep-10 100.00 40.59 11.50%TAMILNADU MERCANTILE BANK 20-Aug-07 5000.00 19.89 11.50%UNION BANK OF INDIA 25-Mar-08 5000.00 2766.09 12.00%UNITED BANK OF INDIA 25-Mar-09 7500.00 3292.02 9.00%YES BANK - ac 200 25-Mar-10 2000.00 10.74 11.00%WCDLHSBC BANK 23-Dec-09 10000.00 10000.00 8.15%HSBC BANK 23-Dec-09 5000.00 5000.00 8.05%SOUTH INDIAN BANK 25-Jun-10 5000.00 4989.92 7.75%STATE BANK OF BIKANER & JAIPUR 22-Dec-10 2400.00 2400.00 9.50%STANDARD CHARTERED BANK 25-Oct-10 5000.00 5000.00 8.90%CENTURION CC BANK 31-Dec-10 2400.00 2400.00 9.50%CANARA BANK 9-Dec-10 15000.00 15000.00 9.80%DBS 4-Mar-11 1400.00 1400.00 9.20%FEDERAL 1-Mar-11 5000.00 5000.00 9.90%STATE BANK OF MYSORE 18-Mar-11 4900.00 4900.00 9.30%IDBI 22-Mar-11 15000.00 15000.00 9.50%Total 134896.09F-150
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Ltd.,Annexure IXPrivately placed Redeemable NCDParticularsDate ofDisbursementDisbursedamount (Rs. inlacs)Balance as onMarch 31st2011 (Rs. inlacs)InterestRate %Repayment termsCORPORATION BANK 24-Sep-09 2500.00 2500.00 10.75%3.5 years 1st 20% 4th year2nd 20% 4.5 years 30% and5th year30%CENTRAL BANK OF INDIA 17-Sep-09 1000.00 1000.00 10.75%3.5 years 1st 20% 4th year2nd 20% 4.5 years 30% and5th year30%3.5 years 1st 20% 4th yearCENTRAL BANK PENSION17-Sep-09 1000.00 1000.00 10.75% 2nd 20% 4.5 years 30% andFUND5th year30%3.5 years 1st 20% 4th yearCENTRAL BANK17-Sep-09 500.00 500.00 10.75% 2nd 20% 4.5 years 30% andPROVIDENT FUND5th year30%3.5 years 1st 20% 4th yearALLAHABAD BANK 23-Sep-09 2000.00 2000.00 10.75% 2nd 20% 4.5 years 30% and5th year30%A.K.CAPITAL SERVICES 6-Oct-09 2000.00 2000.00 10.75% Repayable on 07-Oct-14BANK OF BARODA 6-Oct-09 1000.00 1000.00 10.75% Repayable on 07-Oct-14STANDARD CHARTEREDHalf yearly instalment-320-Apr-10 17500.00 14583.33 7.82%BANKyearsRELIANCE MUTUAL FUND 2-Jul-10 7500.00 7500.00 9.00% Repayable on 05-Jan-13ING VYSYA BANK 22-Nov-10 2000.00 2000.00 10.50%In 3 Equal installments in5th/6th/ 7th Year fromdeemed date of allotmentING VYSYA BANK 13-Dec-10 1000.00 1000.00 10.60% Repayable on 13-Dec-17ING VYSYA BANK 13-Dec-10 1500.00 1500.00 10.60% Repayable on 13-Dec-17JHARKAND GRAHIM BANK 4-Feb-11 500.00 500.00 10.75% Repayable on 04-Feb-21DEUTSCHE BANK 30-Mar-11 27500.00 27500.00 9.00% Repayable on 30-Mar-17Total 64583.33Privately placed Redeemable Non Convertible Debenture of Rs. 1,000 eachParticularsBalance as on March31st 2011 (Rs. in lacs)Repayment termsRetail Debentures 155294.31 Redeemable at par over a period 12 to 160 monthsF-151
Annexure X<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Unsecured loansParticularsBalance as on March 31st2011 (Rs. in lacs)Repayment termsFixed Deposits 55.10Subordinated Debts 53,272.33Total 53,327.43Redeemable at parover a period 12 to 60monthsRedeemable at parover a period 60 to216 monthsCommercial PaperParticularsDate ofDisbursementDisbursedamount(Rs. inlacs)Balance as onMarch 31st2011 (Rs. Inlacs)InterestRate %Repayment termsUTI MUTUAL FUND 13-Sep-10 5500.00 5500.00 8.66 Repayable on 12-Sep-11ICICI PRUDENTIAL LIFE INSURANCE 13-Sep-10 5000.00 5000.00 8.66 Repayable on 12-Sep-11TATA MUTUAL FUND 13-Sep-10 7500.00 7500.00 8.66 Repayable on 07-Sep-11CHOLAMANDALAM MS GENERALINSURANCE COMPANY LTD. 8-Oct-10 500.00 500.00 8.67 Repayable on 07-Oct-11TATA TRUSTEE COMPANY LTD. 8-Oct-10 1500.00 1500.00 8.24 Repayable on 19-Sep-11UTI - FIIF ANNUAL INTERVAL PLANS-III 8-Oct-10 1000.00 1000.00 8.67 Repayable on 07-Oct-11UTI-FMP-YEARLY SERIES 8-Oct-10 1500.00 1500.00 8.67 Repayable on 07-Oct-11Total 22500.00F-152
Annexure XI<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Capitalization statementParticularsDebtPre Issue as atMarch 31, 2011(Audited)(Rs. in lacs)As adjusted forIssueShort Term Debt 160552.61 160552.61Long Term Debt 572225.83 647225.83Total 732778.44 807778.44Shareholders FundShare Capital 4953.69 4953.69Share Application Money pending allotment - -Stock Option Outstanding 1887.27 1887.27Reserve 7 Surplus (Refer Annexure IV - Schedule 10) 114366.32 114366.32Less: Miscellaneous Expenditure 23.76 23.76Total of Shareholders Fund 121183.52 121183.52Long Term Debt / equity Ratio 6.05 6.67F-153
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Statement of Tax ShelterParticularsAnnexure XII(Rs. in lacs)For the year ended March31, 2011Profit as per accounting books (business) 36,060.09Profit as per accounting books (investments)Total profit as per accounting books 36,060.09Tax rate on business income 33.22%Tax rate on investment incomeTax on accounting profit 11,978.26Permanent DifferencesDonation 0.50Exempt Dividend IncomeDisallowance u/s 14ACapital gains on sale of fixed assetsOthers 13.94Sub Total (A) 14.44Temporary DifferencesDepreciation and Lease adjustments 0.03Provision for standard assets 1,714.89Leave Encashment, Gratuity & Bonus 68.30Derivative provision (546.62)Others 199.84Sub Total (B) 1,436.44Net Adjustments (A+B) 1,450.88Tax Impact on Net Adjustments 481.95Total Taxation 12,460.21Current Tax Provision for the year 12,460.20Notes:-1. Profits after tax are often affected by the tax shelters which are available.2. Some of these are of a relatively permanent nature while others may be limited in point of time.3. Tax provisions are also affected by timing differences which can be reversed in future.F-154
<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Significant Accounting Policies & Notes to AccountsAnnexure XIII1. Significant Accounting Policies(A)Basis of preparationThe Consolidated financial statements relates to M/s. <strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> Company <strong>Limited</strong> (theCompany) and its subsidiary company. The Company and its subsidiary company constitute the Group.The financial statements have been prepared in conformity with generally accepted accounting principlesto comply in all material respects with the notified Accounting Standards (‘AS’) under CompaniesAccounting Standard Rules, 2006, as amended, the relevant provisions of the Companies Act, 1956 (‘theAct’) and the guidelines issued by the Reserve Bank of India (‘RBI’) as applicable to a Non Banking<strong>Finance</strong> Company (‘NBFC’). The financial statements have been prepared under the historical costconvention on an accrual basis.(B)Basis of consolidation(i) The financial statements of the subsidiary company <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong> used in theconsolidation are drawn up to the same reporting date as of the Company i.e. period ended March 31, 2011and are prepared based on the accounting policies consistent with those used by the Company.(ii) The financial statements of the Group have been prepared in accordance with the Accounting Standard 21-‘Consolidated Financial Statements’ and Accounting Standard 23 – ‘Accounting for investments inAssociates in Consolidated Financial Statements, notified under the Companies (Accounting Standards)Rules, 2006, as amended and other generally accepted accounting principles in India.(iii) The consolidated financial statements have been prepared on the following basis :a. The financial statements of the company and its subsidiary company have been combined on a line-by-linebasis by adding together like items of assets, liabilities, income and expenses. The intra-group balancesand intra-group transactions and unrealised profits or losses have been fully eliminated.b. The excess of cost to the Company of its investments in the subsidiary company over its share of equityof the subsidiary company, at the dates on which the investments in the subsidiary company is made, isrecognised as ‘Goodwill’ being an asset in the consolidated financial statements. Alternatively, where theshare of equity in the subsidiary company as on the date of investment is in excess of cost of investment ofthe Company, it is recognised as ‘Capital Reserve’ and shown under the head ‘Reserves and Surplus’, inthe consolidated financial statement.c. Minority interest, if any, in the net assets of consolidated subsidiary consists of the amount of equityattributable to the minority shareholders at the dates on which investments are made by the Company inthe subsidiary company and further movements in their share in the equity, subsequent to the dates ofinvestments as stated above.(C)Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting principlesrequires management to make estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent liabilities at the date of the financial statements and the results ofoperations during the reporting year end. Although these estimates are based upon management’s bestknowledge of current events and actions, actual results could differ from these estimates. Any revisions tothe accounting estimates are recognized prospectively in the current and future years.F-155
(D)Fixed Assets, Depreciation / Amortisation and Impairment of assetsFixed AssetsFixed assets are stated at cost less accumulated depreciation/amortisation and impairment losses, if any.Cost comprises the purchase price and any attributable cost of bringing the asset to its working conditionfor its intended use. Borrowing costs relating to acquisition of fixed assets are included to the extent theyrelate to the period till such assets are ready to be put to use.Depreciation / AmortisationDepreciation is provided pro rata on Straight Line Method (‘SLM’), which reflect the management’sestimate of the useful lives of the respective fixed assets and are greater than or equal to the correspondingrates prescribed in Schedule XIV of the Act. The assets for which higher rates are applied are as follows:Particulars Rates (SLM) Schedule XIV rates (SLM)Computer Software 33.33% 16.21%Leasehold improvement is amortized over the primary period of lease subject to a maximum of 60 months.All fixed assets individually costing Rs.5000 or less are fully depreciated in the year of installation.Impairment of assetsThe carrying amount of assets is reviewed at each balance sheet date if there is any indication ofimpairment based on internal/external factors. An impairment loss is recognized wherever the carryingamount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the assets’net selling price and value in use.After impairment, depreciation is provided on the revised carrying amount of the asset over its remaininguseful life.A previously recognized impairment loss is increased or reversed depending on changes in circumstances.However the carrying value after reversal is not increased beyond the carrying value that would haveprevailed by charging usual depreciation if there was no impairment.F-156
(E)InvestmentsInvestments intended to be held for not more than a year are classified as current investments. All otherinvestments are classified as long-term investments. Current investments are carried at lower of cost andfair value determined on an individual investment basis. Long Term Investments are carried at cost.Provision for diminution in the value of long term investments is made to recognize decline in value otherthan temporary in nature.(F)Assets under financing activitiesAssets under Financing Activities are stated at the amount advanced including finance charges accrued andexpenses recoverable, as reduced by the amounts received up to Balance sheet date and assets securitized.Non performing Asset are written off / provided for, as per management estimates, subject to the minimumprovision required as per Non-Banking Financial (Deposit Accepting or Holding) Companies PrudentialNorms (Reserve Bank) Directions 2007.Provision @0.25% on standard asset is made as per the notification DNBS.PD.CC.No.207/ 03.02.002/2010-11 issue by Reserve Bank of India.(G)Foreign currency translationForeign currency transactions are accounted at the exchange rate prevailing on the date of transactions.Foreign currency monetary items on the Balance Sheet date are restated at the closing exchange rates. AllExchange differences are dealt with in the profit and loss account.(H)Revenue recognitioni. Income from Financing Activities is recognised on the basis of internal rate of return. This includesAdditional <strong>Finance</strong> Charges which is accounted when received because of uncertainty ofrealization.ii. Gain arising on securitization/direct assignment of assets is recognized over the tenure ofagreements as per guideline on securitization of standard assets issued by RBI. Loss (if any) isrecognized upfront.iii.iv.The Prudential norms for income recognition prescribed under Non-Banking Financial (DepositAccepting or Holding) Companies Prudential Norms (Reserve Bank) Directions 2007 are followed.Income from services is recognized as per the terms of the contract on accrual basis.v. Interest Income on deposit accounts with banks is recognized on a time proportion basis taking intoaccount the amount outstanding and the rate applicable.vi.vii.Dividend is recognized as Income when right to receive is established by the date of balance sheet.Profit / Loss on sale of investments is recognized at the time of actual sale / redemption.F-157
(I)Employee benefitsProvident FundAll the employees of the Company are entitled to receive benefits under the Provident Fund, a definedcontribution plan in which both the employee and the Company contribute monthly at a stipulated rate. TheCompany has no liability for future Provident Fund benefits other than its annual contribution andrecognizes such contributions as an expense in the year it is incurred.GratuityThe Company provides for the gratuity, a defined benefit retirement plan covering all employees. The planprovides for lump sum payments to employees at retirement, death while in employment or on separationfrom employment as per provisions of payment of Gratuity Act, 1972. The Group accounts for liability offuture gratuity benefits based on an external actuarial valuation on projected unit credit method carried outannually for assessing liability as at the balance sheet date.Leave EncashmentShort term compensated absences are provided for based on estimates. Long term compensated absencesare provided for based on actuarial valuation. The actuarial valuation is done as per projected unit creditmethod.Actuarial gains/losses are immediately taken to profit and loss account and are not deferred.(J)Income taxTax expense comprises of current tax, deferred tax and fringe benefit tax. Current income tax and fringebenefit tax is measured at the amount expected to be paid to the tax authorities in accordance with theIndian Income Tax Act, 1961. Deferred income taxes reflects the impact of current year timing differencesbetween taxable income and accounting income for the year and reversal of timing differences of earlieryears.Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at thebalance sheet date. Deferred tax assets are recognized only to the extent that there is reasonable certaintythat sufficient future taxable income will be available against which such deferred tax assets can berealized. In situations where the Group has unabsorbed depreciation or carry forward tax losses, alldeferred tax assets are recognized only if there is virtual certainty supported by convincing evidence thatthey can be realized against future taxable profits.The un-recognized deferred tax assets are re-assessed by the Group at each balance sheet date and arerecognized to the extent that it has become reasonably certain or virtually certain, as the case may be thatsufficient future taxable income will be available against which such deferred tax assets can be realized.The carrying cost of the deferred tax assets are reviewed at each balance sheet date. TheGroup writes down the carrying amount of a deferred tax asset to the extent that it is no longer reasonablycertain or virtually certain, as the case may be, that sufficient future taxable income will be availableagainst which deferred tax asset can be realized. Any such write down is reversed to the extent that itbecomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable incomewill be available.F-158
(K)Segment reportingThe company operates in one reportable segment.(L)(M)Earnings per shareBasic earnings per share is calculated by dividing the net profit or loss for the period attributable to equityshareholders (after deducting attributable taxes) by the weighted average number of equity sharesoutstanding during the year.For the purpose of calculating diluted earnings per share, the net profit or loss for the period attributable toequity shareholders and the weighted average number of shares outstanding during the period are adjustedfor the effects of all dilutive potential equity shares.Cash and cash equivalentsCash and cash equivalents in the cash flow statement which is prepared in accordance with AccountingStandard (AS) 3 issued by the Institute of Chartered Accountants of India comprise cash at bank and inhand and short term investments with an original maturity of three months or less.(N)Expenses on deposits / debenturesExpenses on mobilization of deposits / debentures are charged to Profit & Loss account in the year inwhich they are incurred.(O)ProvisionsA provision is recognized when the Group has a present obligation as a result of past event; it is probablethat outflow of resources will be required to settle the obligation, in respect of which a reliable estimaterequired to settle the obligation at the balance sheet date. These are reviewed at each balance sheet dateand adjusted to reflect the current best estimates.(P)Derivative instrumentsAccounting for derivative contracts, other than those covered under AS-11, are marked to market and thenet loss after considering the off setting effect on the underlying hedge item is charged to profit and lossaccount. Net gains are ignored(Q)Employee stock compensation costsMeasurement and disclosure of the employee share-based payment plans is done in accordance with SEBI(Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999and theGuidance Note on Accounting for Employee Share-based Payments, issued by the ICAI. The Companymeasures compensation cost relating to employee stock options using the intrinsic value method.Compensation expense is amortized over the vesting period of the option on a straight line basis.F-159
2. Notes to Accounts(1) The following subsidiary company is considered in the consolidated financial statements:Sr.No.Name of the Subsidiary Companya) <strong>Shriram</strong> Housing <strong>Finance</strong> <strong>Limited</strong>(Incorporated on 9 th November 2010)(2) Particulars of Secured LoansCountry ofincorporation% of holding eitherdirectly as at March31, 2011% of holding eitherdirectly as atMarch 31, 2010India 100% -a) Privately placed Redeemable Non-convertible Debentures of Rs 1000/- each (Retail)As at March 31,2011NumberAmount (Rs. in lacs)1,55,29,431 1,55,294.31Secured by equitable mortgage of title deeds of immovable property. Further secured by charge on plant andmachinery, furniture and other fixed assets of the Company, charge on Company’s hypothecation loans, other loans,advances and investments of the Company subject to prior charges created or to be created in favor of theCompany’s bankers, financial institutions and others.These Debentures are redeemable at par over a period of 12 months to 160 months from the date of allotmentdepending on the terms of the agreement. The earliest date of redemption is April 1, 2011. The last date ofredemption is October 25, 2017.Debentures may be bought back subject to applicable statutory and /or regulatory requirements, upon the terms andconditions as may be decided by the Company. The Company may grant loan against the security of NCDs upon theterms and conditions as may be decided by the Company and subject to applicable statutory and/or regulatoryrequirements.F-160
) Privately Placed Redeemable Non-Convertible Debenture (Institutional)Date ofAllotment/renewalFaceValueNumberAs at March31, 2011Redeemableat par on24.09.2009 100000 2500 2500.00 30.09.201417.09.2009 100000 1000 1000.00 30.09.201417.09.2009 100000 1000 1000.00 30.09.201417.09.2009 100000 500 500.00 30.09.201423.09.2009 100000 2000 2000.00 30.09.201406.10.2009 100000 2000 2000.00 07.10.201406.10.2009 100000 1000 1000.00 07.10.201422.04.2010 1000000 1458 14583.33 22.04.201305.07.2010 1000000 750 7500.00 05.01.201323.11.2010 1000000 200 2000.00 23.11.201713.12.2010 1000000 100 1000.00 13.12.201713.12.2010 1000000 150 1500.00 13.12.201704.02.2011 1000000 50 500.00 04.02.202130.03.2011 1000000 2750 27500.00 30.03.2017Total 64583.33Secured by specific assets covered under hypothecation loan agreements and by way of exclusive charge andequitable mortgage of title deeds of immovable property.c) Term Loans:i. From Financial Institutions/Corporate(Rs. in lacs)As at March 31,2011Secured by an exclusive charge by way ofhypothecation of assets under financing.6500.00Total 6500.00ii.From BanksAs at March 31,2011Secured by an exclusive charge by way ofhypothecation of assets under financing.295677.28Total 295677.28F-161
d) Cash Credit from Banks(Rs. in lacs)As at March 31, 2011Cash Credit from Banks 134896.093. Subordinated DebtThe Company has issued subordinated debt bonds amounting to Rs. 53272.33 Lacs with coupon rate of7.00% to 13.00% Per annum which are redeemable over a period of 60 month to 216 month.4. Gratuity and other post-employment benefit plans:The Company has an unfunded defined benefit gratuity plan. Every employee who has completed five years ormore of service gets a gratuity on separation at 15 days basic salary (last drawn salary) for each completedyear of service.Consequent to the adoption of revised AS 15 ‘Employee Benefits’ issued by the ICAI the followingdisclosures have been made as required by the standard:Profit and Loss accountNet employee benefit expense (recognized in Employee Cost)(Rs. in lacs)GratuityParticulars March 31, 2011Current service cost4.84Interest cost on benefit obligation 12.44Expected return on plan assetsN.ANet actuarial (gain) / loss recognized in the year 23.23Past service costNILNet benefit expense 40.51Actual return on plan assetsN.AF-162
Balance sheetDetails of Provision for gratuity(Rs in lacs)GratuityParticulars March 31, 2011Defined benefit obligation196.34Fair value of plan assetsN.ATotal 196.34Less: Unrecognized past service costNILPlan asset / (liability) (196.34)Changes in the present value of the defined benefit obligation are as follows:(Rs. in lacs)GratuityParticulars March 31, 2011Opening defined benefit obligation155.52Interest cost 12.44Current service cost 4.84Benefits paid --Actuarial (gains) / losses on obligation 23.54Closing defined benefit obligation 196.34The Group would not contribute any amount to gratuity in 2011-12 as the scheme is unfunded.The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:GratuityParticulars March 31, 2011%Investments with insurerNAF-163
The principal assumptions used in determining gratuity obligations for the Group’s plan are shown below:GratuityParticulars March 31, 2011Discount Rate 8.25%Increase in compensation cost 5.00%Employee Turnover 2.00%The estimates of future salary increases considered in actuarial valuation, are on account of inflation, seniority,promotion and other relevant factors such as supply and demand in the employment market.Amounts for the current and previous year are as follows:Particulars March 31, 2011196.34Defined Benefit obligationPlan AssetsN.ASurplus/Deficit (196.34)Experience adjustment on Plan Liabilities (29.63)Experience adjustment on Plan AssetsN.A(5) Related Party DisclosuresRelated Parities have been identified by the Management and relied upon by the auditors.Subsidiary : <strong>Shriram</strong> Non-Conventional Energy <strong>Limited</strong> (till 26 th June 2009)Enterprises having significantinfluence over the Company: <strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong><strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong><strong>Shriram</strong> Capital <strong>Limited</strong><strong>Shriram</strong> Ownership TrustTPG India Investments I Inc.Key Managerial Personnel : R Kannan Managing DirectorF-164
PaymentsEnterprises having significant influence over the Company2011(Rs. in lacs)Royalty 338.15#Data Sourcing fees 206.40#Service Charges 1238.39#Equity dividendReimbursement of Business Promotion Expenses 33.09*Equity dividend 985.68$Equity dividend470.59@ReceiptsBalance outstanding at the year endShare Capital 1792.15*Share Capital855.62@* Denotes transactions with <strong>Shriram</strong> Capital <strong>Limited</strong>$ Denotes transactions with <strong>Shriram</strong> Enterprise Holdings Private <strong>Limited</strong>@Denotes transactions with <strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong># Denotes transactions with <strong>Shriram</strong> Ownership Trust <strong>Limited</strong>(6) In accordance with the Reserve Bank of India circular no. RBI/2006-07/225 DNBS (PD) C.CNo.87/03.02.2004/2006-07 dated January 4,2007, the Company has created a floating charge on thestatutory liquid assets comprising of investment in Government Securities to the extent of Rs.101.45 Lacsin favour of trustees representing the public deposit holders of the Company.F-165
(7) Earnings per share(Rs. in lacs)ParticularsNet Profit after tax and Share of loss of Associates as per profit and loss account (Rs. inlacs)(A)Year ended March31, 201124058.85Weighted average number of equity shares for calculating Basic EPS (in lacs) (B) 493.23Weighted average number of equity shares for calculating Diluted EPS (in lacs) (C) 501.25Basic earnings per equity share (in Rupees) (Face value of Rs. 10/- per share) (A) / (B) 48.78Diluted earnings per equity share (in Rupees) (Face value of Rs. 10/- per share) (A) / (C) 47.97(Rs. in lacs)ParticularsYear ended March31, 2011Weighted average number of equity shares for calculating EPS (in lacs) 493.23Add : Equity shares arising on conversion of optionally convertible warrants (in lacs) -Add : Equity shares for no consideration arising on grant of stock options under ESOP (inlacs)8.32Weighted average number of equity shares in calculation diluted EPS (in lacs) 501.55F-166
(8) Deferred Tax Liabilities/(Asset) (Net)The breakup of deferred tax asset/ liabilities is as under :(Rs. in lacs)As at March 31,2011Deferred Tax LiabilitiesTiming difference on account of :Differences in depreciation in block of fixed assets as per tax books andfinancial books85.63Gross Deferred Tax Liabilities (A) 85.63Deferred Tax AssetTiming difference on account of :Service Tax Provision 515.90Additional Provision against Standard Asset 569.65Leave Encashment Provision 18.01Gratuity Provision 65.22Derivative Provision 418.29Bonus Provision 13.78Estimated Disallowances 66.44Gross Deferred Tax Assets (B) 1667.29Deferred Tax Liabilities/(Asset) (Net) (A-B) (1581.66)(Rs. in lacs)(9) Capital commitments As at March 31, 2011Estimated amount of contracts remaining to be executed on capitalaccount and not provided for (net of advances)61.78F-167
(Rs. in lacs)(10) Contingent Liabilities not provided for As at March 31, 2011a. Guarantees issued by the Company 6.81b. Guarantees issued by others 1942.77(11) Income Tax/Wealth Tax/Service Tax/Fringe Benefit TaxDisputed Wealth Tax/Service Tax demands contested in appeal as on 31 st 2011.Wealth Tax – Rs. 1.76 lacs , Service Tax – Rs.1553.08 LacsHowever provision is made in the books for any liability that may arise.(12) Employee Stock Option PlanDate of grant October 19 2007Date of Board Approval October 19 2007Date of Shareholder’s approval October 30 2006Number of options granted 1355000Method of Settlement (Cash/Equity)EquityGraded vesting period:After 1 year of grant dateAfter 2 years of grant dateAfter 3 years of grant dateAfter 4 years of grant dateExercisable periodVesting Conditions10% of options granted20% of options granted30% of options granted40% of options granted10 years from vesting dateon achievement of pre –determined targetsF-168
The details of Stock Option plan are summarized below:As at March 31, 2011Number ofSharesWeighted AverageExercise Price(Rs.)Outstanding at the beginning of the year 1272800 35Add: Granted during the year 27500Less: Forfeited during the year -Less: Exercised during the year 382177 35Less: Expired during the year -Outstanding at the end of the year 918123 35Exercisable at the end of the year -Weighted average remaining contractual life (in years) - 9.55Weighted average fair value of options granted - 227.42The details of exercise price for stock options outstanding at the end of the year are:As atRange ofexercisepricesNumber of optionsoutstandingWeighted averageremainingcontractual life ofoptions (in years)Weighted averageexercise priceMarch 31, 2011 Rs.35/- 918123 9.55 Rs.35/-F-169
Stock Options grantedThe weighted average fair value of stock options granted was Rs.227.42. The Black Scholes model has been used forcomputing the weighted average fair value of options considering the following inputs:Yr 1 Yr 2 Yr 3 Yr 4Exercise Price (Rs.) 35.00 35.00 35.00 35.00Expected Volatility (%) 55.36 55.36 55.36 55.36Historical Volatility NA NA NA NALife of the options granted (Vesting andexercise period) in years1.50 2.50 3.50 4.50Expected dividends per annum (Rs.) 3.00 3.00 3.00 3.00Average risk-free interest rate (%) 7.70 7.67 7.66 7.67Expected dividend rate (%) 0.84 0.84 0.84 0.84The expected volatility was determined based on historical volatility data equal to the NSE volatility rate of BankNifty which is considered as a comparable peer group of the Company. To allow for the effects of early exercise itwas assumed that the employees will exercise the options within six months from the date of vesting in view of theexercise price being significantly lower than the market price.Effect of the employee share-based payment plans on the profit and loss account and on its financial position:(Rs. in lacs)As at March 31, 2011Compensation cost pertaining to equity-settled employee share-based payment planincluded above471.68Liability for employee stock options outstanding as at year end 2079.09Deferred compensation cost 191.82Since the enterprise used the intrinsic value method the impact on the reported net profit and earningsper share by applying the fair value based method is as follows:F-170
In March 2005 the ICAI has issued a guidance note on “Accounting for Employees Share Based Payments”applicable to employee based share plan the grant date in respect of which falls on or after April 1, 2005. The saidguidance note requires that the pro-forma disclosures of the impact of the fair value method of accounting ofemployee stock compensation accounting in the financial statements. Applying the fair value based method definedin the said guidance note the impact on the reported net profit and earnings per share would be as follows:(Rs. in lacs)Year ended March 31, 2011Profit as reported (Rs. in lacs) 24058.85Add: Employee stock compensation under intrinsic value method (Rs.in lacs)Less: Employee stock compensation under fair value method (Rs. inlacs)471.68473.70Proforma profit (Rs. in lacs) 24056.83Less Preference Dividend -Proforma Net Profit for Equity Shareholders 24056.83Earnings per shareBasic (Rs.)- As reported 48.78- Proforma 48.77Diluted (Rs.)- As reported 47.97- Proforma 47.9613. SecuritisationThe information on securitisation & direct assignment activity of the Company as an originator for the yearF-171
March 31 2011 is given below:Year ended March 31, 2011Total number of assets securitised 178502Total book value of assets securitised (Rs. in lacs) 117915.72Sale consideration received for the securitised assets (Rs. in lacs) 126737.01Net gain on account of securitization (Rs. in lacs) 27163.76Outstanding credit enhancement- Deposit with banks/corporate 15436.40Outstanding Credit enhancement – Assets under financing 1900.6314. Derivative Instruments:The Notional principal amount of derivative transactions outstanding as on March 31, 2010 for interestrate swaps Rs.12500 lacs.15. Supplementary Statutory Information15.1 Managing Director’s RemunerationThe computation of profits under section 349 of the Act has not been given as no remuneration /commission is payable to the Managing Director.(Rs. in lacs)15.2 Expenditure in foreign currency (On cash basis)Year ended March 31, 2011Subscription Fees 0.0916. Additional information pursuant to the provisions of paragraphs 3 4C and 4D of Part II ofschedule VI to the ActThe Company does not have licensed capacity as it is Non Banking <strong>Finance</strong> Company.17. Previous year ComparativesThe figures for the previous year have been regrouped and reclassified, wherever necessary to conform tocurrent year’s classification.F-172
As per our report of even dateFor Pijush Gupta & Co.Firm Registration No: 309015EFor and on behalf of the Board of Directors of<strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>Chartered AccountantsRamendra Nath Das R Kannan S VenkatakrishnanPartner Managing Director DirectorMembership No : 014125Place : ChennaiDate: July 21, 2011C R DashCompany SecretaryF-173
DISCLOSURES ON EXISTING FINANCIAL INDEBTEDNESSA. Details of Secured Borrowings:Our company’s secured borrowings as on March 31, 2011 amount to ` 656,951.01 lakhs. The details of theindividual borrowings are set out below:1. Term Loans from Banks:Sr.No.ParticularsDate ofdisbursementAmount outstandingas on March 31,2011(` in Lakhs)Maturity date1. Andhra Bank December 31,2008 4,371.95 December 31,20122. Bank of Maharashtra March 31, 2011 5,000.00 September 30, 20143. Calyon bank December 2, 2010 3,500.00 December 2, 20124. Canara Bank December 17, 2007 1,250.00 August 9, 20115. Canara Bank January 29, 2010 20,000.00 February 18, 20126. Canara Bank September 24, 2010 20,000.00 August 24, 20137. Canara Bank September 24, 2010 10,000.00 August 24, 20138. Corporation Bank December 28, 2010 10,000.00 December 28, 20139. Corporation Bank March 29, 2011 20,000.00 June 29, 201110. DBS Bank <strong>Limited</strong> March 4, 2011 6,000.00 October 7, 201111. DBS Bank <strong>Limited</strong> September 24, 2010 5,000.00 September 24, 201312. DBS Bank <strong>Limited</strong> October 26, 2010 8,000.00 October 26, 201113. HDFC Bank <strong>Limited</strong> March 22, 2010 5,000.00 September 21, 201114. ICICI Bank <strong>Limited</strong> March 22, 2011 25,000.00 April 22, 201315. Industrial Development Bank ofIndia <strong>Limited</strong>March 22, 2011 20,000.00 June 22, 2011129
Sr.No.Particulars16. Industrial Development Bank ofIndia <strong>Limited</strong>Date ofdisbursementAmount outstandingas on March 31,2011(` in Lakhs)Maturity dateMarch 22, 2011 4,000.00 June 22, 201117. ING Vysya Bank <strong>Limited</strong> March 26, 2009 333.28 March 23, 201218. ING Vysya Bank <strong>Limited</strong> March 25, 2010 2,866.67 February 25, 201319. Karur Vysya Bank July 31, 2009 625.00 July 31, 201120. Oriental Bank of Commerce March 31, 2010 2,000.00 March 31, 201221. Oriental Bank of Commerce March 28, 2011 10,000.00 March 28, 201422. State Bank of Indore March 31, 2009 1,397.73 December 19, 201123. State Bank of Mauritius February 7, 2011 1,500.00 February 7, 201324. State Bank of Mysore November 27, 2010 9,999.38 November 27, 201325. State Bank of Patiala February 28, 2009 2,000.00 February 27, 201226. State Bank of Patiala December 21, 2010 10,000.00 December 21, 201327. State Bank of Patiala March 22, 2011 15,000.00 March 22, 201428. State Bank of Travancore December 23, 2010 9,999.97 December 23, 201229. Syndicate Bank January 3, 2011 15,000.00 January 3, 201330. <strong>Union</strong> Bank of India November 22, 2010 15,000.00 November 22, 201231. <strong>Union</strong> Bank of India January 4, 2011 15,000.00 January 4, 201332. United Bank of India December 27, 2008 833.30 December 31, 201133. Vijaya Bank March 30, 2011 9,000.00 March 31, 201434. YES Bank <strong>Limited</strong> February 28, 2011 8,000.00 February 28, 2014130
Sr.No.ParticularsDate ofdisbursementAmount outstandingas on March 31,2011(` in Lakhs)Total 2,95,677.28Maturity date2. Term Loans from Others:Sr. Particulars Date of disbursement AmountMaturity dateNo.outstanding onMarch 31, 2011 (`in Lakhs)1. Small Industries Development August 10, 2010 6,500.00 August 10, 2013Bank of IndiaTotal 6,5003. Cash Credit from BanksSr.No.Particulars Date of sanction Amount outstanding as onMarch 31, 2011(` in Lakhs)1. Axis Bank <strong>Limited</strong> August 23, 2006 9.082. Bank of India June 11, 2009 10,185.073. Bank of Maharashtra March 19, 2006 4,997.404. Canara Bank November 24, 2009 4,088.275. Central Bank of India March 24, 2009 3,532.296. <strong>City</strong> <strong>Union</strong> Bank November 10, 2010 78.137. Corporation Bank December 28, 2010 3,522.688. DBS Bank <strong>Limited</strong> April 29, 2010 5.919. Dena Bank March 5, 2007 10,713.1810. Industrial Development Bank ofOctober 10, 2008India <strong>Limited</strong>90.3011. INDUSIND Bank May 31, 2010 120.5612. ING Vysya Bank March 23, 2010 5.7013. Jammu & Kashmir BankMarch 15, 2011 8,013.4414. <strong>Limited</strong>Kotak Mahindra Mahindra Bank <strong>Limited</strong> bankAugust 21, 2009 1,014.6415. Oriental Bank of Commerce September 18, 2006 3,662.6716. Punjab National Bank August 4, 2007 9.1617. South Indian Bank June 25, 2010 40.3318. State Bank of India March 13, 2009 7,539.9019. State Bank of Patiala February 24, 2009 48.1120. State Bank of Bikaner and Jaipur September 8, 2010 40.5921. Tamil Nadu Mercantile Bank August 20, 2007 19.8922. <strong>Union</strong> Bank of India March 25, 2008 2,766.0923. United Bank of India March 25, 2009 3,292.0224. YES Bank <strong>Limited</strong> March 25, 2010 10.7425. HSBC Bank <strong>Limited</strong> December 23, 2009 10,000.0026. HSBC Bank <strong>Limited</strong> December 23, 2009 5,000.0027. South Indian Bank June 25, 2010 4,989.9228. State Bank of Bikaner and Jaipur December 22, 2010 2,400.00131
Sr.No.Particulars Date of sanction Amount outstanding as onMarch 31, 2011(` in Lakhs)29. Standard Chartered Bank October 25, 2010 5,000.0030. Centurion Bank December 31, 2010 2,400.0031. Canara Bank December 9, 2010 15,000.0032. DBS Bank <strong>Limited</strong> March 4, 2011 1,400.0033. Federal Bank <strong>Limited</strong> March 1, 2011 5,000.0034. State Bank of Mysore March 18, 2011 4,900.0035. Industrial Development Bank of India <strong>Limited</strong> March 22, 2011 15,000.00TOTAL 1,34,896.094. Our Company has issued secured redeemable non convertible debentures on a private placement basis ofwhich ` 64,583.33 lakhs is outstanding as on March 31, 2011, the details of which are set forth below:Sl. No. Particulars Date of Allotment Amount outstanding as on March Maturity Date31, 2011(` in Lakhs)1. Corporation BankSeptember 30,September 24, 2009*2,500.00 20142. Central Bank of IndiaSeptember 30,September 17, 2009*1,000.00 20143. Central Bank Pension FundSeptember 30,September 17, 2009*1,000.00 20144. Central Bank Provident FundSeptember 30,September 17, 2009*500.00 20145. Allahabad BankSeptember 30,September 23, 2009*2,000.00 20146. A.K. Capital Services <strong>Limited</strong> October 6, 2009 *2,000.00 October 7, 20147. Bank of Baroda October 6, 2009 *1,000.00 October 7, 20148. Standard Chartered Bank April 22, 2010 **14,583.33 April 22, 20139. Reliance Mutual Fund July 5, 2010 **7,500.00 January 5, 201310. ING Vysya BankNovember 23,November 23, 2010**2,000.00 201711. ING Vysya BankDecember 13,December 13, 2010**1,000.00 201712. ING Vysya BankDecember 13,December 13, 2010**1,500.00 201713. Jharkhand Gramin BankFebruary 4,February 4, 2011**500.00 202114. Deutsche Bank March 30, 2011 **27,500.00 March 30, 2017Total 64,583.33* Face Value: ` 1,00,000 each**Face Value: `10,00,000 each5. Our Company has issued secured redeemable non convertible debentures of face value of ` 1000 each on aprivate placement basis of which ` 1,55,294.31 lakhs is outstanding as on March 31,2011, the details of whichare set forth below:Sl. No. Particulars Amount outstanding as on March Maturity 31, Date2011(` in Lakhs)1. Retail 1,55,294.31 Redeemable at parover a period of 12months to 160months132
B. Details of Unsecured Borrowings:Our Company’s Unsecured Borrowings as on March 31, 2011 amount to ` 75,827.43 lakhs. The details ofthe individual Borrowings are set forth below:1. Subordinated Debts:Sr.No.ParticularsAmount Outstanding as onMarch 31, 2011(`.In Lakhs)Maturity Date1. Subordinated Debt 53,272.33 Redeemable at par over aperiod of 60 months to216 monthsTotal 53,272.332. Fixed Deposits:Amount Outstanding as on March 31, 2011Maturity Date(` in lakhs)55.10 Redeemable over a period of 12to 60 months3. Commercial PaperThe Company has issued commercial paper of which `. 22,500.00 lakhs are outstanding as on March 31,2011, the details of which are set forth below:(` in lakhs)Name of HolderDate of Amount Outstanding MaturityDisbursement as on March 31, 2011UTI Mutual Fund September 13, 2010 5,500.00 September 12,2011ICICI Prudential Life Insurance Company<strong>Limited</strong>September 13, 2010 5,000.00 September 12,2011Tata Mutual Fund September 13, 2010 7,500.00 September 7, 2011Cholamandalam MS General Insurance October 8, 2010 500.00 September 7, 2011Company <strong>Limited</strong>Tata Trustee Company <strong>Limited</strong> October 8, 2010 1,500.00 September 19,2011UTI – FIIF Annual Interval Plan S-III October 8, 2010 1,000.00 October 7, 2011UTI FMP Yearly Series October 8, 2010 1,500.00 October 7, 2011Total 22,500.00Restrictive Covenants under our Financing Arrangements:Some of the corporate actions for which our Company requires the prior written consent of lenders include thefollowing:133
1. to declare and/ or pay dividend to any of its shareholders whether equity or preference, during any financialyear unless our Company has paid to the lender the dues payable by our Company in that year;2. to undertake or permit any merger, amalgamation or compromise with its shareholders, creditors or effectany scheme of amalgamation or reconstruction;3. to create or permit any charges or lien on any mortgaged properties;4. to amend its MOA and AOA or alter its capital structure; and5. to make any major investments by way of deposits, loans, share capital, etc. in any manner.Servicing behaviour on existing debt securities, payment of due interest on due dates on term loans and debtsecurities.As on the date of this Draft Prospectus, there has been no default in payment of principal or interest on any existingterm loan and debt security issued by the Issuer in the past.134
MATERIAL DEVELOPMENTSSave as disclosed hereinafter, there have been no developments since March 31, 2011 which effect the operations,or financial condition of our Company:• On June 7, 2011, our Company issued and allotted 43,550 Equity Shares at a price of ` 35 per Equity Share to29 employees pursuant to the exercise of stock options pursuant to the ESOP 2006.• On May 26, 2011, the Board of Directors of our Company have recommended a final dividend of ` 3.5 perEquity Share (35%), subject to the approval of our shareholders at their ensuing AGM.• On June 7, 2011, our Company issued and allotted 1,48,400 Equity Shares at a price of ` 35 per Equity Shareto 71 employees pursuant to the exercise of stock options pursuant to the ESOP 2006.• On March 31, 2011, our Company issued and allotted 11,628 Equity Shares at a price of ` 35 per EquityShare to 10 employees pursuant to the exercise of stock options pursuant to the ESOP 2006.135
SECTION VI : ISSUE RELATED INFORMATIONTERMS OF THE ISSUEThe NCDs being offered as part of the Issue are subject to the provisions of the Debt Regulations, theAct, the Memorandum and Articles of Association of our Company, the terms of this Draft Prospectus,the Prospectus, the Application Forms, the terms and conditions of the Debenture Trust Agreement andthe Debenture Trust Deed, other applicable statutory and/or regulatory requirements including thoseissued from time to time by SEBI/the Government of India/the Stock Exchange/s, RBI, and/or otherstatutory/regulatory authorities relating to the offer, issue and listing of securities and any otherdocuments that may be executed in connection with the NCDs.Ranking of NCDsThe NCDs would constitute direct and secured obligations of ours and shall rank pari passu inter se, and subjectto any obligations under applicable statutory and/or regulatory requirements, shall also, with regard to theamount invested, be secured by way of first and exclusive charge on the identified immovable property and thespecified future loan receivables of the company. The claims of the NCD holders shall be superior to the claimsof any unsecured creditors, subject to applicable statutory and/or regulatory requirements.Debenture Redemption ReserveSection 117C of the Act states that any company that intends to issue debentures must create a DRR to whichadequate amounts shall be credited out of the profits of the company until the redemption of the debentures. TheMinistry of Corporate Affairs has, through its circular dated April 18, 2002, (“Circular”), specified that thequantum of DRR to be created before the redemption liability actually arises in normal circumstances should be‘adequate’ to pay the value of the debentures plus accrued interest, (if not already paid), till the debentures areredeemed and cancelled. The Circular however further specifies that, for NBFCs like our Company, (NBFCs whichare registered with the RBI under Section 45-IA of the RBI Act), the adequacy of the DRR will be 50% of the valueof debentures issued through the public issue. Accordingly our Company is required to create a DRR of 50% of thevalue of debentures issued through the public issue. As further clarified by the Circular, the amount to be credited asDRR will be carved out of the profits of the company only if there is profit for the particular year and there is noobligation on the part of the company to create DRR if there is no profit for the particular year. Our Company shallcredit adequate amounts to DRR, from its profits every year until such NCDs are redeemed. The amounts credited toDRR shall not be utilized by the company except for the redemption of the NCDs.Face ValueThe face value of each NCD shall be ` 1,000.NCD holder not a ShareholderThe NCD holders will not be entitled to any of the rights and privileges available to the equity and/orpreference shareholders of our Company.Rights of NCD holdersSome of the significant rights available to the NCD holders are as follows:1. The NCDs shall not, except as provided in the Act, confer upon the holders thereof any rights orprivileges available to our members including the right to receive notices or annual reports of, or toattend and/or vote, at our general meeting. However, if any resolution affecting the rights attachedto the NCDs is to be placed before the members, the said resolution will first be placed before theconcerned registered NCD holders for their consideration. In terms of Section 219(2) of the Act, holders ofNCDs shall be entitled to a copy of the balance sheet and copy of trust deed on a specific request made tous.136
2. Subject to applicable statutory/regulatory requirements, including requirements of the RBI, the rights, privileges andconditions attached to the NCDs may be varied, modified and/or abrogated with the consent in writing ofthe holders of at least three-fourths of the outstanding amount of the NCDs or with the sanction of aspecial resolution passed at a meeting of the concerned NCD holders, provided that nothing in suchconsent or resolution shall be operative against us, where such consent or resolution modifies or variesthe terms and conditions governing the NCDs, if the same are not acceptable to us.3. The registered NCD holder or in case of joint-holders, the one whose name stands first in the register ofdebenture holders shall be entitled to vote in respect of such NCDs, either in person or by proxy, atany meeting of the concerned NCD holders and every such holder shall be entitled to one vote on ashow of hands and on a poll, his/her voting rights on every resolution placed before such meeting of theNCD holders shall be in proportion to the outstanding nominal value of NCDs held by him/her.4. The NCDs are subject to the provisions of the Debt Regulations, the Act, the Memorandum and Articles ofAssociation of our Company, the terms of this Draft Prospectus, the Prospectus, the Application Forms, the termsand conditions of the Debenture Trust Deed, requirements of the RBI, other applicable statutory and/or regulatoryrequirements relating to the issue and listing, of securities and any other documents that may be executed inconnection with the NCDs.5. A register of NCD holders will be maintained in accordance with Section 152 of the Act and all interestand principal sums becoming due and payable in respect of the NCDs will be paid to the registeredholder thereof for the time being or in the case of joint-holders, to the person whose name stands first inthe Register of NCD holders as on the record date.6. Subject to compliance with RBI requirements, NCDs can be rolled over only with the consent of theholders of at least 75% of the outstanding amount of the NCDs after providing at least 21 days priornotice for such roll over and in accordance with the Debt Regulations. The Company shall redeem thedebt securities of all the debt securities holders, who have not given their positive consent to the roll-over.The aforementioned rights of the NCD holders are merely indicative. The final rights of the NCD holders willbe as per the terms of the Prospectus and the Debenture Trust Deed to be executed between our Company andthe Debenture Trustee.Minimum SubscriptionIf our Company does not receive the minimum subscription of 75 % of the Base Issue, i.e. ` 28,125 lakhs, prior toallotment, the entire subscription shall be refunded to the applicants within 30 days from the date of closure of theIssue. If there is delay in the refund of subscription by more than 8 days after our Company becomes liable to refundthe subscription amount, our Company will pay interest for the delayed period, at rates prescribed under subsections(2) and (2A) of Section 73 of the Companies Act, 1956.Market Lot & Trading LotUnder Section 68B of the Act, the NCDs shall be allotted only in dematerialized form. As per the DebtRegulations, the trading of the NCDs shall be in dematerialised form only. Since trading of the NCDs is indematerialised form, the tradable lot is one NCD.Allotment in the Issue will be in electronic form in multiples of one NCD. For details of allotment refer tochapter titled “Issue Procedure” under section titled “Issue Related Information” beginning on page 151 of thisDraft Prospectus.Nomination facility to NCD holderIn accordance with Section 109A of the Act, the sole NCD holder or first NCD holder, along with other jointNCD holders (being individual(s)) may nominate any one person (being an individual) who, in the event ofdeath of the sole holder or all the joint-holders, as the case may be, shall become entitled to the NCD. A137
person, being a nominee, becoming entitled to the NCD by reason of the death of the NCD holder(s), shallbe entitled to the same rights to which he would be entitled if he were the registered holder of the NCD.Where the nominee is a minor, the NCD holder(s) may make a nomination to appoint, in the prescribedmanner, any person to become entitled to the NCD(s), in the event of his death, during the minority. Anomination shall stand rescinded upon sale of a NCD by the person nominating. A buyer will be entitled tomake a fresh nomination in the manner prescribed. When the NCD is held by two or more persons, thenominee shall become entitled to receive the amount only on the demise of all the holders. Fresh nominationscan be made only in the prescribed form available on request at our Registered/ Corporate Office or at suchother addresses as may be notified by us.NCD holder(s) are advised to provide the specimen signature of the nominee to us to expedite the transmission ofthe NCD(s) to the nominee in the event of demise of the NCD holder(s). The signature can be provided inthe Application Form or subsequently at the time of making fresh nominations. This facility of providing thespecimen signature of the nominee is purely optional.In accordance with Section 109B of the Act, any person who becomes a nominee by virtue of the provisionsof Section 109A of the Act, shall upon the production of such evidence as may be required by our Board,elect either:(a)(b)to register himself or herself as the holder of the NCDs; orto make such transfer of the NCDs, as the deceased holder could have made.Further, our Board may at any time give notice requiring any nominee to choose either to be registered himself or herself orto transfer the NCDs, and if the notice is not complied with, within a period of 90 days, our Board may thereafter withholdpayment of all interests or other monies payable in respect of the NCDs, until the requirements of the notice have beencomplied with.Notwithstanding anything stated above, since the allotment of NCDs in this Issue will be made only in dematerialised mode,there is no need to make a separate nomination with our Company. Nominations registered with the respective DepositoryParticipant of the applicant would prevail. If the investors require changing their nomination, they are requested to informtheir respective Depository Participant.JurisdictionExclusive jurisdiction for the purpose of the Issue is with the competent courts of jurisdiction in Chennai, India.Application in the IssueNCDs being issued through this Draft Prospectus can be applied for in the dematerialised form only through a validApplication Form filled in by the applicant along with attachment, as applicable.Period of SubscriptionThe subscription list shall remain open for a period as indicated below, with an option for early closure or extensionby such period, as may be decided by the duly authorised committee of Directors of our Company, subject tonecessary approvals. In the event of such early closure of subscription list of the Issue, our Company shall ensurethat notice of such early closure is given on the day of such early date of closure through advertisement/s in aleading national daily newspaper.Issue Opens onClosing Date[●][●]Restriction on transfer of NCDsThere are no restrictions on transfers and transmission of NCDs and on their consolidation/ splitting except as maybe required under RBI requirements and as provided in our Articles of Association. Please refer to the section titled“Summary of the Key Provisions of the Articles of Association” beginning on page 183 of this Draft Prospectus.138
ISSUE STRUCTUREPublic Issue of NCDs aggregating upto ` 37,500 lakhs with an option to retain over-subscription upto ` 37,500lakhs for issuance of additional NCDs, aggregating to a total of up to ` 75,000 lakhs.The key common terms and conditions of the NCDs are as follows:ParticularsTerms and ConditionsMinimum Application SizeMode of allotmentTerms of PaymentTrading LotWho can ApplyThe minimum number of NCDs per application form will becalculated on the basis of the total number of NCDs applied for undereach such Application Form and not on the basis of any specificoptionCompulsorily in dematerialised formFull amount on application1 (one) NCDCategory I• Public Financial Institutions, Statutory Corporations, CommercialBanks, Co-operative Banks and Regional Rural Banks, which areauthorised to invest in the NCDs;• Provident Funds, Pension Funds, Superannuation Funds andGratuity Fund, which are authorised to invest in the NCDs;• Venture Capital funds registered with SEBI;• Insurance Companies registered with the IRDA;• National Investment Fund;• Mutual Funds;Category II• Companies; bodies corporate and societies registered under theapplicable laws in India and authorised to invest in the NCDs;• Public/private charitable/religious trusts which are authorised toinvest in the NCDs;• Scientific and/or industrial research organisations, which areauthorised to invest in the NCDs;• Partnership firms in the name of the partners; and• <strong>Limited</strong> liability partnerships formed and registered under theprovisions of the <strong>Limited</strong> Liability Partnership Act, 2008 (No. 6 of2009)Category III*The following persons/entities• Resident Indian individuals; and• Hindu Undivided Families through the Karta.139
*With respect to applications received from Category III applicants, applications by applicants who apply forNCDs aggregating to a value not more than ` 5 Lakhs, across all series of NCDs, (Option I and/or Option II), shall begrouped together, (“Reserved Individual Portion”) while applications by applicants who apply for NCDsaggregating to a value exceeding ` 5 Lakhs, across all series of NCDs, (Option I and/or Option II), shall be separatelygrouped together, (“Unreserved Individual Portion”).Participation by any of the above-mentioned investor classes in this Issue will be subject to applicable statutoryand/or regulatory requirements. Applicants are advised to ensure that applications made by them do not exceedthe investment limits or maximum number of NCDs that can be held by them under applicable statutory and/orregulatory provisions.In case of Application Form being submitted in joint names, the applicants should ensure that the de-mat account is alsoheld in the same joint names, and the names are in the same sequence in which they appear in the Application Form.Applicants are advised to ensure that they have obtained the necessary statutory and/or regulatorypermissions/consents/approvals in connection with applying for, subscribing to, or seeking allotment of NCDspursuant to the Issue.For further details, please see “Issue Procedure” on page 151.Principal Terms and Conditions of the IssueTERMS AND CONDITIONS IN CONNECTION WITH THE NCDsNature of the NCDsWe are offering NCDs which shall have a fixed rate of interest. The NCDs will be issued at a face value of `1,000/- per NCD. Interest on the NCDs shall be payable on an annual basis, as set out hereinafter. The terms ofthe NCDs offered pursuant to the Issue are as follows:Options I IIFrequency of Interest Payment Annual AnnualMinimum Application` 10,000/- (10 NCDs) (for all options of NCDs, namely Options I andOption II either taken individually or collectively)In Multiples of ` 1,000 (1 NCD) ` 1,000 (1 NCD)Face Value of NCDs` 1,000 ` 1,000(` / NCD)Issue Price (` / NCD) ` 1,000 ` 1,000Mode of Interest Payment Through Various options available Through Various optionsavailableCoupon (%) for NCD Holders in[●]% per annum[●]% per annumCategory I and Category IICoupon (%) for NCD holders in the[●]% per annum[●]% per annumReserved Individual PortionCoupon (%) for NCD holders in the[●]% per annum[●]% per annumUnreserved Individual PortionEffective Yield (per annum)For NCD holders in the ReservedIndividual Portion – [●]%For NCD holders in the UnreservedIndividual Portion – [●]%For all other NCD holders – [●]%For NCD holders in the ReservedIndividual Portion – [●]%For NCD holders in theUnreserved Individual Portion –[●]%For all other NCD holders – [●]%Put and call optionExercisable at the end of 48 months Nilfrom the Deemed Date of AllotmentTenor 60 months* 36 months140
Options I IIRedemption Date60 months from the Deemed Date 36 months from the Deemed Dateof Allotment*of Allotment.Redemption Amount (`/NCD)Nature of IndebtednessCRISILRepayment of the Face Value plusany interest that may have accruedat the Redemption Date, or at thedate of early redemption if any PutOption or Call Option is exercised,as the case may be*Pari Passu with other securedcreditors and priority overunsecured creditorsCredit Rating'AA-/Stable' for an amount of upto` 75,000 LakhsRepayment of the Face Valueplus any interest that may haveaccrued at the Redemption Date.Pari Passu with other securedcreditors and priority overunsecured creditors'AA-/Stable' for an amount ofupto ` 75,000 LakhsCARE'CARE AA' for an amount of upto `75,000 LakhsDeemed Date of AllotmentDeemed date of allotment shall bethe date of issue of the AllotmentAdvice / regret.* Subject to the exercise of the put and/or call option'CARE AA' for an amount of upto` 75,000 LakhsDeemed date of allotment shall bethe date of issue of the AllotmentAdvice / regret.Interest and Payment of InterestA. InterestIn case of Option I NCDs, interest would be paid annually at the following rates of interest inconnection with the relevant categories of NCD holders, on the amount outstanding from time totime, commencing from the Deemed Date of Allotment of each Option I NCD:Category of NCD Holder Rate of Interest per annum (%)Category I and Category IIReserved Individual PortionUnreserved Individual Portion[●][●][●]Option I NCDs shall be redeemed at the Face Value thereof along with the interest accrued thereon, ifany, at the end of 60 months from the deemed date of allotment, or on the date of early redemption in caseof the exercise of any put/call option.In case of Option II NCDs, interest would be paid annually at the following rates of interest inconnection with the relevant categories of NCD holders, on the amount outstanding from time totime, commencing from the Deemed Date of Allotment of each Option II NCD:Category of NCD Holder Rate of Interest per annum (%)Category I and Category IIReserved Individual PortionUnreserved Individual Portion[●][●][●]Option II NCDs shall be redeemed at the Face Value thereof along with the interest accrued thereon, ifany, at the end of 36 months from the deemed date of allotment.If the date of interest payment falls on a Saturday, Sunday or a public holiday in Mumbai or anyother payment centre notified in terms of the Negotiable Instruments Act, 1881, then interest would141
e paid on the next working day. Payment of interest would be subject to the deduction as prescribedin the I.T. Act or any statutory modification or re-enactment thereof for the time being in force.Please note that in case the NCDs are transferred and/or transmitted in accordance with theprovisions of this Draft Prospectus read with the provisions of the Articles of Association of ourCompany, the transferee of such NCDs or the deceased holder of NCDs, as the case may be, shall beentitled to any interest which may have accrued on the NCDs.As per clause (ix) of Section 193 of the I.T. Act, no tax is required to be withheld on any interest payableon any security issued by a company, where such security is in dematerialized form and is listed on arecognized stock exchange in India in accordance with the Securities Contracts (Regulation) Act, 1956 (42of 1956) and the rules made thereunder. Accordingly, no tax will be deducted at source from the interest onlisted NCDs held in the dematerialised form.However in case of NCDs held in physical form, as per the current provisions of the IT Act, tax willnot be deducted at source from interest payable on such NCDs held by the investor (in case ofresident individual NCD holders), if such interest does not exceed ` 2,500 in any financial year. Ifinterest exceeds the prescribed limit of ` 2,500 on account of interest on the NCDs, then the tax willbe deducted at applicable rate. However in case of NCD holders claiming non-deduction or lowerdeduction of tax at source, as the case may be, the NCD holder should furnish either (a) a declaration(in duplicate) in the prescribed form i.e. (i) Form 15H which can be given by individuals who are ofthe age of 60 years or more (ii) Form 15G which can be given by all applicants (other thancompanies, and firms ), or (b) a certificate, from the Assessing Officer which can be obtained by allapplicants (including companies and firms) by making an application in the prescribed form i.e.Form No.13. The aforesaid documents, as may be applicable, should be submitted to our Companyquoting the name of the sole/ first NCD holder, NCD folio number and the distinctive number(s) ofthe NCD held, prior to the record date to ensure non-deduction/lower deduction of tax at source frominterest on the NCD. The investors need to submit Form 15H/ 15G/certificate in original fromAssessing Officer for each financial year during the currency of the NCD to ensure non-deduction orlower deduction of tax at source from interest on the NCD.B. Payment of InterestAnnual Payment of InterestFor NCDs subscribed under Option I and Option II, the relevant interest will be paid on the first dayof April every year for the amount outstanding. The first interest payment will be made on April 1,2012 for the period commencing from the Deemed Date of Allotment till March 31, 2012. The lastinterest payment will be made at the time of redemption of the NCD on a pro rata basis.C. Payment of Interest to NCD HoldersPayment of Interest will be made to those NCD holders whose names appear in the register of NCDholders (or to first holder in case of joint-holders) as on record date.We may enter into an arrangement with one or more banks in one or more cities for direct credit ofinterest to the account of the investors. In such cases, interest, on the interest payment date, would bedirectly credited to the account of those investors who have given their bank mandate.We may offer the facility of NECS, NEFT, RTGS, Direct Credit and any other method permitted byRBI and SEBI from time to time to help NCD holders. The terms of this facility (including townswhere this facility would be available) would be as prescribed by RBI. Refer to the paragraph on“Manner of Payment of Interest/Refund/Redemption” at page 143 in this Draft Prospectus.Tax exemption certificate/document, if any, must be lodged at the office of the Registrar at least7(seven) days prior to the record date or as specifically required, failing which tax applicable on142
interest will be deducted at source on accrual thereof in our Company’s books and/or on paymentthereof, in accordance with the provisions of the IT Act and/or any other statutory modification,enactment or notification as the case may be. A tax deduction certificate will be issued for the amountof tax so deducted.Maturity and RedemptionThe NCDs issued pursuant to this Draft Prospectus have a fixed maturity date. The date of maturity for NCDssubscribed under Option I and Option II is 60 months and 36 months, respectively, from the Deemed Date ofAllotment. The redemption of NCDs is subject to the exercise of any put / call option with respect to Option INCDs which can be exercised by any NCD holder/ Company.Options If put / call option is exercised At the end of maturity periodI 48 months from the Deemed date of 60 months from the Deemed Date of AllotmentAllotmentII Not Applicable 36 months from the Deemed Date of AllotmentDeemed Date of AllotmentDeemed date of allotment shall be the date of issue of the Allotment Advice / regret.Application SizeEach application should be for a minimum of 10 NCDs and multiples of 1 NCD thereof. The minimum applicationsize for each application for NCDs would be ` 10,000/- (for all options of NCDs namely, Option I and Option IINCDs either taken individually or collectively) and in multiples of ` 1,000/- thereafter.Applicants can apply for any or all options of NCDs offered hereunder (any/all options) using the sameApplication Form.Applicants are advised to ensure that applications made by them do not exceed the investment limits ormaximum number of NCDs that can be held by them under applicable statutory and or regulatoryprovisions.Terms of PaymentThe entire issue price of ` 1,000 per NCD is payable on application itself. In case of allotment of lesser numberof NCDs than the number of NCDs applied for, our Company shall refund the excess amount paid onapplication to the applicant in accordance with the terms of this Draft Prospectus. For further details pleaserefer to the paragraph on “Interest on Application Money” beginning on page 149 of this Draft Prospectus.Record DateThe record date for payment of interest in connection with the NCDs or repayment of principal in connectiontherewith shall be 15 (fifteen) days prior to the date on which interest is due and payable, or the date ofredemption or early redemption or as prescribed by the relevant stock exchange(s).Manner of Payment of Interest / Refund / RedemptionThe manner of payment of interest / refund / redemption in connection with the NCDs is set out below:For NCDs applied / held in electronic form:The bank details will be obtained from the Depositories for payment of Interest / refund / redemption as thecase may be. Applicants who have applied for or are holding the NCDs in electronic form, are advised toimmediately update their bank account details as appearing on the records of the depository participant.143
Please note that failure to do so could result in delays in credit of refunds to the applicant at the applicant’ssole risk, and the Lead Managers, the Co-Lead Manager, our Company nor the Registrar to the Issue shallhave any responsibility and undertake any liability for the same.For NCDs held in physical form:The bank details will be obtained from the Registrar to the Issue for payment of interest / refund /redemption as the case may be.The mode of interest / refund / redemption payments shall be undertaken in the following order of preference:1. Direct CreditInvestors having their bank account with the Refund Banks, shall be eligible to receive refunds, if any, throughdirect credit. The refund amount, if any, would be credited directly to their bank account with the Refund Banker.2. NECSPayment of interest / refund / redemption shall be undertaken through NECS for applicants having an accountat the centers mentioned in NECS MICR list.This mode of payment of refunds would be subject to availability of complete bank account details includingthe MICR code, IFSC code, bank account number, bank name and branch name as appearing on a cheque leaf,from the Depositories. One of the methods for payment of interest / refund / redemption is through NECS forapplicants having a bank account at any of the abovementioned centers.3. RTGSApplicants having a bank account with a participating bank and whose interest payment / refund /redemption amount exceeds ` 2 lakhs, or such amount as may be fixed by RBI from time to time, have theoption to receive refund through RTGS. Such eligible applicants who indicate their preference to receiveinterest payment / refund / redemption through RTGS are required to provide the IFSC code in theApplication Form or intimate our Company and the Registrars to the Issue at least 7 (seven) days before therecord date. Charges, if any, levied by the applicant’s bank receiving the credit would be borne by theapplicant. In the event the same is not provided, interest payment / refund / redemption shall be madethrough NECS subject to availability of complete bank account details for the same as stated above.3. NEFTPayment of interest / refund / redemption shall be undertaken through NEFT wherever the applicants’ bank hasbeen assigned the Indian Financial System Code (“IFSC”), which can be linked to a Magnetic Ink CharacterRecognition (“MICR”), if any, available to that particular bank branch. IFSC Code will be obtained from thewebsite of RBI as on a date immediately prior to the date of payment of refund, duly mapped with MICRnumbers. Wherever the applicants have registered their nine digit MICR number and their bank accountnumber while opening and operating the de-mat account, the same will be duly mapped with the IFSC Code ofthat particular bank branch and the payment of interest/refund/redemption will be made to the applicantsthrough this method.4. Registered Post/Speed PostFor all other applicants, including those who have not updated their bank particulars with the MICR code, theinterest payment / refund / redemption orders shall be dispatched by post for value up to ` 1,500/- and throughSpeed Post/ Registered Post for refund orders /interest payment/redemption orders of ` 1,500/- and above.Please note that applicants are eligible to receive payments through the modes detailed in (1), (2) (3), and (4)herein above provided they provide necessary information for the above modes and where such payment facilitiesare allowed / available.144
Please note that our Company shall not be responsible to the holder of NCD, for any delay in receiving credit ofinterest / refund / redemption so long as our Company has initiated the process of such request in time.Printing of Bank Particulars on Interest WarrantsAs a matter of precaution against possible fraudulent encashment of refund orders and interest/redemptionwarrants due to loss or misplacement, the particulars of the applicant’s bank account are mandatorily requiredto be given for printing on the orders/ warrants. In relation to NCDs applied and held in dematerialized form,these particulars would be taken directly from the depositories. In case of NCDs held in physical form eitheron account of rematerialisation or transfer, the investors are advised to submit their bank account details withour Company / Registrar at least 7 (seven) days prior to the record date failing which the orders / warrants willbe dispatched to the postal address of the holder of the NCD as available in the records of our Company.Bank account particulars will be printed on the orders/ warrants which can then be deposited only in theaccount specified.Loan against NCDsOur Company, at its sole discretion, subject to applicable statutory and/or regulatory requirements, mayconsider granting of a loan facility to the holders of NCDs against the security of such NCDs. Such loansshall be subject to the terms and conditions as may be decided by our Company from time to time.Buy Back of NCDsOur Company may, at its sole discretion, from time to time, consider, subject to applicable statutory and/or regulatoryrequirements, buyback of NCDs, upon such terms and conditions as may be decided by our Company.Form and DenominationIn case of NCDs held in physical form, a single certificate will be issued to the NCD holder for the aggregateamount (“Consolidated Certificate”) for each type of NCDs. The applicant can also request for the issue ofNCD certificates in denomination of one NCD (“Market Lot”).In respect of Consolidated Certificates, we will, only upon receipt of a request from the NCD holder,split such Consolidated Certificates into smaller denominations subject to the minimum of Market Lot. Nofees would be charged for splitting of NCD certificates in Market Lots, but stamp duty payable, if any,would be borne by the NCD holder. The request for splitting should be accompanied by the original NCDcertificate which would then be treated as cancelled by us.Procedure for Redemption by NCD holdersSubject to the exercise of the put option by the NCD holder / call option by our Company, the procedure forredemption is set out below:NCDs held in physical form:No action would ordinarily be required on the part of the NCD holder at the time of redemption and theredemption proceeds would be paid to those NCD holders whose names stand in the register of NCD holdersmaintained by us on the record date fixed for the purpose of Redemption. However, our Company may requirethat the NCD certificate(s), duly discharged by the sole holder/all the joint-holders (signed on the reverse ofthe NCD certificate(s)) be surrendered for redemption on maturity and should be sent by the NCD holder(s) byRegistered Post with acknowledgment due or by hand delivery to our office or to such persons at suchaddresses as may be notified by us from time to time. NCD holder(s) may be requested to surrender the NCDcertificate(s) in the manner as stated above, not more than three months and not less than one month prior to theredemption date so as to facilitate timely payment.145
We may at our discretion redeem the NCDs without the requirement of surrendering of the NCD certificates bythe holder(s) thereof. In case we decide to do so, the holders of NCDs need not submit the NCD certificates to usand the redemption proceeds would be paid to those NCD holders whose names stand in the register of NCDholders maintained by us on the record date fixed for the purpose of redemption of NCDs. In such case, the NCDcertificates would be deemed to have been cancelled. Also see the para “Payment on Redemption” given below.NCDs held in electronic form:No action is required on the part of NCD holder(s) at the time of redemption of NCDs.Payment on RedemptionThe manner of payment of redemption is set out below:NCDs held in physical form:The payment on redemption of the NCDs will be made by way of cheque/pay order/ electronic modes.However, if our Company so requires, the aforementioned payment would only be made on the surrender ofNCD certificate(s), duly discharged by the sole holder / all the joint-holders (signed on the reverse of theNCD certificate(s)). Despatch of cheques/pay order, etc. in respect of such payment will be made on theRedemption Date or (if so requested by our Company in this regard) within a period of 30 days from the dateof receipt of the duly discharged NCD certificate.In case we decide to do so, the redemption proceeds in the manner stated above would be paid on theRedemption Date to those NCD holders whose names stand in the register of NCD holders maintained by us onthe record date fixed for the purpose of Redemption. Hence the transferees, if any, should ensure lodgement ofthe transfer documents with us at least 7 (seven) days prior to the record date. In case the transfer documentsare not lodged with us at least 7 (seven) days prior to the record date and we dispatch the redemption proceedsto the transferor, claims in respect of the redemption proceeds should be settled amongst the parties inter seand no claim or action shall lie against us or the Registrars.Our liability to holder(s) towards his/their rights including for payment or otherwise shall stand extinguishedfrom the date of early redemption (in case of an exercise of the put/call option)/ redemption in all events andwhen we dispatch the redemption amounts to the NCD holder(s).Further, we will not be liable to pay any interest, income or compensation of any kind from the date ofredemption of the NCD(s).NCDs held in electronic form:On the redemption date, or the date of early redemption (in case of an exercise of the put/call option),redemption proceeds would be paid by cheque /pay order / electronic mode to those NCD holders whosenames appear on the list of beneficial owners given by the Depositories to us. These names would be as perthe Depositories’ records on the record date fixed for the purpose of redemption. These NCDs will besimultaneously extinguished to the extent of the amount redeemed through appropriate debit corporate actionupon redemption of the corresponding value of the NCDs. It may be noted that in the entire process mentionedabove, no action is required on the part of NCD holders.Our liability to NCD holder(s) towards his/their rights including for payment or otherwise shall standextinguished from the date of early redemption (in case of an exercise of the put/call option)/ redemption inall events and when we dispatch the redemption amounts to the NCD holder(s).Further, we will not be liable to pay any interest, income or compensation of any kind from the date ofredemption of the NCD(s).Redemption Date146
Option I NCDs will be redeemed at the expiry of 60 months from the Deemed Date of Allotment, subject to theexercise of any put option by the Option I NCD holders / call option by our Company, as the case may be.Option II NCDs will be redeemed at the expiry of 36 months from the Deemed Date of Allotment.Put / Call OptionWith respect to Option I NCDs, the holders thereof shall at the expiry of 48 months, from the Deemed Date ofAllotment, have the right to seek redemption of such Option I NCDs held by them, (“Put Option”). A NCD holder ofOption I NCDs, may at his discretion, redeem any number of Option I NCDs held by him, while exercising such PutOption.With respect to Option I NCDs, our Company shall at the expiry of 48 months have the right to redeem suchoutstanding Option I NCDs, (“Call Option”).The holders of Option II NCDs shall not be entitled to exercise any Put Option in connection with such Option II NCDsheld by them. Our Company shall not be entitled to exercise any Call Option in connection with any Option II NCDs.Procedure for Exercise of Put OptionAt the expiry of 48 months with respect to Option I NCDs from the Deemed Date of Allotment, (“Early Redemption(Put) Date”), a holder of Option I NCDs has the right to exercise his Put Option with respect to the Option I NCDsheld by him within 30 days from the Early Redemption (Put) Date (“Early Redemption (Put) Period”).During the Early Redemption (Put) Period, an Option I NCD holder seeking to exercise his Put Option can approachour Company in writing of his intention to redeem any or all of the Option I NCDs held by him.The Option I NCDs with respect to which an NCD holder exercises his Put Option will be redeemed within 30 (thirty)days from the expiry of the Early Redemption (Put) period.Procedure for Exercise of Call OptionAt the expiry of 48 months with respect to Option I NCDs from the Deemed Date of Allotment, (“Early Redemption(Call) Date”), our Company has the right to exercise its Call Option with respect to Option I NCDs within 30 daysfrom the Early Redemption (Call) Date (“Early Redemption (Call) Period”).During the Early Redemption (Call) Period, our Company can send a notice in writing to the holder of any Option INCDs, (as on record on the Early Redemption (Call) Date), calling for redemption of all Option I NCDs that areoutstanding. The Call can be exercised for all outstanding Option I NCDs.The Option I NCDs with respect to which our Company exercises its Call Option will be redeemed within 30 (thirty)days from the expiry of the Early Redemption (Call) Period.Method for calculation for Early RedemptionOn exercise of the Put Option by the holders of Option I NCDs and/or the Call Option by our Company, in connectionwith Option I NCDs, as the case may be, the NCDs will be redeemed at their respective face value along with interestaccrued thereon, if any.Right to Reissue NCD(s)Subject to the provisions of the Act, where we have fully redeemed or repurchased any NCD(s), we shall haveand shall be deemed always to have had the right to keep such NCDs in effect without extinguishment thereof,for the purpose of resale or reissue and in exercising such right, we shall have and be deemed always to havehad the power to resell or reissue such NCDs either by reselling or reissuing the same NCDs or by issuing147
other NCDs in their place. The aforementioned right includes the right to reissue original NCDs.Transfer/Transmission of NCD (s)The NCDs shall be transferred or transmitted freely in accordance with the applicable provisions of the Act.The provisions relating to transfer and transmission and other related matters in respect of our sharescontained in the Articles and the Act shall apply, mutatis mutandis (to the extent applicable to debentures)to the NCD(s) as well. In respect of the NCDs held in physical form, a suitable instrument of transfer as maybe prescribed by the Issuer may be used for the same. The NCDs held in dematerialised form shall betransferred subject to and in accordance with the rules/procedures as prescribed by NSDL/CDSL and therelevant DPs of the transfer or transferee and any other applicable laws and rules notified in respect thereof.The transferee(s) should ensure that the transfer formalities are completed prior to the record date. In theabsence of the same, interest will be paid/redemption will be made to the person, whose name appears inthe register of debenture holders maintained by the Depositories. In such cases, claims, if any, by thetransferees would need to be settled with the transferor(s) and not with the Issuer or Registrar.For NCDs held in electronic form:The normal procedure followed for transfer of securities held in dematerialised form shall be followed fortransfer of the NCDs held in electronic form. The seller should give delivery instructions containing details ofthe buyer’s DP account to his depository participant.In case the transferee does not have a DP account, the seller can re-materialise the NCDs and thereby convert hisdematerialised holding into physical holding. Thereafter the NCDs can be transferred in the manner as statedabove.In case the buyer of the NCDs in physical form wants to hold the NCDs in dematerialised form, he can chooseto dematerialise the securities through his DP.Joint-holdersWhere two or more persons are holders of any NCD(s), they shall be deemed to hold the same as joint holderswith benefits of survivorship subject to other provisions contained in the Articles.Sharing of InformationWe may, at our option, use on our own, as well as exchange, share or part with any financial or otherinformation about the NCD holders available with us, with our subsidiaries, if any and affiliates and otherbanks, financial institutions, credit bureaus, agencies, statutory bodies, as may be required and neither we orour affiliates nor their agents shall be liable for use of the aforesaid information.NoticesAll notices to the NCD holder(s) required to be given by us or the Debenture Trustee will be sent by post/courier or through email or other electronic media to the Registered Holders of the NCD(s) from time totime.Issue of Duplicate NCD Certificate(s)If any NCD certificate(s) is/are mutilated or defaced or the cages for recording transfers of NCDs are fullyutilised, the same may be replaced by us against the surrender of such certificate(s). Provided, where theNCD certificate(s) are mutilated or defaced, the same will be replaced as aforesaid only if the certificatenumbers and the distinctive numbers are legible.If any NCD certificate is destroyed, stolen or lost then upon production of proof thereof to our satisfaction andupon furnishing such indemnity/security and/or documents as we may deem adequate, duplicate NCDcertificate(s) shall be issued. Upon issuance of a duplicate NCD certificate, the original NCD certificate shall148
stand cancelled.SecurityThe principal amount of the NCDs to be issued in terms of this Draft Prospectus together with all interest due on theNCDs, as well as all costs, charges, all fees, remuneration of Debenture Trustee and expenses payable in respectthereof shall be secured by way of first and exclusive charge in favour of the Debenture Trustee on an identifiedimmovable property and specified future receivables of our Company as may be decided mutually by our Companyand the Debenture Trustee.Our Company will create appropriate security in favour of the Debenture Trustee for the NCD holders on the assetsadequate to ensure 100% asset cover for the NCDs, which shall be free from any encumbrances.Our Company intends to enter into an agreement with the Debenture Trustee, (‘Debenture Trust Deed’),the terms of which will govern the appointment of the Debenture Trustee. Our Company proposes tocomplete the execution of the Debenture Trust Deed during the subscription period after the minimumsubscription for the Issue has been achieved and utilize the funds after the stipulated security has beencreated.Under the terms of the Debenture Trust Deed, our Company will covenant with the Debenture Trustee thatit will pay the NCD holders the principal amount on the NCDs on the relevant redemption date and alsothat it will pay the interest due on NCDs on the rate specified in this Draft Prospectus and in the DebentureTrust DeedThe Debenture Trust Deed will also provide that our Company may withdraw any portion of the security and replacewith another asset of the same or a higher value.Trustees for the NCD holdersWe have appointed IDBI Trusteeship Services <strong>Limited</strong> to act as the Debenture Trustees for the NCDholders. We and the Debenture Trustee will execute a Debenture Trust Deed, inter alia, specifying the powers,authorities and obligations of the Debenture Trustee and us. The NCD holder(s) shall, without further act ordeed, be deemed to have irrevocably given their consent to the Debenture Trustee or any of its agents orauthorised officials to do all such acts, deeds, matters and things in respect of or relating to the NCDs as theDebenture Trustee may in its absolute discretion deem necessary or require to be done in the interest of theNCD holder(s). Any payment made by us to the Debenture Trustee on behalf of the NCD holder(s) shalldischarge us pro tanto to the NCD holder(s).The Debenture Trustee will protect the interest of the NCD holders in the event of default by us in regard totimely payment of interest and repayment of principal and they will take necessary action at our cost.Future BorrowingsWe will be entitled to borrow/raise loans or avail of financial assistance in whatever form as also to issuedebentures/ NCDs/other securities in any manner having such ranking in priority, pari passu or otherwise,subject to applicable consents, approvals or permissions that may be required under anystatutory/regulatory/contractual requirement, and change the capital structure including the issue of shares ofany class, on such terms and conditions as we may think appropriate, without the consent of, or intimation to,the NCD holders or the Debenture Trustee in this connection.Interest on Application MoneyInterest on application monies received which are used towards allotment of NCDsOur Company shall pay interest on application money on the amount allotted, subject to deduction of income taxunder the provisions of the Income Tax Act, 1961, as amended, as applicable, to any applicants to whom NCDsare allotted pursuant to the Issue from the date of realization of the cheque(s)/demand draft(s) or 3 (three) days149
from the date of receipt of the application (being the date of presentation of each application as acknowledgedby the Bankers to the Issue) whichever is later upto one day prior to the Deemed Date of Allotment, at the rateof [●]% per annum.Our Company has a right to withdraw the Issue at anytime 2 (two) days prior to Issue closing date for receivingsubscription in the Issue. Our Company shall in the event of such withdrawal, subject to receipt of a minimumsubscription of 75 % of the Base Issue, i.e. ` 37,500 lakhs, allot NCDs to all applicants who have applied for NCDsupto one day prior to the date by which Company gives notice for withdrawal of Issue. Further our Companyshall pay interest on application money on the amount allotted, subject to deduction of income tax under theprovisions of the Income Tax Act, 1961, as amended, as applicable, to any applicants to whom NCDs are allottedpursuant to the Issue from the date of realization of the cheque(s)/demand draft(s) or 3 (three) days from thedate of receipt of the application (being the date of presentation of each application as acknowledged by theBankers to the Issue) whichever is later upto one day prior to the Deemed Date of Allotment, at the rate of[●]% per annum. However, it is clarified that in the event that our Company does not receive a minimumsubscription of 75 % of the Base Issue, i.e. ` 37,500 lakhs our Company will not allot any NCDs to applicants.Our Company may enter into an arrangement with one or more banks in one or more cities for direct credit ofinterest to the account of the applicants. Alternatively, the interest warrant will be dispatched along with theLetter(s) of Allotment at the sole risk of the applicant, to the sole/first applicant.Interest on application monies received which are liable to be refundedOur Company shall pay interest on application money which is liable to be refunded to the applicants inaccordance with the provisions of the Debt Regulations and/or the Companies Act, or other applicablestatutory and/or regulatory requirements, subject to deduction of income tax under the provisions of the IncomeTax Act, 1961, as amended, as applicable, from the date of realization of the cheque(s)/demand draft(s) or 3(three) days from the date of receipt of the application (being the date of presentation of each application asacknowledged by the Bankers to the Issue) whichever is later upto one day prior to the Deemed Date ofAllotment, at the rate of [●]% per annum. Such interest shall be paid along with the monies liable to be refunded.Interest warrant will be dispatched / credited (in case of electronic payment) along with the Letter(s) of Refundat the sole risk of the applicant, to the sole/first applicant.In the event our Company does not receive a minimum subscription of 75 % of the Base Issue, i.e. ` 28,125 lakhson the date of closure of the Issue, our Company shall pay interest on application money which is liable to berefunded to the applicants in accordance with the provisions of the Debt Regulations and/or the CompaniesAct, or other applicable statutory and/or regulatory requirements, subject to deduction of income tax under theprovisions of the Income Tax Act, 1961, as amended, as applicable, from the date of realization of thecheque(s)/demand draft(s) or 3 (three) days from the date of receipt of the application (being the date ofpresentation of each application to the Bankers to the Issue as acknowledged) whichever is later upto one dayprior to the date of closure of the Issue or one day prior to the date on which Company gives notice forwithdrawal of Issue, as the case may beat the rate of [●]% per annum. Such interest shall be paid along with themonies liable to be refunded.Provided that, notwithstanding anything contained hereinabove, our Company shall not be liable to pay any intereston monies liable to be refunded in case of (a) invalid applications or applications liable to be rejected, and/or (b)applications which are withdrawn by the applicant. Please refer to “Rejection of Application” at page 159 of thisDraft Prospectus.150
ISSUE PROCEDURE1. How to Apply?i. Availability of Prospectus and Application FormsThe abridged Prospectus containing the salient features of the Prospectus together with Application Forms and copiesof the Prospectus may be obtained from our Registered Office, Lead Manager(s) to the Issue, the Co-Lead Managerto the Issue, the Registrar to the Issue and at branches/collection centres of the Bankers to the Issue, as mentioned onthe Application Form.In addition, Application Forms would also be made available to the stock exchanges where listing of the NCDs aresought and to brokers, on their request.We may provide Application Forms for being filled and downloaded at such websites as we may deem fit.ii.Who can ApplyThe following categories of persons are eligible to apply in the Issue:Category I• Public Financial Institutions, Statutory Corporations, Commercial Banks, Co-operative Banks and RegionalRural Banks, which are authorised to invest in the NCDs;• Provident Funds, Pension Funds, Superannuation Funds and Gratuity Funds, which are authorised to investin the NCDs• Venture Capital funds registered with SEBI;• Insurance Companies registered with the IRDA• National Investment Fund; and• Mutual Funds.Category II• Companies, Bodies Corporate and Societies registered under the applicable laws in India and authorised toinvest in NCDs;• Public/Private Charitable/Religious Trusts which are authorised to invest in the NCDs;• Scientific and/or Industrial Research Organisations, which are authorised to invest in the NCDs;• Partnership Firms in the name of the partner; and• <strong>Limited</strong> liability partnerships formed and registered under the provisions of the <strong>Limited</strong> Liability PartnershipAct, 2008 (No. 6 of 2009)Category III*• Resident Indian individuals; and• Hindu Undivided Families through the Karta.* With respect to applications received from Category III applicants, applications by applicants who apply forNCDs aggregating to a value not more than ` 5 Lakhs, across all series of NCDs, (Option I and/or Option II), shall begrouped together, (“Reserved Individual Portion”) while applications by applicants who apply for NCDsaggregating to a value exceeding ` 5 Lakhs, across all series of NCDs, (Option I and/or Option II), shall be separatelygrouped together, (“Unreserved Individual Portion”).Note: Participation of any of the aforementioned categories of persons or entities is subject to the applicable statutoryand/or regulatory requirements in connection with the subscription to Indian securities by such categories of persons151
or entities.Applicants are advised to ensure that applications made by them do not exceed the investment limits ormaximum number of NCDs that can be held by them under applicable statutory and or regulatory provisions.Applicants are advised to ensure that they have obtained the necessary statutory and/or regulatorypermissions/consents/approvals in connection with applying for, subscribing to, or seeking allotment of NCDspursuant to the Issue.The Lead Managers, the Co-Lead Manager and their respective associates and affiliates are permitted to subscribe inthe Issue.The information below is given for the benefit of the investors. Our Company, the Lead Managers and/or the Co-Lead Manager are not liable for any amendment or modification or changes in applicable laws or regulations, whichmay occur after the date of this Draft Prospectus. Investors are advised to ensure that the aggregate number of NCDsapplied for does not exceed the investment limits or maximum number of NCDs that can be held by them underapplicable law.Grouping of Applications and Allocation RatioFor the purposes of the basis of allotment:i) Applications received from Category I applicants: Applications received from Category I, shall begrouped together, (“Institutional Portion”);ii)iii)Applications received from Category II applicants: Applications received from Category II, shall begrouped together, (“Non-Institutional Portion”);Applications received from Category III applicants: Further with respect to applications receivedfrom Category III applicants, applications by applicants who apply for NCDs aggregating to a value notmore than ` 5 Lakhs, across all series of NCDs (Option I and/or Option II), shall be grouped together,(“Reserved Individual Portion”) while applications by applicants who apply for NCDs aggregating to avalue exceeding ` 5 Lakhs (Option I and/or Option II,), shall be separately grouped together, (“UnreservedIndividual Portion”). For further details please refer to “Additional Applications” beginning on page 158 ofthis Draft Prospectus.For removal of doubt, “Institutional Portion”, Non-Institutional Portion” “Reserved Individual Portion” and“Unreserved Individual Portion” are individually referred to as “Portion” and collectively referred to as“Portions”Applications by Mutual FundsNo mutual fund scheme shall invest more than 15% of its NAV in debt instruments issued by a single Companywhich are rated not below investment grade by a credit rating agency authorised to carry out such activity. Suchinvestment limit may be extended to 20% of the NAV of the scheme with the prior approval of the Board ofTrustees and the Board of Asset Management CompanyA separate application can be made in respect of each scheme of an Indian mutual fund registered with SEBI andsuch applications shall not be treated as multiple applications. Applications made by the AMCs or custodians of aMutual Fund shall clearly indicate the name of the concerned scheme for which application is being made. In case ofApplications made by Mutual Fund registered with SEBI, a certified copy of their SEBI registration certificate mustbe submitted with the Application Form. The applications must be also accompanied by certified true copies of (i)SEBI Registration Certificate and trust deed (ii) resolution authorising investment and containing operatinginstructions and (iii) specimen signatures of authorized signatories. Failing this, our Company reserves the right toaccept or reject any Application in whole or in part, in either case, without assigning any reason therefor.152
Application by Scheduled Banks, Co-operative Banks and Regional Rural BanksScheduled Banks, Co-operative banks and Regional Rural Banks can apply in this public issue based upon their owninvestment limits and approvals. The application must be accompanied by certified true copies of (i) BoardResolution authorising investments; (ii) Letter of Authorisation. Failing this, our Company reserves the right toaccept or reject any Application in whole or in part, in either case, without assigning any reason therefor.Application by Insurance CompaniesIn case of Applications made by insurance companies registered with the Insurance Regulatory andDevelopment Authority, a certified copy of certificate of registration issued by Insurance Regulatory andDevelopment Authority must be lodged along with Application Form. The applications must be accompaniedby certified copies of (i) Memorandum and Articles of Association (ii) Power of Attorney (iii) Resolutionauthorising investment and containing operating instructions (iv) Specimen signatures of authorizedsignatories. Failing this, our Company reserves the right to accept or reject any Application in whole or in part,in either case, without assigning any reason therefor.Applications by TrustsIn case of Applications made by trusts, settled under the Indian Trusts Act, 1882, as amended, or any otherstatutory and/or regulatory provision governing the settlement of trusts in India, must submit a (i) certifiedcopy of the registered instrument for creation of such trust, (ii) Power of Attorney, if any, in favour of one ormore trustees thereof, (iii) such other documents evidencing registration thereof under applicablestatutory/regulatory requirements. Further, any trusts applying for NCDs pursuant to the Issue must ensure that(a) they are authorised under applicable statutory/regulatory requirements and their constitution instrument tohold and invest in debentures, (b) they have obtained all necessary approvals, consents or other authorisations,which may be required under applicable statutory and/or regulatory requirements to invest in debentures, and(c) applications made by them do not exceed the investment limits or maximum number of NCDs that can beheld by them under applicable statutory and or regulatory provisions. Failing this, our Company reserves theright to accept or reject any Applications in whole or in part, in either case, without assigning any reasontherefor.iii. Applications cannot be made by:a) Minors without a guardian name;b) Foreign nationals;c) Persons resident outside India;d) Foreign Institutional Investors;e) Non Resident Indians; andf) Overseas Corporate Bodies2. Escrow MechanismWe shall open Escrow Accounts with one or more Escrow Collection Bank(s) in whose favour the applicants shallmake out the cheque or demand draft in respect of their application. Cheques or demand drafts for the applicationamount received from applicants would be deposited in the respective Escrow Account.Upon creation of security as disclosed in this Draft Prospectus, the Escrow Collection Bank(s) shall transfer themonies from the Escrow Accounts to a separate bank account as per the terms of the Escrow Agreement, (“PublicIssue Account”). Payments of refund to the applicants shall also be made from the Escrow Accounts/refundaccount(s) as per the terms of the Escrow Agreement and this Draft Prospectus.The Escrow Collection Bank(s) will act in terms of this Draft Prospectus, the Prospectus and the Escrow Agreement.The Escrow Collection Bank(s) shall not exercise any lien whatsoever over the monies deposited therein. In terms ofDebt Regulations, it is mandatory for our Company to keep the proceeds of the Issue in an escrow account until thedocuments for creation of security as stated in this Draft Prospectus are executed.153
3. Filing of the Prospectus with ROCA copy of the Prospectus shall be filed with the Registrar of Companies, Chennai, Tamil Nadu, in terms of section 56and section 60 of the Act.4. Pre-Issue AdvertisementOur Company will issue a statutory advertisement on or before the Issue Opening Date. This advertisement willcontain the information as prescribed under Debt Regulations. Material updates, if any, between the date of filing ofthe Prospectus with ROC and the date of release of this statutory advertisement will be included in the statutoryadvertisement.5. General InstructionsDo’sCheck if you are eligible to apply;Read all the instructions carefully and complete the Application Form;Ensure that the details about Depository Participant and Beneficiary Account are correct as allotment ofNCDs will be in the dematerialized form only;Ensure that you mention your PAN allotted under the IT ActEnsure that the Demographic Details (as defined herein below) are updated, true and correct in allrespects.Ensure that you have obtained all necessary approvals from the relevant statutory and/or regulatoryauthorities to apply for, subscribe to and/or seek allotment of NCDs pursuant to the Issue.Don’ts:Do not apply for lower than the minimum application size;Do not pay the application amount in cash;Do not fill up the Application Form such that the NCDs applied for exceeds the issue size and/orinvestment limit or maximum number of NCDs that can be held under the applicable laws or regulationsor maximum amount permissible under the applicable regulations;Do not submit application accompanied with Stockinvest.6. Instructions for completing the Application FormA. Submission of Application FormApplications to be made in prescribed form onlyThe forms to be completed in block letters in EnglishApplications should be in single or joint names and should be applied by Karta in case of HUFThumb impressions and signatures other than in English/Hindi/Gujarati/Marathi or any other languagesspecified in the 8th Schedule of the Constitution needs to be attested by a Magistrate or Notary Public ora Special Executive Magistrate under his/her seal.All Application Forms duly completed together with cheque/bank draft for the amount payable onapplication must be delivered before the closing of the subscription list to any of the Bankers to thePublic Issue or collection centre(s)/ agent(s) as may be specified before the closure of the Issue.Applicants at centres not covered by the branches of collecting banks can send their forms together witha cheque/draft drawn on/payable at a local bank in Chennai to the Registrar to the Issue by registeredpost.No receipt will be issued for the application money. However, Bankers to the Issue and/or their branchesreceiving the applications will acknowledge the same.Every applicant should hold valid Permanent Account Number (PAN) and mention the same in theApplication Form.154
All applicants are required to tick the relevant column of “Category of Investor” in the ApplicationForm.ALL APPLICATIONS BY CATEGORY I APPLICANTS SHALL BE RECEIVED ONLY BYTHE LEAD MANAGERS, THE CO-LEAD MANAGER AND THEIR RESPECTIVEAFFILIATES.All applicants should apply for one or more type of NCDs and/or one or more option of NCDs in a singleApplication Form only.Our Company would allot Option I NCDs to all valid applications, wherein the applicants have not indicatedtheir choice of NCDs.B. Applicant’s Bank Account DetailsIt is mandatory for all the applicants to have their NCDs allotted in dematerialised form. The Registrars tothe Issue will obtain the applicant’s bank account details from the Depository. The applicant should notethat on the basis of the name of the applicant, Depository Participant’s (DP) name, Depository Participantsidentification number and beneficiary account number provided by them in the Application Form, theRegistrar to the Issue will obtain from the applicant’s DP account, the applicant’s bank account details. Theinvestors are advised to ensure that bank account details are updated in their respective DP A/cs as thesebank account details would be printed on the refund order(s), if any. Please note that failure to do so couldresult in delays in credit of refunds to applicants at the applicant’s sole risk and neither the Lead Managers,the Co-Lead Manager, our Company, the Refund Banker, nor the Registrar to the Issue shall have anyresponsibility and undertake any liability for the same.C. Applicant’s Depository Account DetailsIT IS MANDATORY FOR ALL THE APPLICANTS TO HAVE THEIR NCDs INDEMATERIALISED FORM. ALL APPLICANTS SHOULD MENTION THEIR DEPOSITORYPARTICIPANT’S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER ANDBENEFICIARY ACCOUNT NUMBER IN THE APPLICATION FORM. INVESTORS MUSTENSURE THAT THE NAME GIVEN IN THE APPLICATION FORM IS EXACTLY THE SAMEAS THE NAME IN WHICH THE DEPOSITORY ACCOUNT IS HELD. IN CASE THEAPPLICATION FORM IS SUBMITTED IN JOINT NAMES, IT SHOULD BE ENSURED THATTHE DEPOSITORY ACCOUNT IS ALSO HELD IN THE SAME JOINT NAMES AND ARE INTHE SAME SEQUENCE IN WHICH THEY APPEAR IN THE APPLICATION FORM.Applicant should note that on the basis of name of the applicant, Depository Participant’s name, DepositoryParticipant-Identification number and Beneficiary Account Number provided by them in the ApplicationForm, the Registrar to the Issue will obtain from the Depository, demographic details of the investor such asaddress, bank account details for printing on refund orders and occupation (“Demographic Details”).Hence, applicants should carefully fill in their Depository Account details in the Application Form.These Demographic Details would be used for all correspondence with the applicants including mailing ofthe refund orders/ Allotment Advice and printing of bank particulars on the refund/interest order and theDemographic Details given by applicant in the Application Form would not be used for these purposes bythe Registrar.Hence, applicants are advised to update their Demographic Details as provided to their DepositoryParticipants and ensure that they are true and correct.By signing the Application Form, the applicant would have deemed to have authorised the depositories toprovide, upon request, to the Registrar to the Issue, the required Demographic Details as available on itsrecords. Refund Orders/Allotment Advice would be mailed at the address of the applicant as per theDemographic Details received from the Depositories. Applicant may note that delivery of RefundOrders/Allotment Advice may get delayed if the same once sent to the address obtained from theDepositories are returned undelivered. In such an event, the address and other details given by the applicant155
in the Application Form would be used only to ensure dispatch of refund orders. Please note that any suchdelay shall be at the applicant’s sole risk and neither we nor the Lead Managers, the Co-Lead Manager northe Registrars shall be liable to compensate the applicant for any losses caused to the applicant due to anysuch delay or liable to pay any interest for such delay.However in case of applications made under power of attorney, our Company in its absolute discretion,reserves the right to permit the holder of Power of Attorney to request the Registrar that for the purpose ofprinting particulars on the refund order and mailing of Refund Orders /Allotment Advice, the demographicdetails obtained from the Depository of the applicant shall be used.In case no corresponding record is available with the Depositories that matches all three parameters,namely, names of the applicants (including the order of names of joint holders), the DepositoryParticipant’s identity (DP ID) and the beneficiary’s identity, then such applications are liable to be rejected.D. Applications under Power of Attorney by limited companies, corporate bodies, registered societies etc.In case of Applications made pursuant to a power of attorney or by limited companies, corporate bodies,registered societies etc, a certified copy of the power of attorney or the relevant resolution or authority, asthe case may be, along with a certified copy of the Memorandum of Association and Articles ofAssociation and/or bye laws must be lodged along with the Application Form, failing this, our Companyreserves the right to accept or reject any Application in whole or in part, in either case, without assigningany reason therefor.E. Permanent Account NumberThe applicant or in the case of applications made in joint names, each of the applicant, shouldmention his or her Permanent Account Number (PAN) allotted under the IT Act. In accordance withCircular No. MRD/DOP/Cir-05/2007 dated April 27, 2007 issued by SEBI, the PAN would be thesole identification number for the participants transacting in the securities market, irrespective of theamount of transaction. Any Application Form, without the PAN is liable to be rejected, irrespectiveof the amount of transaction. It is to be specifically noted that the applicants should not submit the GIRnumber instead of the PAN as the Application is liable to be rejected on this ground.F. Terms of PaymentThe entire issue price for the NCDs is payable on application only. In case of allotment of lesser numberof NCDs than the number applied, our Company shall refund the excess amount paid on application to theapplicant.G. Payment Instructions for Applicants In pursuance of Debt Regulations, we shall open Escrow Account with the Escrow CollectionBanks(s) for the collection of the application amount payable upon submission of the ApplicationForm. Payment may be made by way of cheque/bank draft drawn on any bank, including a co-operative bankwhich is situated at and is member or sub-member of the Bankers’ clearing-house located at theplace where the Application Form is submitted, i.e. at designated collection centres. Outstationcheques /bank drafts drawn on banks not participating in the clearing process will not be acceptedand applications accompanied by such cheques or bank drafts are liable to be rejected. Paymentthough stockinvest would also not be allowed as the same has been discontinued by the RBI videnotification No. DBOD.NO.FSC.BC. 42/24.47.001/2003-04 dated November 5, 2003.Cash/Stockinvest/Money Orders/Postal Orders will not be accepted. In case payment is effected incontravention of conditions mentioned herein, the application is liable to be rejected andapplication money will be refunded and no interest will be paid thereon. A separate cheque / bankdraft must accompany each Application Form.156
All Application Forms received with outstation cheques, post dated cheques, cheques / bank draftsdrawn on banks not participating in the clearing process, Money orders/postal orders, cash,stockinvest shall be rejected and the collecting bank shall not be responsible for such rejections.All cheques / bank drafts accompanying the application should be crossed “A/c Payee only” and (a)all cheques / bank drafts accompanying the applications made by eligible applicants must be madepayable to “Escrow Account SCUF NCD Public Issue”.The Escrow Collection Bank(s) shall transfer the funds from the Escrow Account, as per the terms ofthe Escrow Agreement, into a public issue account after the creation of security as disclosed in thisDraft Prospectus.Only Category I applicants have an option to make payments on applications through RTGS.8. Submission of Completed Application FormsAll applications duly completed and accompanied by account payee cheques / drafts shall be submittedat the branches of the Bankers to the Issue (listed in the Application Form) or our Collection Centre(s)/agent(s) as may be specified by us before the closure of the Issue. Our collection centre/ agent however,will not accept payments made in cash. However, Application Forms duly completed together withcheque/bank draft drawn on/payable at a local bank in Chennai for the amount payable on applicationmay also be sent by Registered Post to the Registrar to the Issue, so as to reach the Registrar prior toclosure of the Issue. Applicants at centres not covered by the branches of collecting banks can send theirApplication Forms together with cheque / draft drawn on / payable at a local bank in Chennai to theRegistrar to the Issue by registered post.No separate receipts shall be issued for the application money. However, Bankers to the Issue at theirdesignated branches/our Collection Centre(s)/ agent(s) receiving the duly completed Application Formswill acknowledge the receipt of the applications by stamping and returning the acknowledgment slip tothe applicant.Applications shall be deemed to have been received by us only when submitted to Bankers to the Issueat their designated branches or at our Collection Centre/ agent or on receipt by the Registrar as detailedabove and not otherwise.All applications by persons or entities belonging to Category I should be made in the formprescribed for Category I applicants and shall be received only by the Lead Managers, the Co-Lead Manager and their respective affiliates.9. On-line ApplicationsWe may decide to offer online application facility for NCDs, as and when it is permitted by law subject toterms and conditions as may be prescribed.10. Other InstructionsA. Joint ApplicationsApplications may be made in single or joint names (not exceeding three). In the case of joint applications,all payments will be made out in favour of the first applicant. All communications will be addressedto the first named applicant whose name appears in the Application Form and at the addressmentioned therein.157
B. Additional ApplicationsAn applicant is allowed to make one or more applications for the NCDs for the same or other series ofNCDs, subject to a minimum application size of ` 10,000/- and in multiples of ` 1,000/- thereafter, foreach application. Any application for an amount below the aforesaid minimum application size will be deemedas an invalid application and shall be rejected. However, multiple applications by the same applicantbelonging to Category III aggregating to a value exceeding ` 5 Lakhs shall be grouped in the UnreservedIndividual Portion, for the purpose of determining the basis of allotment to such applicant. However, anyapplication made by any person in his individual capacity and an application made by such person in his capacityas a karta of a Hindu Undivided family and/or as joint applicant, shall not be deemed to be a multiple application.For the purposes of allotment of NCDs under the Issue, applications shall be grouped based on the PAN, i.e.applications under the same PAN shall be grouped together and treated as one application. Two or moreapplications will be deemed to be multiple applications if the sole or first applicant is one and the same. For thesake of clarity, two or more applications shall be deemed to be a multiple application for the aforesaid purpose ifthe PAN number of the sole or the first applicant is one and the same.C. Depository ArrangementsAs per the provisions of Section 68B of the Act, the allotment of NCDs of our Company can be made in adematerialised form, (i.e. not in the form of physical certificates but be fungible and be represented by theStatement issued through electronic mode).We have made depository arrangements with NSDL and CDSL for issue and holding of the NCDs indematerialised form. Please note that tripartite agreements have been executed between our Company, theRegistrar and both the depositories.As per the provisions of the Depositories Act, 1996, the NCDs issued by us can be held in a dematerializedform. In this context:i Tripartite Agreement dated March 30, 2000 and April 30, 1999 between us, the Registrar to the Issue andCDSL and NSDL, respectively for offering depository option to the investors.ii. An applicant who wishes to apply for NCDs in the electronic form must have at least one beneficiaryaccount with any of the Depository Participants (DPs) of NSDL or CDSL prior to making the application.iii. The applicant seeking allotment of NCDs in the Electronic Form must necessarily fill in the details(including the beneficiary account number and DP’s ID) appearing in the Application Form under theheading ‘Request for NCDs in Electronic Form’.iv. NCDs allotted to an applicant in the Electronic Account Form will be credited directly to the applicant’srespective beneficiary account(s) with the DP.v. For subscription in electronic form, names in the Application Form should be identical to thoseappearing in the account details in the depository. In case of joint holders, the names should necessarilybe in the same sequence as they appear in the account details in the depository.vi. Non-transferable Allotment Advice/refund orders will be directly sent to the applicant by the Registrarsto this Issue.vii. If incomplete/incorrect details are given under the heading ‘Request for NCDs in electronic form’ in theApplication Form, it will be deemed to be an application for NCDs in physical form and thus will berejected.viii. For allotment of NCDs in electronic form, the address, nomination details and other details of theapplicant as registered with his/her DP shall be used for all correspondence with the applicant. Theapplicant is therefore responsible for the correctness of his/her demographic details given in theApplication Form vis-à-vis those with his/her DP. In case the information is incorrect or insufficient, ourCompany would not be liable for losses, if any.ix. It may be noted that NCDs in electronic form can be traded only on the Stock Exchanges havingelectronic connectivity with NSDL or CDSL. The Stock Exchange/s have connectivity with NSDL andCDSL.x. Interest or other benefits with respect to the NCDs held in dematerialised form would be paid to those158
NCD holders whose names appear on the list of beneficial owners given by the Depositories to us as onrecord date. In case of those NCDs for which the beneficial owner is not identified by the Depository ason the record date/ book closure date, we would keep in abeyance the payment of interest or other benefits,till such time that the beneficial owner is identified by the Depository and conveyed to us,whereupon the interest or benefits will be paid to the beneficiaries, as identified, within a period of30 days.xi. The trading of the NCDs shall be in dematerialized form only.D. Communications• All future Communications in connection with Applications made in the Issue should be addressed to theRegistrar to the Issue quoting all relevant details as regards the applicant and its application.• Applicants can contact the Compliance Officer of our Company/Lead Managers/Co-Lead Manager or theRegistrar to the Issue in case of any Pre-Issue related problems. In case of Post-Issue related problems suchas non-receipt of Allotment Advice / credit of NCDs in depository’s beneficiary account / refund orders, etc.,applicants may contact the Compliance Officer of our Company/Lead Manager/Co-Lead Manager orRegistrar to the Issue.11. Rejection of ApplicationThe Board of Directors and/or any committee of our Company reserves its full, unqualified and absolute right toaccept or reject any application in whole or in part and in either case without assigning any reason thereof.Application may be rejected on one or more technical grounds, including but not restricted to:Applications not duly signed by the sole/joint applicants (in the same sequence as they appear in the recordsof the depository);Amount paid doesn’t tally with the amount payable for the NCDs applied for;Age of First applicant not given;Application by persons not competent to contract under the Indian Contract Act, 1872 including minors(without the name of guardian) and insane persons;PAN not mentioned in the Application Form;GIR number furnished instead of PAN;Applications for amounts greater than the maximum permissible amounts prescribed by applicableregulations;Applications by persons/entities who have been debarred from accessing the capital markets by SEBI;Applications by any persons outside India;Any application for an amount below the minimum application size;Application for number of NCDs, which are not in multiples of one;Category not ticked;Application under power of attorney or by limited companies, corporate, trust etc., where relevantdocuments are not submitted;Application Form does not have applicant’s depository account details;Applications accompanied by Stockinvest/money order/postal order;Signature of sole and/ or joint applicant(s) missing;Application Forms not delivered by the applicant within the time prescribed as per the Application Form andthe Prospectus and as per the instructions in the Prospectus and the Application Form; orIn case the subscription amount is paid in cash.In case no corresponding record is available with the Depositories that matches three parameters namely,names of the applicant, the Depository Participant’s Identity and the beneficiary’s account number.Application Form accompanied with more than one cheque.Institutional Investor Applications not procured by the Lead Managers, the Co-Lead Manager or theirrespective affiliates.For further instructions regarding application for the NCDs, investors are requested to read the Application Form159
12. Allotment Advice / Refund OrdersThe unutilised portion of the application money will be refunded to the applicant by an A/c Payeecheque/demand draft. In case the at par facility is not available, our Company reserves the right to adopt anyother suitable mode of payment.The Company shall credit the allotted NCDs to the respective beneficiary accounts/despatch the Letter(s) ofAllotment or Letter(s) of Regret/Refund Orders in excess of ` 1,500/-, as the case may be, by RegisteredPost/Speed Post at the applicant’s sole risk, within 30 days from the date of closure of the Issue. Refund Ordersup to ` 1,500/- will be sent by post. We may enter into an arrangement with one or more banks in one or morecities for refund to the account of the applicants through Direct Credit/RTGS/NEFT.Further,a) Allotment of NCDs offered to the public shall be made within a time period of 30 days from the dateof closure of the Issue;b) Credit to de-mat account will be given within 2 working days from the date of allotmentc) Interest at a rate of 15 per cent per annum will be paid if the allotment has not been made and/or theRefund Orders have not been dispatched to the applicants within 30 days from the date of the closureof the Issue, for the delay beyond 30 days.The Company will provide adequate funds to the Registrars to the Issue, for this purpose.13. Retention of oversubscriptionThe Company is making a public Issue of NCDs aggregating upto ` 37,500 lakhs with an option to retainoversubscription of NCDs up to ` 37,500 lakhs.14. Basis of AllotmentGrouping of Applications and Allocation Ratio: Applications received from various applicants shall begrouped together on the following basis:i) Applications received from Category I applicants: Applications received from Category I, shall begrouped together, (“Institutional Portion”);ii)iii)Applications received from Category II applicants: Applications received from Category II, shall begrouped together, (“Non-Institutional Portion”);Applications received from Category III applicants: Further with respect to applications receivedfrom Category III applicants, applications by applicants who apply for NCDs aggregating to a value notmore than ` 5 Lakhs, across all series of NCDs, (Option I and/or Option II), shall be grouped together,(“Reserved Individual Portion”) while applications by applicants who apply for NCDs aggregating to avalue exceeding ` 5 Lakhs, across all series of NCDs, (Option I and/or Option II), shall be separatelygrouped together, (“Unreserved Individual Portion”). For further details please refer to “AdditionalApplications” beginning on page 158 of this Draft Prospectus.For removal of doubt, “Institutional Portion”, Non-Institutional Portion” “Reserved IndividualPortion” and “Unreserved Individual Portion” are individually referred to as “Portion” andcollectively referred to as “Portions”For the purposes of determining the number of NCDs available for allocation to each of the abovementionedPortions, our Company shall have the discretion of determining the number of NCDs to be allotted over andabove the Base Issue Size, in case our Company opts to retain any oversubscription in the Issue upto ` 75,000Lakhs. The aggregate value of NCDs decided to be allotted over and above the Base Issue Size, (in case ourCompany opts to retain any oversubscription in the Issue), and/or the aggregate value of NCDs upto the Base160
Issue Size shall be collectively termed as the “Overall Issue Size”.Basis of Allotment for NCDs(a)Allotments in the first instance:(i)(ii)(iii)(iv)Applicants belonging to the Institutional Portion, in the first instance, will be allocated NCDsupto 10% of Overall Issue Size on first come first serve basis (determined on the basis ofdate of receipt of each application duly acknowledged by the Bankers to the Issue);Applicants belonging to the Non-Institutional Portion, in the first instance, will be allocatedNCDs upto 10% of Overall Issue Size on first come first serve basis (determined on the basisof date of receipt of each application duly acknowledged by the Bankers to the Issue);Applicants belonging to the Reserved Individual Portion, in the first instance, will beallocated NCDs upto 60% of Overall Issue Size on first come first serve basis (determinedon the basis of date of receipt of each application duly acknowledged by the Bankers to theIssue);Applicants belonging to the Unreserved Individual Portion, in the first instance, will beallocated NCDs upto 20% of Overall Issue Size on first come first serve basis (determinedon the basis of date of receipt of each application duly acknowledged by the Bankers to theIssue);Allotments, in consultation with the Designated Stock Exchange, shall be made on a first-come firstservebasis, based on the date of presentation of each application to the Bankers to the Issue, in eachPortion subject to the Allocation Ratio.(b)(c)(d)Under Subscription: Under subscription, if any, in Reserved Individual Portion or UnreservedIndividual Portion shall first be met by inter-se adjustment between these two sub-categories.Thereafter, if there is any under subscription in any Portion, priority in allotments will be given to theCategory III, with preference in allotments to Reserved Individual Portion applicants, and balance, ifany, shall be first made to applicants of the Non-Institutional Portion (Category II), and thereafter toInstitutional Portion (Category I) on a first come first serve basis, on proportionate basis.For each Portion, all applications received on the same day by the Bankers to the Issue would betreated at par with each other. Allotment within a day would be on proportionate basis, where NCDsapplied for exceeds NCDs to be allotted for each Portion respectively.Minimum allotments of 1NCD and in multiples of 1 NCD thereafter would be made in case of eachvalid application.(e)(f)Allotments in case of oversubscription: In case of an oversubscription, allotments to the maximumextent, as possible, will be made on a first-come first-serve basis and thereafter on proportionatebasis, i.e. full allotment of NCDs to the applicants on a first come first basis up to the date falling 1(one) day prior to the date of oversubscription and proportionate allotment of NCDs to the applicantson the date of oversubscription (based on the date of presentation of each application to the Bankersto the Issue, in each Portion).Proportionate Allotments: For each Portion, on the date of oversubscription:i) Allotments to the applicants shall be made in proportion to their respective application size,rounded off to the nearest integer.ii) If the process of rounding off to the nearest integer results in the actual allocation of NCDs beinghigher than the Issue size, not all applicants will be allotted the number of NCDs arrived at aftersuch rounding off. Rather, each applicant whose allotment size, prior to rounding off, had thehighest decimal point would be given preference.161
iii) In the event, there are more than one applicant whose entitlement remain equal after the mannerof distribution referred to above, our Company will ensure that the basis of allotment is finalisedby draw of lots in a fair and equitable manner.(g)Applicant applying for more than one series of NCDs: If an applicant has applied for more than oneseries of NCDs, (Option I and Option II, individually referred to as “Series”), and in case suchapplicant is entitled to allocation of only a part of the aggregate number of NCDs applied for, theSeries-wise allocation of NCDs to such applicants shall be in proportion to the number of NCDs withrespect to each Series, applied for by such applicant, subject to rounding off to the nearest integer, asappropriate in consultation with Lead Managers, the Co-Lead Manager and Designated StockExchange.All decisions pertaining to the basis of allotment of NCDs pursuant to the Issue shall be taken by ourCompany in consultation with the Lead Managers, the Co-Lead Manager and the Designated StockExchange and in compliance with the aforementioned provisions of this Draft Prospectus.Our Company would allot Option I NCDs to all valid applications, wherein the applicants have notindicated their choice of the relevant Series of NCDs (Option I, or Option II).15. Investor Withdrawals and Pre-closureInvestor Withdrawal: Applicants are allowed to withdraw their applications at any time prior to the closure ofthe Issue.Pre-closure: Our Company, in consultation with the Lead Managers and the Co-Lead Manager reserve theright to close the Issue at any time prior to the Closing Date, subject to receipt of minimum subscription forNCDs aggregating to 75% of the Base Issue. Our Company shall allot NCDs with respect to the applicationsreceived at the time of such pre-closure in accordance with the Basis of Allotment as described hereinabove andsubject to applicable statutory and/or regulatory requirements.16. Utilisation of Application MoneyThe sum received in respect of the Issue will be kept in separate bank accounts and we will have access to suchfunds as per applicable provisions of law(s), regulations and approvals.17. Utilisation of Issue Proceedsa) All monies received pursuant to the Issue of NCDs to public shall be transferred to a separate bankaccount other than the bank account referred to in sub-section (3) of section 73 of the Act.b) Details of all monies utilised out of Issue referred to in sub-item (a) shall be disclosed under anappropriate separate head in our Balance Sheet indicating the purpose for which such monies had beenutilised; andc) Details of all unutilised monies out of issue of NCDs, if any, referred to in sub-item (a) shall bedisclosed under an appropriate separate head in our Balance Sheet indicating the form in which suchunutilised monies have been invested.d) We shall utilize the Issue proceeds only upon creation of security as stated in this Draft Prospectus and onreceipt of the minimum subscription of 75% of the Base Issue.e) The Issue proceeds shall not be utilized towards full or part consideration for the purchase or any otheracquisition, inter alia by way of a lease, of any property.162
ListingThe NCDs offered through this Draft Prospectus are proposed to be listed on the NSE and BSE. Our Company hasobtained an ‘in-principle’ approvals for the Issue from the NSE vide their letter dated [●] and from BSE vide theirletter dated [●]. For the purposes of the Issue, NSE shall be the Designated Stock Exchange.If permissions to deal in and for an official quotation of our NCDs are not granted by NSE and/or BSE, ourCompany will forthwith repay, without interest, all moneys received from the applicants in pursuance of this DraftProspectus.Our Company shall ensure that all steps for the completion of the necessary formalities for listing andcommencement of trading at NSE and BSE are taken within 7 working days from the date of allotment.For the avoidance of doubt, it is hereby clarified that in the event of non subscription to any one or more of theOptions, such NCDs with Option(s) shall not be listed.163
SECTION VII : LEGAL AND OTHER INFORMATIONPENDING PROCEEDINGS AND STATUTORY DEFAULTSAs on the date of this Draft Prospectus, there are no defaults in meeting statutory dues, institutional dues, andtowards holders of instrument like debentures, fixed deposits and arrears on cumulative preference shares, etc, byour Company or by public companies promoted by the same promoter and listed on stock exchange.Our Company is involved in legal proceedings which have arisen in the ordinary course of business. Save as statedhereinbelow, such proceedings however, are not material enough to adversely affect our operations, financialposition and profitability.Save as stated herein, there are no material defaults, non payments or over dues of statutory dues, institutional orbank dues or dues towards holders of debentures, bonds and fixed deposits and arrears of preference shares.Save as disclosed herein below, there are no pending proceedings pertaining to:a. matters likely to affect operation and finances of our Company including disputed tax liabilities of anynature; andb. criminal prosecution launched against our Company and the Directors for alleged offences under theenactments specified in Paragraph 1 of Part I of Schedule XIII to the Act.Proceedings Initiated Against our CompanyCivil Proceedings259 civil proceedings have been initiated in the regular course of business against our Company involving anaggregate amount of ` 1,555.03 lakhs.Tax Proceedings1. The Commissioner of Income Tax (“CIT”), has filed an appeal against our Company before the Hon’bleHigh Court of Madras (bearing no 835 of 2007 and T.C.A No.836 of 2007) against the order of the IncomeTax Appellate Tribunal (“ITAT”) dated November 16, 2009, wherein inter alia it has confirmed thedisallowance of bad debts and treating them as NPA as per the RBI norms for the assessment year 1996-97.The appeal has been raised on the grounds that the allowances made by the ITAT are erroneous. The matteris pending hearing and final disposal.2. The Commissioner of Income Tax (“CIT”) has filed an appeal against our Company before the Hon’bleHigh Court of Madras (bearing no T.C.A No. 1236 of 2007 and T.C.A No.1237/2007) against the order ofthe Income Tax Appellate Tribunal (“ITAT”) dated April 21, 2006, wherein inter alia it has confirmed thededuction of i) deposit mobilisation expenses amounting to ` 28,500,000, ii) taxing of Additional <strong>Finance</strong>Charges on accrual basis : ` 31,015,733, and iii) method of accounting for the assessment year 1997-98.The appeal has been raised on the grounds that the allowances made by the ITAT are erroneous. The matteris pending hearing and final disposal.3. The Commissioner of Income Tax (“CIT”) has filed an appeal against our Company before the Hon’bleHigh Court of Madras (bearing no 1237 of 2007) against the order of the Income Tax Appellate Tribunal(“ITAT”) dated April 21, 2006, wherein inter alia it has confirmed the deduction of deposit mobilisationexpenses amounting to ` 28,500,000 for the assessment year 1997-98. The appeal has been raised on thegrounds that the allowances made by the ITAT are erroneous. The matter is pending hearing and finaldisposal.164
4. The Commissioner of Income Tax (“CIT”) has filed an appeal against our Company before the Hon’bleHigh Court of Madras (bearing no T.C.A No.1241/2007 and T.C.A No.1242/2007) against the order of theIncome Tax Appellate Tribunal (“ITAT”) dated April 21, 2006, wherein inter alia it has confirmed the i)taxing of additional finance charges on accrual basis ` 9,75,65,295 ii) method of accounting and iii)deduction of deposit mobilisation expenses amounting to ` 28,500,000 for the assessment year 1998-99.The appeal has been raised on the grounds that the allowances made by the ITAT are erroneous. The matteris pending hearing and final disposal.5. The Commissioner of Income Tax (“CIT”) has filed an appeal against our Company before the Hon’bleHigh Court of Madras (bearing T.C.A No.1240/2007) against the order of the Income Tax AppellateTribunal (“ITAT”) dated April 21, 2006, wherein inter alia it has confirmed i) taxing of additional financecharges on accrual basis: ` 2,11,69,152 ii) method of accounting and iii)the deduction of depositmobilisation expenses amounting to ` 28,500,000 for the assessment year 2000-2001. The appeal has beenraised on the grounds that the allowances made by the ITAT are erroneous. The matter is pending hearingand final disposal.6. The Commissioner of Income Tax (“CIT”) has filed an appeal against our Company before the Hon’bleHigh Court of Madras (bearing T.C.A No.1243/2007) against the order of the Income Tax AppellateTribunal (“ITAT”) dated April 21, 2006, wherein inter alia it has confirmed i) taxing of additional financecharges on accrual basis: ` 8,90,62,060 ii) method of accounting and iii) the deduction of depositmobilisation expenses amounting to ` 28,500,000 for the assessment year 2000-2001. The appeal has beenraised on the grounds that the allowances made by the ITAT are erroneous. The matter is pending hearingand final disposal.7. The Commissioner of Income Tax (“CIT”) has filed an appeal against our Company before the Hon’bleHigh Court of Madras (bearing T.C.A No. 2161/2008) against the order of the Income Tax AppellateTribunal (“ITAT”) dated April 21, 2006, wherein inter alia it has confirmed i) taxing of Additional<strong>Finance</strong> Charges on accrual basis : `.8,72,388 ii) Method of Accounting iii) Enhancement of Additional<strong>Finance</strong> Charges & iv) Provision for Bad Debts u/s 115JB ` 2,16,00,000 for the assessment year 2002-2003. The appeal has been raised on the grounds that the allowances made by the ITAT are erroneous. Thematter is pending hearing and final disposal.8. The Commissioner of Income Tax (“CIT”) has filed an appeal against our Company before the Hon’bleHigh Court of Madras (bearing T.C.A No.638/2009) against the order of the Income Tax AppellateTribunal (“ITAT”) dated April 21, 2006, wherein inter alia it has confirmed i) taxing of Additional<strong>Finance</strong> Charges on accrual basis ` 872,388 ii) method of accounting and iii) enhancement of additionalfinance charges `. 168,498,442 for the assessment year 2003-2004. The appeal has been raised on thegrounds that the allowances made by the ITAT are erroneous. The matter is pending hearing and finaldisposal.9. The Commissioner of Income tax (“CIT”) has filled an appeal against our Company before the Hon’bleHigh Court of Madras (bearing No T.C.A. No.1422/2010) against the order of the Income Tax AppellateTribunal (“ITAT”) dated July 16, 2009 wherein inter alia it has confirmed i.) taxing of Additional<strong>Finance</strong> Charges on accrual basis : ` 1,03,77,135 & ii) method of accounting & iii) provision for bad debtsu/s 115JB : `. 41,451,000 for the assessment year 2005-2006. The matter is pending hearing and finaldisposal.Proceedings Initiated by our CompanyTax Proceedings1. The Assistant Commissioner of Income Tax (Company Circle-VI-2), Chennai, (“Assessing Officer”)raised a demand amounting to ` 181,447,869 by order dated December 31, 2010 for the assessment year2008-09 (“Assessment Order”) on the alleged grounds that our Company may have concealed income165
within the meaning of section 271 (1) (c) of the Income Tax Act, 1961. Our Company filed an appeal datedJanuary 20, 2011 before the Commissioner of Income Tax (Appeals), (“CIT Appeals”) against theAssessment Order on the grounds that additions and disallowances made by the Assessing Officer areerroneous. The matter is pending hearing and final disposal.2. The Assistant Commissioner of Income Tax (Company Circle-VI-2), Chennai, (“Assessing Officer”)raised a demand amounting to ` 26,557,859 by order dated March 3, 2011 for the assessment year 2006-07(“Assessment Order”) on the alleged grounds that our Company may have concealed income within themeaning of section 271 (1) (c) of the Income Tax Act, 1961 in respect of amount transferred to thestatutory reserve fund.. Our Company filed an appeal dated April 26, 2011 before the Commissioner ofIncome Tax (Appeals), (“CIT Appeals”) against the Assessment Order on the grounds that additions anddisallowances made by the Assessing Officer are erroneous. The matter is pending hearing and finaldisposal.3. The Assistant Commissioner of Income Tax (Company Circle-VI-2), Chennai, (“Assessing Officer”)issued a notice granting a refund amounting to ` 25,343,340 by order dated December 3, 2010 for theassessment year 2005-06 (“Assessment Order”). Our Company filed an appeal dated January 20, 2011before the Commissioner of Income Tax (Appeals), (“CIT Appeals”) against the Assessment Order on thegrounds that additions on interest accrued on NPA made to the taxable income by the Assessing Officer iserroneous. The matter is pending hearing and final disposal.4. The Assistant Commissioner of Income Tax (Company Circle-VI-2), Chennai, (“Assessing Officer”)raised a demand amounting to ` 16,653,626 by order dated March 03, 2011 for the assessment year 2005-06 (“Assessment Order”) on the alleged grounds that our Company may have concealed income withinthe meaning of section 271 (1) (c) of the Income Tax Act, 1961 in respect of amount transferred to thestatutory reserve fund. Our Company filed an appeal dated April 26, 2011 before the Commissioner ofIncome Tax (Appeals), (“CIT Appeals”) against the Assessment Order u/s 271(1)(c) on the grounds thatadditions and disallowances made by the Assessing Officer are erroneous. The matter is pending hearingand final disposal.5. The Assistant Commissioner of Income Tax (Company Circle-VI-2), Chennai, (“Assessing Officer”)raised a demand amounting to ` 1,041,069 by order dated December 3, 2010 for the assessment year 2003-04 (“Assessment Order”) on the alleged grounds that our Company did has not charged to tax the interestaccrued on NPA, on a year to year basis and may have concealed income within the meaning of section 271(1) (c) of the Income Tax Act, 1961. Our Company filed an appeal dated January 20, 2011 before theCommissioner of Income Tax (Appeals), (“CIT Appeals”) against the Assessment Order on the groundsthat additions and disallowances made by the Assessing Officer are erroneous. The matter is pendinghearing and final disposal.6. Our Company has preferred an appeal before the Income Tax Appellate Tribunal (bearing No 362/09-10)dated November 11, 2010, against the order of the Commissioner of Income Tax Appeals (“CIT Appeals”)dated December 22, 2009, for Assessment Year 2007-2008 demanding ` 77,088,130 the (“AssessmentOrder”). The appeal has been raised on the grounds that the additions and disallowances made by the CITAppeal under section 250 of the Income tax Act, 1961, are erroneous. The Department has also filedappeals before the Income Tax Appellate Tribunal against the above mentioned order of CIT(A) in respectof following additions. i) royalty ` 5,045,977 ii) ex-gratia ` 338,948 & iii) Rule 8D : ` 608,458. Thematter is pending hearing and final disposal.7. Our Company has preferred an appeal before the Hon’ble High Court of Madras against the order of theIncome Tax Appellate Tribunal (“ITAT”), dated May 6, 2009, wherein inter alia it had confirmed thedisallowance of the amount transferred to the statutory reserve fund of ` 45,511,034.00 in compliancewith the provisions of section 45-I of the Reserve Bank of India Act (“Act”) for the assessment year 2004-05. The appeal has been raised on the grounds that the order of ITAT, in computing income under section115 JB of the Income Tax Act, 1961, is erroneous. The matter is pending hearing and final disposal.166
8. Our Company has preferred an appeal before the Hon’ble High Court of Madras against the order of theIncome Tax Appellate Tribunal (“ITAT”) dated July 16, 2009, wherein inter alia it had confirmed thedisallowance of the amount transferred to the statutory reserve fund of ` 78,900,354.00 in compliance withthe provisions of the section 45-I of the Reserve Bank of India, Act (“Act”) for the assessment year 2005-06. The appeal has been raised on the grounds that additions and disallowances made by the order of ITAT,in computing income under section 115-JB of the Income Tax act, 1961, is erroneous. The matter ispending hearing and final disposal9. Our Company has preferred an appeal before the Hon’ble High Court of Madras against the order of theIncome Tax Appellate Tribunal (“ITAT”) dated December 8, 2010, wherein inter alia it had confirmed thedisallowance of the amount transferred to the statutory reserve fund in compliance with the provisions ofthe section 45-I of the Reserve Bank of India, Act (“Act”) for the assessment year 2006-07. The appeal hasbeen raised on the grounds that additions and disallowances made by the order of ITAT in computingincome under section 115-JB of the Income Tax Act, 1961, is erroneous. The matter is pending hearing andfinal disposal.Civil ProceedingsOur Company has initiated various civil proceedings in the regular course of business, the outcome of which ourCompany believes will not materially adversely affect the financial condition and operations of our Company.167
OTHER REGULATORY AND STATUTORY DISCLOSURESAuthority for the IssueAt the meeting of the Board of Directors of our Company, held on March 24, 2011, the Directors approved the issueof NCDs to the public upto an amount not exceeding `75,000 lakhs.Prohibition by SEBIOur Company, persons in control of our Company and/or our Promoter have not been restrained, prohibited ordebarred by SEBI from accessing the securities market or dealing in securities and no such order or direction is inforce. Further, no member of our promoter group has been prohibited or debarred by SEBI from accessing thesecurities market or dealing in securities due to fraud.Disclaimer Clause of the Stock Exchanges[●]Disclaimer Clause of the RBITHE COMPANY IS HAVING A VALID CERTIFICATE OF REGISTRATION DATED APRIL 17, 2007ISSUED BY THE RESERVE BANK OF INDIA UNDER SECTION 45 IA OF THE RESERVE BANK OFINDIA ACT, 1934. HOWEVER, THE RBI DOES NOT ACCEPT ANY RESPONSIBILITY ORGUARANTEE ABOUT THE PRESENT POSITION AS TO THE FINANCIAL SOUNDNESS OF THECOMPANY OR FOR THE CORRECTNESS OF ANY OF THE STATEMENTS OR REPRESENTATIONSMADE OR OPINIONS EXPRESSED BY THE COMPANY AND FOR REPAYMENT OF DEPOSITS/DISCHARGE OF LIABILITY BY THE COMPANY.ListingThe NCDs offered through this Draft Prospectus are proposed to be listed on the NSE and BSE. Our Company hasobtained an ‘in-principle’ approvals for the Issue from the NSE vide their letter dated [●] and from BSE vide theirletter dated [●]. For the purposes of the Issue, NSE shall be the Designated Stock Exchange.If permissions to deal in and for an official quotation of our NCDs are not granted by NSE and/or BSE, ourCompany will forthwith repay, without interest, all moneys received from the applicants in pursuance of this DraftProspectus.Our Company shall ensure that all steps for the completion of the necessary formalities for listing andcommencement of trading at all the Stock Exchanges mentioned above are taken within 7 working days from thedate of allotment.For the avoidance of doubt, it is hereby clarified that in the event of non subscription to any one or more of theOptions, such NCDs with Option(s) shall not be listed.ConsentsConsents in writing of: (a) the Directors, (b) our Company Secretary and Compliance Officer (c) Bankers to ourCompany and Bankers to the Issue; (d) Lead Managers, (e) Co-Lead Manager, (f) the Registrar to the Issue, (g)Lead Brokers to the Issue, (h) Legal Advisors to the Issue, (i) Credit Rating Agencies, (j) the Debenture Trustee, and(k) the Lead Brokers to act in their respective capacities, have been obtained and the same will be filed along with acopy of the Prospectus with the ROC.The consent of the Statutory Auditor of our Company, namely M/s. Pijush Gupta & Co for (a) inclusion of theirnames as the Statutory Auditor, (b) examination reports on Reformatted Consolidated Summary FinancialStatements and the Reformatted Unconsolidated Summary Financial Statements in the form and context in which168
they appear in this Draft Prospectus, have been obtained and the same will be filed along with a copy of this DraftProspectus with the Designated Stock Exchange.Expert OpinionExcept the reports issued by CRISIL dated July 14, 2011 and CARE dated July 14, 2011, respectively in respect ofthe credit ratings issued thereby for this Issue and the rationale for its rating, our Company has not obtained anyexpert opinions.Common form of TransferThe Issuer undertakes that there shall be a common form of transfer for the NCDs and the provisions of theCompanies Act, 1956 and all applicable laws shall be duly complied with in respect of all transfer of debentures andregistration thereof.Minimum SubscriptionIf our Company does not receive the minimum subscription of 75% of the Base Issue, i.e. ` 28,125 lakhs, the entiresubscription shall be refunded to the applicants within 30 days from the date of closure of the Issue. If there is delay inthe refund of subscription by more than 8 days after our Company becomes liable to refund the subscription amount,our Company will pay interest for the delayed period, at rates prescribed under sub-sections (2) and (2A) of Section 73of the Companies Act, 1956.Filing of the Draft ProspectusThe Draft Prospectus has been filed with NSE on [●], 2011 and with BSE on [●], 2011 in terms of Regulation 7 ofthe Debt Regulations for dissemination on their website(s).Debenture Redemption ReserveSection 117C of the Act states that any company that intends to issue debentures must create a DRR to whichadequate amounts shall be credited out of the profits of the company until the redemption of the debentures. TheMinistry of Corporate Affairs has, through its circular dated April 18, 2002, (“Circular”), specified that thequantum of DRR to be created before the redemption liability actually arises in normal circumstances should be‘adequate’ to pay the value of the debentures plus accrued interest, (if not already paid), till the debentures areredeemed and cancelled. The Circular however further specifies that, for NBFCs like our Company, (NBFCs whichare registered with the RBI under Section 45-IA of the RBI Act), the adequacy of the DRR will be 50% of the valueof debentures issued through the public issue. Accordingly our Company is required to create a DRR of 50% of thevalue of debentures issued through the public issue. As further clarified by the Circular, the amount to be credited asDRR will be carved out of the profits of the company only if there is profit for the particular year and there is noobligation on the part of the company to create DRR if there is no profit for the particular year. Our Company shallcredit adequate amounts to DRR, from its profits every year until such NCDs are redeemed. The amounts credited toDRR shall not be utilized by the company except for the redemption of the NCDs.Issue Related ExpensesThe expenses of this Issue include, among others, Fees for the Lead Managers and the Co-Lead Manager, printingand distribution expenses, legal fees, advertisement expenses and listing fees. The estimated Issue expenses to beincurred for the Issue size of upto ` [●] (assuming the full subscription including the retention of over subscriptionof upto ` 75,000 lakhs) are as follows:(` in lakhs)ActivityExpensesLead Management Fee[●]Advertising and Marketing Expenses[●]Printing and Stationery[●]169
ActivityFees payable legal advisors to the IssueFess payable to the Registrars to the IssueFees payable to the Debenture TrusteeOthers (Brokerage, Credit Rating Fee, Etc.)TotalExpenses[●][●][●][●][●]The above expenses are indicative and are subject to change depending on the actual level of subscription to theIssue and the number of Allottees, market conditions and other relevant factors.UnderwritingThe Issue has not been underwritten.Details regarding the public issue during the last three years by our Company and other listed companiesunder the same management within the meaning of section 370(1B):Our Company has not made any public or rights or composite issue of capital during the last three years. There areno listed companies under the same management within the meaning of Section 370(1) (B) of the Companies Act,1956.Public / Rights IssuesOur Company has not made any public or rights issuances in the last five years.Previous IssueOther than as specifically disclosed in this Draft Prospectus, our Company has not issued any securities forconsideration other than cash.Stock Market DataA. Our Equity SharesOur Equity Shares are listed on the BSE and NSE.The high, low and average market prices of the Equity Shares of our Company during the preceding three years:Year Date of High High (`) Volume ondate of High(Noof shares)BSEDate of low Low (`) Volume on Average (`)Date of low(No ofshares)2008 May 16, 2008 385.00 22,05,675 October 24,20082009 December 10, 401.10 397 May 15,200920092010 October 11, 713.50 397 January 6,20102010318.00 3,922 351.50320.05 4256 360.58401.00 411 557.25170
Year Date of High High (`) Volume ondate of High(Noof shares)BSEDate of low Low (`) Volume on Average (`)Date of low(No ofshares)2011 January 5,2011(Source:www.bseindia.com)616.60 6 February 25,2011490.10 51 553.35Notes• High, low and average prices are of the daily closing prices.• In case of two days with the same closing price, the date with higher volume has been considered.NSEYearDate ofHighHigh (`)Volume ondate ofHigh (Noof EquityShares)Date ofLowLow(`)Volume ondate ofHigh (Noof EquityShares)Average(`)2008 January 7,20082009 December14, 20092010 October 11,20102011 April 29,2011(Source:www.nseindia.com)389.80 1,845 January 21,2008405.00 209 July 14,2009712.45 2,706 January 4,2010617.20 5,850 February 9,2011305.60 3,990 347.70315.65 40,12,132 360.30388.95 953 550.70499.85 3,599 558.53Notes• High, low and average prices are of the daily closing prices.• In case of two days with the same closing price, the date with higher volume has been considered.Monthly high and low prices and trading volumes on the Stock Exchanges for the six months preceding the date offiling of this Draft Prospectus:BSEMonth DateHigh Volume (No.Low Volume (No. AverageDate(`) of Shares)(`) of Shares) (`)January 2011 January 5, 615.50 6 January 28, 512.22 38 563.8620112011February2011 February16, 538.00 95 February 25, 490.10 51 514.0520112011March 2011 March 1,2011 523.00 101 March 21, 500.10 317 511.552011April 2011 April 29, 616.05 982 April 1, 2011 534.69 708 575.372011May 2011 May 2, 2011 611.00 162 May 24, 2011 541.00 194 576June 2011 June 14, 2011 560.00 633 June 30, 2011 540.50 1658 550.26171
(Source: www.bseindia.com)NSEMonth DateHigh Volume (No.Low Volume (No. AverageDate(`) of Shares)(`) of Shares) (`)January 2011 January 3, 603.85 2,198 January 25, 530.00 3144 566.9220112011February2011 February 14, 525.40 1644 February 9, 499.85 3599 512.6220112011March 2011 March 521.00 111 March 10, 500.05 913 510.523,20112011April 2011 April 29, 617.20 5850 April 5, 2011 526.80 795 5722011May 2011 May 4, 2011 610.06 9,245 May 30,2011 555.00 1864 582.53June 2011 June 10, 2011 564.90 2,342 June 29, 2011 540.45 1387 552.67(Source: www.nseindia.com)Notes• High, low and average prices are of the daily closing prices.• In case of two days with the same closing price, the date with higher volume has been considered.Details of the volume of business transacted during the last six months on the Stock Exchanges where our securitiesare listed:(` lacs)Period BSE NSEJanuary 2011 4,606,484.00 201.60February 2011 3,565,050.00 230.25March 2011 3,722,643.00 151.69April 2011 2,829,569.00 374.65May 2011 1,788,743.00 377.85June 2011 4,632,183.00 396.75(Source: www.bseindia.com, www.nseindia.com)B. Trading of DebenturesThe following privately placed debentures issued by our Company have been traded on the BSE in the last 3 yearspreceding the date of this Draft Prospectus:ISIN No. Date of Trade LastTradePrice (` inlakhs)LastTradeValue(` inlakhs)Total TradeValue(` inlakhs)Last TradeYield (%)per annumWeightedAveragePrice (` inlakhs)INE722A07141 April 30, 2010 100.0686 17,500 17,500 7.79 100.07INE722A07I90 May 5, 2011 100.16 25,000 25,000 8.96 100.16(Source: www.bseindia.com )Except as stated above none of our other listed privately placed non convertible debentures have been traded in thelast 3 years.172
Debentures or bonds and redeemable preference shares and other instruments issued by our Company andoutstandingOur Company has issued secured redeemable non convertible debentures on a private placement basis of which nonconvertible debentures aggregating to ` 219,877.64 lakhs are outstanding as on March 31, 2011.DividendOur Company has no stated dividend policy. The declaration and payment of dividends on our shares will berecommended by our Board of Directors and approved by our shareholders, at their discretion, and will depend on anumber of factors, including but not limited to our profits, capital requirements and overall financial condition.Dividend details with respect of Equity SharesYear ended As at 31st March ` In LakhsParticulars 2011 2010 2009 2008 2007Interim DividendRate of Dividend 25% 20% 10% 10% 10%Number of Equity Shares on which Interim49,449,939 49,113,850 45,850,000 39,100,000 27,100,000Dividend paidAmount of Interim Dividend 1,236.25 982.28 501.85 391.00 271.00Dividend Distribution Tax 16.609% 16.995% 16.995% 16.995% 14.025%Proposed Final Dividend for the current yearRate of Dividend 35% 30% 30% 30% 20%Number of Equity Shares on which Final Dividend 49,536,877 49,154,700 45,856,800 41,155,000 39,100,000paidAmount of Final Dividend 1,733.79 14,74.64 1,375.92 1,332.15 782.00Dividend Distribution Tax 281.26 244.92 233.84 226.40 132.90Dividend details respect of Preference SharesYear ended As at 31st March` In LakhsParticulars 2011 2010 2009 2008 20075% - - - 4,210 176,1706% - - 2,328,980* 2,018,590 1,343,2308% - - - 83,260 277,7309% - - - - 302,35010% - - - 16,270 21,05012% - - - 2,950 3,85013.50% - - - 200,000 200,00014% - - - 1,900 2,75015% - - - 1,800 1,850Total shares 2,328,980 2,328,980 2,328,980173
Year ended As at 31st March` In LakhsParticulars 2011 2010 2009 2008 2007Amount of dividend 63.17 141.67 154.56Dividend distribution Tax 10.74 24.07 21.96* During the financial year 2008-09 all Preference Shares are redeemedRevaluation of assetsOur Company has not revalued its assets in the last five years.Mechanism for redressal of investor grievancesThe MoU between the Registrar to the Issue and our Company will provide for retention of records with theRegistrar to the Issue for a period of at least three years from the last date of despatch of the Allotment Advice,demat credit and refund orders to enable the investors to approach the Registrar to the Issue for redressal of theirgrievances.All grievances relating to the Issue may be addressed to the Registrar to the Issue, giving full details such as name,address of the applicant, number of NCDs applied for, amount paid on application and the bank branch or collectioncentre where the application was submitted. The contact details of Registrar to the Issue are as follows:Integrated Enterprises (India) <strong>Limited</strong>2 nd Floor, ‘Kences Towers’No.1 Ramakrishna StreetNorth Usman Road, T NagarChennai – 600 017Tel: +91 44 2814 0801Fax: +91 44 2814 2479Website:corpserv@iepindia.comContact Person: K Suresh BabuEmail: corpserv@iepindia.comSEBI Registration No.: INR000000544We estimate that the average time required by us or the Registrar to the Issue for the redressal of routine investorgrievances will be 7 (seven) business days from the date of receipt of the complaint. In case of non-routinecomplaints and complaints where external agencies are involved, we will seek to redress these complaints asexpeditiously as possible.Mr. C.R. Dash has been appointed as the Compliance Officer of our Company for this issue.The contact details of Compliance officer of our Company are as follows:Mr. C.R. Dash,221, Royapettah High Road, Mylapore,Chennai – 600004, Tamil NaduTel.: + 91 44 4392 5300Fax: +91 44 4391 5351Email: sect@shriramcity.inChange in Auditors of our Company during the last three yearsThere has been no change(s) in the statutory auditor of our company in the last 3 (three) financial years preceding thedate of this Draft Prospectus.174
REGULATIONS AND POLICIESThe regulations summarised below are not exhaustive and are only intended to provide general information toInvestors and is neither designed nor intended to be a substitute for any professional legal advice. Taxation statutessuch as the IT Act, Central Sales Tax Act, 1956 and applicable local sales tax statutes, labour regulations such asthe Employees State Insurance Act, 1948 and the Employees Provident Fund and Miscellaneous Act, 1952, andother miscellaneous regulations such as the Trade and Merchandise Marks Act, 1958 and applicable Shops andEstablishments statutes apply to us as they do to any other Indian company and therefore have not been detailedbelow. The following information is based on the current provisions of applicable Indian law, which are subject tochange or modification by subsequent legislative, regulatory, administrative or judicial decisions.As per the RBI Act, a financial institution has been defined as a company which includes a non-banking institutioncarrying on as its business or part of its business the financing activities, whether by way of making loans oradvances or otherwise, of any activity, other than its own and it is engaged in the activities of loans and advances,acquisition of shares/stock/bonds/debentures/securities issued by the Government of India or other local authoritiesor other marketable securities of like nature, leasing, hire-purchase, insurance business, chit business but does notinclude any institution whose principal business is that of carrying out any agricultural or industrial activities or thesale/purchase/construction of immovable property.Any company which carries on the business of a non-banking financial institution as its principal business is to betreated as an NBFC. Since the term 'principal business' has not been defined in law, the RBI has clarified through apress release (Ref. No. 1998-99/ 1269) in 1999, that in order to identify a particular company as an NBFC, it willconsider both the assets and the income pattern as evidenced from the last audited balance sheet of the company todecide its principal business. The company will be treated as an NBFC if its financial assets are more than 50 percent of its total assets (netted off by intangible assets) and income from financial assets should be more than 50 percent of the gross income. Both these tests are required to be satisfied as the determinant factor for principal businessof a company.With effect from 1997, NBFCs were not permitted to commence or carry on the business of a non banking financialinstitution without obtaining a Certificate of Registration (CoR). Further, with a view to imparting greater financialsoundness and achieving the economies of scale in terms of efficiency of operations and higher managerial skills,the RBI has raised the requirement of minimum net owned fund from ` 25 Lakhs to ` 200 Lakhs for the NBFCwhich commences business on or after April 21, 1999. Further, every NBFC is required to submit to the RBI acertificate, from its statutory auditor within one month from the date of finalization of the balance sheet and in anycase not later than December 30th of that year, stating that it is engaged in the business of non-banking financialinstitution requiring it to hold a CoR.1. Regulation of NBFCs registered with the RBINBFCs are primarily governed by the RBI Act, 1934 (“RBI Act”), the Non-Banking Financial (DepositAccepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, (“PrudentialNorms”), the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank)Directions, 1998, (“Public Deposit Directions”), the Non-Banking Financial (Non-Deposit Accepting orHolding) Companies Prudential Norms (Reserve Bank) Directions, 2007 (“Non- Deposit AcceptingNBFC Directions”), and the provisions of the Non- Banking Financial Companies Prudential Norms(Reserve Bank) Directions, 1998. In addition to these regulations, NBFCs are also governed by variouscirculars, notifications, guidelines and directions issued by the RBI from time to time.2. Types of Activities that NBFCs are permitted to carry outAlthough by definition, NBFCs are permitted to operate in similar sphere of activities as banks, there are afew important, key differences. The most important distinctions are:(i)an NBFC cannot accept deposits repayable on demand – in other words, NBFCs can only acceptfixed term deposits. Thus, NBFCs are not permitted to issue negotiable instruments, such ascheques which are payable on demand; and175
(ii)NBFCs are not allowed to deal in foreign exchange, even if they specifically apply to the RBI forapproval in this regard.3. Types of NBFCs:Section 45-IA of the RBI Act makes it mandatory for every NBFC to get itself registered with the ReserveBank in order to be able to commence any of the aforementioned activities.Further, an NBFC may be registered as a deposit accepting NBFC (“NBFC-D”) or as a non-depositaccepting NBFC (“NBFC-ND”).NBFCs registered with RBI are further classified as:(i)(ii)(iii)(iv)asset finance companies;investment companies; and/orloan companies and/orinfrastructure finance companiesOur Company has been classified as an NBFC-D and is further classified as an “asset finance company”.An asset finance company is an NBFC whose principal business is to finance physical assets supportingproductive / economic activity, such as automobiles, tractors, lathe machines, generator sets, earth movingand material handling equipments, moving on own power and general purpose industrial machines.4. Regulatory Requirements of an NBFC under the RBI ActNet Owned FundSection 45-IA of the RBI Act provides that to carry on the business of a NBFC, an entity would have toregister as an NBFC with the RBI and would be required to have a minimum net owned fund of `2,00,00,000 (Rupees two crore only). For this purpose, the RBI Act has defined “net owned fund” to mean:(a)(b)the aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance sheet of thecompany, after deducting (i) accumulated balance of losses, (ii) deferred revenue expenditure, and (iii)other intangible assets; andfurther reduced by the amounts representing,(1) investment by such companies in shares of (i) its subsidiaries, (ii) companies in the same group,(iii) other NBFCs, and(2) the book value of debentures, bonds, outstanding loans and advances (including hire purchase andlease finance) made to, and deposits with (i) subsidiaries of such companies; and (ii) companies inthe same group,to the extent such amount exceeds 10% of (a) above.Reserve FundIn addition to the above, Section 45-IC of the RBI Act requires NBFCs to create a reserve fund and transfertherein a sum of not less than 20% of its net profits earned annually before declaration of dividend. Suchsum cannot be appropriated by the NBFC except for the purpose as may be specified by the RBI from timeto time and every such appropriation is required to be reported to the RBI within 21 days from the date of176
such withdrawal.Maintenance of liquid assetsThe RBI through notification dated January 31, 1998, as amended has prescribed that every NBFC shallinvest and continue to invest in unencumbered approved securities valued at a price not exceeding thecurrent market price of such securities an amount which shall, at the close of business on any day be notless than 10% in approved securities and the remaining in unencumbered term deposits in any scheduledcommercial bank; the aggregate of which shall not be less than 15% of the public deposit outstanding atthe last working day of the second preceding quarter.5. Obligations of NBFC-D under the Public Deposit DirectionsThe RBI’s Public Deposit Directions governs the manner in which NBFCs may accept and/or hold publicdeposits. The Public Deposit Directions places the following restrictions on NBFCs in connection withaccepting public deposits:1. Prohibition from accepting any demand deposits: NBFCs are prohibited from accepting any public depositwhich is repayable on demand.2. Ceiling on quantum of deposits: A NBFC which is classified as an asset finance company, (a) having netowned funds of ` 25,00,000/- (Rupees twenty five lakh only) or more, and, (b) having complied with allprudential norms relating to the capital adequacy ratio of not less than fifteen percent as per last auditedbalance-sheet, may, accept or renew public deposits not exceeding one and one-half times of its net ownedfunds or public deposit up to ` 10,00,00,000/- (Rupees ten crore), whichever is less. Further, an assetfinance company, (a) having net owned funds ` 25,00,000/- (Rupees twenty five lakh only) or more, (b)having complied with all the prudential norms, and (c) having obtained minimum investment grade creditrating from a notified credit rating agency, may, accept or renew public deposits not exceeding four timesof its net owned funds.3. Downgrading of credit-rating: In the event that the credit rating issued by a credit rating agency recognisedby RBI, for an asset finance company is downgraded below the minimum specified investment grade, withrespect to the relevant credit rating agency, the NBFC must (a) forthwith stop accepting public deposit, (b)report the position of the credit rating within fifteen working days to the RBI, and, (c) reduce, within threeyears from the date of such downgrading of credit rating, the amount of excess public deposit to nil or theappropriate extent as permitted under the Public Deposit Directions, by repayment as and when suchdeposit falls due or otherwise.4. Ceiling on rate of interest: An NBFC cannot invite or accept or renew public deposit at a rate of interestexceeding twelve and half per cent per annum. Such interest may be paid or compounded at rests whichshall not be shorter than monthly rests.5. Minimum lock-in period: An NBFC is prohibited from granting any loan against a public deposit or makepremature repayment of a public deposit within a period of three months from the date of acceptance ofsuch public deposit.6. Obligations of NBFC-D under the Prudential NormsNBFC-Ds are required to comply with prescribed capital adequacy ratios, single and group exposurenorms, and other specified prudential requirements prescribed under the Prudential Norms. Some of theimportant obligations are as follows:i) Income Recognition: NBFC-Ds are required to follow recognised accounting principles inconnection with recognition of income. Income including interest/discount or any other charges onNPA is recognised only when it is actually realised. Any such income recognised before the assetbecame non-performing and remaining unrealised must be reversed. With respect to hire purchaseassets, where instalments are overdue for more than 12 months, income shall be recognised only177
when hire charges are actually received. Any such income taken to the credit of profit and lossaccount before the asset became non-performing and remaining unrealised, must be reversed.ii) Asset Classification and provisioning of assets: Every NBFC-D is required to, after taking intoaccount the degree of well defined credit weaknesses and extent of dependence on collateralsecurity for realisation, classify its lease/hire purchase assets, loans and advances and any otherforms of credit into the following classes, namely:• Standard assets;• Sub-standard assets;• Doubtful assets; and• Loss assets.Further, an NBFC-D must, after taking into account the time lag between an account becomingnon-performing, its recognition as such, the realisation of the security and the erosion over time inthe value of security charged, make provision against sub-standard assets, doubtful assets and lossassets in the manner prescribed by RBI.iii) Provisioning of Standard Assets: In terms of the requirement of the circular dated January 17,2011 issued by the RBI, NBFCs are required to make a general provision at 0.25 per cent of theoutstanding standard assets. The provisions on standard assets are not reckoned for arriving at netNPAs. The provisions towards standard assets are not needed to be netted from gross advances butshown separately as 'Contingent Provisions against Standard Assets' in the balance sheet. NBFCsare allowed to include the ‘General Provisions on Standard Assets’ in Tier II capital whichtogether with other ‘general provisions/ loss reserves’ will be admitted as Tier II capital only up toa maximum of 1.25 per cent of the total risk-weighted assets.iv) Loans against NBFC’s own shares prohibited: No NBFC-D can lend against its own shares, as ofJuly 1, 2008. Any outstanding loan granted by a NBFC-D against its own shares on the date ofcommencement of these Directions shall be recovered by the NBFC as per the repaymentschedule.v) NBFC failing to repay public deposit prohibited from making loans and investments: A NBFC-Dwhich has failed to repay any public deposit or part thereof in accordance with the terms andconditions of such deposit, cannot grant any loan or other credit facility by whatever name calledor make any investment or create any other asset as long as such default exists.vi) Exposure to capital-markets: Every NBFC-D with total assets of ` 100 crore and above accordingto the previous audited balance sheet, must submit a monthly return within a period of 7 days ofthe expiry of the month to which it pertains in the prescribed form to the Regional Office of theDepartment of Non-Banking Supervision of the RBI.vii) Capital Adequacy: Every NBFC-D shall maintain a minimum CAR consisting of Tier I and Tier IIcapital which must not be less than twelve per cent of its aggregate risk weighted assets on balancesheet and of risk adjusted value of off-balance sheet items. The total of Tier II capital of anyNBFC-D, at any point of time, must not exceed one hundred per cent of Tier I capital. As per RBInotification dated February 17, 2011, all deposit taking NBFCs have to maintain a minimumcapital ratio, consisting of Tier I and Tier II capital, which shall not be less than 15% of itsaggregate risk weighted assets on balance sheet and risk adjusted value of off-balance sheet itemsw.e.f. March 31, 2012.viii) Disclosure Requirements: Every NBFC-D is required to separately disclose in its balance sheet theprovisions made in accordance with the applicable prudential norms prescribed by the RBIwithout netting them from the income or against the value of assets. Further, the provisions mustbe distinctly indicated under separate heads of account as under:178
• provisions for bad and doubtful debts; and• provisions for depreciation in investments.Such provisions shall not be appropriated from the general provisions and loss reserves held, ifany, by the NBFC-D and for each year shall be debited to the profit and loss account. The excessof provisions, if any, held under the heads general provisions and loss reserves may be writtenback without making adjustment against them.ix) Monthly Return: Every NBFC with total assets of ` 100 crore and above according to the previous21 days audited balance sheet, is required to submit a monthly return within a period of 7 days ofthe expiry of the month to which it pertains in the prescribed format to the Regional Office of theDepartment of Non-Banking Supervision of the RBI.x) Fair Practices Code: The RBI has framed the fair practice guidelines, to promote good and fairpractices by setting minimum standards to be adhered to by NBFCs in dealing with customers.These guidelines require NBFCs to ensure that they meet the commitments and standardsspecified therein for the products and services they offer and in the procedures and practices theirstaff follows, their products and services meet relevant laws and regulations in letter and spirit,and their dealings with customers rest on ethical principles of integrity and transparency. Further,the said guidelines prescribe the requirements in connection with information to be provided anddisclosures to be made by NBFCs to their customers. Accordingly, the guidelines require NBFCsto provide information on interest rates, common fees and charges, provide clear informationexplaining the key features of their services and products that customers are interested in, provideinformation on any type of product and service offered, that may suit the customer’s needs, tell thecustomers about the various means through which products and services are offered, and providemore information on the key features of the products, including applicable interest rates / fees andcharges.xi) KYC Guidelines: NBFCs have been advised to follow certain customer identification procedurefor opening of accounts and monitoring transactions of suspicious nature for the purpose ofreporting it to appropriate authority, (“KYC Norms”). Accordingly, NBFCs have been advised toensure that a proper policy framework on ‘know your customer’ and anti-money launderingmeasures is formulated and put in place with the approval of the RBI. The KYC Norms alsorequire that while preparing operational guidelines NBFCs may keep in mind to treat theinformation collected from the customer for the purpose of opening of account as confidential andnot divulge any details thereof for cross selling or any other purposes. NBFCs may, therefore,ensure that information sought from the customer is relevant to the perceived risk, is not intrusive,and is in conformity with the guidelines issued in this regard. Any other information from thecustomer should be sought separately with his /her consent and after opening the account.Rating of Financial ProductAs per RBI Circular dated February 4, 2009 all NBFCs with assets size of ` 10,000 lakhs and above isrequired to furnish at the regional office of the RBI under whose jurisdiction the registered office of theNBFC is functioning, information relating to the downgrading and upgrading of assigned rating of anyfinancial products issued by them within 15 days of such change.Norms for excessive interest ratesRBI through its circular dated May 24, 2007 directed all NBFCs to put in place appropriate internalprinciples and procedures in determining interest rates and processing and other charges. In addition to theaforesaid instruction RBI has issued a circular dated January 2, 2009 and a master circular on Fair PracticesCode dated July 1, 2009 for regulating the excessive rates of interest charged by the NBFCs. Theaforementioned circular and the master circular stipulate that the board of each NBFC shall adopt aninterest rate model taking into account the various relevant factors such as cost of funds, margin and riskpremium etc. The rate of interest and the approach for gradation of risk and the rationale for charging179
different rates of interest for different categories of borrowers shall be required to be disclosed to theborrowers in the application form and communicated explicitly in the sanction letter. Further, the same isalso required to be made available on the company’s website or be published in the relevant newspapersand is required to be updated in the event of any change therein. Further, the rate of interest would have tobe annualized rates so that that the borrower is aware of the exact rates that would be charged to theaccount.7. Corporate GovernancePursuant to RBI circular (DNBS.PD/CC 94/03.10.042/2006-07) dated May 8, 2007, the RBI has proposedcertain corporate governance guidelines for the consideration of all NBFC–D with an asset size of ` 20crore or more. The guidelines recommend that such NBFCs constitute an Audit Committee, a NominationCommittee (to ensure that fit and proper persons are nominated as directors on their respective boards) anda Risk Management Committee to institute risk management systems. The guidelines have also issuedinstructions relating to credit facilities to directors, loans and advances to relatives of the directors of thesaid NBFCs or to the directors of other companies and their relatives and other entities, timeframe forrecovery of such loans, etc. Such NBFCs are also required to frame internal corporate governanceguidelines based on the guidelines issued by the RBI on May 8, 2007.8. Accounting Standards & Accounting policiesSubject to the changes in Indian Accounting Standards and regulatory environment applicable to a NBFCwe may change our accounting policies in the future and it might not always be possible to determine theeffect on the Profit and Loss account of these changes in each of the accounting years preceding thechange.In such cases our profit/ loss for the preceding years might not be strictly comparable with the profit/ lossfor the period for which such accounting policy changes are being made.9. Reporting by Statutory AuditorThe statutory auditor of the NBFC-D is required to submit to the Board of Directors of the company areport inter-alia certifying that such company has complied with the prudential norms relating to incomerecognition, accounting standards, asset classification and provisioning for bad and doubtful debts andstandard assets as applicable to it. In the event of non-compliance, the statutory auditors are required todirectly report the same to the RBI.10. Other RegulationsApplicable Foreign Investment RegimeFEMA RegulationsForeign investment in India is governed primarily by the provisions of the FEMA which relates to regulationprimarily by the RBI and the rules, regulations and notifications thereunder, and the policy prescribed by theDepartment of Industrial Policy and Promotion (DIPP), GoI which is regulated by the FIPB.The RBI, in exercise of its power under the FEMA, has notified the Foreign Exchange Management (Transfer orIssue of Security by a Person Resident Outside India) Regulations, 2000 (“FEMA Regulations”) to prohibit, restrictor regulate, transfer by or issue of security to a person resident outside India. As laid down by the FEMARegulations, no prior consent and approval is required from the RBI, for FDI under the “automatic route” within thespecified sectoral caps. In respect of all industries not specified as FDI under the automatic route, and in respect ofinvestment in excess of the specified sectoral limits under the automatic route, approval may be required from theFIPB and/or the RBI.180
Foreign Direct InvestmentFDI in an Indian company is governed by the provisions of the FEMA read with the FEMA Regulations and theForeign Direct Investment Policy (“FDI Policy”) by the DIPP. FDI is permitted (except in the prohibited sectors) inIndian companies either through the automatic route or the approval route, depending upon the sector in which FDIis sought to be made. Under the automatic route, no prior Government approval is required for the issue of securitiesby Indian companies/ acquisition of securities of Indian companies, subject to the sectoral caps and other prescribedconditions. Investors are required to file the required documentation with the RBI within 30 days of such issue/acquisition of securities.Under the approval route, prior approval from the FIPB or RBI is required. FDI for the items/ activities that cannotbe brought in under the automatic route (other than in prohibited sectors) may be brought in through the approvalroute. Further:(a)(b)As per the sector specific guidelines of the Government of India, 100% FDI/ NRI investments are allowedunder the automatic route in certain NBFC activities subject to compliance with guidelines of the RBI inthis regard.Minimum Capitalisation Norms for fund based NBFCs:(i)(ii)(iii)For FDI up to 51% - US$ 5 Lakhs to be brought upfrontFor FDI above 51% and up to 75% - US $ 50 Lakhs to be brought upfrontFor FDI above 75% and up to 100% - US $ 500 Lakhs out of which US $ 75 Lakhs to be broughtupfront and the balance in 24 months(c)(d)(e)Minimum capitalization norm of US $5 Lakhs is applicable in respect of all permitted non fund basedNBFCs with foreign investmentForeign investors can set up 100% operating subsidiaries without the condition to disinvest a minimum of25% of its equity to Indian entities, subject to bringing in US$ 500 Lakhs as at (b) (iii) above(without anyrestriction on number of operating subsidiaries without bringing in additional capital)Joint ventures operating NBFC’s that have 75% or less than 75% foreign investment will also be allowed toset up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying withthe applicable minimum capital inflow i.e. (b) (i) and (b) (ii) above.Where FDI is allowed on an automatic basis without FIPB approval, the RBI would continue to be the primaryagency for the purposes of monitoring and regulating foreign investment. In cases where FIPB approval is obtained,no approval of the RBI is required except with respect to fixing the issuance price, although a declaration in theprescribed form, detailing the foreign investment, must be filed with the RBI once the foreign investment is made inthe Indian company. The foregoing description applies only to an issuance of shares by, and not to a transfer ofshares of, Indian companies. Every Indian company issuing shares or convertible debentures in accordance with theRBI regulations is required to submit a report to the RBI within 30 days of receipt of the consideration and anotherreport within 30 days from the date of issue of the shares to the non resident purchaser.Laws relating to EmploymentShops and Establishments legislations in various statesThe provisions of various Shops and Establishments legislations, as applicable, regulate the conditions of work andemployment in shops and commercial establishments and generally prescribe obligations in respect of inter aliaregistration, opening and closing hours, daily and weekly working hours, holidays, leave, health and safety measuresand wages for overtime work.181
Labour LawsThe Company is required to comply with various labour laws, including the Minimum Wages Act, 1948, thePayment of Bonus Act, 1965, the Payment of Wages Act, 1936, the Payment of Gratuity Act, 1972 and theEmployees’ Provident Funds and Miscellaneous Provisions Act, 1952.Laws relating to Intellectual PropertyThe Trade Marks Act, 1999 and the Indian Copyright Act, 1957 inter alia govern the law in relation to intellectualproperty, including brand names, trade names and service marks and research works.In addition to the above, our Company is required to comply with the provisions of the Companies Act, 1956, theForeign Exchange Management Act, 1999, various tax related legislations and other applicable statutes.182
SUMMARY OF KEY PROVISIONS OF ARTICLES OF ASSOCIATIONPursuant to Schedule II of the Act the main provisions of the AOA relating to the issue and allotment of debenturesand matters incidental thereto. Please note that the each provision herein below is numbered as per thecorresponding article number in the AOA. All defined terms used in this section have the meaning given to them inthe AOA. Any reference to the term “Article” hereunder means the corresponding article contained in the AOA.Article 11 provides that Debenture/Debenture Stock, Loan/Loan Stock, Bonds or other securities conferring theright to allotment or conversion into shares or the option or right to call for allotment of shares shall not be issuedexcept with the sanction of the Company in the General meeting.Article 14 provides that in case Share/Debenture certificates are issued for either more or less than marketable lots,sub-division or consolidation into marketable lots will be done by the Company at no charge.Clause (ii) of Article 15 A provides that the Company shall within three months after the allotment or within onemonth after the application for registration of the transfer of any Share or Debenture is completed and have ready fordelivery the certificates of all the Shares and Debentures so allotted or transferred unless the conditions of issue ofthe said Shares otherwise provide.Article 16 provides that if a certificate be worn out, defaced or if there is no further space on the back thereof forendorsement of transfer, it shall, if required, be replaced by a new certificate free of charge provided/however thatsuch new certificate shall not be issued except upon delivery of the said worn out or defaced or used up certificatefor the purpose of cancellation. Further, if a certificate is lost or destroyed the Company may, upon such evidenceand proof of such loss or destruction and such Indemnity as the Board may require and on payment of such a fee notexceeding Rupee one issue a renewed certificate. Any renewed certificate shall be marked as such.The provisions of this Article shall mutatis mutandis apply to the Debentures of the Company.Clause A of Article 17 provides that notwithstanding what is stated in Article 16 and 17 above the Directors shallcomply with such Rules or Regulations or requirements of any Stock Exchange or the Rules made under theSecurities Contract (Regulation) Act, 1956 or any other Act, or rules applicable in this behalf.Clause A of Article 20 provides that the Board of Directors may, if they think fit, receive from any member willingto advance the same, all or any part of the money uncalled and unpaid upon any Share/Debenture held by him andupon all or any part of the money so advanced may (until the same would but for such advance become presentlypayable) pay interest at such rate not exceeding 14%, p.a. or such other percentage as may be fixed in this regard asthe maximum percentage without the sanction of the Company in the General meeting as may be agreed uponbetween the member paying the sum in advance and the Board of Directors, provided that the amount of advancecalls so received shall not be entitled to rank for dividend or participate in the profits of the Company.Clause (f) of Article 21 provides that the Company should effect transfer, transmission, sub-division orconsolidation of Shares/ Debentures within one month from the date of lodgement thereof.Clause (g) of Article 21 provides that notwithstanding anything contained in these Articles, the Board of Directorsof the Company may in their absolute discretion refuse splitting of any Share certificate or Debenture certificate intodenominations less than Marketable lots i.e. the minimum number of Shares or Debentures as required for thepurpose of trading on the stock exchange in which the Company’s Shares and/or Debentures are/will be listed,except where subdivision is required to be made to comply with a statutory provision or order of a competentAuthority of law.Article 24 provides that no fee shall be charged for registration of transfer of Shares/Debentures or for effectingtransmission or for registering any letter of probate, letters of administration and similar other documents.Article 42 provides that in furtherance of and without prejudice to the general powers conferred on the Board ofDirectors by or implied in Articles 41 and the other powers conferred by these articles and subject to the provisionof Sec.292 of the Act, it is hereby expressly declared that it shall be lawful, for the Directors to carry out all or anyof the objects set forth in the Memorandum of Association and to do the following things:183
…Clause (3) of Article 42 at their discretion to pay for any property rights, or privileges acquired by, or servicesrendered to the Company, either wholly or partially in cash or in Shares, bonds, Debentures or other securities of thecompany and any such Shares may be issued either as fully paid-up or with such amount credited as paid up thereonas may be agreed upon and any such bonds, Debentures, or other securities may be either specifically charged uponall or any of the property of the company and its uncalled Shares, or not so charged.Clause (4) of Article 42 to secure the fulfilment of any contracts or agreement entered into by the Company bymortgage or charge of all or any of the properties of the Company and its uncalled capital for the time being or insuch other manner as they think fit.Clause (16) of Article 42 To borrow on mortgage of the whole or any part of the property of the Company or on theBonds, Debentures either unsecured or secured by a charge or mortgage or other securities of the Company, or otherwiseas they may deem expedient, such sums as they may think necessary for the purpose of the Company, subject toprovisions contained in Sec.292 and Sec.293 of the Act.Article 44 provides that he Board of Directors may from time to time but with such consent of the Company ingeneral meetings as may be required under Sec.293 of the Act, raise any money or any moneys or sum of money forthe purpose of the Company, provided that the moneys to be borrowed together with moneys already borrowed bythe company apart from temporary loans obtained from the Company’s bankers in the ordinary course of businessshall not without the sanction of the Company at a General Meeting exceed the aggregate of the paid-up capital ofthe company and its free reserves that is to say reserves not set apart for any specific purpose and in particular butsubject to the provision of Section 292 of the Act, the Board may from time to time at their discretion may raise orborrow or secure the payment of any such sum or sums of money for the purpose of the Company, by the issue ofDebentures to members, raised or received, to mortgage, pledge or change, the whole or any part of the property,assets, or revenue of the Company, present or future, including its uncalled capital by special assignment orotherwise or to transfer or convey the same absolutely or in trust and to give the lenders powers of sale and others asmay be expedient and to purchase, redeem or pay off any such securities.Provided that the Directors may, by a resolution at a meeting of the Board delegate the power to borrow moneyotherwise than on Debentures to a committee of Directors subject to limits specified in the said resolution in respectof the total which can be so borrowed.“Debentures, Debenture Stocks, Bonds or other securities with a right to allotment of or conversion into Shares shallnot be issued except with the sanction of the Company in General Meeting”.Article 54 provides thatClause (1) of Article 54 Every shareholder or debenture holder or depositor of the Company, may at any time,nominate a person to whom his shares or debentures or deposits shall vest in the event of his death in such manneras may be prescribed under the Act.Clause (2) of Article 54 Where the shares or debentures or deposits of the Company are held by more than oneperson jointly, joint holders may together nominate a person to whom all the rights in the shares or debentures ordeposits, as the case may be shall vest in the event of death of all the joint holders in such manner as may beprescribed under the Act.Clause (3) of Article 54 Notwithstanding anything contained in any other law for the time being in force or in anydisposition, whether testamentary or otherwise, where a nomination made in the manner aforesaid purports to conferon any person the right to vest the shares of debentures or deposits, the nominee shall, on the death of theshareholder or debenture holder or depositor or, as the case may be on the death of the joint holders become entitledto all the rights in such shares or debentures or deposits or, as the case may be, all the joint holders, in relation to184
such shares or debentures or deposits, to the exclusion of all other person, unless the nomination is varied orcancelled in the manner as may be prescribed under the Act.Clause (4) of Article 54 Where the nominee is a minor, it shall be lawful for the holder of the shares or Debenture ordeposits, to make the nomination to appoint any person to become entitled to shares in or debentures of or depositsof the Company in any manner prescribed under the Act, in the event of his death, during minority.Article 55 provides thatClause (1) of Article 55 provides that a nominee, upon production of such evidence as may be required by the Boardand subject as hereinafter provided elect, either-Clause (1) (a) register himself as holder of the share or debenture or deposit, as the case may be; orClause (1) (b) to make such transfer of the share or debenture or deposit, as the deceased shareholder or debentureholder or deposit holder, as the case may be, could have made.Clause (2) of Articles 55 provides that if the nominee elects to be registered as nominee of the Share or Debenture ordeposit himself as the case may be, he shall deliver or send to the Company, a notice in writing signed by himstating that he so elects and such notice shall be accompanied with the death certificate of the deceased shareholderor debenture holder or deposit holder, as the case may be.Clause (4) of Article 55 provides that the Board may, at any time, give notice requiring any such person to electeither to be registered himself or to transfer the shares or debenture or deposit, and if the notice is not complied withwithin ninety (90) days, the Board may hereafter withhold payment of all dividends, interest, bonuses or othermoneys payable in respect of the share or debenture or deposit, until the requirements of the notice have beencomplied with.Article 56 provides that the Company shall be entitled to dematerialise its existing shares, debentures and othersecurities, rematerialise its shares, debentures and other securities held in the Depositories and/or offer its freshshares and debentures and other securities in a dematerialised form pursuant to the Depositories Act, and the Rulesframed thereunder, if any. Every person subscribing to or holding securities offered by the Company shall have theoption to receive security certificates or to hold the securities with a Depository. Such a person who is the beneficialowner of the securities can at any time opt out of a depository, if permitted by law, in respect of any security in themanner provided by the Depositories Act, and the Company shall, in the manner and within the time prescribed,issue to the beneficial owner the required Certificates of Securities. If a person opts to hold his security with aDepository, the Company shall intimate such Depository the details of allotment of the security, and on receipt ofthe information, the Depository shall enter in its record the name of the allottee as the beneficial owner of thesecurity. The Company shall cause to be kept a Register and Index of Members and a Register and Index ofDebenture holders in accordance with all applicable provisions of the Companies Act, 1956 and the DepositoriesAct, with details of shares and Debentures held in material and dematerialised forms in any media as may bepermitted by law, including in any form of electronic media. The Register and Index of Beneficial Ownersmaintained by Depository under the Depositories Act shall be deemed to be Register and Index of Members andSecurity holders for the purposes of these Articles. The Company shall be entitled to keep in any State or Countryoutside India a Branch Register of Members Resident in that State or Country.185
MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTIONThe following contracts which are or may be deemed material have been entered or are to be entered into by theCompany. These contracts and also the documents for inspection referred to hereunder, may be inspected at theRegistered Office of the Company situated at 123, Angappa Naicken Street, Chennai, Tamil Nadu, India 600001from 10.00 AM to 5 P.M on any business days from the date of this Draft Prospectus until the date of closure of theIssue.A. Material Contracts1. Engagement Letter dated July 20, 2011 received from the Company appointing the Lead Managersand the Co-Lead Manager.2. Memorandum of Understanding dated July 20, 2011 between the Company, the Lead Managersand the Co-Lead Manager.3. Memorandum of Understanding dated July 14, 2011 with the Registrar to the Issue4. Debenture Trust Agreement dated July 18, 2011 executed between the Company and theDebenture Trustee.5. The agreed form of the Debenture Trust Deed to be executed between the Company and theDebenture Trustee.6. Escrow agreement dated [●] executed by the Company, the Registrar, the Escrow CollectionBank(s), the Lead Managers and the Co-Lead Manager.B. Material Documents1. Certificate of Incorporation of the Company dated March 27, 1986, issued by Registrar ofCompanies, Tamil Nadu, Chennai2. Memorandum and Articles of Association of the Company.3. The certificate of registration No. 07-00458 dated April 17, 2007 issued by Reserve Bank of Indiau/s 45 IA of the Reserve Bank of India, 1934.4. Credit rating letter dated July 14, 2011 from CARE and credit rating letter dated July 14, 2011from CRISIL, granting credit ratings to the NCDs.5. Copy of the Board Resolution dated March 24, 2011, approving the Issue.6. Resolution passed by the shareholders of the Company at the Annual General Meeting held onJuly 30, 2009 approving the overall borrowing limit of Company.7. Consents of the Directors, Lead Managers to the Issue, the Co-Lead Manager to the Issue,Compliance Officer of our Company, Debenture Trustee, Lead Brokers, credit rating agencies forthe Issue, Legal Advisor to the Issue, Bankers to the Issue, Bankers to the Company and theRegistrar to the Issue, to include their names in this Prospectus.8. The consent of the Statutory Auditors of our Company, namely M/s. Pijush Gupta & Co. for (a)inclusion of their names as the Statutory Auditors, (b) inclusion of examination reports onReformatted Consolidated Summary Financial Statements and the Reformatted UnconsolidatedSummary Financial Statements in the form and context in which they appear in this DraftProspectus.9. The examination report of the Statutory Auditors dated July 21, 2011 in relation to theReformatted Consolidated Summary Financial Statements included herein.10. The examination report of the Statutory Auditors dated July 21, 2011 in relation to theReformatted Unconsolidated Summary Financial Statements included herein.11. Annual Reports of the Company for the last five Financial Years 2006-07 to 2010-11.12. Due Diligence certificates all dated [●] filed by the Lead Managers, the Co-Lead Manager andthe Debenture Trustee respectively.13. Tripartite agreement between the Company, Registrar to the Issue and CDSL and the Company,Registrar to the issue and NSDL dated March 30, 2000 and April 20, 1999, respectively.14. Copy of the shareholders’ resolution re-appointing the Managing Director of the Company datedJuly 30, 2010.15. License Agreement dated April 1, 2010 with <strong>Shriram</strong> Ownership Trust.186
16. Investor agreement dated May 13, 2008 between Western India Trustee and Executor Company<strong>Limited</strong>, in its capacity as the trustee of India Advantage Fund – VI and our Company.17. Investor agreement dated May 12, 2008 between Bessemer Ventures Partners and our Company.18. Investment agreement dated May 9, 2008 between Asiabridge Fund I LLC and our Company.19. Investment agreement dated December 26, 2006 between Van Gogh <strong>Limited</strong> and our Companyand the Subscription and Amendment Agreement dated May 12, 2008 between Van Gogh <strong>Limited</strong>and our Company.20. Share subscription agreement dated September 12, 2008 between (i) Mr. R. Thyagarajan, Mr. TJayaraman, <strong>Shriram</strong> Capital <strong>Limited</strong> and <strong>Shriram</strong> Ownership Trust acting through its trustees Mr.R. Thyagarajan, Mr. Arun Duggal, Mr. D.A Prasanna, Mr. R. Kannan and Mr. D.V Ravi, TPGIndia Investments I, Inc., <strong>Shriram</strong> Retail Holdings Private <strong>Limited</strong>, <strong>Shriram</strong> Enterprises HoldingsPrivate <strong>Limited</strong> and our Company.21. SCUF Employee Stock Option Scheme of 2006 and SCUF Employee Stock Option Scheme of2008.22. In-principle approval, dated [●] for the Issue issued by NSE.23. In-principle approval, dated [●] for the Issue issued by BSE.187
DECLARATIONWe, the Directors of the <strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>, certify that all the relevant provisions of the Companies Act, 1956and the guidelines issued by the Government of India or the guidelines issued by the Securities and Exchange Board of Indiaestablished under Section 3 of the Securities and Exchange Board of India Act, 1992, as the case may be, have been compliedwith and no statement made in this Draft Prospectus is contrary to the provisions of the Companies Act, 1956, the Securities andExchange Board of India Act, 1992 or the rules made or guidelines issued thereunder, as the case may be.Yours faithfullyOn behalf of the Board of Directors of <strong>Shriram</strong> <strong>City</strong> <strong>Union</strong> <strong>Finance</strong> <strong>Limited</strong>:_________________________MR. ARUN DUGGAL____________________________MR. R. KANNAN_______________________MR. MUKUND GOVIND DIWAN_________________________MR. S. KRISHNAMURTHY_______________________MR. VIPEN KAPUR____________________MR. S. VENKATKRISHANAN________________________MR. RANVIR DEWAN______________________MR. K. R. RAMAMOORTHY_________________________________MRS. LAKSHMI PRANESH_________________________________MR. PUNEET BHATIA_________________________________MR.G.S. SUNDARAJAN_________________________________MR. SUNIL VARMAPlace: ChennaiDate: July 21, 2011188
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