INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LIMITED

Transcription

1 Placement Document Not for Circulation Serial No. INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LIMITED (Infrastructure Development Finance Company Limited (the Company ), with CIN L65191TN1997PLC037415, incorporated in the Republic of India with limited liability under the Companies Act, 1956, as amended (the Companies Act )) Issue of 157,752,090 equity shares of face value Rs. 10 each (the Securities ) at a price of Rs each ( Issue Price ) including a premium of Rs per Security, aggregating Rs. 26,541.8 million (the Issue ). The Equity Shares of our Company are listed on the National Stock Exchange of India Limited (the NSE ) and the Bombay Stock Exchange Limited (the BSE ). The closing prices of the Equity Shares on the NSE and the BSE on July 1, 2010 were Rs and Rs per Equity Share, respectively. Inprinciple approvals under Clause 24(a) of the Equity Listing Agreements for listing of Securities have been received. Applications will be made for obtaining listing and trading approvals of the Securities offered through the Preliminary Placement Document and the Placement Document to the NSE and the BSE (collectively, the Stock Exchanges ). The Stock Exchanges assume no responsibility for the correctness of any statements made, opinions expressed or reports contained herein. Admission of the Securities to trading on the Stock Exchanges should not be taken as an indication of the merits of the business of our Company or the Securities. A copy of this Placement Document has been delivered to the Stock Exchanges. This Placement Document has not been reviewed by the Securities and Exchange Board of India (the SEBI ), the Reserve Bank of India (the RBI ), the Stock Exchanges or any other regulatory or listing authority and is intended only for use by Qualified Institutional Buyers (the QIBs ), as defined in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended (the ICDR Regulations ). A copy of the Placement Document will be delivered to the SEBI for record purposes. This Placement Document has not been and will not be registered as a prospectus with the Registrar of Companies in India, will not be circulated or distributed to the public in India or any other jurisdiction, and will not constitute a public offer in India or any other jurisdiction. INVESTMENTS IN EQUITY SHARES AND EQUITY RELATED SECURITIES INVOLVE A DEGREE OF RISK AND PROSPECTIVE INVESTORS SHOULD NOT INVEST IN THIS ISSUE UNLESS THEY ARE PREPARED TO TAKE THE RISK OF LOSING ALL OR PART OF THEIR INVESTMENT. PROSPECTIVE INVESTORS ARE ADVISED TO CAREFULLY READ THE SECTION ENTITLED RISK FACTORS BEGINNING ON PAGE 27 OF THIS PLACEMENT DOCUMENT BEFORE TAKING AN INVESTMENT DECISION IN THIS ISSUE. EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS OWN ADVISORS ABOUT THE PARTICULAR CONSEQUENCES OF AN INVESTMENT IN THE SECURITIES BEING ISSUED PURSUANT TO THIS PLACEMENT DOCUMENT. ISSUE IN RELIANCE UPON CHAPTER VIII OF THE ICDR REGULATIONS THIS ISSUE AND THE DISTRIBUTION OF THIS PLACEMENT DOCUMENT IS BEING DONE IN RELIANCE ON CHAPTER VIII THE ICDR REGULATIONS. THIS PLACEMENT DOCUMENT IS PERSONAL TO EACH PROSPECTIVE INVESTOR AND DOES NOT CONSTITUTE AN OFFER OR INVITATION OR SOLICITATION OF AN OFFER TO THE PUBLIC OR TO ANY OTHER PERSON OR CLASS OF INVESTORS WITHIN OR OUTSIDE INDIA. YOU ARE NOT AUTHORIZED TO AND MAY NOT (1) DELIVER THIS PLACEMENT DOCUMENT TO ANY OTHER PERSON; OR (2) REPRODUCE THIS PLACEMENT DOCUMENT IN ANY MANNER WHATSOEVER. ANY DISTRIBUTION OR REPRODUCTION OF THIS PLACEMENT DOCUMENT IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS INSTRUCTION MAY RESULT IN A VIOLATION OF THE ICDR REGULATIONS OR OTHER APPLICABLE LAWS OF INDIA AND OTHER JURISDICTIONS. Invitations, offers and sales of Securities shall only be made pursuant to this Placement Document together with the respective Application Form and Confirmation of Allocation Note. See Issue Procedure. The distribution of this Placement Document or the disclosure of its contents without the prior consent of our Company to any person, other than QIBs and persons retained by QIBs to advise them with respect to their purchase of Securities is unauthorized and prohibited. Each prospective investor, by accepting delivery of this Placement Document, agrees to observe the foregoing restrictions and make no copies of this Placement Document or any documents referred to in this Placement Document. The information on the website of our Company or any website directly or indirectly linked to the website of our Company does not form part of this Placement Document and prospective investors should not rely on such information contained in, or available through, any such website. The Securities have not been and will not be registered under the United States Securities Act of 1933, as amended (the Securities Act ) and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. Persons (as defined in Regulation S ( Regulation S ) under the Securities Act) except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Securities are being offered and sold (a) in the United States only to persons who are qualified institutional buyers (as defined in Rule 144A under the Securities Act ( Rule 144A )) and qualified purchasers as defined in the United States Investment Company Act 1940 and related rules (the Investment Company Act ), pursuant to applicable exemptions under the Securities Act and (b) outside the United States to non-u.s. Persons in reliance on Regulation S. For further details, see Transfer Restrictions. This Placement Document relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority. This Placement Document is intended for distribution only to Persons of a type specified in those rules. It must not be delivered to, or relied on by, any other Person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The Dubai Financial Services Authority has not approved this document nor taken steps to verify the information set out in it, and has no responsibility for it. The Securities to which this Placement Document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the Securities offered should conduct their own due diligence on the Securities. If you do not understand the contents of this Placement Document you should consult an authorised financial adviser. This Placement Document is dated July 2, Joint Global Coordinators and Book Running Lead Managers CLSA India Limited 8/F, Dalamal House Nariman Point Mumbai , India Credit Suisse Securities (India) Private Limited 9 th Floor, Ceejay House, Plot F Shivsagar Estate, Dr. Annie Besant Road Worli, Mumbai , India * IDFC Capital Limited shall be involved only in marketing of the Issue. Morgan Stanley India Company Private Limited 5F, 55-56, Free Press House Free Press Journal Marg, 215 Nariman Point, Mumbai , India IDFC Capital Limited * C- 32, G Block, Naman Chambers Bandra-Kurla Complex, Bandra (East) Mumbai , India

2 TABLE OF CONTENTS NOTICE TO INVESTORS... 3 PRESENTATION OF FINANCIAL AND OTHER INFORMATION INDUSTRY AND MARKET DATA FORWARD-LOOKING STATEMENTS ENFORCEMENT OF CIVIL LIABILITIES EXCHANGE RATES DEFINITIONS AND ABBREVIATIONS SUMMARY OF BUSINESS SUMMARY OF THE ISSUE SUMMARY FINANCIAL INFORMATION RISK FACTORS MARKET PRICE INFORMATION USE OF PROCEEDS CAPITALIZATION STATEMENT DIVIDENDS SELECTED STATISTICAL INFORMATION MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INFRASTRUCTURE DEVELOPMENT AND FINANCING IN INDIA BUSINESS BOARD OF DIRECTORS AND KEY MANAGERIAL PERSONNEL ORGANISATIONAL STRUCTURE AND MAJOR SHAREHOLDERS ISSUE PROCEDURE PLACEMENT SELLING RESTRICTIONS TRANSFER RESTRICTIONS THE SECURITIES MARKET OF INDIA DESCRIPTION OF THE SHARES TAXATION LEGAL PROCEEDINGS INDEPENDENT ACCOUNTANTS LEGAL MATTERS SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INDIAN GAAP AND IFRS FINANCIAL STATEMENTS GENERAL INFORMATION DECLARATION

3 NOTICE TO INVESTORS We have furnished and accept full responsibility for all of the information contained in this Placement Document and confirm that to our best knowledge and belief, having made all reasonable enquiries, this Placement Document contains all information with respect to us and the Securities that is material in the context of the Issue. The statements contained in this Placement Document relating to us and the Securities are, in every material respect, true and accurate and not misleading. The opinions and intentions expressed in this Placement Document with regard to us and the Securities are honestly held, have been reached after considering all relevant circumstances, are based on information presently available to us and based on reasonable assumptions. There are no other facts in relation to us and the Securities, the omission of which would, in the context of the Issue, make any statement in this Placement Document misleading in any material respect. Further, all reasonable enquiries have been made by us to ascertain such facts and to verify the accuracy of all such information and statements. CLSA India Limited, Credit Suisse Securities (India) Private Limited, Morgan Stanley India Company Private Limited and IDFC Capital Limited, (the Joint Global Coordinators and Book Running Lead Managers ) have not separately verified the information contained in this Placement Document (financial, legal or otherwise). Accordingly, neither the Joint Global Coordinators and Book Running Lead Managers nor any of their respective shareholders, employees, counsel, officers, directors, representatives, agents or affiliates make any express or implied representation, warranty or undertaking, and no responsibility or liability is accepted by the Joint Global Coordinators and Book Running Lead Managers as to the accuracy or completeness of the information contained in this Placement Document or any other information supplied in connection with the Securities. Each person receiving this Placement Document acknowledges that such person has not relied on either the Joint Global Coordinators and Book Running Lead Managers or on any of their shareholders, employees, counsel, officers, directors, representatives, agents or affiliates in connection with its investigation of the accuracy of such information or its investment decision, and each such person must rely on its own examination of the Company and the merits and risks involved in investing in the Securities. No person is authorized to give any information or to make any representation not contained in this Placement Document and any information or representation not so contained must not be relied upon as having been authorized by us or on our behalf or by or on behalf of the Joint Global Coordinators and Book Running Lead Managers. The delivery of this Placement Document at any time does not imply that the information contained in it is correct as of any time subsequent to its date. The Securities issued pursuant to the Issue have not been approved, disapproved or recommended by the U.S. Securities and Exchange Commission, any state securities commission in the U.S. or the securities commission of any non-u.s. jurisdiction or any other U.S. or non-u.s. regulatory authority. No authority has passed on or endorsed the merits of the Issue or the accuracy or adequacy of this Placement Document. Any representation to the contrary is a criminal offence in the U.S. and may be a criminal offence in other jurisdictions. The distribution of this Placement Document and the offering of the Securities may be restricted by law in certain countries or jurisdictions. As such, this Placement Document does not constitute, and may not be used for or in connection with, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized, or to any person to whom it is unlawful to make such offer or solicitation. In particular, no action has been taken by the Company and the Joint Global Coordinators and Book Running Lead Managers which would permit an offering of the Securities or distribution of this Placement Document in any country or jurisdiction, other than India, where action for that purpose is required. Accordingly, the Securities may not be offered or sold, directly or indirectly, and neither this Placement Document nor any offering material in connection with the Securities may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. Within the United States, this Placement Document is being provided only to persons who are both qualified institutional buyers as defined in Rule 144A and qualified purchasers as defined in the Investment Company Act. In making an investment decision, investors must rely on their own examination of the Company and the terms of the Issue, including the merits and risks involved. Investors should not construe the contents of this Placement Document as legal, tax, accounting or investment advice. Investors should consult their own counsel and advisors as to business, legal, tax, accounting and related matters concerning the Issue. In addition, neither the Company nor the Joint Global Coordinators and Book Running Lead Managers are making any representation to any offeree or purchaser of the Securities regarding the legality of an investment in the Securities by such offeree or purchaser under applicable laws or regulations. 3

4 Each purchaser of the Securities in the Issue is deemed to have acknowledged, represented and agreed that it is eligible to invest in India and in the Company under Indian law, including Chapter VIII of the ICDR Regulations, and is not prohibited by SEBI or any other statutory authority from buying, selling or dealing in securities. The information on the Company s website or the respective websites of each of the Joint Global Coordinators and Book Running Lead Managers does not constitute nor form part of this Placement Document. Prospective investors should not rely on the information contained in, or available through such websites. This Placement Document contains summaries of terms of certain documents, which are qualified in their entirety by the terms and conditions of such documents. Each purchaser of Securities in the Issue also acknowledges that it has been afforded an opportunity to request from us, and review information relating to us and the Securities. References herein to you or your is to the prospective investors in the Issue. NOTICE FOR NEW HAMPSHIRE RESIDENTS Neither the fact that a registration statement or an application for a license has been filed under this chapter with the state of New Hampshire nor the fact that a security is effectively registered or a person is licensed in the state of New Hampshire constitutes a finding by the secretary of state that any document filed under RSA 421-B is true, complete and not misleading. Neither any such fact nor the fact that an exemption or exception is available for a security or a transaction means that the secretary of state has passed in any way upon the merits or qualifications of, or recommended or given approval to, any person, security, or transaction. It is unlawful to make, or cause to be made, to any prospective purchaser, customer, or client any representation inconsistent with the provisions of this paragraph. REPRESENTATIONS BY INVESTORS By subscribing to any Securities in the Issue, you are deemed to have represented, warranted, acknowledged and agreed to our Company and the Joint Global Coordinators and Book Running Lead Managers, as follows: You are a Qualified Institutional Buyer as defined in Regulation 2(1)(zd) of the ICDR Regulations, having a valid and existing registration under applicable laws and regulations of India, and undertake to acquire, hold, manage or dispose of any Securities that are allocated to you in accordance with Chapter VIII of the ICDR Regulations; If you are not a resident of India, but are a QIB (other than a multilateral and bilateral financial institution), you are a FII (including a sub-account other than a sub-account which is a foreign corporate or a foreign individual) or a FVCI, and have a valid and existing registration with the SEBI under the applicable laws in India; If you are Allotted (hereinafter defined) Securities pursuant to the Issue, you shall not, for a period of one year from the date of Allotment (hereinafter defined), sell the Securities so acquired except on the Stock Exchanges; You have made, or been deemed to have made, as applicable, the representations and warranties as set forth under the section entitled Transfer Restrictions ; You are aware that the Securities have not been and will not be registered under the Companies Act, the ICDR Regulations or under any other law in force in India. The Placement Document has not been reviewed by the SEBI, the RBI, the Stock Exchanges or any other regulatory or listing authority and is intended only for use by QIBs. Further, the Placement Document has not been verified or affirmed by the SEBI or the Stock Exchanges and will not be filed or registered with the Registrar of Companies. 4

5 The Placement Document has been filed with the Stock Exchanges and will be displayed on the websites of the Company and the Stock Exchanges. The Placement Document will be filed with the SEBI for record purposes only; You are entitled to subscribe for and acquire the Securities under the laws of all relevant jurisdictions that apply to you and you have necessary capacity, have obtained all necessary consents, governmental or otherwise, and authorities and complied with all necessary formalities, to enable you to commit to participation in the Issue and to perform your obligations in relation thereto (including, without limitation, in the case of any person on whose behalf you are acting, all necessary consents and authorizations to agree to the terms set out or referred to in the Placement Document), and will honor such obligations; You confirm that, either: (i) you have not participated in or attended any investor meetings or presentations by the Company or its agents ( Company Presentations ) with regard to the Company or the Issue; or (ii) if you have participated in or attended any Company Presentations: (a) you understand and acknowledge that the Joint Global Coordinators and Book Running Lead Managers may not have knowledge of the statements that the Company or its agents may have made at such Company Presentations and are therefore unable to determine whether the information provided to you at such Company Presentations may have included any material misstatements or omissions, and, accordingly you acknowledge that the Joint Global Coordinators and Book Running Lead Managers have advised you not to rely in any way on any information that was provided to you at such Company Presentations, and (b) you confirm that, to the best of your knowledge, you have not been provided any material information relating to the Company and the Issue that was not publicly available; Neither the Company nor the Joint Global Coordinators and Book Running Lead Managers or any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates are making any recommendations to you or advising you regarding the suitability of any transactions it may enter into in connection with the Issue and your participation in the Issue is on the basis that you are not, and will not, up to the Allotment of the Securities, be a client of the Joint Global Coordinators and Book Running Lead Managers. The Joint Global Coordinators and Book Running Lead Managers or any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates do not have duties or responsibilities to you for providing the protection afforded to their clients or customers or for providing advice in relation to the Issue and are not in any way acting in any fiduciary capacity; All statements other than statements of historical fact included in the Placement Document, including those regarding the Company s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to the Company s business), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company s present and future business strategies and environment in which the Company will operate in the future. You should not place undue reliance on forward-looking statements, which speak only as on the date of the Placement Document. The Company assumes no responsibility to update any forward-looking statements contained in the Placement Document; You are aware of and understand that the Securities are being offered only to QIBs and are not being offered to the general public and the Allotment shall be on a discretionary basis; You have been provided a serially numbered copy of this Placement Document, and you have read it in its entirety, including in particular, the section entitled Risk Factors ; In making your investment decision, you have (i) relied on your own examination of the Company and the terms of the Issue, including the merits and risks involved, (ii) made your own assessment of the Company and its subsidiaries, the Securities and the terms of the Issue based solely on the information contained in the Placement Document and no other disclosure or representation by the Company or any other party, (iii) consulted your own independent counsel and advisors or otherwise have satisfied yourself concerning, the effects of local laws, (iv) received all information that you believe is necessary or appropriate in order to make an investment decision in respect of the Company and the Securities, 5

6 and (v) relied upon your own investigation and resources in deciding to invest in the Issue; Neither the Joint Global Coordinators and Book Running Lead Managers nor any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates, have provided you with any tax advice or otherwise made any representations regarding the tax consequences of purchase, ownership and disposal of the Securities (including the Issue and the use of proceeds from the Securities). You will obtain your own independent tax advice from a reputable service provider and will not rely on the Joint Global Coordinators and Book Running Lead Managers or any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates, when evaluating the tax consequences in relation to the Securities (including, in relation to the Issue and the use of proceeds from the Securities). You waive, and agree not to assert any claim against, any of the Company or the Joint Global Coordinators and Book Running Lead Managers or any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates, with respect to the tax aspects of the Securities or as a result of any tax audits by tax authorities, wherever situated; You are a sophisticated investor and have such knowledge and experience in financial, business and investments as to be capable of evaluating the merits and risks of the investment in the Securities. You are experienced in investing in private placement transactions of securities of companies in a similar stage of development and in similar jurisdictions. You and any accounts for which you are subscribing to the Securities (i) are each able to bear the economic risk of the investment in the Securities, (ii) will not look to the Company and / or any of the Joint Global Coordinators and Book Running Lead Managers or any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates for all or part of any such loss or losses that may be suffered, (iii) are able to sustain a complete loss on the investment in the Securities, (iv) have no need for liquidity with respect to the investment in the Securities, and (v) have no reason to anticipate any change in your or their circumstances, financial or otherwise, which may cause or require any sale or distribution by you or them of all or any part of the Securities. You acknowledge that an investment in the Securities involves a high degree of risk and that the Securities are, therefore, a speculative investment. You are seeking to subscribe to the Securities in this Issue for your own investment and not with a view to distribution; Where you are acquiring the Securities pursuant to the Issue, for one or more managed accounts, you represent and warrant that you are authorized in writing, by each such managed account to acquire the Securities for each managed account and make the representations, warranties, acknowledgements and agreements herein for and on behalf of each such account, reading the reference to you to include such accounts; You have no rights under a shareholders agreement, no veto rights or right to appoint any nominee director on the Board of Directors of the Company (the Board ), other than the rights, if any, acquired in the capacity of a lender not holding any Securities; You have no right to withdraw your Application after the Issue Closing Date (as defined herein); You are eligible to apply and hold Securities so Allotted together with any Equity Shares held by you prior to the Issue. You confirm that your aggregate holding after the Allotment of the Securities shall not exceed the level permissible as per any applicable regulation; The Application made by you would not result in triggering a tender offer under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as amended (the Takeover Code ); To the best of your knowledge and belief, your aggregate holding, together with other QIBs in the Issue that belong to the same group or are under common control as you, pursuant to the Allotment under the Issue shall not exceed 50% of the Securities Allotted. For the purposes of this representation: a. The expression belong to the same group shall derive meaning from the concept of companies under the same group as provided in sub-section (11) of Section 372 of the Companies Act. b. Control shall have the same meaning as is assigned to it by Regulation 2(1)(c) of the 6

7 Takeover Code. You shall not undertake any trade in the Securities credited to your Depository Participant account until such time that the final listing and trading approvals for the Securities are issued by the Stock Exchanges; You are aware that (i) applications for in-principle approval, in terms of clause 24(a) of the Equity Listing Agreement, for listing and admission of the Securities and for trading on the Stock Exchanges, were made and approval has been received from each of the Stock Exchanges, and (ii) the application for the final listing and trading approval will be made only after Allotment of the Securities in the Issue. There can be no assurance that the final approvals for listing of the Securities will be obtained in time or at all. The Company shall not be responsible for any delay or non-receipt of such final approvals or any loss arising from such delay or non-receipt; You are aware that if you are Allotted more than 5% of the Securities in this Issue, the Company is required to disclose your name and the number of Securities Allotted to the Stock Exchanges and the Stock Exchanges will make the same available on their website and you consent to such disclosures; You are aware and understand that the Joint Global Coordinators and Book Running Lead Managers have entered into a placement agreement with the Company, whereby the Joint Global Coordinators and Book Running Lead Managers have, subject to the satisfaction of certain conditions set out therein severally and not jointly, undertaken to use their reasonable efforts as placement agents of the Company to seek, to procure subscription for the Securities; The contents of this Placement Document are exclusively the responsibility of the Company and that neither the Joint Global Coordinators and Book Running Lead Managers nor any person acting on their behalf has or shall have any liability for any information, representation or statement contained in this Placement Document or any information previously published by or on behalf of the Company and will not be liable for your decision to participate in the Issue based on any information, representation or statement contained in this Placement Document or otherwise. By accepting participation in the Issue, you agree to the same and confirm that the only information you are entitled to rely on, and on which you have relied in committing yourself to acquire the Securities is contained in this Placement Document, such information being all that you deem necessary to make an investment decision in respect of the Securities, you have neither received nor relied on any other information, representation, warranty or statement made by, or on behalf of, the Joint Global Coordinators and Book Running Lead Managers or the Company or any of their respective affiliates or any other person and neither the Joint Global Coordinators and Book Running Lead Managers nor the Company nor any other person will be liable for your decision to participate in the Issue based on any other information, representation, warranty or statement that you may have obtained or received; None of the Joint Global Coordinators and Book Running Lead Managers has any obligation to purchase or acquire all or any part of the Securities purchased by you in the Issue or to support any losses directly or indirectly sustained or incurred by you for any reason whatsoever in connection with the Issue, including non-performance by the Company of any of its obligations or any breach of any representations and warranties by the Company, whether to you or otherwise; You are eligible to invest in India under applicable law, including the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended, and any notifications, circulars or clarifications issued thereunder, and have not been prohibited by the SEBI or any other regulatory authority, from buying, selling or dealing in securities; You are a sophisticated investor seeking to purchase the Securities for your own investment and not with a view to distribution; That (i) an investment in the Securities involves a high degree of risk and that the Securities are, therefore, a speculative investment, (ii) you have sufficient knowledge, sophistication and experience in financial and business matters so as to be capable of evaluating the merits and risk of the purchase of the Securities; You understand that the Securities have not been and will not be registered under the Securities Act or 7

8 with any securities regulatory authority of any state of the United States and accordingly, may not be offered or sold within the United States, except in reliance on an exemption from the registration requirements of the Securities Act; You are either (a) a qualified purchaser as defined in the Investment Company Act and a qualified institutional buyer as defined in Rule 144A or (b) not a U.S. person and located outside the United States (within the meaning of Regulation S), and, in each case, not an affiliate of the Company or a person acting on behalf of such an affiliate; You agree that any dispute arising in connection with the Issue will be governed by and construed in accordance with the laws of Republic of India, and the courts in Mumbai, India shall have exclusive jurisdiction to settle any disputes which may arise out of or in connection with the Placement Document and the Placement Document; Each of the representations, warranties, acknowledgements and agreements set out above shall continue to be true and accurate at all times up to and including the Allotment, listing and trading of the Securities in the Issue; You agree to indemnify and hold the Company and the Joint Global Coordinators and Book Running Lead Managers harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the foregoing representations, warranties, acknowledgements and undertakings made by you in this Placement Document. You agree that the indemnity set forth in this paragraph shall survive the resale of the Securities by, or on behalf of, the managed accounts; and The Company, the Joint Global Coordinators and Book Running Lead Managers, their respective affiliates and others will rely on the truth and accuracy of the foregoing representations, warranties, acknowledgements and undertakings, which are given to the Joint Global Coordinators and Book Running Lead Managers on their own behalf and on behalf of the Company, and are irrevocable. OFFSHORE DERIVATIVE INSTRUMENTS Subject to compliance with all applicable Indian laws, rules, regulations, guidelines and approvals in terms of Regulation 15A(1) of the SEBI (Foreign Institutional Investors) Regulations, 1995, as amended, a Foreign Institutional Investor ( FII ) may issue or otherwise deal in offshore derivative instruments such as participatory notes, equity-linked notes or any other similar instruments against underlying securities, listed or proposed to be listed on any stock exchange in India, such as the Securities in the Issue (all such offshore derivative instruments are referred to herein as P-Notes ), for which they may receive compensation from the purchasers of such instruments. P-Notes may be issued only in favor of those entities which are regulated by any appropriate foreign regulatory authorities in the countries of their incorporation or establishment subject to compliance of know your client requirements. An FII shall also ensure that no further issue or transfer of any instrument referred to above is made to any person other than such entities regulated by an appropriate foreign regulatory authority. P-Notes have not been and are not being offered or sold pursuant to this Placement Document. This Placement Document does not contain any information concerning P-Notes or the issuer(s) of any P-notes, including any information regarding any risk factors relating thereto. Any P-Notes that may be issued are not securities of the Company and do not constitute any obligation of, claims on or interests in the Company. The Company has not participated in any offer of any P-Notes, or in the establishment of the terms of any P-Notes, or in the preparation of any disclosure related to the P-Notes. Any P- Notes that may be offered are issued by, and are the sole obligations of, third parties that are unrelated to the Company. The Company and the Joint Global Coordinators and Book Running Lead Managers do not make any recommendation as to any investment in P-Notes and do not accept any responsibility whatsoever in connection with the P-Notes. Any P-Notes that may be issued are not securities of the Joint Global Coordinators and Book Running Lead Managers and do not constitute any obligations of or claims on the Joint Global Coordinators and Book Running Lead Managers. Affiliates of CLSA, Credit Suisse and Morgan Stanley that are registered as FIIs may purchase, to the extent permissible under law, Securities in the Issue, and may issue P-Notes in respect thereof. Prospective investors interested in purchasing any P-Notes have the responsibility to obtain adequate disclosures as to the issuer(s) of such P-Notes and the terms and conditions of any such P-Notes from the 8

9 issuer(s) of such P-Notes. Neither the SEBI nor any other regulatory authority has reviewed or approved any P-Notes or any disclosure related thereto. Prospective investors are urged to consult their own financial, legal, accounting and tax advisors regarding any contemplated investment in P-Notes, including whether P-Notes are issued in compliance with applicable laws and regulations. DISCLAIMER CLAUSE OF THE STOCK EXCHANGES As required, a copy of the Placement Document has been submitted to each of the Stock Exchanges. The Stock Exchanges do not in any manner: (1) Warrant, certify or endorse the correctness or completeness of the contents of the Preliminary Placement Document; (2) Warrant that the Securities will be listed or will continue to be listed on the Stock Exchanges; or (3) Take any responsibility for the financial or other soundness of the Company, its promoters, its management or any scheme or project of the Company, and it should not for any reason be deemed or construed to mean that the Preliminary Placement Document has been cleared or approved by the Stock Exchanges. Every person who desires to apply for or otherwise acquire any Securities of the Company may do so pursuant to an independent inquiry, investigation and analysis and shall not have any claim against the Stock Exchanges whatsoever, by reason of any loss which may be suffered by such person consequent to or in connection with, such subscription/acquisition, whether by reason of anything stated or omitted to be stated herein, or for any other reason whatsoever. 9

10 PRESENTATION OF FINANCIAL AND OTHER INFORMATION In this Placement Document, unless the context otherwise indicates or implies, references to you, offeree, purchaser, subscriber, recipient, investors and potential investor are to the prospective investors in the Issue, references to IDFC, the Company, our Company or the Issuer are to Infrastructure Development Finance Company Limited, and references to we, our or us are to Infrastructure Development Finance Company Limited together with its subsidiaries, joint ventures and associates. In this Placement Document, references to U.S.$ and U.S. dollars are to the legal currency of the United States of America, and references to Rs., Indian Rupees and Rupees are to the legal currency of India. All references herein to the U.S. or the United States are to the United States of America and its territories and possessions and all references to India are to the Republic of India and its territories and possessions. The audited and consolidated financial statements of our Company as of and for the years ended March 31, 2008, March 31, 2009 and March 31, 2010, included in this Placement Document (collectively, the Financial Statements ), have been prepared and audited in accordance with Indian GAAP and the requirements under the Equity Listing Agreements with the Stock Exchanges. Indian GAAP differs in certain significant respects from International Financial Reporting Standards ( IFRS ) and U.S. GAAP. Accordingly, the degree to which the financial statements prepared in accordance with Indian GAAP included in this Placement Document will provide meaningful information is entirely dependent on the reader s level of familiarity with the respective accounting practices. Please refer to the section entitled Summary of Significant Differences between Indian GAAP and IFRS. In this Placement Document, certain monetary thresholds have been subject to rounding adjustments; accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. The financial year of our Company commences on April 1 of each calendar year and ends on March 31 of the succeeding calendar year, so, unless otherwise specified or if the context requires otherwise, all references to a particular Financial Year, fiscal year or Fiscal or FY are to the twelve month period ended on March 31 of that year. INDUSTRY AND MARKET DATA Information regarding market position, growth rates and other industry data pertaining to our businesses contained in this Placement Document consists of estimates based on data reports compiled by government bodies, professional organizations and analysts, data from other external sources and knowledge of the markets in which we compete. Unless stated otherwise, the statistical information included in this Placement Document relating to the industry in which we operate has been reproduced from various trade, industry and government publications and websites. This data is subject to change and cannot be verified with certainty due to limits on the availability and reliability of the raw data and other limitations and uncertainties inherent in any statistical survey. Neither we nor the Joint Global Coordinators and Book Running Lead Managers have independently verified this data and do not make any representation regarding the accuracy of such data. We take responsibility for accurately reproducing such information but accept no further responsibility in respect of such information and data. In many cases, there is no readily available external information (whether from trade or industry associations, government bodies or other organizations) to validate market-related analysis and estimates, so we have relied on internally developed estimates. Similarly, while we believe our internal estimates to be reasonable, such estimates have not been verified by any independent sources and neither we nor the Joint Global Coordinators and Book Running Lead Managers can assure potential investors as to their accuracy. 10

11 FORWARD-LOOKING STATEMENTS Certain statements contained in this Placement Document that are not statements of historical fact constitute forward-looking statements. 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. Similarly, statements that describe our strategies, objectives, plans or goals are also forward-looking statements. All statements regarding our expected financial conditions, results of operations, business plans and prospects are forward-looking statements. These forward-looking statements include statements as to our business strategy, revenue and profitability, new business and other matters discussed in this Placement Document that are not historical facts. These forward-looking statements contained in this Placement Document (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 actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or other projections. All forward-looking statements are subject to risks, uncertainties and assumptions about us that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include, among others: growth prospects of the Indian infrastructure sector and related policy developments; general, political, economic, social and business conditions in Indian and other global markets; our ability to successfully implement our strategy, growth and expansion plans; competition in the Indian and international markets; availability of adequate debt and equity financing at reasonable terms; performance of the Indian debt and equity markets; changes in laws and regulations applicable to companies in India, including foreign exchange control regulations in India; and other factors discussed in this Placement Document, including under the section entitled Risk Factors. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed under the sections entitled Management s Discussion and Analysis of Financial Condition and Results of Operations, Industry and Business. The forward-looking statements contained in this Placement Document are based on the beliefs of management, as well as the assumptions made by, and information currently available to, management. Although we believe that the expectations reflected in such forward-looking statements are reasonable at this time, we cannot assure investors that such expectations will prove to be correct. Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements. If any of these risks and uncertainties materialize, or if any of our underlying assumptions prove to be incorrect, our actual results of operations or financial condition could differ materially from that described herein as anticipated, believed, estimated or expected. All subsequent forward-looking statements attributable to us are expressly qualified in their entirety by reference to these cautionary statements. 11

12 ENFORCEMENT OF CIVIL LIABILITIES Our Company is a public company incorporated with limited liability under the laws of India. The majority of our Company s Directors and key managerial personnel named here are residents of India and all or a substantial portion of assets of our Company and such persons are located in India. As a result, it may be difficult for investors outside India to effect service of process upon our Company or such persons in India, or to enforce judgments obtained against such parties outside India. Recognition and enforcement of foreign judgments is provided for under Section 13 and Section 44A of the Code of Civil Procedure, 1908, as amended (the Civil Procedure Code ), on a statutory basis. Section 13 of the Civil Procedure Code provides that a foreign judgment shall be conclusive regarding any matter directly adjudicated upon, except: (i) where the judgment has not been pronounced by a court of competent jurisdiction; (ii) where the judgment has not been given on the merits of the case; (iii) where it appears on the face of the proceedings that the judgment is founded on an incorrect view of international law or a refusal to recognize the law of India in cases in which such law is applicable; (iv) where the proceedings in which the judgment was obtained were opposed to natural justice; (v) where the judgment has been obtained by fraud, and (vi) where the judgment sustains a claim founded on a breach of any law then in force in India. India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. However, Section 44A of the Civil Procedure Code provides that a foreign judgment rendered by a superior court (within the meaning of that section) in any jurisdiction outside India which the Government of India (the GoI or the Government ) has by notification declared to be a reciprocating territory, may be enforced in India by proceedings in execution as if the judgment had been rendered by a competent court in India. However, Section 44A of the Civil Procedure Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalties and does not include arbitration awards. Each of the United Kingdom, Singapore and Hong Kong has been declared by the GoI to be a reciprocating territory for the purposes of Section 44A of the Civil Procedure Code, but the United States of America has not been so declared. A judgment of a court in a jurisdiction which is not a reciprocating territory may be enforced only by a fresh suit upon the judgment and not by proceedings in execution. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with public policy. Further, any judgment or award in a foreign currency would be converted into Rupees on the date of such judgment or award and not on the date of payment. A party seeking to enforce a foreign judgment in India is required to obtain approval from the RBI to repatriate outside India any amount recovered, and any such amount may be subject to income tax in accordance with applicable laws. 12

13 EXCHANGE RATES Fluctuations in the exchange rate between the Rupee and the U.S. Dollar will affect the U.S. Dollar equivalent of the Rupee price of the Securities on the Stock Exchanges. These fluctuations will also affect the conversion into U.S. Dollars of any cash dividends paid in Rupees on the Securities. The following table sets forth information concerning exchange rates between the Rupee and the U.S. dollar for the periods indicated. Exchange rates are based on the reference rates released by the RBI, which are available on the website of the RBI. No representation is made that any Rupee amounts could have been, or could be, converted into U.S. dollars at any particular rate, the rates stated below, or at all. On July 1, 2010, the exchange rate was Rs to US$1.00. Period End Average (1) High Low Year Ended March 31: (Rs. Per US$1.00) Quarter Ended: March 31, December 31, September 30, June 30, (1) Represents the average of the reference rates released by the Reserve Bank of India on the last day of each month during the period for each year and quarter presented. (Source: 13

14 DEFINITIONS AND ABBREVIATIONS This Placement Document uses the definitions and abbreviations set forth below which you should consider when reading the information contained herein. References to any legislation, act or regulation shall be to such term as amended from time to time. Company Related Terms Term Description IDFC, our Company or the Infrastructure Development Finance Company Limited Company We or us, our or the Group Infrastructure Development Finance Company Limited and its subsidiaries, joint ventures and associates, unless the context indicates or implies otherwise Amended and Restated Shareholders The Amended and Restated Shareholders Agreement dated May 9, 2005 between Agreement the Company, the Domestic Institutions, the Foreign Investors and certain other entities Articles/ Articles of Association Articles of Association of our Company Auditors Deloitte Haskins & Sells, Chartered Accountants Board Board of Directors of our Company Domestic Institutions Domestic Institutions collectively mean the Indian financial institutions and entities being IDBI, ICICI, SBI, HDFC, UTI-I and IFCI, so long as they own Equity Shares of the Company and are parties to the Amended and Restated Shareholders Agreement. Equity Shares Equity Shares of our Company of face value Rs. 10 each ESOS Our Company s Employee Stock Option Scheme 2005 and the Employee Stock Option Scheme 2007 Foreign Investors Foreign Investors shall collectively mean the foreign financial institutions and entities being ADB, International Finance Corporation, IPL, CDCFS, CDCIH, KHL, BNL, SLAC, SECO and DB, so long as they own Equity Shares of the Company and are parties to the Amended and Restated Shareholders Agreement IDFC Capital IDFC Capital Limited IDFC Securities IDFC Securities Limited Memorandum / Memorandum of Memorandum of Association of our Company Association Registered Office The registered office of our Company situated at KRM Tower, 8 th Floor, No. 1, Harrington Road, Chetpet, Chennai RoC Registrar of Companies, Chennai, Tamil Nadu Issue Related Terms Term Description Allocated /Allocation The allocation of Securities following the determination of the Issue Price to QIBs on the basis of Application Forms submitted by them, in consultation with the Joint Global Coordinators and Book Running Lead Managers and in compliance with Chapter VIII of the ICDR Regulations Allotment /Allotted The allotment and issue of Securities pursuant to the Issue Allottees Persons to whom Securities of our Company are issued pursuant to the Issue Application Indication of interest of a QIB to subscribe to Securities of our Company under the Issue Application Form Form (including any revisions thereof) pursuant to which a QIB indicates its interest to subscribe for the Securities of our Company under the Issue CAN/Confirmation of Allocation Note Note, advice or intimation confirming the Allocation of Securities to QIBs after determination of the Issue Price, and requiring such QIBs to pay the entire applicable Issue Price for all the Securities Allocated to such QIBs Closing Date On or about July 7, 2010 CLSA CLSA India Limited Credit Suisse Credit Suisse Securities (India) Private Limited Escrow Agent HDFC Bank Limited Escrow Cash Account The account, entitled IDFC QIP Escrow Account opened with the Escrow Agent, subject to the terms of the Escrow Agreement Floor Price The floor price of Rs per Equity Share, calculated in accordance with Chapter VIII of the ICDR Regulations Issue The offer and issuance of the Securities to QIBs, pursuant to Chapter VIII of the ICDR Regulations 14

15 Term Description Issue Price A price per Security of Rs Issue Closing Date July 2, 2010, the last date up to which the Application Forms shall be accepted Issue Opening Date June 28, 2010, the date on which acceptance of the Application Forms shall be commenced Issue Size The aggregate size of the Issue, which is Rs. 26,541.8 million Joint Global Coordinators and Book Running Lead Managers CLSA India Limited, Credit Suisse Securities (India) Private Limited, Morgan Stanley India Company Private Limited and IDFC Capital Limited Morgan Stanley Morgan Stanley India Company Private Limited Pay-in Date The last date specified in the CAN for payment of application monies by the QIBs Placement Agreement Agreement dated June 28, 2010, among our Company and the Joint Global Coordinators and Book Running Lead Managers Placement Document The Placement Document to be issued in accordance with Chapter VIII of the ICDR Regulations Preliminary Placement Document The Preliminary Placement Document issued in accordance with Chapter VIII of the ICDR Regulations QIB or Qualified Institutional Buyer A qualified institutional buyer, as defined under Regulation 2(1)(zd) of the ICDR Regulations, and in case of a US applicant, as defined under Rule 144A QIP Qualified Institutions Placement under Chapter VIII of the ICDR Regulations Relevant Date June 28, 2010, which is the date of the meeting of committee of the Board deciding to open the Issue Securities 157,752,090 Equity Shares being offered to the QIBs in the Issue Stock Exchanges The NSE and the BSE Conventional and General Terms or Abbreviations Term/Abbreviation Description/ Full Form Act Income Tax Act, 1961, unless the context requires otherwise ADB Asian Development Bank AGM Annual General Meeting AS Accounting Standards issued by the ICAI BNL BNL International Investments SA BOLT BSE On-line Trading BSE Bombay Stock Exchange Limited CAGR Compounded Annual Growth Rate CDCFS CDC Financial Services (Mauritius) Limited CDCIH CDC Investments Holdings Limited CDSL Central Depository Services (India) Limited Civil Procedure Code Code of Civil Procedure, 1908 Companies Act Companies Act, 1956 Competition Act Competition Act, 2002 DB Deutsche Asia Pacific Holdings Pte Ltd. Delisting Regulations SEBI (Delisting of Equity Shares) Regulations, 2009 Depositories Act Depositories Act, 1996 Depository A depository registered with the SEBI under the SEBI (Depositories and Participants) Regulations, 1996 DP/Depository Participant Depository Participant as defined under the Depositories Act, 1996 Equity Listing Agreement(s) The equity listing agreement(s) with each of the Stock Exchanges FDI Foreign Direct Investment FEMA Foreign Exchange Management Act, 1999 FII Foreign Institutional Investor (as defined under the SEBI (Foreign Institutional Investors) Regulations,1995), registered with the SEBI under applicable laws in India Financial Year/Fiscal/FY Period of 12 months ended March 31 of that particular year GDP Gross Domestic Product GoI or Government Government of India HDFC Housing Development Finance Corporation Limited ICAI Institute of Chartered Accountants of India ICDR Regulations SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 ICICI ICICI Limited ICICI Bank ICICI Bank Limited IDBI Industrial Development Bank of India Limited IFC Infrastructure Finance Company, as defined under applicable RBI guidelines IFCI IFCI Limited 15

16 Term/Abbreviation Description/ Full Form IFRS International Financial Reporting Standards India Republic of India Indian GAAP Generally accepted accounting principles followed in India ideck Infrastructure Development Corporation (Karnataka) Limited Insider Trading Regulations SEBI (Prohibition of Insider Trading) Regulations, 1992 IT Information technology Investment Company Act The U.S. Investment Company Act of 1940, and the related rules and regulations KHL Kendall Holdings Limited Mn Million Mutual Fund Mutual fund registered with the SEBI under the SEBI (Mutual Funds) Regulations, 1996 NBFC Non Banking Finance Company, as defined under applicable RBI guidelines NECS National Electronic Clearing Service NSDL National Securities Depository Limited NSE National Stock Exchange of India Limited p.a. Per annum PAN Permanent Account Number PAT Profit After Tax Payment of Gratuity Act Payment of Gratuity Act, 1972 PFIC Passive Foreign Investment Company PPP Public Private Partnership QPs A qualified purchaser as defined in the Investment Company Act RBI Reserve Bank of India Regulation S Regulation S under the Securities Act Rs. or Rupees or Indian Rupees The lawful currency of India Rule 144A Rule 144A under the Securities Act SAT Securities Appellate Tribunal SBI State Bank of India SCRA Securities Contracts (Regulation) Act, 1956 SCRR Securities Contracts (Regulation) Rules, 1957 SEBI Securities and Exchange Board of India SECO State Secretariat for Economic Affairs, Switzerland SEBI Act SEBI Act, 1992 Securities Act U.S. Securities Act of 1933 SLAC SLAC (Mauritius Holdings) Co. Ltd. STT Securities Transaction Tax Takeover Code SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 U-Dec Uttarakhand Infrastructure Development Company Limited U.S. GAAP Generally accepted accounting principles followed in the U.S. U.S. Person U.S. person as defined in Regulation S UTI-I The administrator of the specified undertaking of Unit Trust of India Technical and Industry Related Terms Term/Abbreviation Exposure Gross non-performing assets Net approvals Net interest income Net non-performing assets Net operating income Outstanding disbursements Yield Description/ Full Form Net approvals net of repayments plus defaults of interest, penal interest and liquidated damages, and including funded and non-funded debt and equity All assets which are classified as sub-standard assets, doubtful and loss assets as per the RBI guidelines for NBFCs Gross approvals net of cancellations Total interest income net of total interest expense and other charges on borrowings Gross non-performing assets less provision for sub-standard assets, doubtful and loss assets Operating income as per our Indian GAAP financial statements, less interest expense Gross disbursements net of repayments Ratio of interest income to the daily average of interest earning assets 16

17 SUMMARY OF BUSINESS Overview We believe that we are a leading knowledge-driven financial services company in India and play a central role in advancing infrastructure development in the country. We provide a full range of financing solutions to our clients and believe that we distinguish ourselves from other financiers by having developed extensive domain knowledge of infrastructure in India. We operate as a professionally managed commercial entity with the objective of maximizing shareholder value. We were established in 1997 as a private sector enterprise by a consortium of public and private investors and listed our Equity Shares in India pursuant to an initial public offering in August Following the listing of our Equity Shares, we steadily broadened our business activities from project financing and government advisory to cover a wide spectrum of financial intermediation services. Since our second major capital raising in July 2007 through a qualified institutions placement of our Equity Shares raising approximately Rs. 21,000.0 million, we have continued to grow and diversify our business and revenue streams through a mix of organic as well as inorganic growth, including acquisitions. The Government has identified infrastructure development as a key priority in its five year plans. The Eleventh Five Year Plan (Fiscal 2008 to 2012) envisages investments of U.S. $ billion in the infrastructure sector. Given the scale of investment required, we expect a substantial proportion of the investment to be met through private financing or PPP. We believe that given our history, capabilities and financial strength, we are well placed to benefit from these opportunities, particularly with the increasingly conducive policy and regulatory environment in India for infrastructure development. In this connection, we have been successful in obtaining from the RBI a change in our Company s classification to an Infrastructure Finance Company, or IFC, which, among other things will allow us to diversify our borrowings, access long-term funds to a greater extent and give us the flexibility to increase our exposures to borrowers and groups. We classify our business into the following four broad platforms, through which we not only provide project finance but also arrange and facilitate the flow of private capital to infrastructure development by creating appropriate structures and financing vehicles for a wide range of market participants: Corporate Finance and Investment Banking, which includes our project finance, principal investments and treasury operations, as well as the investment banking business of IDFC Capital Limited and the institutional brokerage business of IDFC Securities Limited, which were acquired in 2007; Public Markets Asset Management, which comprises the mutual funds business that we acquired from Standard Chartered Bank in 2008; Alternative Asset Management, which includes our private asset management and project management businesses; and Advocacy and Nation Building, through which we remain actively involved in providing policy formulation and advocacy, institutional capacity building to structure public-private partnerships, government transaction advisory services and corporate social responsibility initiatives. These business platforms are supported by a shared services platform that includes information technology, human resources, legal and compliance, secretarial services, risk management, finance and facilities. Our clients include prominent participants in infrastructure development in India and our product portfolio caters to the diverse needs of these clients across all layers of the capital structure. Our main focus has been on the energy, transportation and the telecommunications and information technology sectors, and we expect to see continued growth and significant financing opportunities in these sectors. Our business has grown rapidly in recent years. Our balance sheet, total income and profit after tax, on a consolidated basis, grew at a compounded annual growth rate of 9.5 per cent., 20.3 per cent. and 19.6 per cent., respectively, from fiscal 2008 to fiscal As of March 31, 2010, our gross and net non-performing loans were Rs million and Rs million, respectively. These represent 0.3 per cent. and 0.2 per cent. of our total loan 17

18 assets, respectively. Our capital to risk-weighted asset ratio as of March 31, 2010 was 20.5 per cent. and our return on average total assets in fiscal 2010 was 3.4 per cent. Our long term borrowings have been rated LAAA by ICRA and AAA (ind) by Fitch, which are the highest credit ratings awarded by these rating agencies. In view of our historical and intended growth and the increasingly interconnected nature of our businesses, in fiscal 2010 we launched the One Firm initiative, which seeks to forge our identity and brand across our various platforms and businesses. We believe that this initiative will enable us to emerge as a better aligned and integrated firm that presents a unified value proposition to our clients. Strengths We believe that the following are our primary strengths: Composite financial services platform focused on infrastructure. Infrastructure lending has been and remains the predominant contributor to our business; however, we have over the last few years strategically diversified into new businesses and believe that we are now a one-stop infrastructure financing group. We have grown some of our business organically, such as our Alternative Asset Management platform, which includes our private equity, project equity, funds of funds and project management and development businesses. We have also strategically acquired capabilities in investment banking, institutional brokerage and public markets asset management. Further, we have grouped our businesses under four interconnected platforms, which through our One Firm initiative collectively enable us to offer comprehensive solutions and unified value proposition to our clients and also generate fee based sources of revenue in addition to interest income. Reputation as a leading private sector infrastructure financier. We were established with the objective of promoting private financing of Indian infrastructure and we are now a significant lender in the private infrastructure financing sector. We believe that we distinguish ourselves among financiers to infrastructure projects in India by having developed domain knowledge, particularly with regard to project structuring, appraisal and risk evaluation. We have expertise in providing financing through a variety of products and have played a key role in introducing innovative financial products and structures, which allow a broader cross-section of lenders and investors to participate in infrastructure financing. We believe that these attributes have contributed to our being a leading infrastructure financing institution in India. Experienced management team and dynamic professional staff. The members of our management team and professional staff are from diverse backgrounds, including leading commercial banks and lending institutions, finance companies, regulators, academia, rating agencies, investment banks and private equity firms. Our managers and professional staff have domestic and international expertise in areas such as project finance, principal investments, asset management, financial markets and investment banking as well as advisory services. Our managers and professional staff also have domain knowledge and experience in the various sectors we serve, which contributes to our understanding of the sector-specific aspects of our business. Established relationships with government entities. Our strong relationship with the Government gives us access to decision makers in government entities and multilateral development agencies. As a consequence, we are able to play a significant role in the direction of infrastructure policy in the country. We believe that our policy-related initiatives have helped rationalize India s policy and regulatory frameworks across the infrastructure sector, which has encouraged an increased flow of private capital, including foreign capital, into infrastructure. In addition, we believe that our multidimensional relationship with governmental entities, in advisory as well as beneficiary capacities, gives us access to major financing and advisory opportunities in the infrastructure sector. Well-developed client relationships. We have well-developed relationships with prominent private sector sponsors in India s infrastructure sector and many emerging participants in the sector. We were among the earliest providers of infrastructure financing for many of our clients, which has fostered our relationships in the industry. These relationships have enabled us to have a prominent role in prospective projects with such clients at an early stage and to obtain leadership roles in advising and financing infrastructure projects. Financial strength to take advantage of market opportunities. We believe that our financial status provides us with the ability to grow our balance sheet and our return on assets and equity. Our leverage, which we define as average 18

19 assets divided by average net worth, was 4.6 times as of March 31, 2010, and will be reduced through the proceeds raised in this Issue. We believe that this will enable us to increase the size of our balance sheet while remaining within a sustainable level of leverage and thereby access a broad range of opportunities. Further, as of March 31, 2010 our capital adequacy ratio was 20.5 per cent. and our return on assets was 3.4 per cent. Our long term borrowings have been rated LAAA by ICRA and AAA (ind) by Fitch, which are the highest credit ratings awarded by these rating agencies. We believe that our financial position will be further strengthened with our recent classification as an Infrastructure Finance Company, as it allows us to diversify our borrowings, access long-term funds and increase our lending exposures to individual entities, corporations and groups, which will enable us to take advantage of further growth opportunities. Strong asset quality. Our gross and net non-performing loans represented 0.3 per cent. and 0.2 per cent. of total loan assets, respectively, as of March 31, We believe that our strong asset quality has been achieved due in part to our comprehensive credit and project appraisal skills and disciplined risk management practices. Our credit process involves extensive screening and financial analysis to assess potential risks and devise appropriate risk mitigation mechanisms. We also have a systematic review process to continuously monitor and evaluate the projects in our portfolio. Strategy Our mission is to be the leading knowledge driven financial services firm, creating enduring value, promoting infrastructure and nation building in India and beyond. To enable us to achieve our mission, we are creating a unifying, company-wide culture and governance system based on the pillars of knowledge expertise, teamwork and stewardship. This initiative, called One Firm, cuts across functional domains and is a cornerstone philosophy in executing our key strategies. The initiative is intended to minimize internal segregation and divisions across practice and product areas and emphasizes on collaboration across platforms and leveraging different capabilities across departments and businesses. Guided by our One Firm framework, we are focused on enhancing shareholder value by pursuing strategies that enhance our profitability, return on assets and return on equity. The key elements of our business strategy are as follows: Deliver profitability growth by: operating as a one stop provider of infrastructure financing by offering clients a diverse range of infrastructure financing options and other related services, which include project finance, principal investment, asset management, financial markets and investment banking services, and advisory services; continuing to diversify our revenue streams to increase fee-based income through our non-lending businesses such as asset management, investment banking, private equity and project equity and capturing a greater share of client revenues by cross-selling products and services that address clients requirements; increasing our market share in the investment banking business by expanding our geographical reach and product base and the institutional brokerage business by capitalizing on existing corporate and institutional relationships; seeking transaction leadership roles in select projects in which we participate and working closely with clients, from the pre-bidding stage to project commissioning; and maintaining high levels of operational efficiency to lower our expense to assets ratio. Achieve robust balance sheet growth by: utilizing our recently awarded IFC status to optimize our capital structure and long-term funding resources and thereby expand our financing operations while maintaining our competitive cost of funds; building on the strong relationships we have with sponsors of infrastructure projects to continue expanding our business activities and financing opportunities; 19

20 focusing and capitalizing on our key sectors, including energy, transportation and the telecommunications and information technology sectors; and offering a broader array of financing solutions tailored to different risk appetites in order to expand funding options for infrastructure projects. Pursue leadership in the Indian infrastructure sector by: using our structuring skills and knowledge of domestic and international capital markets to continuously develop and launch new products suitable to a wider array of domestic and international investors and lenders; advocating policy and regulatory frameworks in our areas of focus and tailoring global best practices to the Indian context; delivering high quality advisory services to clients and working with government entities in India, as well as with multilateral and bilateral development agencies, to seek removal of bottlenecks and encourage private investment into infrastructure; and attracting and retaining the best talent in the industry and offering them the opportunity to grow and excel within our organization. 20

21 SUMMARY OF THE ISSUE This summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information appearing elsewhere in this Placement Document, including the sections entitled Risk Factors, Use of Proceeds, Placement, Issue Procedure and Description of the Shares. The following is a general summary of the terms of the Issue: Issuer Issue size Issue Price Eligible Investors Equity Shares issued and outstanding immediately prior to the Issue Equity Shares issued and outstanding immediately after the Issue Listing Lock-up Transferability Restrictions Use of Proceeds Risk Factors Infrastructure Development Finance Company Limited Rs. 26,541.8 million comprising 157,752,090 Equity Shares Rs per Security QIBs, as defined in Regulation 2(1)(zd) of the ICDR Regulations who are either (a) QPs and qualified institutional buyers as defined under Rule 144A or (b) outside the U.S. and not a U.S. Person. Please see the sections entitled Issue Procedure - Qualified Institutional Buyers and Transfer Restrictions 1,301,644,668 Equity Shares 1,459,396,758 Equity Shares (i) Applications for in-principle approval, in terms of clause 24(a) of the Equity Listing Agreement, for listing and admission of the Securities and for trading on the Stock Exchanges, were made and approval has been received from each of the Stock Exchanges and (ii) the application for the final listing and trading approval will be made only after Allotment of the Securities in the Issue. The Company will not, for a period of 90 days from the date of the final Placement Document, without the prior written consent of the Joint Global Coordinators and Book Runners, directly or indirectly, (a) offer, sell or announce the intention to sell, pledge, issue, contract to issue, grant any option, right or warrant for the issuance and allotment, or otherwise dispose of or transfer, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position with respect to, any Equity Shares or securities convertible into or exchangeable or exercisable for Securities (including any warrants or other rights to subscribe for any Equity Shares), (b) enter into a transaction which would have the same effect, or enter into any swap, hedge or other arrangement that transfers, in whole or in part, any of the economic consequences of ownership of any Equity Shares, whether any such aforementioned transaction is to be settled by allotment of any Equity Shares, in cash or otherwise, or (c) publicly disclose the intention to make any such offer, issuance and allotment or disposition, or to enter into any such transaction, swap, hedge or other arrangement; provided, however, that the Company may issue and allot: (i) Equity Shares, including equity linked securities, not exceeding Rs. 35,000 million in value including share premium (with such amount being reduced by the Equity Shares issued and allotted in the Issue, including share premium) subject to applicable law including approval from our shareholders; and (ii) Equity Shares issuable upon the exercise of existing stock options outstanding on the date hereof as described in the Placement Document Securities being Allotted pursuant to the Issue shall not be sold for a period of one year from the date of Allotment, except on the Stock Exchanges. Additional transfer restrictions applicable to the Securities are listed in the section entitled Transfer Restrictions Net proceeds of the Issue (after deduction of fees, commissions and expenses) are expected to total approximately Rs. 26,426.8 million. Please see the section entitled Use of Proceeds Please see the section entitled Risk Factors for a discussion of factors you should consider before deciding whether to buy the Securities. 21

22 Closing Ranking Security Codes for the Equity Shares Allotment of the Securities offered pursuant to the Issue is expected to be made on or about July 7, 2010 (the Closing Date ) Equity Shares being issued shall be subject to the provisions of our Company s Memorandum and Articles of Association and shall rank pari passu in all respects with the existing Equity Shares, including rights in respect of dividends. The shareholders will be entitled to participate in dividends and other corporate benefits, if any, declared by our Company after the Closing Date, in compliance with the Companies Act, the Equity Listing Agreements and other applicable laws and regulations. Shareholders may attend and vote in shareholders meetings on the basis of one vote for every Equity Share held. Please see the section entitled Description of the Shares. ISIN : INE043D01016 BSE Code : NSE Code : IDFC EQ 22

23 SUMMARY FINANCIAL INFORMATION The following summary financial information as of and for the three years ended March 31, 2008, 2009 and 2010 has been derived from our consolidated financial statements included elsewhere in this Placement Document. You should read the following summary financial information in conjunction with our financial statements and the related notes and the section entitled Management s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this Placement Document. Our consolidated financial statements have been prepared in accordance with Indian GAAP and are presented in Rupees. Our historical results do not indicate our results expected for any future periods. CONSOLIDATED BALANCE SHEET Sources of Funds As at March 31, 2008 As at March 31, 2009 As at March 31, 2010 Rs. In million Rs. in million Rs. in million Shareholders' Funds Capital 12, , ,006.1 Share Application Money Reserves and Surplus 42, , , , , ,103.3 Loan Funds Secured 1, Unsecured 222, , , , , ,438.7 Minority Interest Deferred Tax Liability Application of Funds 280, , ,616.3 Goodwill on Consolidation 2, , ,694.2 Fixed Assets Gross Block , ,184.2 Less : Depreciation and Amortisation , ,276.8 Add: Capital Work-in-Progress 3, Add: Pre-operative Expenses pending capitalisation , , ,415.1 Investments 52, , ,417.5 Infrastructure Loans 199, , ,

24 As at March 31, 2008 As at March 31, 2009 As at March 31, 2010 Rs. In million Rs. in million Rs. in million Deferred Tax Asset , ,766.2 Current Assets, Loans and Advances Income accrued on Investments Interest accrued on Infrastructure Loans 1, , ,598.2 Sundry Debtors Cash and Bank balances 18, , ,714.7 Loans and Advances 10, , , , , ,495.6 Less : Current Liabilities and Provisions Current Liabilities 8, , ,185.7 Provisions 1, , , , , ,482.9 Net Current Assets 21, , , , , ,616.3 CONSOLIDATED PROFIT AND LOSS ACCOUNT Income For the year ended March 31, 2008 For the year ended March 31, 2009 For the year ended March 31, 2010 Rs. in million Rs. in million Rs. in million Operating and Other Income 28, , ,601.7 Expenditure Interest and Other Charges 14, , ,534.7 Staff Expenses 1, , ,072.4 Establishment Expenses Other Expenses , ,597.9 Provisions and Contingencies , ,297.7 Depreciation and Amortisation , , ,314.4 Profit before Taxation 10, , ,287.3 Less : Provision for Taxation Current Tax 2, , ,999.6 Less: Deferred Tax Add: Fringe Benefit Tax , , ,665.7 Profit after Taxation (before share of profit from Associates 7, , ,

25 and adjustment for Minority Interest) For the year ended March 31, 2008 For the year ended March 31, 2009 For the year ended March 31, 2010 Rs. in million Rs. in million Rs. in million Add: Dilution effect due to change in holding in an Associate Add / (Less) : Share of Net Profit / (Loss) from Associates (2.0) (Equity method) Less: Share of Profit of Minority Interest Less: Pre-acquisition profits of a Subsidiary Profit after Taxation 7, , ,623.1 Add: Balance as per last Balance Sheet 5, , ,885.8 Add: / (Less) Opening Adjustment (6.4) Profit available for Appropriation 13, , ,533.0 Appropriations: Special Reserve under section 36(1)(viii) of Income Tax Act, 1, , , Special Reserve under section 45-IC of RBI Act, , , ,038.4 General Reserve Proposed Dividend 1, , ,951.3 Tax on Dividend Balance carried forward 8, , , , , ,533.0 Earnings per share (Face Value Rs. 10) Basic Diluted CONSOLIDATED CASH FLOW STATEMENT A. CASH FLOW FROM OPERATING ACTIVITIES For the year ended March 31, 2008 Rs. in million For the year ended March 31, 2009 Rs. in million For the year ended March 31, 2010 Rs. in million Profit Before Taxation 10, , ,287.3 Adjustments for: Depreciation and Amortisation Provision for Employee Benefits ESOP compensation cost Provision for Contingencies , ,026.2 Provision for Doubtful Loans, Debtors and Restructured (206.9) (202.0)

26 For the year ended March 31, 2008 Rs. in million For the year ended March 31, 2009 Rs. in million For the year ended March 31, 2010 Rs. in million Loans Provision for Diminution in value of Investments (61.0) (Gain) / Loss on Foreign Currency Revaluation (206.3) Amortisation of Premium / (Discount) on Investments (6.6) Increase in Foreign Currency Translation Reserve (11.4) Profit on sale of Investments (2,885.3) (3,179.3) (4,286.1) (Profit) on sale of Assets (9.5) (18.5) (119.0) CASH GENERATED FROM OPERATIONS 7, , ,994.9 Infrastructure Loans disbursed (net of repayments) (60,060.3) (7,303.4) (44,936.7) Changes in: Current Assets, Loans and Advances (3,388.6) ,031.9 Current Liabilities and Provisions 4,486.0 (389.2) 2, , ,040.8 Direct Taxes paid (3,285.2) (2,593.7) (3,393.0) NET CASH USED IN OPERATING ACTIVITIES (54,533.1) (425.5) (33,294.0) B. CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets (including Capital Work - in - (3,453.3) (948.0) (399.3) Progress and Pre-operative Expenses pending capitalisation) Sale of Fixed Assets Purchase of Investments (781,228.7) (957,967.9) (1,017,586.4) Sale Proceeds of Investments 753, , ,018,713.7 Goodwill on acquisitions (1,973.9) (7,846.5) (904.4) Capital Reserve on increase of stake in Subsidiary / Joint Venture Opening Adjustment NET CASH FROM / (USED) IN INVESTING ACTIVITIES (33,573.9) (15,599.2) 88.5 C. CASH FLOW FROM FINANCING ACTIVITIES Proceeds from fresh issue of shares (net of issue expenses) 20, Proceeds from Borrowings (net of repayment) 74, , ,368.1 Dividend paid (including dividend tax) (1,320.3) (1,886.2) (1,852.8) Increase / (Decrease) in Minority Interest (2.4) (218.8) NET CASH FROM FINANCING ACTIVITIES 94, , ,504.0 Net change in cash and cash equivalents (A+B+C) 6,397.6 (9,513.9) (5,701.5) Cash and cash equivalents as at the beginning of the year 10, , ,684.1 Cash and cash equivalents as at the end of the year 17, , ,982.6 (6,397.6) 9, ,

27 RISK FACTORS An investment in the Securities involves a high degree of risk. You should carefully consider all the information in this Placement Document, including the risks and uncertainties described below, and in the sections entitled Business and Management s Discussion and Analysis of Financial Condition and Results of Operations as well as the financial statements contained in this Placement Document, before making an investment in the Securities. The risks and uncertainties described in this section are not the only risks that we currently face. Additional risks and uncertainties not known to us or that we currently believe to be immaterial may also have an adverse effect on our business, results of operations and financial condition. If any of the following or any other risks actually occur, our business, prospects, results of operations and financial condition could be adversely affected and the price of, and the value of your investment in, the Securities could decline and you may lose all or part of your investment. Unless otherwise stated, our financial information used in this section is derived from our audited consolidated financial statements under Indian GAAP. You should not invest in this Issue unless you are prepared to accept the risk of losing all or part of your investment, and you should consult your tax, financial and legal advisors about the particular consequences to you of an investment in the Securities. Unless otherwise stated in the relevant risk factors set forth below, we are not in a position to specify or quantify the financial or other implications of any of the risks mentioned herein. Risks Relating to Our Business Infrastructure financing carries certain risks which, to the extent they materialize, could adversely affect our business and result in our loans and investments declining in value. Our business consists primarily of project finance, principal investments, asset management, financial markets and investment banking and advisory services, principally relating to the infrastructure sector in India. Infrastructure financing is characterized by project-specific risks as well as general risks. These risks are generally beyond our control, and include: political, regulatory and legal actions that may adversely affect project viability; interruption or disruption in domestic or international financial markets, whether for equity or debt funds; changes in our credit ratings; changes in government and regulatory policies; delays in implementation of government plans and policies; delays in obtaining regulatory approvals for, and the construction and operation of, projects; adverse changes in market demand or prices for the products or services that the project, when completed, is expected to provide; the unwillingness or inability of consumers to pay for infrastructure services; shortages of, or adverse price developments for, raw materials and key inputs such as metals, cement, steel, oil and natural gas; unavailability of financing at favorable terms, or at all; potential defaults under financing arrangements with our lenders and investors; potential defaults under financing arrangements with our borrowers or the failure of third parties to perform their contractual obligations; emergence of strong or large competitors eligible for benefits that we are not eligible for; adverse developments in the overall economic environment in India; adverse liquidity, interest rate or currency exchange rate fluctuations or changes in financial or tax regulations; and economic, political and social instability or occurrences such as natural disasters, armed conflict and terrorist attacks, particularly where projects are located or in the markets they are intended to serve. 27

28 To the extent these or other risks relating to our activities in the infrastructure sector materialize, the quality of our asset portfolio, the trading price of the Equity Shares and our business, prospects, results of operations and financial condition could be adversely affected. The private infrastructure development industry in India is still at a relatively early stage of development and is linked to the continued growth of the Indian economy, the sectors on which we focus, and stable and experienced regulatory regimes. Although infrastructure is a rapidly growing sector in India, we believe that the further development of India s infrastructure is dependent upon the formulation and effective implementation of programs and policies that facilitate and encourage private sector investment in infrastructure. Many of these programs and policies are evolving and their success will depend on whether they are designed to properly address the issues faced and are effectively implemented. Additionally, these programs will need continued support from stable and experienced regulatory regimes that not only stimulate and encourage the continued movement of private capital into infrastructure development, but also lead to increased competition, appropriate allocation of risk, transparency, effective dispute resolution and more efficient and cost-effective services to the end consumer. The availability of private capital and the continued growth of the infrastructure development industry in India are also linked to continued growth of the Indian economy. Many specific factors within each industry sector may also influence the success of the projects within those sectors, including changes in policies, regulatory frameworks and market structures. Any sudden and adverse change in the policies relating to sectors, in which we intend to invest, may leave us with unutilized capital and interest and debt obligations to fulfill. While there has been progress in sectors such as energy, transportation and telecommunications and information technology, other sectors such as the commercial and industrial infrastructure sector and tourism have not progressed to the same degree. Further, since infrastructure services in India have historically been provided by the central and state governments without charge or at a low charge to consumers, the growth of the infrastructure industry will be affected by consumers income levels and the extent to which they would be willing to pay or can be induced to pay for infrastructure services. This would depend, to a large extent, on the quality of services provided to consumers. If the quality of infrastructure services provided to consumers, over which we have no control, are not as desired, income from infrastructure services would decline. This would lead to a decrease in demand for infrastructure financing, which in turn could adversely affect our business and operations. If the central and state governments initiatives and regulations in the infrastructure industry do not proceed in the desired direction, or if there is any downturn in the macroeconomic environment in India or in specific sectors, our business, prospects, results of operations, financial condition and the trading price of the Equity Shares could be adversely affected. As part of our growth strategy, we have diversified our business operations to increase the emphasis on feebased revenue streams such as asset management, financial markets, and investment banking and advisory services. Our diversification led growth initiatives are susceptible to various risks that may limit our growth and diversification. Our business strategy involves substantial expansion of our current business lines, as well as diversification into new business areas. Our aim is to preserve our market position as an infrastructure lender of choice and to also increase the non-interest and fee-earning aspects of our business. Our growth initiatives carry execution risks, and factors that may limit the success of our growth and diversification include: significant demands on our management as well as our financial, accounting and operating resources. As we grow and diversify, we may not be able to implement our business strategies effectively and our new initiatives could divert management resources from areas in which they could be otherwise better utilized; our inability to identify suitable projects in the future, particularly for our principal investments, private equity, project equity and infrastructure development businesses. our limited experience in these new businesses, which may prevent us from competing effectively with established and new competitors in these areas. We will face significant competition from commercial banks, investment banks, private equity and venture capital firms and established infrastructure developers. As we seek to diversify our business operations, we will face the risk that some of our competitors may be more experienced in or have a deeper understanding of these businesses or have better relationships with potential clients; and 28

29 diversified business operations may make forecasting revenue and operating results difficult, which impairs our ability to manage businesses and shareholders ability to assess our prospects. If we are unable to overcome these obstacles and are unsuccessful in executing our diversification and growth strategy, our business, prospects, results of operations and financial condition could be adversely affected. Further, on June 23, 2010, the RBI classified our Company as an Infrastructure Finance Company, or IFC. In order to maintain such status, we are required to keep a minimum percentage of total assets continuously deployed in infrastructure loans. This may restrain us from diversifying in and developing other business segments. If we are unable to manage our rapid growth effectively, our business, prospects, results of operations and financial condition could be adversely affected. Our business has grown rapidly since we began operations in From fiscal 2008 to fiscal 2010, our balance sheet, total income and profit after tax increased at a compounded annual growth rate of 9.5 per cent., 20.3 per cent. and 19.6 per cent., respectively. We intend to continue to grow our business rapidly, which could place significant demands on our operational, credit, financial and other internal risk controls. Our growth may also exert pressure on the adequacy of our capitalization, making management of asset quality increasingly important. Our asset growth will be primarily funded by the issuance of new debt and occasionally, new equity. We may have difficulty obtaining funding on suitable terms or at all. As we are a systemically important non-deposit accepting NBFC and do not have access to deposits, our liquidity and profitability are dependent on timely and adequate access to capital, including borrowings from banks. Increase in debt would lead to leveraging the balance sheet, exerting pressure on the financial covenants that we are required to maintain under our various loan agreements. We cannot assure you that we would continue to be in compliance with loan agreements conditions. Any default under a loan agreement may lead to an adverse impact on our financial condition and results of operations. The exposure (both lending and investment, including off balance sheet exposures) of a bank to IFCs cannot exceed 15.0 per cent. (the Specified Exposure Limit ) of the bank's capital funds as per such bank s last audited balance sheet. Banks may, however, assume exposures to IFCs up to 20.0 per cent. provided, however, that a bank s exposure in excess of the Specified Exposure Limit is on account of funds on-lent by the IFCs to the infrastructure sector. Banks may also fix internal limits for their aggregate exposure to all NBFCs (including IFCs) put together. Although the Specified Exposure Limit is in excess of the permitted bank exposure levels to NBFCs that are not IFCs, the restrictions applicable to us may impact our ability to obtain adequate funding from Indian banks. Further, our growth also increases the challenges involved in preserving a uniform culture, values and work environment; and developing and improving our internal administrative infrastructure. Addressing the challenges arising from our growth entails substantial senior level management time and resources and would put significant demands on our management team and other resources. As we grow and diversify, we may not be able to implement, manage or execute our strategy efficiently in a timely manner or at all, which could adversely affect our business, prospects, results of operations, financial condition and reputation. Our growth strategy includes pursuing strategic alliances and acquisitions, which may prove difficult to manage or may not be successful. Part of our growth strategy includes pursuing strategic acquisitions and alliances. For instance, we have in the last few years acquired capabilities in investment banking, institutional brokerage and public markets asset management through inorganic acquisitions. Although, as of the date hereof, we have not entered into any letter of intent, memorandum of understanding or other contract for any such acquisition or alliance, we continue to seek such strategic acquisitions in future. However, we cannot assure you that we will be able to consummate acquisitions or alliances on terms acceptable to us, or at all. In particular, an acquisition or alliance outside India may be subject to regulatory approvals which may not be received in a timely manner, or at all. In addition, we cannot assure you that the integration of any future acquisitions will be successful or that the expected strategic benefits or synergies of any 29

30 future acquisitions or alliances will be realized. Acquisitions or alliances may involve a number of special risks, including, but not limited to: outflow of capital as consideration of acquisition and temporary unavailability of capital for financing operations; adverse short-term effects on our reported operating results; higher than anticipated costs in relation to the continuing support and development of acquired companies or businesses; inheritance of litigation or claims; impact of acquisition financing on our financial position; diversion of management s attention; requirement of prior lender consent for acquisition; difficulties assimilating and integrating the processes, controls, facilities and personnel of the acquired business with our own; covenants that may restrict our business, such as non-compete clauses; and unanticipated liabilities or contingencies relating to the acquired company or business. Further, such investments in strategic alliances and acquisitions may be long-term in nature and may not yield returns in the short to medium term. Thus, our inability in managing alliances and acquisitions may have an adverse impact on business, liquidity and results of operations. Our access to liquidity is susceptible to adverse conditions in the domestic and global financial markets. Since the second half of 2007, the global credit markets have experienced, and may continue to experience, significant dislocations and liquidity disruptions, which have originated from the liquidity disruptions in the United States and the European credit and sub-prime residential mortgage markets. During fiscal 2009, we had to operate in a liquidity crunch, especially during September, October and November 2008, and had fewer opportunities to finance or provide services to the infrastructure sector, resulting in a considerable slowdown in our business activities during fiscal These and other related events, such as the collapse of a number of financial institutions, have had and continue to have a significant adverse impact on the availability of credit and the confidence of the financial markets, globally as well as in India. The deterioration in the financial markets has heralded a recession in many countries, which has led to significant declines in employment, household wealth, consumer demand and lending and as a result has adversely affected, and may in the future adversely affect, economic growth in India and elsewhere. In addition, uncertainties in the global and Indian credit and financial markets have recently led to a significant decrease in the availability of credit and an increase in the cost of financing. As a consequence of these factors, we may have difficulty accessing the financial markets, which could make it more difficult or expensive for us to obtain liquidity in the future. There can be no assurance that we will be able to secure additional financing required by us on adequate terms or at all. In response to such developments, legislators and financial regulators in the United States and other jurisdictions, including India, have implemented a number of policy measures designed to add stability to the financial markets. However, the overall impact of these and other legislative and regulatory efforts on the global financial markets is uncertain, and they may not have the intended stabilising effects. Furthermore, pre-emptive actions taken by the RBI in response to the market conditions in the second half of fiscal 2009, especially the provision of liquidity support and a reduction in policy rates, may not continue in the future and there can be no assurance that we will be able to access the financial markets for liquidity if needed. In the event that the current difficult conditions in the global credit markets continue or if there are changes in statutory limitations on the amount of liquidity we must maintain or if there is any significant financial disruption, such conditions could have an adverse effect on our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. 30

31 We have significant exposure to certain sectors and to certain borrowers and if certain assets become nonperforming, the quality of our asset portfolio may be adversely affected. As of March 31, 2010, our three largest sector-wise exposures were in the energy, telecommunications and information technology and transportation sectors, which in the aggregate constituted 82.5 per cent. of our total exposure of Rs. 438,424.6 million, followed by the commercial and industrial infrastructure sector, which constituted 8.2 per cent. Additionally, our concentration within these sectors was also significant. Any negative trends or adverse developments in the energy, transportation, telecommunications and information technology and the commercial and industrial infrastructure sectors, particularly those that may affect our large borrowers, could increase the level of non-performing assets in our portfolio and adversely affect our business and financial performance. For the foreseeable future, we expect to continue to have a significant concentration of assets in these sectors and to certain borrowers. Further, as of March 31, 2010, our ten largest single borrowers in the aggregate accounted for 26.5 per cent. of our total exposure and our ten largest borrower groups in the aggregate accounted for 43.3 per cent. of our total exposure. Credit losses on our significant single borrower and group exposures could adversely affect our business and financial performance and the price of our Equity Shares. For further details on our exposures, please see the section entitled Selected Statistical Information. In addition, at present a majority of our income is in the form of interest income received from our borrowers. Any default by our large borrowers may have an adverse impact on our liquidity position and results of operations. As a consequence of our being regulated as an NBFC and an IFC, we will have to adhere to certain individual and borrower group exposure limits under RBI regulations. In addition to being a public financial institution under the Companies Act, since August 2006 our Company has been regulated by the RBI as an NBFC and as a systemically important non-deposit accepting NBFC pursuant to a notification dated December 13, In terms of the Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007, as amended (the Prudential Norms Regulations ) our Company was required to change the manner of calculating its exposure limits. In the past, our Company had exceeded the exposure limits for individual and borrower groups in certain cases and a letter to ensure compliance with the exposure norms was issued to our Company by the RBI. Further, on June 23, 2010, our Company has been classified as an IFC by the RBI, which classification is subject to certain conditions including 75.0 per cent. of the total assets of such NBFC being deployed in infrastructure loans (as defined under the Prudential Norms Regulations), net owned funds of Rs. 3,000.0 million or more, a minimum credit rating of A or an equivalent credit rating of CRISIL, FITCH, CARE or ICRA or any other accrediting rating agency and a capital to risk-weighted asset ratio of 15.0 per cent. As an IFC, our single borrower limit for infrastructure lending is 25.0 per cent. compared to 20.0 per cent. for an NBFC that is not an IFC, and our single group limit for infrastructure lending is 40.0 per cent. compared to 35.0 per cent. for an NBFC that is not an IFC. Our Company s inability to continue being classified as an IFC may impact our growth and expansion plans by affecting our competitiveness in relation to our Company s competitors. In the event that our Company is unable to comply with the exposure norms within the specified time limit, or at all, we may be subject to regulatory actions by the RBI including the levy of fines or penalties and/or the cancellation of our registration as an NBFC or IFC. Our Company cannot assure you that it may not breach the exposure norms in the future. Any levy of fines or penalties or the cancellation of our registration as an NBFC or IFC by the RBI due to the breach of exposure norms may adversely affect our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. At present, certain of our business and expansion plans are contingent upon our IFC status, and could be affected in the event we are unable to maintain IFC status. Further, as an IFC, we will have to constantly monitor our Company s compliance with the necessary conditions, which may hinder our future plans to diversify into new business lines. 31

32 Pursuant to current regulations on prudential norms issued by the RBI, our Company is required to comply with other norms such as capital adequacy, credit concentration and disclosure norms along with reporting requirements. We cannot assure you that we will be able to continue to comply with such norms, and such non-compliance, if any, may subject us to regulatory action. We are affected by volatility in interest rates for both our lending and treasury operations, which could cause our net interest income to decline and adversely affect our return on assets and profitability. Our business is dependent on interest income from our infrastructure loans. Accordingly, we are affected by volatility in interest rates in our lending operations. Being a non-deposit accepting NBFC, our Company is exposed to greater interest rate risk compared to banks or deposit accepting NBFCs. Interest rates are highly sensitive to many factors beyond our control, including the monetary policies of the RBI, deregulation of the financial sector in India, domestic and international economic and political conditions and other factors. Due to these factors, interest rates in India have historically experienced a relatively high degree of volatility. If interest rates rise we may have greater difficulty in maintaining a low effective cost of funds compared to our competitors which may have access to low-cost deposit funds. Further, in case our borrowings are linked to market rates, we may have to pay interest at a higher rate as compared to other lenders. Fluctuations in interest rates may also adversely affect our treasury operations. In a rising interest rate environment, especially if the rise were sudden or sharp, we could be adversely affected by the decline in the market value of our securities portfolio and other fixed income securities. In addition, the value of any interest rate hedging instruments we may enter into in the future would be affected by changes in interest rates. When interest rates decline, we are subject to greater repricing and prepayment risks as borrowers take advantage of the attractive interest rate environment. When assets are repriced, our spread on our loans, which is the difference between our average yield on loans and our average cost of funds, could be affected. During periods of low interest rates and high competition among lenders, borrowers may seek to reduce their borrowing cost by asking lenders to reprice loans. If we reprice loans, our results may be adversely affected in the period in which the repricing occurs. If borrowers prepay loans, the return on our capital may be impaired as any prepayment premium we receive may not fully compensate us for the redeployment of such funds elsewhere. Further, the majority of the loans provided by us are long-term in nature and may not have escalation clauses and may be on a fixed rate basis. Any increase in interest rates over the duration of such loans may result in us losing interest income. Our inability to effectively and efficiently manage interest rate variations may adversely affect our result of operations and profitability. We cannot assure you that we will be able to adequately manage our interest rate risk in the future, and our inability to do so may have an adverse effect on our net interest income. We could face asset-liability mismatches, which could affect our liquidity position. Our asset-liability management policy categorizes all interest rate sensitive assets and liabilities into various time period categories according to contracted residual maturities or anticipated repricing dates, as may be relevant in each case. The difference between the value of assets and liabilities maturing, or being repriced, in any time period category provides the measure to which we are exposed to the risk of potential changes in the margins on new or repriced assets and liabilities. Despite the existence of such measures, our liquidity position could be adversely affected by the development of an asset-liability mismatch, which could have an adverse effect on our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. The infrastructure financing industry is becoming increasingly competitive and our growth will depend on our ability to compete effectively. Competition in our industry depends on, among other things, the ongoing evolution of Government policies relating to the industry, the entry of new participants into the industry and the extent to which there is consolidation among banks, financial institutions and NBFCs in India. 32

33 Our primary competitors are public sector banks, private banks (including foreign banks), financial institutions and other NBFCs. Many of our competitors may have larger resources or balance sheet sizes than us. Additionally, since our Company is a non-deposit accepting NBFC, we may have restricted access to capital in comparison to banks. Our ability to compete effectively is dependent on our ability to maintain a low effective cost of funds. With the growth of our business, we are increasingly reliant on funding from the debt markets and commercial borrowings. The market for such funds is competitive and our ability to obtain funds on acceptable terms or at all will depend on various factors including our ability to maintain our credit ratings. If we are unable to access funds at an effective cost that is comparable to or lower than our competitors, we may not be able to offer competitive interest rates for our infrastructure loans. This is a significant challenge for us, as there are limits to the extent to which higher costs of funds can be passed on to borrowers, thus potentially affecting our net interest income. We also face significant competition in the public markets asset management, investment banking and institutional brokerage and infrastructure development businesses which we have acquired or established over the last few years. Our competitors in these businesses may be substantially larger and may have considerably greater financing resources than those available to us. Also, some of our competitors may have greater technical, marketing and other resources and greater experience in these businesses. Such competitors also compete with us for management and other human resources and operational resources and capital. We make equity investments, which can be volatile and may not be recovered. As of March 31, 2010, the book value of our quoted equity investments accounted for 0.9 per cent. of our total assets. The value of these investments depends on the success of the operations and management and continued viability of the investee entities. We may have limited control over the operations or management of these entities and some of these investments are unlisted, offering limited exit options. Therefore, our ability to realize expected gains as a result of our equity investments is highly dependent on factors outside of our control. Write-offs or writedowns in respect of our equity portfolio could adversely affect our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. If the level of non-performing assets in our portfolio were to increase, our business will be adversely affected. As of March 31, 2010, our gross and net non-performing loans were Rs million and Rs million, respectively. These represent 0.3 per cent. and 0.2 per cent. of our total loan assets, respectively. Our provision for contingencies of 1.8 per cent. of total assets as of March 31, 2010 may not be indicative of the expected quality of our asset portfolio if risks affecting a significant portion of our exposure were to materialize or general economic conditions deteriorate. We expect the size of our asset portfolio to continue to increase in the future, and we may have additional nonperforming assets on account of these new loans and sectoral exposures. If we are not able to prevent increases in our level of non-performing assets, our business, prospects, results of operations, financial condition and the trading price of the Equity Shares could be adversely affected. Failure to recover the expected value of collateral when borrowers default on their obligations to us may adversely affect our financial performance. As of March 31, 2010, most of our loans were secured by project assets. For debt provided on a senior basis (comprising 98.6 per cent. of the value of our outstanding disbursements), we generally have a first ranking charge on the project assets. For loans provided on a subordinated basis, we generally have a second ranking charge on the project assets. Although we seek to maintain a collateral value to loan ratio of at least per cent. for our secured loans, an economic downturn or the other project risks described in this section could result in a fall in collateral values. Moreover, foreclosure of such collateral may require court or tribunal intervention that may involve protracted proceedings and the process of enforcing security interests against collateral can be difficult. Additionally, the realizable value of our collateral in liquidation may be lower than its book value. Further, a significant portion of our outstanding disbursements were made on a non-recourse or limited recourse basis. With respect to disbursements made on a non-recourse basis, only the related project assets are available to repay the loan in the event the borrowers are unable to meet their obligations under the loan agreements. With respect to disbursements 33

34 made on a limited recourse basis, project sponsors generally give undertakings for funding shortfalls and cost overruns. We cannot guarantee that we will be able to realize the full value of our collateral, due to, among other things, defects in the perfection of collateral, delays on our part in taking immediate action in bankruptcy foreclosure proceedings, stock market downturns, claims of other lenders, legal or judicial restraint and fraudulent transfers by borrowers. In the event a specialized regulatory agency gains jurisdiction over the borrower, creditor actions can be further delayed. In addition, to put in place an institutional mechanism for the timely and transparent restructuring of corporate debt, the RBI has devised a corporate debt restructuring system. The applicable RBI guidelines envisage that for debt amounts of Rs million and above, where recovery suits have been filed by the creditors, lenders constituting at least 60.0 per cent. of the total number of lenders and holding more than 75.0 per cent. of such debt can decide to restructure the debt and such a decision would be binding on the remaining lenders. In situations where other lenders constitute 60.0 per cent. of the total number of lenders and own more than 75.0 per cent. of the debt of a borrower, we could be required by the other lenders to agree to restructure the debt, regardless of our preferred method of settlement. Any failure to recover the expected value of collateral security could expose us to a potential loss. Apart from the RBI guidelines, we may be a part of a syndicate of lenders the majority of whom elect to pursue a different course of action than we would have chosen. Any such unexpected loss could adversely affect our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. As an infrastructure lending institution, we have received certain tax benefits in the past as a result of the type of lending operations we conduct. These benefits are gradually being made unavailable, which could adversely affect our profits. We, as well as infrastructure projects that we finance, have benefited from certain tax regulations and incentives that accord favorable treatment to infrastructure-related activities. As a consequence, our operations have been subject to relatively low tax liabilities. In fiscal 2008, 2009 and 2010, our effective tax rates (net of deferred tax) were 24.8 per cent., 26.9 per cent. and 25.7 per cent., respectively, compared to the marginal rate of tax of per cent. in each of these three fiscal years, including applicable surcharges and cess that would have been applicable to us if these benefits were not made available to us. We cannot assure you that we would continue to be eligible for such lower tax rates or any other benefits. In addition, it is likely that the Direct Tax Code, once introduced, could significantly alter the taxation regime, including incentives and benefits, applicable to us or other infrastructure development activities. If the laws or regulations regarding the tax benefits applicable to us or the infrastructure sector as a whole were to change, our taxable income and tax liability may increase, which would adversely affect our financial results. Additionally, if such tax benefits were not available, infrastructure projects could be considered less attractive which could negatively affect the sector and be detrimental to our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. Our income and profit from our public markets asset management and project equity business is largely dependent on the value and composition of assets under management, which may decline because of factors outside our control. Our income and profit from our public markets asset management and project equity business is dependent on the total value and composition of assets under our management ( AUM ), as our management fees are usually calculated as a percentage of the AUM. Any decrease in the value or composition of AUM will cause a decline in our income and profit. The AUM may decline or fluctuate for various reasons, many of which are outside our control. Factors that could cause the AUM and income to decline include the following: Declines in the Indian equity markets: The AUM for our equity funds, and, to a lesser extent, our balanced/hybrid funds are concentrated in the Indian equity markets. As such, declines in the equity markets or the market segments in which our investment portfolios are concentrated will cause AUM to decline. The equity markets in India are volatile, which contributes and will continue to contribute to fluctuations in our AUM. 34

35 Changes in interest rates and defaults: Many of our funds invest in fixed income securities, including shortterm money market instruments. The value of fixed income securities may decline as a result of changes in interest rates, an issuer's actual or perceived creditworthiness or an issuer's ability to meet its obligations. Redemptions and withdrawals: Clients, in response to market conditions, inconsistent or poor investment performance, the pursuit of other investment opportunities, or any other factors, may reduce their investments in our funds or potential clients may avoid the market segments in which our funds are concentrated. In a declining market, the price of redemptions may accelerate rapidly. Most of our equity and balanced/hybrid funds are open-ended funds, such that clients can redeem their units any time. Some of our income and liquid closed-ended funds have a short duration, so after the life of the fund, clients may choose not to reinvest in our funds and seek alternative forms of savings. If any of our funds face a lack of liquidity, although we have no legal obligation to do so, in order to protect the IDFC brand name, we may need to provide monies to such funds. Further, as compared to our other businesses, the public markets asset management involves direct interaction with retail customers who are sensitive to our brand image. Retail customers may, in response to any negative perception of our brand image, reduce their investments in our funds or avoid the market segments in which our funds are concentrated or choose not to reinvest in our funds and seek alternative forms of savings, all of which could adversely affect our business, prospects, results of operations, financial condition and reputation. The rates for management fees differ depending on the type of fund and product. For example, fee levels for equity and balanced/hybrid funds are generally higher than the fee levels for income and liquid funds. Fee levels for debt funds vary significantly depending on market conditions and the type of fund. Accordingly, the composition of AUM also substantially affects the level of our income. Further, regulatory intervention on the entry and exit loads and the fees chargeable under different schemes, have been considerable in the recent past. We cannot assure you that such actions would not continue in future. Any such actions may limit our income, increase expenses and may have a material adverse effect on our profitability and results of operations. The amount of expenses funds can charge is also usually based on a percentage of AUM. Any expense incurred by us in excess of the pre-determined percentage that can be charged to the funds would be met by the AMC. Accordingly, the value of AUM also can affect the level of our operating expenses. In addition, excluding any distribution costs, most of our costs do not vary directly with AUM or income. As a result, our operating margins may fluctuate by a higher percentage than changes in income. Our investment funds business is subject to a number of risks and uncertainties. Our subsidiary IDFC Private Equity Company Limited is the investment manager for three funds and manages a corpus of Rs. 59,918.0 million. For more details of these funds, please see the section entitled Business Alternative Asset Management. Existing and potential investors in our funds continually assess our investment funds performance, and our ability to raise capital for future investment funds will depend on our investment funds continued satisfactory performance. Fiscal 2010 witnessed low levels of activity in the performance of our investment funds. If any of our investment funds were to perform poorly, the value of our assets under management would decrease. This would also result in a reduction in our management and incentive fees and carried interest. Moreover, we could experience losses on our investments as principal as a result of poor investment performance by our investment funds. This could adversely affect our ability to expand our funds business, which is one of the key elements of our strategy. Further, any adverse regulatory action in relation to the investment fund business or the sector in which we have investments may have an adverse impact on our business and results of operations. Thus, if we are unable to manage foreseeable and unforeseen risks and uncertainties in our investment management, it could affect our overall profitability and performance. 35

36 If the investment strategy for any of our funds goes out of favour with our clients, our income and profit may be materially adversely affected. Our investment strategy in relation to any of our funds could go out of favour with our clients for a number of reasons, such as our inability to formulate an appropriate investment strategy, incorrect presumption about risks and benefits, underperformance relative to market indices, competition or other factors. If our investment strategies were to go out of favour with our clients, it could cause our clients to reduce the assets that we manage for them. Our inability to formulate new investment strategies or offer new products promptly if market conditions change or new opportunities arise also may adversely affect the growth of our AUM. A decrease in our AUM may have a material adverse effect on our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. We have a limited history with respect to acting as an infrastructure developer and we are subject to all of the business risks and uncertainties associated with commencing a new business in general, and with infrastructure development in particular. We established IDFC Projects Limited in 2007, to act as an infrastructure developer. However, we have very limited experience in developing infrastructure projects and, as of the date of this Placement Document, we have a majority interest in a company which is setting up a 1,050 MW coal-fired power plant in Chhattisgarh. Our success as an infrastructure developer will depend, among other things, on our ability to attract and retain talented and experienced personnel and to build relationships with partners and co-developers. We may not have control over joint ventures incorporated for undertaking infrastructure projects. Additionally, we are subject to all of the business risks and uncertainties associated with any new business enterprise, including the risk that we will not achieve our objectives within the estimated time period, or at all and that the value of your investment in the Securities could decline substantially. Any inability to effectively develop or operate the projects, which we are developing or expect to develop, could adversely affect our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. Any infrastructure projects we develop will require significant capital expenditure for which we will require additional capital. If we are unable to obtain the necessary funds on acceptable terms, our growth plans could be adversely affected. Our funding requirements for infrastructure projects that we seek to develop through IDFC Projects Limited are likely to be substantial, and our ability to finance these plans are subject to a number of risks, contingencies and other factors, some of which are beyond our control, including availability of liquidity, general economic and capital markets conditions and our ability to obtain financing on acceptable terms, in a timely manner, or at all. Furthermore, adverse developments in the Indian credit markets or a reduced perception in the credit markets of our creditworthiness could increase our debt service costs and the overall cost of our funds. Additionally, due to the number of large scale infrastructure projects currently under development in India and increased lending by banks and financial institutions to such projects, we may not be able to receive adequate debt funding on commercially reasonable terms. We cannot assure you that debt or equity financing or our internal accruals will be available or sufficient to meet our capital expenditure requirements. Our ability to obtain the required capital on acceptable terms is subject to a variety of uncertainties, including: limitations on our ability to incur additional debt, including as a consequence of regulatory and contractual restrictions and prospective lenders evaluations of our creditworthiness and pursuant to restrictions on incurrence of debt in our existing and anticipated credit facilities; limitations on our ability to raise capital in the capital markets and conditions of the Indian, U.S. and other capital markets in which we may seek to raise funds; and our future results of operations, financial condition and cash flows. Any inability to raise sufficient capital, or any delays in raising capital, to fund our infrastructure projects could adversely affect our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. 36

37 Material changes in the regulations that govern us could cause our business to be adversely affected and the price of our Equity Shares to decline. We are subject to the Companies Act and are subject to detailed supervision and regulation by the RBI and by the SEBI for certain of our activities. In addition, we are subject generally to changes in Indian law, as well as to changes in regulation and government policies and accounting principles. We also receive certain benefits from being notified as a public financial institution under the Companies Act and by virtue of operating in the infrastructure sector. Any amendments or other changes to the regulations governing us may require us to restructure our activities and/or incur additional expenses in complying with such laws and regulations and could materially and adversely affect our business, financial condition and results of operations. Further, our Company has recently been classified as an IFC, which entitles our Company to certain benefits, such as relaxed exposure norms, access to external commercial borrowings under the automatic route up to a certain percentage and increased access to lending by banks. However, classification as an IFC is also subject to certain conditions including 75.0 per cent. of the total assets of such NBFC being deployed in infrastructure loans (as defined under the Prudential Norms Regulations), net owned funds of Rs. 3,000.0 million or more, minimum credit rating of A or an equivalent credit rating of CRISIL, FITCH, CARE or ICRA or any other accrediting rating agency and CRAR of 15.0 per cent. Our Company s inability to continue being classified as an IFC may impact our growth and expansion plans by affecting our competitiveness. Our principal shareholders will continue to hold a significant number of our Equity Shares after the Issue and may therefore be able to influence the outcome of shareholder voting. After the completion of this Issue, our principal shareholder, the Government, will hold approximately 17.9 per cent. of our Equity Shares. Additionally, our Articles of Association provide that the Government has the right to appoint two of our fifteen Directors and three Directors are required to be nominated by the Nomination Committee from the panel of names proposed by the Domestic Institutions and Foreign Investors. Certain shareholders may be able to exercise a significant degree of influence over us and, if they act together, may be able to influence the outcome of any proposal that can be passed with a majority shareholder vote even though such proposals may be beneficial to our other shareholders. We are subject to credit, market and liquidity risks, and if any such risks were to materialize, our credit ratings and our cost of funds could be adversely affected. To the extent any of the instruments and strategies we use to hedge or otherwise manage our exposure to market or credit risks are not effective, we may not be able to mitigate effectively our risk exposures in particular market environments or against particular types of risks. Our trading revenues and interest rate risk are dependent upon our ability to properly identify, and mark to market, changes in the value of financial instruments caused by changes in market prices or rates. Our earnings are dependent upon the effectiveness of our management of migrations in credit quality and risk concentrations, the accuracy of our valuation models and our critical accounting estimates and the adequacy of our allowances for loan losses. To the extent our assessments, assumptions or estimates prove inaccurate or are not predictive of actual results, we could incur higher than anticipated losses. The successful management of credit, market and operational risk is an important consideration in managing our liquidity risk because it affects the evaluation of our credit ratings by rating agencies. Rating agencies may reduce or indicate their intention to reduce the ratings at any time. For example, one of the rating agencies had downgraded our debt grading from AAA to AA+ in July, 2009 and there can be no assurance that we may not experience such downgrade in the future. The rating agencies can also decide to withdraw their ratings altogether, which may have the same effect as a reduction in our ratings. Any reduction in our ratings (or withdrawal of ratings) may increase our borrowing costs, limit our access to capital markets and adversely affect our ability to sell or market our products, engage in business transactions, particularly longer-term and derivatives transactions, or retain our customers. This, in turn, could reduce our liquidity and negatively impact our operating results and financial condition. 37

38 In addition, as an IFC, banks exposures to us are risk-weighted in accordance with the ratings assigned to the Company by the rating agencies registered with the SEBI and accredited by the RBI. Our classification as an IFC is dependent upon the credit rating we obtain and maintain. Although we believe that we have adequate risk management policies and procedures in place, we may still be exposed to unidentified or unanticipated risks, which could lead to material losses. Our contingent liabilities not provided for could adversely affect our financial condition. As of March 31, 2010, we had contingent liabilities not provided for of Rs. 11,161.2 million, including Rs. 6,896.6 million of capital commitments and Rs. 2,801.2 million of financial guarantees. We also had Rs million of contingent liabilities on account of income tax disputes. If these contingent liabilities fully materialize, our financial condition could be adversely affected. For further details of our contingent liabilities, please see the section entitled Management s Discussion and Analysis of Financial Condition and Results of Operations and the notes to our financial statements. Our success is dependent upon our management team and skilled personnel and our ability to attract and retain such persons. Our future performance will be affected by the continued service of our management team and our ability to attract and retain skilled personnel. We also face a continuing challenge to recruit and retain a sufficient number of suitably skilled personnel, particularly as we utilize the experienced understanding of our management of risks and opportunities associated with our business, and continue to grow and broaden our business activities. Our diversification strategy with its emphasis on principal investments, loan syndication, institutional brokerage, asset management and investment banking, and corporate and advisory services, requires highly qualified and skilled personnel. There is significant competition in India for such personnel, and it may be difficult to attract, adequately compensate and retain the personnel we need in the future. For example, Luis Miranda will become the nonexecutive chairman of IDFC Private Equity by November 1, Until then, he will continue in his current role as president and chief executive officer of IDFC Private Equity. We will initiate steps to find a suitable person to assume the role of chief executive officer for IDFC Private Equity. We do not maintain a key man insurance policy. Inability to attract and retain appropriate managerial personnel, or the loss of key personnel could adversely affect our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. Your holdings may be diluted by additional issuances of equity shares, the issue or vesting of stock options under the existing or any future employee stock option scheme or sales by our principal shareholders which may adversely affect the market price of our Equity Shares. Except for the 90-day lockup on the Company s ability to issue equity or equity linked securities discussed in the section entitled Placement, there is no restriction on our ability to issue the Equity Shares or our significant shareholders ability to dispose of their Equity Shares, and there can be no assurance that we will not issue any Equity Shares or that any such shareholder will not dispose of, encumber, or pledge, its Equity Shares. Any future issuance of our Equity Shares or issue or vesting of stock options under an employee stock option scheme may dilute the shareholding of investors, which could adversely affect the market price of our Equity Shares. Additionally, sales of a large number of our Equity Shares by our significant shareholders could adversely affect the market price of our Equity Shares. The perception that any such primary or secondary sale may occur could also adversely affect the market price of our Equity Shares. Foreign currency lending or borrowing will expose us to fluctuations in foreign exchange rates. We are affected by adverse movements in foreign exchange rates to the extent they affect our borrowers negatively, which may in turn adversely affect the quality of our exposure to these borrowers. As of March 31, 2010, we had foreign currency borrowings of U.S. $ million. While we currently seek to hedge foreign currency exposures, as our business grows and we seek greater amounts of foreign currency funds (for example, as an IFC, we have greater access to external commercial borrowings), we could be exposed to a greater extent to fluctuations in foreign currency rates. Volatility in foreign exchange rates could adversely affect our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. 38

39 We are involved in certain legal proceedings that, if determined against us, could adversely impact our business and financial condition. We are subject to certain significant legal proceedings that could adversely impact our business and financial condition. These include: We are involved in a number of disputes pending with the Income Tax Department with respect to income tax assessments for the assessment years , , , , , , , , , and The aggregate income tax liability in dispute is Rs million. In fiscal 2004, we sanctioned and disbursed a loan of Rs. 300 million to Data Access (India) Limited ( DAIL ) for use in connection with its Internet service provider business. As a result of a promoter dispute and a winding up petition filed by one of DAIL s promoters, the High Court of Delhi on November 18, 2005 awarded a winding up order against DAIL and appointed an official liquidator (the Official Liquidator ) to take charge of DAIL s assets. As security against the loan, we hold a number of shares in DAIL. However, a group of new investors filed a suit against us seeking to prevent us from selling DAIL s shares held by the Company, and the Madras High Court subsequently passed a temporary order preventing us from disposing of our shareholding in DAIL. On August 26, 2005, the Company filed a recovery petition in the Debt Recovery Tribunal, New Delhi against the guarantors under the loan to DAIL, namely Siddharth Ray and SPA Enterprises Limited for recovery of an amount aggregating to Rs million. In November 2008, the aforesaid guarantors filed application for stay of proceedings before the Debt Recovery Tribunal which has been dismissed. The matter is pending. In February 2008, the Company filed an application against DAIL and Canara Bank for recovery of Rs million in the Debt Recovery Tribunal, New Delhi. The Company prayed for issuing of a certificate of recovery in its favor by the Debt Recovery Tribunal. Canara Bank has filed its written statement alleging that the Company does not have first charge over the book debts and receivables of DAIL. The Company filed its rejoinder to the written statement in November The matter is pending. Following Vodafone International Holdings BV's ("Vodafone") agreement with Hutchison Telecommunications International Limited ("HTIL") for the acquisition of a controlling stake in Hutchison Essar Limited ("HEL"), an organization called the Telecom Watchdog filed a civil writ petition before the High Court of Delhi alleging breach of the 74% sectoral cap for foreign direct investment by Vodafone in HEL. The Government, along with 21 other entities, including our Company was made respondents under this writ petition. The petitioner has alleged that SMMS Investments Private Limited (which was held 49% by the Company, 49% by IDF and 2% by SSKI Corporate Finance Limited) holds its 54.21% investment in Omega Telecom Holdings Private Limited (which in turn held 5.11% equity interest in HEL) as a nominee of HTIL. On May 7, 2007, the Ministry of Finance, Government approved the acquisition of a controlling stake in HEL by Vodafone. However on May 10, 2007 Telecom Watchdog filed an application before the High Court of Delhi for the revival of the civil writ petition. The High Court of Delhi issued revival notice and granted liberty to Telecom Watchdog to amend the writ petition. Telecom Watchdog filed writ petition involving Vodafone also as a party. The matter is pending. Further, in the past, IDFC Capital Limited and IDFC Securities Limited have received show-cause notices from the SEBI and income tax authorities. Pursuant to a letter dated October 29, 2009, the RBI has stated that the erstwhile SSKI Corporate Finance Private Limited has been in contravention of certain regulations under FEMA. Pursuant to a letter dated February 9, 2010, IDFC Capital Limited has submitted an application for compounding which was heard on June 25, For further details, please see the section entitled Legal Proceedings. 39

40 We have debt agreements which contain restrictive covenants, placing limitations on us. Some debt agreements entered into by the Company contain restrictive covenants including certain restrictions relating to the diversification of our business. These restrictions may impede the growth of our business. We have recently secured our outstanding borrowings by a floating charge over our receivables. Any inability to comply with the provisions of our debt agreements and any consequent action taken by our lenders, including an enforcement of the security, may adversely affect our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. Risks Relating to Investments in Indian Companies A slowdown in economic growth in India could cause our business to be adversely affected. We and most of our subsidiaries are incorporated in India, and substantially all of our assets and employees are located in India. As a result, we are highly dependent on prevailing economic conditions in India and our results of operations are significantly affected by factors influencing the Indian economy. Any slowdown in economic growth in India could adversely affect us, including our ability to grow our asset portfolio, the quality of our assets, and our ability to implement our strategy. In recent years, India has been one of the fastest growing major economies in the world, recording a GDP growth rate at factor cost of 9.0 per cent. or higher in each of fiscal 2006, 2007 and Macroeconomic conditions resulted in GDP growth rates at factor cost declining to 6.7 per cent. in fiscal 2009 and 6.1 per cent. in the first quarter of fiscal The Central Statistics Office s (Ministry of Statistics and Programme Implementation) estimates suggest that the GDP growth rate at factor cost in fiscal 2010 will have been approximately 7.4 per cent. The current uncertain economic situation, in India and globally, could result in a further slowdown in economic growth, investment and consumption. A further slowdown in the rate of growth in the Indian economy could result in lower demand for credit and other financial products and services and higher defaults. Any slowdown in the growth or negative growth of sectors where we have a relatively higher exposure could adversely impact our performance. Any such slowdown could adversely affect our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. Significant shortages in the supply of crude oil or natural gas, and other raw materials, could adversely affect the Indian economy and the infrastructure sector, which could adversely affect us. In fiscal 2009, India imported approximately million tonnes of crude oil. Crude oil prices are volatile and prices have risen in recent years due to a number of factors such as the level of global production and demand and political factors such as war and other conflicts, particularly in the Middle East. Any significant increase in oil prices could adversely affect the Indian economy, including the infrastructure sector, and the Indian banking and financial system. Prices of other key raw materials, for example steel, coal and cement, have also risen in recent years and if the prices of such raw materials approach levels that project developers deem unviable, this will result in a slowdown in the infrastructure sector and thereby reduce our business opportunities, our financial performance, our ability to implement our strategy and the price of our Equity Shares. In addition, natural gas is a significant input for infrastructure projects, particularly those in the energy sector. India has experienced delays in the availability of natural gas which has caused difficulties in these projects. Continued difficulties in obtaining reliable, timely supply of natural gas could adversely affect some of the projects we finance and could impact the quality of our asset portfolio and our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. Financial instability in other countries could disrupt our business and cause the trading price of the Equity Shares to decrease. The Indian market and the Indian economy are influenced by economic and market conditions in other countries. Although economic conditions are different in each country, investors reactions to developments in one country can have adverse effects on the securities of companies and the economy as a whole, in other countries, including India. A loss of investor confidence in the financial systems of other emerging markets may cause volatility in Indian 40

41 financial markets and indirectly, in the Indian economy in general. Any worldwide financial instability could also have a negative impact on the Indian economy, including the movement of exchange rates and interest rates in India. In the event that the current difficult conditions in the global credit markets continue or if the recovery is slower than expected or if there any significant financial disruption, this could have an adverse effect on our cost of funding, loan portfolio, business, prospects, results of operations, financial condition and the trading price of the Equity Shares. Political instability or changes in the Government could adversely affect economic conditions in India and consequently, our business. The Government has traditionally exercised and continues to exercise a significant influence over many aspects of the economy. Since 1991, successive governments have pursued policies of economic and financial sector liberalisation and deregulation and encouraged infrastructure projects. The new Government, which came to power in May 2009, is headed by the Indian National Congress and is a coalition of several political parties. Although the previous Governments had announced policies and taken initiatives that supported the economic liberalisation programme pursued by previous governments, the policies of the subsequent Governments may change the rate of economic liberalisation. A significant change in the Government s policies in the future, particularly in respect of the banking and finance industry and the infrastructure sector, could affect business and economic conditions in India. This could also adversely affect our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. If regional hostilities, terrorist attacks or social unrest in India increases, our business could be adversely affected and the trading price of the Equity Shares could decrease. India has from time to time experienced social and civil unrest and hostilities within itself and with neighbouring countries. India has also experienced terrorist attacks in some parts of the country. In November 2008, several coordinated terrorist attacks occurred across Mumbai, India s financial capital, which resulted in the loss of life, property and business. These hostilities and tensions and/or the occurrence of similar terrorist attacks have the potential to cause political or economic instability in India and adversely affect our business, our future financial performance and the trading price of the Equity Shares. Further, India has also experienced social unrest in some parts of the country. If such tensions occur in other parts of the country, leading to overall political and economic instability, it could have an adverse effect on our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. Natural calamities could have a negative impact on the Indian economy and could cause our business to be adversely affected and the trading price of the Equity Shares to decrease. India has experienced natural calamities such as earthquakes, floods and drought in the recent past. The extent and severity of these natural disasters determine their impact on the Indian economy. In previous years, many parts of India received significantly less than normal rainfall. As a result, the agricultural sector recorded minimal growth. Prolonged spells of below normal rainfall in the country or other natural calamities could have a negative impact on the Indian economy, affecting our business and potentially causing the trading price of the Equity Shares to decrease. Our transition to IFRS reporting could have a material adverse effect on our reported results of operations or financial condition. Public companies in India, including us, may be required to prepare annual and interim financial statements under IFRS in accordance with the roadmap for the adoption of, and convergence with, IFRS announced by the Ministry of Corporate Affairs, Government, through the press note dated January 22, 2010 (the Press Release ) and the clarification thereto dated May 4, 2010 (together with the Press Release, the IFRS Convergence Note ). Pursuant to the IFRS Convergence Note, NBFCs which are part of the Nifty 50 or Sensex 30 or have a net worth in excess of Rs. 10,000.0 million as per the audited balance sheet as at March 31, 2011, or the first balance sheet for accounting periods which ends after that date, are required to convert their opening balance sheet as at April 1, 2013 in 41

42 compliance with the notified accounting standards to be converged with IFRS. We have not yet determined with any degree of certainty what impact the adoption of IFRS will have on our financial reporting. Our financial condition, results of operations, cash flows or changes in shareholders equity may appear materially different under IFRS than under Indian GAAP or our adoption of IFRS may adversely affect our reported results of operations or financial condition. For example, IFRS may not permit us to recognise revenues on a percentage of completion method and accordingly we may be required to restate our historical financial information and commence recognising revenues only when construction is completed and a unit is sold. This may have a material adverse effect on the amount of income recognised during that period and in the corresponding (restated) period in the comparative fiscal year/period. In addition, in our transition to IFRS reporting, we may encounter difficulties in the ongoing process of implementing and enhancing our management information systems. Moreover, our transition may be hampered by increasing competition and increased costs for the relatively small number of IFRS-experienced accounting personnel available as more Indian companies begin to prepare IFRS financial statements. The market value of the Equity Shares may fluctuate due to the volatility of the Indian securities markets. Indian securities markets may be more volatile than and not comparable to the securities markets in certain countries with more developed economies and capital markets than India. Indian stock exchanges have, in the past, experienced substantial fluctuations in the prices of listed securities. Indian stock exchanges (including the Stock Exchanges) have experienced problems which, if such or similar problems were to continue or recur, could affect the market price and liquidity of the securities of Indian companies, including the Securities. These problems have included temporary exchange closures, broker defaults, settlement delays and strikes by brokers. In addition, the governing bodies of Indian stock exchanges have, from time to time, imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Further, from time to time, disputes have occurred between listed companies, stock exchanges and other regulatory bodies, which in some cases may have a negative effect on market sentiment. Difficulties faced by other banks, financial institutions or NBFCs or the Indian financial sector generally could cause our business and the trading price of our Equity Shares to be adversely affected. We are exposed to the risks of the Indian financial sector which in turn may be affected by financial difficulties and other problems faced by Indian financial institutions. Certain Indian financial institutions have experienced difficulties during recent years particularly in managing risks associated with their portfolios and matching the duration of their assets and liabilities, and some co-operative banks have also faced serious financial and liquidity crises. Any major difficulty or instability experienced by the Indian financial sector could create adverse market perception, which in turn could adversely affect our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. A decline in India s foreign exchange reserves may affect liquidity and interest rates in the Indian economy, which could have an adverse impact on our business, future financial performance and the trading price of the Equity Shares. A rapid decrease in reserves would also create a risk of higher interest rates and a consequent slowdown in growth. India s foreign exchange reserves in March 2010 stood at U.S.$279.1 billion, which represented an increase of U.S.$27.1 billion over that in March A decline in these reserves could result in reduced liquidity and higher interest rates in the Indian economy. On the other hand, high levels of foreign funds inflow could add excess liquidity into the system, leading to policy interventions, which will also slow down economic growth. Either way, an increase in interest rates in the economy following a decline in foreign exchange reserves could adversely affect our business, prospects, results of operations, financial condition and the trading price of the Equity Shares. 42

43 Currency exchange rate fluctuations may affect the value of the Equity Shares. The exchange rate between the Indian Rupee and other foreign currencies, including the U.S. Dollar, the British Pound, the Euro, the Hong Kong Dollar, the Singapore Dollar and the Japanese Yen, has changed substantially in recent years and may fluctuate substantially in the future. Fluctuations in the exchange rate between the foreign currencies with which an investor may have purchased Indian Rupees may affect the value of the investment in our Equity Shares. Specifically, if there is a change in relative value of the Indian Rupee to a foreign currency, each of the following values will also be affected: the foreign currency equivalent of the Indian Rupee trading price of our Equity Shares in India; the foreign currency equivalent of the proceeds that you would receive upon the sale in India of any of our Equity Shares; and the foreign currency equivalent of cash dividends, if any, on our Equity Shares, which will be paid only in Indian Rupees. You may be unable to convert Indian Rupee proceeds into a foreign currency of your choice, or the rate at which any such conversion could occur could fluctuate. In addition, our market valuation could be seriously harmed by a devaluation of the Indian Rupee if investors in jurisdictions outside India analyze its value based on the relevant foreign currency equivalent of our financial condition and results of operations. It may not be possible for investors to enforce any judgment obtained outside India against us, our management or any of our respective affiliates in India, except by way of a suit in India on such judgment. We are incorporated under the laws of India and a substantial majority of our assets and the assets of our officers are also located in India. As a result, investors may be unable to effect service of process outside of India upon us and such other persons or entities; or enforce, in Indian courts, judgments obtained in foreign courts against us and such other persons or entities. For further details, please see the section entitled Enforcement of Civil Liabilities. Risks relating to the Equity Shares After this Issue, the price of the Equity Shares may be volatile. The price of the Equity Shares on the Stock Exchanges may fluctuate after this Issue as a result of several factors, including: volatility in the Indian and the global securities market or in the Rupee s value relative to the U.S. dollar, the Euro and other foreign currencies; our profitability and performance; perceptions about our future performance or the performance of Indian companies in general; performance of our competitors and the perception in the market about investments in the banking and finance sector; adverse media reports about us or the Indian banking and finance and infrastructure sectors; changes in the estimates of our performance or recommendations by financial analysts; significant developments in India s economic liberalisation and deregulation policies; significant developments in India s fiscal and environmental regulations; and any other political or economic factors. There can be no assurance that an active trading market for the Equity Shares will be sustained after this Issue, or that the price at which the Equity Shares have historically traded will correspond to the price at which the Equity Shares are offered in this Issue or the price at which the Equity Shares will trade in the market subsequent to this Issue. 43

44 There is no guarantee that the Securities issued pursuant to this Issue will be listed on the Stock Exchanges in a timely manner, or at all. In accordance with Indian law and practice, permissions for listing and trading of the Securities issued pursuant to this Issue will not be granted until after the Securities have been issued and allotted. Approval for listing and trading will require all relevant documents authorising the issuing of Securities to be submitted. There could be a failure or delay in listing the Securities on the Stock Exchanges. Any failure or delay in obtaining the approval would restrict an investor s ability to trade in the Securities. An investor will not be able to sell any of the Securities subscribed in this Issue other than across a recognised Indian stock exchange for a period of 12 months from the date of the issue of the Securities. Pursuant to the ICDR Regulations, for a period of 12 months from the date of the issue of the Securities in this Issue, QIBs subscribing to the Securities may only sell their Securities on the Stock Exchanges and may not enter into any off-market trading in respect of these Securities. These restrictions may have an adverse impact on the price of the Equity Shares. Investors may be subject to Indian taxes arising out of capital gains on the sale of the Equity Shares. Under current Indian tax laws and regulations, capital gains arising from the sale of shares in an Indian company are generally taxable in India. Any gain realised on the sale of listed Equity Shares on a stock exchange held for more than 12 months will not be subject to capital gains tax in India if Securities Transaction Tax ( STT ) has been paid on the transaction. STT will be levied on and collected by a domestic stock exchange on which the Equity Shares are sold. Any gain realised on the sale of Equity Shares held for more than 12 months to an Indian resident, which are sold other than on a recognised stock exchange and on which no STT has been paid, will be subject to long term capital gains tax in India. Further, any gain realised on the sale of listed Equity Shares held for a period of 12 months or less will be subject to short term capital gains tax in India. Capital gains arising from the sale of the Equity Shares will be exempt from taxation in India in cases where the exemption from taxation in India is provided under a treaty between India and the country of which the seller is resident. Generally, Indian tax treaties do not limit India s ability to impose tax on capital gains. As a result, residents of other countries may be liable for tax in India as well as in their own jurisdiction on a gain upon the sale of the Equity Shares. For further details, please see the section entitled Taxation. A third party could be prevented from acquiring control of us because of the anti-takeover provisions under Indian law. There are provisions in Indian law that may discourage a third party from attempting to take control of us, even if a change in control would result in the purchase of our Equity Shares at a premium to the market price or would otherwise be beneficial to our shareholders. Indian takeover regulations contain certain provisions that may delay, deter or prevent a future takeover or change in control. Any person acquiring either control or an interest (shares and/or voting rights) (either on its own or together with parties acting in concert with it) in 15 per cent. or more of our voting Equity Shares must make an open offer to acquire at least another 20 per cent. of our outstanding voting Equity Shares. A takeover offer to acquire at least another 20 per cent. of our outstanding voting Equity Shares also must be made if a person (either on its own or together with parties acting in concert with it) holding between 15 per cent. and 55 per cent. of our voting Equity Shares has entered into an agreement to acquire or decided to acquire additional voting Equity Shares in any financial year that exceed 5 per cent. of our voting Equity Shares subject to certain limited exceptions. These provisions may discourage or prevent certain types of transactions involving an actual or threatened change in control. The Company and investors resident outside India are subject to foreign investment restrictions under Indian law which may adversely affect our operations and their ability to freely sell the Equity Shares. Under the foreign exchange regulations currently in force in India, transfers of shares from non-residents to residents are freely permitted (subject to certain exceptions) if they comply with the pricing guidelines and reporting requirements specified by the RBI. If the transfer of shares is not in compliance with such pricing guidelines or reporting requirements or fall under any of the specified exceptions, then the prior approval of the RBI will be 44

45 required. In addition, shareholders who seek to convert the Rupee proceeds from a sale of shares in India into foreign currency and repatriate that foreign currency from India will require a no-objection or a tax clearance certificate from the income tax authority. We cannot assure investors that any required approval from the RBI or any other Government agency can be obtained on any particular terms or at all. We may also be subject to restrictions relating to downstream investment under the foreign direct investment policy of the Governments. Pursuant to the consolidated FDI policy issued by the Government, in the event that more than 50% of equity interest of our Company is beneficially owned by non-residents, our Company would be classified as owned by non-resident entities and the downstream investments made by our Company will be considered indirect foreign investment and will therefore be subject to the sectoral limits of foreign investment. SEBI operates an index-based market-wide circuit breaker. Any operation of a circuit breaker may adversely affect a shareholder s ability to sell, or the price at which it can sell, the Equity Shares at a particular point in time. We are subject to an index-based market-wide circuit breaker generally imposed by the SEBI on Indian stock exchanges. This may be triggered by an extremely high degree of volatility in the market activity (among other things). Due to the existence of this circuit breaker, there can be no assurance that shareholders will be able to sell the Equity Shares at their preferred price or at all at any particular point in time. For further details, please see the section entitled The Securities Market of India. Because we expect the Equity Shares to be treated as stock of a passive foreign investment company (a PFIC ) for U.S. Federal income tax purposes, U.S. investors may suffer various adverse tax consequences. Under U.S. Federal income tax laws, certain U.S. investors are subject to special tax rules if they invest in passive foreign investment companies, or PFICs. Since we cannot benefit from the exemption from the PFIC rules that are available for foreign banks, we expect that 50.0 per cent. or more of our gross assets will constitute passive assets for purposes of the PFIC rules. As a result, we expect that we will be treated as a PFIC in this and in subsequent years. Consequently, U.S. investors will be subject to the complex PFIC rules, which could result in additional taxes and interest charges upon a sale or disposition of the Equity Shares or upon certain distributions by us. For a further discussion of the PFIC rules, please see the section entitled Taxation - Certain U.S. Federal Income Tax Considerations. We may be deemed an investment company under the Investment Company Act and as a result the transferability of the Equity Shares by purchasers in the United States may be affected. Under the Investment Company Act, the definition of an investment company would include any issuer engaged in the business of investing, reinvesting, owning, holding or trading in securities and which owns or proposes to acquire investment securities having a value exceeding 40.0 per cent. of the issuer s total assets. A significant portion of our assets consist of obligations of borrowers to repay project financing we have extended to infrastructure projects in India. Such obligations could be deemed to be investment securities under the Investment Company Act and we may be deemed to be an investment company. We have elected to impose certain additional restrictions on the U.S. portion of the Issue and on the transferability of the Securities with respect to U.S. persons so that the Issue will not constitute a public offering in the U.S. under the U.S. Investment Company Act of 1940 and related rules. These restrictions are described under the heading Transfer Restrictions and may adversely affect the holders in their ability to transfer the Securities. 45

46 MARKET PRICE INFORMATION (Source: and the websites of NSE and BSE respectively) The Equity Shares of our Company have been listed on the NSE and the BSE since August The tables below set forth, for the periods indicated the high, low and average closing prices and the trading volumes on the NSE and the BSE for our Company s Equity Shares. As on the date of this Placement Document, 1,301,644,668 Equity Shares have been issued and are fully paid up. The following tables set forth the reported high, low and average of the closing prices of the Equity Shares of our Company on the NSE and the BSE traded on the days such high and low prices were recorded for the fiscal years 2008, 2009 and NSE Year ending March 31 High (Rs.) Date of High No. of Equity Shares traded on date of high Total Volume of Equity Shares traded on date of high (Rs. in million) Low (Rs.) Date of Low November 18 11,574,838 2, April May 2 7,602,559 1, March January 1 9,187,155 2, April * Average of the daily closing prices. No. of Equity Shares traded on date of low Total Volume of Equity Shares traded on date of low (Rs. in million) Average price for the year (Rs.)* 9,071, ,650, ,032, BSE Year ending March 31 High (Rs.) Date of High No. of Equity Shares traded on date of high Total Volume of Equity Shares traded on date of high (Rs. in million) November 2,079, May 2 2,185, January 2 1,586, * Average of the daily closing prices. Low (Rs.) Date of Low No. of Equity Shares traded on date of low Total Volume of Equity Shares traded on date of low (Rs. in million) *Average price for the year (Rs.)* April 1 2,375, March 16,117, April 3 1,149,

47 The following tables set forth the reported high and low closing prices of our Equity Shares recorded on the NSE and the BSE and the number of Equity Shares traded on the days such high and low prices were recorded and the volume of Equity Shares traded in each month during the last six months. NSE Month High (Rs.) Date of High No. of Equity Shares traded on date of high Total Volume of Equity Shares traded on date of high (Rs. in million) May May 3 1,695, April April 12 4,594, March March 12 4,743, February February 14,739,333 2, January January 6 11,273,364 1, December December 10,504,036 1, * Average of the daily closing prices. Low (Rs.) Date of Low No. of Equity Shares traded on date of low Total Volume of Equity Shares traded on date of low (Rs. in million) Average price for the month (Rs.)* May 25 5,564, April 1 3,120, March 23 3,164, February 10 January 27 December 21 3,165, ,832, ,851, Total volume of Equity Shares traded in the month In number (Rs. in million) 100,826,823 15, ,381,081 17, ,432,949 12, ,717,771 11, ,718,313 13, ,464,833 16, BSE Month High (Rs.) Date of High No. of Equity Shares traded on date of high Total Volume of Equity Shares traded on date of high (Rs. in million) Low (Rs.) Date of Low No. of Equity Shares traded on date of low Total Volume of Equity Shares traded on date of low (Rs. in million) Average price for the month (Rs.)* Total volume of Equity Shares traded in the month In number (Rs. in million) May May 3 254, May 25 1,076, ,133,425 2, April April , April 1 305, ,189,514 3, March 166 March 12 1,064, March , ,354,539 2,

48 Month 2010 High (Rs.) Date of High No. of Equity Shares traded on date of high Total Volume of Equity Shares traded on date of high (Rs. in million) Low (Rs.) Date of Low February February 26 3,701, February 10 January January 6 2,567, January December December 2,955, December * Average of the daily closing prices. No. of Equity Shares traded on date of low Total Volume of Equity Shares traded on date of low (Rs. in million) Average price for the month (Rs.)* Total volume of Equity Shares traded in the month In number (Rs. in million) 522, ,252,715 2, ,392, ,087,721 3, ,693, ,327,137 4, The closing prices of our Equity Shares on the NSE and the BSE on April 28, 2010, the trading day immediately following the day on which the resolution of the Board to approve the Issue was passed, were Rs and Rs per Equity Share, respectively. 48

49 USE OF PROCEEDS The total proceeds of the Issue will be Rs. 26,541.8 million. After deducting fees and expenses of approximately Rs million, the net proceeds of the Issue will be approximately Rs. 26,426.8 million. Subject to compliance with applicable laws and regulations, our Company intends to use the net proceeds of the Issue primarily for augmenting long term resources to meet its growth objectives and to meet the capital adequacy norms prescribed by the RBI and general corporate purposes. In accordance with the decision of our Board, our management will have flexibility in deploying the proceeds received by our Company from the Issue. 49

50 CAPITALIZATION STATEMENT The following table sets forth our Company s capitalization and total debt as on March 31, 2010, and as adjusted to give effect to the Issue. This table should be read in conjunction with the section entitled Management s Discussion and Analysis of Financial Condition and Results of Operations and other financial information contained in the section entitled Financial Statements. As of March 31, 2010 (audited and consolidated) (Rs. in Million) As adjusted for the Issue (2) Shareholders funds Equity share capital 13,006.1 (1) 14,593.9 Preference share capital - - Share application money Reserves and surplus 57, ,092.7 Total shareholders funds (A) 70, ,686.6 Loan funds Unsecured loans 265, ,438.6 Minority interest Deferred tax liability Total Loan funds (B) 265, ,513.0 Total (A+B) 335, ,199.6 (1) This does not reflect the Equity Shares issuable upon exercise of 16,548,268 options outstanding as at March 31, (2) Includes an increase of Rs million in the equity share capital and an increase of Rs million in reserves and surplus pursuant to 1,032,275 Equity Shares that were allotted after March 31, 2010 to eligible employees under our Employee Stock Option Scheme. Our Board of Directors on April 27, 2010 and our Company s shareholders in their meeting held on June 28, 2010, approved and authorized the issue of Equity Shares, preference shares or other convertible and exchangeable securities up to an aggregate amount of Rs.35,000 million. This Issue of Equity Shares aggregating Rs.26,541.8 million has been made pursuant to such resolutions and following this Issue, the Company may issue additional Equity Shares, preference shares or other convertible and exchangeable securities for the remaining amount. 50

51 DIVIDENDS The following table sets forth certain details regarding the dividend paid by our Company on the Equity Shares for Fiscal 2008, 2009 and 2010: (In Rs. million, except per share data) Particulars Fiscal 2008 Fiscal 2009 Fiscal 2010 Face value of Equity Shares (Rs. per share) Interim dividend on Equity Shares (Rs. per share) Final dividend of Equity Shares (Rs. per share) Total dividend on Equity Shares 1, , ,951.3 Dividend tax (gross) Amounts paid as dividends in the past are not reflective of any future dividends, which are subject to the recommendation of our Board of Directors based on various factors and the approval of our shareholders. Investors are cautioned not to rely on past dividends as an indication of our future performance or for an investment in the Securities. 51

52 SELECTED STATISTICAL INFORMATION The following information should be read together with our Financial Statements included in this Placement Document as well as the section entitled Management s Discussion and Analysis of Financial Condition and Results of Operations. The amounts presented in this section are based on our Financial Statements prepared in accordance with Indian GAAP and internally generated unaudited statistical data. Return on Assets The following table presents the return on average total assets (profit after tax as a percentage of average total assets) for the years indicated and the components thereof. Fiscal year (percentages, except Rs. millions) Average total assets (Rs. millions) (1) 237, , ,584 Net Interest income 2.9% 3.1% 3.6% Infrastructure (2) 2.4% 2.6% 3.3% Treasury (3) 0.5% 0.5% 0.3% Non-Interest Income (4) 2.6% 2.1% 3.1% Fees 1.7% 1.5% 2.0% Profit on sale of Investments and Dividends 0.9% 0.6% 1.1% Other income (5) 0.1% 0.1% 0.1% Net operating income 5.6% 5.3% 6.8% Operating expenses (6) -1.1% -1.3% -1.8% Profits before Provisions and Contingencies 4.5% 4.0% 5.0% Provisions and Contingencies -0.3% -0.5% -0.4% Profit before tax 4.2% 3.5% 4.6% Tax -1.0% -1.0% -1.2% Share of Profit from Associates and share of profit of minority interest -0.1% % Profit after tax Note: (1) (2) (3) (4) (5) (6) Approximately 3.0 to 4.0 per cent. of this amount is represented by fixed and net current assets, the average balances of which are available on a monthly and not daily basis. Net interest income from infrastructure operations is interest income from infrastructure loans less the proportion of the interest expense attributable to our infrastructure loans. Net income from treasury operations includes: (i) interest from investments such as corporate bonds, certificates of deposit, commercial paper and government securities; (ii) interest from bank deposits; (iii) interest from inter-corporate deposits and loans to financial institutions; (iv) dividends from mutual fund units; and (v) profit on sale of treasury investments less the proportion of our interest expense attributable to our treasury investments. Non-interest income includes (i) fees such as asset management fees, investment banking fees, front end fees, debt and equity syndication fees, guaranteed commission, advisory fees and other miscellaneous fees (ii) dividends from our equity investments in infrastructure projects and other strategic investments; (iii) profit from sales of equity investments. Other income includes (i) interest on income tax refunds; (ii) profit on sale of fixed assets; (iii) sale of power and (iv) other miscellaneous income. Operating expenses include non-interest expenditures including staff expenses, establishment expenses, other expenses and depreciation, and excludes provisions, contingencies and losses from the sale of investments. 52

53 The following table presents selected financial ratios for the years indicated: Fiscal Yield on infrastructure assets (%) Yield on treasury assets (%) Overall Yield (%) Leverage (x) Return on Equity (%) Earnings per share (fully diluted) (Rs.) Net Interest Income The increase in our net interest income from fiscal 2008 to fiscal 2009 reflected mainly the increase in the volume of interest earning assets and, to a lesser extent, an increase in interest rates. The increase in net interest income from fiscal 2009 to fiscal 2010 reflected the increase in the volume of interest earning assets; which was partly off-set by a decrease in yield. Volume and Rate Analysis of Changes in Interest Income and Interest Expense The following table sets forth, for the years indicated, the allocation of the changes in our interest income and interest expense between changes in average volume and changes in average rates. The changes in net interest income between periods have been reflected as attributed either to volume or rate changes. For the purposes of this table, changes which are due to both volume and rate have been allocated solely to changes in rate. (In Rs. millions) Fiscal 2009 v. Fiscal 2008 Fiscal 2010 v. Fiscal 2009 Net change Change due Change Net change Change due Change due in interest income or expense to change in average volume(1) due to change in average rate(2) in interest income or expense to change in average volume(1) to change in average rate(2) Interest income: Infrastructure Loans 6, , , , Treasury Investments 1, (845.1) (1,424.9) Total interest earning assets 8, , , ,227.0 (578.7) Interest expense Borrowings Subordinated debt Others 5, , ,787.4 (1,300.4) 1,206.9 (2,507.4) Total interest bearing liabilities 5, , ,787.4 (1,300.4) 1,206.9 (2,507.4) Net interest income 2, , , , ,928.7 Note: (1) The change due to a change in the average volume was calculated from the change in average balance over the two years multiplied by the average rate in the earlier year. (2) The change due to a change in the average rate is the total change less the change due to change in volume. Unrealized Gains in Equity Portfolio Our equity portfolio has unrealized gains, comprising the difference between our cost and the market value of the securities. The following table shows our unrealized gain as of March 31, 2008, 2009 and

54 As of March 31, (Rs. millions) Cost 3, , ,142.2 Market Value 6, , ,144.8 Unrealized Gain 3,226.8 (68.4) 1,002.6 Concentration of Total Exposure Our policy is to limit our exposure to a group (based on commonality of management and effective control) and an individual borrower to 50.0 per cent. and 30.0 per cent. of the net owned funds (comprising share capital and free reserves), respectively, as per the RBI norms. For infrastructure loans the exposure limits to a group and an individual borrower are 35.0 per cent. and 20.0 per cent. respectively. Either the credit limit or outstanding amount, whichever is higher, is used when computing the exposure ceiling. As a result of the Company being reclassified as an Infrastructure Finance Company by the RBI, our single borrower limit for Infrastructure lending has been increased to 25.0 per cent. from 20.0 per cent. and our single group limit for infrastructure lending has been increased to 40.0 per cent. from 35.0 per cent. The following table sets forth our 10 largest single and group exposures (Standalone Accounts) as determined by the RBI guidelines, as of March 31, Exposure % of total exposure % of owned funds (Rs. millions) (%) (%) Borrower 1 16, Borrower 2 16, Borrower 3 14, Borrower 4 11, Borrower 5 11, Borrower 6 10, Borrower 7 10, Borrower 8 9, Borrower 9 8, Borrower 10 8, Total 116, Exposure % of total exposure % of owned funds (Rs. millions) (%) (%) Group 1 23, Group 2 22, Group 3 22, Group 4 20, Group 5 19, Group 6 19, Group 7 17, Group 8 16, Group 9 15, Group 10 13, Total 189, Our internal policies limit our exposure to any particular industry to 50.0 per cent. of our total exposure. The following table sets forth as of March 31, 2010 the percentage of our largest industry exposures to our total loan assets. 54

55 Exposure % of total exposure (Rs. millions) (%) Industry Energy 168, Transportation 86, Telecommunications and Information Technology 107, Industrial and Commercial 35, Other (1) 40, Total 438, Note: (1) Includes urban services, healthcare, food, agriculture and education. Our commitments and contributions to various venture capital funds, IDFC PE Fund and IDFC Project Equity Fund are also included in this item. The following table shows the percentage share of the five largest borrowers in each the following sectors to our total exposure and percentage of owned funds as of March 31, Energy: Exposure % of total exposure % of owned funds (Rs. millions) (%) (%) Borrower 1 10, Borrower 2 9, Borrower 3 8, Borrower 4 8, Borrower 5 7, Total 44, Transportation: Exposure % of total exposure % of owned funds (Rs. millions) (%) (%) Borrower 1 5, Borrower 2 5, Borrower 3 5, Borrower 4 4, Borrower 5 4, Total 24, Telecommunications and Information Technology: Exposure % of total exposure % of owned funds (Rs. millions) (%) (%) Borrower 1 16, Borrower 2 16, Borrower 3 14, Borrower 4 11, Borrower 5 11, Total 69,

56 Industrial and Commercial: Exposure % of total exposure % of owned funds (Rs. millions) (%) (%) Borrower 1 5, Borrower 2 4, Borrower 3 3, Borrower 4 3, Borrower 5 2, Total 17, Non-Performing Assets (Standalone Accounts) As of March 31, 2010, three of our loans have been categorized as non-performing. Our gross non-performing assets as a percentage of total loan assets was 0.3 per cent. and our net non-performing assets as a percentage of total loan assets was 0.2 per cent. The following table set forth, as of the dates indicated, information about our non-performing asset portfolio: Loan Assets March 31, NPAs NPAs as % Loan NPAs NPAs as % Loan NPAs NPAs as % of loan Assets of loan Assets of loan assets assets assets (Rs. (%) (Rs. (Rs. (%) (Rs. (Rs. (%) millions) millions) millions) millions) millions) (Rs. millions) Total gross 201, , , Provisions and 2, , , write-offs Net 199, , , Classification of Assets We classify and account for our assets in accordance with the RBI guidelines. Under these guidelines, assets are regarded as non-performing if any amount of interest or principal remains overdue for more than 180 days. Our assets are classified as described below: Standard assets Sub-standard assets Doubtful assets Loss assets Assets that do not disclose any problems or which do not carry more than the normal risk attached to the business of the borrower. Assets that are non-performing for a period not exceeding 18 months. Assets that are non-performing for more than 18 months. Assets where loss has been identified and the amount has been written off, wholly or partly. Such an asset is considered not recoverable and of such little value that its continuance as a bankable asset is not warranted although there may be some salvage or recovery value. Provisioning and Write-offs Our policies on provisioning and write-offs of non-performing assets meet and exceed those prescribed by applicable RBI guidelines. The following is a summary of our provisioning policy: 56

57 Standard assets Sub-standard assets Doubtful assets Loss assets A general provision as per the policy adopted by the Board. A general provision of 10.0 per cent. We provide for per cent. of the unsecured portion of the doubtful assets. We provide for secured advances (or the secured portion of partly secured advances) based on the period for which the asset remains doubtful, as follows: Up to one year: 20.0 per cent. provision One to three years: 30.0 per cent. provision More than three years: 50.0 per cent. provision The realizable value of the security to which we have a valid recourse is estimated on a realistic basis. The entire asset is provided for. Restructured and Repriced Assets Reduction in the rate of interest, measured in present value terms, is provided for, to the extent of the reduction. For this purpose, interest due under the original loan agreement is discounted to present value at a rate appropriate to the risk category of the borrower and compared to the present value of the amounts expected to be received under the restructuring or repricing package discounted on the same basis. Management also provides amounts in excess of the amounts above if it determines that it is prudent for a known and identified risk. In fiscal 2009, we created a Rs. 1,000.0 million provision relating to our loan book because management believed it prudent to do so in light of the prevailing poor economic environment and risks it posed to the financial health of our borrowers, although there was no impairment of assets. Statutory provisions are to be made in a timely manner in accordance with the RBI directives. The table below shows the changes in our provisions on infrastructure loans over the past three years. Fiscal (Rs. millions) Opening Balance 2, , ,028.1 ADD: Provisions made during the year , ,069.3 LESS: Write-off/write-back during the year Closing Balance 2, , ,084.1 The write-back of provisions of Rs million in fiscal 2008, Rs million in fiscal 2009 and Rs.13.3 million in fiscal 2010 is on account of the reversal of provisions against repriced assets in accordance with RBI guidelines, except in fiscal 2009 where the write-back on account of reversal is Rs million. Once loan accounts are identified as non-performing, interest and other fees charged in the account, if uncollected, are not accrued. In compliance with regulations governing the presentation of financial information, we report nonperforming assets net of cumulative provision. In accordance with the RBI guidelines, interest income from advances for non-performing assets is recognized upon realization, rather than on an accrual basis as with all other assets. Recovery in respect of non-performing advances is allocated toward interest on the advances, including derecognized or suspended interest, and then towards arrears in principal payments. 57

58 MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements, including the notes thereto and the report thereon, prepared in accordance with Indian GAAP and included in this Placement Document, along with the section entitled Selected Statistical Information (which is unaudited), which presents important statistical information about our business. Indian GAAP differs in certain significant respects from IFRS. For more information on these differences, please see the section entitled Summary of Significant Differences between Indian GAAP and IFRS. Our fiscal year ends on March 31 of each year, and so all references to a particular fiscal year are to the 12 months ended March 31 of that year. Overview We are a financial services company with infrastructure development in India as our principal focus. While project finance remains the largest contributor to our results of operations, in the years under discussion below we have increasingly focused on diversifying the products and services that we offer to our clients, with a view to becoming a comprehensive solutions provider to the financing needs of infrastructure development in India. We seek to offer our clients a broader suite of financing options, including risk capital and access to equity markets, which we expect will constitute higher margin businesses for us. At present we derive most of our income from net interest income, or NII, from our infrastructure operations, which accounted for 48.3 per cent. of our net operating income in fiscal While we expect our interest income to grow in response to the lending opportunities in the infrastructure sector, we have in the last few years also diversified our business to areas such as investment banking, institutional brokerage and asset management, where the revenue streams are non-interest income based. We expect these businesses to be significant growth drivers for us in the future and to contribute to a greater extent to our net operating income. Factors Affecting Our Results of Operations Our financial results are dependent on the performance of the global economy, the Indian economy and the infrastructure industry generally, and the projects we finance in particular. Infrastructure projects are subject to various risks and uncertainties, including those discussed in the section entitled Risk Factors. The following is a discussion of certain factors that have had, and could continue to have, a significant effect on our financial results. Macroeconomic factors Our financial results have been, and will continue to be, affected in large measure by macroeconomic factors in India and globally and our responses to such factors. Fiscal 2009 Fiscal 2009 was a challenging year for the global economy and this in turn affected the Indian economy. There was a severe liquidity crisis in the second half of fiscal 2009 and most global financial institutions faced the challenge of recovering from a large amount of write-downs and moved their focus to deleveraging. As a consequence, global financial institutions, in particular FIIs, withdrew money from emerging markets such as India and credit lines also suffered. Further, the Indian Rupee depreciated sharply against most major currencies, especially against the U.S. dollar, and there was also a significant fall in equity values on account of reverse capital flows. Negative sentiment and signs of a slowdown in the realty sector of the Indian economy also reduced infrastructure investments, in particular in the private sector. Consequently, we had to operate in a liquidity crunch, especially during September, October and November 2008, and had fewer opportunities to finance or provide services to the infrastructure sector, resulting in a considerable slowdown in our business activities during fiscal Further, faced with a high-risk environment, we decided to focus on liquidity management, capital conservation, maintaining asset quality and profitability at the cost of balance sheet growth. Consequently, there was a decrease in our lending activities during this period. Our investment banking and institutional brokerage businesses were also adversely affected by the market downturn. 58

59 However, although liquidity conditions were challenging, we were able to raise domestic funding from banks and insurance companies, albeit at a higher cost dictated by prevailing market conditions. Fiscal 2010 Fiscal 2010 saw improving economic conditions, in particular as major economies began to show signs of recovery in the second half of fiscal 2010 and interest in the infrastructure sector in India also began to revive, aided in part by the regulatory interventions discussed below. This recovery was helped by improving economic fundamentals and sustained policy support from governments in India and overseas. During fiscal 2010, risk appetite gradually returned and capital markets revived. As a result, prices across a wide range of asset classes improved. Furthermore, systemic risks continued to subside in the global financial system. While we believe that the Company is well positioned to benefit from the renewed risk appetite in the global financial markets and investor confidence in emerging markets such as India, continuing uncertainties during fiscal 2010 meant that we concentrated largely on mobilizing and sourcing capital from India and focused on conserving capital and maintaining healthy capital adequacy norms, generating greater revenues from our existing businesses, preserving asset quality and containing costs. However, we believe that despite substantial overall improvement, the recovery of the global markets is not complete and financial stability remains fragile. New challenges such as the increase in sovereign debt burdens on account of support provided by governments to the global banking system could once again result in adverse global economic conditions that in turn could affect our business and results of operations. Policy developments and the growth of opportunities in the infrastructure sector Our results of operations are affected in large measure by the growth prospects of the Indian economy, particularly in the infrastructure sector. In recent years, India has been one of the fastest growing major economies in the world, recording a GDP growth rate at factor cost of 9.0 per cent. or higher in each of fiscal 2006, 2007 and Macroeconomic conditions resulted in GDP growth rates at factor cost declining to 6.7 per cent. in fiscal 2009 and 6.1 per cent. in the first quarter of fiscal The Central Statistics Office s (Ministry of Statistics and Programme Implementation) estimates suggest that the GDP growth rate at factor cost in fiscal 2010 will have been approximately 7.4 per cent. However, despite India s GDP growth rates, the rate of infrastructure development in the country has been limited. The Government, has identified infrastructure development as a key priority of its Five Year Plans. The Eleventh Five Year Plan (Fiscal 2008 to 2012) envisages investments of U.S.$ billion in infrastructure. It is expected that a substantial proportion of this requirement will have to be met through private financing or PPP, providing us with significant financing and growth opportunities. In fiscal 2010, the election of a new and stable Government that has prioritized large-scale infrastructure development resulted in renewed investor confidence in the sector. We believe that this resurgence has prompted interest in infrastructure projects of substantially larger scale than before. For example, consideration is being given to developing road projects covering 400 to 700 kilometres, compared to previously when road projects rarely exceeded 150 kilometres. In the power sector, developers are increasingly considering projects in excess of 1,000 MW, which is on a larger scale than before. As a consequence, we believe that an expansion in the range of opportunities available in the infrastructure sector has been accompanied by a significant increase in the scale of these opportunities, thereby benefitting comprehensive solution providers such as ourselves. Our infrastructure financing activities are focused on, and our financial results are affected by, developments in the energy, transportation and telecommunications and information technology sectors, which are the sectors in which a substantial proportion of our approvals and disbursements are concentrated. As of March 31, 2010, our total exposure to infrastructure projects, including non-funded exposure and equity, and excluding cancelled approvals and repayments/prepayments, was Rs. 438,424.7 million, of which energy accounted for the highest proportion at 38.3 per cent., followed by telecommunications and information technology at 24.4 per cent, transportation at 19.8 per cent, and commercial/industrial infrastructure and others at 17.5 per cent. 59

60 Projects in these sectors are susceptible to sector-specific factors and developments, such as the adoption of appropriate government policies and the actions of regulatory authorities. Some of the trends affecting these sectors are discussed in the sections entitled Infrastructure Development and Financing in India and Business. As we grow our loan portfolios and increase lending to sectors we have historically not had much, if any, exposure to, we may encounter new regulatory and other challenges which could affect our financial performance within these new sectors. Regulatory developments Our financial results and prospects are affected in large measure by regulatory developments that affect infrastructure financing in India. We believe that the policy objective of the current Government to develop infrastructure has been accompanied by regulatory actions that should benefit infrastructure specialists such as us. During fiscal 2010, the RBI introduced a special category of NBFCs called Infrastructure Finance Companies, or IFCs, with a view to encouraging a greater flow of capital into infrastructure development. We have been classified as an IFC by the RBI on June 23, To qualify and maintain its status as an IFC, among other conditions, an NBFC must satisfy the following: 75.0 per cent. of the NBFC s total assets should be deployed in infrastructure loans; the NBFC must have net owned funds of at least Rs. 3.0 billion; the NBFC must have a minimum credit rating of A or its equivalent from any of CRISIL, CARE, Fitch or ICRA or a comparable rating from any other accrediting rating agency; the NBFC must have a minimum CRAR of 15.0 per cent. (with a minimum Tier 1 capital of 10.0 per cent.); and the NBFC must not accept deposits. IFCs are entitled to various benefits such as: a lower risk weight on their bank borrowings, from per cent. to as low as 20.0 per cent. for AAA rated borrowers; higher permissible bank borrowings (both lending and investment, including off balance sheet expenses), increased from 15.0 per cent. of its capital funds that a bank may lend to an NBFC to 20.0 per cent. of capital funds as per its last audited balance sheet that it may lend to an IFC, provided that such increased bank exposure to the IFC is used for on-lending to the infrastructure sector; they are permitted to raise external commercial borrowings ( ECBs ) (the total outstanding ECBs including the proposed ECB) for on-lending to the infrastructure sector under the automatic route (subject to compliance with the applicable prudential guidelines and hedging of the currency risk in full) up to 50 per cent. of their owned funds; and they are permitted to have loan exposure to the extent of 25.0 per cent. (as compared to 20.0 per cent. for an NBFC) of net owned funds to a single borrower and loan exposure to the extent of 40.0 per cent. (as compared to 35.0 per cent. for an NBFC) of net owned funds to a single business group. For further details, please see the section entitled Business - Regulation. Together, these measures should enable an IFC to raise more funds and of a longer tenor and at a lower cost and accordingly be able to lend more to infrastructure borrowers. 60

61 In addition to the introduction of IFCs, certain other measures were taken in fiscal 2010 to expand the corporate debt market in India and promote greater financing for the infrastructure sector. These included the following: Bonds were imparted with greater liquidity by allowing repo facility for corporate debt instruments that meet certain minimum requirements; Refinancing norms have been approved for India Infrastructure Finance Company Limited by allowing it to, subject to certain conditions, buy a part of banks loans; this serves to free up banks capital for financing new projects and addresses their concerns with respect to asset-liability mismatches; and Greater transparency was introduced by making the reporting and settlement of debt transactions through an exchange mechanism mandatory. We believe that these policy and regulatory developments could play a material role in responding well to the substantial capital requirements of India s infrastructure development. Availability of cost effective funding, impact of interest rate volatility and competition Our ability to meet the demand for new loans and other financing for infrastructure projects will primarily be funded by increased borrowing. Our debt service costs as well as our overall cost of funds depend on many external factors, including developments in the Indian debt markets and, in particular, interest rate movements and liquidity conditions. Internal factors which will impact our cost of funds include changes in our credit ratings and our volume of borrowings. Although interest rates on our borrowings have been low in the past, interest rates may increase in the near term. However, we seek to manage interest rate volatility by matching the duration of assets and liabilities and appropriate hedging. Volatility in interest rates could also affect our income from treasury operations. Our treasury operations have assumed greater importance as a source of income and as we seek to expand our treasury activities, our susceptibility to interest rate volatility is likely to increase. An increase in our cost of funds may require us to raise interest rates on our loan products. Furthermore, competition from banks and other financial institutions for project financing mandates continues to increase in India, and as a result there could be further downward pressure on our interest margins. Until we acquired the status of an IFC, we also required specific approval from the RBI to raise external commercial borrowings. As an IFC, we now benefit from significant advantages, including the ability to obtain external commercial borrowings under the automatic route, do more business with projects and business groups and obtain funding at a better cost since a lower risk weight will be attached to our bank borrowings. Continued focus on diversified revenue streams While we continue to focus on the business of infrastructure financing, our business structure and organisation has grown and developed over the years. In keeping with our goal of becoming a one-stop provider of infrastructure financing, in the recent past we have increasingly focused on diversifying the products and services that we offer clients. As a consequence, in fiscal 2010 our fee-based income (including brokerage) increased by 44.2 per cent. to Rs. 6,182.0 million from Rs. 4,286.8 million in fiscal We believe that as competition increases, we distinguish ourselves by offering clients a broader suite of financing options, including risk capital and access to equity markets, which we expect will constitute higher margin businesses for us. At present we derive most of our income from NII from our infrastructure operations, which accounted for 48.3 per cent. of our net operating income in fiscal While we expect our interest income to grow in response to the lending opportunities in the infrastructure sector, we have in the last few years also diversified our business to areas where the revenue streams are non-interest income based. For instance, in 2008 we acquired the asset management business of Standard Chartered Bank in India and a controlling stake in IDFC Capital Limited, a domestic investment bank supported by a research platform, and IDFC Securities Limited, an institutional brokerage, both of which were part of an Indian investment bank and brokerage house. 61

62 Our diversification strategy is described in greater detail in the section entitled Business. As a consequence of these initiatives we expect our fee income and other forms of non-interest based revenue to increase in future periods, in absolute terms and as a proportion of total income. Staff expenses Historically, our staff expenses as a percentage of total income have been low, and in fiscal 2010 represented approximately 7.6 per cent. of our total income. However, our business strategy requires us to diversify into areas where staff costs are likely to be significantly higher, such as asset management and investment banking. To achieve a greater market share in new areas, we have been recruiting talented professionals aggressively and are paying them competitive salaries. Consequently, our staff expenses increased significantly by 73.4 per cent. from Rs. 1,771.9 million in fiscal 2009 to Rs. 3,072.4 million in fiscal 2010 and while we do not anticipate that staff expenses as a proportion of income as well as expenditure will increase in future periods, it is possible that this might happen. Tax benefits and incentives We, as well as infrastructure projects that we finance, have benefited from certain tax regulations and incentives that accord favorable treatment to infrastructure-related activities. As a consequence, our operations have been subject to relatively lower tax liabilities. In fiscal 2008, 2009 and 2010, our effective tax rates (net of deferred tax) were 24.8 per cent., 26.9 per cent. and 25.7 per cent., respectively, compared to the marginal rate of tax of per cent. in each of these three fiscal years, including applicable surcharges and cess that would have been applicable to us if these benefits were not made available to us. In addition, it is likely that the Direct Tax Code, once introduced, could significantly alter the taxation regime, including incentives and benefits, applicable to us. Results of Operations Our operating income consists of interest on infrastructure loans, interest on deposits and loans to financial institutions and others, interest on investments, dividends on investments, profit on assignment or sale of loans, profit on sale of investments, brokerage, fees and sale of power. The components of these are as follows: Income from infrastructure loans includes: (i) interest from senior and subordinated loans and debentures of infrastructure projects; and (ii) prepayment premiums and premiums on interest rate reductions; Interest on deposits and loans to financial institutions and others and interest from investments includes (i) interest on bonds; (ii) government securities; (iii) pass through certificates; (iv) certificates of deposits; (v) commercial paper; (vi) bank deposits; and (vii) inter-corporate deposits and loans; Dividends on investments include (i) dividend from our equity and preference investments; and (ii) investments in mutual funds; Profit on assignment or sale of loans includes profit on sell-down of loans; Profit on sale of investments includes profit on sale of (i) equity and preference securities; (ii) bonds; (iii) government securities; and (iv) mutual funds; and (v) carry or surplus distributed by venture capital funds; Brokerage is the brokerage fee earned from our institutional broking business; Fees include (i) front end fees; (ii) asset management fees (including investment advisory and performance fees); (iii) debt syndication fees; (iv) equity placement fees; (v) advisory fees; and (vi) commissions on guarantees, take-out financings and risk participation facilities; and Income from sale of power is the income generated by selling the power produced by certain windmills owned by the Company, which were purchased in fiscal 2009 for an acquisition price of Rs. 1,012.5 million. 62

63 In addition, we recognize other income, which includes (i) interest on income tax refunds; (ii) profit on sale of fixed assets; (iii) income from operating leases; and (iv) miscellaneous income. The largest component of our expenditure is interest on borrowings and other charges related to our borrowings such as fees and hedging costs on foreign currency borrowings. Our non-interest expenditure includes: staff expenses, comprising salaries, contributions to provident funds, gratuity and superannuation funds and staff welfare expenses; establishment expenses, comprising rent, rates and taxes, electricity, repairs and maintenance and insurance charges; other expenses, including travel expenses, printing and stationery, communications, advertising and publicity, audit and other professional fees, directors fees, other operating expenses such as payment of brokerage and scheme issue expenses in connection with new fund offerings and miscellaneous expenses such as software expenses, office maintenance contracts, arrangement fees, vehicle expenses and seminar expenses; provisions and contingencies, including provisions for doubtful loans, debtors and restructured loans, provisions for contingencies, and provisions for diminution in value of investments; and depreciation and amortization. In addition to the GAAP measures that we are required to follow and that are discussed later in this section under - Critical Accounting Policies, we use a variety of indicators to measure our performance. These indicators are presented in the section entitled Selected Statistical Information. The following table sets forth certain information with respect to our consolidated results of operations as derived from our consolidated financial statements for the periods indicated: Year ended March 31, (Rs. in million) Operating and Other Income Operating Income Interest on Infrastructure Loans 17, , ,674.7 Interest on Deposits and Loans to Financial Institutions and Others 2, , Interest on Investments 1, , ,548.2 Dividend on Investments Profit on Assignment/Sale of Loans Profit on Sale of Investments 2, , ,286.1 Brokerage Fees 3, , ,480.0 Sale of Power Nil , , ,334.1 Other Income Interest on Income Tax Refund Other Interest Profit on Sale of Fixed Assets (Net) Miscellaneous Income , , ,

64 Year ended March 31, (Rs. in million) Expenditure Interest and Other Charges 14, , ,534.7 Staff Expenses 1, , ,072.4 Establishment Expenses Other Expenses , ,597.9 Provisions and Contingencies , ,297.7 Depreciation and Amortisation , , ,314.4 Profit before Taxation 10, , ,287.3 Less: Provision for Taxation Current Tax 2, , ,999.6 Less: Deferred Tax Add: Fringe Benefit Tax Nil 2, , ,665.7 Add: Dilution effect due to change in holding in an associate Nil Nil Add: Share of Net Profit/(Loss) from Associates (Equity Method) (2.0) Less: Share of Profit of Minority Interest Less: Pre-acquisition profits of Subsidiaries Profit after Taxation 7, , ,623.1 Fiscal Year Ended March 31, 2010 Compared to Fiscal Year Ended March 31, 2009 Operating and other Income Our total income increased by 11.6 per cent. from Rs. 36,367.9 million in fiscal 2009 to Rs. 40,601.7 million in fiscal Operating Income Our operating income increased by 11.2 per cent. from Rs. 36,263.9 million in fiscal 2009 to Rs. 40,334.1 million in fiscal 2010, primarily due to increased fee income, increased brokerage, increased profit on sale of investments and increased dividend on investments. In particular, fee and brokerage income, which represented 11.8 per cent. of our operating income in fiscal 2009, constituted 15.3 per cent. of our operating income in fiscal Interest on Infrastructure Loans. Interest on infrastructure loans increased by 6.1 per cent. from Rs. 24,181.3 million in fiscal 2009 to Rs. 25,674.7 million in fiscal 2010, reflecting mainly an increase in the volume of infrastructure financing as a result of the general growth in our business. Though our loan book grew by 21.5 per cent. from Rs. 205,962.4 million as of March 31, 2009 to Rs. 250,310.6 million as of March 31, 2010, a substantial amount of the new disbursements were made in the second half of fiscal 2010, which did not materially benefit the total interest income for the year but which we expect will generate income in future fiscal periods. The general growth in our business and increase in the size of our loan book was due to several factors, including the general improvement in macroeconomic conditions, liquidity supply and demand and regulatory support in India and globally. The average volume of our infrastructure financing, defined as the daily average balance of our outstanding infrastructure loans, increased by 7.3 per cent. from Rs. 207,587.0 million in fiscal 2009 to Rs. 222,830.0 million in fiscal 2010 primarily due to larger volumes of financing. Our financing of some of our business sectors (telecommunications and information technology and tourism) increased in fiscal 2010 compared to fiscal 2009 due to the general growth of and increased demand for funds in these sectors. Interest on Deposits and Loans to Financial Institutions. Interest on deposits and loans decreased by 47.3 per cent. from Rs. 1,316.7 million in fiscal 2009 to Rs million in fiscal 2010, primarily because of a substantial 64

65 decrease in the amount we held in bank deposits, which were instead used by us to provide additional infrastructure loans. Interest on Investments. Interest on investments decreased by 13.9 per cent. from Rs. 2,959.4 million in fiscal 2009 to Rs. 2,548.2 million in fiscal 2010, primarily because of a decrease in the volume of our investments. Dividend on Investments. Dividend on investments increased by per cent. from Rs million in fiscal 2009 to Rs million in fiscal 2010, primarily because of a large dividend from our investments in mutual funds. Profit on Assignment of Loans. Our profit on the assignment of loans in fiscal 2009 and fiscal 2010 remained more or less constant, being almost negligible as a percentage of our total income in both fiscal years. We recorded a profit of Rs million on assignment of loans in fiscal 2010 as against a profit of Rs million in fiscal Profit on Sale of Investments. Improved conditions in the Indian capital markets and equity valuations provided the opportunity to liquidate some of our equity holdings in fiscal We recorded profit on sale of investments of Rs. 4,286.1 million in fiscal 2010 (representing an increase of 34.8 per cent. over profit on sale of investments in fiscal 2009), of which Rs. 3,208.8 million was on account of the partial sale of our equity holdings in certain companies and Rs. 1,077.3 million was on account of the profit on sale of treasury investments. We recorded profit on sale of investments of Rs. 3,179.3 million in fiscal 2009, of which Rs. 1,701.9 million was on account of the partial sale of our equity holdings in certain companies and Rs. 1,477.4 million was on account of the profit on sale of treasury investments. Brokerage. Brokerage income increased by 28.3 per cent. from Rs million in fiscal 2009 to Rs million in fiscal 2010 on account of an increase in the volumes of institutional brokerage activity in fiscal 2010 driven in part by improved equity markets and an increase in the number of block trades undertaken by IDFC Securities Limited. Fees. Fees increased by 46.5 per cent. from Rs. 3,739.8 million in fiscal 2009 to Rs. 5,480.0 million in fiscal A large part of the increase in fees was due to growth in our fee-based businesses such as public markets asset management (which was acquired from Standard Chartered Bank in fiscal 2009), alternative asset management and investment banking. Our investment banking fees increased on account of greater participation by us in IPOs, qualified institutions placements and debt syndication deals during fiscal Fees as a percentage of our operating income increased from 10.3 per cent. in fiscal 2009 to 13.6 per cent. in fiscal Fees from our asset management business increased from Rs. 2,033.5 million in fiscal 2009 to Rs. 2,897.0 million in fiscal 2010, fees from our investment banking business increased from Rs million in fiscal 2009 to Rs. 1,144.3 million in fiscal 2010 and advisory and other fees increased from Rs. 1,103.5 million in fiscal 2009 to Rs. 1,438.7 million in fiscal Sale of Power. Income generated from the sale of power in fiscal 2010 was Rs million, as compared to Rs.95.2 million in fiscal 2009, representing an increase of 32.5 per cent. Other Income Our other income increased by per cent. from Rs million in fiscal 2009 to Rs million in fiscal 2010, mainly because of an increase in the profit on sale of fixed assets. Expenditure Total expenditure stayed more or less constant, showing a marginal increase of 1.2 per cent. from Rs. 26,009.1 million in fiscal 2009 to Rs. 26,314.4 million in fiscal As a percentage of our total income, our expenditures decreased to 64.8 per cent. in fiscal 2010 compared to 71.5 per cent. in fiscal

66 Interest and Other Charges. The primary component of our expenditures was interest and other charges related to our borrowings, although this decreased by 6.1 per cent. from Rs. 20,812.1 million in fiscal 2009 to Rs. 19,534.7 million in fiscal This decrease was partly on account of certain of our more expensive borrowings being retired and new borrowings being made at lower interest rates and partly because the Company has utilized its securities premium account under Section 78 of the Companies Act to the extent of Rs million (net of tax of Rs million) towards discount on its zero per cent. bonds issued after October 1, Section 78 of the Companies Act allows a company to apply its securities premium account to write off the discount or premium allowed on any shares or debentures of such company. As a result, our profit after taxation for the year ended March 31, 2010 was higher by Rs million (net of tax of Rs million). For further details please see Schedule 18, Note 4 of our Financial Statements. Staff Expenses. Our staff expenses increased significantly by 73.4 per cent. from Rs. 1,771.9 million in fiscal 2009 to Rs. 3,072.4 million in fiscal 2010 primarily due to a significant increase in the amount of variable pay in fiscal 2010 on account of improved financial performance. There was also an increase in the number of our employees from 542 to 578 as of March 31, 2009 and 2010, respectively. Establishment Expenses. Our expenses for rent, rates and taxes, electricity, repairs and maintenance and insurance charges for our premises increased by 23.5 per cent. from Rs million in fiscal 2009 to Rs million in fiscal 2010 primarily due to refurbishment costs incurred in connection with our move to our new corporate offices in Mumbai. As a percentage of total income, these expenses remained more or less constant, being 0.9 per cent. and 1.0 per cent. in fiscal 2009 and fiscal 2010, respectively. Other Expenses. Our other expenses increased by 20.5 per cent. from Rs. 1,326.5 million in fiscal 2009 to Rs. 1,597.9 million in fiscal The increase was due to an increase in traveling and conveyance costs, an increase in operating costs such as payment of brokerage and scheme issue expenses in connection with new fund offerings and an increase in miscellaneous expenses such as software expenses, office maintenance contracts, vehicle expenses and seminar expenses. Provisions and Contingencies. The following table sets forth, for the periods indicated, the components of our provisions and contingencies: Year ended March 31, (Rs. in million) Provision for contingencies 1, ,026.2 Provision for doubtful loans, debtors and restructured loans Provision for diminution in value of investments (net) (61.0) Total provisions and contingencies 1, ,297.7 Total provisions and contingencies decreased by 15.3 per cent. from Rs. 1,531.8 million in fiscal 2009 to Rs. 1,297.7 million in fiscal In fiscal 2009, we created a Rs. 1,000.0 million provision relating to our loan book, because management believed it prudent to do so in light of the prevailing poor economic environment and the risks it posed to the financial health of our borrowers, although there was no impairment of assets. Since economic conditions improved in fiscal 2010, no such provision was created in fiscal There was a marginal increase in the provision for doubtful loans, debtors and restructured loans from Rs million in fiscal 2009 to Rs million in fiscal The increase in provision for diminution in value of investments was on account of the fall in the value of quoted equity investments. Depreciation and Amortization. Depreciation on our fixed assets increased by 70.4 per cent. from Rs million in fiscal 2009 to Rs million in fiscal 2010 on account of higher depreciation on our new corporate office in Mumbai. 66

67 Profit Before Taxation For the reasons stated above, our profit before tax increased by 37.9 per cent. from Rs. 10,358.8 million in fiscal 2009 to Rs. 14,287.3 million in fiscal As a percentage of total income, our profit before tax increased from 28.5 per cent. in fiscal 2009 to 35.2 per cent. in fiscal Income Tax Income taxes increased by 31.8 per cent. from Rs. 2,781.7 million in fiscal 2009 to Rs. 3,665.7 million in fiscal Our effective rate of tax was 26.9 per cent. in fiscal 2009 and 25.7 per cent. in fiscal Our effective rate of tax decreased primarily on account of significantly higher long-term capital gains on the sale of listed equity, which was subject to no tax in fiscal Of our total income tax of Rs. 3,665.7 million in fiscal 2010, our current income tax was Rs. 3,999.6 million and our deferred tax was Rs million. We had no fringe benefit tax in fiscal 2010 compared to Rs million of fringe benefit tax in fiscal Share of Net Profits of Associates Our share of net profit of associates during fiscal 2010, calculated in accordance with the equity method, was Rs. 7.1 million, as compared to Rs million during fiscal This decrease of 47.0 per cent. was on account of the decrease in our shareholding in Athena Energy Ventures Limited (because we did not participate in a rights issue by that company), in which we held 28.0 per cent. until July 24, Accordingly, Athena Energy Ventures Limited ceased to be our associate during fiscal Profit after Taxation As a result of the foregoing factors, our profit after tax increased by 41.7 per cent. from Rs. 7,498.1 million in fiscal 2009 to Rs. 10,623.1 million in fiscal Our earnings per Equity Share on a fully diluted basis increased by 39.7 per cent. from Rs. 5.8 per Equity Share in fiscal 2009 to Rs. 8.1 per Equity Share in fiscal Fiscal Year Ended March 31, 2009 Compared to Fiscal Year Ended March 31, 2008 Operating and other Income Our operating and other income increased by 29.6 per cent. from Rs. 28,064.9 million in fiscal 2008 to Rs. 36,367.9 million in fiscal Operating Income Our operating income increased by 29.7 per cent. from Rs. 27,951.3 million in fiscal 2008 to Rs. 36,263.9 million in fiscal 2009, primarily due to an increase in interest on infrastructure loans and fee income. Interest on Infrastructure Loans. Interest on infrastructure loans increased by 40.6 per cent. from Rs. 17,202.9 million in fiscal 2008 to Rs. 24,181.3 million in fiscal 2009, mainly due to an increase in the interest rates of several infrastructure loans that were repriced during fiscal The average volume of our infrastructure financing, defined as the daily average balance of our outstanding infrastructure loans, increased by 26.2 per cent. from Rs. 164,434.0 million in fiscal 2008 to Rs. 207,587.0 million in fiscal 2009 primarily due to larger volumes of financing. Interest on Deposits and Loans to Financial Institutions. Interest on deposits and loans decreased by 42.1 per cent. from Rs. 2,274.6 million in fiscal 2008 to Rs. 1,316.7 million in fiscal 2009, primarily because of a decrease in the 67

68 volume of bank deposits and loans during fiscal 2009; these monies were instead redeployed in other treasury instruments such as certificates of deposits with scheduled banks. Interest on Investments. Interest on investments increased by 97.3 per cent. from Rs. 1,499.6 million in fiscal 2008 to Rs. 2,959.4 million in fiscal 2009, primarily because of an increase in the volume of our investments in treasury instruments such as certificates of deposits with scheduled banks. Interest on investments as a percentage of our total income increased from 5.3 per cent. in fiscal 2008 to 8.1 per cent. in fiscal Dividend on Investments. Dividend on investments increased by per cent. from Rs million in fiscal 2008 to Rs million in fiscal 2009, primarily because more companies in which we held equity investments declared dividends in fiscal Profit on Assignment of Loans. We recorded a profit of Rs million on assignment of loans in fiscal 2009 as compared to a profit of Rs. 6.1 million in fiscal Profit on Sale of Investments. We recorded profit on sale of investments of Rs. 3,179.3 million in fiscal 2009 (representing an increase of 10.2 per cent. over profit on sale of investments in fiscal 2008) of which Rs. 1,701.9 million was on account of the partial sale of our equity holdings in certain companies and Rs. 1,477.4 million was on account of the profit on sale of treasury investments. In fiscal 2008, we recorded profit on sale of investments of Rs. 2,885.3 million, of which Rs. 2,061.2 million was on account of the partial sale of our equity holdings in certain companies and Rs million was on account of the profit on sale of treasury investments. Brokerage. Brokerage income decreased by 44.8 per cent. from Rs million in fiscal 2008 to Rs million in fiscal 2009 on account of a decrease in the volumes of institutional brokerage activity in fiscal Fees. Fees increased by 23.8 per cent. from Rs. 3,021.7 million in fiscal 2008 to Rs. 3,739.8 million in fiscal 2009, primarily due to an increase in asset management fees. Asset management fees increased from Rs million in fiscal 2008 to Rs. 2,033.5 million in fiscal Our investment banking fees declined from Rs. 1,260.4 million in fiscal 2008 to Rs million in fiscal 2009 and advisory and other fees declined from 1,269.0 million in fiscal 2008 to 1,103.5 million in fiscal Sale of Power. Income generated from the sale of power in fiscal 2009 was Rs.95.2 million in fiscal There was no income from the sale of power in fiscal 2008 as the Company acquired the windmills that generate the power only during fiscal Other Income Our other income decreased by 8.5 per cent. from Rs million in fiscal 2008 to Rs million in fiscal 2009, mainly because of lower income tax refunds received in fiscal Expenditure Total expenditure increased by 44.0 per cent. from Rs. 18,061.1 million in fiscal 2008 to Rs. 26,009.1 million in fiscal As a percentage of our total income, our expenditure increased to 71.5 per cent. in fiscal 2009 compared to 64.4 per cent. in fiscal Interest and Other Charges. The primary component of our expenditures was interest and other charges related to our borrowings, which increased by 40.3 per cent. from Rs. 14,829.0 million in fiscal 2008 to Rs. 20,812.1 million in fiscal This increase was in part due to an increase in interest rates over this period and in part due to an increase in our average interest bearing liabilities in fiscal Staff Expenses. Our staff expenses increased by 5.7 per cent. from Rs. 1,676.9 million in fiscal 2008 to Rs. 1,771.9 million in fiscal 2009 primarily due to an increase in the number of employees (due to the acquisition of our asset management business from Standard Chartered Bank) from 343 to 542 and resulting increases in salaries, contributions to employee funds and staff welfare expenses. 68

69 Establishment Expenses. Our expenses for rent, rates and taxes, electricity, repairs and maintenance and insurance for our premises increased by per cent. from Rs million in fiscal 2008 to Rs million in fiscal 2009, primarily on account of an increase in rent on account of office premises leased in Mumbai and premises leased by our newly acquired asset management business. Other Expenses. Our other expenses increased by per cent. from Rs million in fiscal 2008 to Rs. 1,326.5 million in fiscal This growth was primarily due to an increase in professional fees from Rs million in fiscal 2008 to Rs. 725 million in fiscal 2009 on account of placement fees paid in relation to fund-raising activity. Provisions and Contingencies. The following table sets forth, for the periods indicated, the components of our provisions and contingencies: Year ended March 31, (Rs. in million) Provision for contingencies ,563.5 Provision for doubtful loans and debtors (Net) (206.0) 29.3 Provision for diminution in value of investments (Net) (61.0) Total provisions and contingencies ,531.8 Total provisions and contingencies increased by per cent. from Rs million in fiscal 2008 to Rs. 1,531.8 million in fiscal The increase in the provision for contingencies was primarily because of a Rs. 1,000.0 million provision created in fiscal 2009 relating to our loan book, not because of an actual impairment of assets but because management believed it prudent to do so in light of the prevailing poor economic environment and the risks it posed to the financial health of our borrowers. There was no such provision made in fiscal The increase in the provision for doubtful loans and debtors was primarily because there was a write back of a prior period provision against repriced assets in fiscal The decrease in the provision for diminution in value of investments was on account of the reversal of certain provisions created during fiscal 2008 that were no longer required. Depreciation and Amortization. Depreciation on our fixed assets increased by per cent. from Rs million in fiscal 2008 to Rs million in fiscal 2009, primarily on account of depreciation on the windmills acquired during fiscal Profit Before Taxation For the reasons stated above, our profit before tax increased by 3.5 per cent. from Rs. 10,003.8 million in fiscal 2008 to Rs. 10,358.8 million in fiscal As a percentage of total revenues, our profit before tax decreased from 35.6 per cent. in fiscal 2008 to 28.5 per cent. in fiscal Income Tax Income taxes increased by 12.1 per cent. from Rs. 2,480.4 million in fiscal 2008 to Rs. 2,781.7 million in fiscal Our effective rate of tax was 24.8 per cent. in fiscal 2008 and 26.9 per cent. in fiscal The increase in our effective rate of tax was due to an increase in the long-term capital gains tax upon the sale of unlisted equity in fiscal Of our total income tax of Rs. 2,781.7 million in fiscal 2009, our current income tax was Rs. 3,206.3 million and our deferred tax was Rs million. Our fringe benefit tax in fiscal 2009 was Rs million as compared to Rs million in fiscal

70 Share of Net Profits/ Loss of Associates Our share of net profits of associates, calculated in accordance with the equity method, was Rs million in fiscal 2009 compared to a loss of Rs. 2.0 million in fiscal This was due to an increase in the book value of one of our associate companies, Feedback Ventures Limited, due to an issue of equity shares at a premium. Profit after Taxation As a result of the foregoing factors, our profit after tax increased by 1.0 per cent. from Rs. 7,421.6 million in fiscal 2008 to Rs. 7,498.1 million in fiscal Our diluted earnings per Equity Share decreased by 1.7 per cent. from Rs. 5.9 per Equity Share in fiscal 2008 to Rs. 5.8 per Equity Share in fiscal Related Party Transactions We enter into transactions with related parties in the normal course of business. The principal related parties are our subsidiaries, joint ventures, affiliates and key management personnel. These transactions are generally at arm s length and are in line with market pricing. For further information please see the note on related party transactions in the consolidated financial statements contained in this Placement Document. Liquidity and Capital Resources Since March 31, 2010, our borrowings have increased significantly, primarily on account of an increase in our commercial borrowings. This increased borrowing was principally to finance our asset growth by increasing our loan book. Further, in order to position ourselves to benefit from potential borrowing structures and advantages that might become available to the Company in the future, we have secured our outstanding borrowings by a floating charge over our receivables. We believe that this will provide us with the flexibility to implement such structures and access such advantages on a timely basis, should they become available. Cash flows As of March 31, 2010, we had cash and cash equivalents of Rs. 1,982.6 million, compared to Rs. 7,684.1 million and Rs. 17,198.0 million as of March 31, 2009 and 2008, respectively. Year ended March 31, (Rs. in million) Cash and cash equivalents at the beginning of the year.. 10, , ,684.1 Net cash from (used in) operating activities (54,533.1) (425.5) (33,294.0) Net cash from (used in) investing activities (33,573.9) (15,599.2) 88.5 Net cash from (used in) financing activities 94, , ,504.0 Cash and cash equivalents at the end of the year 17, , ,982.6 Net cash from (used in) operating activities. Prior to fiscal 2010, infrastructure loan disbursements (net of repayments) were shown under net cash from (used in) financing activities; with effect from fiscal 2010, these are now shown under net cash from (used in) operating activities and the figures for prior fiscal periods have been regrouped accordingly. Fiscal 2010 In fiscal 2010, our net cash used in operating activities was Rs. 33,294.0 million. 70

71 Our profit before tax was Rs. 14,287.3 million in fiscal 2010 (excluding profit from associates). Certain adjustments were made to the profit before tax, such as adjustments for total provisions of Rs. 1,282.5 million, a downward adjustment of Rs. 4,286.1 million in profit from sale of investments (which we account for under investing activities), net working capital changes of Rs. 3,040.8 million and a downward adjustment of Rs. 3,393.0 million for direct taxes paid. The cash flow generated by us was used to make fresh infrastructure loan disbursements (net of repayments) of Rs. 44,936.7 million during fiscal 2010, which resulted in net cash used in operating activities of Rs. 33,294.0 million. Fiscal 2009 In fiscal 2009, our net cash used in operating activities was Rs million. Our profit before tax was Rs. 10,358.8 million in fiscal 2009 (excluding profit from associates). Certain adjustments were made to the profit before tax, such as adjustments for total provisions of Rs. 1,300.5 million, a downward adjustment of Rs. 3,179.3 million in profit from sale of investments (which we account for under investing activities), net working capital changes of Rs million and a downward adjustment of Rs. 2,593.7 million for direct taxes paid. The cash flow generated by us was used to make fresh infrastructure loan disbursements (net of repayments) of Rs. 7,303.4 million during fiscal 2009, which resulted in net cash used in operating activities of Rs million. Loan disbursements decreased substantially during this fiscal year compared to fiscal 2008, which was consistent with our strategy of curtailing our asset growth during the liquidity crisis. Fiscal 2008 In fiscal 2008, our net cash used in operating activities was Rs. 54,533.1 million. Our profit before tax was Rs. 10,003.8 million in fiscal 2008 (excluding profit from associates). Certain adjustments were made to the profit before tax, such as adjustments for total provisions of Rs million, a downward adjustment of Rs. 2,885.3 million in profit from sale of investments (which we account for under investing activities), net working capital changes of Rs. 1,097.4 million and a downward adjustment of Rs. 3,285.2 million for direct taxes paid. The cash flow generated by us was used to make fresh infrastructure loan disbursements (net of repayments) of Rs. 60,060.3 million during fiscal 2008, which resulted in net cash used in operating activities of Rs. 54,533.1 million. Net cash from (used in) investing activities. Fiscal 2010 Net cash from investing activities in fiscal 2010 of Rs million was generated largely by the net sale of investments of Rs. 1,127.3 million, offset by cash used for the net purchase of fixed assets of Rs million and goodwill on acquisition of Rs million. Fiscal 2009 Net cash used in investing activities in fiscal 2009 was Rs. 15,599.2 million, consisting largely of the acquisition of the mutual fund business of Standard Chartered and the increase in our stake in SSKI. In addition, there was a net purchase of fixed assets of Rs million and net purchase of investments of Rs. 6,839.9 million. Fiscal

72 Net cash used in investing activities in fiscal 2008 was Rs. 33,573.9 million and consisted mainly of net purchase of fixed assets of Rs. 3,423.9 million, the acquisition of our stake in SSKI and net purchase of investments of Rs. 28,186.1 million. Net cash from (used in) financing activities. Fiscal 2010 In fiscal 2010, we raised Rs million from the issue of Equity Shares pursuant to our ESOSs, we raised Rs. 29,368.1 million from net borrowings and paid dividends of Rs. 1,852.8 million, which in large part accounted for our net cash from financing activities of Rs. 27,504.0 million. Fiscal 2009 In fiscal 2009, we raised Rs million from the issue of Equity Shares pursuant to our ESOSs and Rs. 8,381.8 million from net borrowings. In line with our strategy to curtail growth in our loan book, we limited our financing activities during this year. In fiscal 2009 we paid dividends of Rs. 1,886.2 million. Fiscal 2008 In fiscal 2008, we raised Rs. 20,822.4 million from the issue of Equity Shares pursuant to a qualified institutions placement and our ESOSs and we raised Rs. 74,873.8 million from net borrowings. Cash from these financing activities was used to substantially grow our loan book during this fiscal year. In fiscal 2008, we paid dividends of Rs. 1,320.3 million. Capital Resources The following are the principal sources of funding for our operations: shareholders funds; subordinated debt from the Government; placements of bonds and debentures; foreign currency borrowings; commercial borrowings; and cash flow from operations. Shareholders funds. As of March 31, 2010, our total shareholders funds were Rs. 70,103.3 million, consisting of share capital of Rs. 13,006.1 million, share application money of Rs. 2.6 million and reserves and surplus of Rs. 57,094.6 million. Equity from investors was a significant source of funding for us in the earlier years of our operations. With the growth of our business, we have become more reliant on other sources of funding, such as borrowings. Our shareholders funds will be augmented by the net proceeds from this Issue. Subordinated debt. We have subordinated debt from the Government, of Rs. 6,500.0 million maturing in The facility is repriced every five years based on the yield on five-year government securities plus a spread of 0.25 per cent. One of our jointly controlled entities, IDeCK, has been given an interest free loan by the Government of Karnataka of Rs million. 72

73 Placements of bonds and debentures. A major source of our financing is placements of long term bonds and non convertible debentures with institutional investors such as banks, mutual funds and insurance companies. As of March 31, 2010, we had aggregate outstanding bonds and debentures of Rs. 158,773.5 million. Foreign currency borrowings. We have borrowed U.S.$ million from multilateral financial institutions such as the International Finance Corporation, DEG and State Bank of India, Manama. We have also negotiated a line of credit from the Asian Development Bank. Commercial borrowings. We raise short-term resources through term money borrowings, collateral borrowings, issuance of commercial paper, certificates of deposits and term deposits and we mobilize medium to long-term borrowings through term loans. As of March 31, 2010, the aggregate amount of outstanding short-term commercial borrowings was Rs. 37,843.5 million and long term commercial borrowings of Rs. 220,949.1 million. Cash flow from operations. Our cash flow from operations, which is discussed above, contributes to our liquidity, reserves and surplus on an ongoing basis. As of March 31, 2010, we had reserves and surplus of Rs. 57,094.6 million. Our ability to generate cash from our operations depends on our future operating performance, which is in turn dependent, among other things, on the global economy, general economic, financial, competitive, market, regulatory and other factors in India and within the infrastructure industry, including within individual sectors, as discussed above under - Factors Affecting Our Results of Operations and in the section entitled Risk Factors. As a lending institution, we seek to match our assets with corresponding liabilities, and therefore are dependent on external funding from the debt markets as well as from commercial banks and other lending institutions. Because we fund most of our capital needs through the issuance of debt, our cost of capital rises during periods of increasing interest rates. Although we believe that our expected cash flows from available borrowings, together with our expected cash flows from operations, will be adequate to fund our anticipated liquidity and debt service needs, we cannot assure you that operating cash flows and future debt and equity financing will be available to us on favorable terms or in amounts sufficient to fund our liquidity needs or to pay our debts when due. Financial Condition Assets The following table sets forth the principal components of our assets as of March 31, 2009 and 2010: As of March 31, (Rs. in million) Fixed assets 4, ,415.1 Goodwill on consolidation 10, ,694.2 Investments 64, ,417.5 Infrastructure loans 205, ,310.6 Deferred tax asset 1, ,766.2 Income accrued on investments Interest accrued on infrastructure loans 2, ,598.2 Sundry debtors Cash and bank balances 8, ,714.7 Loans and advances 7, ,830.2 Total assets 307, ,099.2 Our total assets increased by 13.4 per cent. from Rs. 307,000.7 million as of March 31, 2009 to Rs. 348,099.2 million as of March 31, The most significant element of this increase was a 21.5 per cent. increase in infrastructure loans as a result of the growth of our business. 73

74 Liabilities The following tables set forth the principal components of our liabilities as of March 31, 2009 and 2010: As of March 31, (Rs. in million) Subordinated debt (unsecured) 6, ,500.0 Loan funds (unsecured) 228, ,938.7 Minority Interest Deferred tax liability Sundry creditors 1, ,988.8 Interest accrued but not due on loan funds 4, ,501.6 Fees or other amounts received in advance 1, ,043.6 Other liabilities Provisions: 1, ,297.2 Proposed dividend 1, ,951.0 Tax on proposed dividend Provision for employee benefits Provision for tax Total liabilities 245, ,996.1 Our total liabilities increased by 13.4 per cent. from Rs. 245,242.0 million as of March 31, 2009 to Rs. 277,996.1 million as of March 31, The most significant element of this increase was a 13.1 per cent. increase in unsecured loan funds, which we used principally to finance our asset growth. Segment Reporting In accordance with Accounting Standard 17 on Segment Reporting as notified by the Companies (Accounting Standards) Rules, 2006, our main reportable segment is infrastructure operations and this segment has in the years under discussion herein accounted for a predominant portion of our revenues and profits. Since the revenues and profits from our other operations, such as investment banking and asset management, do not individually exceed 10.0 per cent. of our revenues and profits, these are classified under Others. Over time, it is probable that these other businesses will grow sufficiently to constitute separate reportable segments. For further details on segment disclosure, see Schedule 18, Note 10 of our Financial Statements. Off-Balance Sheet Arrangements Contingent Liabilities The following table sets forth the principal components of our contingent liabilities not provided for as of March 31, 2009 and 2010: As of March 31, (Rs. in million) Capital commitments 8, ,896.6 Estimated amount of contracts remaining to be executed on capital account (net of advances) Claims not acknowledged as debt in respect of income tax demands under appeal Guarantees issued by us: Financial guarantees 2, ,801.2 Performance guarantees Risk participation facilities

75 As of March 31, (Rs. in million) Total 12, ,161.2 Contingent liabilities decreased by 11.9 per cent. from Rs. 12,668.3 million as of March 31, 2009 to Rs. 11,161.2 million as of March 31, The main reason for the decrease was a 16.8 per cent. decrease in capital commitments as amounts committed in fiscal 2009 were invested in fiscal Undisbursed Approvals As of March 31, 2010, we had undisbursed approvals net of cancellations of Rs. 159,164.1 million as compared to Rs. 76,010.0 million as of March 31, We disburse the funds related to these approvals upon the fulfillment of the conditions specified in our approval letters. Foreign Exchange and Derivative Transactions As of March 31, 2010, we had a notional principal amount of Rs. 16,600.0 million in outstanding interest rate swaps. These swaps bear a mix of fixed and floating interest rates and are for varying maturities linked to various benchmarks for asset-liability management and hedging. Also, as of March 31, 2010, we had foreign currency borrowings of U.S.$ million against which we have undertaken cross currency swaps and forward contracts of U.S.$ million, to hedge our foreign currency risk. Capital We are subject to the capital adequacy requirements of the RBI. In fiscal 2010, we were required to maintain a minimum ratio of total capital to risk adjusted assets of 12.0 per cent. However, as an IFC, we are now required to maintain a minimum ratio of total capital to risk adjusted assets of 15.0 per cent. Our capital adequacy ratios are set forth in the table below: As of March 31, 2009 As of March 31, 2010 (Rs. in million, except ratios) Tier I capital (1) 52, ,278.5 Tier II capital (2) 9, ,769.0 Risk weighted assets on balance sheet 252, ,541.2 Risk weighted assets off balance sheet 11, ,980.8 Total capital to risk assets ratio (3) 23.7% 20.5% Tier I capital to risk assets ratio 20.0% 17.4% Tier II capital to risk assets ratio 3.7% 3.1% Minimum capital ratios required by the RBI: Total capital to risk assets ratio 10.0% 12.0% Notes: (1) (2) (3) Tier I capital includes equity share capital and reserves and surplus, reduced by investments/loans and advances in subsidiaries/other group companies and other intangible assets. Tier II capital includes our Rs. 6,500.0 million subordinated debt facility from the Government, and general provisions limited to 1.25 per cent. of total risk weighted assets. The total capital to risk assets ratio is calculated as capital funds (Tier I capital plus Tier II capital) divided by risk weighted assets (the weighted average of funded and non-funded items after applying the risk weights as assigned by the RBI). 75

76 Capital Expenditure In the past our business has not required substantial capital expenditure, and we do not expect to incur any significant capital expenditure in fiscal Our fixed assets of Rs. 4,415.1 million as of March 31, 2010 consist mainly of owned office premises in Mumbai, Delhi and Chennai, residential premises in Mumbai, computers, office equipment and furniture. Our capital expenditure in fiscal 2010 was Rs million. Contractual Obligations and Commercial Commitments As of March 31, 2010, our contractual obligations and commercial commitments consist principally of the following, classified by maturity: Payments due by period Total Less than 1 year 1-3 years 4-5 years 6-7 years Over 7 years Uncertain (Rs. in million) Long-term debt 227, , , , , , Short-term debt 37, , Non-funded obligations (1) 3, , , Undisbursed approvals 159, , , ,173.0 (2) Total contractual cash obligations 428, , , , , , ,094.1 Notes: (1) Includes guarantees and letters of credits issued with the intention of converting these to loans. (2) Comprises amounts to be syndicated in the future and approvals that might not be disbursed. Critical Accounting Policies The preparation of our financial statements and the application of generally acceptable accounting principles requires management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. Actual amounts and results could differ from our estimates. Revenue Recognition. Interest and other dues are accounted on an accrual basis except in the case of non-performing assets where they are recognized upon realisation, in accordance with the income recognition and asset classification norms prescribed by the RBI. Income on discounted instruments is recognized over the tenure of the instrument on a straight-line method. Dividend is accounted on an accrual basis when the right to receive such dividend is established. Front-end fees upon the processing of loans are recognized upfront as income. Brokerage is recognized on a trade date basis and is net of statutory payments. Management fees are recognized on accrual basis. Performance fees relating to the investment advisory business are recognized on an annual basis. 76

77 All fees are recognized when a reasonable right of recovery is established, revenue can be reliably measured and as and when they become due (except commission income on guarantees, which is recognized pro-rata over the period of the guarantee). Premium on interest rate reduction is accounted on an accrual basis over the residual life of the loan. Profit on securitisation is recognized over the residual life of the loan in accordance with RBI guidelines. Profit upon the sale of loan assets through direct assignment, without any recourse obligation, is recognized at the time of sale. Net loss arising because of securitisation and direct assignment of loan assets is recognized at the time of sale. Revenue from power supply is accounted on an accrual basis. Grants are recognized on an accrual basis. Inflation. Assets and liabilities are recorded at historical cost. These costs are not adjusted to reflect the changing value in the purchasing power of money. Investments. NBFC The Company, IDFC Finance Limited and IDeCK are regulated as non-banking financial companies, or NBFCs, by the RBI. Accordingly, investments are classified under two categories - current and long term - and are valued in accordance with the RBI guidelines and Accounting Standard 13 on Accounting for Investments as notified by the Companies (Accounting Standards) Rules, Long-term investments are carried at acquisition cost. A provision is made for diminution other than of a temporary nature on an individual basis. Current investments are carried at the lower of cost and fair value on an individual basis. Other than as an NBFC Long-term investments are valued at cost except where there is a diminution in value other than temporary, in which case the carrying value is reduced to recognize the decline. Current investments are valued at the lower of cost and market value. Infrastructure Loans and Advances. In accordance with applicable RBI guidelines, all loans and advances are classified under the following four categories: (i) standard assets, (ii) sub-standard assets, (iii) doubtful assets, and (iv) loss assets. Fixed Assets. Fixed assets are stated at the cost of acquisition, including any cost attributable for bringing the asset to its working condition, less accumulated depreciation. Intangible Assets. Intangible assets (comprising of system software) are stated at the cost of acquisition, including any cost attributable for bringing the asset to its working condition, less accumulated amortisation. Any technology support cost or annual maintenance cost for such software is charged annually to the profit and loss account. The consideration paid by IDFC Securities Limited for the transfer of tenancy rights is capitalised as an intangible asset. Provisions and Contingencies. Adequate provision for diminution is made in accordance with the regulatory guidelines applicable to nonperforming advances and the provisioning policy of the Company in respect of loans, debentures and pass through certificates in the nature of advances. 77

78 Provision on restructured advances is computed in accordance with the RBI guidelines. Provision for contingencies is made in accordance with the provisioning policy of the Company, which includes a provision under Section 36(1)(viia) of the Income Tax Act, 1961, as amended. Depreciation and Amortisation. Tangible Assets Depreciation on fixed assets, excluding certain electronic items, is provided on the written down value method, at the rates prescribed by Schedule XIV of the Companies Act. Certain electronic items are depreciated over a period of two years on the straight-line method based on the management s estimate of the useful life of assets. Depreciation on additions during the year is provided on a pro-rata basis. Assets costing less than Rs. 5,000 each are written off in the year of capitalisation. Depreciation in respect of leasehold improvements is provided on the straight-line method over the primary period of the lease except in the case of IDFC AMC Company Limited where leasehold improvements are amortized on the straightline method over the period of the extended lease or five years, whichever is shorter. Intangible Assets Intangible assets consisting of computer software are being depreciated over a period of three years on the straight-line method. Tenancy rights in the case of IDFC Securities Limited are amortized over a period of 10 years on the straight-line method. Operating Leases. Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the profit and loss account, on a straight-line basis, over the lease term. Lease rental income is recognized in accordance with Accounting Standard 19 on Leases as notified by the Companies (Accounting Standards) Rules, Initial direct costs incurred specifically for an operating lease are recognized as expenses in the year in which they are incurred. Foreign Currency Transactions. Foreign currency transactions are accounted at the applicable exchange rates prevailing on the dates of the transactions. Foreign currency monetary items outstanding as at the balance sheet date are reported using the closing exchange rates. Gains and losses resulting from the settlement of such transactions and the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the profit and loss account. Premium in respect of forward contracts is accounted over the period of the contract. Forward contracts outstanding as at the balance sheet date are revalued at the closing exchange rate. As of March 31, 2010, we had foreign currency borrowings of U.S.$488.3 million against which we had undertaken cross currency swaps and forward contracts of U.S.$383.2 million, to hedge our foreign currency risk. Derivatives. Interest Rate Swaps Interest rate swaps in the nature of hedges are recorded on an accrual basis and these transactions are not marked to market. Any resulting gain or loss upon termination of hedge swaps is amortized over the life of the swap or the underlying asset or liability, whichever is shorter. As of March 31, 2010 we had Rs. 16,600.0 million of interest rate swaps outstanding. Currency Interest Rate Swaps 78

79 Currency interest rate swaps in the nature of hedges are recorded on an accrual basis and these transactions are not marked to market. Any resultant gain or loss upon termination of hedge swaps is amortised over the life of the swap or the underlying asset or liability, whichever is shorter. The foreign currency balance on account of the principal amount of cross currency swaps outstanding as at the balance sheet date is revalued using the closing exchange rate. As of March 31, 2010 we had cross currency swaps and forward contracts of U.S.$ million outstanding. ESOSs. The Company has established its ESOSs in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 (the SEBI ESOP Guidelines ). The ESOSs provide for the grant of options to employees (including the employees of the Company s Subsidiaries) to acquire Equity Shares of the Company that vest in a graded manner and that are to be exercised within a specified period. In accordance with the SEBI ESOP Guidelines, the excess, if any, of the closing market price on the day prior to the grant of the options under the ESOSs over the exercise price is amortized on a straight line basis over the vesting period. 79

80 INFRASTRUCTURE DEVELOPMENT AND FINANCING IN INDIA The information in this section has been extracted from publicly available documents prepared by various sources, including officially prepared materials from the Government and its various ministries, the RBI and various multilateral institutions and has not been prepared or independently verified by us or any of our advisors. Industry sources and publications generally state that the information contained therein has been obtained from sources generally believed to be reliable, but their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured, and, accordingly, investment decisions should not be based on such information. Industry sources and publications are also prepared based on information and estimates as of specific dates and may no longer be current. Overview of the Indian Economy In recent years, India has been one of the fastest growing major economies in the world, recording a GDP growth rate at factor cost of 9.0 per cent. or higher in each of fiscal 2006, 2007 and Macroeconomic conditions resulted in GDP growth rates at factor cost declining to 6.7 per cent. in fiscal 2009 and 6.1 per cent. in the first quarter of fiscal The Central Statistics Office s (Ministry of Statistics and Programme Implementation) estimates suggest that the GDP growth rate at factor cost in fiscal 2010 will have been approximately 7.4 per cent. The following table presents a comparison of India s real GDP growth rate with the real GDP growth rate of certain other countries: Country 2007* 2008* 2009* Australia 4.8% 2.2% 1% Brazil 6.1% 5.1% (0.2)% China 13.0% 9.0% 8.7% Germany 2.5% 1.3% (5.0%) India 9.0% 7.4% 6.5% Japan 2.3% (1.2%) (5.3%) South Korea 5.1% 2.2% 0.2% Malaysia 6.2% 4.6% (2.2%) Russia 8.1% 5.6% (7.9%) Thailand 4.9% 2.5% (2.8%) United Kingdom 2.6% 0.5% (4.8%) United States 2.1% 0.4% (2.4%) * Represents calendar year growth rates. (Source: CIA World Factbook, website: India s ability to recover from the global slowdown and its own domestic liquidity crunch has been driven by the country s large domestic savings (including corporate retained earnings) and private consumption. Further, the Government s fiscal policies and the monetary policies of the RBI have played an important role in the revival of economic growth. In particular, the Government as part of its fiscal stimulus package took the following initiatives to promote consumption in the economy: increased Government expenditure, especially on infrastructure; and reduced taxes to spur consumption. 80

81 Investment in India has remained relatively stable despite the global slowdown and has been growing at a rate higher than that of GDP. There has been an upward trend in the growth of private investment. The turnaround in the growth momentum is shown by the second quarter of estimates, where the economy recorded a GDP growth of 7.9 per cent. as against 7.5 per cent. in the corresponding quarter of The recovery was broad based with mining and quarrying, manufacturing, and electricity, gas and water supply recording growth rates. (Source: Ministry of Finance: Economic Survey, ) Domestic decrease in demand and persistent uncertainty in the global conditions, however, operate as major impediments to a quicker economic recovery. It is believed that strengthening consumer and investor confidence in India will be necessary in order to sustain growth over the long term. Infrastructure Development The growth of the Indian economy in recent years has placed increasing stress on physical infrastructure such as electricity, railways, roads, ports, airports, irrigation, water supply and sanitation, all of which already suffer from a substantial deficit in terms of capacities and efficiencies in their delivery. While there has been some improvement in infrastructure development in the transport, communication and energy sectors in recent years, there are still significant gaps. Building on the general consensus that infrastructure inadequacies constitute a significant constraint in realizing India s development potential, an ambitious program of infrastructure investment, involving both the public and private sector, is being implemented under the Eleventh Five Year Plan (Fiscal 2007 to 2012) (the 11th Plan ) which emphasizes a broad-based and inclusive approach to economic growth to improve quality of life and reduce disparities across regions and communities. Infrastructure spending is set to grow significantly. Infrastructure spending targets under the 11th Plan were revised from 4.6 per cent. to 7.5 per cent. of GDP, representing an increase of over per cent. compared to the Tenth Five Year Plan. The 11th Plan strengthens and consolidates recent infrastructure related initiatives, such as the Bharat Nirman program for building rural infrastructure, as well as sectoral initiatives, such as the National Highway Development Programme ( NHDP ), the Airport Financing Plan, the National Maritime Development Programme and the Jawaharlal Nehru National Urban Renewal Mission. In order to meet the intended level of planned infrastructure spending, the Government is encouraging private sector participation through public private partnerships ( PPP ) projects. Furthermore, states including Gujarat, Uttar Pradesh, Bihar, Tamil Nadu, Delhi and the NCR region have proactively implemented measures to foster infrastructure investment. In tandem with the projected investment in infrastructure, the related industries in power, steel, coal and cement are also expected to witness significant growth. This would require significant expansion in supply of key raw materials for the proposed investment in the infrastructure sector. Accordingly, several projects have been proposed by both private and public sector companies for the creation of new capacity and expansion of existing plants. It is expected that the process of commissioning of these projects will generate additional demand for machinery for these plants. The continued thrust on infrastructure creation and the planned funding of projects is expected to ensure a steady stream of order inflows for capital goods companies. Sector Overview Telecommunications The Indian telecommunication sector continues to be one of the most competitive arenas in the country, with fierce competition among a number of players resulting in quality services being made available to subscribers at low costs. According to TRAI, the number of telecom subscribers (wireless and wireline) in India increased to million at the end of April 2010 from million in March 2010, thereby registering a growth rate of 2.70 per cent. With this increase, the overall tele-density (telephones per 100 people) in India reached (Source: TRAI, The number of wireline subscribers in India stood at million in April 2010, a decline from million at the end of March Wireline tele-density was 3.12 at the end of April On the other hand, the number of wireless subscribers increased from million at the end of March 2010 to million at the end of April (Source: TRAI, 81

82 Telecommunication Subscribers In India Wireless Wireline (Source: TRAI.) Despite growth in the number of subscribers, the Average Revenue Per User ( ARPU ) and Minutes of Usage ( MOU ) per month have declined for both GSM and CDMA operators since the last quarter of 2007 or first quarter of 2008, as the case may be. ARPU for GSM service declined from Rs. 164 in the quarter ended September 2009 to Rs. 144 in the quarter ended December 2009, a decrease of 12.4 per cent. ARPU for CDMA service declined by 7.0 per cent. from Rs. 89 in the quarter ended September 2009 to Rs. 82 in the quarter ended December (Source: TRAI.) MOU per subscriber for GSM services experienced a decline of 2.82 per cent. between the quarter ended September 2009 and the quarter ended December 2009, decreasing from 423 in the quarter ended September 2009 to 411 in the quarter ended December Outgoing MOUs for GSM services declined by 2.67 per cent., while incoming MOUs for GSM services declined by 2.96 per cent. during this period. MOU per subscriber for CDMA services increased by 3.23 per cent. from 308 in the quarter ended September 2009 to 318 in the quarter ended December Outgoing MOUs for CDMA services increased by 4.04 per cent. while incoming MOUs for CDMA services increased by 2.50 per cent. during this period. (Source: TRAI.) The table below shows key trends for GSM and CDMA operators on a quarterly basis from December 2007 to December Key Indicators Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 GSM ARPU (Rs.) % Pre-Paid MOU SMS per month

83 Key Indicators Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 CDMA ARPU (Rs.) % Pre-Paid MOU SMS per month (Source: TRAI.) On April 30, 2010, the top seven telecom service providers in India (Bharti, Reliance, Vodafone, BSNL, Tata, Idea and Aircel) held per cent. share of the market. Loop, 0.5% Sistema, 0.7% S-TEL, 0.2% Videocon, 0.1% Unitech, 0.8% MTNL, 0.8% Aircel, 6.4% HFCL, 0.1% Etsilat, 0.0% Bharti, 21.7% Idea, 10.9% Tata, 11.3% BSNL, 11.7% Vodafone, 17.3% Reliance, 17.5% (Source: TRAI.) It is expected that once 3G spectrum becomes available in India, about 275 million Indian subscribers will use 3Gbased services, and the number of 3G-enabled handsets will reach close to 395 million by the end of The target for the 11th Plan period is for there to be 600 million wireless subscribers in India by the end of the plan period with U.S.$73.0 billion to be invested in wireless services. Apart from basic wireless service, there is also large potential for various value-added services. (Source: India Brand Equity Foundation; Power The power sector has been recognized by the Government, as a key infrastructure sector to sustain the growth of the Indian economy. As per the projections of investment in infrastructure during the 11th Plan period, investment in the electricity sector is projected at Rs. 6,665.0 billion (approximately U.S.$166.6 billion) at fiscal 2007 prices, or approximately 32.4 per cent. of the total projected investment in infrastructure during the 11th Plan period. (Source: Planning Commission, 11th Plan.) The low per capita consumption of electric power in India compared to the world average presents a significant potential for sustainable growth in the demand for electric power in India. As of March 31, 2010 India had an installed capacity of 159,398.4 MW. (Source: CEA April 2010 Report.) India has historically had energy shortages, which have been increasing over the years. Energy deficits averaged 8.9 per cent. and the deficit during peak hours (the peak power deficit ) averaged 12.8 per cent. between fiscal 2003 and fiscal The total energy deficit and peak power deficit for fiscal 2010 were approximately 10.1 per cent. and 13.3 per cent. respectively (Source: CEA April 2010 Report). 83

84 The shortages in energy and peak power have been primarily due to the slow pace of capacity addition. During the 11th Plan period, capacity addition achieved was 9,263.0 MW, while in fiscal 2009, capacity addition achieved was 3,453.7 MW. (Source: CEA April 2010 Report.) Indian Power Consumption The per capita consumption of electricity in India has increased from kwh/year in to kwh/year in , growing at a CAGR of 4.4 per cent. from to The following chart highlights the growth in per capita consumption of electricity: FY 2003 FY 2004 FY 2005 FY 2006 FY 2007 FY 2008 (Source: CEA Monthly Review of Power Sector April 2010.) Due to inadequate supply and distribution infrastructure, the per capita consumption of energy in India is low in comparison to most other parts of the world. An increase in per capita consumption of electricity in India requires an increase in accessibility of electricity in rural India. The Government has set a target to achieve over 1,000 per capita of electricity units by fiscal 2012, according to its mission of Power for All by 2012 and as envisaged in its National Electricity Policy. Demand/ Supply Overview The Indian power sector has historically witnessed shortages in energy and peak power. The energy deficit averaged at 9.03 per cent. and the peak power deficit averaged per cent. from fiscal 2003 to fiscal 2010, with the deficits increasing over that period. As depicted in the table below, the demand for and availability of energy has increased between Fiscal 2003 and Fiscal Peak Demand (MW) Peak Met (MW) Peak Deficit/ Surplus (MW) Peak Deficit/ Surplus (%) Energy Reqmt. Energy Availability Energy Deficit/ Surplus (MW) Energy Deficit/ Surplus Fiscal ,492 71,457 (9,945) (12.2) 545, ,890 (48,093) (8.8) Fiscal ,574 75,066 (9,508) (11.2) 559, ,398 (39,866) (7.1) Fiscal ,906 77,652 (10,254) (11.7) 591, ,115 (43,258) (7.3) Fiscal ,255 81,792 (11,463) (12.3) 631, ,819 (52,938) (8.4) Fiscal ,715 86,818 (13,897) (13.8) 690, ,495 (66,092) (9.6) Fiscal ,866 90,793 (18,073) (16.6) 739, ,007 (73,338) (9.9) (%) 84

85 Peak Demand (MW) Peak Met (MW) Peak Deficit/ Surplus (MW) Peak Deficit/ Surplus (%) Energy Reqmt. Energy Availability Energy Deficit/ Surplus (MW) Energy Deficit/ Surplus Fiscal ,809 96,685 (13,124) (12.0) 774, ,021 (85,303) (11.0) Fiscal , ,725 (15,748) (13.3) 830, ,493 (83,807) (10.1) (Source: CEA Power Scenario at a Glance, April 2010.) Transportation Civil Aviation India represents one of the fastest growing aviation markets in the world. The aviation sector in India, which was once dominated solely by the national carriers Air India and Indian Airlines, has seen a marked change in competitive landscape over the last two decades, with the advent of several private players. The entry of low-cost carriers ( LCCs ) further revolutionized the business dynamics of the sector, making air travel an affordable alternate medium of travel to the widespread middle class in India. The Indian aviation sector has been underperforming relative to its potential in the past, due primarily to excessive regulation, inadequate infrastructure facilities and the high cost attached to air travel. However, with the economy registering a growing trend and a widening base of customers adopting air travel, deregulation and additional investment in improving the infrastructure facilities at airports have served to be the key drivers behind the current growth. The entry of LCCs, giving stiff competition to the legacy players on both price as well as service-delivery has further accelerated growth of the aviation sector. The chart below shows the market share of scheduled domestic airlines as of May 2010: (%) Jet Airways 18.2% Jet Lite 8.0% NACIL 17.7% IndiGo 15.7% Kingfisher 21.0% Spice Jet 13.2% Go Air 5.9% Paramount 0.3% (Source: Ministry of Civil Aviation, After witnessing steady growth in the initial years of the current decade, growth in the aviation sector tapered off due to the global economic slowdown, and volatility in the prices of air turbine fuel. However, buoyed by the strong revival in the Indian economy, the sector has witnessed an improvement in demand, reflected in higher utilization levels. Statistics released by the Ministry of Civil Aviation show that the total passengers carried by domestic 85

86 airlines in the period between January and May 2010 stood at 21.4 million, as compared to 17.3 million for the corresponding period in The table below illustrates growth in passenger volumes through fiscals Passengers Carried by Air Transport (millions) FY 2005 FY 2006 FY 2007 FY 2008 FY 2009 (Source: Planning Commission of India.) Capacity expansion and upgrading at four of the top six airports in India Mumbai, Delhi, Kolkata and Chennai (which account for over 50 per cent. of the country s total passenger traffic) is being undertaken to relieve the heavy congestion and to accommodate future traffic. The cross-runway system at the Chatrapati Shivaji International Airport in Mumbai has been upgraded recently, and construction work on the third terminal at the Indira Gandhi International Airport in Delhi is nearing completion, with commercial operations expected to begin in July In Chennai, the work is mainly on construction of bays, while in Kolkata, besides the extension of the second runway, several additional bays are being constructed. Roads India has a large road network of million km, consisting of national highways, expressways, state highways, major district roads, other district roads and village roads with the following length distribution: National highways and expressways State highways Major and other district roads Village roads (Source: Ministry of Road Transport and Highways, Annual Report ) Length 70,548 km 1,28,000 km 470,000 km 26,50,000 km The national highways are further classified depending upon carriageway width of the highway. Generally, a single lane has a width of 3.75 m and a multi lane national highway has a width of 3.5 m per lane. The length distribution of the national highways in terms of width is as follows: Single lane/ Intermediate lane Double lane Four lane/ Six lane/ Eight lane (Source: Ministry of Road Transport & Highways, Annual Report ) Length 20,849 km 37,646 km 12,053 km Approximately 60.0 per cent. of freight and 87.4 per cent. of passenger traffic is carried by road. Although national highways constitute only about 2.0 per cent. of the road network, they carry around 40.0 per cent. of the total road 86

87 traffic. (Source: Ministry of Road Transport & Highways, Annual Report )According to the Economic Survey of India , road transport accounted for around 87 per cent. of passenger movement and 60 per cent. of freight movement in fiscal With more than three-fourths of the construction under the NHDP being envisaged to be funded through PPP (on a build, operate and transfer or annuity basis), the highway expansion plan of the government depends on private sector investment. The implementation of the first part of the B.K. Chaturvedi Committee Report (the BKCC Report ) recommendations has led to the removal of several impediments to the award of highway projects to the private sector. Key recommendations made by the BKCC Report include relaxing the conflict of interest clause by increasing the shareholding limit among consortium partners, and allowing developers an early exit after project completion. To further facilitate quicker development of highways, the Ministry of Roads and Highways is considering 9 mega projects (in the range of km) aggregating to the development of 3,888 km. (Source: Ministry of Road Transport & Highways, Press Release, March 20, 2010.) Key constraints on implementing the projects are delays in land acquisition, obtaining environmental and forest clearances and removal of utilities such as electricity lines and water pipelines. Multiple steps are being undertaken to address these issues such as stationing high level National Highway Authority of India ( NHAI ) officials at regional offices empowered to resolve implementation problems. Greater attention is paid to the regular monitoring of projects, and collaboration from the respective state governments is also encouraged. Further, several senior officers have been appointed as nodal officers to coordinate project implementation with the NHAI. (Source: Indian Economic Survey ) Railways The rail network in India is the third largest rail network in the world under a single management. Better resource management through increased wagon loads, faster turnaround times and rationalization in pricing policies has led to improvements in the performance of the Indian railways. Freight traffic accounts for about 70.0 per cent. of revenue with passenger traffic making up the remaining. Within the freight segment, bulk traffic accounts for nearly 84.0 per cent. of revenue-earning freight traffic (in physical terms), of which about 44.0 per cent. is coal. (Source: Indian Economic Survey ) The railways have taken the following steps to attract traffic: introduction of differential tariffs to address skewed demand during different periods of the year and between different regions; introduction of freight incentive schemes, particularly in the traditional empty-flow directions and during lean seasons; reduction of passenger fares, for example, from April 1, 2009, the existing basic fares up to Rs per passenger for non-suburban mail or express trains including super-fast trains and non-suburban ordinary passenger trains were reduced by Re Fares beyond Rs per passenger were reduced by giving a discount of 2.0 per cent.; and launch of new trains and passenger amenities, for example; introduction in September 2009 of Duronto trains, which are non-stop super fast passengercarrying trains; introduction of Yuva trains to allow youths from low-income groups to travel at low rates between major cities; introduction of uniformly priced monthly seasons tickets at Rs. 25.0, inclusive of all surcharges, to be issued for a distance up to 100 km to persons working in the unorganized sector with monthly income not exceeding Rs. 1,500.0; 87

88 Investment in new capacity Tejshree Parcel Sewa, a pilot project introduced to attract high-value and transit-sensitive non-bulk parcel traffic. The service is currently active only between a few stations and is envisaged as a time-tabled service from dedicated terminals with guaranteed transit time; addition of 17 railway stations to the existing list of 358 Adarsh stations, being railways stations with basic facilities such as drinking water, adequate toilets, catering services, waiting rooms and dormitories and better signage; setting up of multifunctional complexes at 50 railway stations serving places of pilgrimage, industry and tourist attractions in different parts of the country, which will provide rail users with multiple facilities; and real-time train running information to passengers through Online Coach Indication Display Boards and Train Arrival and Departure Display Boards. The trial of one of the pilot projects, Satellite Imaging for Rail Navigation, using real-time train tracking through GPS and GSM mobile technologies has been successfully carried out by the Research Design and Standards Organisation, in coordination with the Indian Institute of Technology, Kanpur. New productions facilities have been set up, including a rail coach factory at Rae Bareilly, a coach factory at Kanchrapara, a diesel locomotive factory at Marhowra, an electric locomotive factory at Madhepura and a rail wheel factory at Chhapra. Two ancillary units are also being set up in Dankuni to manufacture and assemble components for electric and diesel locomotives. The Dedicated Freight Corridor ( DFC ) project envisages a western DFC (1,483 km) from Mumbai to Dadri/Tughlakabad catering largely to the container transport requirements and an eastern DFC (1,806 km) from Ludhiana to Dankuni largely serving coal and steel traffic. This project is being implemented by the Dedicated Freight Corridor Corporation of India Limited. Feasibility studies have been completed on other important routes for example the North-South, East-West, East-South and Southern corridors and traffic projections, cost and viability are under examination. The Rail Land Development Authority has been set up for the commercial development of vacant railway land and air space which is not immediately required by the railways. There are also plans to utilize vacant railway land, wherever feasible, to set up infrastructural projects to earn revenue, create additional infrastructure and generate employment. During the 11th Plan period, the electrification of 3,500 km is planned with an outlay of Rs. 30,000 million, taking the percentage of electrified network up to 33.4 per cent. In the first two years of the 11th Plan period, 1,299 km has been electrified. (Source: Indian Economic Survey ) Ports Shipping has historically played a significant role in the development of the Indian economy. India has 12 major ports (with six on each of the east and west coasts) around 200 minor ports, and a coastline approximately 7,517 km long. Approximately 95.0 per cent. of the country s trade by volume and 70.0 per cent. by value is moved by maritime transport. (Source: Ministry of Shipping, Annual Report ) Private sector participation has seen an increase in the development of terminals in the major ports as well as new non-major ports. Since 2000, there have been significant developments in the non-major ports, chiefly due to proactive policies adopted by various state maritime boards, especially in states such as Gujarat, Andhra Pradesh, Orissa, etc. During fiscal 2010, the major ports were estimated to have handled a total traffic of million tonnes representing an improvement of 5.77 per cent. over the previous year. (Source: Ministry of Shipping, 88

89 The breakdown of traffic handled at certain ports over the last six fiscal years is as follows: In million tonnes Port Fiscal 2004 Fiscal 2005 Fiscal 2006 Fiscal 2007 Fiscal 2008 Fiscal 2009 Fiscal 2010* Kolkata Haldia Paradip Vizag Ennore Chennai Tuticorin Kochi NMPT Marmagao Mumbai JNPT Kandla Total * indicates tentative figures (Source: Ministry of Shipping) The aggregate capacity of major ports as of March 31, 2010 was estimated to be around million tonnes. The average output per ship, per day for all major ports taken together has improved from 9,926 tonnes in the period April-December 2008 to 9,995 tonnes for the corresponding period in However, average turnaround time marginally increased from 3.86 days to 4.54 days over the same period, as compared to 10 hours in Hong Kong. This undermines the competitiveness of Indian ports. (Source: Ministry of Shipping, Annual Report ) Since ports are not adequately linked to the hinterland, the evacuation of cargo is slow, leading to congestion. To this end, all port trusts have set up groups with representatives from the NHAI, the railways and State Governments to prepare comprehensive plans aimed at improving road-rail connectivity of ports. The NHAI has taken up port connectivity as a major component of the NHDP. (Source: Indian Economic Survey ) The 11th Plan projected that the total traffic handled by Indian ports will cross the one billion tonne mark and will reach 1, million tonnes with the major ports having a 70.0 per cent. share with a traffic target of million tonnes by (Source: Ministry of Shipping, Annual Report ) Providers of Infrastructure Finance in India The primary providers of infrastructure finance in India are financial institutions, public sector banks and other public sector institutions, private banks, foreign banks and multilateral development institutions. Financial Institutions Financial institutions provide medium and long term financial assistance across various industries for use in setting up new projects and for the expansion and modernization of existing facilities. These institutions provide both fundbased and non-fund based assistance in the form of loans, underwriting, direct subscription to shares, debentures and 89

90 guarantees. The primary long-term lending institutions include IIFCL, IFCI Limited, Industrial Investment Bank of India Limited and Small Industries Development Bank of India. Specialized Financial Institutions In addition, there are various specialized financial institutions which cater to the specific needs of different sectors. We are a specialized financial institution focused on infrastructure financing and related advisory activities. Other such institutions include the National Bank for Agricultural and Rural Development, Export Import Bank of India, IFCI Venture Capital Funds Limited (formerly the Risk Capital and Technology Finance Corporation Limited), Tourism Finance Corporation of India Limited, Housing and Urban Development Corporation Limited, Power Finance Corporation Limited, Infrastructure Leasing & Financial Services Limited, Rural Electrification Corporation Limited and Indian Railway Finance Corporation Limited. State Level Financial Institutions State financial corporations were set up to finance and promote small and medium-sized enterprises at a state level and they form an integral part of the institutional financing system. There are also state industrial development corporations operating at state level, which provide finance primarily to medium-sized and large-sized enterprises. Public Sector Banks and other Public Sector Institutions Public sector banks make up the largest category of banks in the Indian banking system. The primary public sector banks operating in the infrastructure finance sector include IDBI Bank, State Bank of India, Punjab National Bank, Canara Bank, UTI Bank and the Bank of Baroda. Other public sector entities, for example the Life Insurance Corporation of India, also provide financing to the infrastructure sector. Private Sector Banks After completion of the first phase of bank nationalization in 1969, the majority of Indian banks were public sector banks. Some existing private sector banks, which showed signs of an eventual default, were merged with stateowned banks. In July 1993, as part of the banking reform process and to induce competition in the banking sector, the RBI permitted entry by the private sector into the banking system resulting in the introduction of nine private sector banks which are collectively known as the new private sector banks. The primary private sector bank operating in the infrastructure financing sector is ICICI Bank. Infrastructure Finance Companies IFCs are a new category of infrastructure funding entities introduced by the RBI in February Non-deposit taking NBFCs which satisfy the following conditions are eligible to apply to the RBI and seek the IFC status: a minimum of 75.0 per cent. of its assets deployed in infrastructure loans; net owned funds of at least Rs. 3,000.0 million; minimum credit rating 'A' or equivalent of CRISIL, FITCH, CARE, ICRA or equivalent rating by any other accrediting rating agencies; and CRAR of 15.0 per cent. (with a minimum Tier I capital of 10.0 per cent.). IFCs enjoy benefits including a lower risk weight on their bank borrowings (from a flat per cent. to as low as 20.0 per cent. for AAA-rated borrowers), higher permissible bank borrowing (up to 20.0 per cent. of the bank s net worth as against 15 per cent. for an NBFC that is not an IFC), access to external commercial borrowings (up to 50.0 per cent. of owned funds on an automatic basis) and relaxation in their single party and group exposure norms on both debt and equity. These benefits should enable a highly rated IFC to raise more funds, of longer tenors and at lower costs, and in turn lend more to infrastructure companies. 90

91 Overview BUSINESS We believe that we are a leading knowledge-driven financial services company in India and play a central role in advancing infrastructure development in the country. We provide a full range of financing solutions to our clients and believe that we distinguish ourselves from other financiers by having developed extensive domain knowledge of infrastructure in India. We operate as a professionally managed commercial entity with the objective of maximizing shareholder value. We were established in 1997 as a private sector enterprise by a consortium of public and private investors and listed our Equity Shares in India pursuant to an initial public offering in August Following the listing of our Equity Shares, we steadily broadened our business activities from project financing and government advisory to cover a wide spectrum of financial intermediation services. Since our second major capital raising in July 2007 through a qualified institutions placement of our Equity Shares raising approximately Rs. 21,000.0 million, we have continued to grow and diversify our business and revenue streams through a mix of organic as well as inorganic growth, including acquisitions. The Government has identified infrastructure development as a key priority in its five year plans. The Eleventh Five Year Plan (Fiscal 2008 to 2012) envisages investments of U.S. $ billion in the infrastructure sector. Given the scale of investment required, we expect a substantial proportion of the investment to be met through private financing or PPP. We believe that given our history, capabilities and financial strength, we are well placed to benefit from these opportunities, particularly with the increasingly conducive policy and regulatory environment in India for infrastructure development. In this connection, we have been successful in obtaining from the RBI a change in our Company s classification to an Infrastructure Finance Company, or IFC, which, among other things will allow us to diversify our borrowings, access long-term funds to a greater extent and give us the flexibility to increase our exposures to borrowers and groups. We classify our business into the following four broad platforms, through which we not only provide project finance but also arrange and facilitate the flow of private capital to infrastructure development by creating appropriate structures and financing vehicles for a wide range of market participants: Corporate Finance and Investment Banking, which includes our project finance, principal investments and treasury operations, as well as the investment banking business of IDFC Capital and the institutional brokerage business of IDFC Securities, which were acquired in 2007; Public Markets Asset Management, which comprises the mutual funds business that we acquired from Standard Chartered Bank in 2008; Alternative Asset Management, which includes our private asset management and project management businesses; and Advocacy and Nation Building, through which we remain actively involved in providing policy formulation and advocacy, institutional capacity building to structure public-private partnerships, government transaction advisory services and corporate social responsibility initiatives. These business platforms are supported by a shared services platform that includes information technology, human resources, legal and compliance, secretarial services, risk management, finance and facilities. Our clients include prominent participants in infrastructure development in India and our product portfolio caters to the diverse needs of these clients across all layers of the capital structure. Our main focus has been on the energy, transportation and the telecommunications and information technology sectors, and we expect to see continued growth and significant financing opportunities in these sectors. Our business has grown rapidly in recent years. Our balance sheet, total income and profit after tax, on a consolidated basis, grew at a compounded annual growth rate of 9.5 per cent., 20.3 per cent. and 19.6 per cent., respectively, from fiscal 2008 to fiscal As of March 31, 2010, our gross and net non-performing loans were 91

92 Rs million and Rs million, respectively. These represent 0.3 per cent. and 0.2 per cent. of our total loan assets, respectively. Our capital to risk-weighted asset ratio as of March 31, 2010 was 20.5 per cent. and our return on average total assets in fiscal 2010 was 3.4 per cent. Our long term borrowings have been rated LAAA by ICRA and AAA (ind) by Fitch, which are the highest credit ratings awarded by these rating agencies. In view of our historical and intended growth and the increasingly interconnected nature of our businesses, in fiscal 2010 we launched the One Firm initiative, which seeks to forge our identity and brand across our various platforms and businesses. We believe that this initiative will enable us to emerge as a better aligned and integrated firm that presents a unified value proposition to our clients. Strengths We believe that the following are our primary strengths: Composite financial services platform focused on infrastructure. Infrastructure lending has been and remains the predominant contributor to our business; however, we have over the last few years strategically diversified into new businesses and believe that we are now a one-stop infrastructure financing group. We have grown some of our business organically, such as our Alternative Asset Management platform, which includes our private equity, project equity, funds of funds and project management and development businesses. We have also strategically acquired capabilities in investment banking, institutional brokerage and public markets asset management. Further, we have grouped our businesses under four interconnected platforms, which through our One Firm initiative collectively enable us to offer comprehensive solutions and unified value proposition to our clients and also generate fee based sources of revenue in addition to interest income. Reputation as a leading private sector infrastructure financier. We were established with the objective of promoting private financing of Indian infrastructure and we are now a significant lender in the private infrastructure financing sector. We believe that we distinguish ourselves among financiers to infrastructure projects in India by having developed domain knowledge, particularly with regard to project structuring, appraisal and risk evaluation. We have expertise in providing financing through a variety of products and have played a key role in introducing innovative financial products and structures, which allow a broader cross-section of lenders and investors to participate in infrastructure financing. We believe that these attributes have contributed to our being a leading infrastructure financing institution in India. Experienced management team and dynamic professional staff. The members of our management team and professional staff are from diverse backgrounds, including leading commercial banks and lending institutions, finance companies, regulators, academia, rating agencies, investment banks and private equity firms. Our managers and professional staff have domestic and international expertise in areas such as project finance, principal investments, asset management, financial markets and investment banking as well as advisory services. Our managers and professional staff also have domain knowledge and experience in the various sectors we serve, which contributes to our understanding of the sector-specific aspects of our business. Established relationships with government entities. Our strong relationship with the Government gives us access to decision makers in government entities and multilateral development agencies. As a consequence, we are able to play a significant role in the direction of infrastructure policy in the country. We believe that our policy-related initiatives have helped rationalize India s policy and regulatory frameworks across the infrastructure sector, which has encouraged an increased flow of private capital, including foreign capital, into infrastructure. In addition, we believe that our multidimensional relationship with governmental entities, in advisory as well as beneficiary capacities, gives us access to major financing and advisory opportunities in the infrastructure sector. Well-developed client relationships. We have well-developed relationships with prominent private sector sponsors in India s infrastructure sector and many emerging participants in the sector. We were among the earliest providers of infrastructure financing for many of our clients, which has fostered our relationships in the industry. These relationships have enabled us to have a prominent role in prospective projects with such clients at an early stage and to obtain leadership roles in advising and financing infrastructure projects. 92

93 Financial strength to take advantage of market opportunities. We believe that our financial status provides us with the ability to grow our balance sheet and our return on assets and equity. Our leverage, which we define as average assets divided by average net worth, was 4.6 times as of March 31, 2010, and will be reduced through the proceeds raised in this Issue. We believe that this will enable us to increase the size of our balance sheet while remaining within a sustainable level of leverage and thereby access a broad range of opportunities. Further, as of March 31, 2010 our capital adequacy ratio was 20.5 per cent. and our return on assets was 3.4 per cent. Our long term borrowings have been rated LAAA by ICRA and AAA (ind) by Fitch, which are the highest credit ratings awarded by these rating agencies. We believe that our financial position will be further strengthened with our recent classification as an Infrastructure Finance Company, as it allows us to diversify our borrowings, access long-term funds and increase our lending exposures to individual entities, corporations and groups, which will enable us to take advantage of further growth opportunities. Strong asset quality. Our gross and net non-performing loans represented 0.3 per cent. and 0.2 per cent. of total loan assets, respectively, as of March 31, We believe that our strong asset quality has been achieved due in part to our comprehensive credit and project appraisal skills and disciplined risk management practices. Our credit process involves extensive screening and financial analysis to assess potential risks and devise appropriate risk mitigation mechanisms. We also have a systematic review process to continuously monitor and evaluate the projects in our portfolio. Strategy Our mission is to be the leading knowledge driven financial services firm, creating enduring value, promoting infrastructure and nation building in India and beyond. To enable us to achieve our mission, we are creating a unifying, company-wide culture and governance system based on the pillars of knowledge expertise, teamwork and stewardship. This initiative, called One Firm, cuts across functional domains and is a cornerstone philosophy in executing our key strategies. The initiative is intended to minimize internal segregation and divisions across practice and product areas and emphasizes on collaboration across platforms and leveraging different capabilities across departments and businesses. Guided by our One Firm framework, we are focused on enhancing shareholder value by pursuing strategies that enhance our profitability, return on assets and return on equity. The key elements of our business strategy are as follows: Deliver profitability growth by: operating as a one stop provider of infrastructure financing by offering clients a diverse range of infrastructure financing options and other related services, which include project finance, principal investment, asset management, financial markets and investment banking services, and advisory services; continuing to diversify our revenue streams to increase fee-based income through our non-lending businesses such as asset management, investment banking, private equity and project equity and capturing a greater share of client revenues by cross-selling products and services that address clients requirements; increasing our market share in the investment banking business by expanding our geographical reach and product base and the institutional brokerage business by capitalizing on existing corporate and institutional relationships; seeking transaction leadership roles in select projects in which we participate and working closely with clients, from the pre-bidding stage to project commissioning; and maintaining high levels of operational efficiency to lower our expense to assets ratio. Achieve robust balance sheet growth by: utilizing our recently awarded IFC status to optimize our capital structure and long-term funding resources and thereby expand our financing operations while maintaining our competitive cost of funds; 93

94 building on the strong relationships we have with sponsors of infrastructure projects to continue expanding our business activities and financing opportunities; focusing and capitalizing on our key sectors, including energy, transportation and the telecommunications and information technology sectors; and offering a broader array of financing solutions tailored to different risk appetites in order to expand funding options for infrastructure projects. Pursue leadership in the Indian infrastructure sector by: using our structuring skills and knowledge of domestic and international capital markets to continuously develop and launch new products suitable to a wider array of domestic and international investors and lenders; advocating policy and regulatory frameworks in our areas of focus and tailoring global best practices to the Indian context; delivering high quality advisory services to clients and working with government entities in India, as well as with multilateral and bilateral development agencies, to seek removal of bottlenecks and encourage private investment into infrastructure; and attracting and retaining the best talent in the industry and offering them the opportunity to grow and excel within our organization. Business Platforms While we continue to focus on the business of infrastructure financing, our business structure and organisation has grown and developed over the years. In keeping with our goal of becoming a one stop provider of infrastructure financing and related services, in the recent past we have increasingly focused on diversifying the products and services that we offer to our clients. We believe that as competition increases, we may be able to distinguish ourselves by offering clients a broader suite of financing options, including risk capital and access to equity markets, which we expect will constitute higher margin businesses for us. At present we derive most of our income from net interest income from our infrastructure sector lending operations, which accounted for 48.3 per cent. of our net operating income in fiscal While we expect our interest income to grow in response to the lending opportunities in the infrastructure sector, we have in the last few years also diversified our business to areas such as investment banking, institutional brokerage and asset management where the revenue streams are non-interest income based. We expect these businesses to be growth drivers for us in the future and to contribute to a greater extent to our net operating income. We classify our business into four broad platforms based on the fundamental nature of the underlying activities. These are: Corporate Finance and Investment Banking Public Markets Asset Management Alternative Asset Management Advocacy and Nation Building The four business platforms are supported by a shared services platform that includes information technology, human resource, legal and compliance, secretarial services, risk management, finance and facilities. 94

95 Corporate Finance and Investment Banking Project Finance Through our project finance business we provide funded and non-funded products across the capital structure to infrastructure projects. Our project financing products include senior debt financing, which is provided through loans or in the form of subscriptions to debentures, securitized debt that is collateralized by the cash flow receivables of the project and mezzanine products, comprising preference capital and subordinated debt. We also make equity or equity-linked investments as part of our project financing portfolio and issue financial and performance guarantees on behalf of projects. Our contribution to the project finance sector in India has been recognized by third parties. For example, we were ranked third in the Asia Pacific region and seventh globally in the project finance league table published by Thomson Reuters for the period ended March 31, The following table sets forth, as of March 31, 2010, the allocation of our net approvals and outstanding disbursements by type of financing and by sector: Energy Transportation Telecom and IT (3) Commercial and Industrial Infrastructure /Others (4) Rs. in million Total Net approvals 234, , , , ,461.2 Funded debt (1) 227, , , , ,380.6 Non-funded debt (2) 3, , , , ,792.0 Equity and preference capital 3, , , , ,288.7 Outstanding disbursements 103, , , , ,845.1 Funded debt (1) 99, , , , ,362.8 Non-funded debt (2) 1, ,908.7 Equity and preference capital 2, , , , ,573.6 Exposure 168, , , , ,424.6 Percentage of Total Exposure 38.3% 19.8% 24.4% 17.5% 100% Note: (1) Includes senior debt and subordinated debt financing. (2) Includes letters of credit, guarantees, take-out financing and risk participation products. (3) Includes Telecommunications and Information Technology. (4) Includes Special Economic Zones ( SEZs ), IT parks, commercial infrastructure projects, tourism, urban services, healthcare and education. On a cumulative basis, as of March 31, 2010, our gross approvals, including equity and non-funded assistance, were Rs. 1,096,826.5 million and gross disbursements, including equity were Rs. 571,297.0 million. As of March 31, 2010, our net approvals, i.e., gross approvals net of cancellations, were Rs. 730,461.1 million and our outstanding disbursements, i.e., gross disbursements net of repayments, were Rs. 278,845.2 million. As of March 31, 2010, our total exposure to infrastructure projects, including non-funded exposure and equity exposure, and excluding cancellations and repayments, was Rs. 438,424.7 million, of which energy accounted for the highest proportion at 38.3 per cent., followed by telecommunications and information technology at 24.4 per cent., transportation at 19.8 per cent., industrial and commercial infrastructure and others at 17.5 per cent. In fiscal 2010, we recorded gross approvals and disbursements of Rs. 304,419.2 million and Rs. 129,615.5 million, respectively. This represented an increase of per cent. and 60.3 per cent., respectively, over gross approvals and disbursements in fiscal In fiscal 2010, our exposure in the energy, transportation, the telecommunications and information technology, and commercial and industrial infrastructure and others grew by 34.4 per cent., 18.7 per cent., per cent. and 0.6 per cent., respectively, over fiscal

96 The following is a sector-wise overview of our project finance activities: Energy We finance projects for electricity generation, transmission and distribution, as well as projects in the oil and gas industry, particularly pipelines for oil and gas transportation and city gas distribution businesses. During fiscal 2010, our total exposure in the energy sector was Rs. 168,002.9 million and we approved financing aggregating Rs. 91,309.5 million, compared to Rs. 21,797.5 million in fiscal Gross disbursements during fiscal 2010 aggregated Rs. 41,122.7 million compared to Rs. 18,653.2 million in fiscal Set out below is a brief overview of the regulatory position and description of our projects in electricity, renewable energy and oil and gas. Electricity: The power sector continued to be characterized by shortages. The capacity addition in fiscal 2010 was 9,585 MW, the highest ever in a single year in India. The private sector played a major role as it contributed 45 per cent. of the capacity addition. Going forward, we expect the private sector to exceed the targeted capacity addition. (Source: Planning Commission of India.) The mid-term appraisal of the Eleventh Five Year Plan indicates that the private sector will be adding approximately 20,000 MW (as against the target of 15,000 MW). The Government has also modified the mega power policy, which makes available various fiscal benefits to large power projects. We provide financing support to the capital expenditure and efficiency improvement programme of private sector distribution utilities with strong financials. As regards transmission, there has been increased activity in the interstate transmission sector with the award of three Ultra Mega Transmission Projects ( UMTP ) to the private sector. The state transmission utilities are also awarding intra-state transmission projects based on competitive bidding. In view of these developments, we believe that there are significant opportunities in electricity generation, transmission and distribution businesses. (Source: Ministry of Power, We are the lead financial institution for a 1,005 MW coal fired power plant in Orissa, two 135 MW multi-fuel fired power plants in Gujarat, wind power projects in Andhra Pradesh, Gujarat, Tamil Nadu and Rajasthan aggregating to MW. We are also in the process of negotiating terms of financing for UMTPs aggregating line length of 2,100 km and one intra-state transmission project of 100 km in Haryana. We were one of the main lenders for a 1,150 km transmission project connecting northern and eastern India. We have also financed major private distribution licensees in Delhi, Ahmedabad, Surat and Mumbai. Renewable Energy: The Government is taking various steps to encourage the development of the renewable energy sector. Key initiatives on the policy side include: (a) Prime Minister s National Action Plan on Climate Change (NAPCC), which advocates a national level renewable portfolio standards (RPS) target of 15 per cent. by 2020; (b) higher return on equity proposed for renewable energy projects to attract investment in the sector; the normative return on equity has been fixed at 19 per cent. pre-tax for the first 10 years and 24 per cent. from the eleventh year; and (c) generation based incentive scheme at Rs. 0.50/kwh for energy generated by wind projects. Given the primary electricity generation feedstock shortage and prices, we believe that the development of renewable energy is set to be a focus area for the Government. We also believe that funding opportunities in the renewable energy sector will increase and that we are well positioned to play a significant role in respect of such opportunities. We will continue to support the funding requirements of large and medium sized renewable energy developers. Oil and Gas: We believe that the increased focus on natural gas and LNG as alternatives to oil-based fuels and the development of various gas distribution projects offer significant opportunities for growth in the oil and gas sector in India. Natural gas availability has increased significantly since the commencement of gas production from the KG basin field. This development, coupled with the expected commencement of gas production from other fields over the next few years, is expected to result in an increased focus on the construction of trunk transportation and city gas distribution networks. We believe that if certain regulatory matters are addressed, the city gas distribution and trunk transportation sectors will witness significant investment activity. We continue to focus on these sectors for lending opportunities. We were the joint lead financiers for the east-west pipeline of a leading private Indian corporate. We are also lenders to a trunk pipeline network in Gujarat and are the lead financiers of a private sector city gas distribution business in Ahmedabad. Further, we have in the past financed a gas distribution within Ahmedabad. 96

97 Transportation Project finance in the transportation segment comprises mainly of financing construction, operation and maintenance of roads, ports and airports. As of March 31, 2010 our total exposure in the transportation sector was Rs. 86,763.1 million. During fiscal 2010, we approved financing aggregating Rs. 49,118.9 million in the transportation sector compared to Rs. 15,670.0 million in fiscal Gross disbursements during fiscal 2010 aggregated Rs. 17,934.8 million compared to Rs. 14,761.7 million in fiscal Roads: The Government has an ambitious target of building 35,000 km of national highways over a five year period (20 km per day). (Source: Indian Economic Survey ) The Government has recently introduced a number of initiatives to facilitate road development including the implementation of the recommendations of the B K Chaturvedi Committee Report. The recommendations include changes to the bid document and model concession agreement to incentivize private sector participation. Going forward, more than three-fourths of the construction under the National Highways Development Programme ( NHDP ) is envisaged to be undertaken through PPP (Toll or Annuity). Further, the National Highways Authority of India ( NHAI ) proposes to award several mega road projects ( km) in the next few years. NHAI is now awarding contracts for longer road sections and the concession periods have also increased. A number of road projects have been awarded recently and we believe that a large number of road projects are likely to - In view of the above, we believe there are significant opportunities in financing roads. We also believe that our experience in financing road projects and our existing relationship with developers in the road sector enables us to selectively target projects. Our activities in road financing have focused on projects involving the construction, operation and maintenance of new and existing stretches of national and state highways and expressways, as well as providing related advisory services. We believe we have played a key role in opening up the road sector to private investment. We have financed a number of build, operate and transfer ( BOT ) highway projects. We represented and advised the NHAI in structuring a unique method for undertaking BOT projects known as the annuity approach. We have financed national and state highways, bridges and bypasses and participated in the securitization of toll receivables in existing road projects in a number of states across India. We are lead lenders in several prominent road projects, including national highways in Rajasthan, Andhra Pradesh, Punjab and Maharashtra. Further, pursuant to a circular dated April 23, 2010 the RBI has directed that banks may treat annuities under the BOT model in respect of road/highway projects and toll collection rights as tangible securities, provided that there are provisions to compensate the project sponsor if a certain level of traffic is not achieved and banks rights to receive annuities and toll collection rights are legally enforceable and irrevocable. Ports: The port sector, in particular the container segment, has exhibited a consistent growth story and we expect the momentum to continue due to the expected increase in shipping and trade arising from India s growing economy. Leading international port operators and domestic entities have invested significantly in developing major and nonmajor ports and terminals in India. We believe we played a key role in opening up the major port sector for private participation. We were engaged by the Government to evolve the PPP framework including entry criteria, bid process and the model concession framework for major ports. We facilitated the processes of corporatizing the new major port of Ennore in South India. This was the first major port to be corporatized in India. We were engaged by the World Bank to advise on evolving an institutional and regulatory framework in consultation with the stakeholders for the Indian port sector. Further, we were nominated by the Government (to advise the Planning Commission) to chair the working group on ports which was mandated to evolve the medium term development strategy for enhancing PPP in ports. We have advised several private international port operators and domestic players on entry and investment strategies in the ports business. We are one of the leading financiers in the port sector in India. We have a diversified portfolio covering (as financier and/or lead arranger and financier of debt) a wide range of geographical locations, a mix of major and non-major ports on the East and West coasts of India operated by international and domestic operators and several cargo categories including dry and liquid bulk and containers. We have further diversified our portfolio 97

98 by financing several bulk terminals developed by prominent industrial groups. We were the lead arrangers for the first private port of India at Pipavav, and also the bulk terminals at Jaigarh. Aviation: Investment opportunities in the Indian aviation sector include the expansion and development of urban airports. We provide financing in the aviation sector to airport projects as well as sub-concessions within an airport such as cargo handling, ground handling, etc. Growth in this sector has been driven by the Government s adoption of a legal framework for private investment in airports. As a result of this liberalization, various consortia have developed greenfield airports at Hyderabad and Bangalore and are modernizing the airports at Delhi and Mumbai. We are the lead lender in the Hyderabad greenfield airport and a lender to the modernization of Delhi airport as well as three sub-concessions at the Delhi airport. Telecommunications and Information Technology We provide project financing to new projects and acquisition finance to enable strategic activity in the telecommunications sector. As of March 31, 2010, our total exposure in the telecommunications and information technology sector was Rs. 107,050.7 million. During fiscal 2010, we approved financing aggregating Rs. 124,010.0 million in the telecommunications and information technology sector compared to Rs. 41,500.0 million in fiscal Gross disbursements during fiscal 2010 aggregated Rs. 36,704.5 million compared to Rs. 28,845.0 million in fiscal In fiscal 2010 we arranged term financing for established telecom operators and also provided financing to several passive infrastructure providers for their capital expenditure and acquisition related requirements. Until recently the telecommunications sector in India was dominated by a few large service providers. We believe that the entry of new service providers over the last one year has led to the market becoming extremely competitive. Further, we believe that the addition of approximately 18 million new wireless subscribers per month (Source: TRAI Press releases 78/2009, 79/2009, 8/2010, 10/2010, 15/2010, 20/2010 and 24/2010.) and roll out of 3G and broadband wireless access services will require significant investments in this sector and will provide funding opportunities for us. Our strategy in this sector is to finance the existing established players which require incremental financing for their capital expenditure for 2G expansion purposes and project financing for the roll out of 3G and broadband wireless access services. We also plan to selectively explore opportunities to support new operators that have strong sponsors with experience of providing telecommunications services in a competitive market and a sustainable business model. We will continue to support the funding requirements of large independent passive infrastructure service providers. Further, we expect enhanced funding opportunities arising from any consolidation in the sector. We believe that we are well positioned to play a significant role in any such activity. Commercial and Industrial Infrastructure and Others Our commercial and industrial infrastructure sector financing includes project-based lending to private initiatives in commercial infrastructure projects and Special Economic Zones. As of March 31, 2010 our total exposure in the commercial and industrial infrastructure and other sectors was Rs. 76,608.0 million. During fiscal 2010, we approved financing aggregating Rs. 39,980.8 million in this sector, compared to Rs. 24,204.0 million in fiscal Gross disbursements during fiscal 2010 aggregated Rs. 33,853.5 million compared to Rs. 18,594.2 million in fiscal In addition to the sectors discussed above, we continue to monitor growth opportunities in other sectors. Principal Investments We continuously explore opportunities that result in accepting a higher level of risk and provide financing to infrastructure companies through principal equity investments. Our focus is also to explore and develop innovative financing structures for our investments. This activity is carried out through our principal investment business. Our principal investments could be strategic in nature, which are made by us to strengthen or develop any of our business platforms; this includes investments for the acquisitions of SSKI (now renamed IDFC Capital Limited and IDFC Securities Limited) and the mutual fund business of Standard Chartered (now renamed IDFC Mutual Fund). We may also make financial investments which include investments in National Stock Exchange of India Limited, Securities Trading Corporation of India Limited and Asset Reconstruction Company of India Limited. These 98

99 investments are long term in nature and are not meant for direct returns. We could also invest in venture capital units, for funds which are sponsored and managed by us and also infrastructure investments, which are generally made as co-investments along with the funds managed by us or in deals that do not meet the funds minimum size threshold. The focus of our principal investments is on companies that have high quality sponsorship, good growth prospects and defined exit opportunities. We have made principal investments in infrastructure related companies that subsequently listed on stock exchanges, such as NHPC, Oil India Limited and JSW Energy Limited. As of March 31, 2010, our total equity book (on a standalone basis) including strategic investments was at Rs. 34,287.8 million. Of this, Rs. 3,142.2 million was invested in companies that are publicly traded. Unrealized capital appreciation on these investments was Rs. 1,002.6 million as of March 31, Outstanding disbursements excluding strategic investments, on the equity book, increased from Rs. 17,244.9 million on March 31, 2009 to Rs. 20,573.6 million on March 31, Treasury Operations We generally fund our assets, largely comprising infrastructure loans, with market borrowings of various maturities and subordinated debt. We borrow in the domestic market from insurance companies, banks and financial institutions and mutual funds through various instruments such as bonds, debentures, term loans, commercial paper, term money borrowings and certificates of deposit. Our subordinated debt has been provided by the Government. This subordinated debt has a term of 50 years, maturing in We also have foreign currency borrowings mainly from certain multilateral agencies. Details of our primary categories of outstanding obligations as of March 31, 2009 and 2010 are set forth below: March 31, (Rs. millions) (% of total) (Rs. millions) (% of total) Long-term funds Subordinated debt 6, % 6, % Loan from Government of Karnataka % % Bonds (Non Convertible) 113, % 158, % Bonds (Convertible) % Term loans from banks 61, % 50, % Term loans from others 16, % 11, % Short-term funds Commercial paper 14, % 17, % Term loans from banks 17, % 11, % Term loans from others - - 2, % Debentures (non Convertible) 4, % 7, % Total 235, % 265, % In accordance with our treasury policy, we aim to use our treasury to manage liquidity, provide a steady source of income with minimal risks and increase the overall return on assets. Our treasury policy lays down guidelines for the permissible types of investments we can make and their monitoring. Through our treasury operations, we maintain liquidity to repay borrowings as they mature and make new loans and investments as opportunities arise. Our investments are predominantly in fixed income securities, i.e., Government bonds and A+ to AAA (domestic) rated corporate debt as well as investments in units of mutual funds, bank deposits and inter-corporate deposits on a standalone basis, as summarized in the table below. Long-term investments March 31, (Rs. millions) (% of total) (Rs. millions) (% of total) 99

100 March 31, (Rs. millions) (% of total) (Rs. millions) (% of total) Mutual funds Bonds and Pass Through Certificates 3, % 11, % Government securities % Current investments Bonds and Pass Through Certificates 5, % 6, % Certificate of deposits 38, % 3, % Commercial papers - - 1, % Mutual funds 1, % 3, % Deposits with banks 7, % 2, % Loan to financial institution % % Inter corporate deposit % 22, % Total 57, % 51, % As of March 31, 2010, our asset duration was 1.95 years while the liability duration was 1.75 years. Our treasury assets decreased from Rs. 57,383.8 million on March 31, 2009 to Rs. 51,502.6 million on March 31, 2010 and our net interest income from treasury operations decreased from Rs. 1,611.0 million in fiscal 2009 to Rs. 962 million in fiscal The uncertainties surrounding the length of liquidity and falling interest rates meant that the proprietary treasury book remained constrained. Our long-term bonds are rated LAAA by ICRA and AAA (ind) by Fitch, the highest possible domestic ratings by such agencies. Our short-term borrowings are rated A1+ by ICRA, which is the highest possible domestic rating. Investment Banking and Institutional Brokerage The acquisition of the investment banking and institutional brokerage business was a part of our strategy to originate new forms of business and to diversify our revenue base and increase fee-based revenue streams. Our investment banking business has been restructured under IDFC Capital, while the institutional brokerage and research business is now undertaken by IDFC Securities. IDFC Capital is registered with SEBI as a Category I Merchant Banker. We utilize our in-house expertise and brand positioning to provide a wide range of advisory services across different areas, such as debt syndication, structured finance, corporate debt and equity market advisory. Our investment banking business and our institutional brokerage business generate advisory fees and transaction based brokerage fees, respectively, and therefore the returns are generally volatile and depend on prevailing conditions in the capital markets Our total income from this business increased by 60.6 per cent. from Rs. 1,149.0 million in fiscal 2009 to Rs. 1,846.3 million in fiscal IDFC Capital plays a leading role in debt and equity placements. For the year ended March 31, 2010, IDFC Capital was ranked second in terms of number of deals and third in terms of the amount raised by the private sector in the equity markets. (Source: Prime Database.) Our institutional brokerage and research business has an experienced and independent research team which covers approximately 200 companies across 22 sectors primarily focused on infrastructure and banking. There was an increase in general activity levels in fiscal 2010 as compared to fiscal 2009 resulting in an increase in our brokerage income in fiscal Public Markets Asset Management Since its acquisition in 2008, our mutual fund business has grown based on various parameters including products, assets under management, market share, employees and geographic reach. IDFC Mutual Fund has in the last few years diversified its product portfolio to cover the entire spectrum of the public markets asset management business. Our public markets asset management business is administered through our asset management companies - IDFC AMC and IDFC Investment Advisors. The number of employees in this business has increased from 62 as of May 31, 2008 to 177 as of May 31, IDFC Mutual Fund now has a presence in over 38 cities compared to 17 cities as of May 31, During the same period the market share of our mutual funds business increased from 2.4 per cent. to 3.3 per cent and the average assets under management increased from Rs. 142,729.0 million to Rs. 100

101 266,147.0 million resulting in IDFC Mutual Fund having the tenth largest assets under management amongst mutual funds in India. (Source: Association of Mutual Funds of India, IDFC AMC generates income through asset management fees and focuses on growing the assets under management by offering suitable products and channeling private and corporate savings into the debt and equity markets and structured products. We are also one of the six license holders of the recently introduced government led individual new pension scheme, which is administered by us through IDFC Pension Fund Management Company Limited. We are actively engaged in mobilizing and managing third party funds for long-term equity investments (i.e. investments for periods exceeding five years) in the Indian infrastructure sector. IDFC Investment Advisors acts as the investment advisor to the India Infrastructure Opportunities Fund and provides advice on investments in listed equity. IDFC Investment Advisors also provides strategic advice on investing in structured products, listed and traded equities on public markets and unlisted equities. IDFC Investment Advisors is the investment manager for six funds and manages a corpus (included the committed capital amount) of Rs. 7,444.4 million as of May 31, IDFC Mutual Fund was rated as the best performing fund house by ET Quarterly MF Tracker for the first two quarters of fiscal Further, Business World and Business Standard voted Kenneth Andrade (Head Investments) as the smartest fund manager of the year for the year 2009 for IDFC Premier Equity Plan A. Going forward, IDFC Mutual Fund intends to grow the alternate and managed accounts of high net worth individuals, increase the range of equity products, tie-up to provide a range of international fund products for domestic investors and build a dominant position in infrastructure products in the domestic markets. IDFC Mutual Fund also aims to focus on brand building initiatives and build a consumer centric brand. Further, we may also consider inducting a strategic partner in IDFC AMC. Alternative Asset Management Private Equity We mobilize and manage third party private equity funds through our wholly owned subsidiary, IDFC Private Equity. IDFC Private Equity focuses on long-term private equity investment opportunities in companies in the infrastructure sector. The objective is to achieve risk-adjusted returns by providing growth or expansion capital to companies. IDFC Private Equity has a team of professionals with diverse investment experience including members with operating experience. IDFC Private Equity has also has a panel of highly regarded advisors, a network of corporate relationships and an experienced team. IDFC Private Equity is the investment manager for three funds and manages a corpus of Rs. 59,918.0 million (i) the IDFC Infrastructure Fund, of which India Development Fund is a unit scheme (the IDF ) was formed in fiscal 2003, (ii) the IDFC Infrastructure Fund 2, of which IDFC Private Equity Fund II is a unit scheme (the IDFC PE Fund ) was formed in fiscal 2006 and (iii) the IDFC Infrastructure Fund 3, of which IDFC Private Equity Fund III is a unit scheme (the IDFC PE Fund III ) was formed in fiscal Since inception, these funds have made 30 investments in 26 companies and have had seven full exits, two partial exits and one liquidity event. These funds have invested in various infrastructure sectors including power, oil and gas, transportation (including airports, ports, roads and logistics), hotels, telecommunications, education, health care and renewable energy. IDF and IDFC PE Fund have fully committed their corpus, while 36.1 per cent. of the funds raised under the IDFC PE Fund III have been committed as of March 31, IDF, which closed in March 2004 with capital commitments of Rs. 8,437.6 million, has paid back the original corpus to the investors. IDF has made 11 investments in various companies including GMR Infrastructure Limited, Gujarat State Petronet Limited, Gujarat Pipavav Port Limited, Chalet Hotels Limited, Hotel Leela Ventures Limited, L&T Infrastructure Development Projects Limited and Delhi International Airport Private Limited. IDFC Private Equity was involved in the successful IPOs of GMR Infrastructure Limited and Gujarat State Petronet Limited. IDF has completed five full exits, one partial exit and one liquidity event out of its investments. IDFC PE Fund closed in June 2006 with capital commitments of Rs. 19,879.2 million and has paid back 8.0 per cent. of the capital commitment back to its investors. IDFC PE Fund has made 15 investments in various companies including Ashoka Buildcon Limited, Manipal Universal Learning Private Limited, Quippo Telecom Infrastructure 101

102 Limited, DARCL Logistics Limited, PV Technologies India Limited, Doshion Limited, Goodearth Maritime Limited, Manipal Health Systems Private Limited, Emergent Ventures India Private Limited. IDFC PE Fund has completed two full exits and one partial exit. IDFC PE Fund III closed in September 2008 with capital commitments of Rs. 31,601.2 million. IDFC PE Fund III has invested in Green Infra Limited, SE Forge Limited, Deepak Cables (India) Limited and Wireless TT Infoservices Limited. Our Company is a sponsor investor in these funds and each fund has an independent investment committee. IDFC Private Equity receives management fees from the funds, which aggregated Rs million in fiscal In fiscal 2010, IDFC Private Equity s total income was Rs million and profit before and after tax were Rs million and Rs million, respectively. In fiscal 2010, IDFC Private Equity won three awards: (i) the Asian Infrastructure Fund Manager of the Year award by Infrastructure Investor, (ii) the Asian Infrastructure Deal of the Year award by Infrastructure Investor and (iii) the Best Private Equity Firm in India Award by Private Equity International. Project Equity IDFC Project Equity Company Limited ( IDFC Project Equity ) is our wholly owned subsidiary, and is the investment manager of the India Infrastructure Fund (the Fund ). The Fund is focused on long-term equity investments in a diversified portfolio of infrastructure projects in India in sectors such as power, roads, ports, airports, electricity and gas transmission and distribution networks. It was set up as a part of the India Infrastructure Financing Initiative, a collaborative effort between the Government (through India Infrastructure Finance Company Limited), Citigroup and our Company to provide equity capital for infrastructure projects in India (the Initiative ). The Fund seeks to achieve attractive risk-adjusted returns over the long term by investing in infrastructure projects in India that exhibit strong, predictable and stable cash flows in the form of dividend distributions with low volatility of returns and have potential for capital growth. We believe that such investments have a lower risk-return profile compared to the pure private equity investments. The Fund closed in June 2009 with total commitments of Rs. 38,367.2 million. Our Company has committed Rs. 4,000.0 million to the Fund. IDFC Project Equity is entitled to an annual management fee. The Fund has called 36.1 per cent of its capital commitments as of March 31, 2010 and has committed Rs. 17,499.0 million (equivalent to 45.6 per cent of its total commitments) to portfolio companies including GMR Kamalanga Energy Limited, Essar Power Limited, Hanjer Biotech Energies Private Limited, Ashoka Highways (Bhandara) Limited, Ashoka Highways (Durg) Limited, SMS Shivnath Infrastructure Limited, Jas Toll Road Company Limited and Karaikal Port Private Limited. IDFC Projects We established IDFC Projects Limited in 2007 as the development arm of our Company. The mandate of IDFC Projects is to develop, finance, execute and manage infrastructure projects in India. Over the last few years, IDFC Projects has forged successful relationships with reputed organisations with complementary technical expertise. IDFC Projects currently focuses on project opportunities in the power and roads sectors. In February 2010, IDFC Projects acquired a majority stake in Dheeru Powergen Private Limited ( DPPL ), which is setting up a 1,050 MW coal-fired power plant in Korba, Chhattisgarh in central India. DPPL has received coal linkage from South Eastern Coalfields Limited and has obtained the environmental clearance from the Ministry of Environment and Forests, Government. The project is currently at the pre-construction stage. Further, since its establishment IDFC Projects has been shortlisted for 13 road projects and has submitted the financial bid for three projects. IDFC Projects continues to participate actively in the road sector in partnership with major international and domestic players. 102

103 IDFC Capital (Singapore) IDFC Capital (Singapore) Pte Ltd was established in 2008 and is a global emerging markets private equity fund-offunds business, focussed mainly on Asia. IDFC Capital (Singapore) Pte Ltd represents our first foray out of India and is part of our long-term strategy to develop a global asset management platform. A team of experienced emerging market investors lead the private equity fund-of-funds business. IDFC Capital (Singapore) Pte Ltd is currently in the process of raising its first fund, the Emerging Markets Private Equity Fund (EMPEF), which has targeted aggregated capital commitments of US$350 million and is domiciled in Guernsey. Over the last few years the financial crisis created a challenging fund raising environment. In view of this, we decided to proceed with the first closing of the EMPEF utilizing the anchor capital commitment of US$50.0 million provided indirectly by our Company. Since then, EMPEF has committed US$22.5 million in three funds whose investment strategies include investing in mid-market transactions in China, India and South East Asia. In the second half of 2010, IDFC Capital (Singapore) Pte Ltd intends to focus on fund raising and developing its investment funds pipeline. We believe that IDFC Capital (Singapore) Pte Ltd is an important step towards building our global brand. Through IDFC Capital (Singapore), we are building insights on non-indian market trends and developing brand awareness amongst a broader set of institutional investors. IDFC Capital (Singapore) Pte Ltd differentiates itself from its competitors by executing unique risk-mitigation investment strategy that integrates environmental, social and governance considerations into its investment process. We expect such initiatives to strengthen the IDFC franchise both domestically and globally. Advocacy and Nation Building We pursue our development agenda through a dedicated division of the Company, namely, IDFC Foundation (the Foundation ). The Foundation s activities are overseen by a Governing Board and comprise four core activities policy advocacy, capacity building, government transaction advisory services and corporate social responsibility (CSR) initiatives. Policy Advocacy We have, since our inception, played a pivotal role in advising governments at various levels in developing policy, legal and regulatory frameworks that enable the sustainable growth and development of various infrastructure sectors, provide affordable and high quality services to users and encourage private investment in infrastructure. We believe that the telecommunications, roads, ports and airports sectors have witnessed significant progress in the last decade. The Foundation now focuses on energy, urban development, rail services, health care and education. The Foundation has constituted dedicated advisory boards the Energy Advisory Board and Urban Advisory Board which comprise prominent and knowledgeable persons that advise on private financing issues as well as advocate policies to remove impediments to the growth of these sectors. In the energy sector, the Foundation continues to focus on promoting initiatives to market development and competition as well as in enlarging the scope of power generation from cleaner and renewable sources of energy. In the urban sector, the focus is on advocating creative ways of using land to support sustainable urban growth, promoting guaranteed land title systems, and developing innovative financing models in areas such as water and waste water management. Specific initiatives are already underway to set up a centre for low carbon and develop a model PPP programme for rail development. We, along with IIM, Ahmedabad and IIT, Kanpur publish an annual report, the India Infrastructure Report (IIR). This report has emerged as a standard reference document for the infrastructure sector in the India. Capacity Building Initiatives One of the constraints to the development of infrastructure through public private partnerships ( PPPs ) is the lack of capacity in government departments, especially in states and urban local bodies in preparing projects under PPP frameworks. To help address this issue, we have set up the India PPP Capacity Building Trust as a dedicated entity that would provide capacity building and training to government officials in the area of PPPs. The Trust has been 103

104 appointed by the Department of Economic Affairs, Ministry of Finance, Government as the executing agency for implementing a national capacity building programme for training officials of state governments, urban local bodies and select Central government departments, through existing institutes of public administration across seven states and three central training institutes. The first phase of this programme has been funded primarily by KfW Development Bank. The Trust is currently engaged in developing a syllabus, training material, course outlines and programmes for the training of trainers from these institutes. We expect that this initiative will result in improving capacities in preparing and managing PPP projects across various infrastructure sectors. We have also conducted and organised several capacity building programmes across various states. Some of these programmes, which focus on the urban sector, have been conducted in partnership with the Administrative Staff College of India, Hyderabad. We have also conducted a few programmes overseas, in Nepal and Sri Lanka, on behalf of the United Nations Development Programme, Nepal and the Commonwealth Secretariat. Government Transaction Advisory Services The Foundation provides transaction advisory services to governmental departments and agencies engaged in infrastructure, with a particular focus on state highways, urban services, transport systems, railways, healthcare and education. The objective is to promote private sector engagement in areas that would substantially benefit from the flow of private capital and management expertise. For this purpose, we consciously focus on states which are considered to be difficult, but which have demonstrated a propensity to change. This activity clearly reflects our position as a pioneer, careful risk taker and thought leader in infrastructure. A substantial part of this work is accomplished through our joint ventures with a certain state governments, namely Infrastructure Development Corporation (Karnataka) Limited ( ideck ), Uttarakhand Infrastructure Development Company Limited ( U-DeC ) and Delhi Integrated Multi-Modal Transit Systems Limited (DIMTS). While ideck and U-DeC focus on all areas of infrastructure across the respective states, DIMTS assists in the development and improvement of public transport systems in Delhi. We believe that these agencies have made a substantial difference to the way PPPs have been used to develop infrastructure in these states. Corporate Social Responsibility Corporate Social Responsibility ( CSR ) in our Company is focused on making our business practices environmentally and socially responsible. In this regard, our objective is to (i) assess and mitigate the environmental and social impact of our investments in infrastructure projects, and (ii) minimize the environmental impact and carbon footprint of our operations through resource efficiency and conservation. CSR also includes an active volunteering program aimed at increasing our employees environmental and social sensitivities, besides high standards of corporate governance, maintaining our reputation for ethical and fair business practices and improving transparency in our interactions with our stakeholders. In fiscal 2010, we became India s first signatory to the Principles for Responsible Investment ( PRI ), a global, collaborative, investor network initiated by the United Nations in 2006, which aims to help investors integrate consideration of environmental, social, and governance (ESG) issues into their investment decision-making and ownership practices, and thereby improve long-term returns to beneficiaries. We have joined the PRI under the category Investment Manager for our private equity, project equity and fund-of-funds businesses. We continue to be a member of the United Nations Global Compact and a signatory investor and respondent to the Carbon Disclosure Project. We launched our internal environment policy aimed at minimizing our environmental impact and carbon footprint under the Go Green initiative. We are in the process of submitting applications to obtain US Green Business Council s LEED Gold Certification (Commercial Interiors) for our new office at Chennai and certification for an Energy-Efficient Data Centre from TUVRhineland, Germany. The Foundation has also set up the Inclusive Infrastructure Fund ( IIF ), a small corpus formed out of its own funds for funding social enterprises or innovative environmental projects. The IIF made its first equity investment in a company that provides emergency response ambulance services in Mumbai under an innovative business model. The IIF has also approved a second investment in a company that imparts civil construction skills to unemployed 104

105 rural youth and places them directly with construction companies after training. The IIF is currently considering several other investment opportunities in areas such as rural solar lighting, municipal solid waste based biomethanation plants, etc. Shared Services Platform Our four business platforms are supported by the shared services platform that includes information technology, human resource, legal and compliance, secretarial services, risk management, finance and facilities. Information Technology We recognize the power of technology and continue to augment technology resources to streamline and standardize processes, provide faster response to clients and effectively network the different companies, branches and operations. In fiscal 2010, we realigned our technology operations to provide IT services in a shared manner across the group by centralizing the IT operations, creating helpdesk operations, outsourcing routine activities and upgrading and integrating all the networks. We also upgraded the hardware, storage and network with a view to be current on technology and to support the growth in operations. Our key offices are connected on an online basis to our network including our overseas office at Singapore. In addition to this upgrade, steps such as network segregation, critical equipment failure and redundancy and end point security were initiated to enhance network security, availability and robustness. Our Company was recertified as an ISO compliant company through a comprehensive audit of our IT operations in September In March 2010, we subjected our IT operations to a comprehensive IT audit by a reputed external firm. Human Resources As of March 31, 2009 and 2010, we had a total of 542 employees and 578 employees, respectively. The members of our professional staff have a wide range of prior experience, including working with leading commercial banks and lending institutions, finance companies, regulators, academia, rating agencies, investment banks and private equity firms. In 2005, the Company adopted an employee share purchase scheme. In 2007, we adopted the Employee Stock Option Schemes ( ESOSs ) framed in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, The ESOS 2007 was modified pursuant to a shareholders resolution in The schemes provide for grant of options to employees (including employees of the subsidiaries) to acquire Equity Shares of our Company that vest in a graded manner and that are to be exercised within a specified period. Risk Management We are exposed to three categories of risk: market risk, credit risk and operational risk. We are in the process of implementing an Enterprise Risk Management framework that adopts an integrated approach to managing all the three types of risks. As regards market and credit risks, we believe we have a strong risk management framework in place. The focus of our risk management framework is on loan portfolio assessment, Asset-Liability Management ( ALM ), and loan pricing. With a view to enhancing the effectiveness of the current process of regular monitoring of liquidity and interest rate risks, we have sourced a sophisticated software-based ALM system. This software will enable us to capture data from various disparate platforms, and allow for more detailed and comprehensive analysis. In addition, we have also been developing various market risk modules. As regards credit risk, there is a comprehensive portfolio review of all our project assets and equity investments on a semi-annual basis. Each credit is analysed individually and then integrated at the portfolio level. The overall portfolio risk report is regularly presented to a Board Committee comprising of independent directors. As a result of increase in volatility of interest rates and introduction of new products in the treasury portfolio, we have also increased the level of monitoring of market risk. This involves measuring interest rate risk on a regular basis as well as testing newer models for analysis. As the regulatory framework for banks and financial institutions 105

106 is currently in transition to the Basel II environment, the risk measurement and monitoring framework is being accordingly enhanced. We have initiated efforts to align the capital allocation to different asset categories in line with the Basel II framework. In fiscal 2010, we made a concerted effort to focus on organisation-wide operations risk management framework. The purpose of this initiative was to make every department across different business segments aware of the risks related to its operations and then work on managing some of the top risks in terms of probability of occurrence and impact. The exercise included identifying risks, classifying them in terms of probabilities and impact and devising control measures. We have active sub-committees, which assess various forms of risks including the Portfolio Review Committee (for portfolio or credit risk), the Asset Liability Committee (for market risk) and the Operational Risk Committee (for operational risk). The managing director or his nominee and a Board member are part of these committees, in addition to other functional managers. The One Firm Initiative in Practice As set out in the Strategy section, we undertook a company-wide initiative called One Firm to create a common culture based on the pillars of knowledge expertise, teamwork and stewardship. We believe that this initiative will enable us to emerge as a better aligned and integrated firm that presents a unified value proposition to our clients. The following are recent examples of the One Firm initiative in practice: Competition Energy - Green Infra, a renewable energy-focused independent power producer, was set up in 2008 by funds managed by IDFC Private Equity with an equity commitment of Rs. 3,600 million. In May 2009, Green Infra successfully bid for a 99.4 MW portfolio of wind farms owned by BP Energy (India) Private Limited, (BPEIPL). Key challenges included financing the transaction in a deteriorating external environment. IDFC Project Finance and IDFC Private Equity worked in partnership to structure and underwrite the entire non-recourse long term loan. IDFC Capital also played a vital role in syndicating the loan to the Indian Renewable Energy Development Agency and Axis Bank. We believe that the acquisition of the wind farms was possible in an accelerated timeframe primarily because of the partnership between IDFC Private Equity, IDFC Project Finance and IDFC Capital. Roads - IDFC Projects and IDFC Capital partnered together to enable PLUS Expressways Berhad (PLUS) to acquire a stake in a highway project in Tamil Nadu. Following an initial introduction by IDFC Projects, IDFC Capital provided a detailed evaluation of the project by accessing the target s business plan and financial model and negotiated the price, transaction structure and key covenants in the transaction documents on behalf of PLUS with the existing shareholders of the project company. Telecommunications and information technology - Our Company, along with IDFC Private Equity and IDFC Project Finance, assisted Quippo Telecom Infrastructure Limited ( QTIL ) to become a leading tower operator in India. IDFC Private Equity was an initial investor in QTIL. IDFC Project Finance provided funding for the initial capital expenditure of QTIL and to support QTIL s acquisition of an equity stake and subsequent de-merger of tower assets into Wireless Tata Tele Info Services Limited ( WTTIL ). IDFC Project Finance also lent to support WTTIL s growth plans and to meet its high capital expenditure requirement and invested in the preference equity of WTTIL to meet its long term funding plans. Our primary competitors are public sector banks, private banks (including foreign banks), financial institutions and other NBFCs. In relation to advisory services, our competitors are investment banks, credit rating agencies and consulting organizations. In asset management we face competition from other private equity firms and venture capital enterprises and managers of other types of third party funds. We also face significant competition in the public markets asset management, investment banking and institutional brokerage and infrastructure development businesses which we have acquired or established over the last few years. Our competitors in these businesses are substantially larger and have considerably greater financing resources than 106

107 those available to us. Also, some of our competitors may have greater technical, marketing and other resources and greater experience in these businesses. Such competitors also compete with us for management and other human resources and operational resources and capital. Regulation We are incorporated as a public limited company under the Companies Act and notified as a public finance institution under Section 4A of the Companies Act. Additionally, we are classified and regulated by the RBI as a systemically important non-deposit accepting NBFC. We are governed by the RBI Act and other directions issued by the RBI including the Non-Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 (the NBFC Directions ). The NBFC Directions relate to prudential norms applicable to non-deposit accepting or holding NBFCs. The prudential norms are in relation to, amongst others, income recognition, accounting of investments, asset classification, provisioning requirements, capital adequacy and concentration of credit/investment. Recently, the RBI introduced a separate category for NBFCs engaged in infrastructure financing, known as Infrastructure Finance Companies, or IFCs and we have been classified as an IFC on June 23, The eligibility criteria for IFCs include minimum net owned funds, credit rating, capital to risk (weighted) asset ratio and deployment of assets in infrastructure loans. Our financial intermediary activities, such as debenture trusteeship, underwriting and merchant banking and asset management, are regulated by SEBI. SEBI has issued specific guidelines to regulate the aforesaid activities. The SEBI regulations, amongst others, provide for eligibility criteria, scope of work and continuous obligations. SEBI has also framed the SEBI (Intermediaries) Regulations, 2008, to regulate the various intermediaries registered with SEBI. Foreign investment in India is governed primarily by the foreign direct investment ( FDI ) policy of the Government and the provisions of the FEMA and the rules and regulations thereunder. The FDI policy has been recently consolidated with effect from April 1, 2010 pursuant to Circular 1 of 2010, which is subject to review every six months. The Company is subject to the foreign investment regulations as an Indian company and an NBFC and financial institution, including in respect of the issue and transfer of securities of the Company, foreign ownership and control over the Company and investments by the Company. Properties Our registered office is located at KRM Tower, 8 th Floor, No. 1, Harrington Road, Chetpet, Chennai and our corporate office is located at Naman Chambers, 6 th Floor, C-32, G Block, Bandra-Kurla Complex, Bandra (East), Mumbai. Litigation We have legal proceedings and claims pending which have arisen in the ordinary course of the business. These actions, when ultimately concluded and determined will not, in the opinion of the management, have a material effect on our results of operations. A brief description of certain litigation matters is set out in the section entitled Legal Proceedings. 107

108 BOARD OF DIRECTORS AND KEY MANAGERIAL PERSONNEL Board of Directors Under our Articles of Association, unless otherwise determined at a general meeting, we cannot have more than 15 Directors and our Board shall include one non-executive Chairman, four whole-time/executive Directors (including the Managing Director), five independent Directors, two Directors nominated by the GOI, three Directors nominated by the nomination committee of our Board from the panel of names proposed by the Domestic Institutions and the Foreign Investors. The following table sets forth details regarding the Board as on the date of this Placement Document: Name Designation Deepak S. Parekh Non-executive chairman G.C. Chaturvedi Non-executive Director, nominee of GoI S.S. Kohli Non-executive Director, nominee of GoI Abdul Rahim Abu Bakar # Non-executive Director, nominee of Domestic Institutions and Foreign Investors Dimitris Tsitsiragos Non-executive Director, nominee of Domestic Institutions and Foreign Investors S.H. Khan Independent Director Gautam Kaji Independent Director Donald Peck Independent Director Shardul Shroff Independent Director Omkar Goswami Independent Director Rajiv B. Lall Managing Director and chief executive officer Vikram Limaye Whole-time Director # Michael Fernandes is the alternate Director to Abdul Rahim Abu Bakar Other than Gautam Kaji, Dimitris Tsitsiragos, Abdul Rahim Abu Bakar and Donald Peck, all Directors of the Company are Indian residents. Brief Profiles Deepak S. Parekh, aged 65 years, an Indian national, has been a Director since inception and is the non-executive chairman of our Company. He is a Chartered Accountant by qualification and is a member of the Institute of Chartered Accountants, England and Wales. He began his career with Ernst & Ernst Management Consultancy Services and later worked with Grindlays Bank and Chase Manhattan Bank. Subsequently, he joined HDFC and has served as its chairman since He has been associated with various committees set up by the GoI. He was conferred the Padma Bhushan by the President of India in He has also received a lifetime achievement award by the Confederation of Real Estate Developers Associations of India, a special award from NDTV and CNN IBN for being part of the team that revived Mahindra Satyam Limited, the IMC Juran Quality Medal 2008, Outstanding Business Leader Award of the Year 2008 by CNBC, NDTV Business Leader of the Year Award 2008 and the Priyadarshni Academy Award for his outstanding contribution to banking and financial services in G.C. Chaturvedi, aged 57 years, an Indian national, has been a Director since July 21, He is an Indian Administrative Services officer and is currently serving as Additional Secretary (Financial Services) to the GoI, Ministry of Finance. He has held the position of Joint Secretary in the Department of Economic Affairs, Banking and Insurance, Ministry of Finance. G.C. Chaturvedi also held the position of Mission Director and Additional Secretary, Ministry of Health and Family Welfare. He has been nominated as a Director by the GoI. S.S. Kohli, aged 65 years, an Indian national, has been a Director since April 27, He holds a degree in mechanical engineering and a diploma in industrial finance. He is also a certified associate of the Indian Institute of Banking. S.S. Kohli has 40 years of experience in the banking sector. He has been the chairman and managing director of the Punjab and Sind Bank and the Punjab National Bank. He has also served as the chairman and 108

109 managing director of India Infrastructure Company Limited and has also held the chairmanship of the Indian Banks Association and has chaired several committees associated with financial sector policy. S.S. Kohli has been nominated as a Director by the GoI. Abdul Rahim Abu Bakar, aged 64 years, a Malaysian national, has been a Director since July 25, He graduated from Brighton College of Technology, United Kingdom, with a B.Sc. (Hons.) in electrical engineering. He began his career in 1969 with the National Electricity Board. Thereafter, he served with Pernas Charter Management Sdn Bhd and the Malaysia Mining Corporation Berhad. Subsequently, he worked with MMC Engineering Services Sdn Bhd. Mr. Bakar served as managing director of MMC Engineering Group Berhad and Petronas Gas Berhad. He became vice president of the Petronas petrochemicals business in At present, he is the chairman of UEM Builders Berhad and is also on the board of directors of TIME dotcom Berhad, Bank Pembangunan Malaysia Berhad, Scomi Engineering Berhad, Global Maritime Ventures Berhad and BI Credit & Leasing Berhad. He has been nominated as a Director by the Domestic Institutions and the Foreign Investors of the Company. Dimitris Tsitsiragos, aged 46 years, a Greek national, has been a Director since April 30, He holds a management degree from George Washington University, U.S.A. He joined IFC in In 2004, he was appointed the director of global manufacturing and services, the second largest department in IFC. At present, he is based out of Washington D.C. and manages IFC operations for the South-Asia region. He has been nominated as a Director by the Domestic Institutions and the Foreign Investors of the Company. S.H. Khan, aged 72 years, an Indian national, has been a Director since February 11, He holds a master s degree in commerce from the University of Bihar. He is also an alumnus of the International Management Development Institute, Lausanne. For over 20 years, he held senior positions at IDBI, having the responsibility for promotion, development and financing of Indian industry. He was also associated with the promotion of several capital market institutions and has served as chairman of NSE, NSDL and Credit Analysis and Research Limited in the past.. He has served as a director on the boards of several national financial institutions including LIC, GIC, UTI, IFCI, EXIM Bank and SIDBI. Currently, he is an independent director on the boards of several companies, including ITC Limited, Bajaj Auto Limited, Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz Life Insurance Company Limited. S.H. Khan is an independent Director. Gautam Kaji, aged 68 years, a US national, has been a Director since July 22, He has been the managing director of operations of the World Bank, with responsibility for Africa, East Asia and the Pacific, and South Asia. He also led the World Bank s finance and private sector development programmes and served as chairman of the World Bank s Operations Committee, which reviews all projects put forward for World Bank support. He is currently chairman of the Centennial Group, a Washington D.C. based advisory firm, chairman of the Advisory Board of the Emerging Markets Forum and is a member of the boards of several US and Indian companies including Mahindra Satyam Limited. Gautam Kaji is an independent Director. Donald Peck, aged 57 years, a national of the United Kingdom, has been a Director/alternate Director since He has a doctorate in economic history from Oxford University. Mr. Peck was the head of the South Asian private equity business of CDC and then Actis, based in India for over 12 years. He worked for 10 years in the emerging markets investment banking division at Lloyds Bank and Morgan Grenfell and for three years in the capital markets/private equity division at IFC. Donald Peck is an independent Director and was earlier nominated as a Director by the Domestic Institutions and the Foreign Investors of the Company. Shardul Shroff, aged 54 years, an Indian national, has been a Director since December 1, He holds a bachelor s degree in law from the Government Law College, Mumbai. He is the managing partner of Amarchand & Mangaldas & Suresh A. Shroff & Co., an Indian law firm. As a corporate attorney for about three decades, he has extensive experience in areas of infrastructure, projects and project finance, privatisation and disinvestment, mergers and acquisitions, joint ventures, banking and finance, capital markets and commercial contracts. He is also an authority on legal matters related to media law, technology law, policy and regulatory practices and corporate governance. He is a member of several committees of the GoI and has been felicitated with the National Law Day Award in November The 2010 edition of Chambers Asia listed Mr. Shroff as a leading lawyer for banking and mergers and acquisitions. Mr. Shardul Shroff is an independent Director. 109

110 Dr. Omkar Goswami, aged 53 years, an Indian national, has been a Director since January 24, A professional economist, he obtained a master s degree in economics from the Delhi School of Economics in 1978 and a doctorate from the Oxford University in Dr. Goswami is the founder and chairperson of CERG Advisory Private Limited. He taught and researched economics for 18 years at various universities including Oxford University, the Delhi School of Economics and Harvard University. He has been the editor of Business India. He has also served as the chief economist of the Confederation of Indian Industry and has been a consultant to the World Bank, the International Monetary Fund, ADB and the OECD. He has authored three books and several research papers on various areas such as economics, policy, bankruptcy laws and corporate finance. Dr. Omkar Goswami is an independent Director. Dr. Rajiv B. Lall, aged 52 years, an Indian national, has been our managing Director and chief executive officer since January 10, He is a graduate of the Oxford University and has a doctorate in economics from the Columbia University, New York. He has earlier worked with the Asian Development Bank and the World Bank. Dr. Lall was executive director and the head of Asian economics research at Morgan Stanley, Hong Kong and has also worked with Warburg Pincus in Hong Kong, Singapore and New York. As a managing director and partner of Warburg Pincus, Dr. Lall was in charge of private equity investments in the area of financial services across Asia. Vikram Limaye, aged 43 years, an Indian national, is serving as the Company s whole time Director with effect from September 15, He is a Chartered Accountant and holds a MBA in finance and multinational management from the Wharton School, University of Pennsylvania. He started his career with Arthur Andersen LLP. He has over 20 years of experience of working with global investment banks, international commercial banks and global accounting firms such as Ernst and Young and Citibank N.A. He has also worked with Credit Suisse First Boston, U.S. in a variety of roles including investment banking, capital markets, structured finance and credit portfolio management. Michael Fernandes, aged 40 years, an Indian national, has been an alternate Director to Mr. Abdul Rahim Abu Bakar since July 18, He has obtained his post graduate diploma in management from the Indian Institute of Management, Kolkata and B.Sc. (Hons) in economics from St Xavier's College, Kolkata. He has served as an executive director of Nicholas Piramal India Limited. He has 13 years of experience as a consultant and has also served as a partner at McKinsey and Company. Relationship with Other Directors None of our Directors are related to one another. Borrowing Powers of our Directors Pursuant to a resolution passed by the shareholders of our Company on June 28, 2010, and in accordance with the provisions of the Companies Act, the Board is authorised to borrow sums of money upon such terms and conditions and for such purposes as the Board may think fit, provided the aggregate indebtedness of our Company (i.e., monies to be borrowed, together with the monies already borrowed, apart from temporary loans obtained from the Company s bankers in the ordinary course of business) shall not exceed, at any given time, a sum of Rs. 800,000 million. Interests of our Directors All our Directors, including our independent Directors, may be deemed to be interested to the extent of fees, if any, payable to them for attending meetings of the Board or a committee thereof, as well as to the extent of other remuneration and reimbursement of expenses payable to them under our Articles of Association. All our nonexecutive Directors are entitled to sitting fees of Rs.20,000 per meeting of the Board or a committee thereof. The non-executive Directors may also be paid remuneration by way of commission or otherwise of up to 1% of the net profits. The executive Directors may also be regarded as interested to the extent that they hold Equity Shares and any stock options, and to the extent of any dividend payable on such Equity Shares. Our Directors, including independent Directors, may also be regarded as interested in the Equity Shares held by the companies, firms and trust, in which they are interested as directors, members, partners or trustees. 110

111 Our Directors, including independent Directors, may also be regarded as interested, to the extent the entities in which they are interested as directors, members, partners or trustees, are allotted Securities. All Directors may be deemed to be interested in the contracts, agreements/arrangements entered into or to be entered into by the Company with any company in which they hold directorships or any partnership firm in which they are partners as declared in their respective declarations. Except as otherwise stated in Financial Statements Related Party Transactions, our Company has not entered into any contract, agreements or arrangements during the two years preceding the date of the Placement Document, in which the Directors are interested directly or indirectly and no payments have been made to them in respect of such contracts, agreements or arrangements. Shardul Shroff, one of our independent Directors is also a partner in Amarchand & Mangaldas & Suresh A. Shroff & Co., which provides legal services to us from time to time. Omkar Goswami, one of our independent Directors is the founder and chairperson of CERG Advisory Private Limited, which provides advisory services to us from time to time. Shareholding of Directors None of the non-executive Directors holds any Equity Shares or Employee Stock Options in our Company. The following table sets forth the shareholding of the executive Directors in our Company: Name Number of Equity Shares Percentage (%) Number of Employee Stock Options Rajiv B. Lall 2,129, ,824,402 Vikram Limaye 517, ,176,158 Remuneration of the Directors A. Executive Directors Name of the Director Rajiv B. Lall Managing Director and chief executive officer Remuneration Basic Salary: Rs million to Rs million per month Perquisites and allowances: In addition to the basic salary, he shall also be entitled to perquisites and allowances including: house rent allowance or rent free accommodation in lieu thereof; house maintenance allowance; variable pay/performance linked incentives; conveyance allowance; medical reimbursement; leave travel allowance; special allowance; use of company car for official purposes; telephone at residence; and contribution to provident fund, superannuation fund and payment of gratuity and such other perquisites and allowances in accordance with the rules of the Company or as may be agreed by the Board of Directors, which term shall deemed to include any committee including the compensation committee or any sub-committee thereof constituted/ to be constituted by the Board to exercise its powers, with Dr. Rajiv B. Lall 111

112 Name of the Director from time to time. Remuneration The Board of Directors has been authorised by the shareholders through resolution dated July 20, 2009 to decide the remuneration (salary, perquisites and bonus) payable to Dr. Rajiv B. Lall within the terms mentioned above. In any financial year if the Company has no profits or inadequate profits, the Company will pay remuneration by way of salary, perquisites and allowances as specified above as minimum remuneration subject to the requisite approval of the Central Government. Vikram Limaye Whole-time Director Basic Salary: Rs million to Rs million per month. Perquisites and allowances: In addition to the salary, he shall also be entitled to perquisites and allowances like: house rent allowance or rent free furnished accommodation in lieu thereof; house maintenance allowance; variable pay/ performance linked incentives; conveyance allowance; medical reimbursement; leave travel allowance; special allowance; use of company car for official purposes; telephone at residence; and contribution to provident fund, superannuation fund and payment of gratuity and such other perquisites and allowances in accordance with the rules of the Company or as may be agreed by the Board of Directors, which term shall deemed to include any committee including Compensation Committee or any Sub-Committee thereof constituted/ to be constituted by the Board to exercise its powers, with Vikram Limaye from time to time. The Board of Directors has been authorised by the shareholders through resolution dated July 20, 2009 to decide the remuneration (salary, perquisites and bonus) payable to Vikram Limaye within the terms mentioned above. In any financial year if the Company has no profits or inadequate profits, the Company will pay remuneration by way of salary, perquisites and allowances as specified above as minimum remuneration subject to the requisite approval. The following table sets forth the details of remuneration paid to the executive Directors during the fiscal 2010: (Rs. in million) Name Salary and Contribution to provident fund and Performance linked Total Perquisites other funds incentive Rajiv B. Lall Vikram Limaye

113 B. Non-Executive Directors The following table sets forth the details of sitting fees and commission paid to the non executive Directors for fiscal 2010: (Rs. in million) Name Sitting Fees Commission and others Total Deepak S. Parekh Abdul Rahim Abu Bakar Dimitris Tsitsiragos S.H. Khan Gautam Kaji Donald Peck Shardul Shroff Omkar Goswami Arun Ramanathan * S.S. Kohli * Ceased to be director w.e.f July 20, Corporate Governance Our Company is in compliance with the applicable corporate governance requirements, including under the Equity Listing Agreements, the Companies Act and the ICDR Regulations. The corporate governance framework is based on an effective independent Board, separation of the Board s supervisory role from the executive management team and constitution of committees of the Board, as required under law. Committees of the Board of Directors The Board has constituted committees of Directors, each of which functions in accordance with the relevant provisions of the Companies Act and the Equity Listing Agreements. These include, (i) Audit Committee, (ii) Nomination Committee; (iii) Investors Grievance Committee, and (iv) Compensation Committee. The details of these committees are as follows: A. Audit committee The members of the Audit Committee are: 1. S.H. Khan, chairman 2. Shardul Shroff 3. Omkar Goswami 4. Gautam Kaji The terms of reference of the Audit Committee are as provided in Clause 49 of the Equity Listing Agreements, as well as Section 292A of the Companies Act, including overview of the accounting systems, correctness of the financial reporting and internal controls of our Company. B. Nomination Committee The members of the Nomination Committee are: 1. Deepak Parekh, chairman 2. Gautam Kaji 3. Donald Peck 4. Omkar Goswami 113

114 The Nomination Committee assists the Board in the appointment of new Board members, and other related matters like succession planning. C. Investors Grievance Committee The members of the Investors Grievance Committee are: 1. S.H. Khan, chairman 2. Omkar Goswami 3. Rajiv Lall The terms of reference of the Investors Grievance Committee include investigation into any matter relating to redressing shareholders and/or investors complaints pertaining to transfer of shares, non-receipt of balance sheet, non-receipt of declared dividend, duplicate share certificates and dematerialization or rematerialization of shares. D. Compensation Committee The members of the Compensation Committee are: 1. Omkar Goswami, chairman 2. S.S. Kohli 3. S.H. Khan 4. Shardul Shroff 5. Donald Peck The Compensation Committee recommends to the Board the compensation terms of whole-time Directors and senior management personnel. The Company has set up a risk management committee in accordance with the applicable RBI regulations. 114

115 Organization chart Our Company s management organization structure is set forth below: Key Managerial Personnel A.K.T. Chari, senior advisor, aged 70 years, holds a degree in electrical engineering. Prior to joining us in 1999, he worked for IDBI for a period of 23 years in various capacities including as an advisor, infrastructure. He has cumulative work experience of over 49 years and is an expert in the field of infrastructure financing. L.K. Narayan, group chief financial officer, aged 55 years, is a commerce graduate and has qualified as a Chartered Accountant, in addition to having a degree in law. Prior to joining our Company in 1997, he was the vice president head of debt origination with DSP Merrill Lynch for a period of three years. Overall, he has around three decades of experience in the fields of risk management, debt capital markets, credit rating, resource mobilization and structured products. M.K. Sinha, president and chief executive officer of IDFC Project Equity, aged 43 years, is a mechanical engineer from Indian Institute of Technology, Kharagpur and has a management degree from Indian Institute of Management, Ahmedabad. Prior to joining us on June 8, 2005, Mr. Sinha was a senior vice president with GE Energy Financial Services based in Stanford, USA. He has work experience of over 18 years and is an expert in the field of project finance, corporate finance, investment banking and private equity investments. Cherian Thomas, group head and chief operating officer of IDFC Foundation, aged 47 years, is a mechanical engineer from Veermata Jeejabai Technological Institute, Mumbai. He also holds a degree in MMS Finance from S P Jain Institute of Management. Prior to joining us in 1998, Mr. Thomas was the senior manager - finance at Tata Industries Limited. He has over 23 years of experience in banking and finance with ICICI, SCICI and Citibank and his areas of expertise include project finance, corporate advisory, project structuring and resources. Sadashiv Rao, group chief risk officer, aged 50 years, has a chemical engineering degree from the Indian Institute of Technology, Kanpur and has a management degree in finance/marketing from the Indian Institute of 115