Shriram City Union Finance Limited - Karvy

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