Shriram City Union Finance Limited - Karvy

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