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9 BOARD OF DIRECTORS Group Consolidated Financial Statements 1 K M Gherda Chairman Kotak Mahindra Bank Limited 21 Uday Kotak Executive Vice Chairman & Managing Director SUBSIDIARIES Anand Mahindra Cyril Shroff Kotak Mahindra Capital Company Limited 68 Pradeep N Kotak Dr Shankar Acharya Shivaji Dam Ajay Sondhi Kotak Securities Limited OM Kotak Mahindra Life Insurance Company Limited Kotak Mahindra Primus Limited C Jayaram Executive Director Kotak Mahindra Asset Management Company Limited 180 Dipak Gupta Executive Director Kotak Mahindra Trustee Company Limited 195 Kotak Mahindra Investments Limited 205 Bina Chandarana Company Secretary & Sr. Vice President Kotak Mahindra (International) Limited 219 Kotak Mahindra (UK) Limited 229 REGISTERED OFFICE 36-38A, Nariman Bhavan, 227, Nariman Point, Mumbai Tel: Fax: WEBSITE REGISTRARS & TRANSFER AGENTS Karvy Computershare Private Limited 1) 21, Avenue 4, Street No.1, Banjara Hills, Hyderabad ) 7, Andheri Industrial Estate, Off Veera Desai Road, Andheri (West), Mumbai Kotak Mahindra Inc. Global Investment Opportunities Fund Limited Kotak Mahindra Securities Limited Kotak Mahindra Private-Equity Trustee Limited Kotak Forex Brokerage Limited

10 1 Kotak Mahindra Bank Limited (Consolidated) AUDITORS REPORT AUDITORS REPORT TO THE BOARD OF DIRECTORS OF KOTAK MAHINDRA BANK LIMITED ON THE CONSOLIDATED FINANCIAL STATEMENTS OF KOTAK MAHINDRA BANK LIMITED AND ITS SUBSIDIARIES 1 We have examined the attached Consolidated Balance Sheet of KOTAK MAHINDRA BANK LIMITED and its subsidiaries ( the Group ) as at 31st March, 2004, the Consolidated Profit and Loss Account and the Consolidated Cash Flow Statement of the Group for the year ended on that date, both annexed thereto. The Consolidated Accounts include investments in affiliates, accounted for on the equity method in accordance with Accounting Standard 23 (Accounting for Investments in Associates in Consolidated Financial Statements). These financial statements are the responsibility of the Bank s Management. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We conducted our audit in accordance with the generally accepted auditing standards in India. These Standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free of material misstatements. An audit includes, examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3 We did not audit the financial statements of all subsidiaries, whose financial statements reflect total assets of Rs. 454, lakhs as at 31 st March, 2004, total revenues of Rs. 95, lakhs and cash flows amounting to Rs. 13, lakhs for the year ended on that date. The accounts of the affiliates have not been audited. The financial statements of the subsidiaries have been audited by other auditors whose reports have been furnished to us, and in our opinion, insofar as it relates to the amounts included in respect of the subsidiaries, is based solely on the reports of the other auditors. 4 We report that the consolidated financial statements have been prepared by the Bank in accordance with the requirements of Accounting Standard 21 (Consolidated Financial Statements) and Accounting Standard 23 (Accounting for Investments in Associates in Consolidated Financial Statements), issued by the Institute of Chartered Accounts of India. 5 Based on our audit and on consideration of reports of other auditors on separate financial statements of the subsidiaries and unaudited financial statements of the affiliates referred to in paragraph 3 above, and to the best of our information and according to the explanations given to us, we are of the opinion that the aforesaid consolidated financial statements, read together with Note 1(b) of Schedule 18 regarding an affiliate which has not been consolidated, give a true and fair view in conformity with the accounting principles, generally accepted in India: (a) in the case of the Consolidated Balance Sheet, of the consolidated state of affairs of the Group as at 31 st March, 2004; (b) (c) in the case of the Consolidated Profit and Loss Account, of the consolidated profit of the Group for the year ended on that date and in the case of the Consolidated Cash Flow Statement, of the consolidated cash flows of the Group for the year ended on that date. For S. B. Billimoria & Co. Chartered Accountants Nalin M. Shah Partner (Membership No ) Mumbai, 8 th June, 2004.

11 2 Kotak Mahindra Bank Limited (Consolidated) CONSOLIDATED BALANCE SHEET AS AT 31 ST MARCH, 2004 Capital and Liabilities Schedule As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Capital 1 5, , Reserves and Surplus 2 117, , Minority Interest 31, , Employees Stock Options (Grants) Outstanding Deposits 3 422, , Borrowings 4 310, , Policy Holders Funds 12, , Other Liabilities and Provisions 5 81, , Total 981, , Assets Cash and Balances with Reserve Bank of India 6 12, , Balances with Banks and Money at Call and Short Notice 7 77, , Investments 8 359, , Advances 9 465, , Fixed Assets 10 13, , Other Assets 11 50, , Goodwill on Consolidation 2, , Total 981, , Contingent Liabilities , , Bills for Collection Significant Accounting Policies and Notes to the Financial Statements 18 As per our report of even date attached For and on behalf of the Board of Directors For S. B. Billimoria & Co. K. M. Gherda Uday Kotak Chartered Accountants Chairman Executive Vice-Chairman & Managing Director Nalin M. Shah Dipak Gupta Bina Chandarana Partner Executive Director Company Secretary Mumbai, 8 th June, 2004

12 3 Kotak Mahindra Bank Limited (Consolidated) CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2004 Schedule Year ended Year ended 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs I. Income Interest earned 13 63, , Other Income 14 52, , II. III. IV. Total 116, , Expenditure Interest expended 15 25, , Operating expenses 16 57, , Provisions and Contingencies [includes Income tax provision of Rs. 13, lakhs (Previous year Rs. 6, lakhs)] 17 14, , Total 96, , Profit Net Profit for the year 20, , Less: Share of Minority Interest 2, Add: Share in profit of Associates Consolidated Profit for the year attributable to the group 17, , Add: Surplus brought forward from previous year 22, , Total 39, , Appropriations Transfer to Statutory Reserve 1, , Transfer to Special Reserve u/s 45 IC of RBI Act , Transfer to General Reserve 1, Transfer to Capital Reserve Transfer to Debenture Redemption Reserve 4, Transfer to Investment Fluctuation Reserve 1, Proposed Dividend 1, , Corporate Dividend Tax Balance carried over to Balance Sheet 27, , Total 39, , V. Earnings Per Share Basic Diluted Significant Accounting Policies and Notes to the Financial Statements 18 As per our report of even date attached For and on behalf of the Board of Directors For S. B. Billimoria & Co. K. M. Gherda Uday Kotak Chartered Accountants Chairman Executive Vice-Chairman & Managing Director Nalin M. Shah Dipak Gupta Bina Chandarana Partner Executive Director Company Secretary Mumbai, 8 th June, 2004

13 4 Kotak Mahindra Bank Limited (Consolidated) CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 ST MARCH, 2004 Year ended Year ended 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs Cash Flow from Operating Activities Net Profit After Tax 17, , Add: Provision for tax 13, , Profit Before Tax 30, , Adjustments for: Employee Stock Options Grants Depreciation on bank property 3, , Diminution in the value of investments , Loss on revaluation of investments Provision for Non Performing Assets , (Profit) on sale of assets (87.13) (70.33) (Profit)/Loss on sale of investments in Shares other than Trading (1,314.28) Other Adjustment (135.84) 35, , Adjustments for: Increase in Investments other than, Joint Ventures and other long term investments (261,564.26) (48,199.66) Increase in Advances (162,530.22) (67,415.76) Increase in Other Assets (22,370.93) (56.18) Increase/(Decrease) in Fixed Deposits with Banks (57,935.61) 1, Increase in Deposits 401, , Increase in Borrowings 42, , Increase in Other Liabilities & Provisions 36, , Income Taxes Paid (23,413.88) (14,345.96) (10,808.70) (6,477.80) NET CASH FLOW FROM OPERATING ACTIVITIES (A) (4,133.90) Cash Flow From Investing Activities Purchase of Fixed assets (5,313.79) (5,167.29) Sale of Fixed assets (Increase)/Decrease in Investments in Joint Ventures and other long term Investments 6, , Other Adjustments NET CASH FLOW FROM INVESTMENT ACTIVITIES (B) 1, (849.07) Cash Flow from Financing Activities Dividend paid including Corporate Dividend Tax (1,402.79) (1,243.47) Money received on exercise of stock options Share premium contribution 2, , Minority Interest Increase 4, , Policyholders Liability Increase 9, , NET CASH FLOW FROM FINANCING ACTIVITIES (C) 14, , NET INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS (A + B + C) 16, CASH & CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 9, , CASH & CASH EQUIVALENTS AT THE END OF THE YEAR 26, , As per our report of even date attached For and on behalf of the Board of Directors For S. B. Billimoria & Co. K. M. Gherda Uday Kotak Chartered Accountants Chairman Executive Vice-Chairman & Managing Director Nalin M. Shah Dipak Gupta Bina Chandarana Partner Executive Director Company Secretary Mumbai, 8 th June, 2004

14 5 Kotak Mahindra Bank Limited (Consolidated) SCHEDULES FORMING PART OF CONSOLIDATED BALANCE SHEET AS AT 31 ST MARCH, 2004 As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Schedule 1 : Capital Authorised Capital 10,00,00,000 Equity Shares of Rs.10/- each 10, , Issued, Subscribed and Paid-up Capital 5,95,32,750 (31 st March 2003: 5,92,12,750) Equity Shares of Rs.10/- each, fully paid-up 5, , Total 5, , Schedule 2 : Reserves and Surplus I. Statutory Reserve Opening Balance 5, Add: Transfer from Special Reserve 4, Add: Transfer from Profit and Loss Account 1, , II. III. IV. Total 7, , Capital Reserve Opening Balance 4, , Add: On amalgamation 3.82 Add: Transfer from Profit and Loss Account Total 5, , General Reserve Opening Balance 15, , Add: Transfer from Profit and Loss Account 1, Less: Amortisation of BSE membership card (see Schedule 18, Note 6) Total 17, , Securities Premium Account Opening Balance 45, , Additions during the year 2, , Less: Expenses on issue of Debentures adjusted Total 48, , V. Investment Fluctuation Reserve Opening Balance Add: Transfer from Profit and Loss Account 1, Total 1, VI. Special Reserve under Section 45IC of the RBI Act, 1934 Opening Balance 3, , Add: Transfer from Profit and Loss Account 1, Less: Transfer to Statutory Reserve 4, VII. Total 4, , Debenture Redemption Reserve Opening Balance 1, Add: Transfer from Profit and Loss Account 4, Total 5, , VIII. Capital Redemption Reserve IX. Share of Retained Earnings in Associates X. Profit and Loss Account Balance in Profit and Loss Account 27, , Less: Translation Difference [see Schedule 18, Note 2(F)(x)] (107.87) 27, , Total 117, ,636.03

15 6 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of Consolidated Balance Sheet as at 31 st March, 2004 (Contd.) As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Schedule 3 : Deposits I. Demand Deposit i. From Others 257, Total 257, II. Savings Bank Deposits 4, III. Term Deposits i. From Banks 4, ii. From Others 155, , Total 160, , Total Deposits of branches in India (I to III) 422, , Schedule 4 : Borrowings I. Borrowings in India (i) Reserve Bank of India 4, (ii) Banks 108, , (iii) Institutions and Agencies 194, , Total 302, , II. Borrowings outside India 7, Total Borrowings (I and II) 310, , Secured Borrowings included in I and II above 26, , Schedule 5 : Other Liabilities and Provisions I. Bills Payable 4, , II. Interest Accrued 6, , III. Others (including provisions) 68, , IV. Proposed Dividend (includes tax on dividend for the current year) 1, , V. Proposed Dividend payable on Minority interest in subsidiaries (including dividend tax) Total 81, , Schedule 6 : Cash and Balances with Reserve Bank of India I. Cash and cheques on hand 1, II. Balances with RBI in current account 11, , Total 12, , Schedule 7 : Balances with Banks and Money at Call and Short Notice I. In India (i) Balances with Banks (a) In Current Accounts 11, , (b) In Other Deposit Accounts 64, , II. Total 75, , Outside India (i) In current account 2, , Total 2, , Total (I and II) 77, , Schedule 8 : Investments I. Investments in India in (i) Government Securities 284, , (ii) Other approved Securities (iii) Shares 10, , (iv) Debentures and Bonds 10, , (v) Associates 3, , (vi) Others [Units, Certificate of Deposits, Commercial Paper (CP) and Pass Through Certificates (PTC)] 50, , Total 359, ,370.04

16 7 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of Consolidated Balance Sheet as at 31 st March, 2004 (Contd.) As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Schedule 9 : Advances A. (i) Bills purchased and discounted 7, , (ii) Cash Credits, Overdrafts and loans repayable on demand 6, (iii) Term Loans 450, , Total 465, , B. (i) Secured by tangible assets * 435, , (ii) Unsecured 29, , Total 465, , * including advances against book debts Schedule 10 : Fixed Assets A. Premises (Including Land) Gross Block At cost on 31 st March of the preceding year 7, , Additions during the year Less: Deductions during the year Total 7, , Depreciation As at 31 st March of the preceding year 2, , Add: Charge for the year Less: Deductions during the year Depreciation to date 2, , Net Block 4, , B. Other Fixed Assets (including furniture and fixtures) Gross Block At cost on 31 st March of the preceding year 10, , Additions during the year 5, , Deductions during the year , Total 15, , Depreciation As at 31 st March of the preceding year 3, , Charge for the year 2, , Add: Amortisation through General Reserve (see Schedule 18, Note 6) Less: Deductions during the year Depreciation to date 6, , Net Block 8, , Total (A) +(B) 13, ,979.19

17 8 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of Consolidated Balance Sheet as at 31 st March, 2004 (Contd.) As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Schedule 11 : Other Assets I. Interest accrued 4, , II. Advance tax (net of provision) 1, , III. Stationery and Stamps IV. Non Banking assets acquired in satisfaction of claims V. Cheques in course of collection VI. Other assets 44, , Total 50, , Schedule 12 : Contingent Liabilities I. Claims not acknowledged as debts II. Liability on account of outstanding forward exchange contracts 87, , III. Guarantees on behalf of constituents in India 21, , IV. Guarantees on behalf of constituents outside India 3, V. Acceptances, Endorsements and Other Obligations VI. Other items for which bank is contingently liable: Liability on account of interest rate swaps 117, , Liability in respect of options contracts 2, Liability on account of income tax and interest tax demands 9, , Capital Commitments not provided Maximum amount of recourse to the bank as per the terms of the agreement to sell some of its receivables Total 242, , SCHEDULES FORMING PART OF CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2004 Year ended Year ended 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs Schedule 13 : Interest Earned I. Interest/discount on advances/bills 46, , II. Income from investments 12, , III. Interest on balance with RBI and other inter-bank funds 1, IV. Others 3, , Total 63, , Schedule 14 : Other Income I. Commission, exchange and brokerage 27, , II. Profit on sale of Investments (net) 9, , III. Profit/ (loss) on revaluation of investments (420.72) (291.09) IV. Profit on sale of building and other assets (net) V. Profit on exchange transactions (net) VI. Income from media business 1, VII. Premium on Insurance business 14, , VIII. Miscellaneous Income 1, , Total 52, ,679.52

18 9 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of Consolidated Profit and Loss Account for the year ended 31 st March, 2004 (Contd.) Year ended Year ended 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs Schedule 15 : Interest Expended I. Interest on Deposits 5, , II. Interest on RBI/Inter-Bank Borrowings 7, , III. Other Interest 13, , Total 25, , Schedule 16 : Operating Expenses I. Payments to and provision for employees 15, , II. Rent, taxes and lighting 2, , III. Printing and Stationery IV. Advertisement and Publicity 3, , V. Depreciation on Bank s property 3, , VI. Director s fees, allowances and expenses VII. Auditor s fees and expenses VIII. Law Charges IX. Postage, telephone etc. 2, , X. Repairs and maintenance 1, XI. Insurance XII. Travel and Conveyance 2, , XIII. Professional Charges 2, , XIV. Brokerage 6, , XV. Stamping Expenses 1, XVI. Policyholder s reserves 9, , XVII. Media expenses XVIII. Other Expenditure 5, , Total 57, , Schedule 17 : Provisions and Contingencies I. Provision for taxation (including wealth-tax Rs lakhs, previous year Rs lakhs) 13, , II. Provision for Non-performing Assets (including write-offs and net of recoveries) , III. Provision for Diminution in value of Investments , Total 14, ,738.90

19 10 Kotak Mahindra Bank Limited (Consolidated) SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AND PROFIT AND LOSS ACCOUNT Schedule 18 : Significant Accounting Policies and Notes to the Financial Statements 1 BASIS OF CONSOLIDATION a. The Consolidated Financial Statements of Kotak Mahindra Bank Limited ( the Bank ) are prepared in accordance with Accounting Standard 21 (AS 21), Consolidated Financial Statements and Accounting Standard 23 (AS 23), Accounting for Investments in Associates in Consolidated Financial Statements issued by the Institute of Chartered Accountants of India ( ICAI ). The Bank consolidates all subsidiaries as defined in AS 21 on a line by line basis by adding together like items of assets, liabilities, income and expenses. Further, the Bank accounts for investments in Associates as defined by AS 23 by the equity method of accounting. Kotak Mahindra Bank Limited (KMBL), its subsidiaries and associates which have been consolidated, constitute the "Group". The list of Subsidiaries are as under: Country of % Shareholding of Name of the Subsidiary Origin Kotak Bank Kotak Mahindra Capital Company Limited India Kotak Mahindra Securities Limited India Kotak Mahindra Inc* USA Kotak Mahindra (International) Limited* Mauritius Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC)* Mauritius Kotak Mahindra (UK) Limited* U.K Kotak Securities Limited India OM Kotak Mahindra Life Insurance Company Limited India Kotak Mahindra Primus Limited India Kotak Mahindra Asset Management Company Limited India Kotak Mahindra Trustee Company Limited India Kotak Mahindra Investments Limited India Kotak Forex Brokerage Limited India Kotak Mahindra Private-Equity Trustee Limited India *For the purposes of consolidating these subsidiary accounts into KMBL (Consolidated), balances as per audited accounts for the financial year ended December 31, 2003 have been considered. b. The Consolidated Financial Statements incorporate the unaudited financial statements of the following associates as per Accounting Standard 23 (AS 23) Accounting for Investments in Associates in Consolidated Financial Statements. Name of the Associate Country of % Shareholding of Origin KMBL Ford Credit Kotak Mahindra Limited India Business Standard Limited (*) India Business Standard Digital Limited (*) (wholly owned subsidiary of Business Standard Limited) India India Car Private Limited (#) India (*). The said companies were subsidiaries of the Bank for part of the previous year ended 31 st March, 2003 (ceased to be subsidiaries w.e.f. 31 st October, 2002). (#). The financial statements of India Car Private Limited have not been consolidated under AS 23, as the same are not material. 2 SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A. ACCOUNTING METHODOLOGY The Financial Statements have been prepared on historical cost basis of accounting. The Group adopts the accrual system of accounting and the financial statements conform with the Accounting Standards issued by the ICAI, guidelines issued by the Reserve Bank of India ( RBI ), Insurance Regulatory and Development Authority ( IRDA ) from time to time as applicable to relevant companies and the generally accepted accounting principles prevailing in India.

20 11 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Schedule 18 : Significant Accounting Policies and Notes to the Financial Statements (Contd.) The preparation of financial statements requires the 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. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. B. REVENUE RECOGNITION a. Lending Activity: i. Interest income is recognised on accrual basis except in case of non-performing assets and overdue interest, which is recognised as income on realisation. ii. Interest income in respect of retail advances {except for the subsidiary, Kotak Mahindra Primus Limited (KMPL)} is accounted for by using the internal rate of return method to provide a constant periodic rate of return on the net investment outstanding on the contract. iii. KMPL accrues for auto finance income (including service charges, incentives) by using the internal rate of return method to provide a constant periodic rate of return after adjustment of brokerage expenses on the net investment outstanding on the contract. iv. Service charges received on advances are accrued when due, except for one subsidiary (KMPL). v. Income on discounted instruments is recognised over the tenure of the instruments so as to provide a constant periodic rate of return. vi. Fees and commission income are recognised when due except for guarantee commission which is recognised over the period of the guarantee. vii. Gain on account of securitisation of assets is recognised, based on the difference between the book value of the securitised asset and consideration received. b. Investment Banking Activity: Issue management fees, underwriting fees, financial advisory fees and placement fees are accounted for based on stage of completion of assignments. c. Insurance Activity: Premium is recognised as income when it is due from policyholders. Further, uncollected premium on lapsed policies is not recognised as income. Premium payable on re-insurance ceded is accounted at the time of recognition of the premium income in accordance with the treaty arrangements with the re-insurers. Reinsurance premium and commission is recognized over the period of the risk. d. Broking Activity: i. Brokerage on Fixed Income Securities Placements is accounted net of sub-brokerage on completion of the transactions. ii. Brokerage Income: on fixed deposit management, is accounted on completion of the transaction. on primary market subscription/mobilization is accounted on allotment. on secondary market transaction is recognized net of service tax on the date of the transaction. iii. Underwriting commission is accounted on allotment. iv. Incentive on primary market subscription/mobilisation is accounted on the basis of intimation received. v. Depository Fees: Transaction fees are recognised on completion of transaction. Account maintenance charges are recognised on time basis over the period of contract. vi. Stock Lending Fees and Borrowing Expenses: Stock lending fees and borrowing expenses are recognised on time basis over the period of contract. vii. Portfolio management fees: Portfolio management fees are accounted on accrual basis as follows: a. In case of percentage based fees, as a percentage of the initial corpus for the first year and on additional placement of funds during the year, on a quarterly basis. For each subsequent year, the fees will be recognized as a percentage of the unaudited net asset value on the renewed corpus at the commencement of each year and on any additional placement of funds during the year. b. In case of return based fee, as a percentage of the annual realised profit. e. Asset Management Management fee is recognised at specific rates agreed with the relevant schemes of Mutual Funds applied on the average daily net asset of each scheme.

21 12 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Schedule 18 : Significant Accounting Policies and Notes to the Financial Statements (Contd.) C. FIXED ASSETS AND INTANGIBLE ASSETS Fixed assets/intangible assets have been stated at cost inclusive of incidental expenses less accumulated depreciation/amortisation. DEPRECIATION The Group has adopted the Straight Line Method of depreciation so as to write off 100% of the cost of the assets at rates higher than those prescribed under Schedule XIV to the Companies Act, 1956 based on the Management s estimates of useful lives of these assets. Estimated useful lives over which assets are depreciated are as follows: Asset Type Useful life in years Premises 30 Improvement to leasehold premises Over the period of lease subject to a maximum of 6 years. Office equipments 5 Computers 3 Furniture and Fixtures 6 Vehicles 4 ATMs 5 Software (including development) expenditure 3 Forex Broking Business rights 10 Goodwill 5 Membership cards of the Stock Exchange, Mumbai 10 D. RETIREMENT BENEFITS i. Contribution as required by statute is debited to the Profit & Loss Account. ii. Provision for Gratuity and Leave encashment liability to employees is made on the basis of actuarial valuation. iii. The Insurer s liability towards Superannuation Fund, a defined contribution plan, is accrued for the relevant period of employee participation. E. INVESTMENTS FOR BANK 1. CLASSIFICATION a. In accordance with RBI guidelines, investments are categorised into Held for Trading, Available for Sale and Held to Maturity and further classified under six groups, namely, Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Associates and Other Investments for the purposes of disclosure in the balance sheet. i. Investments that are held for resale within 90 days from the date of purchase is classified as Held for Trading. ii. Investments that the Bank intends to hold to maturity are classified as Held to Maturity. iii. Investments which are not classified in the above categories are classified as Available for Sale. b. The cost of investments is determined on the weighted average basis. c. Broken period interest on debt instruments is treated as revenue item. d. Brokerage, commission etc. paid at the time of acquisition of investments is charged to revenue. 2. VALUATION The valuation of investments is made in accordance with the RBI guidelines. a. Held for Trading/Available for Sale Each security in this category is revalued at the market price or fair value and the net depreciation of each group is recognized in the Profit and Loss Account. Net appreciation, if any, is ignored. Provision for diminution, other than temporary is charged off to the Profit and Loss Account. b. Held to Maturity These are carried at their acquisition cost. Any premium on acquisition of debt instruments is amortised over the balance maturity of the security. Any diminution, other than temporary, in the value of securities, is provided for.

22 13 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Schedule 18 : Significant Accounting Policies and Notes to the Financial Statements (Contd.) 3. TRANSFER BETWEEN CATEGORIES Transfer between categories is done at the acquisition cost/book value/market value on the date of the transfer, whichever is the least and depreciation, if any, on such transfer is fully provided for. 4. PROFIT OR LOSS ON SALE/REDEMPTION OF INVESTMENTS a. Held For Trading and Available for Sale Profit or loss on sale/redemption is included in the Profit and Loss Account. b. Held to Maturity Profit on sale/redemption of investments is included in the Profit and Loss Account. Loss on sale is charged off to the Profit and Loss Account. In case of profits, the same is appropriated to Capital Reserve after adjustments for tax and Statutory Reserve transfer. FOR INSURANCE COMPANY All debt securities are considered as held to maturity and accordingly recorded at cost (excluding interest paid, if any). Debt securities including government securities are stated at net amortised cost. The premium/discount, if any, on purchase of debt securities is amortised/accrued over the period to maturity. Listed equity shares as at balance sheet date are stated at fair value being the last quoted closing price on The Stock Exchange, Mumbai ( BSE ). Unrealised gains/losses arising due to changes in the fair value of listed equity shares are carried forward to Balance sheet. The profit and loss on actual sale of listed equity includes the accumulated changes in the fair value recognised previously. FOR OTHER ENTITIES As required by Accounting Standard 13, Accounting for Investments, investments are classified into long term investments and current investments. Investments, which are intended to be held for more than one year are classified as long term investments and investments, which are intended to be held for less than one year, are classified as current investments. Long term investments are accounted at cost and any decline in value, other than temporary is provided for. Current investments are valued at cost or market/fair value whichever is lower. Brokerage, stamping and additional charges paid are included in the cost of investments. F. FOREIGN CURRENCY AND DERIVATIVE TRANSACTIONS FOR BANK i. Foreign currency assets and liabilities are translated as at the balance sheet date at rates notified by the Foreign Exchange Dealers Association of India (FEDAI). ii. Income and Expenditure items are translated at the rates of exchange prevailing on the date of the transaction. iii. Foreign Exchange contracts (other than deposit and placement swaps) outstanding at the balance sheet date are revalued at rates notified by FEDAI and resulting profits or losses are included in the Profit and Loss Account. Foreign exchange swaps linked to foreign currency deposits and placements are translated at the ruling spot rate at the time of swap. The premium /discount on the swap arising out of the difference in the exchange rate of the swap date and the maturity date of the underlying forward contract is amortised over the period of the swap and the same is recognized as interest income/expense. iv. Outstanding derivative transactions designated as Hedges comprise interest rate swaps undertaken to hedge interest rate risk on certain assets and liabilities. The net interest receivable/payable on these swaps is accounted for on an accrual basis over the life of the swaps. v. Contingent liabilities at the balance sheet date on account of outstanding foreign exchange contracts are reported at contracted rates. vi. Interest income/expense is accrued on Interest Rate Swaps and booked in the Profit and Loss Account. Trading swaps outstanding as at the Balance Sheet date are marked to market and the resulting profits or losses, are recorded in the Profit and Loss Account. FOR OTHER ENTITIES vii. Transactions in foreign currencies are translated to Indian Rupees at the rate of exchange ruling on the date of the transaction. viii. Assets and liabilities contracted in foreign currencies are translated into Indian Rupees at the rate of exchange ruling at the Balance Sheet date. ix. Exchange differences arising on settlement of the transaction and on account of restatement of assets and liabilities are dealt with in the Profit and Loss Account, except in cases where they relate to the acquisition of fixed assets, in which case, they are adjusted to the carrying cost of such assets. x. The financial statements of all subsidiaries incorporated outside India are converted on the following basis : (a) Income and expenses are converted at the average rate of exchange applicable for the year and (b) All assets and liabilities are translated at the closing rate as on the balance sheet date. The exchange difference arising out of year end translation is debited or credited to Translation Reserve forming part of Reserves and Surplus.

23 14 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Schedule 18 : Significant Accounting Policies and Notes to the Financial Statements (Contd.) G. ADVANCES i. Advances are classified into standard, sub-standard, doubtful and loss assets in accordance with RBI guidelines and are stated net of provisions made towards non-performing assets. ii. Provision for non-performing assets comprising sub-standard, doubtful and loss assets is made in accordance with RBI guidelines. In addition, the Group adopts an approach to provisioning that is based on past experience, evaluation of security and other related factors. iii. A general provision of 0.25% is made on all standard assets of the Bank as per RBI guidelines on all loans other than personal loans. In respect of personal loans, a general provision of 0.50% is made. iv. Kotak Mahindra Primus Limited creates a general provision of 1.00% on wholesale advances and 0.10% on retail advances. H. BORROWING COSTS Borrowing costs other than those directly attributable to qualifying Fixed Assets are recognised as an expense in the period in which they are incurred. I. ACQUISITION COSTS Acquisition costs such as commission and other costs are expensed in the year in which they are incurred except as stated in para 2B(a)(iii). J. TAXES ON INCOME Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognised in respect of deferred tax assets on timing differences being the difference between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax asset is recognised subject to prudence and judgement that realisation is more likely than not. Changes in deferred tax assets/liabilities on account of changes in effective tax rates are given effect to in the Profit and Loss Account. K. SEGMENTAL ACCOUNTING In accordance with Accounting Standard 17 (AS17) on Segment Reporting, the Group s business has been segregated into the following segments whose principal activities are as under: Segment Bank Treasury (*) Corporate Banking (*) Retail liabilities and branch banking (*) Retail Lending Activities (*) Corporate Centre (*) Car Finance Broking Investment Banking Trading/Principal Investments Insurance Principal activity Money market, forex market, derivatives and investments other than strategic investments. Wholesale borrowings and lendings and services to corporate sector Retail borrowings covering savings and current accounts and banking branch network and services. Commercial vehicle finance, personal loans, home loans, agriculture finance and other loans/services. Strategic investments and group activities Car Financing Brokerage related to secondary market transactions, services rendered in connection with primary market subscription mobilization, fees related to portfolio management services, depository participation etc. Financial advisory services such as mergers and acquisition advice and equity-debt issue management services. Primary dealer in Debt and money markets and equity portfolio. Life insurance. The above segments have been identified based on the organisation structure, the customer segment, products and services offered and its relation to risk and reward, and the internal reporting process. (*) A transfer pricing mechanism between the segments has been established to arrive at interest cost on the borrowings of the segments and which is disclosed as part of Segment Revenue. Segment revenue consists of earnings from external customers and inter-segment revenue as stated above. Segment expenses consist of interest expenses including those allocated, operating expenses, provisions and allocated costs. Segment results are a result of segment revenue and segment expenses. Segment assets include assets related to segments and excludes tax related assets. Segment liabilities include liabilities related to the segment excluding networth.

24 15 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Schedule 18 : Significant Accounting Policies and Notes to the Financial Statements (Contd.) L. EMPLOYEE STOCK OPTION SCHEME The Bank has formulated an Employee Stock Option Scheme (ESOS) in accordance with SEBI (Employee Stock Option Scheme) Guidelines, The Scheme provides for grant of options to employees to acquire the equity shares of the Bank that vest in a graded manner and that are to be exercised within a specified period. In accordance with the SEBI Guidelines, the excess, if any, of the market price of the share at the date of grant of the option under ESOS over the exercise price of the option is amortised on a straight-line basis over the vesting period. M. PRELIMINARY EXPENSES Preliminary expenses are written off as per section 35D of the Income Tax Act, N. CLAIMS Claims for death, including the reinsurance benefits, are accounted for when intimated. Maturity claims are accounted on the date of the maturity. 3 Upto 31 st March, 2003, the Group had depreciated motor vehicles over a period of 3 years. With effect from 1 st April, 2003, the estimated useful life has been revised to 4 years. Consequent to the said change, depreciation charged for the current year is lower and profit before tax for the year is higher by Rs lakhs. 4 Upto the financial year ended 31 st March, 2003, brokerage expenses and service charges received in respect of advances were accounted for by the Bank, by using the internal rate of return method to provide a constant periodic rate of return over the period of the advance. From the financial year ended 31 st March, 2004, the Bank has revised its policy wherein service charges received on such transactions are recognized as revenue when due and brokerage expenses due on such transactions are charged to revenue when due. Consequent to this change, the profit before tax for the year is lower by Rs lakhs (net off brokerage expenses of Rs lakhs and service charges income of Rs lakhs). 5 The Bank charges off to the Profit and Loss account all expenses related to acquisition costs of advances in the year in which they are incurred. Kotak Mahindra Primus Limited, a subsidiary of the bank charges off such costs based on the Internal Rate of Return of a contract. On account of this difference in accounting policy, unamortised brokerage amounting to Rs.2, lakhs is carried forward in the Balance Sheet under "Other Assets". 6 Consequent to Accounting Standard 26 on Intangible Assets, issued by the Institute of Chartered Accountants of India, the membership cards of the Stock Exchange, Mumbai, owned by the group are classified as intangible assets under the head Fixed Assets and are being amortised over a period of ten years from their date of acquisition. The accumulated amortization as on 31 st March, 2003, of Rs lakhs has been adjusted against the opening balance of General Reserve in accordance with the transitional provisions of the standard, of which the amount attributable to the group is Rs lakhs. Amortization of Rs lakhs for the current year has been charged to the Profit and Loss Account. The change in accounting policy has resulted in depreciation/ amortization for the year being higher by Rs lakhs and the profit before tax for the year being lower by an equivalent amount. 7 During the year, the Bank has sold its equity investments in Fascel Limited. The loss on sale of these investments amounting to Rs. 1, lacs which was already provided for as diminution for investments in the financial year ended 31 st March, 2003, has been adjusted against the said provision. Consequently, the figures of Profit on Sale of investments (Schedule 14.II) and Provisions and Contingencies (Schedule 17.II) are excluding the loss on such sale and provision written back on the same. 8 EARNINGS PER EQUITY SHARE As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Reconciliation between weighted shares used in the computation of basic and diluted earnings per share: Weighted average number of equity shares used in computation of basic earnings per share 5,93,34,553 5,92,12,750 Effect of potential equity shares for stock options outstanding 7,24,550 8,31,973 Weighted average number of equity shares used in computation of diluted earnings per share 6,00,59,103 6,00,44,723 Annualised earnings per equity share have been calculated based on profit available to equity shareholders of Rs. 17, lakhs (previous year Rs. 7, lakhs) and the weighted average number of equity shares outstanding as at end of the year of 5,93,34,553 (previous year 5,92,12,750) Following is the reconciliation between basic and diluted earnings per share: Nominal value per share Basic earnings per share Effect of potential equity shares for stock options Diluted earnings per share

25 16 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Schedule 18 : Significant Accounting Policies and Notes to the Financial Statements (Contd.) 9 SEGMENT REPORTING In accordance with Accounting Standard 17 on Segment Reporting issued by The Institute of Chartered Accountants of India, the Group has determined business segments as outlined in Para K of Significant Accounting Policies. Summary of the operating segments of the Group are: 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs Segmental Revenues: Car Finance 23, , Broking 23, , Corporate Banking 6, , Corporate Centre 6, , Insurance 15, , Investment Banking 3, , Retail Lending activities 18, , Others 8, , Retail Liabilities and branch banking Trading/Principal Business 10, , Bank Treasury 12, Sub-total 130, , Less inter-segmental revenues 13, , Total 116, , Segmental Results: Car Finance 1, , Broking 11, , Corporate Banking 2, Corporate Centre 6, , Insurance (4,949.11) (4,232.68) Investment Banking 1, , Retail Lending activities 6, , Others 3, (1,386.33) Retail Liabilities and branch banking (4,191.74) Trading/Principal Business 7, , Bank Treasury 1, Profit before tax and before minority interest and associates 33, , Assets Car Finance 238, , Broking 58, , Corporate Banking 322, , Corporate Centre 41, , Insurance 25, , Investment Banking 1, Retail Lending activities 181, , Others 65, , Retail Liabilities and branch banking 155, Trading/Principal Business 62, , Bank Treasury 173, Total Segmental Assets 1,326, , Less inter-segmental assets 348, , Total Assets 978, ,221.00

26 17 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Schedule 18 : Significant Accounting Policies and Notes to the Financial Statements (Contd.) 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs Liabilities Car Finance 191, , Broking 47, , Corporate Banking 318, , Corporate Centre 7, , Insurance 16, , Investment Banking 1, Retail Lending activities 163, , Others 47, Retail Liabilities and branch banking 162, Trading/Principal Business 38, , Bank Treasury 177, Total Segmental Liabilities 1,172, , Less inter-segmental liabilities 348, , Total Liabilities 823, , Unallocated assets net of liabilities Capital Expenditure Car Finance Broking Corporate Banking Corporate Centre , Insurance 1, , Investment Banking Retail Lending activities Others Retail Liabilities and branch banking 1, Trading/Principal Business Bank Treasury Total 5, , Depreciation Car Finance Broking Corporate Banking Corporate Centre Insurance Investment Banking Retail Lending activities Others Retail Liabilities and branch banking Trading/Principal Business Bank Treasury Total 3, , The Bank has taken various premises under operating lease. The lease payments recognized in the Profit and Loss Account is Rs lakhs (previous year Rs lakhs). 11 The future minimum lease payments under non cancellable operating lease - not later than one year is Rs Lakhs (P.Y. Rs Lakhs) and later than one year but not later than five years is Rs Lakhs (P.Y. Rs Lakhs) and greater than five years is Rs. Nil (P.Y. Rs Lakhs).

27 18 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Schedule 18 : Significant Accounting Policies and Notes to the Financial Statements (Contd.) 12 Details of gross investments and unearned finance income in respect of assets given on lease are as under: As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Particulars Gross Investments: (i) Not later than 1 year 8, , (ii) Between 1-5 years 7, , Total 15, , Unearned Finance Income: (i) Not later than 1 year 1, , (ii) Between 1-5 years Total 1, , Accumulated Provision on the gross investments Other Liabilities and Provisions (Schedule 5.III) includes Deferred Tax Liability and Others Other Assets (Schedule 11.VI) includes Deferred Tax Assets as follows: As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Deferred tax assets Expenditure allowed on payment basis Unabsorbed capital losses/provision for investments Unabsorbed business losses/depreciation Provision for NPA and contingencies 1, Others Total Deferred Tax Assets 1, , Deferred tax liabilities Deferred expenses Depreciation on assets 1, , Others Total Deferred Tax Liabilities 2, , Net deferred tax liabilities Deferred tax assets on unabsorbed capital loss have been recognised based on the appreciation in the existing equity portfolio and the estimate of realisation the same in future. In respect of business and other losses, deferred tax assets have been recognised based on the level of historical taxable income and estimated future taxable income. 14 Others - Other assets (Schedule 11.VI) includes balance of preliminary expenses amounting to Rs lakhs (previous year Rs lakhs) 15 Fixed assets as per Schedule 10 include intangible assets, details of which are as follows : As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs SOFTWARE Gross Block At cost on 31 st March of the preceding year 1, Additions during the year , Total 2, , Depreciation As at 31 st March of the preceding year Charge for the year Depreciation to date Net Block 1, ,409.95

28 19 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Schedule 18 : Significant Accounting Policies and Notes to the Financial Statements (Contd.) As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs MEMBERSHIP CARDS OF STOCK EXCHANGE, MUMBAI Gross Block At cost on 31 st March of the preceding year Additions during the year Deduction/Adjustment during the year Total Depreciation As at 31 st March of the preceding year Amoritisation adjusted against opening Reserves Charge for the year Depreciation to date Net Block GOODWILL Gross Block At cost on 31 st March of the preceding year Additions during the year Total Depreciation As at 31 st March of the preceding year Charge for the year Depreciation to date Net Block FOREX BROKING BUSINESS RIGHTS Gross Block At cost on 31 st March of the preceding year Additions during the year Total Depreciation As at 31 st March of the preceding year Charge for the year Depreciation to date Net Block RELATED PARTY DISCLOSURES: i. Parties where control exists Nature of relationship Individual having control Related Party Mr. Uday S. Kotak, Executive Vice Chairman and Managing Director Kotak Mahindra Bank Limited (also considered as Key Management Personnel), along with relatives and enterprises in which he has beneficial interest, holds 56.29% of the equity share capital of Kotak Mahindra Bank Limited

29 20 Kotak Mahindra Bank Limited (Consolidated) Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Schedule 18 : Significant Accounting Policies and Notes to the Financial Statements (Contd.) ii. Other Related Parties Nature of Relationship Related Party Associates Ford Credit Kotak Mahindra Limited Business Standard Limited Business Standard Digital Limited (wholly owned subsidiary of Business Standard Limited) India Car Private Limited Investing Party of the subsidiary Goldman Sachs (Mauritius) LLC Ford Credit International Inc., USA Old Mutual plc. and Old Mutual Life Assurance Company (South Africa) Limited Associates of the subsidiary Multifaced Finstock Private Limited Key Management Personnel Mr. Dipak Gupta, Executive Director Kotak Mahindra Bank Limited. Mr. C. Jayaram, Executive Director Kotak Mahindra Bank Limited. Mr. Shivaji Dam, Managing Director OM Kotak Mahindra Life Insurance Company Limited Mr. Ajay Sondhi, Vice Chairman & Managing Director Kotak Mahindra Capital Company Limited Relatives of Key Management Personnel Ms. Pallavi Kotak, Mr. Suresh Kotak, Ms. Indira Kotak, Ms. Aarti Chandaria, Master Dhawal Kotak, Ms. Anita Gupta, Ms. Urmila Gupta, Mr. Prabhat Gupta, Ms. Usha Jayaram, Mr. Vivek Menon, Ms. Sushmita Dam, Mr. Shantanu Dam, Mr. Salil Kumar Dam, Ms. Sukeshi Dhillon Sondhi iii. Details of related party transactions (Rupees in lakhs) Items/Related Party Individual Associates Investing party Key Relatives of Having of the Management Key Management Control Subsidiary Personnel Personnel I. Liabilities: Other liabilities , (96.04) (48.35) II. Assets: Investments ( ) Diminution on investments (135.00) Others (35.90) ( ) III. Expenses: Salaries (361.93) Others ( ) (39.39) ( ) IV. Income: Others (285.74) (1.70) V. Other Transactions: Dividend Paid (704.03) (0.96) (0.39) Reimbursement made Reimbursement received Mumbai, 8 th June, 2004 Figures in brackets represent previous year s figures. 17 Figures for the previous year have been regrouped/reclassified wherever necessary to conform to current year s presentation. For and on behalf of the Board of Directors K. M. Gherda Uday Kotak Chairman Executive Vice Chairman & Managing Director Dipak Gupta Bina Chandarana Executive Director Company Secretary

30 21 Kotak Mahindra Bank Limited DIRECTORS REPORT To the Members of KOTAK MAHINDRA BANK LIMITED The Directors present their Nineteenth Annual Report together with the audited accounts of your Bank for the year ended 31 st March FINANCIAL HIGHLIGHTS 31 st March st March 2003 (A) (B) Rs. in Crores Rs. in Crores Kotak Mahindra Bank Limited Consolidated Financial Highlights Total income 1, Total expenditure, excluding provisions and contingencies Provisions and contingencies, excluding provision for tax Profit before tax Provision for taxes Profit after tax Less: Share of minority interest Add: Share in Profit of Associates Consolidated profit for the Group Earnings per Equity Share Basic Diluted Kotak Mahindra Bank Limited StandAlone Financial Highlights: Total income Total expenditure, excluding provisions and contingencies Provisions and contingencies, excluding provision for tax Profit before tax Provision for taxes Profit after tax Add: Surplus brought forward from the previous year Amount available for appropriation Appropriations: Statutory Reserve under Section 17 of the Banking Regulation Act, General Reserve Transfer to Capital Reserve Transfer to Investment Fluctuation Reserve Proposed Dividend Corporate Dividend Tax Surplus carried to Balance Sheet In line with Accounting Standard 21 (AS 21) issued by the Institute of Chartered Accountants of India, the consolidated financial results of your Bank along with its subsidiaries, for the year ended 31 st March 2004, are attached to this report. After adjusting for minority interest, the consolidated profit after tax for the year was Rs crores and the combined net worth of the Kotak Mahindra Group was Rs. 1, crores (including the minority interest share). 2 DIVIDEND Keeping in mind the overall performance and the positive outlook for your Bank, the Directors recommend a dividend of 24% (Previous year 21%), entailing a payout of Rs crores (previous year Rs crores). The corporate dividend tax amounts to Rs crores (previous year Rs crores). 3 BONUS ISSUE OF SHARES Your Directors recommend an issue of bonus shares, subject to the approval of the members at the Annual General Meeting to be held on 26 th July 2004, in the ratio of 1:1 i. e. one additional equity share for every one equity share held by the members on a date to be fixed by the Board, by capitalizing a part of the reserves.

31 22 Kotak Mahindra Bank Limited 4 OPERATIONS Your Bank has completed one year of being a fully operational Bank and it offers a full range of banking products including savings and current accounts, term deposits, depository services and investment advice. Since its launch, your Bank opened seventeen full fledged branches at nine locations, being, Mumbai (Five), Delhi NCR (Four), Ahmedabad (Two) and one each in Bangalore, Chennai, Hyderabad, Kolkata, Ludhiana and Vadodara. Your Bank offers most of the latest technology products including net banking, phone banking, ATM cum Debit Cards, etc. Your Bank has introduced facilities like At-par cheque, Electronic Fund Transfer and free access at all VISA ATMs for its customers. Your Bank commenced offering Home Loans to its customers by offering a range of products providing flexibility of tenure, amount and payment options under Home Finance Schemes like Home Loans, Home equity Loans, Home Loan Transfer, etc. Personal Loans, under the Jaldi Loans branding continued to be an area of focus for the asset finance business. Significant growth was witnessed in the commercial vehicle and construction equipment financing business. During the year, your Bank launched a product aimed at meeting the funding requirements of auto dealers (2-Wheeler, Commercial Vehicles, Construction Equipments & Tractors). Your Bank commenced Corporate Banking business by offering corporate and institutional customers a complete range of client-centric banking solutions and services including working capital, trade services, transaction banking, securitization, money market and foreign exchange services. Your Bank established its presence as a collection banker in a number of the IPOs garnering significant market share. Due to the economic up-trend, pick-up in manufacturing activity across various sectors and tighter manufacturing operations resulting in burgeoning demand for term capital and supply-chain financing solutions, the demand for financing solutions was particularly high from the Small and Medium Enterprises (SME) segment. Your Bank was able to tap this opportunity by adding new customers, providing existing customers the entire range of banking products and services as well as entering into tie-ups with large corporates to provide financial solutions to its supply chain. Your Bank offers a wide range of deposit, insurance and investment products and a team of professionals is dedicated to help the customer meet his/her short and long term goals. Your Bank gains advantages and competitive edge in wealth management from nearly two decades of experience in providing tailormade financial solutions to meet the needs of existing customers, an easily accessible treasury platform for innovative products, insurance advisory services to protect the family and a comprehensive fund evaluation process that aligns with the needs of the customer to provide independent and neutral guidance on investment fund selection. As at the end of the year, your Bank s capital adequacy was 15.25% and the net non-performing assets was 0.17%. 5 FUTURE OUTLOOK Your Bank plans to increase the total number of its banking branches to seventy five in the next three years covering all the major cities across the country. With overall improvement in economic activity in the country coupled with launch of major infrastructure projects, the buoyancy in the Commercial Vehicles and Construction Equipment market is expected to pick-up and the Bank will try to capitalize on the same. Your Bank plans to build the housing loans and the personal loans portfolio steadily with a clear focus on quality. Your Bank expects strong growth in the treasury and the distribution earnings and aims to increase the percentage of fee based income in the total income in the coming years. Outlook for the Corporate Banking business for the next year shows a positive trend with signs of credit demand pick up in line with growth in the economy. Your Bank will strive to constantly expand its customer base and evolve new products and services to fully meet the requirements of customers. The pick up in credit demand from SME was distinct and next year, your Bank will endeavour to tap the same through a judicious strategy of products, tie-ups and comprehensive banking services. Your Bank proposes to expand its geographical coverage of this business in the coming year. 6 SUBSIDIARIES Your Bank alongwith its subsidiaries offers complete financial solutions to its customers. The key business segment where the subsidiaries operate include investment banking, stock broking, car finance, mutual funds and life insurance. Your Bank and the subsidiaries work in a synchronized manner to provide seamless services to its customers. The various activities of the major subsidiaries are outlined in the Management Discussion and Analysis section appended to this Report. During the year, the name of Kotak Mahindra Investment Company Limited, PCC was changed to Global Investment Opportunities Fund Limited. In terms of the approval granted by the Central Government vide their letter dated 4 th March 2004 under Section 212(8) of the Companies Act, 1956 and by the Reserve Bank of India vide their letter dated 20 th April 2004, an abridged Annual Report without copies of the Balance Sheet, Profit and Loss Account, Reports of the Board of Directors and Report of the Auditors of the subsidiary companies for the year ended 31 st March 2004, have been sent to all the members of the Bank. The Bank will make available full Annual Report upon request by any member of the Bank.

32 23 Kotak Mahindra Bank Limited 7 EMPLOYEE STOCK OPTION SCHEME Disclosure pursuant to the provisions of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999: Sr. Particulars ESOP No / / /03 a. Options granted 8,35,000 50,000 20,000 1,31,300 b. Price (Rs.) 50/ 55/ c. Options vested 3,20,000 Nil Nil Nil d. Options exercised 3,20,000 Nil Nil Nil e. The total number of shares arising as a result of exercise of options 8,35,000 50,000 20,000 1,31,300 f. Options lapsed 47,000 Nil Nil 6,000 g. Variations of terms of options None None None None h. Money realized by exercise of options (Rs.) 1,60,00,000 Nil Nil Nil i. Total number of options in force as on date 4,68,000 50,000 20,000 1,25,300 j. Details of options granted to employees of the Bank and its subsidiaries : 1. Senior managerial personnel Mr. Dipak Gupta Mr. Ajay Sondhi Mr. Dipak Gupta None 35,000 50,000 12,000 Mr. C. Jayaram Mr. C. Jayaram 30,000 8,000 Mr. Shivaji Dam 35, Any other employee who receives a grant in any one Nil -do- -do- Please see Note year of option amounting to 5% or more options below granted during that year 3. Identified employees who were granted options, None None None None during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant. k. Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of option calculated in accordance with AS20. Diluted EPS Rs Note: Mr. Gaurang Shah 12,000, Mr. K. V. S. Manian 12,000, Mr. Sanjeev Prasad 10,500, Mr. Narayan S. A. 10,000, Ms. Falguni Nayar 8,500 and Mr. Alroy Lobo 7,500. After the end of the financial year 31 st March 2004, your Bank had granted 2,31,900 options on 13 th May Out of the 2,31,900 options granted, 1,15,950 options (50%) shall vest on 30 th September 2005 and shall be exercisable between 30 th September 2005 to 31 st March 2006 and the remaining 1,15,950 options (50%) shall vest on 30 th September 2006 and shall be exercisable between 30 th September 2006 to 31 st March In accordance with the said Securities and Exchange Board of India (SEBI) Guidelines, the excess, if any, of the market price of the share under the Employee Stock Option Scheme over the exercise price is amortised on a straight line basis over the vesting period. In respect of options, if any, granted to employees of the subsidiaries, the Bank recovers the related compensation cost from the respective subsidiaries. 8 CORPORATE GOVERNANCE Pursuant to Clause 49 of the Listing Agreement with the Stock Exchanges, a separate section entitled Corporate Governance has been included in this Annual Report.

33 24 Kotak Mahindra Bank Limited 9 DE-LISTING OF SHARES Pursuant to the resolution passed by the members of the Bank at the Eighteenth Annual General Meeting held on 31 st July 2003, the Bank had made applications to The Delhi Stock Exchange Association Ltd. (DSE), Madras Stock Exchange Limited (MSE) and The Stock Exchange Ahmedabad (ASE) for voluntary de-listing of the equity shares of the Bank from DSE, MSE and ASE under the SEBI (De-listing of Securities) Guidelines Accordingly, the equity shares of the Bank have been de-listed from DSE and ASE with effect from 10 th December 2003 and 20 th January 2004, respectively. The approval of MSE is awaited. Your Bank s equity shares continue to be listed on the National Stock Exchange of India Ltd. (NSE) and The Stock Exchange, Mumbai (BSE) both having a nationwide network of trading terminals. 10 DIRECTORS Mr. Anand Mahindra, Mr. Cyril Shroff and Mr. Ajay Sondhi retire at the Nineteenth Annual General Meeting and are eligible for re-appointment. 11 AUDITORS Messrs. S.B. Billimoria & Co., Chartered Accountants, auditors of your Bank, retire on the conclusion of the Nineteenth Annual General Meeting. You are requested to appoint auditors for the current financial year and to fix their remuneration, subject to the approval of Reserve Bank of India. The retiring auditors, Messrs. S.B. Billimoria & Co., Chartered Accountants, are eligible for re-appointment. 12 STATUTORY INFORMATION The Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are not applicable to your Bank. 13 EMPLOYEES A statement giving the particulars of employees as required under Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, is annexed. There was a significant increase in your Bank s staffing particularly in the retail banking business. Your Bank s headcount increased from around 512 employees last year to 1115 employees at the end of the current year. The group employee strength as of 31 st March 2004 was over Your Bank has in place policies relating to employee service conditions, welfare and training which are reviewed on an ongoing basis by your Bank s Management Committee. Your Bank continues to focus on training its employees on a continuing basis by deputation to reputed training institutions by holding workshops on Regulatory Compliance, Risk Management, Customer Care and Communication, Trade Finance, Foreign Exchange Rules, Treasury, etc. 14 DIRECTORS RESPONSIBILITY STATEMENT The Directors, based on the representations received from the operational management, confirm in pursuance of Section 217 (2AA) of the Companies Act, 1956, that : (i) your Bank has, in the preparation of the annual accounts for the year ended 31 st March 2004, followed the applicable accounting standards along with proper explanations relating to material departures, if any; (ii) they have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at 31 st March 2004 and of the profit of your Bank for the financial year ended 31 st March 2004; (iii) they have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities; and (iv) the annual accounts have been prepared on a going concern basis. 15 ACKNOWLEDGEMENTS Your Directors would like to place on record their gratitude for the valuable guidance and support received from the Reserve Bank of India, Securities and Exchange Board of India and other Government and Regulatory agencies. Your Directors acknowledge the support of the shareholders and also wish to place on record their appreciation of employees for their commendable efforts, teamwork and professionalism. For and on behalf of the Board of Directors Mumbai, 15 th June K.M. GHERDA Chairman

34 25 Kotak Mahindra Bank Limited MANAGEMENT DISCUSSION AND ANALYSIS MACRO-ECONOMIC AND INDUSTRY DEVELOPMENTS The GDP growth for has been estimated by Central Statistical Organisation at 8.1% as compared to the growth rate of 4.0% in the previous year. This makes India one of the fastest growing economies in the world. There has been all around growth in all the sectors including agriculture, forestry and fishing, manufacturing, trade, hotels, transport and communication, financing and insurance. Many new sectors have started showing a promise of becoming the shining stars of India's industrial growth. Some of these include steel, pharmaceuticals, automobiles and auto components, value added back office work such as industrial design etc. India today is also a global outsourcing hub for major international producers, such as the automobile manufacturers. The IT sector has for some time now made its presence felt in the international markets. With expected future reductions in the import duties, the competitive edge for the Indian manufacturing sector is only expected to rise. Various developments over the past couple of years have also turned out to be positive for the average Indian consumer. The last few years have seen a sharp price compression in various consumer goods and services on account of an enhanced competitive environment consequent to trade liberalisation measures. Simultaneously, the interest rate environment has also softened significantly over the last couple of years, leading to a boost in retail lending and a concomitant increase in demand for residential and commercial real estate. This development has also provided for a growth opportunity to various other production sectors such as cement and steel. Going forward, with its large population of over a billion, Indian manufacturers will continue to rely heavily on the domestic consumers for its growth. Prices of consumer goods are expected to remain soft and a very sharp turn in interest rates is not likely in the very near future. This is expected to boost domestic consumption. The external sector s strength improved sharply in Despite a rise in the trade deficit, current account surplus continued with a sharp increase in the inbound remittances from the non-resident Indians. Notable strength was also seen in the capital flows, principally led by Foreign Institutional Investors' (FII) participation in the Indian equity markets. Overall, this led to an increase of around US$ 34.9 bn in the forex reserves in , reaching an all time high of US$ bn by end-march In , this significant rise in forex reserves allowed a smooth redemption of around US$ 5.5 billion of Resurgent India Bonds (RIB) and prepayments of certain high-cost foreign currency loans of the Government of India (amounting to US$ 3.7 billion). The sharp increase in the foreign currency inflows and the weak US$ against major international currencies pressured the Indian Rupee to appreciate against the US$. However, the exchange rate movements were orderly as RBI intervened in the foreign exchange market to suck out the additional supply of dollars. In , Indian Rupee appreciated by nearly 9.5% against the US$, but depreciated by 3.1% against the Euro, 5.9% against the Pound and 4.4% against the Yen. The intervention of RBI in the foreign exchange market, on the other hand, implied infusion of rupee liquidity in the system. Along with a soft interest rate stance of the Reserve Bank of India (that also translated into a REPO rate reduction on 23 rd August 2003 by 0.5% to 4.5%), the secondary market yields on the government securities witnessed a drop. For example, the yield on the 10-year benchmark paper declined by 106 bps in The future therefore holds great promises for India, though critical matters, such as fiscal deficit still need to be addressed. A research paper from Goldman Sachs ( Dreaming with BRICs ) indicated that Brazil, Russia, India and China (B-R-I-C) will be the global economic powerhouses of the first half of the 21 st century and, most importantly, India comes out to be the one nation with the most rapid growth potential. Consensus estimates are towards a 6.7%-7.0% growth in , which is quite significant. Effectively, the branding of a modern India has started taking shape. The benefits of globalization are already having its positive effects with a larger proportion of population being more focused on what they aspire, do and consume. Though much of the growth opportunities for India will continue to be based on business models that leverage India's cost and language advantages, the positives will be bolstered by a proper legal framework and a democratic government. In this sense, the change in government is unlikely to have any significant long-lasting adverse impact on the financial markets as there is a general realisation that the process of economic reforms is irreversible. (Source of figures: CSO, RBI, CRISIL & ADB) VISION Our Vision Statement highlights the 4 main themes of our ethos: (1) A Global Indian personality (2) Unique employer creating a professional entrepreneur (3) Building trust (4) Value and not size alone as focus. The Global Indian financial services brand: Our customers will enjoy the benefits of dealing with a global Indian brand that best understands their needs and delivers customized pragmatic solutions across multiple platforms. We will be a world class Indian financial services group. Our technology and best practices will be benchmarked along international lines while our understanding of customers will be uniquely Indian. We will be more than a repository of our customers' savings. We, the group, will be a single window to every financial service in a customer's universe. The most preferred employer in financial services: A culture of empowerment and a spirit of enterprise attracts bright minds with an entrepreneurial streak to join us and stay with us. Working with a home grown professionally managed company, which has partnerships with international leaders, gives our people a perspective that is universal as well as unique.

35 26 Kotak Mahindra Bank Limited The most trusted financial services company: We will create an ethos of trust across all our constituents. Adhering to high standards of compliance and corporate governance will be an integral part of building trust. Value Creation: Value creation rather than size alone will be our business driver. CONSOLIDATED FINANCIAL PERFORMANCE The consolidated financial performance of the Bank along with the subsidiaries for the year ended March 31, 2004 is set out below. Rs. crore Growth % Total Income 1, % Profit before tax % Profit after tax and minority interest % Net Worth (Rs. crore) 1, , Earnings per share (diluted) (Rs.) Book value per share (Rs.) The consolidated total income crossed Rs. 1,000 crore during the year. The proportion of fee-based income (including life insurance premium) to total income was up to 36% in as compared to 24% in The consolidated profit before tax in was Rs. 331 crore (Rs. 142 crore in ). The Bank is in the processes of building the retail liabilities & branch banking and life insurance businesses. The operating profit [before absorbing bank related expenses (Rs. 21 crore in ), loss in retail liabilities & branch banking (Rs. 42 crore in ) and loss in life insurance (Rs. 42 crore in and Rs. 49 crore in )] was Rs. 422 crore in as compared to Rs. 205 crore in For , profit after tax (after minority interest) was up 138% to Rs. 174 crore. Consolidated earnings per share was Rs. 29 and book value per share was Rs Consolidated advances were up 53% from Rs. 3,034 crore in to Rs. 4,651 crore in Consolidated net NPAs were 0.14% of net advances. KEY BUSINESSES: FINANCIAL AND OPERATING PERFORMANCE The Bank along with its subsidiaries, offers varied financial solutions to its customers. The key business segments are commercial banking, investment banking, stockbroking, car finance, mutual fund and life insurance. Kotak Mahindra Bank (Commercial Banking) Kotak Mahindra Bank completed its first full year of operation as a commercial bank. The Bank is a central platform for customer relationships across the group. The Bank has four primary business segments i.e. retail lending, retail liabilities & branch banking, corporate banking (including small and medium enterprises SME) and treasury.

36 27 Kotak Mahindra Bank Limited Rs. crore Segment Revenues Growth % Retail lending 1, , % Corporate banking % Retail liabilities & branch banking 8.08 Treasury 1,28.77 Corporate centre % Inter-segment revenue (71.37) Total Revenues 3, , % Segment Results Growth % Retail lending % Corporate banking % Retail liabilities & branch banking (41.92) Treasury Corporate centre % Un-allocable Expenditure (2.09) Profit before tax 1, % Profit after tax % The capital adequacy of the Bank as on March 31, 2004 was 15.25% (previous year 25.97%). Rs. crore Advances March 31 March 31 Growth (%) Commercial Vehicles 1, % Personal Loans % Home Loans 85.5 Corporate Banking % Others (19%) Total Advances 2, , % As on March 31, 2004, the net NPAs of the Bank were at 0.17% of net advances (previous year 0.11%). Rs. crore Retail Lending The Bank has a long-standing presence in commercial vehicles loans, personal loans and asset reconstruction. During the year, the Bank rolled out several products including home finance, dealer finance, agri-finance and Saral (lending to sub-prime customers). The Bank has a widespread geographical distribution network to distribute its asset finance products. Consolidated Net Profit Consolidated Earnings per Share

37 28 Kotak Mahindra Bank Limited Commercial vehicles advances (including construction equipment loans) recorded a growth of 74% and crossed Rs. 1,200 crore. Personal loans grew at 63% to over Rs. 300 crore. The Bank made significant progress in the area of asset reconstruction and initiated several interesting transactions, including taking calculated proprietary positions on some non-performing loans of other institutions. The Bank plans to continue to grow its retail lending operations and consolidate its market position. The focus would be on value creation rather than size alone. Retail Liabilities & Branch Banking The Bank now operates from 17 full-fledged branches across 9 cities. The Bank issues a Global ATM cum Debit Card free to all its customers. The Bank customers have access to around 1,300 shared ATMs across the country, free of cost. Additionally, the bank offers all basic hygiene banking services such as Net Banking, Phone Banking, Home Banking and Depository services to its customers.the Bank has put in place a very powerful platform for managing customer relationships, which is expected to progressively drive synergies across the group. The retail liabilities strategy is largely based on the wealth management platform with the key proposition being investment advice. The mix of channels to reach customers has been selected keeping in mind the Bank's target customer segments. The Bank focuses on the mass affluent segment providing them superior convenience on transaction banking and personalised wealth advisory services. As on March 31, 2004, the Bank had total deposits of Rs. 4,459 crore and borrowings of Rs. 512 crore. Total deposits comprised of Rs. 2,607 crore of demand deposits (including around Rs. 2,450 crore on account of monies received as collection banker to public issues), Rs. 42 crore of savings deposits and Rs. 1,810 crore of term deposits. The Bank had around 15,000 retail current and savings accounts. The Bank continues to build-out and invest in expanding its retail branch banking network and plans to have a total of around 40 full-fledged branches by March Corporate Banking Corporate Banking offers corporate and institutional customers a complete range of client-centric banking solutions and services. These include working capital, trade services, transaction banking, money market and foreign exchange services. The Bank s strategy is to offer comprehensive financial solutions to corporate customers to meet their varied financial needs. In an environment, which was conducive for growth, but fiercely competitive, the Bank leveraged its strong domain expertise and relationships across the group to offer corporate and institutional clients personalised and high quality service. The Bank focused on providing investment products to customers and established its presence as a provider of value added services in the area of third party product distribution. Small and Medium Enterprises (SME) During the country witnessed an economic up-trend, pick-up in manufacturing activity across various sectors and tighter manufacturing operations resulting in burgeoning demand for term capital and supply-chain financing solutions. The demand for financing solutions was particularly high from the SME segment. The Bank was able to tap this opportunity by adding new customers, providing existing customers the entire range of banking products and services as well as entering into tie-ups with large corporates to provide financial solutions to their respective supply chains. Consolidated Assets (Advances + Investments) Consolidated Book Value per Share

38 29 Kotak Mahindra Bank Limited Treasury Treasury played an important role in the smooth transition of the institution from a NBFC to a Commercial Bank particularly in the area of liquidity management. After the conversion, the sources of liabilities that were available to the institution underwent a complete change in view of the regulatory requirements for banks. As a NBFC, the institution was raising resources through debentures, consortium funding from banks, commercial paper and foreign currency loans. After conversion, the Bank had to raise resources through deposits (both demand and term deposits), certificates of deposit, foreign exchange liabilities and other money market placements. This switchover happened swiftly and smoothly. Statutory Reserves Management was the other area of focus for treasury. The stipulated levels of statutory reserves (CRR and SLR) were built and maintained throughout the year. The proprietary desk of the Bank's treasury manages fixed income trading, foreign exchange trading and derivatives trading. The year saw significant softening of interest rates on account of the monetary policy stance of the Reserve Bank of India and surfeit of liquidity in the system. During the year the RBI s REPOS rate was reduced from 5% to 4.5% p.a., the bank rate was reduced from 6.25% to 6.0% p.a. and CRR was reduced by 25 basis points from 4.75% to 4.50% p.a. The yield on ten-year benchmark government security fell by 106 basis points (from 6.21% to 5.15%). Derivatives market saw growing volumes and a spurt in number of players. While the trading desks were capturing the profit making opportunities in various markets, the Bank consciously put in place a team to augment client-flows into treasury. Towards this end the debt origination desk was strengthened and a separate team for derivative and forex sales was put in place. The Bank expects higher stability in treasury income on account of increased client flows. The required infrastructure for this is already in place. The area of derivatives will be of primary focus in the coming year as there is growing demand from clients for structured products. Kotak Mahindra Capital Company (Investment Banking and Primary Dealer) Kotak Mahindra Capital Company (KMCC) is a joint venture with Goldman Sachs with 75% holding by Kotak Mahindra Bank. KMCC's business consists of two main parts - (a) Franchise business (fee based) and (b) Principal business (fund based). KMCC is a full service Investment Bank and an approved Primary Dealer (PD). Both businesses recorded substantial growth in revenues largely due to buoyant equity markets, steady interest rates with a softer bias and ample liquidity. Segment Income Growth % Investment Banking % Trading and Principal Investments % Add: Unallocated income Total 1, % Segment results Growth % Investment Banking % Trading and Principal Investments % Less: Unallocated expenses (net) Profit before tax % Profit after tax % Rs. crore Consolidated Net Worth (after minority interest)

39 30 Kotak Mahindra Bank Limited The year under review witnessed a vibrant primary market with 35 (previous year 14) public issues of which 6 (previous year 8) were issues of debt instruments with 29 (previous year 6) being equity share issues. Activity in the Mergers & Acquisitions and the Fixed Income product areas has continued the steady growth of the previous year. KMCC was ranked No. 1 in the league tables for book runners/lead managers in public equity offerings during KMCC lead managed 12 of the 29 equity public issues during the year involving a total of Rs. 15,034 crore, out of the total of Rs. 17,759 crore (Source: Prime Database). The issues included large equity offerings such as Maruti Udyog Limited, Patni Computers Limited, ONGC, Dredging Corporation, IBP and IPCL. KMCC dominated virtually every aspect of the Indian equities business over the past 12 months. Financeasia has named the Maruti Udyog IPO as the best Mid-Cap equity deal of the year. The Maruti IPO was also the IFR India equity deal of the year. Asiamoney gave the Best Domestic Equity House in India award to Kotak Investment Banking. Euromoney named Kotak Investment Banking as the Best Equity House in India and Financeasia named Kotak Investment Banking as the Best Investment Bank in India. Due to ample liquidity in the markets, which helped maintain interest rates at a stable level with a softer bias, the PD business netted a 35% higher net income as compared to the previous year. The PD business also clocked higher Turnover at Rs. 53,801 crore as compared to Rs. 34,450 crore during the previous year. During the year the Company maintained its CRISIL rating at P1+ indicating highest safety in terms of timely payment of interest and principal. Kotak Securities (Stockbroking) Kotak Securities (KS), India's largest stockbroking company, is a joint venture with Goldman Sachs with 75% holding by Kotak Mahindra Bank. The year was a buoyant year for Indian capital markets. The BSE Sensex moved up 86% from 3,080 levels to 5,740 adding Rs. 6,11,463 crore to gross market capitalization. The average daily volumes in the market grew from 23.4 crore shares in to 43.7 crore shares in The market volumes in the derivative segment also increased substantially with FIIs playing a larger role. KS further consolidated its position in the broking industry in The profits after tax grew 251% to Rs crore. The growth was achieved by focused approach to client segments to deliver value based services. Rs. crore Growth % Revenues % Profit before tax % Profit after tax % In the retail segment, KS has a network of over 275 offices (own and franchised) across 110 cities and towns. It has over 50,000 secondary market customers.ks plans to expand its franchisee network and also develop a customer service desk and a product desk team for dissemination of daily market information. The institutional equities division has made significant progress during the year. The division added new lines of business in the field of derivatives as well as extended segment focus to hedge funds. During the year the customer base grew strongly and the institutional research coverage in stocks grew from 63 to 74 with additional coverage focus on power and mid-cap pharmaceuticals. Strategic initiatives helped Kotak Institutional Equities to record a sharp increase in volumes and higher revenues and profits than in the previous financial year. It is set for growth in market share based on a stronger platform for derivatives as well as extended distribution platform in equities. Assets under management in Portfolio Management Services grew around 4 times from Rs. 270 crore as on March 31, 2003 to around Rs. 1,100 crore as on March 31, KS was the No. 1 primary distributor (Prime Database: Apr to Feb 2004). The company's performance in retail reach improved significantly, ranking number 1 in almost all issues for mobilisation of applications. Kotak Mahindra Primus (Car Finance) Kotak Mahindra Primus (KMP) is a joint venture with Ford Credit International with 60% holding by Kotak Mahindra Bank. KMP is in the business of financing non- Ford cars. During , KMP maintained its strong presence in the car finance industry. The car market in India saw a substantial growth of 26% in after a relatively flat growth period. Growth in the car market has been largely on account of launch of new and improved models, stable automotive prices and lower interest rates.

40 31 Kotak Mahindra Bank Limited Growth % Total Income % Profit before royalty and tax % Profit before tax % Profit after tax % In a competitive environment, KMP increased its disbursements by 27% to Rs. 1,515 crore in KMP maintained its profit margins by focusing on measured market share gain and control over cost and delinquency. During , net advances crossed Rs. 2,200 crore and the customer base crossed the 1,00,000 mark. Kotak Mahindra Asset Management Company Kotak Mahindra Trustee Company (Mutual Fund) Kotak Mahindra Asset Management Company (KMAMC) and Kotak Mahindra Trustee Company (KMTC) are wholly owned subsidiaries of Kotak Mahindra Bank. KMAMC is the asset manager of Kotak Mahindra Mutual Fund (KMMF) and KMTC is the trustee company. The year witnessed an equity boom led by strong operating performance from Indian companies. Investor confidence in Indian equities soared; reflected in record FII inflows and a buoyant primary equity market. This also led to intense competition in the mutual fund industry with more and more funds offering an array of schemes to investors. During the year, KMMF launched seven new schemes including the hugely successful Kotak Global India Fund, which garnered Rs. 360 crore in its IPO. The Assets under Management (AUM) grew by 77% to Rs. 5,290 crore as on March 31, 2004 from Rs. 2,987 crore as on March 31, The equity component of the AUM doubled to constitute 10% of the corpus as on March 31, KMMF witnessed a substantial growth in its investor base, up from 1.16 lakh investors in 2003 to 1.60 lakh investors in Rs. crore KMAMC Growth % Total Income % Profit before tax % Profit after tax % KMTC Growth % Total Income % Profit before tax % Profit after tax % KMAMC was adjudged The Best Wealth Creator (Debt) for 2003 in the Outlook Money Awards. Kotak Mahindra Bond Unit Scheme' 99 ('Kotak Bond') Wholesale Plan won the CNBC India Mutual Fund of the Year Award 2004 (Best performing Open-Ended Debt/Income Fund award in the 3 year category) for the third time in a row. Kotak Bond Wholesale Plan was also ranked the Best Performing Open-Ended Income Fund in the CRISIL Best Fund Award Rs. crore Rs. crore AUM Composition

41 32 Kotak Mahindra Bank Limited OM Kotak Mahindra Life Insurance Company (Life Insurance) OM Kotak Mahindra Life Insurance Company (OMKM) is a joint venture with Old Mutual plc where Kotak Mahindra Bank holds 74% stake. During , the Indian life insurance market grew at an estimated 52% (1 st year premiums). Within the overall market, the private sector demonstrated a growth rate in 1 st year premium of 146%. OMKM s 1 st year premium grew by 254%. The rapid growth in the life insurance market underscores its latent state, which is promising to shed its infancy very fast. With a robust GDP growth rate and the general surge seen in the service sector, the economy offers bright prospects for life insurance business in India. The year has been a good year for OMKM with total premium income growing by 274% to over Rs.150 crore. OMKM wrote over 51,000 policies in as compared to around 33,000 policies in As on March 31, 2004, OMKM had over 75,000 policies on books. Rs. crore Growth % Premium income % Loss (49.12) (42.33) 16% OMKM consolidated its position in by widening its geographical presence and increasing the range of its products offered in the market. The company established 11 branches in and currently operates from 41 branches in 30 Indian cities. Products were successfully distributed through banks, alternate channels and the customary life advisors. With the building blocks in place, the company believes it will be in a position to rapidly grow its business and increase its market share in the next few years. International Subsidiaries KMCC has overseas subsidiaries with offices in Mauritius, London, Dubai and New York. These companies are mainly engaged in investment advisory and management of funds, broker/broker-dealer activities and investments in securities. Kotak Mahindra (UK) Limited is a SEBI registered Foreign Institutional Investor (FII). The year saw high levels of interest from investors around the world for investing into India. The subsidiary in Mauritius advised/managed a corpus of around US$ 78 mn as on March 31, 2004 for investments in securities in India and in ADR/GDRs. In the current financial year, the UK subsidiary acted as Joint Global Co-ordinator and Joint Book runner to execute a FCCB transaction of US$ 100 million. This marks the first time that an Indian investment banking group acted as Joint Global Co-ordinator and Joint Book runner and distributed an equity/equity linked offering which is listed on an exchange outside India. TECHNOLOGY The Bank has put in place state of the art technology to service a wide range of banking products. In line with this, the bank has opted for a centralized corebanking platform based on technology provided by i-flex. The Bank offers a wide suite of modern banking products including anywhere banking, net banking, Global ATM cum Debit card, toll free call center services and a full fledged depository supporting both NSDL and CDSL. The Bank has centralized a large part of its back office operations, both on the retail side and the corporate side. RISK MANAGEMENT A full-fledged independent risk management department is functional in the Bank to identify, assess, manage and mitigate the various risks encompassed by the Bank. The risk management framework for the Bank has been developed and the primary goal of the department is to have effective risk management at all business, operational and control levels. The risk department has been entrusted with the task of developing appropriate risk measurement methods for optimum capital allocation. Sophisticated application software are being implemented/developed to measure the four principle risks faced by the Bank, namely market, credit, liquidity and operational risk. Appropriate limit structure for respective business units has been implemented. The dedicated internal audit and compliance department ensures that adequate processes, systems, internal controls are implemented and transactions are executed in accordance with the policies, procedures and delegated authority. SAFE HARBOUR This document contains certain forward-looking statements based on current expectations of the Bank/Group Management. Actual results may vary significantly from the forward-looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India and outside India, volatility in interest rates, new regulations and Government policies that may impact the various businesses as well as its ability to implement the strategy. The Bank does not undertake to update these statements.

42 33 Kotak Mahindra Bank Limited REPORT ON CORPORATE GOVERNANCE Kotak Mahindra Bank Limited ( the Bank ) is committed to its vision statement of upholding its global Indian financial services brand, creating an ethos of trust across all constituents, developing a culture of empowerment and a spirit of enterprise within the Bank, thereby becoming the most preferred employer in the financial services sector. Adhering to high standards of compliance and corporate governance forms an integral part of building trust. The Bank s Corporate Governance is based on the following principles: Appropriate composition, size of the Board and commitment to adequately discharge its responsibilities and duties Transparency and independence in the functions of the Board Independent verification and assured integrity of financial reporting Adequate risk management and Internal Control Protection of shareholders rights and priority for investor relations Timely and accurate disclosure on all matters concerning operations and performance of the Bank The Bank has certain defined policy framework for ethical business conduct by its employees. Among others, the following policies have been adopted by the Board: Corporate Policy Manual on Ethical Conduct, Avoidance of Conflict of Interest Insider Trading Code The Bank has adopted a Whistle Blower Policy to enable its employees to raise concerns internally. The same is consistent with the Bank s commitment to maintain and provide to its employees, highest standards of transparency, probity and accountability. BOARD OF DIRECTORS Composition, Meeting and Attendance The composition of the Board of Directors of the Bank is governed by the Banking Regulation Act, 1949 and Clause 49 of the Listing Agreement. The Board of Directors, comprising a combination of executive and non-executive Directors, presently consists of ten members, of whom seven are non-executive Directors. The Board mix provides a combination of professionalism, knowledge and experience required in the banking industry. The responsibilities of the Board inter alia include formulation of policies, taking new initiatives, performance review, monitoring of plans, pursuing of policies and procedures. A brief description of the Directors, along with the companies in which they hold directorship and the membership of the committees of the Board are furnished hereunder : Mr. K. M. GHERDA, Non-Executive Chairman Mr. K. M. Gherda, B.Com., A.C.A., F.C.A. (England & Wales), F.C.S., aged 75 years, is the Non-Executive Chairman of the Bank and has over 45 years of financial and management experience with foreign and Indian companies, whereof 27 years have been with the Tata Electric companies from which he retired as the Vice-Chairman and Managing Director. He was on the Local Advisory Board of the Bank of Nova Scotia in India and later, its Chairman. He has a long association with the Bank and has been on its board as an independent director from He is also the Chairman of the Audit Committee of the Bank. He is the past President of the Bombay Management Association and the past Regional Director for India of the Institute of Internal Auditors, Florida. He is on the Board of the following companies: Aerospace Systems Private Limited Pallonji Leasing Private Limited Bradma of India Limited Sanchez Capital Services Private Limited Deutsche Asset Management (India) Private Limited Tata Ceramics Limited Emerson Network Power India Private Limited Universal Ferro & Allied Chemicals Limited K. M. Dastur Reinsurance Brokers Private Limited WTI Advanced Technology Limited Nelito Systems Limited Zenta India Private Limited Mr. K. M. Gherda is also a member of the Audit Committee of Deutsche Asset Management (India) Private Limited, Bradma of India Limited, Tata Ceramics Limited and the Remuneration Committee of Deutsche Asset Management (India) Private Limited. Mr. UDAY KOTAK, Executive Vice-Chairman and Managing Director Mr. Uday Kotak, B.Com., MMS, aged 45 years, is the Executive Vice-Chairman and Managing Director of the Bank and is its principal founder and promoter. Over the past 17 years, he has successfully built a well-knit team of high quality professionals who have been given independent charge of various businesses in Kotak Mahindra group. He was responsible for starting the business as a start-up venture in a limited range of activities and then building it up into a full financial services group, many of the constituents of which are among the leading players in their respective fields. He is on the Board of the Indian Council for Research on International Economic Relations (ICRIER) and is also on the Board of the following companies: Kotak Forex Brokerage Limited Kotak Mahindra Primus Limited Kotak Mahindra Asset Management Company Limited Kotak Securities Limited Kotak Mahindra Capital Company Limited OM Kotak Mahindra Life Insurance Company Limited

43 34 Kotak Mahindra Bank Limited Mr. Uday Kotak is also the Chairman of the Audit Committee of Kotak Mahindra Capital Company Limited, Kotak Securities Limited and a member of the Audit Committee of Kotak Mahindra Asset Management Company Limited. He is also the Chairman of the Remuneration Committee of OM Kotak Mahindra Life Insurance Company Limited. Mr. ANAND MAHINDRA Mr. Anand Mahindra, an Honours Graduate from Harvard College, USA and an MBA from the Harvard Business School, aged 49 years, is the co-promoter of the Bank. He is the Vice-Chairman and Managing Director of Mahindra & Mahindra Limited. Currently, he is the President of the Confederation of Indian Industry (CII). He was the Vice-President of CII for and was the Chairman of CII Agriculture Committee and CII Agro Tech He has keen interest in agriculture and the rural economy and related matters. He is the key promoter of IFIA, the Indian Farmers and Industry Alliance, which has been established with a view to promote farmers interests and also bring about more effective management of the agricultural sector. He is keenly interested in education and professional management in India and is a member of several prestigious organizations in India and abroad. He is on the Board of the following companies: Angular Constructions Private Limited Mahindra Intertrade Limited Automart India Limited Mahindra Sona Limited Avion Aerosols Private Limited Mahindra Consulting Limited Ford India Limited Mahindra Ugine Steel Co. Limited M. A. R. K. Hotels Private Limited Mahindra-British Telecom Limited Mahindra & Mahindra Financial Services Limited MBT International Inc. Mahindra & Mahindra Limited MW.Com India Private Limited Mahindra Consulting Inc. Mahindra Gesco Developers Limited Mahindra Holdings & Finance Limited National Stock Exchange of India Limited Mr. Anand Mahindra is also a member of the Investor Grievance Committee of Mahindra & Mahindra Limited and the Remuneration Committee of Mahindra Ugine Steel Company Limited. Mr. CYRIL SHROFF Mr. Cyril Shroff, B.Com., LL.B., aged 44 years, is a Solicitor, High Court, Mumbai and Advocate on record, Supreme Court of India. He is the managing partner in the law firm M/s. Amarchand & Mangaldas & Suresh A. Shroff & Co. and practices in the area of Corporate Laws and Project Finance. He has been a member of numerous committees including the legal Sub-Committee of the Expert Group on Commercialisation of Infrastructure (Rakesh Mohan Committee), the Dhanuka Committee constituted by SEBI and a committee established by the Ministry of Finance, Central Board for Corporate Restructuring. He is on the Board of the following companies: Associated Cement Company Limited IDBI Capital Markets Limited Grasim Industries Limited Reliance Energy Limited HCL Technologies Limited Thirumalai Chemicals Limited Mr. Cyril Shroff is also a member of the Compensation Committee of Reliance Energy Limited and the Audit Committee of HCL Technologies Limited. Mr. PRADEEP N. KOTAK Mr. Pradeep N. Kotak, B.Com., aged 50 years, is the Chairman and Managing Director of Kotak Agri International Private Limited and has vast experience in agriculture and has been in the commodities market, both local as well as international, for more than 25 years. Prior to this, he was at the helm of affairs of the Agri division of Kotak & Company Limited. He was Chairman of the Indian Oilseeds and Producers Exporters Association (IOPEA), Mumbai, where he had led many delegations to foreign countries viz., USA, Far East and Middle East and also represented India at many international conferences. He was the Vice-President of The Federation of Oilseeds and Foods Association (FOFSA), International Consultative Group, London, where he used to be consulted by the U.K. Agricultural Ministry as well as other World bodies. He was also Vice-President of The Central Organisation for Oil Industry and Trade, New Delhi. He is on the Board of the following companies: Asian Machinery & Equipment Private Limited Kotak Agri International Private Limited Kotak Thaker Farm Private Limited Dr. SHANKAR ACHARYA Dr. Shankar Acharya, B.A. (Hons.) from Oxford University and Ph.D. (Economics) from Harvard University, aged 58 years, comes with decades of experience in various fields of economics and finance. He is the Reserve Bank s professor at the Indian Council for Research on International Economic Relations (ICRIER). He is also a member of the Prime Minister s Economic Advisory Council, Board Member of ICRIER and National Council of Applied & Economic Research. He served as the Chief Economic Adviser in the Ministry of Finance and was with the World Bank and has held several senior positions including Director of World Development Report and Research Adviser to the World Bank. Mr. SHIVAJI DAM Mr. Shivaji Dam, B.Com., A.I.C.W.A., A.C.A., A.C.S., aged 47 years, has a strong accounting and cost accounting background and has over 21 years experience, of which 16 years have been with the Kotak Mahindra Group. He has successfully handled various assignments such as corporate finance, proprietary investments, investment banking and operating management in the Group. He is presently the Managing Director of OM Kotak Mahindra Life Insurance Company Limited (OMKM), a subsidiary company, in the business of life-insurance. He is also a member of the Remuneration Committee of OMKM.

44 35 Kotak Mahindra Bank Limited MR. AJAY SONDHI Mr. Ajay Sondhi, B.A. (Hons.), Economics, M.M.S., aged 43 years, is the Vice-Chairman and Managing Director of Kotak Mahindra Capital Company Limited. He is responsible for the investment banking and institutional broking activities of the Group. He has over 20 years experience in the banking industry, having worked with Citibank in Mumbai, Salomon Brothers in Hongkong, as the Group CEO in India for Barclays Bank/BZW and as the Managing Director and India Head of UBS Warburg. He is on the Board of the following companies: Business Standard Limited Kotak Securities Limited Kotak Mahindra Capital Company Limited Mahanagar Gas Limited Mr. Ajay Sondhi is also a member of the Audit Committee of Business Standard Limited, Kotak Mahindra Capital Company Limited, Kotak Securities Limited and the Chairman of the Audit Committee of Mahanagar Gas Limited. Mr. C. JAYARAM, Executive Director Mr. C. Jayaram, B. A. (Economics), PGDM-IIM, Kolkata, aged 48 years, is the Executive Director of the Bank and is currently in charge of the Wealth Management Business of the Group. He has a varied and successful work background in all areas of finance and business administration with over 24 years of experience. He has extensive managerial experience and team building skills in not only successfully setting up new businesses in the financial services sector, but also in scaling up their operations to being significant players in their respective domains. He is on the Board of the following companies: Kotak Mahindra Asset Management Company Limited Kotak Mahindra Primus Limited Kotak Securities Limited Mr. C. Jayaram is also a member of the Audit Committee of Kotak Mahindra Asset Management Company Limited. Mr. DIPAK GUPTA, Executive Director Mr. Dipak Gupta, B.E. (Electronics), PGDM IIM, Ahmedabad, aged 43 years, is the Executive Director of the Bank and has over 17 years experience in the financial services sector. He is in charge of the retail business and banking operations and was responsible for leading the Group s initiatives into the banking arena. Prior to this, he was the CEO of Kotak Mahindra Primus Limited, a subsidiary company, in the business of car financing. He is on the Board of the following companies: Kotak Forex Brokerage Limited Kotak Mahindra Primus Limited Kotak Mahindra Capital Company Limited OM Kotak Mahindra Life Insurance Company Limited Kotak Mahindra Investments Limited Mr. Dipak Gupta is also a member of the Audit Committee of Kotak Mahindra Primus Limited, Kotak Mahindra Capital Company Limited, OM Kotak Mahindra Life Insurance Company Limited, Kotak Mahindra Investments Limited and the Remuneration Committee of Kotak Mahindra Primus Limited. Note: The Committee Memberships mentioned above are of the Audit Committee, Shareholders /Investors Grievance Committee and ESOP/Compensation Committee, as required under Clause 49 of the Listing Agreement. The following table gives the composition of the Bank s Board and the number of outside directorships held by each of the Directors: As on date Name of Directors Position No. of Directorships in No. of Committee other Companies Positions held in other Companies Public Others Chairman Member Mr. K.M. Gherda Non-Executive Chairman Independent Director Mr. Uday Kotak Executive Vice-Chairman & Managing Director, Promoter Mr. Anand Mahindra Non-Executive Director, Promoter Mr. Cyril Shroff Independent Non-Executive Director Mr. Pradeep N. Kotak Independent Non-Executive Director Dr. Shankar Acharya Independent Non-Executive Director Mr. Shivaji Dam Non-Executive Director Mr. Ajay Sondhi Non-Executive Director Mr. C. Jayaram Executive Director Mr. Dipak Gupta Executive Director Mr. S. A. A. Pinto (See Note 3 below) Non-Executive Director, Promoter Mr. M. R. Punja (See Note 3 below) Independent Non-Executive Director Notes: 1. The Committee Memberships mentioned above are of only Statutory Committees as per Clause 49 of the Listing Agreement with Stock Exchanges, namely Audit Committee, Shareholders /Investors Grievance Committee and ESOP/Compensation Committee.

45 36 Kotak Mahindra Bank Limited 2. None of the Directors on the Board is a member of more than ten committees and Chairman of more than five committees in all the companies in which he is a Director. All the Directors have made disclosures regarding their membership on various committees in other companies. 3. Mr. S. A. A. Pinto and Mr. M. R. Punja resigned w.e.f. 24 th June As per Clause 49 of the Listing Agreement, Independent Directors means directors who apart from receiving director s remuneration, do not have any other material pecuniary relationship or transactions with the Company, its promoters, its management or its subsidiaries, which, in the judgement of the board may affect the independence of judgement of the director. Except in the case of government companies, institutional directors on the board of companies should be considered as independent directors whether the institution is an investing institution or a lending institution. Board Meetings Scheduling and selection of agenda items for Board Meetings: Dates of the Board Meetings are decided in advance. The Board meets at least once a quarter to review the results and other items on the agenda and also on the occasion of the annual shareholders meeting. When necessary, additional meetings are held. The agenda of the board meetings is drafted by the Company Secretary along with the explanatory notes and these are distributed in advance to the Directors. Every Board member is free to suggest the inclusion of items on the agenda. All divisions/departments in the Bank are encouraged to plan their functions well in advance, particularly with regard to matters requiring discussion/approval/decision in the Board/Committee Meetings. All such matters are communicated to the Company Secretary in advance so that the same could be included in the Agenda for the Board Meetings. During the year under review, five meetings of the Board of Directors were held on 20 th May 2003, 23 rd June 2003, 31 st July 2003, 22 nd October 2003 and 27 th January Subsequently, two meetings of the Board of Directors were held on 24 th April 2004 and 25 th May The maximum time gap between any two meetings was not more than three calendar months. The average duration of the Board Meetings held is approximately three hours. The details of Directors attendance at Board Meetings held during the year commencing 1 st April 2003 and ending 31 st March 2004 and at the last AGM are as under: S. No. Directors Board Meetings attended during Whether attended last the year, out of the total AGM held on 5 meetings held 31 st July Mr. K.M. Gherda 5 Yes 2. Mr. Uday Kotak 5 Yes 3. Mr. Anand Mahindra 2 Yes 4. Mr. Cyril Shroff 3 Yes 5. Mr. Pradeep N. Kotak 5 Yes 6. Dr. Shankar Acharya (See Note 1 below) 3 No 7. Mr. Shivaji Dam 4 Yes 8. Mr. Ajay Sondhi 4 Yes 9. Mr. C. Jayaram 4 Yes 10. Mr. Dipak Gupta 5 Yes 11. Mr. S.A.A. Pinto (See Note 2 below) 2 NA 12. Mr. M.R. Punja (See Note 2 below) 1 NA Notes: 1. Dr. Shankar Acharya was appointed as an Additional Director of the Bank with effect from 20 th May 2003 and appointed by the shareholders at the last Annual General Meeting held on 31 st July Mr. S.A.A. Pinto and Mr. M.R. Punja resigned with effect from 24 th June Information supplied to the Board is as under: The Directors are presented with important information on operations of the Bank as well as that which requires deliberation at the highest level. Information is provided on various critical items such as annual operating plans and budgets, minutes of meetings of the Audit Committee and other committees of the Board, details of joint ventures or collaboration agreements and non-compliance, if any, with regulatory or statutory guidelines or with the listing requirements, etc. Disclosures of interest are duly received from all Directors and there is no potential conflict of interest in any transaction of the Bank with any Directors.

46 37 Kotak Mahindra Bank Limited Directors Remuneration Remuneration of the Directors for the year ended 31 st March 2004 is as follows: Name of Director Sitting fees Salary & Perquisites Incentives (Rs. 000) (Rs. 000) (Rs. 000) (See Note 4 below) Mr. K.M. Gherda 97.5 Mr. Uday Kotak 5, ,400 (See Note 3 below) Mr. Anand Mahindra 15 Mr. Cyril Shroff 37.5 Mr. Pradeep N. Kotak 105 Dr. Shankar Acharya (See Note 1 below) 25 Mr. Shivaji Dam Mr. Ajay Sondhi Mr. C.Jayaram 4, ,800 (See Note 3 below) Mr. Dipak Gupta 4, ,800 (See Note 3 below) Mr. S.A.A. Pinto (See Note 2 below) 15 Mr. M.R. Punja (See Note 2 below) 5 Notes: 1. Dr. Shankar Acharya was appointed w.e.f 20 th May Mr. S.A.A. Pinto and Mr. M.R. Punja resigned w.e.f 24 th June The amount shown above excludes gratuity payable under the Payment of Gratuity Act, ESOP compensation expenditure, if any, but includes value of car perquisites under the Income Tax Act, An application has been made to RBI for the annual incentives payable to the Executive Vice-Chairman and Managing Director and the Executive Directors. The approval from RBI is awaited. 5. The performance bonus to the Executive Directors is based on the recommendation of the Executive Vice-Chairman and Managing Director of the Bank. The Board of Directors of the Bank decides the performance bonus to be paid to the Executive Vice-Chairman and Managing Director and the Executive Directors on the basis of the performance of the Bank and the fulfilment of responsibilities assigned to them. 6. The information above does not include amounts of Rs.1,14,000 paid to M/s Amarchand & Mangaldas & Suresh A. Shroff & Co., law firm of which Mr. Cyril Shroff, Director of the Bank, is a partner. The firm is consulted by the Bank from time to time and raises bills on the Bank for professional services. 7. Mr. C. Jayaram and Mr. Dipak Gupta, the Executive Directors of the Bank have been re-appointed for a further period up to 31 st December Mr. Uday Kotak s contract as Executive Vice-Chairman and Managing Director is for a period of five years commencing 1 st August The re-appointments and enhanced remuneration payable to Mr. C. Jayaram and Mr. Dipak Gupta were approved at the Extraordinary General Meeting of the members of the Bank held on 30 th December The revision in the remuneration payable to Mr. Uday Kotak was approved at the Extraordinary General Meeting of the members of the Bank held on 30 th December The total remuneration paid to Mr. Uday Kotak, Mr. C. Jayaram and Mr. Dipak Gupta was in accordance with the provisions of Schedule XIII to the Companies Act, 1956 and is also approved by the Reserve Bank of India under the Banking Regulation Act, The Agreements with Mr. Uday Kotak, Mr. C. Jayaram and Mr. Dipak Gupta may be terminated by mutual consent or by giving not less than 3 calendar months notice in writing. In the event of termination of the Agreement, the liability of the Bank shall be limited to providing only the salary and perquisites as prescribed by the Agreement for a period of three months from the date of notice. Employee Stock Options The details of the options granted under the Kotak Mahindra Equity Option Plan , Plan Series /04 to the Directors are as under: Name of the Directors No. of Options granted Exercise Price Exercise Period Options Vested Vesting Date Mr. C. Jayaram 7, th September 2005 to 50% 30 th September 2005 Rs. 10 per share 31 st March 2006 Mr. Dipak Gupta 8, th September 2006 to 50% 30 th September st March 2007 The above stock options have been granted on 13 th May 2004 and are subject to RBI approval.

47 38 Kotak Mahindra Bank Limited COMMITTEES OF THE BOARD OF DIRECTORS The Board has constituted several committees to deal with specific matters and delegated powers for different functional areas. The Audit Committee, Shareholders /Investors Grievance Committee and the ESOP/Compensation Committee have been constituted in accordance with the guidelines issued by the Reserve Bank of India, Securities and Exchange Board of India read with requirements of the Companies Act, Besides the above, the Board has also set up other committees such as Share Transfer and Routine Transaction (START) Committee, Management Committee, Premises Committee, Asset Liability Committee (ALCO), Nominations Committee, Credit Committee, Investment Committee, Risk Management Committee, Information Technology Committee and First Tier Audit Committee. AUDIT COMMITTEE The Audit Committee of the Bank constituted on 18 th November 1997, comprises of four members, with any two forming the quorum. All the members of the Committee are Non-Executive Directors, with the majority being independent. The terms of reference of the Audit Committee of the Bank are as follows: a. Oversight of the Bank s financial reporting process and the disclosure of its financial information. b. Recommending the appointment and removal of external auditors, fixation of audit fee and also approval for payment for any other services. c. Reviewing with management the half yearly and annual financial statements before submission to the board, focusing primarily on: Any changes in accounting policies and practices Major accounting entries based on exercise of judgement by management Qualifications in draft audit report Significant adjustments arising out of audit The going concern assumption Compliance with accounting standards Compliance with stock exchange and legal requirements concerning financial statements Any related party transactions i.e. transactions of the Bank of material nature, with promoters or the management, their subsidiaries or relatives, etc. that may have potential conflict with the interests of Bank at large d. Reviewing with the management, external and internal auditors, the adequacy and compliance of internal control systems. e. Reviewing the adequacy of internal audit function, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit. f. Discussion with internal auditors on any significant findings and follow up there on. g. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the board. h. Discussion with external auditors before the audit commences, regarding the nature and scope of audit as well as have post-audit discussion to ascertain any area of concern. i. Reviewing the Bank s financial and risk management policies. j. To look into the reasons for substantial defaults in the payment to the depositors, debenture-holders, shareholders (in case of non payment of declared dividends) and creditors. Mr. K.M. Gherda is the Chairman and the Company Secretary acts as the Secretary to the Committee. The Chairman of the Committee was present at the last Annual General Meeting to answer the queries of the shareholders. During the year, nine meetings of the committee were held on 23 rd June 2003, 1 st July 2003, 20 th August 2003, 24 th September 2003, 22 nd October 2003, 7 th November 2003, 5 th January 2004, 27 th January 2004 and 19 th February The Committee meets for approximately two hours. The Meetings were attended by the members of the Committee, as detailed below: Name of Members of Audit Committee Meetings Attended Mr. K.M. Gherda (Chairman) 9 Mr. Pradeep N. Kotak 9 Mr. Cyril Shroff 2 Mr. Ajay Sondhi 7 Mr. S.A.A. Pinto (resigned w.e.f. 24 th June 2003) 1 The Bank has constituted a First Tier Audit Committee as per the guidelines issued by the Reserve Bank of India (RBI). The Committee comprises of three members viz., Mr. Dipak Gupta, Executive Director, Mr. Chandrashekar Sathe, Group Head Risk Management and Mr. Jaimin Bhatt, Group Chief Financial Officer. Where the internal audit report pertains to specific businesses, the specific Business Head also attends the meeting. The Committee screens the matters entrusted to the Audit Committee and also the routine matters such as overseeing the programme of inspections and compliance of inspection reports so as not to burden the Audit Committee with matters of detail. During the year, thirteen meetings of the Committee were held. The Committee meets for approximately three hours.

48 39 Kotak Mahindra Bank Limited ESOP/COMPENSATION COMMITTEE The ESOP/Compensation Committee constituted on 26 th February 2003, comprises of three members, with any two forming the quorum. The constitution and composition of the Committee is in accordance with the guidelines issued by the Reserve Bank of India. The ESOP/Compensation Committee has been constituted to recommend/review overall compensation structure and policies, consider grant of stock options to employees, review compensation levels vis-à-vis other banks and industry in general and determine the compensation payable to the Directors including performance/achievement bonus and perquisites. The performance bonus to the Executive Directors is based on the recommendation of the Executive Vice- Chairman and Managing Director of the Bank. The Board of Directors of the Bank decides the performance bonus to be paid to the Executive Vice-Chairman and Managing Director and the Executive Directors on the basis of the performance of the Bank and the fulfilment of responsibilities assigned to them. Non-Executive Directors at present, are not paid commission over and above the sitting fees. The Bank has issued stock options to its employees and the employees of its subsidiaries under the various stock option plans, details of which are provided in the Directors Report. During the year, two meetings of the Committee were held on 25 th April 2003 and 23 rd June The Committee meets for approximately thirty minutes. The Meetings were attended by the members of the Committee, as detailed below: Name of Members of ESOP/Compensation Committee Meetings Attended Mr. Anand Mahindra (Chairman) 1 Mr. K.M. Gherda 2 Mr. Cyril Shroff 2 INVESTOR RELATIONS (SHAREHOLDERS /INVESTORS GRIEVANCE) COMMITTEE The Investor Relations Committee, constituted on 29 th June 2001, consists of four members, with any two forming the quorum. The Investor Relations Committee reviews the complaints received from the shareholders and ensures redressal thereof. The constitution and composition of the Committee is in accordance with the provisions of Clause 49 of the Listing Agreement with the Stock Exchanges and the criteria specified by the Reserve Bank of India. The Company Secretary acts as the Secretary and has been appointed the Compliance Officer of the Committee. During the year, two meetings of the Committee were held on 11 th June 2003 and 19 th February The Committee meets for approximately thirty minutes. The Meetings were attended by the members of the Committee, as detailed below: Name of Members of Investor Relations Committee Meetings Attended Mr. Pradeep N. Kotak (Chairman) 2 Mr. Dipak Gupta 1 Mr. Ajay Sondhi 1 Mr. Uday Kotak 2 On a monthly basis, the members of the Committee are sent investor grievance reports giving brief details of the complaints received by the Bank. During the year under review, 682 investor complaints were received. All of these have been resolved during the year. As at 31 st March 2004, 16 instruments of transfer of shares, comprising 2,450 shares were pending and since then the same have been processed. No penalties or strictures were imposed on the Bank by the Stock Exchanges, SEBI or any other statutory authority on any matter related to capital markets, during the last three years. SHARE TRANSFER AND ROUTINE TRANSACTIONS (START) COMMITTEE The START Committee constituted on 31 st May 1994, consists of four members, with any two forming the quorum. During the year, the powers of the Committee were reviewed in the light of the new business as well as requirements of the Reserve Bank of India. The terms of reference of the START Committee are as follows: (a) To approve transfer, transmission, transposition, name deletion, consolidation and splitting of share and debenture certificates of the Bank. (b) To issue duplicate share/debenture certificates. (c) To apply for registration of the Bank with various authorities of any State or Centre including sales tax authorities, income tax authorities, shops & establishment authorities and to do or perform all matters relating to such matters. (d) To apply, in the name of and for the Bank for telephone, telex, fax and other telecommunication and electrical/electronic connections and to do all matters relating to such applications. (e) To open, operate and close bank accounts of the Bank and change the operating instructions of existing Bank Accounts of the Bank. (f) To authorise persons to sign on behalf of the Bank, Share Certificates, Share Allotment Letters, Deposit Receipts. (g) To authorise persons to represent the Bank at General Meetings of any company or co-operative society of which the Bank is a shareholder/member. (h) To fix the dates for Closure of the Bank s Register of Members and Debenture-holders and Transfer Books of Shares or Debentures and/or fixing Record Dates, in consultation with the Stock Exchanges. (i) To authorise the opening of Securities General Ledger Account or any other account with any scheduled banks or with any department of Reserve Bank of India.

49 40 Kotak Mahindra Bank Limited (j) To authorise persons to execute Loan Agreements, Demand Promissory Notes and any other documents as may be necessary for lending out of any line of credit sanctioned to the Bank. (k) To authorise officials of the Bank to execute transfer deeds on behalf of the Bank. (l) To authorise officials of the Bank to sign documents for registration of motor vehicles and to do all acts and things for the transfer of any such motor vehicles. (m) To authorise employee(s) or others to execute, for and on behalf of the Bank, agreements, applications, deeds, documents and any other writings in connection with the business of the Bank and, if required, to issue Power of Attorney in favour of such persons for the purpose. (n) To authorise employee(s) or others to represent the Bank before any Court, Tribunal, Consumer Redressal Forum or any Statutory or other Authority on any matter relating to the operations of the Bank or with which the Bank is in any way connected or to represent the Bank generally or for any specific purpose or purposes and, if required, issue Power of Attorney in favour of such persons for the purpose. (o) To appoint or change nominees to hold shares for and on behalf of the Bank in any subsidiary/associate company. (p) To grant permission and authorise incorporation of companies, with a prefix Kotak Mahindra before the name. (q) To authorise the use of the Common Seal of the Bank and to appoint persons to sign/countersign documents, etc. on which the Common Seal is to be affixed. The Directors have waived their right to receive fees for attending meetings of the START Committee. During the year, forty-three meetings of the Committee were held. The Committee meets for approximately thirty minutes. The Meetings were attended by the members of the Committee, as detailed below: Name of Members of START Committee Meetings Attended Mr. Uday Kotak (Chairman) 41 Mr. Anand Mahindra (See Note below) Mr. Dipak Gupta 41 Mr. C. Jayaram 34 Mr. Ajay Sondhi 29 Mr. S.A.A. Pinto (See Note below) Mr. Shivaji Dam (See Note below) 2 Note: Mr. Anand Mahindra, Mr. S.A.A. Pinto and Mr. Shivaji Dam were members of the Committee prior to its reconstitution on 23 rd June NOMINATIONS COMMITTEE The Nominations Committee constituted on 26 th February 2003, consists of three members, with any two forming the quorum. Presently, the Committee consists of Mr. Uday Kotak (Chairman), Mr. C. Jayaram and Mr. Dipak Gupta. The terms of reference of the Committee include appointment of senior management Personnel and making recommendations to the Board for appointment of Directors or filling of vacancies on the Board. Since there were no appointments to consider, the Committee did not meet any time during the year under review. MANAGEMENT COMMITTEE The Management Committee constituted on 26 th February 2003, consists of five members, with any three forming the quorum. The Committee has been constituted to review all important matters to be placed before the Board, assess adequacy of policies on an on-going basis, review business operations, corporate governance, implementation of policies, to establish systems for facilitating efficient operations and to approve donations. During the year, fourteen meetings of the Committee were held on 24 th May 2003, 14 th June 2003, 28 th June 2003, 14 th July 2003, 26 th July 2003, 9 th August 2003, 23 rd August 2003, 15 th September 2003, 28 th November 2003, 15 th December 2003, 5 th January 2004, 16 th February 2004, 3 rd March 2004 and 22 nd March The Meetings were attended by the members of the Committee, as detailed below: Name of Members of Management Committee Meetings Attended Mr. Uday Kotak (Chairman) 14 Mr. Dipak Gupta 14 Mr. C. Jayaram 12 Mr. Ajay Sondhi 11 Mr. Shivaji Dam 12 CREDIT COMMITTEE The Credit Committee constituted on 26 th February 2003, consists of four members viz. Mr. Uday Kotak (Chairman), Mr. Dipak Gupta, Mr. C. Jayaram and Mr. Ajay Sondhi, with any three forming the quorum. The Committee has been constituted to approve credit proposals, to review renewal of limits, waivers taken, monitor portfolios, to review the status of all non-performing assets, review proposals put to the Board and review recovery status. The Committee approves credit proposals by circulation.

50 41 Kotak Mahindra Bank Limited GENERAL MEETINGS The last Annual General Meeting of the Bank was held at the Indian Merchants Chamber, Walchand Hirachand Hall, 4 th Floor, Churchgate, Mumbai and the previous two Annual General Meetings were held at Sir Sitaram and Lady Shantabai Patkar Convocation Hall of S.N.D.T. Women's University, 1, Nathibai Thackersey Road, Mumbai Annual General Meeting Day, Date and Time Special Resolutions passed thereat Eighteenth Annual General Meeting Thursday, 31 st July Special Resolution passed u/s 31 of the Companies Act, 1956 for a.m. alteration of Articles of Association of the Bank. 2. Special Resolution passed for voluntary delisting of the equity shares of the Bank from The Delhi Stock Exchange Association Limited, Madras Stock Exchange Limited and The Stock Exchange Ahmedabad. Seventeenth Annual General Meeting Thursday, 26 th September 2002 None 3:30 p.m. Sixteenth Annual General Meeting Friday, 3 rd August 2001 None 3:30 p.m. There were no Resolutions passed by postal ballot during the year under review. DISCLOSURES The Bank has not entered into any material financial or commercial transactions with the Directors or the Management or their relatives or the companies and firms etc., in which they are either directly or through their relatives interested as Directors and/or Partners. The Bank consults the firm in which one of the Bank's Director is a partner from time to time and bills are raised by the firm on the Bank for professional services. During the last three years, there were no penalties or strictures imposed on the Bank by the Stock Exchange(s) and/or SEBI and/or any other statutory authorities on matters relating to capital market. SHAREHOLDERS INFORMATION Date of Incorporation : 21 st November Registration No. : TA Kotak Mahindra Finance Limited (KMFL) was converted into a banking company under the name and style of Kotak Mahindra Bank Limited w.e.f. 22 nd March Registered Office : 36-38A, Nariman Bhavan, 227, Nariman Point, Mumbai Tel. No. : (022) Fax No. : (022) Website : Contact : Ms. Bina Chandarana, Company Secretary & Sr. Vice President Registrars & Transfer Agents : Karvy Computershare Private Limited (earlier Karvy Consultants Limited) (i) 21, Avenue 4, Street No. 1, Banjara Hills, Hyderabad Tel. Nos. : (040) /751/752 Fax No. : (040) (ii) 7, Andheri Industrial Estate, Off Veera Desai Road, Andheri (West), Mumbai Tel. Nos. : (022) / Fax No. : (022) Website : Annual General Meeting Date and Time : Monday, 26 th July 2004 at 11:30 a.m Venue : Indian Merchants' Chamber, Walchand Hirachand Hall, 4 th Floor, Churchgate, Mumbai Date of Book Closure : 16 th July 2004 to 26 th July 2004 (both days inclusive) for payment of dividend Dividend Payment Date : On or after Tuesday, 27 th July 2004.

51 42 Kotak Mahindra Bank Limited INVESTOR RELATIONS The Bank publishes its results on a quarterly basis which are also subjected to Limited Review by the Auditors of the Bank. The Bank also publishes its consolidated results on a quarterly basis. The same are also reviewed by the Audit Committee before submission to the Board. Along with the quarterly results, an earnings update is also prepared and posted on the website of the Bank. Every quarter, the Executive Vice-Chairman and Managing Director and the Executive Director(s) participate on a call with the analysts/shareholders, the transcripts of which are posted on the website of the Bank. The Bank also has dedicated personnel to respond to queries from investors. Financial Calendar: For each calendar quarter, the financial results are reviewed and taken on record by the Board during the last week of the month subsequent to the quarter ending. The audited annual accounts as at 31 st March are approved by the Board after a review thereof by the Audit Committee. The Annual General Meeting to consider such annual accounts is held in the second quarter of the financial year. Stock Exchanges on which listed: Sr. No. Name & Address of Stock Exchange Market Scrip Code 1. The Stock Exchange, Mumbai Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai National Stock Exchange of India Limited KOTAKBANK Exchange Plaza, 5 th Floor, Bandra-Kurla Complex, Bandra, Mumbai The Madras Stock Exchange Limited Exchange Building, 11 Second Line Beach, Chennai The annual fees for have been paid to the Stock Exchange Mumbai and the National Stock Exchange of India Limited, where the shares of the Bank are listed. The Bank has made an application for delisting its shares from the Madras Stock Exchange Limited and the approval is awaited. Pursuant to Clause 5.2 of the Securities and Exchange Board of India (Delisting of Securities) Guidelines, 2003, the Bank's equity shares have been voluntarily delisted from The Delhi Stock Exchange Association Limited, effective 10 th December 2003 and The Stock Exchange Ahmedabad, effective 20 th January Trading of shares to be in compulsorily dematerialized form: The Securities and Exchange Board of India has included the equity shares of the Bank in the list of shares in which trading is compulsorily in dematerialized form, from 29 th November The equity shares of the Bank have been activated for dematerialisation with the National Securities Depository Limited with effect from 4 th August 1998 and with the Central Depository Services (India) Limited with effect from 26 th February 1999 vide ISIN INE237A Share Transfer System: Applications for transfers, transmission and transposition are received by the Bank at its Registered Office or at the office(s) of its Registrars & Share Transfer Agents. As the shares of the Bank are in dematerialised form, the transfers are duly processed by NSDL/CDSL in electronic form through the respective depository participants. Shares which are in physical form are processed by the Registrars & Share Transfer Agents on a regular basis and the certificates despatched directly to the investors. The Share Transfer and Routine Transactions Committee of the Board of Directors of the Bank is empowered to approve transfers, transmissions, etc. Such approvals are generally accorded on fixed dates, three times every month and, thereafter, transfers are registered and duly endorsed certificates are sent to the shareholders. Investor Helpdesk: Share transfers, dividend payments and all other investor related activities are attended to and processed at the office of our Registrars & Transfer Agents. For lodgement of Transfer Deeds and any other documents or for any grievances/complaints, kindly contact Karvy Computershare Private Limited, contact details of which are provided elsewhere in the Report. For the convenience of the investors, transfers and complaints from the investors are accepted at the Registered Office between 9:30 a.m. to 5:30 p.m. from Monday to Friday, except on bank holidays: Kotak Mahindra Bank Limited Registered Office : 36-38A, Nariman Bhavan, 227, Nariman Point, Mumbai Tel. No. : (022) Fax : (022) bina.chandarana@kotak.com Website : Transfer to Investor Protection Fund: Pursuant to Section 205C of the Companies Act, 1956, dividends that are unclaimed for a period of seven years get transferred to the Investor Education and Protection Fund administered by the Central Government. The table given below gives the dates of dividend declaration since 1996 and the corresponding dates when unclaimed dividends are due to be transferred to the Central Government.

52 43 Kotak Mahindra Bank Limited Year Dividend-Type Date of declaration Due Date of transfer Final 16 th September th October Final 2 nd September nd October Final 10 th August th September Interim 28 th March th May Final 3 rd August rd September Special Interim 28 th January th March Final 26 th September th October Final 31 st July st August 2010 SHARE PRICE DETAILS Monthly high and low quotation of Monthly high and low quotation of shares traded on BSE shares traded on NSE Month High Low Close Volume BSE High Low Close Volume S&P & Traded Sensex Traded CNX NIFTY (Rs.) (Rs.) (Rs.) (Close) (Rs.) (Rs.) (Rs.) (Close) April May June July August September October November December January February March

53 44 Kotak Mahindra Bank Limited SHARE HOLDING Shareholding Pattern as on 31 st March 2004 Category As on 31 st March 2004 As on 31 st March 2003 No. of Shares Percentage No. of Shares Percentage Held of Shares Held of Shares A. Promoters Holding Promoters 3,62,84, ,64,19, Sub-Total 3,62,84, ,64,19, B. Non-Promoters Holding 1. Institutional Investors a. Mutual Funds & UTI 22,53, ,97, b. Banks, Financial Institutions, Insurance Companies (State/Central Govt. Institutions) 8, , c. FIIs 95,13, ,95, Sub-Total 117,75, ,03, C. Others a. Private Corporate Bodies 8,15, ,14, b. Indian Public including Directors & relatives 96,97, ,366, c. NRIs/OCBs 9,49, ,55, d. NSDL Transit 8, , Sub-Total 1,14,72, ,289, Grand Total 5,95,32, ,92,12, List of Top 10 Shareholders of Kotak Mahindra Bank Limited as on 31 st March 2004 Name No. of shares % holding Category Mr. Uday Kotak 3,06,26, Indian Promoter Kotak Trustee Co. Pvt. Ltd. 26,89, Indian Promoter Company Mrs. Anuradha Mahindra 17,81, Indian Promoter Oppenheimer Funds Inc. A/c Oppenheimer Developing Markets Fund 13,08, FII J.P. Morgan Fleming Asset Management (Europe) S.A.R.L. A/c Flagship Indian Investment Company (Mauritius) 12,00, FII T Rowe Price International Inc. A/c T-Rowe Price New Asia Fund 10,50, FII Sloane Robinson Investment Management Limited A/c SR Global (Mauritius) Limited (Class B Asia) 8,14, FII Avion Aerosols Pvt. Ltd. 7,69, Indian Promoter Company J F India Fund 6,84, FII Indian Liberalisation Fund (Mauritius) Limited 6,61, FII

54 45 Kotak Mahindra Bank Limited Distribution Schedule as on 31 st March 2004 S. No. Category No. of Holders % of Holders No. of Shares % of Shares From To , ,59, , ,18, , ,24, , ,43, , ,97, ,01, ,58, ,00, ,55, ,39, ,99, & ABOVE ,22,34, Total 30, ,95,32, Capital Build up No. of Shares Date of Allotment Issue Price* Face Value Mode (Rs. Per share) (Rs.) Subscription Cash 3,08, ,87,000 Initial offer Cash 3,41, ,12,300 Rights Cash 6,50, Bonus 65,00,000 Capitalisation of reserves 13,00, Bonus 1,30,00,000 Capitalisation of reserves 26,00, Bonus 2,60,00,000 Capitalisation of reserves 17,82, ,78,25,000 Public Issue Cash 44,00, ,40,00,000 Public Issue Cash 69,82, ,98,25,000 Rights Cash 1,83,65, Bonus 18,36,50,000 Capitalisation of reserves 91,82, ,18,25,000 Rights Cash 1,33,00, ,30,02,500 Net effect of merger with Pannier Trading Co. Pvt. Ltd. 2,72, ,20,000 Allotment under ESOP Plan , ,40,000 Allotment under ESOP Plan , ,000 Allotment under ESOP Plan , ,00,000 Allotment under ESOP Plan ,95,32,750 59,53,27,500 TOTAL * Face value of all issued equity shares of the Bank is Rs. 10/- each. Note:Pursuant to the scheme of amalgamation of Guldasta Investments & Trading Pvt. Ltd., Mega Assets and Capital Management Pvt. Ltd., Scope Holdings Pvt. Ltd. and Twilight Holdings Pvt. Ltd. with Kotak Mahindra Finance Limited, now Kotak Mahindra Bank Limited, there was no further issue of shares or increase in capital. However, 3,35,84,644 equity shares of Rs. 10 each held by the aforesaid transferor companies were cancelled and the same issued to its shareholders on 16 th September 2002.

55 46 Kotak Mahindra Bank Limited OTHER DISCLOSURES (A) THE MANAGEMENT DISCUSSION & ANALYSIS REPORT The Management Discussion & Analysis Report, giving an overview of the industry, the Bank's business and its financials is provided separately as a part of this Annual Report. (B) MEANS OF COMMUNICATION The Board of Directors of the Bank approves the unaudited financial results on a quarterly basis within one month of the quarter and the results are promptly forwarded to the stock exchanges and published in Business Standard in English and Sakal, Mumbai in Marathi (Regional Language), within 48 hours of the conclusion of the Board Meeting. The results as well as other press releases are simultaneously displayed on the Bank's website The website also displays all official news releases by the Bank from time to time as also presentations made to investors and analysts. The Bank also publishes its Balance Sheet and Profit and Loss Account together with the Auditors Report in a newspaper as required in terms of Section 31 of the Banking Regulation Act, 1949 and Rule 15 of the Banking Regulation (Companies) Rules, The Bank has also posted information relating to its financial results and shareholding pattern on Electronic Data Information Filing and Retrieval System (EDIFAR) at (C) The Bank has adopted certain non-mandatory requirements as well. Mr. K.M. Gherda, the Chairman, has an office in the Bank. All directors are entitled to the reimbursement of expenses incurred in the performance of their duties. The Bank has set up a Remuneration Committee, details of which have been provided in this Report. Mr. Anand Mahindra, the Chairman of the Remuneration Committee, is one of the promoters of Kotak Mahindra Bank Limited. AUDITORS CERTIFICATE ON CORPORATE GOVERNANCE The Bank has obtained the certificate from the Auditors of the Bank regarding compliance with the provisions relating to corporate governance laid down in Clause 49 of the Listing Agreement with the Stock Exchanges. This report is annexed to the Directors' Report and will also be sent to the Stock Exchanges alongwith the annual return to be filed by the Bank. AUDITORS CERTIFICATE To the Members of Kotak Mahindra Bank Limited We have examined the compliance of conditions of corporate governance by KOTAK MAHINDRA BANK LIMITED for the year ended on 31 st March, 2004 as stipulated in clause 49 of the Listing Agreement of the said Bank with stock exchanges. The compliance of conditions of corporate governance is the responsibility of the Management. Our examination was limited to procedures and implementation thereof, adopted by the Bank for ensuring the compliance of the conditions of the corporate governance. It is neither an audit nor an expression of opinion on the financial statements of the Bank. In our opinion and to the best of our information and according to the explanations given to us, we certify that the Bank has complied with the conditions of corporate governance as stipulated in the abovementioned Listing Agreement. As required by the Guidance Note issued by the Institute of Chartered Accounts of India, we have to state that to the best of our information and according to the explanations given to us, on the basis of the report given by the Registrars of the Bank to the Investors Grievance Committee, as on 31 st March, 2004 there were no grievance matters against the Bank remaining unattended/pending for more than 30 days. We further state that such compliance is neither an assurance as to the future viability of the Bank nor the efficiency or effectiveness with which the Management has conducted the affairs of the Bank. Mumbai, 15 th June, For S.B. Billimoria & Co. Chartered Accountants Nalin M. Shah Partner

56 47 Kotak Mahindra Bank Limited AUDITORS REPORT To the Members of KOTAK MAHINDRA BANK LIMITED 1 We have audited the attached Balance Sheet of KOTAK MAHINDRA BANK LIMITED as at 31 st March, 2004, the Profit and Loss Account and the Cash Flow Statement of the Bank for the year ended on that date, both annexed thereto. These financial statements are the responsibility of the Bank s Management. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We conducted our audit in accordance with the auditing standards generally accepted in India. These Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3 We report thereon as follows: (a) The Balance Sheet and the Profit and Loss Account have been drawn up in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949, read with Section 211 of the Companies Act, (b) (c) (d) (e) (f) (g) (h) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit and have found them to be satisfactory. The transactions of the Bank which have come to our notice have been within the powers of the Bank. In our opinion, proper books of account as required by law have been kept by the Bank so far as it appears from our examination of those books. The financial accounting systems of the Bank are centralised and, therefore, accounting returns are not required to be submitted by the Branches. The Balance Sheet and the Profit and Loss Account dealt with by this report are in agreement with the books of account. In our opinion, the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report are in compliance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956, in so far as they apply to banks. In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956 in the manner so required for banking companies and the circulars issued by the Reserve Bank of India and give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in the case of the Balance Sheet, of the state of affairs of the Bank as at 31 st March, 2004; (ii) in the case of the Profit and Loss Account, of the profit of the Bank for the year ended on that date and (iii) in case of the Cash Flow Statement, of the cash flows of the Bank for the year ended on that date. 4 On the basis of the written representations from the directors, taken on record by the Board of Directors, none of the directors is disqualified as on 31 st March, 2004 from being appointed as a director under Section 274 (1)(g) of the Companies Act, Mumbai, 25 th May, 2004 For S. B. Billimoria & Co. Chartered Accountants Nalin M. Shah Partner (Membership No )

57 48 Kotak Mahindra Bank Limited BALANCE SHEET AS AT 31 ST MARCH, 2004 Capital and Liabilities Schedule As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Capital 1 5, , Reserves and Surplus 2 54, , Employees Stock Options (Grants) Outstanding Deposits 3 445, , Borrowings 4 51, , Other Liabilities and Provisions 5 23, , Total 581, , Assets Cash and Balances with Reserve Bank of India 6 12, , Balances with Banks and Money at Call and Short Notice 7 55, , Investments 8 288, , Advances 9 209, , Fixed Assets 10 8, , Other Assets 11 7, , Total 581, , Contingent Liabilities , , Bills for Collection Significant Accounting Policies and Notes to the Financial Statements 18 As per our report of even date attached For and on behalf of the Board of Directors For S. B. Billimoria & Co. K. M. Gherda Uday Kotak Chartered Accountants Chairman Executive Vice-Chairman & Managing Director Nalin M. Shah Dipak Gupta Bina Chandarana Partner Executive Director Company Secretary Mumbai, 25 th May, 2004

58 49 Kotak Mahindra Bank Limited PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2004 I. Income Schedule Year ended Year ended 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs Interest earned 13 28, , Other Income 14 9, , Total 38, , II. Expenditure Interest expended 15 11, , Operating expenses 16 13, , Provisions and Contingencies [includes Income tax provision of Rs. 4, lakhs (previous year Rs. 2, lakhs)] 17 4, , Total 30, , III. Profit Net Profit for the year 7, , Add: Surplus brought forward from previous year 15, , Total 23, , IV. Appropriations Transfer to Statutory Reserve 1, , Transfer to General Reserve Transfer to Capital Reserve Transfer to Investment Fluctuation Reserve 1, Proposed Dividend 1, , Corporate Dividend Tax Balance carried over to Balance Sheet 18, , Total 23, , V. Earnings per Share (Face Value of Rs. 10/-) Basic Diluted Significant Accounting Policies and Notes to the Financial Statements 18 As per our report of even date attached For and on behalf of the Board of Directors For S. B. Billimoria & Co. K. M. Gherda Uday Kotak Chartered Accountants Chairman Executive Vice-Chairman & Managing Director Nalin M. Shah Dipak Gupta Bina Chandarana Partner Executive Director Company Secretary Mumbai, 25 th May, 2004

59 50 Kotak Mahindra Bank Limited CASH FLOW STATEMENT FOR THE YEAR ENDED 31 ST MARCH, 2004 Year ended Year ended 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs Cash Flow from Operating Activities Net Profit Before Taxes 12, , Adjustments for: Employee Stock Options Grants Depreciation on bank property 1, Diminution in the value of investments , Dividend from Subsidiaries (828.79) (Profit)/Loss on revaluation of investments Provision for Non Performing Assets Wealth Tax 1.55 Profit on sale of assets (65.04) (49.04) 14, , Adjustments for: Increase in Investments other than Subsidiaries, Joint Ventures and other long term investments (222,827.29) (36,062.31) Increase in Advances (85,865.22) (24,031.37) Increase in Other Assets (2,813.34) (1,539.20) Increase in Fixed Deposits with Banks (50,509.00) (737.00) Increase in Deposits 420, , Increase/(Decrease) in Borrowings (62,872.53) 55, Increase in Other Liabilities & Provisions 2, , (2,557.51) 4, Income Taxes Paid (3,825.00) (2,950.00) NET CASH FLOW FROM OPERATING ACTIVITIES (A) 8, , Cash Flow From Investing Activities Purchase of Fixed assets (2,274.27) (2,806.15) Sale of Fixed assets (Increase)/Decrease in Investments in Subsidiaries and Joint Ventures 3, (1,641.96) (Increase)/Decrease in other long term investments 1, (659.94) Dividend from Subsidiaries NET CASH FLOW FROM INVESTMENT ACTIVITIES (B) 2, (4,104.44) Cash Flow from Financing Activities Money received on exercise of stock options Dividend paid including Corporate Dividend Tax (1,402.79) (1,243.47) NET CASH FLOW FROM FINANCING ACTIVITIES (C) (1,242.79) (1,243.47) NET INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS (A + B + C) 9, , CASH & CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 6, , CASH & CASH EQUIVALENTS AT THE END OF THE YEAR 16, , As per our report of even date attached For and on behalf of the Board of Directors For S. B. Billimoria & Co. K. M. Gherda Uday Kotak Chartered Accountants Chairman Executive Vice Chairman & Nalin M. Shah Managing Director Partner Dipak Gupta Bina Chandarana Executive Director Company Secretary Mumbai, 25 th May, 2004 AUDITORS CERTIFICATE We have verified the Cash Flow Statement of KOTAK MAHINDRA BANK LIMITED derived from the audited financial statements of the Corporation for the years ended 31st March, 2004 and 31st March, 2003 and found the same to be drawn up in accordance therewith and also with the requirements of clause 32 of the listing agreements with the stock exchanges. For S. B. Billimoria & Co. Chartered Accountants Nalin M. Shah Partner Mumbai, 25 th May, 2004 (Membership No )

60 51 Kotak Mahindra Bank Limited SCHEDULES FORMING PART OF BALANCE SHEET AS AT 31 ST MARCH, 2004 As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Schedule 1 : Capital Authorised Capital 10,00,00,000 Equity Shares of Rs.10/- each 10, , Issued, Subscribed and Paid-up Capital 5,95,32,750 (31 st March, 2003: 5,92,12,750) Equity Shares of Rs.10/- each, fully paid-up 5, , Total 5, , Schedule 2 : Reserves and Surplus I. Statutory Reserve Opening Balance 5, Add: Transfer from Special Reserve 4, Add: Transfer from Profit and Loss Account 1, , II. III. IV. Total 7, , Capital Reserve Opening balance Add: Transfer from Profit and Loss Account Additions during the year 3.82 Total General Reserve Opening Balance 12, , Add: Transfer from Profit and Loss Account Total 13, , Share Premium Account Opening Balance 14, , Additions during the year Total 14, , V. Investment Fluctuation Reserve Opening Balance Add: Transfer from Profit and Loss Account 1, Total 1, VI. Special Reserve under Section 45IC of the RBI Act, 1934 Opening Balance Less: Transfer to Statutory Reserve 4, , Total VII. Balance in the Profit and Loss Account 18, , Total 54, , Schedule 3 : Deposits I. Demand Deposit i. From Others 260, , Total 260, , II. Savings Bank Deposits 4, III. Term Deposits i. From Banks 4, ii. From Others 176, , Total 180, , Total Deposits of branches in India (I to III) 445, ,680.59

61 52 Kotak Mahindra Bank Limited Schedules forming part of Balance Sheet as at 31 st March, 2004 (Contd.) As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Schedule 4 : Borrowings I. Borrowings in India (i) Banks 26, , (ii) Institutions and Agencies 18, , Total 44, , II. Borrowings outside India 6, Total Borrowings (I and II) 51, , Secured Borrowings included in I and II above 10, , Schedule 5 : Other Liabilities and Provisions I. Bills Payable 4, , II. Interest Accrued 2, , III. Others (including provisions) 15, , IV. Proposed Dividend (includes tax on dividend for the current year) 1, , Total 23, , Schedule 6 : Cash and Balances with Reserve Bank of India I. Cash and cheques on hand 1, II. Balances with RBI in current account 11, , Total 12, , Schedule 7 : Balances with Banks and Money at Call and Short Notice I. In India (i) Balances with Banks (a) In Current Accounts 3, (b) In Other Deposit Accounts 51, Total 54, , II. Outside India (i) In current account Total Total (I and II) 55, , Schedule 8 : Investments Investments in India in I. Government Securities 227, , II. Other approved Securities III. Shares IV. Debentures and Bonds 4, , V. Subsidiaries and Joint Ventures 22, , VI. Others [Units, Certificate of Deposits, Commercial Paper (CP) and Pass Through Certificates (PTC)] 33, , Total 288, ,666.17

62 53 Kotak Mahindra Bank Limited Schedules forming part of Balance Sheet as at 31 st March, 2004 (Contd.) As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Schedule 9 : Advances A. (i) Bills purchased and discounted 7, , (ii) Cash Credits, Overdrafts and loans repayable on demand 6, (iii) Term Loans 195, , Total 209, , B. (i) Secured by tangible assets * 164, , (ii) Unsecured 44, , Total 209, , * including advances against book debts C. Advances in India (i) Priority Sector 87, , (ii) Public Sector (iii) Banks (iv) Others 121, , Total 209, , Schedule 10 : Fixed Assets A. Premises (Including Land) Gross Block At cost on 31 st March of the preceding year 7, , Less: Deductions during the year Total 7, , Depreciation As at 31 st March of the preceding year 2, , Add: Charge for the year Less: Deductions during the year Depreciation to date 2, , Net Block 4, , B. Other Fixed Assets (including furniture and fixtures) Gross Block At cost on 31 st March of the preceding year 3, , Additions during the year 2, , Less: Deductions during the year Total 6, , Depreciation As at 31 st March of the preceding year 1, Add: Charge for the year 1, Less: Deductions during the year Depreciation to date 2, , Net Block 3, , Total (A) +(B) 8, ,979.39

63 54 Kotak Mahindra Bank Limited Schedules forming part of Balance Sheet as at 31 st March, 2004 (Contd.) As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Schedule 11 : Other Assets I. Interest accrued 2, , II. Advance tax (net of provision) III. Stationery and Stamps IV. Cheques in course of collection V. Others 3, , Total 7, , Schedule 12 : Contingent Liabilities I. Liability on account of outstanding forward exchange contracts 87, , II. Guarantees on behalf of constituents in India 3, III. Acceptances, Endorsements and Other Obligations IV. Other items for which bank is contingently liable: Liability on account of interest rate swaps 117, , Liability in respect of options contracts 2, Liability on account of income tax and interest tax demands , Capital Commitments not provided Liability on account of sales tax and lease tax demands Maximum amount of recourse to the bank as per the terms of the agreement to sell some of its receivables Total 213, , SCHEDULES FORMING PART OF PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH, 2004 Year ended Year ended 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs Schedule 13 : Interest Earned I. Interest/discount on advances/bills 21, , II. Income on investments 7, , III. Interest on balances with RBI and other inter-bank funds IV. Others Total 28, , Schedule 14 : Other Income I. Commission, exchange and brokerage II. Profit on sale of Investments (net) 3, III. Profit/(loss) on revaluation of Investments (net) (197.06) IV. Profit on sale of building and other assets (net) V. Profit on exchange transactions (net) VI. Income earned from Subsidiaries/Joint Ventures 5, , VII. Miscellaneous Income Total 9, ,214.03

64 55 Kotak Mahindra Bank Limited Schedules forming part of Profit and Loss Account for the year ended 31 st March, 2004 (Contd.) Year ended Year ended 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs Schedule 15 : Interest Expended I. Interest on Deposits 5, , II. Interest on RBI/Inter-Bank Borrowings 2, , III. Others 4, , Total 11, , Schedule 16 : Operating Expenses I. Payments to and provision for Employees 4, , II. Rent, Taxes and Lighting III. Printing and Stationery IV. Advertisement and Publicity V. Depreciation on Bank s Property 1, VI. Directors fees, Allowances and Expenses VII. Auditors fees and Expenses VIII. Law Charges IX. Postage, Telephone etc X. Repairs and Maintenance XI. Insurance XII. Travel and Conveyance XIII. Professional Charges 1, , XIV. Brokerage 1, XV. Stamping Expenses XVI. Other Expenditure 1, , , Less: Recovery of Costs from Group Companies Total 13, , Schedule 17 : Provisions and Contingencies I. Provision for taxation (including wealth-tax Rs lakhs, previous year Rs. Nil) 4, , II. Provision for Non-performing Assets (including write-offs and net of recoveries) III. Provision for Diminution in value of Investments , Total 4, ,461.92

65 56 Kotak Mahindra Bank Limited SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT Schedule 18 Significant Accounting Policies and Notes to the Financial Statements I. SIGNIFICANT ACCOUNTING POLICIES A. ACCOUNTING METHODOLOGY The Financial Statements have been prepared on historical cost basis of accounting. The Bank adopts the accrual system of accounting and it conforms to statutory provisions, practices prevailing within the banking industry and the guidelines issued by the Reserve Bank of India ( RBI ) for banks. The preparation of financial statements requires the 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. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. B. REVENUE RECOGNITION a. Interest income is recognised on accrual basis except in case of non-performing assets. Overdue interest is recognised as income on realisation. b. Interest income in respect of retail advances is accounted for by using the internal rate of return method to provide a constant periodic rate of return on the net investment outstanding on the contract. c. Service charges received on advances are accrued when due. d. Interest income on discounted instruments is recognised over the tenure of the instruments so as to provide a constant periodic rate of return. e. Fees and commission income are recognised when due except for guarantee commission which is recognised over the period of the guarantee. f. Dividend income is accounted on an accrual basis when the Bank s right to receive the dividend is established. g. Gain on account of securitisation of assets is recognised, based on the difference between the book value of the securitised asset and consideration received. C. FIXED ASSETS a. Fixed assets have been stated at cost inclusive of incidental expenses less accumulated depreciation. b. Depreciation: The Bank adopts the Straight Line Method of depreciation so as to write off 100% of the cost of the assets at rates higher than those prescribed under Schedule XIV to the Companies Act, 1956 based on the Management s estimate of useful lives of all assets as follows: Asset Type Useful life in years Premises 30 Improvement to leasehold premises Over the period of lease subject to a maximum of 6 years. Office equipments 5 Computers 3 Furniture and Fixtures 6 Vehicles 4 ATMs 5 Software (including development) expenditure 3 Items costing less than Rs. 5,000 are fully depreciated in the year of purchase. D. RETIREMENT BENEFITS a. Contribution as required by the Statute made to Government Provident Fund is debited to the Profit and Loss Account. b. Provision for Gratuity and Leave encashment liability to employees on retirement is made on the basis of actuarial valuation. E. INVESTMENTS 1. CLASSIFICATION a. In accordance with the RBI guidelines, investments are categorised into Held for Trading, Available for Sale and Held to Maturity and further classified under six groups, namely, Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Subsidiaries/Joint Ventures and Other Investments for the purposes of disclosure in the Balance Sheet. i. Investments which are held for resale within 90 days from the date of purchase are classified as Held for Trading. ii. Investments which the Bank intends to hold to maturity are classified as Held to Maturity. The Bank has classified investments in subsidiaries and joint ventures as Held to Maturity. iii. Investments which are not classified in either of the above two categories are classified as Available for Sale. b. The cost of investments is determined on the weighted average basis. c. Broken period interest on debt instruments is treated as a revenue item. d. Brokerage, commission etc. paid at the time of acquisition of investments is charged to revenue. 2. VALUATION The valuation of investments is made in accordance with the RBI guidelines: a. Held for Trading/Available for Sale Each security in this category is revalued at the market price or fair value and the net depreciation of each group is recognised in the Profit and Loss Account. Net appreciation, if any, is ignored. Provision for dimunition, other than temporary is charged off to the Profit and Loss Account.

66 57 Kotak Mahindra Bank Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) b. Held to Maturity These are carried at their acquisition cost. Any premium on acquisition of debt instruments is amortised over the balance maturity of the security. Any diminution, other than temporary, in the value of securities is provided for. 3. TRANSFER BETWEEN CATEGORIES Transfer between categories is done at the lower of the acquisition cost/ book value/market value on the date of the transfer and depreciation, if any, on such transfer is fully provided for. 4. PROFIT OR LOSS ON SALE/REDEMPTION OF INVESTMENTS a. Held For Trading and Available for Sale Profit or loss on sale/redemption is included in the Profit and Loss Account. b. Held to Maturity Profit on sale/redemption of investments is included in the Profit and Loss Account. Loss on sale is charged off to the Profit and Loss Account. In case of profits, the same is appropriated to Capital Reserve after adjustments for tax and Statutory Reserve transfer. F. FOREIGN CURRENCY AND DERIVATIVE TRANSACTIONS a. Foreign currency assets and liabilities are translated as at the Balance Sheet date at rates notified by the Foreign Exchange Dealers Association of India (FEDAI). b. Income and Expenditure items are translated at the rates of exchange prevailing on the date of the transaction. c. Foreign Exchange contracts (other than deposit and placement swaps) outstanding at the balance sheet date are revalued at rates notified by FEDAI and resulting profits or losses are included in the Profit and Loss Account. Foreign exchange swaps linked to foreign currency deposits and placements are translated at the ruling spot rate at the time of swap. The premium/discount on the swap arising out of the difference in the exchange rate of the swap date and the maturity date of the underlying forward contract is amortised over the period of the swap and the same is recognised as interest income/expense. d. Outstanding derivative transactions designated as Hedges comprise interest rate swaps undertaken to hedge interest rate risk on certain assets and liabilities. The net interest receivable/payable on these swaps is accounted for on an accrual basis over the life of the swaps. e. Contingent liabilities as at the Balance Sheet date on account of outstanding foreign exchange contracts are reported at contracted rates. f. Interest income/expense is accrued on Interest Rate Swaps and booked in the Profit and Loss Account. Trading swaps outstanding as at the Balance Sheet date are marked to market and the resulting profits or losses, are recorded in the Profit and Loss Account. G. ADVANCES a. Advances are classified into standard, sub-standard, doubtful and loss assets in accordance with the RBI guidelines and are stated net of provisions made towards non-performing advances. b. Provision for non-performing advances comprising sub-standard, doubtful and loss assets is made in accordance with the RBI guidelines. In addition, the Bank adopts an approach to provisioning that is based on past experience, evaluation of security and other related factors. c. A general provision of 0.25% is made on all standard assets as per the RBI guidelines on all loans other than personal loans. In respect of personal loans, a general provision of 0.50% is made. H. BORROWING COSTS Borrowing costs other than those directly attributable to qualifying Fixed Assets are recognised as an expense in the period in which they are incurred. I. TAXES ON INCOME Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognised in respect of deferred tax assets on timing differences being the difference between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Deferred tax asset is recognised subject to prudence and judgement that realisation is more likely than not. Changes in deferred tax assets/liabilities on account of changes in effective tax rates are given effect to in the Profit and Loss Account. J. SEGMENTAL ACCOUNTING In accordance with Accounting Standard 17 (AS17) on Segment Reporting, the Bank s business has been segregated into the following segments whose principal activities are as under: Segment Treasury Corporate Banking Retail liabilities and branch banking Retail Lending Activities Corporate Centre Principal activity Money market, forex market, derivatives and investments other than strategic investments. Wholesale borrowings and lendings and services to corporate sector Retail borrowings covering savings and current accounts and banking branch network and services. Commercial vehicle finance, personal loans, home loans, agriculture finance and other loans/services. Strategic investments and group activities The above segments have been identified based on the organisation structure, the customer segment, products and services offered and its relation to risk and reward, and the internal reporting process. A transfer pricing mechanism between all the above segments has been established to arrive at interest cost on the borrowings of the segments.

67 58 Kotak Mahindra Bank Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Segment revenue consists of earnings from external customers and inter-segment revenue based on a transfer pricing mechanism. Segment expenses consist of interest expenses including allocated, operating expenses, provisions and allocated costs. Segment results are a result of segment revenue and segment expenses. Segment assets include assets related to segments and excludes tax related assets. Segment liabilities include liabilities related to the segment excluding networth. K. EMPLOYEE STOCK OPTION SCHEME The Bank has formulated an Employee Stock Option Scheme (ESOS) in accordance with SEBI (Employee Stock Option Scheme) Guidelines, The Scheme provides for grant of options to employees to acquire the equity shares of the Bank that vest in a graded manner and that are to be exercised within a specified period. In accordance with the SEBI Guidelines, the excess, if any, of the market price of the share at the date of grant of the option under ESOS over the exercise price of the option is amortised on a straight-line basis over the vesting period. In respect of options, if any, granted to employees of the subsidiaries, the Bank recovers the related compensation cost from the respective subsidiaries. II. NOTES TO ACCOUNTS 1 Capital Adequacy Ratio: The Bank s Capital Adequacy Ratio calculated in accordance with the RBI Guidelines is as follows: As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Tier 1 Capital 43, , Tier 2 Capital 1, Total Capital 44, , Total Risk weighted assets and contingencies 2,94, , Capital ratios: Tier % 25.70% Total Capital 15.25% 25.97% Note: Tier 1 Capital includes Equity Share Capital and Free Reserves and in accordance with the RBI guidelines, is net of the following items: (a) intangible assets consisting of deferred tax asset and capitalised software (b) equity investments in subsidiaries made by the Bank. Tier 2 Capital consists of balances in Investment Fluctuation Reserve and Provision on Standard Assets/Contingencies. 2 Business ratios/information: As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Interest income as a percentage of working funds 8.81% 10.16% Net interest income as a percentage of working funds 5.21% 5.08% Non interest income as a percentage of working funds 2.91% 4.74% Operating profit as a percentage of working funds 3.86% 5.24% Return on assets (average) 2.40% 2.49% Business (deposit plus advance) per employee (Rs. in lakhs) Profit per employee (Rs. in lakhs) Net NPA as a percentage to net advances 0.17% 0.11% Definitions: (A) Working funds is the monthly average of total assets during the year in respect of the year ended 31 st March, 2004 and 31 st March, (B) Operating profit = (Interest Income + Other Income Interest expenses Operating expenses) (C) Business is monthly average of net advances and deposits in respect of financial year ended 31 st March, 2004 and 31 st March, The average of deposits for the year ended 31 st March, 2004 consists of monies collected by the Bank as bankers to various initial public offers (IPOs) made during the year by various companies. As on 31 st March, 2004, the deposit in Schedule 3(I)(i) includes Rs. 2,45, lakhs of such monies collected and remaining to be repaid. (D) Productivity ratios are based on average number of employees. (E) Net advances are net of provision for non-performing assets.

68 59 Kotak Mahindra Bank Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 3 Investments held under the 3 categories viz. Held for Trading (HFT), Available for Sale (AFS) and Held to Maturity (HTM) are as under : Rs. in lakhs As at 31 st March, 2004 As at 31 st March, 2003 HFT AFS HTM Total HFT AFS HTM Total Government Securities 42, ,85, ,27, , , Other Approved Securities Shares Debentures and Bonds 3, , , , Subsidiaries and Joint Ventures 22, , , , Units, Certificate of Deposits, CP and PTCs 9, , , , , Total 55, ,10, , ,88, , , , Movement in provisions for depreciation on investments: (A) Year ended Year ended 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs Movement As at 1 st April 1, Add: Provisions made during the year , Less: Write-backs 1, As at 31 st March , As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs (B) Investment Portfolio Gross 288, , Less Provisions , Net Book Value 288, , Disclosure in respect of Non SLR investments (as per RBI guidelines): (i) Issuer composition of Non SLR investments as at 31 st March 2004: (Rs. in lakhs) Extent of Below Extent of Investment Extent of Extent of Private Grade Unrated Unlisted No. Issuer Amount Placement Securities Securities Securities (1) (2) (3) (4) (5) (6) (7) 1. PSUs 3, , FIs Banks 2, , , Private Corporates 1, , Subsidiaries/Joint ventures 23, , , , Others 30, , , , Provision held towards depreciation (646.07) (288.95) (32.80) (646.07) (288.95) Total 60, , , ,204.82

69 60 Kotak Mahindra Bank Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) (ii) Non-performing Non-SLR investments: (Rs. in lakhs) Opening balance Additions during the year since 1 st April Reductions during the year Closing balance as at 31 st March Total provisions held Details of Repo/Reverse Repo deals done during the year: (Rs. in lakhs) Minimum Maximum Daily As on outstanding outstanding Average March during the during the outstanding year year during the year* Securities sold under repos , , Securities purchased under reverse repos 4, , , , * Daily average is based on 365 days. 7 Capital Market Exposure: As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs (1) Investments in shares, bonds, debentures and equity oriented mutual funds 2, , (2) Advances against shares (includes limits sanctioned but not drawn) 3, , (3) Non-funded exposure (guarantees) 4, Total 10, , Capital market exposure as a ratio of advances as end of previous year 8.27% 16.03% Note: Capital market exposure does not include investment in subsidiaries and strategic investments. 8 Lending to other sensitive sectors: As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Real Estate Sector 1, , Movements in NPAs (Funded): Gross NPA s Year ended Year ended 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs Gross ** As at 1 st April 1, , Add: opening interest suspense Additions during the year 1, , Less: Recovered during the year/write-off (1,020.31) (517.48) As at 31 st March , Provisions As at 1 st April 1, , Add: opening interest suspense Add: Provisions made during the year 1, Less: Write back of provision during the year (918.47) (512.55) As at 31 st March 1, , Net NPAs as at 31 st March ** excluding interest suspense.

70 61 Kotak Mahindra Bank Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 10 Maturity pattern of key assets and liabilities: As at 31 st March 2004: Rs. in lakhs 1-14 days days 29 days Over 3 Over 6 Over 1 Over 3 Over 5 Total 3 months months to months to year to 3 years to 5 years 6 months 12 months years years Advances* 11, , , , , , , , ,07, Investments 2,04, , , , , , , , ,88, Deposits 2,72, , , , , , ,45, Borrowings 14, , , , , , Foreign Currency Assets Foreign Currency Liabilities (*) Advances shown above are net of the Advance EMI received amounting to Rs. 2, lakhs. As at 31 st March 2003: Rs. in lakhs 1-14 days days 29 days Over 3 Over 6 Over 1 Over 3 Over 5 Total 3 months months to months to year to 3 years to 5 years 6 months 12 months years years Advances 5, , , , , , , ,24, Investments 4, , , , , , , , , Deposits 5, , , , , , Borrowings 2, , , , , , ,14, Foreign Currency Assets Foreign Currency Liabilities 4, , , , In computing the above information, certain estimates and assumptions have been made by the Management which have been relied upon by the auditors. 11 Derivatives: As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Interest rate Swaps: Notional Principal 1,17, , Fair Value (156.99) 1.65 Credit risk concentration- exposure to banks 47.78% % Default Risk-Losses which would be incurred if the counter parties failed to fulfill their obligations under the agreement (665.77) Note: As per prevailing market practices, collateral is not insisted upon from the counter party. 12 Upto 31 st March, 2003, the Bank had depreciated motor vehicles over a period of 3 years. With effect from 1 st April, 2003, the estimated useful life has been revised to 4 years. Consequent to the said change, depreciation charged for the current year is lower and profit before tax for the year is higher by Rs lakhs. 13 Upto the financial year ended 31 st March, 2003, brokerage expenses and service charges received in respect of advances were accounted for, by using the internal rate of return method to provide a constant periodic rate of return over the period of the advance. From the financial year ended 31 st March, 2004, the Bank has revised its policy wherein service charges received on such transactions are recognized as revenue when due and brokerage expenses due on such transactions are charged to revenue when due. Consequent to this change, the profit before tax for the year is lower by Rs lakhs (net off brokerage expenses of Rs lakhs and service charges income of Rs lakhs). 14 During the year, the Bank has sold its equity investments in Fascel Limited. The loss on sale of these investments amounting to Rs. 1, lakhs which was already provided for as diminution for investments in the financial year ended 31 st March, 2003, has been adjusted against the said provision. Consequently, the figures of profit on sale of investments (Schedule 14.II ) and provisions and contingencies (Schedule 17.II ) are excluding the loss on such sale and provision written back on the same. 15 Others in Other liabilities and provisions (Schedule 5.III) include provision for standard assets Rs lakhs (previous year Rs lakhs).

71 62 Kotak Mahindra Bank Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 16 Earnings per Equity Share: Year ended Year ended 31 st March, st March, 2003 Rupees in lakhs Rupees in lakhs Reconciliation between weighted shares used in the computation of basic and diluted earnings per share: Weighted average number of equity shares used in computation of basic earnings per share 5,93,34,553 5,92,12,750 Effect of potential equity shares for stock options outstanding 7,24,550 8,31,973 Weighted average number of equity shares used in computation of diluted earnings per share 6,00,59,103 6,00,44,723 Annualised earnings per equity share have been calculated based on profit available to equity shareholders of Rs. 7, lakhs (Previous year Rs. 4, lakhs) and the weighted average number of equity shares outstanding as at end of the year of 5,93,34,553 (previous year 5,92,12,750) Following is the reconciliation between basic and diluted earnings per share Nominal value per share Basic earnings per share Effect of potential equity shares for stock options Diluted earnings per share Earnings used in the computation of basic and diluted earnings per share (Rs. lakhs) 7, , Segment Reporting: In accordance with Accounting Standard 17 on Segment Reporting issued by the Institute of Chartered Accountants of India, the Bank has determined business segments as outlined in para J of Significant Accounting Policies. Summary of the operating segments of the Bank are: As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs 1. Segment Revenue a. Retail Lending activities 18, , b. Corporate Banking 6, , c. Treasury 12, d. Retail liabilities and Branch banking e. Corporate Centre 6, , Sub-total 45, , Less Inter-segmental revenue 7, Total 38, , Segment Results a. Retail Lending activities 6, , b. Corporate Banking 2, c. Treasury 1, d. Retail liabilities and Branch banking (4,191.74) e. Corporate Centre 6, , Total 12, , Less :- Unallocated expenditure net of unallocated income (208.99) Total Profit Before Tax 12, , Segment Assets a. Retail Lending activities 1,81, ,63, b. Corporate Banking 3,22, , c. Treasury 1,73, d. Retail liabilities and Branch banking 1,55, e. Corporate Centre 55, , Sub-total 8,89, ,16, Less: Inter-segmental Assets 3,08, Total 5,80, ,14,233.97

72 63 Kotak Mahindra Bank Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs 4. Segment Liabilities a. Retail Lending activities 1,63, ,45, b. Corporate Banking 3,18, , c. Treasury 1,77, d. Retail liabilities and Branch banking 1,62, e. Corporate Centre 7, , Sub-total 8,29, ,63, Less: Inter-segmental Liabilities 3,08, , Total 5,21, ,60, Unallocated Assets net of Liabilities Capital Expenditure a. Retail Lending activities b. Corporate Banking c. Treasury d. Retail liabilities and Branch banking 1, e. Corporate Centre , Total 2, , Depreciation a. Retail Lending activities b. Corporate Banking c. Treasury d. Retail liabilities and Branch banking e. Corporate Centre f. Unallocated Total 1, The Bank was operating as a Non Banking Finance Company (NBFC) till 21 st March As a result for the year ended 31 st March 2003, the segment reporting was based on the classification of business segments when it was a NBFC. Consequent to becoming a Bank, it has adopted the segment reporting required for a bank. As a result of the same, segment information for the current year may not be strictly comparable with that of the previous year. 18 Lease Disclosures: (i) The Bank has taken various premises under operating lease. The lease payments recognized in the Profit and Loss Account is Rs lakhs (previous year Rs lakhs).the sub-lease income recognized in the Profit and Loss Account is Rs lakhs (Previous year Rs lakhs). (ii) Details of gross investments, unearned finance income in respect of assets given under finance lease are as under: As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Gross Investments: (i) Not later than 1 year 1, , (ii) Between 1-5 years 1, , Total 2, , Unearned Finance Income: (i) Not later than 1 year (ii) Between 1-5 years Total Accumulated provision on the gross investments

73 64 Kotak Mahindra Bank Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 19 Deferred Taxes: Others in Other Assets (schedule 11.V) includes deferred tax asset (net) of Rs lakhs (previous year Deferred Tax Liability (net) of Rs lakhs under heading Others in Other liabilities and provisions). The components of the same are as follows: Particulars As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Deferred Tax Liability: Depreciation , Deferred expenses Others Sub-total , Deferred Tax Assets: Expenditure allowed on payment basis Provision for NPA Unabsorbed Capital Loss Others Sub-total 1, , Net Deferred Tax Liability/ (Asset) (112.14) Deferred tax assets on unabsorbed capital loss has been recognised by the Bank based on the appreciation in the existing equity portfolio and the Management s estimates of realization of the same in future. 20 Fixed assets as per Schedule 10 include the intangible assets relating to software and system development expenditure which are as follows: Particulars As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Gross Block At cost on 31st March of the preceding year 1, Additions during the year , Total 1, , Depreciation As at 31 st March of the preceding year Charge for the year Depreciation to date Net Block , ESOS: At the General Meeting held on July 28, 2000, the shareholders approved an Employee Stock Option Scheme ( Scheme ) whereby upto 2,295,625 equity shares were allocated towards the Scheme. During the year, the Bank issued 131,300 (previous year 70,000) options to eligible employees. The details of outstanding options are as under: Particulars As at 31 st As at 31 st March, 2004 March, 2003 Rupees in lakhs Rupees in lakhs Options outstanding as at beginning 870, ,000 Add options granted during the year 131,300 70,000 Less options exercised during the year 320,000 Less options forfeited 18,000 10,000 Options outstanding at end of the year 663, , Balances with banks in Other Deposit Accounts (Schedule 7) includes Rs lakhs (previous year Rs lakhs) maintained as collateral in respect of receivables securitized by the Bank.

74 65 Kotak Mahindra Bank Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 23. Related Party disclosures: Nature of relationship A. Parties where control exists: Individual having control over the enterprise Subsidiary Companies B. Other Related Parties: Associates Key Management Personnel Relatives of Key Management Personnel Related Party Mr. Uday S. Kotak, Executive Vice Chairman and Managing Director (also considered as Key Management Personnel), alongwith relatives and enterprises in which he has beneficial interest, holds 56.29% of the equity share capital of Kotak Mahindra Bank Limited Kotak Mahindra Primus Limited Kotak Securities Limited Kotak Mahindra Capital Company Limited Kotak Mahindra Securities Limited Kotak Mahindra (International) Limited Kotak Mahindra (UK) Limited Kotak Mahindra Inc. Global Investment Opportunities Fund Ltd. OM Kotak Mahindra Life Insurance Company Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Trustee Company Limited Kotak Mahindra Private Equity Trustee Limited Kotak Forex Brokerage Limited Kotak Mahindra Investments Limited Ford Credit Kotak Mahindra Limited India Car Private Limited Business Standard Limited Mr. C. Jayaram, Executive Director Mr. Dipak Gupta, Executive Director Ms. Pallavi Kotak Mr. Suresh Kotak Ms. Indira Kotak Ms. Aarti Chandaria Master Jay Kotak Master Dhawal Kotak Ms. Anita Gupta Ms. Urmila Gupta Mr. Prabhat Gupta Mr. S. S. Banga Ms. Usha Jayaram Mr. K. Madhavankutty C. Details of related party transactions: (Rs. in lakhs) Items/Related Party Individual Subsidiary Associates Key Relatives of Having Companies Management Key Management Control Personnel Personnel I. Liabilities: Other liabilities (refer Note 2) 4, (4,581.41) II. Assets: Investments Gross 19, , (17,575.39) (3,091.93) Diminution on Investments (135.00) Royalty Income receivable (refer note 3) 1, (1,112.50) Others (127.41) (2.01)

75 66 Kotak Mahindra Bank Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) (Rs. in lakhs) Items/Related Party Individual Subsidiary Associates Key Relatives of Having Companies Management Key Management Control Personnel Personnel III. IV. Expenses: Salaries/fees (220.87) Others (204.34) ( ) Income: Royalty (refer note 3) 4, (4,300.00) Dividend (828.79) Others (792.23) (72.92) V. Other Transactions: Dividend paid (704.03) (0.23) (0.05) Reimbursements to companies Reimbursements from Companies Purchase of Fixed assets Sale of Fixed Assets 4.81 Notes: (1) Figures in brackets represent previous year s figures. (2) Includes Rs. 4, lakhs of Security Deposit from Kotak Mahindra Primus Limited. (3) Royalty income receivable Rs. 1, lakhs and Royalty income of Rs. 4, lakhs is from Kotak Mahindra Primus Limited. 24 Figures for the previous year have been regrouped/ reclassified wherever necessary to conform to current year s presentation. Mumbai, 25 th May, 2004 For and on behalf of the Board of Directors K. M. Gherda Uday Kotak Chairman Executive Vice-Chairman & Managing Director Dipak Gupta Bina Chandarana Executive Director Company Secretary

76 67 Kotak Mahindra Bank Limited STATEMENT PURSUANT TO SECTION 212(1)(e) OF THE COMPANIES ACT, 1956, RELATING TO SUBSIDIARY COMPANIES Sr. Name of the Financial Holding Extent For the financial year of For the previous financial years of the No. Subsidiary Company year Company s of the Subsidiary Subsidiary since it become a Subsidiary ending interest Holding of the Number of profits/(losses) profits/(losses) profits/(losses) profits/(losses) Subsidiary shares held. so far as it so far as it so far as it so far as it (Equity Shares concerns the concerns the concerns the concerns the of Rs. 10 each members of the members of the members of the members of the unless stated Holding Company Holding Company Holding Company Holding Company otherwise) and not dealt with and dealt with and not dealt and dealt with in the Books of in the Books of within the Books in the Books of Account of the Account of the of Account of the Account of the Holding Company Holding Company Holding Company Holding Company (1) (2) (3) (4) (5) (6) (7) (8) (9) Rs. in lakhs Rs. in lakhs Rs. in lakhs Rs. in lakhs 1. Kotak Mahindra Capital Company Limited (KMCC) 31/03/04 2,970, % Kotak Securities Limited (KS) 31/03/04 1,199, % Kotak Mahindra Primus 31/03/04 1,782,600 60% Limited (KMPL) (Note A) 4. OM Kotak Mahindra Life 31/03/04 111,930, % (3,635.01) ( ) Insurance Company Limited (OMKM) (Note B) 5. Kotak Mahindra Asset Management Company Limited (KMAMC) 31/03/04 24,000, % (442.60) 6. Kotak Mahindra Trustee Company Limited (KMTCL) 31/03/04 50, % Kotak Mahindra Investments Limited (KMIL) 31/03/04 3,050, % Kotak Mahindra (International) 31/12/03 2,000, % Limited (KM(I)L) (Note C&D) 9. Kotak Mahindra (UK) Limited 31/12/03 470, % (17.59) (KM(UK)L) (Note C&D) 10. Global Investment Opportunities 31/12/ % Fund Limited (Note C&D) 11. Kotak Mahindra, Inc. (KM Inc) 31/12/03 750, % (78.01) (209.01) (Note C&D) 12. Kotak Mahindra Securities Limited 31/03/04 2,000, % (KMSL) (Note C) 13. Kotak Mahindra Private Equity Trustee Co. Limited (KMPET) 31/03/04 50, % Kotak Forex Brokerage Limited (KFBL) 31/03/04 1,750, % (69.23) 2.73 (Note E) A. Kotak Mahindra Bank Limited was allotted 147,825 shares of KMPL on 16th December, 2003 consequent to conversion of debentures into equity shares. B. Kotak Mahindra Bank Limited was allotted 14,768,624 equity shares of OMKM on 28th August, 2003 C. KMSL, KM(I)L, KMInc are 100% subsidiaries of KMCC. KM(UK)L is a 100% subsidiary of KM(I)L. KMCC being a subsidiary of the company, the ultimate holding company of these companies is the company. D. Shares of Global Investment Opportunities Fund Limited (formerly known as Kotak Mahindra Investment Company Limited PCC) are Management Shares. The shares of KM(I)L and KM(UK) are Ordinary Shares and the Shares of KM Inc are Common Stock. E. Kotak Mahindra Bank Limited was allotted 1,000,000 equity shares of Kotak Forex Brokerage Limited on 4th February, 2004 For and on behalf of the Board of Directors Mumbai, 25 th May, 2004 K. M. Gherda Uday S. Kotak Chairman Executive Vice Chairman & Managing Director Dipak Gupta Bina Chandarana Executive Director Company Secretary

77 68 Kotak Mahindra Capital Company Limited BOARD OF DIRECTORS : UDAY KOTAK (C), AJAY SONDHI (VC & MD), SHANTI EKAMBARAM, N. J. JHAVERI, DIPAK GUPTA, RICHARD GNODDE, TIM LEISSNER, NOEL SEPHTON (Alt. to RICHARD GNODDE) DIRECTORS REPORT To the Members of Kotak Mahindra Capital Company Limited The Directors present their Ninth Annual Report together with the audited accounts of your Company for the year ended 31 st March FINANCIAL HIGHLIGHTS (Rupees 000) Year ended Year ended 31 st March st March 2003 Gross Income 1,365, ,357 Profit before Depreciation and Tax 847, ,896 Depreciation 10,889 8,092 Profit before Tax 836, ,803 Provision for Tax 256, ,890 Profit after Tax 579, ,913 Profit brought forward 511, ,875 Net Profit available for Appropriation 1,090, ,789 Appropriations: Special Reserve under section 45-IC of The Reserve Bank of India Act, ,15,911 61,985 General Reserve 57,955 30,992 Dividend (including Distribution Tax) 73,712 49,500 Surplus carried forward to the Balance Sheet 8,43, ,311 2 DIVIDEND The Directors recommend a dividend of Rs per equity share of the Company. 3 OPERATIONS a. Franchise Business The year under review witnessed a buoyant primary market with 35 (previous year 14) public issues during the year of which 6 (previous year 8) were issues of debt instruments with 29 (previous year 6) being equity share issues. The total amount of funds raised in the year through public issues was approximately Rs. 2,099, lacs as compared to Rs. 5,73,200 lacs in the year Activity in the Mergers & Acquisitions and the Fixed Income product areas has continued the steady growth of the previous year. b. Capital Markets In view of the buoyancy prevalent in the primary market throughout last year, the industry has been able to improve its performance over the previous year. Your Company was once again ranked the no. 1 Investment Banker for Equity Issues managed in India. Your Company lead managed 12 of the 29 equity public issues during the year involving a total of Rs.150,340 million. Out of the Rs. 1,775,92 million (Source: Prime Database). The issues include large equity offerings such as Maruti Udyog Limited, Patni Computers Limited, Oil & Natural Gas Limited, and IPCL Limited. Your company has once again dominated virtually every aspect of the Indian equities business over the past 12 months. Finance Asia has named the Maruti Udyog IPO as the best Mid Cap equity deal of the year. The Maruti IPO was also the IFR Asia equity deal of the year. Euro Money and Asia Money named Kotak Investment Banking as the Best Equity House in India while Finance Asia named Kotak Investment Banking as the Best Investment Bank. In the current year your Company was the Book Running Lead Manager for the ICICI Bank IPO of Rs. 35,000 million. Your Company has a very healthy pipeline of mandates in the various sectors and would strive to retain its leadership position as the most preferred investment banker. Your Company subsidiaries in United Kingdom and Mauritius acted as Joint Global Co-ordinators and Joint Book runners to a FCCB transaction of US $ 100 million. This marks the first time that an Indian investment banking group has acted as Joint Global Co-ordinators and Joint Book runners and distributed an equity/equity linked offering which is listed on an exchange outside India. Your Board acknowledges the significant guidance and support from our joint venture partners, Goldman Sachs, which was of great assistance for our team in this transaction. c. Fixed Income Securities Group The interest rates were stable all through the previous year with the liquidity continuing to be good. The Securities And Exchange Board of India and the Reserve Bank of India notified guidelines for raising of debt capital by way of private placements. The new guidelines virtually stopped private placement. Increasing during the year Corporates have looked to borrowing in overseas markets at lower rates. However the market for securitisation, both for Asset Backed Securities and Mortgage Backed Securities has significantly increased during the last year. d. Mergers and Acquisitions Division Though the domestic Merger and Acquisitions market was subdued during the year, your Company was the Sole Advisors for an acquisition in the Garment sector as well as one in the Telecom sector. The two transactions were of an aggregate value of US $ 44 million. e. Principal Business Thanks to ample liquidity in the markets which helped maintain interest rates at a stable level with a softer bias, the Primary Dealership business netted a 35% higher net income as compared to the previous year. The PD business also clocked higher volume of Turnover at Rs. 538,018 million as compared

78 69 Kotak Mahindra Capital Company Limited to Rs. 344,504 million during the previous year. The Company also met all its commitments made to the Reserve Bank of India as a Primary Dealer. During the year the Company raised its short term rating requirement from 500 million to 750 million maintaining its CRISIL rating at P1+ indicating highest safety in terms of timely payment of interest and principal. Taking advantage of the buoyancy in the Equity markets the Company s timely investments in Equity and Equity related Mutual Funds netted an income of Rs million. 4 STRATEGIC INITATIVES With the revival in the equity market and good economic growth your board is optimistic about the future. Your Company intents to not only continue its leadership position in the domestic equity market but increase in presence in the International market for GDR and FCCBs through its foreign subsidiaries. Your Company also proposes to focus on Cross Border Acquisitions transactions, which are being sought after by Indian Companies. The revival in the economy should see higher M&A activity in India with Corporate looking to expand capacities. During the year your company sent four employees on secondment to Goldman Sachs, Hongkong and Singapore. The secondment will enable the employees to improve their skills and get experience in working on International Transactions. Your Company acknowledges the help provided by Goldman Sachs in taking our employees on secondment and providing training support. 5 SUBSIDIARIES Kotak Mahindra Securities posted a small profit during the last year. Kotak Mahindra International Limited along with Kotak Mahindra (UK) Limited showed an improvement in their performance over the previous year. Kotak Mahindra Inc however continued to show losses. 6 DIRECTORS Mr. Tim Liessner and Mr. Uday Kotak retire at the Ninth Annual General Meeting and are eligible for re-appointment. 7 AUDIT COMMITTEE The constitution of the Audit Committee of the Company is as set out below: Mr. Uday Kotak Mr. N. J. Jhaveri Mr. Dipak Gupta Mr. Richard Gnodde or his alternate 8 AUDITORS The Auditors of your Company, Messrs Price Waterhouse, Chartered Accountants, are eligible to be appointed as Auditors and have consented to act as the Auditors of your Company. Members are requested to consider the appointment of Price Waterhouse, Chartered Accountants, on such remuneration as may be fixed by the Audit Committee/Board of Directors of the Company. 9 STATUTORY INFORMATION A statement giving the particulars of employees as required under Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, is annexed. During the year under review, your Company did not accept any deposits from the public. There are no deposits due and outstanding as on 31 st March Your Company s foreign exchange income was Rs. 126,579,740 while the outgo was Rs. 2,150,992. The other particulars under the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are not applicable since your Company is not a manufacturing company. 10 DIRECTOR S RESPONSIBILITY STATEMENT The Directors, based on the representations received from the operational management, confirm in pursuance of Section 217 (2AA) of the Companies Act, 1956, that: (i) your Company has, in the preparation of the annual accounts for the year ended 31 st March 2004, followed the applicable accounting standards along with proper explanations relating to material departures, if any; (ii) the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 st March 2004 and of profit/loss of the Company for the financial year ended 31 st March 2004; (iii) the Directors have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and (iv) the Directors have prepared the annual accounts on a going concern basis. 11 ACKNOWLEDGEMENTS Your Directors would like to place on record their gratitude for the valuable guidance and support received from the Reserve Bank of India, Securities and Exchange Board of India and other Government and Regulatory agencies. Your Directors acknowledge and wish to place their appreciation of employees for their commendable efforts, teamwork and professionalism. For and on behalf of the Board of Directors Mumbai, 7 th May UDAY KOTAK Chairman

79 70 Kotak Mahindra Capital Company Limited AUDITORS REPORT TO THE SHAREHOLDERS To the Members of Kotak Mahindra Capital Company Limited 1 We have audited the attached Balance Sheet of Kotak Mahindra Capital Company Limited (the Company), as at 31 st March 2004, the related Profit and Loss Account for the year ended on that date annexed thereto and the Cash Flow Statement for the year ended on that date, which we have signed under reference to this report. These financial statements are the responsibility of the Management of the Company. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. 3 In our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with the notes thereon and attached thereto give in the prescribed manner the information required by the Companies Act, 1956 of India (the Act), and give, a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31 st March, 2004; (b) in the case of the Profit and Loss Account, of the profit for the year ended on that date and (c) in the case of Cash Flow Statement, of the cash flows for the year ended on that date. 4 We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit. 5 In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books. 6 The Balance Sheet and the Profit and Loss Account dealt with by this report are in agreement with the books of account. 7 In our opinion, the financial statements dealt with by this report comply with the accounting standards referred to in sub-section(3c) of Section 211 of the Act. 8 On the basis of written representations received from the Directors of the Company, as on 31 st March 2004, and taken on record by the Board of Directors of the Company, none of the Directors of the Company is disqualified as on 31 st March 2004 from being appointed as a Director in terms of clause (g) of sub-section (1) of Section 274 of the Act; 9 As required by the Companies (Auditor's Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Act and on the basis of such checks as we considered appropriate and according to the information and explanations given to us, we further report that: (i) (a) The Company has maintained proper records to show full particulars including quantitative details and situation of its fixed assets. (b) The fixed assets of the Company are physically verified by the Management according to a phased programme designed to cover all the items over a period of two years, which in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the programme, a portion of the fixed assets have been physically verified by the Management during the year and no material discrepancies between the book records and the physical inventory have been noticed. (c) In our opinion a substantial part of the Company's fixed assets has not been disposed off by the Company during the year. (ii) (a) The securities held as stock-in-trade in subsidiary general ledger account, settlement guarantee fund and with a depository participant have been confirmed by the Reserve Bank of India (RBI), The Clearing Corporation of India Limited and the depository participant respectively as at 31 st March In our opinion, the frequency of verification/confirmation is reasonable. (b) In our opinion, the procedures of verification/confirmation of securities held as stock-in-trade followed by the Management are reasonable and adequate in relation to the size of the Company and the nature of its business. (c) On the basis of our examination of the records of the Company relating to securities held as stock-in-trade, in our opinion the Company has maintained proper records of stock-in-trade and no material discrepancies between the book records and the physical inventory have been noticed. (iii) (a) The Company has granted loans to its holding company and has taken loans secured or unsecured from its holding company, covered in the regiser maintained under Section 301 of the Act. The maximum amount involved during the year aggregate Rs. 290,000,000 and Rs. 200,000,000 respectively, and the year end balance of such loans is Rs. Nil and Rs. Nil respectively. (b) In our opinion the rate of interest and other terms and conditions of such loans are not prima-facie prejudicial to the interests of the Company. (c) In respect of the aforesaid loans, the holding company has repaid the principal amounts as stipulated and was also regular in payment of interest. In respect of loans taken the Company has repaid the principal amounts as stipulated and is also regular in payment of interest. (iv) In our opinion and according to the information and explanations given to us there are adequate internal control procedures commensurate with the size of the Company and the nature of its business in respect of purchase and sale of securities held as stock-in-trade and purchase of fixed assets. Further on the basis of our examination of the books of account and according to the information and explanations given to us, we have not come across nor have we been informed of any instance of major weaknesses in internal control procedures.

80 71 Kotak Mahindra Capital Company Limited (v) (a) In our opinion and according to the information and explanations given to us, the transactions that need to be entered in the register in pursuance of Section 301 of Act, have been so entered. (b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangement entered in the register in pursuance of Section 301 of the Act and exceeding the value of Rs. 5 lakhs in respect of any party during the year have been made at prices which are reasonable having regard to the prevailling market prices at the relevant time or are considered to be of special nature for which no comparison of prices could be made as explained by the Management of the Company. (vi) (vii) The Company has not accepted any deposits from the public under the provisions of Section 58A and 58AA of the Act and the rules framed there under. In our opinion, the Company has an internal audit system commensurate with its size and nature of its business. (viii) (a) According to the books of account and records as produced and examined by us, in accordance with generally accepted auditing practices in India and also Management representations, in our opinion, the Company is generally regular in depositing undisputed statutory dues in respect of provident fund, investor education and protection fund, employees' state insurance, income-tax, sales-tax, wealth tax, customs duty, excise duty, cess and other material statutory dues as applicable with the appropriate authorities in India. (b) According to the information and explanations given to us as at 31 st March 2004 there are no disputed dues in respect of sales tax, income-tax, customs duty, wealth tax, excise duty and cess. (ix) (x) (xi) (xii) (xiii) (xiv) (xv) (xvi) The Company has neither accumulated losses as at 31 st March 2004 nor has it incurred any cash loss either during the financial year ended on that date or in the immediately preceding financial year. According to the books of account and records of the Company, there has been no default in repayment of dues to any financial institution or bank or debenture holders during the year. The Company is dealing in securities for which proper records have been maintained of the transactions and timely entries have been made therein. Securities held as stock-in-trade by the Company are held in the name of the Company except to the extent of exemption granted under Section 49 of the Act. As at 31 st March 2004, Government of India Stock of face value Rs. 100,000,000 has been endorsed in favour of The Clearing Corporation of India Limited for the settlement guarantee fund facility taken from it. In our opinion, and according to the information and explanations given to us the terms and conditions of the guarantees given by the Company, for loans taken by its subsidiary companies from banks or financial institutions during the year, are not prejudicial to the interest of the Company. Based on the information and explanations given to us and on an overall examination of the Balance Sheet of the Company, in our opinion there are no funds raised on a short term basis which have been used for a long term investment and vice versa. The Company has not made any preferential allotment of shares to parties and companies listed in the register maintained under Section 301 of the Act during the year. No security was required to be created by the Company in respect of unsecured debentures issued during the year. During the course of examination of the books of account and records of the Company carried out in accordance with the generally accepted auditing practices in India, we have not come across any fraud on or by the Company, noticed or reported during the year, nor have we been informed of such case by the Management. (xvii) The other clauses of the Companies (Auditor's Report) Order, 2003 are not applicable to the Company for the current year. For and on behalf of PRICE WATERHOUSE Chartered Accountants K. H. VACHHA Partner Membership No. F30798 Place: Mumbai Date: 7 th May 2004

81 72 Kotak Mahindra Capital Company Limited BALANCE SHEET AS AT 31 ST MARCH 2004 Schedule 31 st March st March 2003 Rupees Rupees Rupees Sources of Funds : Shareholders Funds : Capital 1 39,600,200 39,600,200 Reserves and Surplus 2 2,427,159,241 1,921,317,925 Loan Funds : Secured Loans 3 9,670, ,644,129 Unsecured Loans 4 2,583,000,000 1,306,000,000 Deferred Tax Liability (Refer Note 7 on Schedule 21) 3,483,174 1,870,697 Total 5,062,913,450 3,764,432,951 Application of Funds Fixed Assets : Gross Block 5 57,655,132 48,271,219 Less : Depreciation 29,676,243 22,803,793 Net Block 27,978,889 25,467,426 Investments 6 632,811,366 1,124,137,127 Deferred Tax Asset (Refer Note 7 on Schedule 21) 14,723,042 19,400,355 Current Assets, Loans and Advances : Stock-in-trade 7 4,886,995,286 2,563,415,327 Sundry Debtors 8 584,282, ,482,213 Cash and Bank Balances 9 29,296,491 5,716,588 Other Current Assets ,684,688 57,139,428 Loans and Advances ,315,437 40,439,611 5,828,574,719 2,825,193,167 Less : Current Liabilities And Provisions : Liabilities 12 1,334,762, ,922,768 Provisions ,463,438 28,944,290 1,441,225, ,867,058 Net Current Assets 4,387,349,186 2,595,326,109 Miscellaneous Expenditure 14 50, ,934 (To the extent not written off or adjusted) TOTAL 5,062,913,450 3,764,432,951 Notes to the Financial Statements 21 Schedules referred to above form an integral part of the Balance Sheet This is the Balance Sheet referred to in our report of even date For and on behalf of the Board of Directors For Price Waterhouse Uday Kotak Ajay Sondhi Chartered Accountants Chairman Vice Chairman & Managing Director K. H. Vachha Ajay Vaidya Shanti Ekambaram Partner Company Secretary Director Mumbai Dated : 7 th May 2004

82 73 Kotak Mahindra Capital Company Limited PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2004 Schedule 31 st March st March 2003 Rupees Rupees Rupees Income Income from Services ,828, ,840,192 Interest and Discounting Income ,989, ,405,678 Profit on Sale of Investments (Net) 46,635,123 9,778,117 (Refer note 10 on Schedule 21) Profit on Trading In Securities (Net) 452,786, ,041,163 (Refer note 12 on Schedule 21) Other Income ,275,452 10,292,145 TOTAL INCOME 1,365,513, ,357,295 Expenditure Personnel ,187, ,568,262 Interest and Other Financial Charges ,936, ,531,002 Other Expenses ,279, ,362,325 TOTAL EXPENDITURE 518,403, ,461,589 Profit before Depreciation and Taxation 847,110, ,895,706 Depreciation 10,889,038 8,092,370 Profit Before Taxation 836,221, ,803,336 Provision For Taxation Current Tax 250,378, ,346,290 [Net of writeback of Rs. 721,516 for earlier years (Previous Year charge of Rs. 271,290)] Deferred Tax 6,289,790 (456,189) 256,668, ,890,101 Profit after Taxation 579,553, ,913,235 Balance brought forward from Previous Year 511,311, ,875,281 1,090,864, ,788,516 Appropriations Special Reserve under Section 45IC of the Reserve Bank of India Act, ,911,000 61,985,000 Dividend : Interim (Subject to deduction of tax at source) 49,500,250 Final (Proposed) 65,340,330 Tax on Distributed Profits 8,371,729 General Reserve 57,955,500 30,992,000 Balance carried to Balance Sheet 843,286, ,311,266 1,090,864, ,788,516 Earnings per Share on Equity Shares of Face Value Rs. 10 each Basic and Diluted Notes to the Financial Statements 21 Schedules referred to above form an integral part of the Profit and Loss Account This is the Profit and Loss Account referred to in our report of even date For and on behalf of the Board of Directors For Price Waterhouse Uday Kotak Ajay Sondhi Chartered Accountants Chairman Vice Chairman & Managing Director K. H. Vachha Ajay Vaidya Shanti Ekambaram Partner Company Secretary Director Mumbai Dated : 7 th May 2004

83 74 Kotak Mahindra Capital Company Limited CASH FLOW STATEMENT FOR THE YEAR ENDED 31 ST MARCH Rupees Rupees Cash Flow from Operating Activities Net Profit before taxation 836,221, ,803,336 Adjustments for: Depreciation 10,889,038 8,092,370 Dimunition in value of Investments 28,786,674 2,814,724 Miscellaneous expenses written off 50,967 50,968 (Profit)/loss on sale of Investments (net) (46,635,123) (9,778,117) Discounting and redemption income on current Investments (5,129,258) (8,610,778) Interest/dividend received on Investments (167,185,742) (40,106,031) Interest on Income tax refund (1,162,185) (240,781) (Profit)/loss on sale of assets (1,049,748) (810,471) Operating Profit before Working Capital changes 654,786, ,215,220 Adjustments for: (Increase)/Decrease in stock-in-trade (2,323,579,959) (509,484,364) Increase/(Decrease) in money market borrowings 1,277,000,000 1,056,000,000 Increase/(Decrease) in refinance from Reserve Bank of India (488,200,000) (453,533,444) Increase/(Decrease) in other short term borrowings (119,000,000) (Increase)Decrease in loans and advances (174,875,826) (6,972,551) (Increase)/Decrease in sundry debtors (425,800,604) (10,724,040) (Increase)/Decrease in other current assets (55,545,260) 5,561,647 Increase/(Decrease) in current liabilities 1,133,839,327 (33,357,082) Increase/(Decrease) in provision for gratuity and leave encashment 1,817, ,536 Cash (used in)/generated from Operations (400,558,650) 359,153,922 Direct taxes paid (net of refunds and Interest thereon) (247,226,611) (167,555,370) Net Cash Flow from Operating Activities (A) (647,785,261) 191,598,552 Cash Flow from Investing Activities Purchase of fixed assets (15,400,261) (24,605,489) Sale of fixed assets 3,049,508 4,536,537 Purchase of investments in subsidiaries (14,444,000) Purchase of other investments (2,530,517,848) (4,030,882,461) Sale of other investments 3,044,821,317 3,914,597,804 Interest/dividend received on Investments 167,185,742 42,108,771 Net Cash Flow from Investing Activities (B) 669,138,458 (108,688,838) Cash Flow from Financing Activities Proceeds/(repayment) of long term borrowings 2,226,706 4,189,817 Dividends paid (99,000,500) Net Cash From/(Used) In Financing Activities (C) 2,226,706 (94,810,683) Net Increase/(Decrease) in Cash and Cash Equivalents (A + B + C) 23,579,903 (11,900,969) Cash and Cash Equivalents at the beginning of the year 5,716,588 17,617,557 Cash and Cash Equivalents at the end of the year 29,296,491 5,716,588 23,579,903 (11,900,969) Notes: (1) The above Cash Flow Statement has been prepared under the Indirect Method as set out in Accounting Standard-3 on Cash Flow Statements issued by the Institute of Chartered Accountants of India. (2) Cash and cash equivalents include Rs. 275,000 (Previous Year Rs. 275,000) received and held on behalf of the Company s client in the course of the Company s normal business activity. This is the Cash Flow Statement referred to in our report of even date For and on behalf of the Board of Directors For Price Waterhouse Uday Kotak Ajay Sondhi Chartered Accountants Chairman Vice Chairman & Managing Director K. H. Vachha Ajay Vaidya Shanti Ekambaram Partner Company Secretary Director Mumbai Dated : 7 th May 2004

84 75 Kotak Mahindra Capital Company Limited SCHEDULES FORMING PART OF THE BALANCE SHEET 31 st March st March 2003 Rupees Rupees Schedule 1 : Capital Authorised 10,000,000 equity shares of Rs. 10 each 100,000, ,000,000 TOTAL 100,000, ,000,000 Issued and Subscribed 3,960,020 equity shares of Rs.10 each fully paid up 39,600,200 39,600,200 (Of the above, 2,970,005 shares are held by Kotak Mahindra Bank Limited, the holding company and its nominees) TOTAL 39,600,200 39,600,200 Schedule 2 : Reserves and Surplus Share Premium Account As per last Balance Sheet (a) 619,006, ,006,190 Special Reserve under Section 45-IC of The Reserve Bank of India Act, 1934 As per last Balance Sheet 397,260, ,275,000 Transfer from Profit and Loss Account 115,911,000 61,985,000 (b) 513,171, ,260,000 General Reserve As per last Balance Sheet 393,740, ,748,469 Transfer from Profit and Loss Account 57,955,500 30,992,000 (c) 451,695, ,740,469 Profit and Loss Account (d) 843,286, ,311,266 TOTAL (a)+(b)+(c)+(d) 2,427,159,241 1,921,317,925 Schedule 3 : Secured Loans Refinance from Reserve Bank of India 488,200,000 [Secured by Government of India securities and treasury bills of face value Rs. NIL (Previous Year Rs. 527,000,000)] Loans for vehicles 9,670,835 7,444,129 (Secured against hypothecation of vehicles) TOTAL 9,670, ,644,129 Schedule 4 : Unsecured Loans (Repayable within one year) Money at call/short notice from banks 205,000, ,000,000 from others 2,378,000, ,000,000 TOTAL 2,583,000,000 1,306,000,000 Schedule 5 : Fixed Assets (at cost) Rupees Description GROSS BLOCK DEPRECIATION/AMORTIZATION NET BLOCK As at 1 st Additions Deductions As at 31 st As at 1 st For the Deductions As at 31 st As at 31 st As at 31 st April 2003 March 2004 April 2003 year March 2004 March 2004 March 2003 Leasehold Improvement 7,329,480 1,844,850 9,174,330 7,303 2,693,655 2,700,958 6,473,372 7,322,177 Computers and Software 13,642,702 3,197, ,070 15,959,172 10,490,803 2,718, ,011 12,330,490 3,628,682 3,151,899 Furniture 6,679,650 38,100 2,044,637 4,673,113 3,109, ,321 2,001,382 2,040,212 2,632,901 3,570,377 Office Equipment # 9,918,346 1,596, ,684 11,352,428 5,866,978 1,285,676 56,816 7,095,838 4,256,590 4,051,368 Vehicles 10,701,041 8,723,005 2,927,957 16,496,089 3,329,436 3,258,688 1,079,379 5,508,745 10,987,344 7,371,605 Total 48,271,219 15,400,261 6,016,348 57,655,132 22,803,793 10,889,038 4,016,588 29,676,243 27,978,889 25,467,426 Previous year 30,048,231 24,605,489 6,382,501 48,271,219 17,367,858 8,092,370 2,656,435 22,803,793 25,467,426 # Office equipments include assets aggregating to Rs. 622,000 (50% of the original cost) jointly owned with other enterprises. The depreciation for the year is Rs. 124,741 (Previous Year Rs. 124,400) and the written down value of the asset as on 31 st March 2004 is Rs. 256,298 (Previous Year Rs. 381,039).

85 76 Kotak Mahindra Capital Company Limited Schedules forming part of the Balance Sheet (Contd.) Quantity Amount Face Value 31 st March st March st March st March 2003 (Rupees) (Rupees) (Rupees) Schedule 6 : Investments Long Term Investments (Trade) (at Cost) In Equity Shares of Subsidiary Companies (Unquoted, fully paid up) Kotak Mahindra (International) Limited US $ 1 2,000,000 2,000,000 71,800,000 71,800,000 Kotak Mahindra Inc US $ , ,000 34,377,500 34,377,500 Kotak Mahindra Securities Limited 10 2,000,070 2,000,070 20,100,700 20,100,700 In Equity Shares of Other Companies (Unquoted, fully paid up) Multifaced Finstock Private Limited , ,040 6,600,400 6,600,400 JayKay Finholding (India) Private Limited , ,000 6,492,500 6,492,500 Goldman Sachs (India) Private Limited ,780 63, In Preference Shares of Other Companies (Unquoted, fully paid up) 0.001% Non-Cumulative Redeemable Preference Shares of Telecom Investments India Private Limited 1,000, ,000,000 10,000,000 In Bonds of Other Companies (Unquoted, fully paid up) 0% Redeemable Bonds of Multifaced Finstock Private Limited 1,000 65,500 65,500 72,699,760 67,570, ,071, ,942,240 Less: Provision for dimunition in value (17,188,750) (A) 204,882, ,942,240 Current Investments (Other than Trade) (at cost or fair/market value, whichever is lower) In Equity shares (Quoted, Fully Paid-up) Gail (India) Limited 10 93,976 18,325,320 In Equity shares (Unquoted, Fully Paid-up) Nocil Petrochemicals Limited In Units of Mutual Fund (Unquoted, Fully Paid-up) Kotak Mahindra Mutual Fund Kotak 30 Equity Scheme Growth Plan 10 2,026,589 23,478,034 Kotak 30 Equity Scheme Dividend Plan 10 5,131,765 4,362,070 67,872,311 50,569,478 Kotak Liquid Institutional Plan Growth Plan 10 44,821, ,803,513 Kotak Global India Dividend Plan 10 2,000,000 19,130,000 HSBC Mutual Fund HSBC Equity Fund Dividend Plan 10 4,578,453 82,686,861 HDFC Mutual Fund HDFC Top 200 Fund Dividend Plan 10 1,376,462 20,000,000 Templeton Mutual Fund Templeton India Liquid Fund Growth Plan 10 8,031, ,000,000 Franklin India Blue Chip Fund Growth Plan 10 2,120,034 47,531,162 Franklin India Blue Chip Fund Dividend Plan 10 11,256, ,426,487 Franklin India Prima Fund Dividend Plan 10 1,621,953 42,500,000 Franklin India Prima Plus Dividend Plan ,711 9,085,214

86 77 Kotak Mahindra Capital Company Limited Schedules forming part of the Balance Sheet (Contd.) Schedule 6 : Investments (Contd.) Quantity Amount Face Value 31 st March st March st March st March 2003 (Rupees) (Rupees) (Rupees) Prudential ICICI Mutual Fund Prudential ICICI Liquid Plan 10 8,093, ,000,000 Deutsche Mutual Fund Deutsche Alpha Equity Fund Growth Plan , ,000 2,312,500 2,312,500 Deutsche Alpha Equity Fund Dividend Plan ,791 2,589,925 Deutsche Instacash Plus Fund Growth Plan ,000 2,500,000 In Warrants (Quoted) Cable Corporation Limited 257, ,800 (B) 427,928, ,194,887 (A)+(B) 632,811,366 1,124,137,127 Aggregate Value of Quoted Investments At Book Value 18,325,320 Market Value 20,035,683 Aggregate Value of Unquoted Investments At Book Value 614,486,046 1,124,137,127 Face Value 31 st March st March st March st March 2003 (Rupees) (Rupees) (Rupees) (Rupees) Schedule 7 : Stock In Trade [At cost or market/fair value whichever is lower] A. Government Dated Securities and Treasury Bills 364 Day Treasury Bill 01/04/ ,000, ,400, Day Treasury Bill 02/07/ ,000, ,325, Day Treasury Bill 06/06/ ,000,000 * 98,935, Day Treasury Bill 16/05/ ,525,000 * 61,083, % Government of India ,000,000 10,040, % Government of India ,000,000 87,726, % Government of India ,200,000 17,500, ,867,372 17,500, % Government of India ,000,000 53,175, % Government of India ,200,000 4,554, % Government of India ,200, ,717, % Government of India ,250,000 72,723, % Government of India ,000, ,400, % Government of India ,500,000 12,500,000 70,669,918 14,156, % Government of India ,000,000, ,000,000 1,238,626, ,087, % Government of India ,990,000 2,990,000 3,892,403 3,807, % Government of India ,200, ,200,000 * 797,105, ,762, % Government of India ,000,000 62,250, % Government of India ,500,000 3,425, % Government of India ,500,000 17,053, % Government of India ,000, ,603, ,470, % Government of India ,900,000 3,900,000 4,818,411 4,818, % Government of India ,000 10,000 10,694 10, % Government of India , ,864, , % Government of India ,400,000 3,629, % Government of India 2005-II 220, , , ,960

87 78 Kotak Mahindra Capital Company Limited Schedules forming part of the Balance Sheet (Contd.) Face Value 31 st March st March st March st March 2003 (Rupees) (Rupees) (Rupees) (Rupees) 10.47% Government of India ,400,000 18,616, % Government of India ,400,000 33,733, % Government of India ,500,000 7,044, % Government of India ,100, ,187, % Government of India ,400, ,928, % Government of India ,000,000 1,991, % Andhra Pradesh State Development Loan , , % Andhra Pradesh State Development Loan ,700,000 5,700, % Gujarat State Development Loan ,400,000 2,837, % Gujarat State Development Loan ,400,000 8,954, % Gujarat State Development Loan ,000,000 18,645, % Karnataka State Development , , % Maharastra State Development Loan , , % Maharashtra State Development Loan ,000 75,000 82,748 83, % Tamilnadu State Development Loan ,000 6,400, ,320 7,409, % Tamilnadu State Development Loan ,000,000 1,269, % Tamilnadu State Development Loan ,575,000 3,230, % Tamilnadu State Development Loan 2012 II 2,500,000 2,775,000 8% Tamilnadu State Development Loan ,900,000 2,124,502 Total (a) 4,699,766,360 2,346,704,005 * Partially or wholly endorsed as security for obtaining refinance and towards settlement guarantee fund of Clearing Corporation of India Excludes security sold under repurchase agreement Face Value 31 st March st March st March st March 2003 (Rupees) Quantity Quantity (Rupees) (Rupees) B. Debentures and Bonds 07.99% Housing and Urban Development Corporation Limited [2007] 100, ,087,170 Total (b) 50,087,170 C. Equity Shares Associated Cement Companies Limited 10 89,358 12,376,083 Arvind Mills Limited 10 25,800 1,132,362 Andhra Bank 10 4, ,312 Bank of India ,400 15,219,760 Balaji Telefilms Limited 2 74,359 4,093,463 BASF India Limited 10 26,122 2,347,062 Container Corporation of India Limited 10 29,302 6,332,162 Dr. Reddys Laboratories Limited 5 6,991 5,634,859 Essel Propack Limited 10 28,837 3,634,904 Exide Industries Limited 10 42,698 3,159,652 FCI OEN Connectors Limited 10 8, ,825 GAIL (India) Limited ,000 24,183,116 Grasim Industries Limited 10 28,350 28,779,344 GlaxoSmithkline Consumer Healthcare Limited 10 16,091 3,445,888 GlaxoSmithkline Pharmaceuticals Limited 10 12,487 3,645,580 Godfrey Phillips India Limited 10 5,647 1,662,477 Hindalco Industries Limited 10 4,179 2,233,676 Hindustan Oil Exploration Company Limited ,911 7,090,175 Hindustan Petroleum Corporation Limited 10 29,380 8,312,070 Honda Siel Power Products Limited ,579

88 79 Kotak Mahindra Capital Company Limited Schedules forming part of the Balance Sheet (Contd.) Face Value 31 st March st March st March st March 2003 (Rupees) Quantity Quantity (Rupees) (Rupees) Indian Oil Corporation Limited 10 51,102 11,868,440 Indo Gulf Fertilisers Limited 10 10, ,265 Infosys Technologies Limited 5 1,376 5,559,453 Oil & Natural Gas Corporation Limited 10 8,596 3,058,457 Otis Elevator Company (India) Limited 10 3,721 1,163,415 Paper Products Limited 10 20,278 2,192,052 Parke Davis (India) Limited 10 11,758 1,760,173 Pfizer Limited 10 5,225 14,088 1,760,173 4,367,285 Reliance Industries Limited 10 71,400 37,153,044 Saregama India Limited 10 60,079 2,505,294 Satyam Computer Services Limited 2 53,000 9,378,350 State Bank of India ,000 53,000 64,220,100 14,304,700 Shipping Corporation of India Limited 10 30,400 3,866,880 Tamil Nadu Newsprint & Papers Limited ,187 13,158,387 Tata Iron & Steel Company Limited 10 27,900 95,375 10,703,835 12,756,406 Tata Power Company Limited 10 21,564 2,438,888 Tide Water Oil Company (I) Limited 10 3,782 3,851,778 Tips Industries Limited 10 59,893 1,808,769 TVS Motor Company Limited 10 3,093 1,266,584 TVS Srichakra Limited ,427 5,047,502 VisualSoft Technologies Limited 10 37,248 5,190,504 Total (c) 187,228, ,624,152 GRAND TOTAL (a)+(b)+(c) 4,886,995,286 2,563,415,327 Aggregate Value of Quoted Stock in Trade Book value 4,886,995,286 2,563,415,327 Market value 4,903,750,781 2,575,469, st March st March 2003 Rupees Rupees Schedule 8 : Sundry Debtors (Unsecured) Considered good Over six months Others 584,282, ,482,213 Considered doubtful Over six months 913,375 Others Less : Provision for doubtful debts (913,375) TOTAL 584,282, ,482,213 Schedule 9 : Cash and Bank Balances Cash/Cheques on hand 87,437 70,738 Balances with : Scheduled banks in current account (Refer note 5 on schedule 21) 27,114,402 1,621,601 Reserve Bank of India in current account 2,094,652 4,024,249 TOTAL 29,296,491 5,716,588 Schedule 10 : Other Current Assets Interest accrued on stock in trade 111,640,411 57,021,240 Dividend Receivable 1,044, ,188 TOTAL 112,684,688 57,139,428

89 80 Kotak Mahindra Capital Company Limited Schedules forming part of the Balance Sheet (Contd.) 31 st March st March 2003 Rupees Rupees Schedule 11 : Loans and Advances (Unsecured, considered good unless otherwise stated) Advances and loans to subsidiary company 4,697 13,060 Other loans (secured) 802, ,977 Advances recoverable in cash or in kind or for value to be received 49,105,945 39,564,574 [includes deposit with the Clearing Corporation of India Limited Rs. 10,600,000 (Previous year Rs. 6,588,862)] Mark-to-Market Margin-Equity Index/Stock Futures Account 10,025,922 (Refer Note 1 L on Schedule 21) Less: Provision for Loss 10,025,922 Initial Margin Equity Index/Stock Futures Account 45,761,226 (Refer Note 1 L on Schedule 21) Deposit for Margin Money Account 119,641,268 TOTAL 215,315,437 40,439,611 Schedule 12 : Liabilities Sundry creditors (Other than small scale industrial undertakings)* 1,286,237, ,374,828 (Refer Note 5 on Schedule 21) Unexpired income 1,090,710 Other liabilities 46,102,564 24,543,240 Temporary Book overdraft 709,806 Interest accrued but not due on loans 621,927 1,004,700 TOTAL 1,334,762, ,922,768 * There are no amounts due and outstanding to be credited to Investor Education and Protection Fund. Schedule 13 : Provisions Gratuity and leave encashment 13,233,590 11,416,189 Taxation (net of advance taxes paid) 19,517,789 17,528,101 Proposed Dividend 65,340,330 Tax on distributed profit 8,371,729 TOTAL 106,463,438 28,944,290 Schedule 14 : Miscellaneous Expenditure (to the Extent Not Written-off or Adjusted) Preliminary expenses 101, ,902 Less : Amortised during the year (50,967) (50,968) TOTAL 50, ,934

90 81 Kotak Mahindra Capital Company Limited SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT 31 st March st March 2003 Rupees Rupees Schedule 15 : Income from Services Issue management and placement fees and underwriting commission (Net) (Refer note 8 on Schedule 21) 117,846,567 57,008,088 Financial advisory fees 228,981, ,832,104 The above income from services is gross Tax deducted at source : (Rupees) ,270,859 6,000,720 TOTAL 346,828, ,840,192 Schedule 16 : Interest and Discounting Income Interest on : Stock-in-trade (Government dated securities, bonds and debentures) (Gross) 323,438, ,221,885 Secured loans 642, ,105 Current investments (Gross) 45,528,356 40,008,560 Call lendings and money at short notice 1,866,674 2,571,730 Income tax refund 1,162, ,781 Other interest (Gross) 157, ,206 Discounting and redemption premium income on: Current Investments-commercial paper/other zero coupon instruments/bonds 5,129,258 8,610,778 Stock-in-trade treasury bills 9,063,727 6,934,633 Tax deducted at source on : (Rupees) Stock-in-trade 344,354 7,893,244 Current investments 9,333, ,096 Call Lendings 225, ,703 Other Interest 154,745 TOTAL 386,989, ,405,678 Schedule 17 : Other Income Dividend Income on : Long term investments (others) Gross (Tax deducted at source Rs. Nil; Previous Year Rs. 10) Current investments Gross (Tax deducted at source Rs. Nil; Previous Year Rs. 10,224) 121,657,286 97,371 Stock-in-trade Gross (Tax deducted at source Rs.10,309; Previous Year Rs. 406,250) 524,236 4,054,935 Profit on sale of fixed assets (net) 1,049, ,471 Provision for doubtful debts no longer required written back 913,375 3,512,500 Service Income (Tax deducted at source Rs.1,653,594; Previous Year Rs. 147,321) 5,400,000 1,367,708 Miscellaneous income 2,730, ,060 TOTAL 132,275,452 10,292,145 Schedule 18 : Personnel Salaries, allowances and bonus (Refer Note 9 on Schedule 21) 139,461, ,787,111 Contribution to employees provident and other funds 4,705,628 4,695,116 Gratuity and leave encashment 3,679,911 2,936,609 Staff welfare 1,044,078 1,149,426 Less: Recovery of expenses (Refer Note 11 on Schedule 21) (8,703,990) TOTAL 140,187, ,568,262 Schedule 19 : Interest and Other Financial Charges Interest on : inter corporate deposits 2,661,903 borrowings on call/short notice and from Reserve Bank of India 183,975, ,308,967 Repo borrowings 10,068,395 4,553,548 Debentures 3,251, ,575 Commercial paper 3,708,300 Other interest 874, ,599 Bank and other charges 57, ,410 TOTAL 201,936, ,531,002

91 82 Kotak Mahindra Capital Company Limited Schedule forming part of the Balance Sheet and the Profit and Loss Account 31 st March st March 2003 Rupees Rupees Schedule 20 : Other Expenses Travelling, conveyance and vehicle 22,922,830 11,308,230 Auditors remuneration: Audit fees 650, ,000 Tax audit fees 157, ,500 In other capacity 210, ,750 Out of pocket expenses 17,262 3,723 Legal and professional 10,634,165 3,481,234 Office 7,025,143 8,399,529 Advertisement 9,398,349 4,239,679 Electricity 3,088,919 3,205,512 Communication 6,092,304 5,688,899 Rent 16,080,652 22,553,284 Rates and taxes 313, ,393 Insurance 912, ,617 Repairs and maintenance others 3,428,470 3,325,149 Common establishment expenses reimbursement 35,962,205 23,559,221 Service charges 8,298,800 11,255,299 Diminution in value of investments Current investments 11,597,924 2,814,724 Long term investments 17,188,750 28,786,674 Commission to Director 200,000 Directors sitting fees 27,500 Donation 510,000 Lease rentals 607,564 2,450,740 Bad debts 5,698,589 3,712,500 Advances written off 1,830,699 Provision for doubtful debts 913,375 Foreign exchange loss (net) 3,689, ,144 Preliminary expenses written off 50,967 50,968 Other expenses 13,988,925 12,928,855 Less: Recovery of expenses (Refer Note 11 on Schedule 21) (3,793,956) TOTAL 176,279, ,362,325 SCHEDULE FORMING PART OF THE BALANCE SHEET AND THE PROFIT AND LOSS ACCOUNT Schedule 21 : Notes to the Financial Statements 1 SIGNIFICANT ACCOUNTING POLICIES: A. ACCOUNTING CONVENTION The financial statements are prepared under the historical cost convention and on accrual basis of accounting. B. REVENUE RECOGNITION i. Issue management and placement fees, underwriting commission and financial advisory fees are accounted based on stage of completion of assignments. ii. Brokerage on fixed income securities placements is accounted net of sub-brokerage on completion of the transaction. C. FIXED ASSETS AND DEPRECIATION i. Fixed assets are stated at cost inclusive of incidental expenses less accumulated depreciation. ii. Depreciation is provided on the straight-line method over the useful life of the fixed assets on pro rata basis for additions and deletions during the year as under: Leasehold improvements: Over the primary period of lease Computers and software: 3 years Furniture: 6 years Office Equipment: 5 years Vehicles: 4 years iii. Fixed assets costing less than Rs. 5,000 are fully depreciated in the year of purchase.

92 83 Kotak Mahindra Capital Company Limited Schedule forming part of the Balance Sheet and the Profit and Loss Account (Contd.) Schedule 21 : Notes to the Financial Statements (Contd.) D. INVESTMENTS Investments are classified into long-term investments and current investments. Investments, which are intended to be held for more than one year, are classified as long-term investments and investments, which are intended to be held for less than one year, are classified as current investments. Longterm investments are accounted at cost and any decline in the carrying value, other than temporary in nature is provided for. Current investments are valued at cost or market/fair value whichever is lower. In case of debt instruments, fair value is worked out on the basis of latest available stock exchange quotations/rates provided by the Fixed Income Money Market and Derivatives Association [FIMMDA] and in their absence, on the basis of yield to maturity rates given by FIMMDA. In case of investments in units of mutual funds, the net asset value of units is considered as the market/fair value. E. STOCK-IN-TRADE Securities acquired with the intention to trade are considered as stock-in-trade. Stock-in-trade is valued at cost (inclusive of brokerage and stamp charges in case of equity shares), calculated by applying the weighted average cost method or market/fair value whichever is lower. In case of debt instruments, fair value is worked out on the basis of latest available stock exchange quotations/rates provided by the Fixed Income Money Market and Derivatives Association [FIMMDA] and in their absence, on the basis of yield to maturity rates given by FIMMDA. F. REPURCHASE AND RESALE TRANSACTIONS (REPO) In accordance with the guidelines issued by the Reserve Bank of India, reverse repo/repo transactions are treated as buy/sale transactions. Securities sold under repo are excluded from stock-in-trade, and securities bought under reverse repo are included in stock in trade. G. ZERO COUPON INSTRUMENTS The difference between the acquisition cost/issue price and redemption value of treasury bills, commercial paper and bonds is apportioned on a time basis and recognised as discounting income. The acquisition cost of these securities is increased accordingly. H. FOREIGN CURRENCY TRANSACTIONS Revenue and expenses are recorded at the exchange rate prevailing on the date of the transaction. Assets and liabilities are restated at the exchange rate prevailing on the balance sheet date. Exchange differences arising on settlement of the transaction and on account of restatement of assets and liabilities are dealt with in the Profit and Loss Account. I. PRELIMINARY EXPENSES Preliminary expenses are amortized over a period of ten years. J. TAXES ON INCOME Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognized, subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the differences between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. K. RETIREMENT BENEFITS Provision for gratuity and leave encashment liability to employees is made on the basis of actuarial valuation. L. EQUITY INDEX/STOCK FUTURES a. Initial Margin Equity Index/Stock Futures Account, representing initial margin paid, and Margin Deposits representing additional margin paid over and above the initial margin, for entering into a contract for equity index/stock futures which are released on final settlement/squaring-up of underlying contracts, are disclosed under Loans and Advances. b. Equity index/stock futures are marked-to-market on a daily basis. Debit or credit balance disclosed under Loans and Advances or Current Liabilities, respectively, in the Mark-to-Market Margin Equity Index/Stock Futures Account, represents the net amount paid or received on the basis of movement in the prices of index/stock futures till the Balance Sheet date. c. As on the Balance Sheet date, profit/loss on open positions in equity index/stock futures are accounted for as follows: Credit balance in the Markto-Market Margin Equity Index/Stock Futures Account, being the anticipated profit, is ignored and no credit for the same is taken in the Profit and Loss Account. Debit balance in the Mark-to-Market Margin Equity Index/Stock Futures Account, being anticipated loss, is adjusted in the Profit and Loss Account. d. On final settlement or squaring-up of contracts for equity index/stock futures, the profit or loss is calculated as the difference between settlement/ squaring-up price and the contract price. Accordingly, debit or credit balance pertaining to the settled/squared-up contract in Mark-to-Market Margin Equity Index/Stock Futures Account after adjustment of provision for anticipated losses is recognised in the Profit and Loss Account. When more than one contract in respect of the relevant series of equity index/stock futures contract to which the squared-up contract pertains is outstanding at the time of the squaring-up of the contract, the contract price of the contract so squared-up is determined using the weighted average cost method for calculating the profit/loss on squaring-up.

93 84 Kotak Mahindra Capital Company Limited Schedule forming part of the Balance Sheet and the Profit and Loss Account (Contd.) Schedule 21 : Notes to the Financial Statements (Contd.) 2 CONTINGENT LIABILITY: (a) Guarantee of Rs. 130,170,000 (Rupee equivalent of US $ 3,000,000) [(previous year Rs. 142,500,000 (Rupee equivalent of US $ 3,000,000)] given to Standard Chartered Bank (Mauritius) Limited in respect of borrowings by subsidiary companies. (b) Guarantee of Rs. 130,170,000 (Rupee equivalent of US $ 3,000,000) [(previous year Rs. 142,500,000 (Rupee equivalent of US $ 3,000,000)] given to Deutsche Bank AG, Singapore branch on behalf of a subsidiary company. (c) Guarantee of Rs. 43,390,000 (Rupee equivalent of US $ 1,000,000) [(previous year Rs. 47,500,000) (Rupee equivalent of US $ 1,000,000)] given to Bank of India on behalf of a subsidiary company. 3 The Company has been classified as an Investment Company by the Reserve Bank of India on 15 th April, 1999 pursuant to the application made for registration as a Non-Banking Financial Company. 4 In accordance with the Reserve Bank of India circular (Refer Note 1F above) the securities sold under the repo transactions are excluded from the stock-in- trade account and the securities bought under reverse repo transactions are included in the stock-in-trade account. Prior to the above circular, the repo transactions were treated as borrowing/lending transactions. As a result the stock-in-trade and secured borrowings are lower by Rs. 842,164,146 as at March Bank balances in current account and sundry creditors include Rs. 275,000 (Previous year Rs. 275,000) received and held on behalf of the Company s client in the course of the Company s normal business activity. 6 The Company has revised its economic useful life of vehicles to 4 years with effect from 1 st April 2003 as compared to the earlier useful life of 3 years. Had depreciation been computed on the basis of the previous useful life the charge for the year would have been higher by Rs. 1,342,319 and the profit before taxation would have been lower by an equal amount. 7 Components of deferred tax balances: 31 st March st March 2003 Rupees Rupees Deferred tax asset Capital loss carried forward 2,657,477 Speculation loss in trading of shares carried forward 3,260,626 11,906,585 Provision for doubtful debts 327,673 Depreciation 1,621,322 1,165,344 Provision for gratuity and leave encashment 4,437,769 3,177,958 Others 5,403, ,318 14,723,042 19,400,355 Deferred tax liability Differential treatment of accounting and valuation of stock of debt securities and interest thereon 3,483,174 1,870,697 Deferred Tax Asset (Net) 11,239,868 17,529,658 In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on the level of historical taxable income and projections for future taxable income over the period the deferred tax assets are deductible. Management is of the view that it is more likely than not that the Company will realize the benefits of these deductible differences. 8 Issue management and placement fees and underwriting commission is net of incentives/brokerages paid to investors/brokers and fees/commission shared aggregating to Rs. 119,353,503 (Previous year Rs. 30,851,992). 9 During the year, the Company has paid an amount of Rs. 611,887 (Previous year Rs. Nil) towards Kotak Mahindra Equity Option Plan of Kotak Mahindra Bank Limited, the holding company, in respect of stock options granted to its employees. This amount has been charged to the Profit and Loss Account and included under the head salaries, allowances and bonus under Schedule Profit on sale of Investments represents profit on sale of current investments amounting to Rs. 46,635,123 (Previous year Rs. 9,816,617) and loss on sale of long-term investments Rs. Nil (Previous year Rs. 38,500). 11 Recovery of expenses in Schedule 18 and Schedule 20 are amounts recovered from the holding company, subsidiaries and fellow subsidiaries towards the value of costs apportioned of the Company s employees and facilities in accordance with the agreements on allocation of expenses with the companies.

94 85 Kotak Mahindra Capital Company Limited Schedule forming part of the Balance Sheet and the Profit and Loss Account (Contd.) Schedule 21 : Notes to the Financial Statements (Contd.) 12 Quantitative information in respect of trading in securities Quantity Value Quantity Value Nos. Rupees Nos. Rupees Opening Stock equity shares of Re. 1 each 5, ,177 equity shares of Rs. 2 each 127,359 13,471,813 equity shares of Rs. 5 each 8,367 11,194,312 equity shares of Rs. 10 each 1,666, ,958,027 77,334 17,867,774 treasury bills* 160,019,666 government dated securities* 2,186,684,339 2,121,957,874 bonds and debentures* 50,087, ,345,138 Total (a) 2,563,415,327 2,317,010,963 Purchases equity shares of Re. 1 each 27,000 4,243,523 7,000 1,180,372 equity shares of Rs. 2 each 366,225 90,642, ,712 78,552,361 equity shares of Rs. 5 each 201, ,031, ,918 97,960,899 equity shares of Rs. 10 each 4,165,581 1,100,768,481 9,299,789 1,181,976,169 treasury bills* 15,808,033,350 8,004,869,850 government dated securities*# 245,204,878, ,198,878,828 bonds and debentures* 250,000,000 1,284,735,565 Total (b) 262,598,598, ,848,154,044 Sales equity shares of Re. 1 each 27,000 4,272,693 12,200 2,129,130 equity shares of Rs. 2 each 493, ,182, ,353 60,852,872 equity shares of Rs. 5 each 210, ,326,199 92,551 87,942,848 equity shares of Rs. 10 each 5,159,888 1,078,998,318 7,710,741 1,036,634,959 Treasury bills* 15,241,314,444 7,845,159,679 government dated securities* # 244,107,261, ,455,264,575 bonds and debentures* 303,126,000 1,422,767,473 Total (c) 260,995,481, ,910,751,536 Closing Stock equity shares of Rs. 2 each 127,359 13,471,813 equity shares of Rs. 5 each 8,367 11,194,312 equity shares of Rs. 10 each 672, ,228,926 1,666, ,958,027 treasury bills* 726,725, ,019,666 government dated securities* 3,973,041,360 2,186,684,339 bonds and debentures* 50,087,170 Total (d) 4,886,995,286 2,563,415,327 Profit/(loss) on trading in futures (net) (e) (4,597,506) 39,307 Profit on trading in securities = c+ d + e - a- b 452,786, ,041,163 * Represents securities purchased and sold during the year on the basis of face value. # includes securities bought/sold under reverse repos/repos transactions. Purchase and Sale transactions of equity stock futures have not been considered.

95 86 Kotak Mahindra Capital Company Limited Schedule forming part of the Balance Sheet and the Profit and Loss Account (Contd.) Schedule 21 : Notes to the Financial Statements (Contd.) 13 Open Interest in equity stock futures contracts outstanding as at 31 st March 2004 (Nil as on 31 st March 2003): Equity Futures Stock Expiration Date Number of contracts Open Short Positions Andhra Bank April (4600) Arvind Mills Limited April (25,800) Bank of India April (258,400) Gail (India) Limited April (114,000) Grasim Industries Limited April (28,350) Reliance Industries Limited April (71,400) State Bank of India April (106,000) Shipping Corporation of India Limited April (30,400) Tata Iron & Steel Company Limited April (27,900) Initial margin on equity stock futures contracts has been paid in cash only. 14 (a) Managerial Remuneration Rupees Rupees Salaries and allowances 12,828,790 8,639,777 Contribution to provident fund 486, ,629 Perquisites 6, ,500 Employee stock option plan (Refer Note 9) 240,105 Commission to non-whole time Director 200,000 13,761,365 9,659,906 The above excludes provision for gratuity and leave encashment, since these are based on actuarial valuations done on an overall company basis. (b) Computation of net profit in accordance with Section 309 (5) of the Companies Act, Rupees Rupees Profit before taxation 836,221, ,803,336 Add: Depreciation as per financial statements 10,889,038 8,092,370 Managerial remuneration 13,761,365 9,659,906 Directors Sitting Fees 27,500 Provision for doubtful debts 913,375 Provision for doubtful debts no longer required (913,375) (3,512,500) Book deficit/(surplus) on fixed assets sold (net) (1,049,748) (810,471) 858,908, ,146,016 Less: Depreciation under Section 350 of the Companies Act, ,701,764 4,146,985 Deficit/(surplus) (net) on disposal of fixed assets under Section 350 of the Companies Act, ,115,094 1,012,239 Net Profit for Section 198 of the Companies Act, ,092, ,986,792 Commission to non-whole time 1% 8,530,920 4,879,868 Commission restricted to 200,000

96 87 Kotak Mahindra Capital Company Limited Schedule forming part of the Balance Sheet and the Profit and Loss Account (Contd.) Schedule 21 : Notes to the Financial Statements (Contd.) 15 Earnings in foreign exchange Rupees Rupees Financial advisory fees 126,579, ,693, Expenditure in foreign currency Traveling 1,609, ,337 Professional fees 541, Dividend remittances to non-residents shareholders final to 1 shareholder on 990,015 shares - Gross 12,375, interim to 1 shareholder on 990,015 shares - Gross 12,375,188 Total 24,750, Segmental Information: The Company is organised into two segments namely Investment Banking and Trading and Principal Investments. The Investment Banking segment provides financial advisory services such as mergers and acquisition advice and equity-debt issue management services. The Trading and Principal Investments segment deals in debt, equity, money markets and loans/deposits. Segments have been identified and reported taking into account the nature of products and services, the differing risks and returns and the internal financial reporting systems. Segment information: (Amount in Rupees) 31 st March st March 2003 Investment Trading and Investment Trading and Banking Principal Total Banking Principal Total Investments Investments Segment Revenue Income from external customers 351,650,356 1,011,860,802 1,363,511, ,854, ,607, ,462,513 Income from inter segments Total Revenue 351,650,356 1,011,860,802 1,363,511, ,854, ,607, ,462,513 Segment Result 132,141, ,265, ,407, ,381, ,628, ,010,521 Add: Unallocated income 2,002,654 2,894,782 Less: Unallocated expenses 17,188,750 74,101,966 Less : Income tax (including deferred tax) 256,668, ,890,101 Net Profit 579,553, ,913,236 Other Information Carrying amount of segment assets 176,676,699 6,203,649,792 6,380,326,491 28,396,022 3,771,394,748 3,799,790,770 Unallocated corporate assets 123,812, ,509,239 Total Assets 6,504,138,983 3,994,300,009 Carrying amount of segment liabilities 134,327,194 3,806,339,323 3,940,666,517 29,901,125 1,944,597,608 1,974,498,733 Unallocated corporate liabilities 96,713,025 58,883,151 Total Liabilities 4,037,379,542 2,033,381,884

97 88 Kotak Mahindra Capital Company Limited Schedule forming part of the Balance Sheet and the Profit and Loss Account (Contd.) Schedule 21 : Notes to the Financial Statements (Contd.) Segment revenue comprises of: 31 st March st March 2003 Rupees Rupees Income from services 346,828, ,840,192 Interest and discounting income 385,669, ,934,585 Profit on sale of investments (net) 46,635,123 9,778,117 Profit on trading in securities (net) 452,786, ,041,163 Other Income: Dividend income on Long term investments (others) Current investments 121,657,286 97,371 Stock in trade 524,236 4,054,935 Provision for doubtful debts no longer required written back 913,375 3,512,500 Others 8,497, ,550 Total Segment Revenue 1,363,511, ,462,513 Add: Unallocated Income 2,002,654 2,894,782 Total Income 1,365,513, ,357,295 (i) (ii) Unallocated expenses for the previous year includes general administrative expenses, management expenses and personnel expenses provided at an enterprise level. The expenses to the extent possible have been allocated to the respective segments in the current year. Unallocated income comprise of service income, other interest, profit on sale of fixed assets and miscellaneous income to the extent not allocable to the respective segments. (iii) Segment assets comprise mainly of trade and other receivables, investments, stock-in-trade and accrued income. Unallocated assets for the current year represent investments in subsidiary companies, and deferred taxes. Segment liabilities include loans, trade and other payables and sundry creditors. Unallocated liabilities for the current year include provision for taxes (net of advance taxes) and deferred taxes. (iv) The company has allocated certain expenses and related assets and liabilities in the current year, which were included under unallocated expenses and related assets, and liabilities respectively, in the previous year. Hence the figures of the current year are not comparable with the pervious year. 19 Related parties disclosures (i) Relationships (During the year) A. Related parties where control exists: Nature of relationship Related Party Holding Company Kotak Mahindra Bank Limited (KMBL) (Holds 74.99% of the equity share capital) Mr. Uday S. Kotak along with relatives and companies controlled by him holds 56.29% of the equity share capital of KMBL Subsidiary Companies: Kotak Mahindra Securities Limited (100% equity capital held by Kotak Mahindra Inc. the Company) Kotak Mahindra (International) Limited (KMIL) Kotak Mahindra (UK) Limited (100% equity capital held by KMIL) Global Investment Opportunities Fund Limited (Formerly Kotak Mahindra Investment Company Limited, PCC (100% voting shares held by KMIL) B. Other Related parties: (i) Fellow Subsidiaries: Kotak Securities Limited Kotak Mahindra Primus Limited Kotak Mahindra Asset Management Company Limited Om Kotak Mahindra Life Insurance Company Limited Kotak Forex Brokerage Limited Kotak Mahindra Investments Limited (ii) Associates (Enterprises in which the Company has significant influence) Multifaced Finstock Private Limited (iii) Key management personnel Mr. Uday S. Kotak, Non-executive Chairman Mr. Ajay Sondhi, Vice Chairman and Managing Director

98 89 Kotak Mahindra Capital Company Limited Schedule forming part of the Balance Sheet and the Profit and Loss Account (Contd.) Schedule 21 : Notes to the Financial Statements (Contd.) (ii) The following transactions were carried out with related parties in the ordinary course of business Nature of Transactions Holding Subsidiary Fellow Associates Key Other Company Companies Subsidiary Management Related Companies Personnel Parties Rs. Rs. Rs. Rs. Rs. Rs. Finance Inter corporate deposits taken (384,000,000) Inter corporate deposits repaid (taken in Financial year ) (19,000,000) Interest paid 51,507 4,246,154 (505,739) (1,145,205) (677,262)# Loans given 1,157,900,000 Loans taken 2,00,000,000 17,921,744,985 (642,007,228)# Loans given repaid 1,157,900,000 Loans taken repaid 200,000,000 17,670,550,159 (3,360,000) Interest received 185,975 Outstanding Loans taken 258,638,954 (7,444,129) Bank balance 488,614 Investments Purchase/subscription 2,181,176,110# (14,444,000)^ (3,117,672,916)# (65,500,000) (638) Sale/redemption 2,743,294,137# (5,662,000) (2,873,716,933)# Interest/dividend/premium received 90,664,175 5,129,258 (1,426,369) (2,070,502) Stock-in-trade (Securities) Purchases/subscription 481,577,025 7,775,708,407# (309,434,368) (3,096,767,773)# Sales/redemption 1,197,292,417 7,889,399,365# (2,453,995,182) (3,563,926,960)# - Interest/dividend on stock-in-trade - (19,674,558) Outstanding in Respect of Stock-in-trade Payables 22,618,413 Receivables 119,641,268 (6,495,304) Other Receipts and Payments Purchase of fixed assets (136,380) Sale of fixed assets 864,711 (2,293,721) Income from services/ other Interest etc 2,771,172 16,467,573 (138,686) (900,000) (4,278,676)

99 90 Kotak Mahindra Capital Company Limited Schedule forming part of the Balance Sheet and the Profit and Loss Account (Contd.) Schedule 21 : Notes to the Financial Statements (Contd.) (ii) The following transactions were carried out with related parties in the ordinary course of business (Contd.) Nature of Transactions Holding Subsidiary Fellow Associates Key Other Company Companies Subsidiary Management Related Companies Personnel Parties Rs. Rs. Rs. Rs. Rs. Rs. Expense reimbursement to other companies 12,549, ,026 1,126,543 (7,062,938) (3,604,367) Expense reimbursement by other companies 27,655,591 4,697 7,463,801 (735,896) (53,344) (6,771,814) Other expenses paid/brokerage paid/ Fee /Commission sharing 14,254, ,640,733 (27,864,660) (215,185) (51,245,336) (5,956,260) Remuneration* 13,561,365 (10,143,473) Dividend Paid Gross (74,250,125) (24,750,376) Guarantees Given ($1,000,000) Outstanding in respect of Others Payables 196,026 52,898,795 (3,064,119) (11,434,436) (1,675,000) Receivables 5,052,234 4, ,465 (13,060) (391,122) Guarantees ($7,000,000) ($7,000,000) # Includes transactions in respect of investments in, borrowings from, and purchase from/sales to- schemes of Kotak Mahindra Mutual Fund, managed by a fellow subsidiary. ^ Includes Rs. 4,847,000 converted from loan to equity investments. Figures in brackets relates to the previous year. * Excludes provision for gratuity and leave encashment, since these are based on actuarial valuations done on an overall Company basis. 20 (i) The Company has taken office and residential premises under operating lease or leave and license agreements. These are generally renewable or cancelable at the option of the Company and range between 11 months to 54 months. (ii) Rent payments are recognized in the Profit and Loss Account under Rent in Schedule 20. (iii) The future minimum lease payments under non-cancellable operating lease not later than one year as at 31 st March 2004 aggregate to Rs. 2,944,656 (Previous year Rs. 7,875,200) and those for period between one to five years aggregate to Rs. 9,342, Issuer composition of investments in non-government securities Sr. Issuer Amount Extent of Extent of below Extent of Extent of No. Rs. Private investment grade unrated unlisted placement securities securities Rs. securities Rs. 1 Public Sector Units 2 Financial Institutions 3 Banks 4 Other Primary Dealers 5 Private Corporates 72,699,760 72,699,760 N.A. 72,699,760 72,699,760 6 Subsidiaries /Joint Ventures 7 Others 8 Provision held towards depreciation 22 Information with regard to other matters specified in paragraphs 4C and 4D of Part II of Schedule VI to the Companies Act, 1956 is either nil or not applicable to the Company for the financial year ended 31 st March 2004.

100 91 Kotak Mahindra Capital Company Limited Schedule forming part of the Balance Sheet and the Profit and Loss Account (Contd.) Schedule 21 : Notes to the Financial Statements (Contd.) 23 Balance Sheet Abstract and Company s General Business Profile (a) Registration Details Registration Number State Code 1 1 (b) (c) Balance Sheet Date Date Month Year Capital raised during the year (Amount in Rs. 000s) Public Issue Rights Issue N I L N I L Bonus Issue Private Placement N I L N I L Position of Mobilisation and Deployment of Funds (Amount in Rs. 000s) Total Liabilities Total Assets Sources of Funds Paid up Capital Reserves and Surplus Secured Loans Unsecured Loans Deferred Tax liability Application of Funds Net Fixed Assets Investments Deferred Tax Assets Net Current Assets Miscellaneous Expenditure Accumulated Losses 5 1 N I L (d) Performance of Company (Amount in Rs. 000s) Turnover/Income Total Expenditure Profit before Tax Profit after Tax Earnings Per Share (in Rs.) Dividend Rate(%) (e) Generic Names of Three Principal Products/Services of company Item Code No. N A Product Description I N V E S T M E N T B A N K I N G P R I M A R Y D E A L E R I N G O V E R N M E N T O F I N D I A S E C U R I T I E S

101 92 Kotak Mahindra Capital Company Limited Schedule forming part of the Balance Sheet and the Profit and Loss Account (Contd.) Schedule 21 : Notes to the Financial Statements (Contd.) 24 Information in accordance with the requirements of Paragraph 9BB of the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 Liabilities Side: (In Rupees) 31 st March Loans and advances availed inclusive of interest accrued thereon but not paid: Amount Outstanding Amount Overdue Debentures Deferred credits Term loans Inter-corporate loans and borrowing Commercial paper Public deposits Loans for vehicles (Secured) 9,670,835 Money at call / short notice (Unsecured) 2,583,000, Breakup of public deposits Assets side: 3. Breakup of loans and advances including sundry debtors and other current assets: (a) Secured 802,301 (b) Unsecured 911,480,641 Total 912,282, Breakup of leased assets and stock on hire 5. Breakup of investments and stock-in-trade: Current Investments: 1. Quoted (i) Shares: (a) Equity 18,325,320 (b) Preference (ii) Debentures and bonds (iii) Units of mutual funds (iv) Government securities (v) Others 2. Unquoted (i) Shares: (a) Equity (b) Preference (ii) Debentures and bonds (iii) Units of mutual funds 409,603,298 (iv) Government securities (v) Others Long Term Investments: 1. Quoted (i) Shares: (a) Equity (b) Preference (ii) Debentures and bonds (iii) Units of mutual funds (iv) Government securities (v) Others 2. Unquoted (i) Shares: (a) Equity (net of provision for diminution) 122,182,988 (b) Preference 10,000,000 (ii) Debentures and bonds (iii) Units of mutual funds (iv) Government securities (v) 0% redeemable bonds 72,699,760

102 93 Kotak Mahindra Capital Company Limited Schedule forming part of the Balance Sheet and the Profit and Loss Account (Contd.) Schedule 21 : Notes to the Financial Statements (Contd.) Stock-in-trade (In Rupees) 1. Quoted (i) Shares: (a) Equity 187,228,926 (b) Preference (ii) Debentures and bonds (iii) Units of mutual funds (iv) Government securities and treasury bills 4,699,766,360 (v) Others 6. Borrower group-wise classification of all leased assets, stock-on-hire and loans and advances including sundry debtors and other current assets: 1. Related parties (a) Subsidiaries unsecured 4,697 (b) Companies in same group unsecured 124,852,967 (c) Other related parties unsecured 2. Others (a) Secured 802,301 (b) Unsecured 786,622,977 Total 912,282, Investor group-wise classification of all investments (current and long term) in shares and other securities (both quoted and unquoted) and stock in trade Category Market Value/Breakup value/ Book Value Net Asset Value* (Net of provisions) 1. Related parties (a) Subsidiaries 149,901, ,089,450 (b) Companies in same group 106,411,059 87,002,311 (c) Other related parties 47,359,541 85,793, Others 5,346,786,992 5,237,921,594 Total 5,650,458,760 5,519,806,653 *Unquoted equity shares are valued at breakup value (as per latest available audited balance sheet); unquoted preference shares/zero coupon bonds at face value (inclusive of premium recognized) and units of mutual funds at net asset value as on 31 st March Other Information Particulars Amount Rs. Gross Non-performing Assets Nil (a) Related parties Nil (b) Other than related parties Nil Net Non-performing Assets Nil (a) Related parties Nil (b) Other than related parties Nil Assets acquired in satisfaction of debts Nil 25 Figures for the previous year have been regrouped wherever necessary to conform to current year classification. Signature to Schedules 1 to 21 form part of the financial statements and to the above notes. For and on behalf of the Board of Directors For and on behalf of Price Waterhouse Uday Kotak Ajay Sondhi Chartered Accountants Chairman Vice Chairman & Managing Director K. H. Vachha Ajay Vaidya Shanti Ekambaram Partner Company Secretary Director Mumbai Dated : 7 th May 2004

103 94 Kotak Mahindra Capital Company Limited Statement pursuant to Section 212(1)(e) of the Companies Act, 1956 relating to Subsidiary Companies Name of the Subsidiary Company Kotak Mahindra Kotak Mahindra Kotak Mahindra Kotak Mahindra Kotak Mahindra Securities Ltd. (International) Ltd. (U.K.) Ltd. Inc. Investment Company Ltd., PCC (KMSL) (KMIL) (KMUK) (KMInc.) (KMIc.) Financial Year of the Subsidiary Company ended on Holding Company s interest Shares (Type) Equity Shares Equity Shares Equity Shares Ordinary Shares Management Shares Face value of each share Rs. 10 US $ 1 UK 1 US $ 0.01 US $ 1 Number 20,00,070 20,00,000 4,70,000 7,50, Extent of holding 100% 100% 100% by KMIL 100% 100% by KMIL Net aggregate amount of the profit/ (Loss) of the subsidiary company so far as it concerns members of the Holding Company and is not dealt with in the Holding Company s accounts: 1. for the financial year of the subsidiary company Rs. 73,816 Rs. 18,602,528 Rs. (2,345,569) Rs. (10,403,226) 2. for the previous financial years of the subsidiary company since it became a subsidiary company Rs. 15,945,109 Rs. 11,373,464 Rs. 42,327,478 Rs. (274,88,733) Net aggregate amount of the profit/ (Loss) of the subsidiary company so far as it concerns members of the Holding Company and is dealt with in the Holding Company s accounts: 1. for the financial year of the subsidiary Company 2. for the previous financial years of the subsidiary company since it became a subsidiary company Material changes, if any, between the end of the financial year of the subsidiary and that of the Holding Company Note: KMSL, KMIL, KMINC and KMIC being wholly owned subsidiaries of the Company, continue to be subsidiaries of KMFL. For and on behalf of the Board of Directors Uday Kotak Chairman Ajay Vaidya Company Secretary Ajay Sondhi Vice Chairman & Managing Director Shanti Ekambaram Director Mumbai Dated : 7 th May 2004

104 95 Kotak Securities Limited BOARD OF DIRECTORS: UDAY KOTAK (C), NARAYAN S. A. (MD), FALGUNI NAYAR (ED), C. JAYARAM, AJAY SONDHI, SANJIV BHATIA, JENNY FINNEY, NOEL SEPHTON (ALT. TO JENNY FINNEY) DIRECTORS REPORT To the Members of Kotak Securities Limited Your Directors are pleased to present the 10 th Annual Report and the Audited Accounts for the year ended 31 st March I. FINANCIAL HIGHLIGHTS Rs. in Lakhs except per share data 31 st March st March 2003 Gross Income* 24, , Profit/(Loss) before Depreciation and Tax 13, , Depreciation Profit/(Loss) before Tax 13, , Provision for Tax 4, , Profit/(Loss) after Tax 8, , Transfer from Debenture Redemption Reserve 1, Balance brought forward from previous year 6, , Amount available for appropriation 16, , Transfer to General Reserve Transfer to Debenture Redemption Reserve 7, , Proposed Dividend Tax on distributed profits Profit/(Loss) carried forward to the Balance Sheet 7, , Earnings per share on equity shares of Rs. 10 each Basic and Diluted *Gross Income figures have been regrouped (Actual fig. as appeared last year was Rs Lakhs) II. III. DIVIDEND The Directors recommend a dividend of Rs. 40 per equity share of the Company. OPERATIONS The fiscal year was a buoyant year for Indian capital market. The benchmark BSE Sensex moved up 86% to 5,740, adding Rs million to gross market capitalization. Average daily volumes in the market grew from 233.8m shares in to 436.7m shares in , an increase of 87%. On the derivative segment, volumes increased from Rs million in April 2003 to Rs million, an increase of 421%, with higher participation from foreign institutional investors (FIIs). During the year, your Company has recorded significantly higher growth by registering a gross income of Rs. 24, lakhs (Previous year Rs. 10, lakhs), up 137%, through increased volumes as well as higher market share. During the year, your Company registered a 246% jump in pretax profit to Rs. 13, lakhs ( previous year Rs. 3, lakhs). The net worth of your company as at 31 st March 2004 is Rs lakhs. RETAIL SEGMENT During the year your Company further increased its presence across India in the retail segment. Currently the total number of retail outlets (own and franchisee) are more than 275 across 110 cities and towns. The retail segment of your Company serviced more than customers driving the daily average volume to more than Rs. 10 billion during December 2003 January 2004 achieving the market share of over 5% during the same period. Your Company is committed to maintain the retail thrust by reaching new locations and aiming to service and retain customers by providing new products and research ideas. ONLINE TRADING SEGMENT During the year, your Company s online platform has introduced varied new features and new products to make it more customer friendly and service oriented. For the benefit of its customers, it has entered into payment gateway agreements with various Banks for facilitating settlements obligations. Kotakstreet customers were provided with an additional source of trading in the form of Phone Broking,for assisting customers on the move. The enhanced features and facilities have resulted in more than 80% customer growth during the year. INSTITUTIONAL EQUITIES Your Company s Institutional equities division grew from strength to strength. The division added derivatives as a new line of business. During the year, the customer base grew strongly and the institutional research coverage in stocks grew from 63 to 74 with additional coverage focus on power and mid cap pharma. These strategic initiatives helped the institutional equities division record a sharp increase in volumes and higher revenues and profits than in the previous financial year, thanks to a growing and changing market. The company is set for growth in market share based on a stronger platform for derivatives as well as extended distribution platform in equities. Initiatives like derivatives, block deals, private equity and convertibles will yield greater profits in the year ahead.

105 96 Kotak Securities Limited IV. PRIMARY MARKET Your Company retained its number one position in prime rankings with a share of 21.93% during the period April 2003 to February 2004 (source Prime database) (previous year 14.63%). There were 29 public issues during the year, out of which your company acted as a syndicate member in more than half these issues, which included large equity offerings such as Maruti Udyog Limited, Patni Computers Limited, Oil & Natural Gas Corporation Limited, and IPCL Limited amongst others. Your Company s performance in retail reach also improved significantly, ranking number one in most of these issues for mobilization of applications. PORTFOLIO MANAGEMENT SERVICES The Portfolio Management business of the company consolidated further during the year with the launch of new products to cater to various high net worth individuals with different requirements. The assets under management of the Portfolio Management division grew in excess of Rs crores during the year, with the high net-worth individuals demonstrating greater faith in professional managements of funds. Your company continues to focus on increasing the asset under management by providing new customized products and research to its customers. FUTURE OUTLOOK Looking ahead, with the revival in the capital market your Company is keen to aggressively focus on augmenting its market share by targeting new client segments and delivering enhanced value to its customers through advanced technology and efficient services. New Foreign Institutional investors and high net worth individuals would continue to be the targeted customers. V. DIRECTORS Ms. Jenny Finney and Mr. Sanjiv Bhatia retire by rotation at the ensuing Annual General Meeting and are eligible for re-appointment. The term of appointment of Ms. Falguni Nayar, Executive Director, expired on 31 st March The Board of Directors has re-appointed Ms. Falguni Nayar, Executive Director of the Company for further term of one year, subject to the approval of members at the ensuing Annual General Meeting. VI. VII. AUDITORS The Company s Auditors, Messrs. Price Waterhouse, Chartered Accountants, Mumbai, retire at the ensuing Annual General Meeting and are eligible for reappointment. You are requested to re-appoint them and fix their remuneration. FIXED DEPOSITS During the year under review, the Company did not accept any deposits from the public. VIII. STATUTORY INFORMATION The information required under Section 217(2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended, is given in the Annexure appended hereto and forms part of this Report. The requirement of disclosure, in terms of Section 217 (1) (e) of the Companies Act, 1956, as regards the steps taken for conservation of energy and technology absorption is not applicable to the Company as the Company does not own any manufacturing facility. Foreign exchange earnings and foreign exchange outgo during the year under review were Rs. NIL (Previous year Rs. 6,70,536/-) and Rs. 4,17,42,691/- (previous year Rs. 3,20,83,254) respectively. IX. DIRECTORS RESPONSIBILITY STATEMENT Based on representations from the Management, the Directors state, in pursuance of Section 217 (2AA) of the Companies Act, 1956, that: (i) the Company has, in the preparation of the annual accounts for the year ended 31 st March 2004, followed the applicable accounting standards along with proper explanations relating to material departures, if any; (ii) the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 st March 2004 and of the profit of the Company for the financial year ended 31 st March 2004; (iii) the Directors have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and (iv) the Directors have prepared the annual accounts on a going concern basis. X. ACKNOWLEDGEMENTS The Directors wish to thank the Stock Exchanges, Securities and Exchange Board of India and the Company s Bankers for their support. The Directors commend the Executives and the Staff of the Company for their dedicated efforts that made these results achievable. For and behalf of the Board of Directors Mumbai, 20 th May 2004 UDAY S. KOTAK Chairman

106 97 Kotak Securities Limited AUDITORS REPORT To the Members of Kotak Securities Limited 1 We have audited the attached Balance Sheet of Kotak Securities Limited (the Company), as at 31 st March 2004, the related Profit and Loss Account for the year ended on that date annexed thereto and the Cash Flow Statement for the year ended on that date, which we have signed under reference to this report. These financial statements are the responsibility of the Management of the Company. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We conducted our audit in accordance with auditing standards generally accepted in India. Those Standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. 3 In our opinion and to the best of our information and according to the explanations given to us, the said financial statements together with the notes thereon and attached thereto give in the prescribed manner the information required by The Companies Act, 1956 of India (the Act), and give, a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31 st March 2004; (b) in the case of the Profit and Loss Account, of the profit for the year ended on that date and (c) in the case of Cash Flow Statement, of the cash flows for the year ended on that date. 4 We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit. 5 In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books. 6 The Balance Sheet and the Profit and Loss Account dealt with by this report are in agreement with the books of account. 7 In our opinion, the financial statements dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Act. 8 On the basis of written representations received from the Directors of the Company, as on 31 st March 2004, and taken on record by the Board of Directors of the Company, none of the Directors of the Company is disqualified as on 31 st March 2004 from being appointed as a Director in terms of clause (g) of subsection (1) of Section 274 of the Act; 9 As required by the Companies (Auditor s Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Act and on the basis of such checks as we considered appropriate and according to the information and explanations given to us, we further report that: (i) (a) The Company has maintained proper records to show full particulars including quantitative details and situation of its fixed assets. (b) The fixed assets of the Company are physically verified by the Management according to a phased programme designed to cover all the items over a period of two years, which in our opinion, is reasonable having regard to the size of the Company and the nature of its assets. Pursuant to the programme, a portion of the fixed assets have been physically verified by the Management during the year and no material discrepancies between the book records and the physical inventory have been noticed. (c) In our opinion, a substantial part of the Company s fixed assets has not been disposed of by the Company during the year. (ii) (a) The securities held as stock in trade have been physically verified by the Management/confirmed with the statement of holdings provided by the National Securities Depository Limited (NSDL) at the financial year end. In our opinion, the frequency of verification/ confirmation is reasonable. (b) In our opinion, the procedures of physical verification/confirmation of securities held as stock in trade followed by the Management are reasonable and adequate in relation to the size of the Company and the nature of its business. (c) On the basis of our examination of the records of the Company relating to securities held as stock in trade, in our opinion the Company has maintained proper records of stock in trade and no material discrepancies between the book records and the physical inventory have been noticed. (iii) (a) The Company has placed fixed deposits with its holding company covered in the register maintained under Section 301 of the Act. The maximum amount involved during the year aggregates Rs. 2,038,025,245 and the year end balance of such fixed deposits aggregates Rs. 2,024,525,245. The Company has not taken loans, secured or unsecured, from companies, firms or other parties covered in the register maintained under Section 301 of the Act. (b) In our opinion, the rate of interest and other terms and conditions of such fixed deposits placed are not prima facie prejudicial to the interest of the Company. (c) In respect of aforesaid fixed deposits placed, the holding company is regular in repaying the principal amounts as stipulated and is also regular in the payment of interest. (iv) In our opinion and according to the information and explanations given to us there are adequate internal control procedures commensurate with the size of the Company and the nature of its business in respect of purchase and sale of securities held as stock-in-trade and purchase of fixed assets. Further on the basis of our examination of the books of account and according to the information and explanations given to us, we have not come across nor have we been informed of any instance of major weaknesses in internal control procedures.

107 98 Kotak Securities Limited (v) (a) In our opinion and according to the information and explanations given to us, the transactions that need to be entered in the register in pursuance of Section 301 of Act, have been so entered. (b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of contracts or arrangement entered in the register in pursuance of Section 301 of the Act and exceeding the value of Rs. 500,000 in respect of any party during the year have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time or are considered to be of special nature for which no comparison of prices could be made as explained by the Management of the Company. (vi) The Company has not accepted any deposits from the public under the provisions of Section 58A and 58AA of the Act and the rules framed there under. (vii) In our opinion, the Company has an internal audit system commensurate with its size and nature of its business. (viii) (a) According to the books of account and records as produced and examined by us, in accordance with generally accepted auditing practices in India and also Management representations, in our opinion, the Company is generally regular in depositing undisputed statutory dues in respect of provident fund, investor education and protection fund, employees state insurance, income-tax, sales-tax, wealth tax, customs duty, excise duty, cess and other material statutory dues as applicable with the appropriate authorities in India. Stamp duty on contract notes for purchase and sale of securities for the period 1 st April 1996 to 28 th February 2004 for certain locations has been deposited with the authorities on 29 th March (b) According to the information and explanations given to us as at 31 st March 2004 there are no dues which have not been deposited on account of any dispute in respect of sales tax, income tax, customs duty, wealth tax, excise duty and cess. (ix) The Company has neither accumulated losses as at 31 st March 2004 nor has it incurred any cash loss either during the financial year ended on that date or in the immediately preceding financial year. (x) According to the books of account and records of the Company, there has been no default in repayment of dues to any financial institution or bank or debenture holders during the year. (xi) The Company is dealing in securities for which proper records have been maintained of the transactions and timely entries have been made therein. Securities held as stock in trade by the Company are held in the name of the Company or in the name of its nominees except to the extent of the exemption granted under Section 49 of the Act. (xii) In our opinion and according to the information and explanations given to us, on an overall basis, the term loans have been applied for the purpose for which they were obtained. (xiii) Based on the information and explanations given to us and on an overall examination of the Balance Sheet of the Company, in our opinion there are no funds raised on a short term basis which have been used for a long term investment. However there are funds raised on a long tem basis to the extent of Rs. 750,000,000 which have been used for the purpose of working capital during the year. (xiv) The Company has not made any preferential allotment of shares to parties and companies listed in the register maintained under Section 301 of the Act during the year. (xv) The Company has created securities in respect of debentures issued and outstanding at the year end. (xvi) During the course of examination of the books of account and records of the Company carried out in accordance with the generally accepted auditing practices in India, we have not come across any fraud on or by the Company, noticed or reported during the year, nor have we been informed of such case by the Management. (xvii) The other clauses of the Companies (Auditor s Report) Order, 2003 are not applicable to the Company for the current year. K. H. Vachha Partner Membership No. F30798 Place: Mumbai Date: 20 th May 2004 For and on behalf of Price Waterhouse Chartered Accountants

108 99 Kotak Securities Limited BALANCE SHEET AS AT 31 ST MARCH st March 31 st March Schedule Rs. Rs. SOURCES OF FUNDS Shareholders Funds : Capital 1 16,000,000 16,000,000 Reserves and Surplus 2 1,830,928,853 1,062,054,336 Loan Funds : Secured Loans 3 1,551,375,387 85,199,879 Unsecured Loans 4 129,999, ,000,000 Deferred Tax (Refer Note 8 on Schedule 19) Deferred Tax Liability 8,476,506 Deferred Tax Asset 7,298,912 1,177,594 TOTAL 3,528,304,168 1,544,431,809 APPLICATION OF FUNDS Fixed Assets : Gross Block 5 339,592, ,310,380 Less : Depreciation/Amortisation 151,066,120 93,413,252 Net Block 188,526, ,897,128 Deferred Tax (Refer Note 8 on Schedule 19) Deferred Tax Asset 16,407,249 Deferred Tax Liability 13,608,714 2,798,535 Current Assets, Loans and Advances : Stock In Trade 6 195,517,008 9,042,069 Sundry Debtors 7 1,765,760,665 1,458,678,120 Cash and Bank Balances 8 3,386,492, ,912,062 Other Current Assets 9 680,838,065 10,924,883 Loans and Advances ,886, ,806,456 6,211,494,961 2,096,363,590 Less : Current Liabilities and Provisions Liabilities 11 2,755,202, ,459,131 Provisions ,368,599 17,479,505 2,874,571, ,938,636 Net Current Assets 3,336,923,889 1,428,424,954 Miscellaneous Expenditure (To the extent not written off or adjusted) Preliminary Expenses 54, ,727 TOTAL 3,528,304,168 1,544,431,809 Notes to the Financial Statements 19 Schedules referred to above form an integral part of the Balance Sheet This is the Balance Sheet referred to in our report of even date For and on behalf of the Board of Directors K. H. Vachha Rupal Talati Uday S. Kotak Narayan S.A. Partner Company Secretary Chairman Managing Director Membership No : F30798 For and on behalf of Price Waterhouse Chartered Accountants Mumbai, Dated : 20 th May, 2004

109 100 Kotak Securities Limited PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2004 Schedule 31 st March 31 st March Rs. Rs. INCOME Income from Services 13 1,944,505, ,566,458 Interest Income ,396, ,645,226 Other Income ,769,789 47,492,029 TOTAL INCOME 2,476,671,845 1,045,703,713 EXPENDITURE Personnel ,663, ,314,520 Interest and Other Finance Charges ,625,108 90,826,357 Other Expenses ,591, ,005,792 TOTAL EXPENDITURE 1,081,880, ,146,669 Profit Before Depreciation/Amortisation and Taxation 1,394,791, ,557,044 Depreciation/Amortisation 48,011,539 38,725,866 Profit Before Taxation 1,346,780, ,831,178 Provision for Taxation Current Tax [Including short provision for taxation relating to earlier years Rs.15,241,332 (net) (Previous Year Rs. Nil)] 496,153, ,500,000 Deferred Tax (Refer Note 8 on Schedule 19) (3,976,129) (2,294,504) Profit After Taxation 854,602, ,625,682 Transfer from Debenture Redemption Reserve 152,714,581 82,751,060 Balance Brought Forward 643,595, ,932,928 1,650,912, ,309,670 APPROPRIATIONS Transfer to Debenture Redemption Reserve 789,395, ,714,581 Proposed Dividend 64,000,000 Tax on Distributed Profit 8,200,000 Transfer to General Reserve 85,461,000 Balance Carried Forward 703,855, ,595,089 1,650,912, ,309,670 Notes to the Financial Statements 19 Earnings per Share on Equity Shares of Rs. 10 each Basic and Diluted Schedules referred to above form an integral part of the Profit and Loss Account This is the Profit and Loss Account referred to in our report of even date For and on behalf of the Board of Directors K. H. Vachha Rupal Talati Uday S. Kotak Narayan S.A. Partner Company Secretary Chairman Managing Director Membership No : F30798 For and on behalf of Price Waterhouse Chartered Accountants Mumbai, Dated : 20 th May, 2004

110 101 Kotak Securities Limited CASH FLOW STATEMENT FOR THE YEAR ENDED 31 ST MARCH 2004 Schedule 31 st March st March 2003 Rs. Rs. Cash flow from operating activities: Net profit before taxation but after exceptional/extraordinary items 1,346,780, ,831,178 Add adjustments for: Depreciation/amortisation 48,011,539 38,725,866 Interest and other finance charges 129,625,108 90,826,357 Interest Income (426,396,242) (252,645,226) Operating Interest Income 351,031, ,960,592 Dividend Income (5,959,646) (2,436,548) Dividend Income on stock in trade 2,399,431 2,436,548 (Profit)/loss on sale/scrapping of fixed assets (net) 793,431 (107,842) (Profit)/loss on sale of investments (net) (11,616,437) (14,292,015) Preliminary expenses written off 54,856 54,856 Operating profit before working capital changes 1,434,723, ,353,766 Adjustments for changes in working capital: Trade and other receivables (1,001,004,314) (81,755,393) Stock in trade (186,474,939) (8,730,859) Trade and other payables 2,090,966,410 4,105,472 Cash generated from operations 2,338,210, ,972,986 Taxes paid (net of refunds) (479,592,278) (159,606,354) Net cash from operating activities (A) 1,858,618, ,366,632 Cash flow from Investing activities: Purchase of fixed assets (130,862,604) (50,907,748) Proceeds from sale of fixed assets 871,288 1,241,500 Proceeds from sale of investments (net) 11,616,437 44,792,215 Interest received 45,525,542 51,812,479 Dividend on current investments 3,560,215 Net cash (used in)/from investing activities (B) (69,289,122) 46,938,446 Cash flow from financing activities: Proceeds/(repayments) from/of borrowings (net) 1,216,175,436 (469,101,102) Interest and other finance charges paid (102,924,306) (90,449,664) Net cash from/(used in) financing activities (C) 1,113,251,130 (559,550,766) Net (Decrease)/Increase in Cash and Cash Equivalents (A)+(B)+(C) 2,902,580,416 (305,245,688) Cash and cash equivalents at the beginning of the year 483,912, ,157,750 Cash and cash equivalents at the end of the year 3,386,492, ,912,062 Cash and cash equivalents comprise of Cash and cheques in hand 551, ,051 Balances with scheduled banks 3,385,940, ,235,011 Balance with other bank 10,000,000 TOTAL 3,386,492, ,912,062 Notes to the Financial Statements The above Cash Flow Statement has been prepared under the Indirect Method as set out in Accounting Standard - 3 on Cash Flow Statements issued by the Institute of Chartered Accountants of India. 2. Balances with scheduled banks include fixed deposits of Rs. 2,345,025,245 (Previous Year Rs. 125,000,000) which is under lien of the National Securities Clearing Corporation Limited, Rs. 51,375,000 (Previous Year Rs. 22,625,000) which is under lien of The Stock Exchange, Mumbai and Rs.95,290 (Previous Year Rs. 95,290) as collateral towards lifting of shares for rectification from custodians. This is the Cash Flow Statement to in our report of even date For and on behalf of the Board of Directors K. H. Vachha Rupal Talati Uday S. Kotak Narayan S.A. Partner Company Secretary Chairman Managing Director Membership No : F30798 For and on behalf of Price Waterhouse Chartered Accountants Mumbai, Dated : 20 th May, 2004

111 102 Kotak Securities Limited SCHEDULES FORMING PART OF THE BALANCE SHEET Schedule 1 Capital Authorised 31 st March 31 st March Rs. Rs. 400,000 Preference shares of Rs.100 each 40,000,000 40,000,000 6,000,000 Equity shares of Rs.10 each 60,000,000 60,000, ,000, ,000,000 Issued and Subscribed 1,600,000 Equity Shares of Rs.10 each fully paid up [Of the above 1,199,990 shares are held by Kotak Mahindra Bank Limited, the Holding Company and its nominees] 16,000,000 16,000,000 TOTAL 16,000,000 16,000,000 Schedule 2 Reserves and Surplus Share Premium Account Balance as per last Balance Sheet 188,500, ,500,000 General Reserve Balance as per last Balance Sheet 77,244,666 77,244,666 Less: Amortisation of Membership Card of The Stock Exchange, Mumbai as on 31 st March 2003 (Refer Note 4 on Schedule 19) 13,528,164 63,716,502 77,244,666 Add :Transfer from Profit and Loss Account 85,461, ,177,502 77,244,666 Debenture Redemption Reserve Balance as per last Balance Sheet 152,714,581 82,751,060 Transfer to Profit and Loss Account 152,714,581 82,751,060 Transfer from Profit and Loss Account 789,395, ,714, ,395, ,714,581 Profit and Loss Account 703,855, ,595,089 TOTAL 1,830,928,853 1,062,054,336 Schedule 3 Secured Loans Repayable within one year 15, (31 st March 2003-Nil) 6.10% Optionally Convertible Debentures of Rs.10,000,000 each. 150,000,000 Date of redemption 6 th September (Convertible into 60,000, 5% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 10, (31 st March 2003-Nil) 5.90% Optionally Convertible Debentures of Rs.10,000,000 each. 100,000,000 Date of redemption 2 nd June (Convertible into 40,000, 5% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 10, (31 st March 2003-Nil) 5.40% Optionally Convertible Debentures of Rs.10,000,000 each. 100,000,000 Date of redemption 17 th May (Convertible into 40,000, 5% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 10, (31 st March 2003-Nil) 6.20% Optionally Convertible Debentures of Rs.10,000,000 each. 100,000,000 Date of redemption 15 th October (Convertible into 40,000, 6% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 5, (31 st March 2003-Nil) 5.40% Optionally Convertible Debentures of Rs.10,000,000 each. 50,000,000 Date of redemption 10 th May (Convertible into 20,000, 5% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 10, (31 st March 2003-Nil) 5.85% Optionally Convertible Debentures of Rs.10,000,000 each. 100,000,000 Date of redemption 11 th June (Convertible into 40,000,5% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.)

112 103 Kotak Securities Limited Schedules forming part of the Balance Sheet (Contd.) 31 st March 31 st March Rs. Rs. Schedule 3 Secured Loans (Contd.) 20, (31 st March 2003-Nil) 5.87% Optionally Convertible Debentures of Rs.10,000,000 each. 200,000,000 Date of redemption 29 th July (Convertible into 80,000, 6% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 15, (31 st March 2003-Nil) 6.02% Optionally Convertible Debentures of Rs.10,000,000 each. 150,000,000 Date of redemption 29 th September (Convertible into 60,000, 6% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 10, (31 st t March 2003-Nil) 5.32% Optionally Convertible Debentures of Rs.10,000,000 each. 100,000,000 Date of redemption 17 th May (Convertible into 40,000, 5% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 10, (31 st March 2003-Nil) 5.32% Optionally Convertible Debentures of Rs.10,000,000 each. 100,000,000 Date of redemption 25 th May (Convertible into 40,000, 5% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 5, (31 st March 2003-Nil) 5.33% Optionally Convertible Debentures of Rs.10,000,000 each. 50,000,000 Date of redemption 31 st May (Convertible into 20,000, 5% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 5, (31 st March 2003-Nil) 5.33% Optionally Convertible Debentures of Rs.10,000,000 each. 50,000,000 Date of redemption 2 nd June (Convertible into 20,000, 5% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) Note All the above debentures are secured by way of pari passu charge in favour of Debenture Trustee on the Company s immovable property and second charge on the business receivables and other assets of the Company 1,250,000,000 Loan and Overdraft From Banks 287,953,501 70,531,652 (Secured by a pari passu first charge on the stock in trade and business receivables) Other Loans (including hire purchase) 13,421,886 5,200,943 (Secured against hypothecation of vehicles) Term loans 9,467,284 (Secured against hypothecation of office equipments and computers) Total 1,551,375,387 85,199,879 Schedule 4 Unsecured Loans (Repayable within one year) Nil, (31 st March ) 6.85% Optionally Convertible Debentures of Rs.10,000,000 each. Date of redemption 17 th September 2003.(Convertible into 40,000,10% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 100,000,000 Nil, (31 st March ) 9.55% Optionally Convertible Debentures of Rs.10,000,000 each. Date of redemption 4 th April (Convertible into 20,000, 5% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 50,000,000 Nil, (31 st March ) 6.90% Optionally Convertible Debentures of Rs.10,000,000 each. Date of redemption 28 th May 2003.(Convertible into 20,000, 5% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 50,000,000 Nil, (31 st March ) 6.25% Optionally Convertible Debentures of Rs.10,000,000 each. Date of redemption 21 st April (Convertible into 40,000, 5% Redeemable Non Convertible Preference shares of Rs.100 each at a premium of Rs. 2,400 per share.) 100,000, ,000,000 Inter Corporate Deposits 30,000,000 80,000,000 Loan From Banks 99,999,928 Total 129,999, ,000,000

113 Schedule 5 Fixed Assets GROSS BLOCK DEPRECIATION/AMORTISATION NET BLOCK (Amount in Rupees) Descriptions As at Additions Deduc- As at As at Amorisa- For the On Deduc- As at 31 st As at 31 st As at 31 st 1 st April, for the tions/ 31 st March, 1 st April, tion Year tions March, March, March, 2003 Year Adjust ments for the year MEMBERSHIP CARDS OF THE STOCK EXCHANGE, MUMBAI a 47,600,000 b 1,000,000 46,600,000 c 13,528,164 2,860,000 16,388,164 30,211,836 47,600,000 LEASEHOLD IMPROVEMENTS d 22,130,189 22,130,189 1,723,485 1,723,485 20,406,704 PREMISES 400, ,000 13,479 13,370 26, , ,521 FURNITURE AND FIXTURES 3,155,405 2,658, ,887 5,490,865 2,300,054 1,670, ,619 3,695,664 1,795, ,351 COMPUTERS AND SOFTWARE e 99,901,035 71,039,263 1,167, ,772,719 68,766,046 27,011,575 1,153,864 94,623,757 75,148,962 31,134,989 OFFICE EQUIPMENTS f 47,426,671 27,869,901 2,701,081 72,595,491 17,416,245 11,443,923 1,550,458 27,309,710 45,285,781 30,010,426 MOTOR VEHICLES g 10,827,269 13,136,467 1,360,007 22,603,729 4,917,428 3,288, ,894 7,298,491 15,305,238 5,909,841 TOTAL 209,310, ,834,167 6,551, ,592,993 93,413,252 13,528,164 48,011,539 3,886, ,066, ,526, ,897,128 PREVIOUS YEAR 167,124,464 49,755,216 7,569, ,310,380 61,123,028 38,725,866 6,435,642 93,413, ,897,128 a Refer Note 4 on Schedule 19. b Reclassified as Deposits with Exchanges/Depositories (Refer Schedule 10). c Ammortisation upto 31 st March 2003 is adjusted against General Reserves (Refer Note 4 on Schedule 19). Schedules forming part of the Balance Sheet (Contd.) d Refer Note 5 on Schedule 19 e f Includes asset given on operating lease aggregating to Rs. 2,535,000 (Previous Year Rs. Nil).The depreciation for the year is Rs. 426,614 (Previous Year Rs. Nil) and the written down value of the asset as on 31 st March, 2004 is Rs. 2,108,386 (Previous Year Rs. Nil).Refer Note 6 on Schedule 19. Includes assets aggregating to Rs. 965,592 (54% of original cost) jointly owned with other enterprises. The depreciation for the year is Rs.193,647 (Previous Year Rs.193,118) and the written down value of the assets as on 31 st March, 2004 is Rs. 417,983 (Previous Year Rs. 611,630). Includes assets given on operating lease aggregating to Rs.10,440,330 (Previous Year Rs. 4,341,551). The depreciation for the year is Rs.1,358,236 (Previous Year Rs. 287,819) and the written down value of the assets as on 31 st March,2004 is Rs. 8,794,275 (Previous Year Rs. 4,053,732). g Includes Rs.Nil (Previous Year Rs. 2,479,841) being assets under hire purchase. Refer Note 7 on Schedule Kotak Securities Limited

114 105 Kotak Securities Limited Schedules forming part of the Balance Sheet (Contd.) Face Value 31 st March 31 st March 31 st March 31 st March Quantity Quantity Rs. Rs. SCHEDULE 6 - STOCK IN TRADE (At cost or market value whichever is lower) Equity Shares ABB Limited ,803 Arvind Mills Limited 10 38,700 1,675,204 Ashok Leyland Limited ,205 Bharat Earth Movers Limited ,542 Bharat Heavy Electricals Limited ,179 Bharat Petroleum Corporation Limited ,170 Blue Dart Express Limited ,596 Canara Bank Limited ,200 29,058,987 Ceat Tyres Limited ,467 1,273 Gas Authority of India Limited ,312 42,196,510 Grasim Induries Limited 10 12,600 12,899,508 Gujarat Alkalies And Chemicals Limited 10 3, ,082 Himachal Futuristic Communication Limited ,440 2,310 Hindustan Lever Limited 1 20,052 2,974,714 ICICI Bank Limited 10 13, ,747,136 70,218 Indraprastha Gas Limited 10 1,000 82,900 Infosys Technologies Limited ,980 Jaiprakash Industries Limited ,090 Jindal Steel & Power Limited ,165 Lupin Limited ,594 Larsen and Toubro Limited 10 30,000 5,536,500 Mahindra & Mahindra Limited ,474 Mangalore Refinery And Petrochemicals Limited ,645 Maruti Udyog Limited ,392 Matrix Laboratories Limited ,216 Mahanagar Telephone Nigam Limited ,785 Monsanto Chemicals Limited ,429 Motor Industries Limited ,800 Nicholas Piramal India Limited ,960 NIIT Limited 10 8,036 1,442,130 Nelco Limited ,445 Pantaloon Retail (India) Limited ,182 Polaris Software Lab Limited 5 98,000 17,203,900 Reliance Industries Limited 10 22,200 11,706,711 Samtel Color Limited 10 1,273 52,830 Shipping Corporation of India Limited ,911 18,689,623 Siemens Limited ,502 State Bank of India 10 94,500 54,589,616 Subex System Limited ,866 Tata Chemicals Limited ,203 Tata Motors Limited ,815 Tata Power Company Limited ,323 Tata Tea Limited ,246 Tata Iron and Steel Company Limited 10 1, ,367 UCO Bank Limited ,815 Visualsoft Technologies Limited , ,412 53, ,500,915 9,004,782 Exchange Traded Fund S&P CNX Nifty UTI , ,093 Government Dated Securities 9.85% Government of India , % Government of India , ,287 TOTAL 848,503 54, ,517,008 9,042,069 Aggregate Value of Stock-In-Trade At Book Value 195,517,008 9,042,069 At Market Value 199,828,521 9,042,069 Refer Note 9 on Schedule 19

115 106 Kotak Securities Limited Schedules forming part of the Balance Sheet (Contd.) Schedule 7 Sundry Debtors 31 st March 31 st March Rs. Rs. Sundry Debtors *: Considered Good Over Six Months 16,141,817 44,385,945 Others** 1,749,618,848 1,414,292,175 Considered Doubtful Over Six Months 6,067,076 5,871,863 Others 3,995,309 3,024,905 1,775,823,050 1,467,574,888 Less : Provision for Doubtful Debts 10,062,385 8,896,768 TOTAL 1,765,760,665 1,458,678,120 * Sundry debtors include secured debtors Rs.1,675,976,849 (Previous Year Rs. 1,405,786,114) of which Rs. 216,955,301(Previous Year Rs. 215,927,190) is guaranteed by the Trade Guarantee Fund of the stock exchanges. ** Due from Directors and a private company in which Director is a member Rs. 2,108 and Rs. 370 respectively (Previous Year Rs. 688 and Rs. 313 respectively), maximum amount outstanding during the year, from Directors Rs. 44,904 (Previous Year Rs.1,410,529). Schedule 8 Cash and Bank Balances Cash on Hand 551, ,051 Balances with Scheduled Banks in: Current Accounts 59,587,133 5,764,720 Fixed Deposit Accounts (Refer Note 12 on Schedule 19) 3,326,353, ,470,291 Balances with Other Bank in: Fixed Deposit Account [Maximum outstanding during the year Rs.10,000,000 (Previous Year Rs 10,000,000)] 10,000,000 TOTAL 3,386,492, ,912,062 Schedule 9 Other Current Assets Interest Accrued on Fixed Deposits 40,764,163 10,924,883 Receivable on Sale of Investments 640,073,902 TOTAL 680,838,065 10,924, st March 31 st March Rs. Rs. Rs. Rs. Schedule 10 - Loans and Advances (Unsecured, unless otherwise stated, considered good) Loans 1,467,510 1,550,149 Advances Recoverable in Cash or Kind or for Value to be Received 17,378,979 17,220,244 Deposits with Exchanges/Depositories 12,084,233 62,670,979 Deposits Others 36,511,384 41,957,070 Initial Margin Equity Derivative Instrument 114,867,095 3,417,578 (Refer Notes 1 (H) ( a) and 1 (I ) (a) on Schedule 19) Mark-to-Market Margin Equity Index/Stock Futures (Refer Note 1 (H) (b on Schedule 19) 6,595, ,805 Less: Provision for Loss (Refer Note 1 (H) (c) on Schedule 19) 6,595, ,805 Equity Index/Stock Option Premium (Refer Note 1 ( I ) (b) on Schedule 19) 663, ,790 Less: Provision for Loss (Refer Note 1 (I) (c) on Schedule 19 ) 86, ,544 83, ,970 Advance Tax (net of Provision for Taxation Previous Year Rs. 620,658,606) 6,273,466 TOTAL 182,886, ,806,456

116 107 Kotak Securities Limited Schedules forming part of the Balance Sheet (Contd.) 31 st March 31 st March Rs. Rs. Rs. Rs. Schedule 11 Liabilities Sundry Creditors (includes Trade Payables) (other than small industrial undertakings)* 2,708,216, ,299,746 Income Received In Advance 158,853 2,518,840 Book Overdraft from Banks 321,376 30,374,496 Other Liabilities 13,768,260 13,530,217 Interest Accrued But Not Due 29,982,799 3,281,995 Equity Index/Stock Option Premium (Refer Note 1 (I) (b) on Schedule 19) 892,145 32,337 Add: Provision for Loss 79, ,581 32,337 (Refer Note 1 (I) (c) on Schedule 19) Mark-to-Market Margin Equity Index/Stock Futures (Refer Note 1 (H) (b) on Schedule 19) 1,783, ,500 TOTAL 2,755,202, ,459,131 * The above information regarding small scale industrial undertakings has been determined to the extent such parties have been identified on the basis of information available with the Company. This has been relied upon by the Auditors. There are no amounts due and outstanding to be credited to Investor Education and Protection Fund. Schedule 12 - Provisions Taxation (Net of Advance Tax and Tax Deducted at source Rs 1,106,661,247) 10,287,772 Gratuity and Leave Encashment 14,904,120 13,510,747 Contingencies 21,976,707 3,968,758 Proposed Dividend 64,000,000 Tax on Distributed Profit 8,200,000 TOTAL 119,368,599 17,479,505 Schedules forming part of the Profit and Loss Account Schedule 13 Income from Services 31 st March 31 st March Rs. Rs. Income from Brokerage - Gross [Tax Deducted at Source Rs.1,609,943 (Previous Year Rs. 644,012)] 2,092,607, ,435,669 Recovery on Account of Expenses 844,120 2,673,089 2,093,451, ,108,758 Less: Sub Brokerage/Referral Fees and Expenses (Refer Note 13 on Schedule 19) 364,688, ,895,966 1,728,762, ,212,792 Fee Income Gross (Refer Note 14 on Schedule 19) [Tax Deducted at Source Rs. 747,495 (Previous Year Rs. 713,860)] 221,050,714 77,353,666 Less : Referral Fees 5,307, ,743,108 77,353,666 TOTAL 1,944,505, ,566,458 Schedule 14 Interest Income Interest on Delayed Payments [Tax Deducted at Source Rs.13,341,485 Previous Year Rs. 31,988)} 351,031, ,960,592 Interest on Bank Deposits {Tax Deducted at Source Rs. 7,620,155 (Previous Year Rs. 4,472,540)} 74,858,803 50,532,580 Interest on Staff Loans 111, ,054 Interest on Income Tax Refund 394,457 TOTAL 426,396, ,645,226

117 108 Kotak Securities Limited Schedules forming part of the Profit and Loss Account (Contd.) 31 st March 31 st March Rs. Rs. Schedule 15 Other Income Dividend Income Gross (Refer Note 15 on Schedule 19) [Tax Deducted at Source Rs. Nil (Previous Year Rs. 197,016)] 5,959,646 2,436,548 Profit on Sale of Investments (net) (Refer Note 16 on Schedule 19) 11,616,437 14,292,015 Profit on Trading in Securities (net) (Refer Note 23 on Schedule 19) 62,592,761 15,766,821 Liabilities Written Back as no longer required (Refer Note 17 on Schedule 19) 3,490,669 5,040,176 Profit on Sale of Fixed Assets (net) 107,842 Miscellaneous Income - Gross [Tax Deducted at Source Rs. Nil (Previous Year Rs. 68,992)] 22,110,276 9,848,627 TOTAL 105,769,789 47,492,029 Schedule 16 - Personnel Salaries, Allowances and Bonus (Refer Note 18 on Schedule 19) 397,176, ,085,664 Contribution to Provident and Other Funds 10,593,639 8,176,070 Gratuity and Leave Encashment 2,445,997 4,964,537 Staff Welfare 11,553,519 10,464,862 Total 421,769, ,691,133 Less : Recovery of Expenses (Refer Note 19 on Schedule 19) 18,105,875 15,376,613 TOTAL 403,663, ,314,520 Schedule 17 Interest and Other Finance Charges Interest on Inter Corporate Deposits 12,840,587 10,203,799 Interest on Debentures 96,023,095 55,742,907 Interest/Discount on Term Loan/Other Fixed Loans 2,791,671 13,749,875 Interest on Bank Overdraft 1,949, ,612 Bank Guarantee Commission and Other Charges 11,017,060 4,046,833 Interest-Other 5,003,619 5,980,687 Premium on Forward Exchange Contract 144,644 TOTAL 129,625,108 90,826,357 Schedule 18 Other Expenses Travelling,Conveyance and Motor Car 50,100,206 31,643,327 Professional and Legal 74,878,020 44,154,520 Auditors Remuneration: Audit Fees 1,100,000 1,170,000 Tax Audit Fees 100, ,000 In Other Capacity 600, ,000 Out of Pocket Expenses 19,800 33,000 Provision for Doubtful Debts 1,165, ,264 Provision for Contingencies 18,007,949 Repairs and Maintenance Others 26,457,278 23,407,168 Office 15,225,128 4,737,653 Software (Refer Note 6 on Schedule 19) 8,483,260 Communication 55,766,985 41,462,617 Printing and Stationery 22,871,618 13,744,479 Operating Expenses (Stock Exchanges) 8,293,777 4,678,482 Electricity 16,791,292 10,879,996 Membership and Subscription 11,010,844 11,440,422 Rent 56,076,375 43,507,582 Rates and Taxes 25, ,362 Lease 437, ,132 Advertising, Business Promotion and Entertainment 22,872,341 8,274,002 Preliminary Expenses Written Off 54,856 54,856 Bad Debts Written Off 2,747,972 1,065,904 Service Charges 12,567,676 6,366,300 Common Establishment Expenses-Reimbursement 11,447, ,948 Depository Charges 16,690,529 7,013,765 Stock Borrowing [including Rs.7,097,306 (Previous Year Rs.7,292,124) on own account)] 10,154,343 14,087,304 Stamp/Turnover/Transaction Charges (net of recovery) 95,890,564 31,170,561 Insurance 2,231,713 2,328,632 Loss on Account of Trades Not Confirmed by Clients, Error Trades (net) 15,157,659 4,749,243 Loss on Sale/Scrapping of Fixed Assets (net) 793,431 Provision for Diminution in Value of Stock-In-Trade 2,179, ,717 Miscellaneous 10,851,562 5,559,480 Less: Recovery of Expenses (Refer Note 19 on Schedule 19) 13,975,416 11,053,184 TOTAL 548,591, ,005,792

118 109 Kotak Securities Limited SCHEDULES FORMING PART OF THE BALANCE SHEET AND THE PROFIT AND LOSS ACCOUNT SCHEDULE 19 NOTES TO THE FINANCIAL STATEMENTS 1 SIGNIFICANT ACCOUNTING POLICIES: A. ACCOUNTING CONVENTION The financial statements are prepared under historical cost convention on an accrual basis of accounting. B. REVENUE RECOGNITION 1. Placement and other fee based income are accounted for on the basis of the progress of the assignment. 2. Brokerage Income on fixed deposit management is accounted on completion of the transaction. on primary market subscription mobilisation is accounted on allotment. on secondary market transaction is recognised net of service tax on the date of the transaction. 3. Underwriting commission is accounted on allotment. 4. Incentive on primary market subscription mobilisation is accounted on the basis of intimation received by the Company. 5. Depository Fees Transaction fees are recognised on completion of the transaction. Account maintenance charges are recognised on time basis over the period of the contract. 6. Stock Lending Fees and Borrowing Expenses Stock lending fees and borrowing expenses are recognised on time basis over the period of the contract. 7. Portfolio management fees are accounted on accrual basis as follows: (a) In case of percentage based fees, as a percentage of the initial corpus for the first year and on additional placement of funds during the year, on a quarterly basis. For each subsequent year, the fees will be recognised as a percentage of the unaudited net asset value on the renewed corpus at the commencement of each year and on any additional placement of the funds during the year. (b) In case of return based fee, as a percentage of the annual realised profit C. DEBENTURE REDEMPTION RESERVE In terms of Section 117C of the Companies Act, 1956, amounts equivalent to the principal value of the debentures and accrued interest thereon is transferred to Debenture Redemption Reserve proportionately over the term of the debentures. D. FIXED ASSETS 1. Fixed assets are stated at cost inclusive of incidental expenses less accumulated depreciation. 2. Depreciation is provided on straight line method over the useful life of the assets on pro-rata basis for additions and deletions during the year as under : Leasehold Improvements Over the period of lease subject to a maximum of 6 years Premises 30 years Furniture and Fixtures 6 years Computers and Software 3 years Office Equipments 5 years Motor Vehicles 4 years 3. Membership card of The Stock Exchange, Mumbai has been amortised over a period of 10 years 4. Fixed assets costing less than Rs. 5,000 are fully depreciated in the year of purchase. E. INVESTMENTS Investments are classified into long term investments and current investments. Investments which are intended to be held for more than one year are classified as long term investments and investments which are intended to be held for less than one year are classified as current investments. Long term investments are accounted at cost and any decline in the carrying value other than temporary in nature is provided for. Current investments are valued at cost or market/fair value, whichever is lower. In case of investments in units of a mutual fund, the net asset value of units is considered as the market/ fair value. F. STOCK IN TRADE Stock in trade is valued at cost or market value, whichever is lower. G. FOREIGN CURRENCY TRANSACTIONS Revenue and expenses are recorded at the exchange rate prevailing on the date of the transaction. Assets and liabilities, other than those covered by forward exchange contracts, are restated at the exchange rate prevailing on the Balance Sheet date. Exchange differences arising on settlement of the transaction and on account of restatement of assets and liabilities are dealt with in the Profit and Loss Account. Assets and liabilities covered by forward exchange contracts are stated at the rate specified in the related forward contracts. The difference between the forward rate and the exchange rate at the inception of the forward exchange contract is recognised as income or expense over the life of the contract.

119 110 Kotak Securities Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) H. EQUITY INDEX/ STOCK FUTURES (a) Initial Margin Equity Derivative Instrument, representing the initial margin paid, and Margin Deposits representing the additional margin paid over and above the initial margin, for entering into contracts for equity index/ stock futures which are released on final settlement/squaringup of underlying contracts, are disclosed under Loans and Advances. (b) Equity index/ stock futures are marked-to-market on a daily basis. Debit or credit balance disclosed under Loans and Advances or Current Liabilities, respectively, in the Mark-to-Market Margin Equity Index/ Stock Futures Account, represents the net amount paid or received on the basis of movement in the prices of index/ stock futures till the Balance Sheet date. (c) As on the Balance Sheet date, profit/loss on open positions in equity index/ stock futures are accounted for as follows: Credit balance in the Mark-to-Market Margin Equity Index/Stock Futures Account, being the anticipated profit, is ignored and no credit for the same is taken in the Profit and Loss Account. Debit balance in the Mark-to-Market Margin Equity Index/Stock Futures Account, being anticipated loss, is adjusted in the Profit and Loss Account. (d) On final settlement or squaring-up of contracts for equity index/stock futures, the profit or loss is calculated as the difference between the settlement/squaring-up price and the contract price. Accordingly, debit or credit balance pertaining to the settled/squared-up contract in Markto-Market Margin Equity Index/ Stock Futures Account after adjustment of provision for anticipated losses is recognised in the Profit and Loss Account. When more than one contract in respect of the relevant series of equity index/ stock futures contract to which the squared-up contract pertains is outstanding at the time of the squaring-up of the contract, the contract price of the contract so squared-up is determined using the weighted average cost method for calculating the profit/loss on squaring-up. I. EQUITY INDEX/STOCK OPTIONS (a) Initial Margin Equity Derivative Instrument representing the initial margin paid, and Margin Deposit, representing the additional margin paid over and above the initial margin, for entering into contracts for equity index/ stock options, which are released on final settlement/squaring-up of the underlying contracts, are disclosed under Loans and Advances. (b) Equity Index/ Stock Option Premium Account represents the premium paid or received for buying or selling the options, respectively. (c) As at the Balance Sheet date, in the case of long positions, provision is made for the amount by which the premium paid for those options exceeds the premium prevailing on the Balance Sheet date, and in the case of short positions, for the amount by which the premium prevailing on the Balance Sheet date exceeds the premium received for those options, and reflected in Provision for Loss on Equity Index/ Stock Option Account. (d) When the option contracts are squared-up before expiry of the options, the premium prevailing on that date is recognised in the Profit and Loss Account. If more than one option contract in respect of the same index/stock with the same strike price and expiry date to which the squared-up contract pertains is outstanding at the time of squaring-up of the contract, the weighted average method is followed for determining the profit or loss. On the expiry of the contracts and on exercising the options, the difference between the final settlement price and the strike price is transferred to the Profit and Loss Account. In both the above cases, the premium paid or received for buying or selling the option, as the case may be, is recognised in the Profit and Loss Account for all squared-up/settled contracts. J. RETIREMENT BENEFITS Provision for gratuity and leave encashment liability to employees is based on an actuarial valuation. K. PRELIMINARY EXPENSES Preliminary expenses are amortised in ten equal yearly instalments. L. TAXES ON INCOME Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognised, subject to the consideration of prudence in respect of deferred tax asset, on timing differences, being the differences between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. 2 Contingent Liabilities: (a) Taxation matters in respect of which appeal is pending - Rs.12,383,069 (Previous Year Rs. 27,454,009). This is being disputed by the Company and hence not provided for. (b) Counter guarantees given to scheduled banks - Rs. 1,985,000,000 (Previous Year Rs. 758,500,000). (c) Capital commitments (net of advances) - Rs. 9,093,251 (Previous Year Rs. 2,123,874 ) 3 (a) Obligation for future rentals on account of motor vehicles taken on lease is estimated at Rs. NIL (Previous Year Rs. 456,978) payable over a period of 1 year. (b) (i) The Company has taken various offices, residential and godown premises under operating lease or leave and license agreements. These are generally cancellable in nature and range between 10 months to 96 months. These leave and license agreements are generally renewable or cancellable at the option of the Company.

120 111 Kotak Securities Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) (ii) Rent payments are recognised in the Profit and Loss Account under the head Rent in Schedule 18. (iii) The future minimum lease payments under non-cancellable operating lease not later than one year is Rs. 12,670,545 (Previous year Rs. 6,047,350 ) and later than one year but not later than five years is Rs. 24,192,515 (Previous year Rs. 2,765,000). 4 Consequent to Accounting Standard 26 on Intangible Assets, issued by the Institute of Chartered Accountants of India, the membership cards of the Stock Exchange, Mumbai, owned by the Company are classified as intangible assets under the head Fixed Assets and are being amortised over a period of ten years from their date of acquisition. The accumulated amortization as on 31 st March, 2003, of Rs. 13,528,164 has been adjusted against the opening balance of General Reserve in accordance with the transitional provisions of the standard. Amortisation of Rs. 2,860,000 for the current year has been charged to the Profit and Loss Account. The change in accounting policy has resulted in depreciation/amortization for the year being higher by Rs. 2,860,000 and the profit before tax for the year being lower by an equivalent amount. 5 The Company has changed its accounting policy for leasehold improvements. Hitherto leasehold improvements were being charged to the Profit and Loss Account on incurrence. From the current financial year leasehold improvements are being capitalised and depreciated over the period of lease subject to a maximum period of six years. Had the previous basis been followed the charge to the Profit and Loss Account would have been higher by Rs.20,406,704 and the profit before tax for the year would have been lower by an equivalent amount. 6 The Company has changed its accounting policy for software. Hitherto the cost of software user licences was being charged to the Profit and Loss Account in the year the software was acquired. From the current financial year software of Rs.16,324,553 is capitalised and depreciated over a period of three years. Had the previous basis been followed the change to the Profit and Loss Account would have been higher by Rs.14,212,664 and the profit before tax for the year would have been lower by an equivalent amount. 7 The Company has revised its estimate of useful life of motor vehicles to four years as against the earlier estimate of three years with effect from 1st April, Accordingly the depreciation charge for the year is lower by Rs. 892,605 and the profit before tax is higher by an equivalent amount. 8 Deferred Income taxes: Components of deferred tax balances as at 31 st March, 2004: Particulars 31 st March st March 2003 Rupees Rupees Deferred Tax Assets Provision for Doubtful Debts/Contingencies 11,494,024 3,191,716 Provision for Gratuity 3,509,134 3,156,225 Provision for Leave Encashment 1,372, ,310 Provision for Bonus 31,661 31,661 Total 16,407,249 7,298,912 Deferred Tax Liability Depreciation 13,608,714 (8,476,506) Total (13,608,714) (8,476,506) Net Deferred Tax 2,798,535 (1,177,594) 9 Securities, which are not registered in the name of the Company, are held by the Company with valid transfer documents. 10 Securities received from clients as collateral for margins are held by the Company in its own name in a fiduciary capacity. 11 The Company is an approved intermediary under the Securities Lending Scheme 1997 (the scheme), of The Securities and Exchange Board of India, for facilitating the lending and borrowing of securities. The securities borrowed under the scheme, outstanding as on the financial year end are valued at Rs. 6,863,924 (Previous Year Rs. 79,017,355), out of which securities valued at Rs. 1,431,904 (Previous Year Rs. 60,126,958) have been lent to various clients, from whom sufficient margins have been collected. The securities borrowed under the scheme and outstanding as on the financial year end include securities borrowed valued at Rs. 5,432,020. (Previous Year Rs. 18,890,397) on own account. 12 Fixed deposits with scheduled banks include Rs. 2,345,025,245(Previous Year Rs. 125,000,000) which is under the lien of National Securities Clearing Corporation Limited, Rs. 51,375,000 (Previous Year Rs. 22,625,000) which is under the lien of The Stock Exchange, Mumbai and Rs. 95,290 (Previous Year Rs. 95,290) as collateral towards lifting of shares for rectification from custodians. 13 Sub brokerage/referral fees and expenses include Rs. 28,003,290 being referral fees paid to overseas companies for which intimation letter has been forwarded to the National Stock Exchange of India Limited. Particulars 31 st March, st March, 2003 Rupees Rupees 14 Fee Income: Client Money Management Services 108,106,380 24,799,923 Depository Fees 87,191,348 39,242,264 Loan Syndication Fees 15,799,629 Stock Lending Fees 5,217,518 11,504,836 Other Fees 4,735,839 1,806,643 Total 2,21,050,714 77,353, Dividend income represents dividend on current investments Rs. 3,560,215 (Previous Year Rs. Nil) and on stock in trade Rs.2,399,431 (Previous Year Rs. 2,436,548).

121 112 Kotak Securities Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) 16 Profit on sale of investments (net) represents profit on sale of current investments (net) (other than trade) Rs.11,616,437 (Previous Year - Rs. 14,292,215) and loss on write off/sale of long term (other than trade) investments Rs. Nil (Previous Year - Rs. 200), 17 Liabilities written back comprises of provision no longer required in respect of, sub brokerage Rs. 1,066,186 (Previous Year Rs. 315,323), expenses Rs. Nil (Previous Year Rs.1,747,048) and other credit balances Rs. 2,424,483 (Previous Year Rs. 2,977,805 ). 18 During the year the Company has paid Rs.2,391,799 (Previous Year Rs. Nil) towards Kotak Mahindra Equity Option Plan of Kotak Mahindra Bank Limited, the Holding Company, in respect of stock options granted to its employees. This amount has been charged to the Profit and Loss Account and included under the head Salaries, Allowances and Bonus in Schedule Recovery of expenses in Schedule 16 and Schedule 18 are amounts recovered from fellow subsidiaries towards the value of costs apportioned of the Company s employees and facilities in accordance with the agreements on allocation of expenses with fellow subsidiary companies. 20 The Company has been legally advised that: (a) necessary prior approval of the Central Government of India is not necessary under section 297 of the Companies Act, 1956 with respect to contract for (b) purchase of cellular services from a private limited company where a Director of the Company is a director. the Provisions of section 295 of the Companies Act, 1956 do not apply to the fixed deposits placed by the Company with its holding company, Kotak Mahindra Bank Limited. 21 (a) Directors Remuneration: Particulars 31 st March, st March, 2003 Rupees Rupees Salaries and Incentives 18,792,578 15,122,241 Employee Stock Option Plan (Refer Note 18) 764,219 Contribution to Provident Fund 456, ,886 Perquisites 4,099 20,012,797 15,452,226 The above excludes provision for gratuity and leave encashment, since these are based on actuarial valuation done on an overall company basis. (b) Computation of net profit in accordance with Section 309 (5) of the Companies Act, 1956 has not been made as no commission is payable to the Directors. 22 Units of Mutual Fund Purchased/Allotted and Sold/Redeemed during the year. Mutual Fund Schemes Face Value Purchased/ Sold/ Allotted Redeemed Kotak Mahindra Liquid Scheme Growth Plan 10 3,477,222,392 3,477,222,392 Kotak Mahindra Bond Unit Scheme 99 Short Term Plan Growth Option ,282, ,282,978 Kotak Mahindra Liquid Scheme Institutional Plan Dividend Option 10 16,220,710 16,220,710 Kotak Mahindra Liquid Scheme Institutional Plan Daily Dividend Option 10 1,569,382,015 1,569,382,015 UTI Liquid Cash Plan Growth Option 10 3,000,000 3,000,000 GCFG Grindleys Cash Fund - Growth 10 5,550,689 5,550,689 SBI Magnum Insta Cash Fund 10 10,619,845 10,619,845 ICICI Institutional Liquid Plan 10 9,675,796 9,675, Quantitative Information in Respect of Trading in Securities# 31 st March st March 2003 Quantity Value Quantity Value Nos. Rupees Nos. Rupees Opening Stock (A) Equity Shares 53,035 9,684, ,607 Bonds and Other Securities ,223 TOTAL (A) 53,335 9,724, ,607 Purchases Equity Shares 20,901,971 8,344,260,881 4,196,848 2,158,990,225 Bonds and Other Securities * ,010,871 91, ,132,544 TOTAL (B) 20,902,374 8,474,271,752 4,288,120 2,657,122,769 Sales Equity Shares 20,120,704 8,145,420,492 4,144,363 2,165,315,181 Bonds and Other Securities * ,725,080 90, ,085,789 TOTAL (C) 20,121,407 8,276,145,572 4,235,335 2,667,400,970 Closing Stock (D) Equity Shares 834, ,284,267 53,035 9,684,880 Bonds and Other Securities ,223 TOTAL (D) 834, ,284,267 53,335 9,724,103 Profit/(Loss) on Trading in Options/Futures (Net) (E) 75,158,777 (4,155,876) Profit (A+B-C-D-E) 62,592,761 15,766,821

122 113 Kotak Securities Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) * Includes purchase of Rs. 59,056,809 (Previous Year Rs. 167,964,007) and sale Rs. 59,754,836 (Previous year Rs. 169,204,367) pertaining to bonds and other securities purchased and sold during the year on the basis of face value # Transactions and stocks on account of error trades/trades not confirmed by clients have not been considered. Provision for diminution in value of stock-in-trade is not considered above, the value representing cost. 24 Open Interest in Individual Stock Futures as on 31 st March 2004 Open Long Positions: Name of Equity Index/Stock Futures Expiry Date No. of Contracts No. of Units Shipping Corporation of India Limited 29-Apr ,000 Satyam Computers Limited 29-Apr ,200 Mahanagar Telephone Nigam Limited 29-Apr ,800 Maruti Udyog Limited 29-Apr ,800 Oil and Natural Gas Corporation Limited 29-Apr ,900 Canara Bank Limited 29-Apr ,200 Indian Petrochemicals Corporation Limited 29-Apr ,200 Tata Motors Limited 29-Apr Infosys Technologies Limited 29-Apr Open Short Positions: Name of Equity Index/Stock Futures Expiry Date No. of Contracts No. of Units Shipping Corporation of India Limited 29-Apr ,600 Canara Bank Limited 29-Apr ,200 Tata Iron and Steel Company Limited 29-Apr ,600 Gas Authority of India Limited 29-Apr ,000 NIIT Limited 29-Apr ,500 Hindustan Lever Limited 29-Apr ,000 Polaris Software Lab Limited 29-Apr ,000 Ranbaxy Laboratories Limited 29-Apr Reliance Industries Limited 29-Apr ,800 ICICI Bank Limited 29-Apr ,600 State Bank of India 29-Apr ,500 Arvind Mills Limited 29-Apr ,700 Grasim Industries Limited 29-Apr ,600 Initial margin on equity index futures contracts as well as individual stock futures has been paid in cash only. Outstanding Options Contract as on 31 st March 2004 Name of the Option Index/Stock Total Premium Carried Forward at 31 st March 2004 Net of Provisions Made S & P Nifty 270,420 Canara Bank Limited (22,400) Hindustan Lever Limited 15,500 Infosys Technologies Limited (81,705) Indian Petrochemicals Corporation Limited (23,265) Maruti Udyog Limited (231,660) Mahanagar Telephone Nigam Limited (58,720) Ranbaxy Laboratories Limited 33,600 Reliance Industries Limited 49,140 Satyam Computers Limited (276,767) Shipping Corporation of India Limited (93,694) Tata Motors Limited (62,370) Tata Power Limited (19,750) Tata Iron and Steel Company Limited 107,634 Total (394,037) 25 (a) Expenditure in Foreign Currency: (i) Travelling Rs.1,458,796 (Previous Year Rs. 5,200,820) (ii) Legal Rs. Nil (Previous Year Rs. 436,707) (iii) Membership and Subscription Rs. 929,170 (Previous Year Rs. 1,194,323)

123 114 Kotak Securities Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) (iv) Referral Fees Rs. 38,505,212 (Previous Year Rs. 23,835,808) (v) Conference and Meetings Rs. 373,128 (Previous Year Rs. 32,857) (vi) Staff Training Rs. 195,552 (Previous Year Rs. 1,382,739) (vii) Software Rs. 280,833 (Previous Year Rs. Nil) (b) Earnings in Foreign Currency: (i) Depository Fees Rs. Nil (Previous Year Rs. 670,536 ) 26 Information with regard to other matters specified in paragraphs 4-C and 4-D of Part II of Schedule VI to the Companies Act, 1956 is either nil or not applicable to the Company for the financial year ended 31 st March Segment Information for the year ended 31 st March 2004 (a) Information about Primary Business Segments Particulars Secondary Primary Other Unallocated Total Market Broking Operations Related Business Segment Revenue Income from external customers 1,988,026, ,272, ,199,831 15,682,671 2,473,181,176 Previous year 842,609,475 87,448,775 93,760,930 16,844,357 1,040,663,537 Income from inter segments Previous year Liabilities Written Back as No Longer Required 918,449 1,066,186 1,506,034 3,490,669 Previous year 2,977,805 1,200, ,283 5,040,176 Total 1,988,944, ,338, ,199,831 17,188,705 2,476,671,845 Previous year 845,587,280 88,648,863 93,760,930 17,706,640 1,045,703,713 Segment result 976,671, ,652, ,877,118 15,578,839 1,346,780,069 Previous year 265,332,666 62,788,148 45,738,127 14,972, ,831,178 Income Tax Current and Deferred 492,177, ,177,388 Previous year 145,205, ,205,496 Net Profit 854,602,681 Previous year 243,625,682 Other Information Carrying amount of segment assets 5,248,514,287 79,810, ,449, ,101,575 6,402,875,240 Previous year 2,097,108,014 35,445,632 33,225,012 46,591,787 2,212,370,445 Carrying amount of segment liabilities 4,262,643,293 33,456,458 30,192, ,653,915 4,555,946,387 Previous year 1,044,610,230 34,805,494 12,133,975 42,766,410 1,134,316,109 Cost to acquire tangible fixed assets 72,911, ,329 2,593,444 60,999, ,834,167 Previous year 32,009,937 97,243 2,271,927 15,376,109 49,755,216 Depreciation/Amortisation 28,169, ,625 1,314,573 18,246,833 48,011,539 Previous year 16,248, ,979 1,338,485 20,901,279 38,725,866 (b) Notes: (i) The Company is organised into the following segments, namely Secondary Market Related Business comprising of brokerage income earned on secondary market transactions done on behalf of clients. It also includes interest on delayed payments, incidental and consequential to secondary market related business received from clients and interest on fixed deposits with banks. Primary Broking segment comprising of services rendered in connection with primary market subscription/mobilisation and distribution of life insurance product. Other Operations comprising of portfolio management services, services rendered as depository participant, proprietary trading in securities and services rendered as the Securities and Exchange Board of India (SEBI) approved intermediary for the Securities Lending Scheme, Segments have been identified and reported taking into account the nature of products and services, the differing risks and returns, the organisation structure and the internal financial reporting systems.

124 115 Kotak Securities Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) (ii) Unallocated Revenue consists of : 31 st March st March 2003 Rupees Rupees Other Interest 506, ,054 Dividend on Current Investments 3,560,215 Profit on sale of investments (net) 11,616,437 14,292,015 Liabilities written back as no longer required 1,506, ,283 Profit on sale of fixed assets 107,842 Miscellaneous income 2,292,446 Total 17,188, ,06,640 (iii) (iv) Unallocated expenses comprise of general administrative expenses provided at an enterprise level. Segment assets comprise mainly of fixed assets, trade and other receivables, stock-in-trade, accrued income receivable and advances. Unallocated assets represent mainly fixed assets and advances. Segment liabilities include loans, trade and other payables and sundry creditors. Unallocated liabilities mainly include provision for taxes, deferred tax, retirement benefits, outstanding expenses and statutory liabilities. 28 Related party disclosures, as required by Accounting Standard 18, Related Party Disclosures issued by the Institute of Chartered Accountants of India are given below: 1. Relationships (During the year): A. Related parties where control exists: Nature of relationship Holding Company Related Party Kotak Mahindra Bank Limited (KMBL) (Holds 74.99% of the equity share capital) Mr. Uday S. Kotak, along with relatives and companies controlled by him, holds 56.29% of the equity share capital of KMBL B. Other Related Parties: (i) Fellow Subsidiaries: Kotak Mahindra Capital Company Limited Kotak Mahindra Primus Limited Kotak Mahindra Asset Management Company Limited Kotak Forex Brokerage Limited Kotak Mahindra Inc. Kotak Mahindra (International) Limited Kotak Mahindra UK Limited Kotak Mahindra Investments Limited OM Kotak Mahindra Life Insurance Company Limited Global Investment Opportunities Fund (ii) Venturer in respect of which the reporting Goldman Sachs (Mauritius) LLC enterprise is an associate or joint venture (iii) Key management personnel Mr. Uday S. Kotak, Non Executive Chairman Mr. Narayan S. A., Managing Director Ms. Falguni Nayar, Executive Director Mr. C. Jayaram, Non Executive Director Mr. Ajay Sondhi, Non Executive Director (iv) Relatives of key management Mr. A.K.S. Mani personnel and other proprietary Mrs. Rekha Narayan concerns. Mrs. Usha Jayaram Mrs. Sukeshi Dhillon Mr. Sanjay Nayar Mrs. Rashmi Mehta Mr. Hemant Mehta Mrs. Pallavi Kotak Mr Suresh Kotak Mrs. Indira Kotak Master Dhawal Kotak Mrs. N. Rajambal (v) Enterprises over which Director/ Aero Agencies Private Limited key management personnel/relatives of Komaf Financial Services Limited key management personnel Insurekot Investment Private Limited have significant influence Kotak & Company Limited (vi) Mutual fund/venture capital fund Kotak Mahindra Mutual Fund Managed by Kotak managed by fellow subsidiary Mahindra Asset Management Company Limited Kotak Mahindra Venture Capital Fund sponsored by Kotak Mahindra Private Equity Trustee Limited

125 116 Kotak Securities Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) 2. Following transactions were carried out with related parties in the ordinary course of business: (Amount in Rupees) Nature of Transactions Holding Fellow Venture in Key Relatives of Enterprises Total Company/ Subsidiary respect of Management Key over which Controlling Companies which the Personnel Management Key Equity** Reporting Personnel Management Enterprise Personnel/ is an Associate Relatives thereof are having Significant Influence Finance Inter Corporate Deposits Taken 845,000, ,000,000 Previous Year 626,700, ,000, ,700,000 Inter Corporate Deposits Repaid 834,500, ,500,000 Previous Year 626,700, ,500,000 1,059,200,000 Interest Paid on Inter Corporate Deposits 7,674,774 7,674,774 Previous Year 1,983,051 3,041,363 5,024,414 Debentures Taken 900,000, ,000,000 Previous Year Debentures Taken Repaid 900,000, ,000,000 Previous Year Interest paid on Debentures 35,847,945 35,847,945 Previous Year Repayment of Term Loan 9,467,294 9,467,294 Previous Year 17,888,901 17,888,901 Interest Paid on Term Loan 158, ,221 Previous Year 2,505,332 2,505,332 Other Loans Taken 10,909,651 10,909,651 Previous Year 3,872,222-3,872,222 Other Loans Repaid 2,688,713 2,688,713 Previous Year 2,939,003 2,939,003 Security Deposit Refund 10,000,000 10,000,000 Previous Year Commercial Paper Repaid Previous Year 400,000, ,000,000 Fixed Deposits Placed during the year 2,344,525,245 2,344,525,245 Previous Year 10,000,000 10,000,000 Fixed Deposits Repaid during the year 330,000, ,000,000 Previous Year Interest Received on Fixed Deposits 28,383,655 28,383,655 Previous Year Outstandings Bank Balances 5,812,216 5,812,216 Previous Year Inter Corporate Deposits taken 30,000,000 30,000,000 Previous Year 19,500,000 19,500,000 Interest Accrued but Not Due on Inter Corporate Deposits taken 1,049,073 1,049,073 Previous Year 393, ,205 Interest Accrued on Term Loan Payable Previous Year 33,719 33,719 Interest Accured on Fixed Deposits- Receivable 17,784,804 17,784,804 Previous Year 1,507 1,507 Term Loan Taken Previous Year 9,467,284 9,467,284

126 117 Kotak Securities Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) (Amount in Rupees) Nature of Transactions Holding Fellow Venture in Key Relatives of Enterprises Total Company/ Subsidiary respect of Management Key over which Controlling Companies which the Personnel Management Key Equity** Reporting Personnel Management Enterprise Personnel/ is an Relatives Associate thereof are having Significant Influence Fixed Deposits Placed 2,024,525,245 2,024,525,245 Previous Year 10,000,000 10,000,000 Security Deposit Previous Year 15,000,000 15,000,000 Income Received in Advance (Stock Borrowing Fees) Previous Year 1,321,204 1,321,204 Stock Borrowing Fees paid-prepaid Previous Year 960, ,875 Loan Outstanding for Vehicles 13,421,881 13,421,881 Previous Year 5,200,943 5,200,943 Advance Others Previous Year 500, , ,963 Mutual Fund Investments Purchase # 63,995,000,000 63,995,000,000 Previous Year 13,320,733,811 13,320,733,811 Sale/Redemption # 64,009,801,745 64,009,801,745 Previous Year 13,354,913,099 13,354,913,099 Dividend Received # 3,560,215 3,560,215 Previous Year Amount Receivable on sale of investments # 640,073, ,073,902 Previous Year Broking Transactions (Secondary & Primary Market Operation) Purchases 921,040 8,676,355,314 6,605,979, , ,297 15,284,229,885 Previous Year 241,379,048 4,396,138,176 1,178,211 1,331,920 4,640,027,356 Sales ### 140,780,651 8,733,572,210 7,954,136,471 35,430,150 5,160,785 16,869,080,267 Previous Year 256,682,318 4,354,714, ,802,823 1,081,114 1,207,256 4,857,487,670 Brokerage Earned ## & ### 221, ,744,480 12,036,752 89,082 14, ,106,334 Previous Year 5,098,462 59,826, ,918 5,643 6,596 65,106,965 Debt Trading 1,620,833 1,620,833 Previous Year 1,497,722 1,497,722 Brokerage Paid 143,770 39,112,073 39,255,843 Previous Year 26,200,219 27,435 1,309 26,228,964 Outstandings Payable 105,628, ,077, ,706,647 Previous Year 538,775 17,057,107 17,595,882 Receivable 62,642 9,569,423 12,447 7,881 9,652,393 Previous Year 2,208, ,208,705 Other Receipts and Payments Fee Income ### 4,651 27,856,184 2,198 25,571 6,450 27,895,054 Previous Year 638,749 1,141,874 13,080 2, ,796,894 Expense Reimbursement to other Companies 19,866,965 7,326,838 27,193,803 Previous Year 8,615,213 6,294,348 14,909,561 Expense Reimbursement by other Companies 4,837,420 35,169,617 40,007,037 Previous Year 5,482,634 29,910,618 35,393,253

127 118 Kotak Securities Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) (Amount in Rupees) Nature of Transactions Holding Fellow Venture in Key Relatives of Enterprises Total Company/ Subsidiary respect of Management Key over which Controlling Companies which the Personnel Management Key Equity** Reporting Personnel Management Enterprise Personnel/ is an Associate Relatives thereof are having Significant Influence Other Expenses 24,553,986 16,954,053 5,780,972 47,289,011 Previous Year 26,877,373 2,404,004 12,569,803 41,851,180 Other Income Previous Year 1,105, ,724 1,628,743 Remuneration to Key Management Personnel * 20,012,797 20,012,797 Previous Year 15,452,226 15,452,226 Other Outstandings Receivable ### ,994,621 2,108 7, ,005,917 Previous Year 190,564 19,313, ,505,595 Payable 6,729, ,794 7,005,939 Previous Year 3,075,573 3,075,573 TOTAL 4,968,778, ,135,811,528 15,034,242,970 57,345,644 6,002,371 6,065, ,208,246,339 ** Guarantees given on behalf of Company - Rs.150,000,000 (Previous Year Rs. Nil). * Excludes provision for gratuity and leave encashment since these are based on actuarial valutions done on an overall Company basis. # Includes transactions/income in respect of Investments in Schemes of Kotak Mahindra Mutual Fund managed by fellow subsidiary. ## Includes income in respect of brokerage earned from primary market and secondary market transactions with Schemes of Kotak Mahindra Mutual Fund managed by fellow subsidiary. ### Includes transactions/income in respect of Kotak Mahindra Venture Capital Fund sponsored by fellow subsidiary Kotak Mahidra Private Equity Trustee Limited. 29 Balance sheet abstract and company s General Business Profile: (a) Registration Details Registration Number : State Code : 11 Balance Sheet Date : 31/03/2004 (b) Capital raised during the period Amount in Rs. 000 Public Issue : Nil Rights Issue : Nil Bonus Issue : Nil Private Placement : Nil (c) Position of Mobilization and Deployment of Funds Amount in Rs. 000 Total Liabilities : 4,555,946 Total Assets : 6,402,875 Source of Funds Paid-up Capital : 16,000 Reserves and Surplus : 1,830,929 Secured Loans : 1,551,375 Unsecured Loans : 130,000

128 119 Kotak Securities Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) 29 Balance sheet abstract and company s General Business Profile (Contd.): Application of Funds Amount in Rs. 000 Net Fixed Assets : 188,527 Deferred Tax (Net) : 2,799 Investments : Nil Net Current Assets : 3,336,924 Miscellaneous Expenditure : 55 Accumulated Losses : Nil (d) Performance of Company Amount in Rs. 000 Turnover/Other Income : 2,476,672 Total Expenditure : 1,129,892 Profit before Tax : 1,346,780 Profit after Tax : 854,603 Earnings per Share (in Rs.) : Dividend Rate (%) : 400% (e) Generic Names of Three Principal Products/Services of Company Item Code No. : N.A. Product Description : Broking, Depository Services, Mobilisation of Deposits and Marketing of Public Issues. 30. Figures for the previous year have been regrouped wherever necessary to conform to current year s classification. The Schedules referred to above and the attached notes form an integral part of the financial statements. Signatures to Schedules 1 to 19 forming part of the financial statements and to the above notes. For and on behalf of the Board of Directors K. H. Vachha Rupal Talati Uday S. Kotak Narayan S.A. Partner Company Secretary Chairman Managing Director Membership No : F30798 For and on behalf of Price Waterhouse Chartered Accountants Mumbai, Dated : 20 th May 2004

129 120 OM Kotak Mahindra Life Insurance Company Limited BOARD OF DIRECTORS: UDAY KOTAK (C), HASAN ASKARI (VC), SHIVAJI DAM (MD), DIPAK GUPTA, JAMES HARRY SUTCLIFFE, VINEET NAYYAR, PALLAVI SHROFF, S. S. THAKUR, M. G. DIWAN. DIRECTORS REPORT Your Directors take pleasure in presenting their Fourth Report on the business and operations of your Company together with the Audited Financial Statements for the year ended March 31, FINANCIAL RESULTS Your Company performed well this year. The premium income for the year grew 274% to Rs crores (2003 Rs crores). Of this, the first year premium inclusive of single premium was Rs crores (2003 Rs crores). The Policyholders Account shows a net surplus of Rs crores for the year ended March 31, 2004 (Rs crores net deficit for the year ended March 31, 2003). The cumulative deficit in the Participating Policyholders Account has been made good by a transfer from the Shareholders Account. The Shareholders Account shows a deficit of Rs crores after the transfer. The Board of Directors, at its meeting held on May 18, 2004 declared an addition to the Policyholders Accumulation Account for the year ended March 31, 2004 to give a return of 6.5% ( %) to participating policyholders. The amount set aside for this purpose is Rs crores (2003 Rs crores). Since your Company is in the initial stages of its business and there was a deficit for the financial year, the Directors do not recommend dividend for the year. BUSINESS ENVIRONMENT India continues to be an underinsured country. It is expected that the changes in socio-economic factors like the disintegration of the joint family system, lack of social security system, increase in the span of life of an average Indian, increase in medical expenses, rising inflation and fall in interest rates will increase the consideration of insurance in the minds of the consumers. The socio-economic factors and the rising awareness of insurance are expected to increase the penetration of insurance in India and grow the market substantially in the next 5 years time. The Indian life insurance industry has grown substantially during the year and the private sector has demonstrated a robust growth rate of 146%. The private sector insurance companies have accelerated the introduction of new generation products in the Indian market. Unbundled products with riders, pure term products at a very affordable cost, unit linked products allowing flexibility to consumers to invest in different risk profile securities, ability to increase or reduce premiums offered, are some of the examples of more customer oriented products. The private sector life insurance companies have a penetration level of 13% in the market. Considering that they are present in less than 50 cities, the penetration level can be considered as extremely satisfactory. It also indicates the rising acceptance of the private sector insurance companies by the consumers. It is expected that the private sector companies will increase their penetration in the market in the coming years. LICENSE The Insurance Regulatory and Development Authority has renewed for the year the license of your Company to carry on the business of life insurance and annuity. CAPITAL During the period under review, your Company has increased its Paid-up Share Capital to Rs crores (2003 Rs crores). In April 2004, your Company further increased its capital by Rs crores and the total Paid-up Capital presently stands at Rs crores. This reiterates the shareholders commitment towards investment in facilitating sustainable growth of your Company. BUSINESS ACTIVITIES During the year, your Company has written 51,071 policies ( ,857 policies) of adjusted annualised premium (single premium weighted at 1/10th) of Rs. 104 crores (2003 Rs. 35 crores), representing a sum assured of Rs. 3,584 crores (2003 Rs. 1,439 crores). Riders are not included in the sum assured. DISTRIBUTION CHANNELS (a) TIED AGENCY Your Company believes in creating a well recruited, well trained, and well-monitored life advisor force that is able to give appropriate advice and solutions to the consumers on their insurance needs throughout their life cycle. As at March 31, 2004, your Company had about 5000 life advisors who are continuously being trained to facilitate them to advise the customers in a proper manner. Your Company believes that its investment in offering continuous and consistent training will help to improve the performance of the life advisors. Towards this end, your Company has 38 centres accredited from IRDA to conduct its training programmes. The philosophy of your Company to focus on Quality life advisors has started yielding results. Among other areas, your Company is proud to mention that 2 of the life advisors qualified for Top of the Table Honours, the highest honour in life insurance agency. In addition, 23 life advisors qualify for the prestigious Million Dollar Round Table. (b) (c) ALTERNATE CHANNEL Your Company has concentrated on building up the Alternate Channel of distribution through Corporate Agents. It is expected that, in the medium term, the Alternate Distribution will help to grow business faster. It is also believed that Alternate Distribution may be a more cost effective channel. Your Company has today 396 Corporate Agents and has established important relationships with Dena Bank, Mahindra & Mahindra Financial Services, Kotak Mahindra Bank and Kotak Securities to distribute its life insurance products. EMPLOYEE SALES FORCE Your Company approaches Companies through a dedicated employee sales force to sell the group products.

130 121 OM Kotak Mahindra Life Insurance Company Limited GEOGRAPHICAL EXPANSION Your Company continued with its strategy of geographical expansion and added 11 branches during the year. It is currently operating from 41 branches in 30 cities. BRAND Your Company continues to have a high brand recall among the consumers and an ORG-MARG survey conducted in April 2004 placed your Company at the 5th position among the life insurance companies in terms of brand recall. PRODUCTS During the year, your Company introduced unit-linked policies: Kotak Safe Investment Plan and Kotak Easy Growth Plan. These products were particularly successful in the markets and contributed approx. 45% to the Company s premium. Your Company now has a full range of products from pure insurance to saving products and market-linked products, and from children s insurance to retirement solutions. Your Company continues to differentiate itself in the market for term insurance products with its pioneering product: the Kotak Preferred Term Plan offering special premium rates for non-tobacco users and women. In the coming years more innovative products will be introduced for the benefit of the consumers. GROUP INSURANCE In the group insurance domain, in addition to its risk and gratuity products, your Company has launched the Kotak Superannuation Grouplan to provide pension solutions to employer-employee groups. The group insurance savings products are offered in the unit-linked version. The Kotak Term Grouplan was extended with an Experience Sharing option and also introduced in lieu of the statutory Employees Deposit Linked Insurance Scheme. RURAL AND SOCIAL SECTOR As per the IRDA (Obligations of Insurers to Rural and Social Sectors) Regulations, 2002, your Company s obligation to the rural sector is 12% of the total policies written for the financial year The obligation to the social sector was 10,000 lives for the financial year. During the year, your Company has written 7,129 policies (2003 5,169) in the rural sector representing 14% ( %) of the total policies written. 12,533 lives ( ,499 lives) were covered in the social sector. FUTURE PROSPECTS The Company believes that with the building blocks in place, the Company will be in a position to rapidly grow its business and increase its market share in the next few years. HUMAN RESOURCES Your Company believes that the human talent will make important differentiation between a Good and a Great Company. Your Company focuses on inviting Right persons to join the organization and concentrates on creating the environment and processes to make them align with the organization and deliver superior performance. Your Company believes in continuously upgrading the skill sets of its employees through training and development programmes. TECHNOLOGY Your Company has a reasonably strong core insurance system and is continuously investing on business process automation covering all key businesses. RISK AND CONTROL Your Company views reinsurance as an important tool to de-risk its business and utilize capital effectively. The policy on reinsurance is constantly monitored to balance the costs of reinsurance with the de-risking. Your Company s Internal Control Department actively oversees the company policies and procedures. The management believes that a systematic approach to processes is the touchstone of long-run sustainable business. The Internal Auditors periodically report to the Audit Committee their findings on the adherence to processes and general compliance. The Compliance function counsels other functions within the Company on the dynamic regulatory framework associated with a new and growing industry. Your Company s accent on total compliance is rigorously instilled through independent audits across locations. INVESTMENTS Your Company has created the necessary investment policies and processes to manage its investments. During the year, your Company has performed well especially in the unit-linked funds. The Growth Fund and Balanced Fund gave annualised returns of 58% and 42% respectively. Your Company believes that it will continue to differentiate itself from competition through its high quality investment skills. CORPORATE GOVERNANCE Your Company believes in good corporate governance as a means of long-term value creation to its stakeholders. Your Company has consciously endeavoured to follow the policy of transparency, accountability and always held the interest of all its stakeholders to be of paramount importance. BOARD OF DIRECTORS AND COMMITTEES Your Company has nine Directors on its Board, eight of whom are non-executive directors. The Chairman is a non-executive chairman. Four of the directors are independent.

131 122 OM Kotak Mahindra Life Insurance Company Limited Member of the Board of Directors Audit Investment Banking Remuneration Committee Committee Committee Committee Uday Kotak Chairman Chairman Hasan Askari Vice-Chairman Chairman Member Member Shivaji Dam Managing Director Invitee Member Chairman Member James Harry Sutcliffe Director Dipak Gupta Director Member Chairman Member Pallavi Shroff Independent Director S. S. Thakur Independent Director Member Vineet Nayyar Independent Director M. G. Diwan Independent Director Member During the year Board Meetings were held on May 22, 2003, August 28, 2003, October 10, 2003 and January 7, The Audit Committee had been constituted pursuant to the provisions of Section 292A of the Companies Act, The Audit Committee of your Company consists of four members Mr. Hasan Askari, Mr. S. S. Thakur, Mr. Dipak Gupta and Mr. M. G. Diwan. Mr. S. S. Thakur and Mr. M. G. Diwan are Independent Directors. All the members of the Audit Committee are non-executive directors of your Company. In addition, the Statutory Auditors, Internal Auditors, Managing Director and Chief Financial Officer are permanent invitees to the meetings of the Committee. The Committee has gone through the audited financial statements and satisfied itself with the accuracy and correctness of these statements. During the year, Audit Committee Meetings were held on May 21, 2003 and October 9, In addition to the Audit Committee, your Company has an Investment Committee, a Banking Committee and a Remuneration Committee. The Investment Committee met during the year on May 21, 2003 and October 9, Banking Committee Meetings were held on June 5, 2003, October 18, 2003 and January 20, DIRECTORS Mr. S. S. Thakur and Mr. Vineet Nayyar are liable to retire by rotation at the ensuing Fourth Annual General Meeting and are eligible for re-appointment. During the year under review, Mr. Shivaji Dam was re-appointed as the Managing Director of your Company for the period from January 6, 2004 to March 31, AUDITORS M/s. Bharat S. Raut and Co. and M/s. Lovelock and Lewes, Joint Auditors of your Company retire in accordance with the provisions of the Companies Act, 1956 and being eligible, offer themselves for re-appointment for the financial year ending March 31, MANAGEMENT REPORT Pursuant to the provisions of Regulation 3 of the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor s Report of Insurance Companies) Regulations, 2000, the Management Report forms a part of the financial statements. STATUTORY INFORMATION During the period under review, your Company has not accepted any deposits from the public. The information required under Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, will be provided at the shareholder s request. During the year ended March 31, 2004, expenditure in foreign exchange amounted to Rs crores on an accrual basis. Other particulars prescribed under the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are not applicable, since your Company is not a manufacturing company. DIRECTORS RESPONSIBILITY STATEMENT Based on representations from the Management, the Directors state, in pursuance of Section 217(2AA) of the Companies Act, 1956, that: (a) Your Company has, in the preparation of the annual accounts for the year ended March 31, 2004, followed the applicable accounting standards along with proper explanations relating to material departures, if any; (b) The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at March 31, 2004, of the surplus in the Revenue Account and the Loss in the Profit and Loss Account of your Company for the financial year ended March 31, 2004; (c) The Directors have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities; and (d) The Directors have prepared the annual accounts on a going concern basis. ACKNOWLEDGEMENTS The Directors thank the Insurance Regulatory Development Authority for its continued support. The Directors are abundantly grateful for the continued faith that the policyholders have reposed. The Directors acknowledge the support extended by their shareholders. And express their appreciation of the fine performance of the employees that made this year an exemplary one. For and on behalf of the Board of Directors Mumbai May 18, 2004 Uday Kotak Chairman

132 123 OM Kotak Mahindra Life Insurance Company Limited AUDITORS REPORT To the members of OM KOTAK MAHINDRA LIFE INSURANCE COMPANY LIMITED 1 We have audited the attached Balance Sheet of OM Kotak Mahindra Life Insurance Company Limited ( the Company ) as at March 31, 2004, the related Revenue Account, the Profit & Loss Account and the Receipts and Payments Account of the Company for the year ended on that date, annexed thereto which we have signed under reference to this report. These financial statements are the responsibility of the management of the Company. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. 3 The Balance Sheet, the Revenue Account, the Profit & Loss Account and the Receipts and Payments Account referred to in this report are in compliance with the accounting standards referred to in Section 211(3C) of the Companies Act, We report that: (a) (b) (c) (d) (e) (f) (g) (h) (i) We have obtained all the information and explanations, which, to the best of our knowledge and belief were necessary for the purposes of our audit and have found them satisfactory; As the Company s accounting system is centralised, no returns for the purposes of our audit are prepared at the branches of the Company; The Balance Sheet, Revenue Account, Profit and Loss Account and the Receipts and Payments Account referred to in this report are in agreement with the books of account; The actuarial valuation of liabilities for life policies in force is the responsibility of the Company s Appointed Actuary. The actuarial valuation of these liabilities as at March 31, 2004 has been certified by the Appointed Actuary, and in his opinion, the assumptions for such valuation are in accordance with the guidelines and norms issued by the Insurance Regulatory and Development Authority ( IRDA ) and the Actuarial Society of India in concurrence with the Authority. We have relied upon the Appointed Actuary s certificate in this regard for forming our opinion on the financial statements of the Company; On the basis of written representations received from the Directors and taken on record by the Board of Directors of the Company, no Director is disqualified, as at March 31, 2004, from being appointed as a Director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956; In our opinion, and to the best of our information and according to the explanations given to us, proper books of account as required by law have been maintained by the Company so far as appears from our examination of those books; In our opinion, and to the best of our information and according to the explanations given to us, the investments have been valued in accordance with the provisions of the Insurance Act, 1938 and the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors Report of Insurance Companies) Regulations, 2002 ( the Regulations ) and orders / directions issued by IRDA in this behalf; In our opinion, and to the best of our information and according to the explanations given to us, the accounting policies selected by the Company are appropriate and are in compliance with applicable accounting standards referred to under sub-section (3C) of Section 211 of the Companies Act, 1956 and with accounting principles as prescribed in the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditors Report of Insurance Companies) Regulations, 2002 and orders / directions issued by Insurance Regulatory and Development Authority in this behalf. In our opinion and to the best of our information and according to the explanations given to us, the Balance Sheet, Revenue Account, Profit and Loss Account and the Receipts and Payments Account together with the notes thereon and attached thereto are prepared in accordance with the provisions of the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor s Report of Insurance Companies) Regulations 2002, Insurance Act, 1938, the Insurance Regulatory and Development Act, 1999 and the Companies Act, 1956, to the extent applicable and in the manner so required and give a true and fair view in conformity with accounting principles generally accepted in India: (i) of the state of affairs of the Company in so far as it relates to the Balance Sheet as at March 31, 2004; (ii) of the surplus in so far as it relates to Participating and Annuities Participating segments and of the deficit in so far as it relates to Non-Participating and Unit Linked Non-Participating segments of the Revenue Account for the year ended March 31, 2004; (iii) of the loss in so far as it relates to the Profit and Loss Account for the year ended March 31, 2004; (iv) of the receipts and payments in so far as it relates to the Receipts and Payments Account for the year ended March 31, 2004.

133 124 OM Kotak Mahindra Life Insurance Company Limited 5 Further, we certify to the best of our knowledge and belief that: 1 On the basis of our examination of books and records of the Company and according to the information and explanations given to us, we have reviewed the management report and have found no apparent mistake or material inconsistencies with the financial statements; 2 On the basis of our examination of books and records of the Company and according to the information and explanations given to us, and based upon management representations and compliance certificates noted by the audit committee, nothing has come to our attention which causes us to believe that the Company has not complied with the terms and conditions of registration stipulated by the Insurance Regulatory and Development Authority. 6 As required by the Regulations, we set out in the Annexure, a statement certifying the matters specified in paragraph 4 of Schedule C to the Regulations. Sharmila A. Karve Akeel Master Partner Partner Membership No Membership No For and on behalf of For and on behalf of Lovelock & Lewes Bharat S. Raut & Co. Chartered Accountants Chartered Accountants Mumbai, May 18, 2004 ANNEXURE TO THE AUDITORS REPORT (Referred to in paragraph 6 of the Auditors Report of even date to the members of OM Kotak Mahindra Life Insurance Company Limited on the financial statements for the year ended March 31, 2004). In accordance with the information and explanations given to us and to the best of our knowledge and belief and based on our examination of the books of account and other records maintained by OM Kotak Mahindra Life Insurance Company Limited ( the Company ) for the year ended March 31, 2004, we certify that: 1 We have verified the cash balances, to the extent considered necessary, and securities relating to the Company s investments as at March 31, 2004, by actual inspection or on the basis of certificates/confirmations received from the depository participant appointed by the Company, as the case may be. As at March 31, 2004, the Company had no reversions and life interests; 2 The Company is not the trustee of any trust; and 3 No part of the assets of the policyholders funds has been directly or indirectly applied in contravention to the provisions of the Insurance Act, 1938, relating to the application and investments of the policyholders funds. This certificate is issued to comply with Schedule C of Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor s Report of Insurance Companies) Regulations 2002, ( the Regulations ), read with Regulation 3 of such Regulations and may not be suitable for any other purpose. Sharmila A. Karve Akeel Master Partner Partner Membership No Membership No For and on behalf of For and on behalf of Lovelock & Lewes Bharat S. Raut & Co. Chartered Accountants Chartered Accountants Mumbai, May 18, 2004

134 125 OM Kotak Mahindra Life Insurance Company Limited FORM A-RA Registration No: 107; Date of Registration: January 10, 2001 REVENUE ACCOUNT FOR THE YEAR ENDED MARCH 31, 2004 Policyholders Account (Technical Account) (Amounts in thousands of Indian Rupees) Year ended March 31, 2004 Particulars Schedule Partici- Non- Annuities Unit-Linked Total pating participating Participating Non- Participating Premiums earned, net (a) Premium 1 758, ,365 60, ,283 1,507,210 (b) Re-insurance ceded (8,616) (29,144) (87) (1,944) (39,791) (c) Re-insurance accepted Income from investments (a) Interest, Dividends & Rent- Gross 17,955 20,208 2,415 4,232 44,810 (b) Profit on sale/ redemption of investments 11,055 8,575 1,350 4,508 25,488 (c) (Loss on sale/ redemption of investments) (110) (14) (161) (285) (d) Transfer/Gain on revaluation/change in fair value 7,384 7,384 Other Income (a) Contribution from Shareholders Account (Refer Schedule 16 Note 11) 929,575 46, ,813 (b) Miscellaneous income TOTAL (A) 1,708, , , ,542 2,521,285 Commission 2 155,098 5,452 2,904 28, ,957 Operating Expenses related to Insurance Business 3 705,734 39,445 17, , ,395 Provision for doubtful debts Bad debts written off Provision for tax Provisions (other than taxation) (a) For diminution in the value of investments (Net) (b) Premium on investments amortized 3,329 3, ,719 (c) Others TOTAL (B) 864,161 48,630 21, ,782 1,098,071 Benefits paid (net) 4 7,120 33, ,844 Interim Bonuses paid Change in valuation of liability in respect of life policies, (a) Gross 315,943 77,232 44,121 9, ,297 (b) Amount ceded in reinsurance (c) Amount accepted in reinsurance Provision for Linked Liabilities 503, ,076 TOTAL (C) 323, ,357 44, , ,217 SURPLUS/(DEFICIT) (D) = (A)-(B)-(C) 521,341 (24,909) 43,882 (107,317) 432,997 APPROPRIATION: SURPLUS/(DEFICIT) CARRIED FORWARD TO BALANCE SHEET 521,341 (24,909) 43,882 (107,317) 432,997 As required by Section 40-B(4) of the Insurance Act, 1938, we certify that all expenses of Management in respect of life insurance business transacted in India by the Insurer have been fully debited in this Revenue Account. The Schedules and accompanying notes are an integral part of this Revenue Account. As per our report of even date attached For and on behalf of the Board of Directors Sharmila A. Karve Akeel Master Uday Kotak Hasan Askari Partner Partner Chairman Vice-Chairman Membership No Membership No For and on behalf of For and on behalf of Dipak Gupta Shivaji Dam Lovelock & Lewes Bharat S. Raut & Co. Director Managing Director Chartered Accountants Chartered Accountants G. Murlidhar James Thompson Mumbai Chief Financial Officer Appointed Actuary May 18, 2004 & Company Secretary

135 126 OM Kotak Mahindra Life Insurance Company Limited FORM A-RA Registration No: 107; Date of Registration: January 10, 2001 REVENUE ACCOUNT FOR THE YEAR ENDED MARCH 31, 2003 Policyholders Account (Technical Account) (Amounts in thousands of Indian Rupees) Year ended March 31, 2003 Particulars Schedule Partici- Non- Annuities Total pating participating Participating Premiums earned, net (a) Premium 1 249, ,190 21, ,234 (b) Re-insurance ceded (2,623) (3,372) (12) (6,007) (c) Re-insurance accepted Income from investments (a) Interest, Dividends & Rent- Gross 1,792 2,350 4,142 (b) Profit on sale/ redemption of investments (c) (Loss on sale/ redemption of investments) (d) Transfer/ Gain on revaluation/change in fair value Other Income TOTAL (A) 249, ,168 21, ,369 Commission 2 69,849 4,750 1,454 76,053 Operating Expenses related to Insurance Business 3 483,185 77,067 53, ,776 Provision for doubtful debts Bad debts written off Provision for tax Provisions (other than taxation) (a) For diminution in the value of investments (Net) (b) Others TOTAL (B) 553,034 81,817 54, ,829 Benefits paid (net) 4 1, ,144 Interim Bonuses paid Change in valuation of liability in respect of life policies, (a) Gross 82, ,640 17, ,961 (b) Amount ceded in reinsurance (c) Amount accepted in reinsurance TOTAL (C) 83, ,228 17, ,105 DEFICIT (D)=(A)-(B)-(C) (387,587) (83,877) (51,101) (522,565) Transfer from Shareholders Account (D) 81,414 10,664 7,219 99,297 DEFICIT (E)=(A)-(B)-(C)+(D) (306,173) (73,213) (43,882) (423,268) As required by Section 40-B(4) of the Insurance Act, 1938, we certify that all expenses of Management in respect of life insurance business transacted in India by the Insurer have been fully debited in this Revenue Account. The Schedules and accompanying notes are an integral part of this Revenue Account. As per our report of even date attached For and on behalf of the Board of Directors Sharmila A. Karve Akeel Master Uday Kotak Hasan Askari Partner Partner Chairman Vice-Chairman Membership No Membership No For and on behalf of For and on behalf of Dipak Gupta Shivaji Dam Lovelock & Lewes Bharat S. Raut & Co. Director Managing Director Chartered Accountants Chartered Accountants G. Murlidhar James Thompson Mumbai Chief Financial Officer Appointed Actuary May 18, 2004 & Company Secretary

136 127 OM Kotak Mahindra Life Insurance Company Limited FORM A-PL Registration No: 107; Date of Registration: January 10, 2001 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2004 Shareholders Account (Non-Technical Account) (Amounts in thousands of Indian Rupees) Particulars Schedule Year ended March 31, 2004 Amounts transferred from Policyholders Account (Technical Account) Income from Investments (a) Interest, Dividends & Rent 61,484 (b) Profit on sale/redemption of investments 13,155 (c) (Loss on sale/redemption of investments) (196) Other Income (including fund management fees) 803 TOTAL (A) 75,246 Expenses other than those directly related to the insurance business 372 Bad debts written off Provisions (other than taxation) (a) For diminution in the value of investments (Net) (b) Provision for doubtful debts (c) Others (d) Contribution to the Policyholders Fund (i) Participating 929,575 (ii) Non-participating (iii) Annuities Participating 46,238 (iv) Unit-linked Non-participating Premium on investments amortized 23,275 TOTAL (B) 999,460 Profit/ (Loss) before tax (924,214) Provision for taxation Profit/ (Loss) after tax (924,214) Appropriations (a) Balance at the beginning of the year 1,229 (b) Interim dividends paid during the year (c) Proposed final dividend (d) Tax on dividend distributed (e) Transfer to reserves/other accounts Profit carried to the Balance Sheet Earnings per share (Basic and Diluted) (in Rs.) The Schedules and accompanying notes are an integral part of this Profit and Loss Account. As per our report of even date attached For and on behalf of the Board of Directors Sharmila A. Karve Akeel Master Uday Kotak Hasan Askari Partner Partner Chairman Vice-Chairman Membership No Membership No For and on behalf of For and on behalf of Dipak Gupta Shivaji Dam Lovelock & Lewes Bharat S. Raut & Co. Director Managing Director Chartered Accountants Chartered Accountants G. Murlidhar James Thompson Mumbai Chief Financial Officer Appointed Actuary May 18, 2004 & Company Secretary (922,985) (6.46)

137 128 OM Kotak Mahindra Life Insurance Company Limited FORM A-PL Registration No: 107; Date of Registration: January 10, 2001 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2003 Shareholders Account (Non-Technical Account) (Amounts in thousands of Indian Rupees) Particulars Schedule Year ended March 31, 2003 Amounts transferred to Policyholders Account (Technical Account) (a) Participating (81,414) (b) Non-participating (10,664) (c) Annuities Participating (7,219) (99,297) Income from Investments (a) Interest, Dividends & Rent 101,462 (b) Profit on sale/redemption of investments 25,575 (c) (Loss on sale/redemption of investments) (3) Other Income TOTAL (A) 27,737 Expenses other than those directly related to the insurance business 791 Bad debts written off Provisions (other than taxation) (a) For diminution in the value of investments (Net) (b) Provision for doubtful debts (c) Others Premium on investments amortized 25,865 Accumulated fund addition to participating policyholders (Refer Schedule 16 Note 10) 1,081 TOTAL (B) 27,737 Profit/(Loss) before tax Provision for taxation Profit/(Loss) after tax Appropriations (a) Balance at the beginning of the year 1,229 (b) Interim dividends paid during the year (c) Proposed final dividend (d) Tax on dividend distributed (e) Transfer to reserves/other accounts Profit/(Loss) carried to the Balance Sheet 1,229 Earnings per share (Basic and Diluted) (in Rs.) The Schedules and accompanying notes are an integral part of this Profit and Loss Account. As per our report of even date attached For and on behalf of the Board of Directors Sharmila A. Karve Akeel Master Uday Kotak Hasan Askari Partner Partner Chairman Vice-Chairman Membership No Membership No For and on behalf of For and on behalf of Dipak Gupta Shivaji Dam Lovelock & Lewes Bharat S. Raut & Co. Director Managing Director Chartered Accountants Chartered Accountants G. Murlidhar James Thompson Mumbai Chief Financial Officer Appointed Actuary May 18, 2004 & Company Secretary

138 129 OM Kotak Mahindra Life Insurance Company Limited FORM A-BS Registration No: 107; Date of Registration: January 10, 2001 BALANCE SHEET AS AT MARCH 31, 2004 (Amounts in thousands of Indian Rupees) Particulars Schedule 2004 SOURCES OF FUNDS Shareholders Funds Share Capital 5 & 5A 1,506,186 Reserves and Surplus 6 520,363 Credit/[Debit] Fair Value Change Account Sub-Total 2,026,549 Borrowings 7 Policyholders Funds: Credit/[Debit] Fair Value Change Account 2,243 Policy Liabilities Participating 413,583 Non-participating 230,266 Annuities Participating 61,353 Unit-Linked Non-Participating (Refer Schedule 16 Note 4) 9,001 Provision for Linked Liabilities 503,076 Sub-Total 1,219,522 Funds for Future Appropriation 1,009 Total 3,247,080 APPLICATION OF FUNDS Investments Shareholders 8 571,783 Policyholders 8A 727,121 Assets Held to Cover Linked Liabilities 8B 503,076 Loans 9 2,637 Fixed Assets ,578 Current Assets Cash and Bank Balances ,176 Advances and Other Assets ,352 Sub-Total (A) 464,528 Current Liabilities 13 (389,458) Provisions 14 (10,774) Sub-Total (B) (400,232) Net Current Assets (C) = (A-B) 64,296 Miscellaneous Expenditure (To the extent not written off or adjusted) 15 Debit Balance in Profit and Loss Account (Shareholders Account) 922,985 Deficit in the Revenue A/c (Policyholders Account) Non-participating 118,287 Unit-Linked Non-Participating 107, ,604 Total 3,247,080 The accompanying notes are an integral part of this Balance Sheet. As per our report of even date attached For and on behalf of the Board of Directors Sharmila A. Karve Akeel Master Uday Kotak Hasan Askari Partner Partner Chairman Vice-Chairman Membership No Membership No For and on behalf of For and on behalf of Dipak Gupta Shivaji Dam Lovelock & Lewes Bharat S. Raut & Co. Director Managing Director Chartered Accountants Chartered Accountants G. Murlidhar James Thompson Mumbai Chief Financial Officer Appointed Actuary May 18, 2004 & Company Secretary

139 130 OM Kotak Mahindra Life Insurance Company Limited FORM A-BS Registration No: 107; Date of Registration: January 10, 2001 BALANCE SHEET AS AT MARCH 31, 2003 (Amounts in thousands of Indian Rupees) Particulars Schedule 2003 SOURCES OF FUNDS Shareholders Funds Share Capital 5 & 5A 1,306,610 Reserves and Surplus 6 521,592 Credit/[Debit] Fair Value Change Account Sub-Total 1,828,202 Borrowings 7 Policyholders Funds Credit/[Debit] Fair Value Change Account Policy Liabilities Participating 97,640 Non-participating 153,034 Annuities Participating 17,232 (Schedule 16 Note 4) Insurance Reserves Participating (520,332) Non-participating (93,378) Annuities Participating (43,882) (657,592) Provision for Linked Liabilities Sub-Total (389,686) Funds for Future Appropriation Total 1,438,516 APPLICATION OF FUNDS Investments Shareholders 8 882,563 Policyholders 8A 267,906 Assets Held to Cover Linked Liabilities 8B Loans 9 4,769 Fixed Assets ,057 Current Assets Cash and Bank Balances 11 64,945 Advances and Other Assets ,689 Sub-Total (A) 214,634 Current Liabilities 13 (123,782) Provisions 14 (7,631) Sub-Total (B) (131,413) Net Current Assets (C) = (A-B) 83,221 Miscellaneous Expenditure (To the extent not written off or adjusted) 15 Debit Balance in Profit and Loss Account (Shareholders Account) Total 1,438,516 The accompanying notes are an integral part of this Balance Sheet. As per our report of even date attached For and on behalf of the Board of Directors Sharmila A. Karve Akeel Master Uday Kotak Hasan Askari Partner Partner Chairman Vice-Chairman Membership No Membership No For and on behalf of For and on behalf of Dipak Gupta Shivaji Dam Lovelock & Lewes Bharat S. Raut & Co. Director Managing Director Chartered Accountants Chartered Accountants G. Murlidhar James Thompson Mumbai Chief Financial Officer Appointed Actuary May 18, 2004 & Company Secretary

140 131 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS (Amounts in thousands of Indian Rupees) Particulars 2004 Par Non-Par Annuities Unit-Linked Total Schedule 1 : Premium First year Premiums 541,411 85,499 39, ,802 1,013,671 Renewal Premiums 216,978 14,873 20, ,065 Single Premiums 33, , ,474 Total Premiums 758, ,365 60, ,283 1,507,210 Particulars 2003 Par Non-Par Annuities Unit-Linked Total First year Premiums 201,739 25,021 21, ,816 Renewal Premiums 48,249 2,889 51,138 Single Premiums 104, ,280 Total Premiums 249, ,190 21, ,234 Note: (a) All the premium income relates to business in India. (b) Refer Schedule 16 Note 2(a) Particulars 2004 Par Non-Par Annuities Unit-Linked Total Schedule 2 : Commission Commission paid Direct First year Premiums 147,360 5,513 2,550 25, ,713 Renewal Premiums 9, ,994 Single Premiums 527 3,692 4,219 Sub-total 156,406 6,627 2,911 28, ,926 Add: Commission on Re-insurance accepted Less: Commission on Re-insurance ceded (1,308) (1,175) (7) (479) (2,969) Net Commission 155,098 5,452 2,904 28, ,957 Particulars 2003 Par Non-Par Annuities Unit-Linked Total Commission paid Direct First year Premiums 68,204 3,347 1,457 73,008 Renewal Premiums 2, ,163 Single Premiums 1,747 1,747 Sub-total 70,298 5,163 1,457 76,918 Add: Commission on Re-insurance accepted Less: Commission on Re-insurance ceded (449) (413) (3) (865) Net Commission 69,849 4,750 1,454 76,053 Note: Refer Schedule 16 Note 2(b) Particulars 2004 Par Non-Par Annuities Unit-Linked Total Schedule 3 : Operating Expenses Related To Insurance Business Employees remuneration and welfare benefits (Includes prior year s pension cost of Rs. 1,879) (Refer Schedule 16 Note 6 and 2(g)) 257,621 10,471 4,420 50, ,676 Travel, conveyance and vehicle running expenses 47,675 1, ,283 59,714 Training expenses 19, ,714 23,890 Rents, Rates and Taxes 64,019 2,627 1,126 12,058 79,830 Repairs 15, ,954 19,003 Printing and Stationery 14, ,295 17,927 Communication expenses 26,224 1, ,593 32,945 Legal and Professional charges 18, ,547 22,850

141 132 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS (Amounts in thousands of Indian Rupees) Particulars 2004 Par Non-Par Annuities Unit-Linked Total Schedule 3 : Operating Expenses Related To Insurance Business (Contd.) Medical fees 3,046 4, ,555 9,061 Auditors fees, expenses etc. (a) as auditor (b) as adviser or in any other capacity, in respect of Taxation matters Insurance matters Management services; and (c) in any other capacity (including out of pocket) Advertisement and publicity 122,948 4,641 6,837 20, ,702 Interest and Bank charges 1, ,469 3,514 Depreciation 63,708 2,589 1,093 12,405 79,795 Information Technology expenses 23, ,526 29,114 Electricity charges 14, ,856 18,370 Recruitment expenses 6, ,198 7,706 Brokerage ,242 Stamp Duty 1,669 6, ,190 9,686 Membership fees 1, ,572 Share issue expenses 1, ,085 Other expenses 1, ,740 Total 705,734 39,445 17, , ,395 Note: Refer Schedule 16 Note 2(c) Particulars 2003 Par Non-Par Annuities Unit-Linked Total Employees remuneration and welfare benefits (Refer Schedule 16 Note 6) 154,614 20,241 13, ,570 Travel, conveyance and vehicle running expenses 32,042 4,195 2,842 39,079 Training expenses 22,351 2,926 1,983 27,260 Rents, rates and taxes 38,109 4,889 3,253 46,251 Repairs 7, ,987 Printing and stationery 9,923 2, ,880 Communication expenses 18,099 2,826 1,604 22,529 Legal and professional charges 25,620 3,354 2,272 31,246 Medical fees 2,348 2, ,084 Auditors fees, expenses etc. (a) as auditor (b) as adviser or in any other capacity, in respect of Taxation matters Insurance matters Management services; and (c) in any other capacity Advertisement and publicity 91,677 18,625 18, ,185 Interest & Bank charges 1, ,511 Depreciation 36,280 4,750 3,218 44,248 Information Technology expenses 17,097 2,197 1,734 21,028 Electricity charges 11,078 1, ,511 Recruitment expenses 7, ,706 Brokerage 2, ,561 Stamp duty 2,497 4, ,851 Membership fees Share issue expenses Other expenses 2, ,494 Total 483,185 77,067 53, ,776

142 133 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS (Amounts in thousands of Indian Rupees) Particulars 2004 Par Non-Par Annuities Unit-Linked Total Schedule 4 : Benefits Paid (Net) Insurance Claims (a) Claims by Death 7,019 35, ,504 (b) Claims by Maturity (c) Annuities/Pension payment (d) Others (Refer note (c) below) 1,936 11, ,756 (Amount ceded in reinsurance) (a) Claims by Death (600) (14,380) (14,980) (b) Claims by Maturity (c) Annuities/Pension payment (d) Others (Refer note (c) below) (1,235) (225) (1,460) Amount accepted in reinsurance (a) Claims by Death (b) Claims by Maturity (c) Annuities/ Pension payment (d) Others Total 7,120 33, ,844 Particulars 2003 Par Non-Par Annuities Unit-Linked Total Insurance Claims (a) Claims by Death 1, ,838 (b) Claims by Maturity (c) Annuities/Pension payment (d) Others (Amount ceded in reinsurance) (a) Claims by Death (425) (343) (768) (b) Claims by Maturity (c) Annuities/Pension payment (d) Others Amount accepted in reinsurance (a) Claims by Death (b) Claims by Maturity (c) Annuities/Pension payment (d) Others Total 1, ,144 Notes: (a) The Insurer does not have any claims, which are settled and unpaid for more than six months. (b) All the claims are paid in India. (c) Includes surrender payments and rider benefits. (d) Refer Schedule 16 Note 2(e) Particulars Schedule 5 : Share Capital Authorized Capital 161,300,000 ( ,300,000) Equity Shares of Rs. 10 each 1,613,000 1,313,000 Issued Capital 151,257,600 ( ,300,000) Equity Shares of Rs. 10 each 1,512,576 1,313,000 Subscribed Capital 151,257,600 ( ,300,000) Equity Shares of Rs. 10 each 1,512,576 1,313,000 Called-up Capital 151,257,600 ( ,300,000) Equity Shares of Rs. 10 each 1,512,576 1,313,000

143 134 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS (Amounts in thousands of Indian Rupees) Particulars Schedule 5 : Share Capital (Contd.) Less: Calls unpaid Add: Shares forfeited (Amount originally paid up) Less: Par Value of Equity Shares Bought back Less: Preliminary Expenses (4,269) (4,269) Less: Expenses on issue of shares (2,121) (2,121) Total 1,506,186 1,306,610 Notes: (a) Of the above, 111,930,624 ( ,162,000) fully paid-up Equity Shares of Rs. 10 each fully paid up are held by Kotak Mahindra Bank Limited, the holding company and its nominees. (b) During the year, the Insurer has issued 19,957,600 (2003: 30,300,000) Equity Shares of Rs. 10 each fully paid up at par, by way of rights to its existing shareholders. Particulars Shareholder Number % of Number of % of of Shares Holding Shares Holding Schedule 5A : Pattern of Shareholding (As certified by the Management) Promoters Indian 111,930, % 97,162, % Foreign 39,326, % 34,138, % Others Total 151,257, % 131,300, % Particulars Schedule 6 : Reserves and Surplus Capital Reserve Capital Redemption Reserve Share Premium 520, ,363 Revaluation Reserve General Reserves Less: Debit balance in Profit and Loss Account Less: Amount utilized for Buy-back Catastrophe Reserve Balance of profit in Profit and Loss Account 1,229 Total 520, ,592 Particulars Schedule 7 : Borrowings Debentures/Bonds Banks Financial Institutions Others Total Particulars Schedule 8 : Investments Shareholders LONG TERM INVESTMENTS Government securities and Government guaranteed bonds including Treasury Bills 70, ,420 Other Approved Securities

144 135 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS (Amounts in thousands of Indian Rupees) Particulars Schedule 8 : Investments Shareholders (Contd.) Other Investments (a) Shares (aa) Equity (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/ Bonds (e) Other Securities (f) Subsidiaries (g) Investment Properties Real Estate Investments in Infrastructure and Social Sector [Refer Note (c) below] 97,742 79,785 Other than Approved Investments 168, ,205 SHORT TERM INVESTMENTS Government securities and Government guaranteed bonds including Treasury Bills 238, ,431 Other Approved Securities Other Investments (a) Shares (aa) Equity (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/Bonds 52,274 (e) Other Securities (Term Deposits) 113,068 91,750 (f) Subsidiaries (g) Investment Properties Real Estate Investments in Infrastructure and Social Sector [Refer Note (c) below] 66,177 Other than Approved Investments 403, ,358 Total 571, ,563 Notes: (a) All the above investments except term deposits under Other Securities are quoted as at March 31, (b) Aggregate market value of quoted investments as at March 31, 2004 is Rs. 462,168 ( Rs. 797,090). The aggregate book value of unquoted investments as at March 31, 2004 is Rs. 113,068 (2003 Rs. 91,750). (c) The Insurer has not made any investments in the social sector, as securities of acceptable grade were not available. (d) Refer Schedule 16 Note 2(d). Particulars Schedule 8A : Investments Policyholders LONG TERM INVESTMENTS Government securities and Government guaranteed bonds including Treasury Bills 284, ,220 Other Approved Securities Other Investments (a) Shares (aa) Equity 107,243 (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/ Bonds 23,637 21,121 (e) Other Securities (f) Subsidiaries (g) Investment Properties Real Estate Investments in Infrastructure and Social Sector [Refer Note (d) below] 197, ,941 Other than Approved Investments 613, ,282

145 136 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS (Amounts in thousands of Indian Rupees) Particulars Schedule 8A : Investments Policyholders (Contd.) SHORT TERM INVESTMENTS Government securities and Government guaranteed bonds including Treasury Bills 114,032 Other Approved Securities Other Investments (a) Shares (aa) Equity (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/ Bonds (e) Other Securities (Certificates of Deposit) (f) Subsidiaries (g) Investment Properties Real Estate Investments in Infrastructure and Social Sector [Refer Note (d) below] 15,624 Other than Approved Investments 114,032 15,624 Total 727, ,906 Notes: (a) All the above investments are quoted, except for Bonds under Long Term Investments. (b) Aggregate market value of quoted investments as at March 31, 2004 is Rs. 717,701 (2003 Rs. 249,863). The aggregate book value of unquoted investments as at March 31, 2004 is Rs. 23,627 (2003 Rs. 21,121). The aggregate market value for quoted investments without equity shares as at March 31, 2004 is Rs. 610,458 (2003: Rs. 249,863). (c) Aggregate historical cost of equity shares as at March 31, 2004 is Rs. 105,000 (2003: Nil). (d) The Insurer has not made any investments in the Social Sector, as securities of acceptable grade were not available. (e) Refer Schedule 16 Note 2(d). Particulars Schedule 8B : Assets held to cover linked Liabilities LONG TERM INVESTMENTS Government securities and Government guaranteed bonds including Treasury Bills 245,135 Other Approved Securities Other Investments (a) Shares (aa) Equity 176,662 (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/ Bonds 50,739 (e) Other Securities (f) Subsidiaries (g) Investment Properties Real Estate Investments in Infrastructure and Social Sector Other than Approved Investments 472,536 SHORT TERM INVESTMENTS Government securities and Government guaranteed bonds including Treasury Bills 16,455 Other Approved Securities

146 137 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS (Amounts in thousands of Indian Rupees) Particulars Schedule 8B : Assets held to cover linked Liabilities (Contd.) Other Investments (a) Shares (aa) Equity (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/ Bonds (e) Other Securities (Term Deposit) 46,427 (f) Subsidiaries Investment Properties Real Estate Investments in Infrastructure and Social Sector Other than Approved Investments Net Current Assets* (32,342) 30,540 Total 503,076 * Refer Schedule 16 - Note 23 Notes: (a) All the above investments except term deposits under Other Securities are quoted as at March 31, (b) Aggregate historical cost of quoted investments as at March 31, 2004 is Rs. 573,443 ( Rs. Nil). The aggregate historical cost of unquoted investments as at March 31, 2004 is Rs. 46,427 (2003 Rs. Nil). Particulars Schedule 9 : Loans SECURITY WISE CLASSIFICATION Secured (a) On mortgage of property (aa) In India (bb) Outside India (b) On Shares, Bonds, Govt. Securities etc. (c) Loans against policies (d) Others Unsecured 1,826 3,980 Total 2,637 4,769 BORROWER-WISE CLASSIFICATION (a) Central and State Governments (b) Banks and Financial Institutions (c) Subsidiaries (d) Companies (e) Loans against policies (f) Others Employees 1,826 3,980 Total 2,637 4,769 PERFORMANCE-WISE CLASSIFICATION (a) Loans classified as standard (aa) In India 2,637 4,769 (bb) Outside India (b) Non-standard loans less provisions (aa) In India (bb) Outside India Total 2,637 4,769 MATURITY-WISE CLASSIFICATION (a) Short-term (b) Long-term 2,637 4,769 Total 2,637 4,769

147 138 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS (Amounts in thousands of Indian Rupees) Particulars Cost/ Gross Block Depreciation Net Block April 1, Addi- On Sale/ March 31, April 1, For the On Sale/ March March March 2003 tion Adjust year Adjust- 31, , , 2003 ment ment Schedule 10 : Fixed Assets Goodwill Intangibles Software* 56,344 33,376 (650) 89,070 18,086 22,384 (18) 40,452 48,618 38,258 Land-Freehold Leasehold property Buildings Furniture & fittings ** 85,948 49,894 (4,998) 130,844 13,907 21,000 (3,626) 31,281 99,563 72,041 Information technology equipment 65,758 24,927 (202) 90,483 20,721 26,301 (71) 46,951 43,532 45,037 Vehicles 9,385 3,099 (9) 12,475 4,570 2,675 (1) 7,244 5,231 4,815 Office equipment 31,644 11,733 (528) 42,849 5,811 7,435 (263) 12,983 29,866 25,833 Total 249, ,029 (6,387) 365,721 63,095 79,795 (3,979) 138, , ,984 Work-in-progress 2,768 14,073 Grand Total 229, ,057 Previous Year 108, ,514 (844) 249,079 19,375 44,248 (528) 63, ,984 * Includes licenses ** Includes leasehold improvements Notes: (a) Refer Schedule 16 Notes 2(f) and 2(i) (b) During the year the Company revised its estimate of the economic useful life of vehicles. The unamortized depreciable amount relating to these vehicles is charged over revised remaining useful life. Further to the revision to the estimated useful life, the depreciation charge for the year is lower by Rs Particulars Schedule 11 : Cash and Bank Balances Cash (including cheques on hand, drafts and stamps) 34,712 28,813 Bank Balances (a) Deposit Accounts (aa) Short-term (due within 12 months of the date of Balance Sheet) (bb) Others (b) Current accounts 259,464 36,132 (c) Others Money at Call and Short Notice (a) With Banks (b) With other Institutions Others Total 294,176 64,945 Balance with non-scheduled banks included in above Cash and Bank balance In India 294,176 64,945 Outside India Total 294,176 64,945

148 139 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 SCHEDULES FORMING PART OF THE FINANCIAL STATEMENTS (Amounts in thousands of Indian Rupees) Particulars Schedule 12 : Advances and Other Assets ADVANCES Reserve deposits with ceding companies Application money for investments 7,320 Prepayments 7,069 13,943 Advance to Directors/ Officers Advance tax paid and taxes deducted at source (Net of provision for taxation) 11,053 13,830 Advances to suppliers 3,291 2,691 Advances to employees 2,700 1,779 Total (A) 31,433 32,243 OTHER ASSETS Income accrued on investments 24,380 30,628 Outstanding Premiums 23,116 9,410 Agents Balances Foreign Agencies Balances Due from other entities carrying on insurance business (including reinsures) Due from Subsidiaries/ holding company Deposits pursuant to Section 7 of Insurance Act, ,500 Security and other deposits 88,163 71,908 Reinsurance recovery claim 3,260 Total (B) 138, ,446 Total (A + B) 170, ,689 Particulars Schedule 13 : Current Liabilities Current Liabilities Agents balances 42,129 15,437 Balance due to other insurance companies (net) 20,518 5,007 Deposits held on re-insurance ceded Premium received in advance 30,195 Unallocated premium (proposals pending underwriting) 71,434 27,144 Sundry creditors 127,889 33,065 Due to subsidiaries/ holding company (net) 8,264 4,356 Claims outstanding 9,176 Annuities due Due to Officers/Directors Accrued expenses 61,802 27,269 Taxes deducted at source, payable 12,987 9,005 Statutory dues payable 5,064 2,499 Total 389, ,782 Particulars Schedule 14 : Provisions For taxation (less payments and taxes deducted at source) For proposed dividend For dividend distribution tax Provision for gratuity 4,563 4,063 Provision for leave encashment 6,211 3,568 Others Total 10,774 7,631 Particulars Schedule 15 : Miscellaneous Expenditure (To the extent not written off or adjusted) Discount Allowed in issue of shares/debentures Others Total

149 140 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Amounts in thousands of Indian Rupees) Schedule 16 : Notes to the Financial Statements (Amounts in thousands of Indian Rupees unless otherwise stated) 1 BACKGROUND OM Kotak Mahindra Life Insurance Company Limited ( the Insurer ) was incorporated on August 31, 2000 as a company under the Companies Act, 1956 to undertake and carry on the business of life insurance and annuity. The Insurer has obtained a license from the Insurance Regulatory and Development Authority ( IRDA ) dated January 10, 2001 for carrying on the business of life insurance and annuity. The license has been renewed for the financial year ending March 31, The Insurer continued to expand its range of life insurance products to its customers in the current year. In addition to endowment assurance, children endowment policies, term assurance policies and deferred annuities, unit-linked endowment policies were introduced with the option of purchasing additional riders with the basic policy. On the group assurance side, unit-linked employee benefit products and group term assurance products were also launched during the year. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements are prepared and presented under the historical cost convention, on accrual basis of accounting, to comply in all material aspects with the applicable accounting standards issued by the Institute of Chartered Accountants of India, Insurance Regulatory and Development Authority (Preparation of Financial Statements & Auditor s Report of Insurance Companies) Regulations, 2002 ( the Accounting Regulations ) and relevant regulations notified by IRDA under the powers granted by the Insurance Act, 1938, the Insurance Regulatory and Development Authority Act, 1999 and the Companies Act, 1956 of India, to the extent applicable. The preparation of the financial statements in conformity with generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amount of assets, liabilities, revenues and expenses and disclosure of contingent liabilities as of the date of the financial statements. The estimates and assumptions used in the accompanying financial statements are based upon the Management s evaluation of the relevant facts and circumstances as of the date of the financial statements. Actual results may differ from the estimates and assumptions used in preparing the accompanying financial statements. The significant accounting policies adopted by the Insurer are as follows: (a) (b) (c) (d) Revenue recognition on Insurance policies Premium is recognised as income when due from policyholders. In accordance with the terms of insurance policies, uncollected premium on lapsed policies is not recognised as income until revived. Lump sum injections are accounted as a part of the first year premium. Fees on linked policies is recognised when due. Premium payable on re-insurance ceded is accounted at the time of recognition of the premium income in accordance with the treaty arrangements with the re-insurers. Reinsurance premium and commission is recognised over the period of risk. Acquisition costs Acquisition costs such as commission and medical fees are costs that vary with and are primarily related to the acquisition of new and renewal insurance contracts. Such costs are expensed in the year in which they are incurred. Operating Expenses relating to Insurance Business Operating expenses relating to insurance business are assigned to participating, non-participating, annuities and linked business segments as follows: Expenses directly identifiable to the business segments are allocated on an actual basis. Other expenses, which are not directly identifiable, are apportioned to the business segments on the basis of either (a) total number of policies issued during the year, or (b) annualized first year premium income, or (c) sum assured during the year, or (d) first year commission, as considered appropriate by the Management. During the year, Management reviewed its basis of apportioning expenses in view of the high proportion of unit-linked policies written. As a result the ratio of first year commission across segments was substantially used to apportion expenses that are not directly identifiable. In the previous year, annualized first year premium income was used instead. Investments and Investment Income Investments are made in accordance with the Insurance Act, 1938 and the Insurance Regulatory & Development Authority (Investment Regulations), Interest income is recognized on accrual basis. Dividend income is recognized when the right to receive is established. Investments intended to be held for a period of less than twelve months or those maturing within twelve months are classified as Short term investments while those intended to be held for a period of twelve months or above are classified as Long term investments. In case of impairment, other than temporary, in the value of investment as at the Balance Sheet date, the amount of loss is recognized as an expense in the Revenue/ Profit and Loss Account.

150 141 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Amounts in thousands of Indian Rupees) Schedule 16 : Notes to the Financial Statements (Contd.) (Amounts in thousands of Indian Rupees unless otherwise stated) Shareholders and non-linked policyholders investments Gain / Loss on transfer / sale of securities is the difference between the sale price and the net amortized cost/book value, which is computed on weighted average basis on the date of sale. All debt securities are considered as held to maturity and accordingly recorded at cost (excluding interest paid, if any). Debt securities including government securities are stated at net amortized cost. The premium / discount, if any, on purchase of debt securities is amortized/accrued over the period to maturity. Listed equity shares as at balance sheet date are stated at fair value being the last quoted closing price on The Stock Exchange, Mumbai ( BSE ). Unrealised gains / losses arising due to changes in the fair value of listed equity shares are taken to Fair Value Change Account and carried forward to balance sheet. The profit or loss on actual sale of listed equity includes the accumulated changes in the fair value previously recognised under Fair Value Change Account. Unit-Linked business Gain / loss on transfer / sale of investment for linked business is the difference between the sale consideration and the book cost, which is computed on weighted average basis, as on date of sale. All debt securities, except treasury bills, for linked business are valued at prices obtained from Fixed Income Money Market and Derivatives Association of India. The discount on purchase of treasury bills is amortized over the period to maturity. Listed equity shares are valued at fair value, being the last quoted closing price on the BSE. Unrealised gains and losses are recognized in the respective scheme s revenue account. Transfer of investments Transfer of debt securities from shareholders to policyholders / unit-linked fund is at net amortised cost. (e) Claims Claims for death, including the reinsurance benefits to the Insurer, are accounted for when intimated. Maturity claims are accounted on the date of maturity. Surrender expenses are accounted when incurred. Reinsurance on such claims is accounted for in the same period as the related claims. (f) Fixed Assets and Depreciation Fixed assets are stated at cost less accumulated depreciation. The Insurer capitalises all costs relating to acquisition and installation of fixed assets. Depreciation on fixed assets is provided under the straight-line method based on the economic useful lives of assets as estimated by the Management. Depreciation is charged on assets from the month the asset is capitalized and upto previous month in case of disposal. Significant software purchases / improvements are capitalized and depreciated over their economic useful lives. Assets costing up to Rs. 5,000 are fully depreciated in the year of acquisition. The Management estimates the economic useful lives of the various fixed assets as follows: Buildings 30 years Information technology equipment (including software) 3 years Furniture and fittings (including leasehold improvements) 6 years Office equipment 5 years Vehicles 4 years (g) Employee Retirement Benefits Gratuity: The Insurer s liability toward gratuity, a defined benefit plan, is accounted for on the basis of an actuarial valuation carried out as at the year-end. Provident Fund: The Insurer s liability toward statutory provident fund, a defined contribution plan, is accrued each month at prescribed rate. Superannuation Fund: The Insurer s liability toward superannuation fund, a defined contribution plan, is accrued for the relevant period of employee participation. Leave encashment: The Insurer s liability toward leave encashment benefits is accounted for on the basis of an actuarial valuation carried out as at the year-end. (h) Accounting for Operating Leases Leases where the lessor effectively retains substantially all the risks & benefits of ownership over the lease term are classified as Operating Leases. Operating lease rentals are recognized as an expense over the lease period. (i) Foreign currency transactions Transactions denominated in foreign currency are recorded at the rate of exchange prevailing on the transaction date. Monetary assets and liabilities denominated in foreign currencies at the Balance Sheet date are translated using the rate of exchange prevailing on that date. Exchange differences either on settlement or on translation are recognised in the Revenue Account / Profit and Loss Account, as applicable, except in cases where they relate to the acquisition of fixed assets, in which case, they are adjusted to the carrying cost of such assets.

151 142 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Amounts in thousands of Indian Rupees) Schedule 16 : Notes to the Financial Statements (Contd.) (Amounts in thousands of Indian Rupees unless otherwise stated) (j) (k) (l) Segment reporting 1. Business Segments In accordance with the Accounting Regulations read with Accounting Standard 17 on Segment Reporting, issued by the Institute of Chartered Accountants of India, the Insurer s business in India is segmented into Participating business, Non-participating business, Annuities Participating business, Unit-Linked Non-participating business and Investment of the Shareholders funds. 2. Segmental revenues and expenses All segment revenues are directly attributed to the respective individual segments. There are no inter-segment revenues. Costs for Participating, Non-participating, Annuity and Unit-Linked business: Refer 2 (c) above. 3. Segmental assets and liabilities Segment assets and liabilities include those that are employed by a segment in its operating activity. 4. Secondary Geographical Segments There are no reportable geographical segments since the Company provides services to customers in the Indian market only and does not distinguish any reportable regions within India. Taxation Provision for current income tax, if any, is made on an accrual basis after taking credit for allowances and exemptions in accordance with Income Tax Act, Deferred income tax is recognized for future tax consequences attributable to timing differences between income as determined by the financial statements and the recognition for tax purposes. The effect on deferred tax assets and liabilities of a change in tax rates is recognized using the tax rates and tax laws that have been enacted or substantively enacted by the Balance Sheet date. Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets can be realised in future. However, where there is unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognised only if there is virtual certainty of realization of such assets. Deferred tax assets are reviewed as at each balance sheet date and written down or written up to reflect the amount that is reasonably or virtually certain to be realized. Preliminary expenses In accordance with the Accounting Regulations, preliminary expenses are adjusted under the Schedule of Share Capital. 3 ACTUARIAL ASSUMPTIONS Liability for policies in force ( the Liability ) is calculated in accordance with accepted actuarial practice as well as the requirements of the IRDA. The Liability on a policy is calculated based on the Gross Premium Method, which represents the present value of expected future outgo including benefits and expenses, as reduced by the present value of expected future premium and related income. Further a reserve for claims that may have been incurred but are not yet reported to the Insurer ( IBNR Reserve ) is also maintained. The assumptions used for calculating the liability are provided below. Mortality, Morbidity and Accidental Death and Disability rates Mortality rates are based on the LIC mortality table (adjusted for expected deterioration in mortality due to AIDS). Morbidity and Accidental Death and Disability rates are based on the base rates provided by the re-insurers. Expenses Fixed renewal expenses: Rs per cent per annum for regular premium plans Rs per cent per annum for single premium plans Renewal commission and commission related expenses are taken as: Actual base commission rates to insurance agents Other sales and acquisition expenses at 75 per cent of the base commission for all policies Termination expenses: Death expenses: Maturity expenses: Surrender expenses: Disability expenses: Critical illness expenses: Rs per cent per annum Rs per cent per annum Rs per cent per annum Rs. 2,500 4 per cent per annum Rs. 5,000 4 per cent per annum

152 143 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Amounts in thousands of Indian Rupees) Schedule 16 : Notes to the Financial Statements (Contd.) (Amounts in thousands of Indian Rupees unless otherwise stated) Policy lapses Future policy lapses have been assumed based on the duration for which the policy has been in force, with higher lapses assumed during initial years and lower lapses during later years. Different lapse assumptions have been made for different types of policies. Valuation rate The valuation rate for computing the reserves is assumed in the range of 4.5 per cent to 6.65 per cent per annum depending on the product. IBNR Reserve The reserve for individual business for incurred but not yet reported claims is equal to the actual claims paid in the last three months. Margins for Adverse Deviation Margins for deviation are assumed for inflation, lapse, surrender, mortality, morbidity, disability rates, renewal expenses and interest rates. Reserves for Group Business The reserves for Group Life Business are calculated as the risk premium for the un-expired term of the policy with an allowance for expenses and a margin for adverse deviations. Reserves for Unit-linked business The reserves comprise two parts viz. Unit Reserves and Non-Unit Reserves. Unit Reserves represent the value of the units attached to policies, subject to such reserves not being less than the minimum guaranteed value. Non-Unit Reserves are set up for mortality and morbidity risks associated with Unit-Linked Business and are calculated using the Gross Premium Method and assumptions as stated above. 4 POLICY LIABILITIES (Forming part of Policyholders Funds) Particulars Par Non-Par Annuities Unit- Total Par Non-Par Annuities Total Linked At start of the year 97, ,034 17, ,906 14,470 20,394 34,864 Add: Change in valuation against policies in force (Refer Note 3 above) 309,509 77,232 43,195 9, ,937 82, ,640 17, ,961 Add: Accumulated Fund Addition (Refer Note 10 below) 6,434* 926* 7,360 1, ,081 At end of the year 413, ,266 61,353 9, ,203 97, ,034 17, ,906 *Forms part of Change in Valuation of Liability in respect of life policies Gross under the Revenue Account for the year ended March 31, CONTINGENT LIABILITIES Particulars Partly paid-up investments 2. Claims, other than against policies, not acknowledged as debts by the company 3. Underwriting commitments outstanding (in respect of shares and securities) 4. Guarantees given by or on behalf of the Company Statutory demands / liabilities in dispute, not provided for (Income Tax) 8,270 8, Reinsurance obligation to the extent not provided for in accounts 7. Others Insurance claims in appeal (Gross value of claims Rs. 12,000 (2003: Rs. 300), out of which reinsured Rs. 10,875 (2003: Nil)) 1, Total 9,895 8,570

153 144 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Amounts in thousands of Indian Rupees) Schedule 16 : Notes to the Financial Statements (Contd.) (Amounts in thousands of Indian Rupees unless otherwise stated) 6 COMPUTATION OF MANAGERIAL REMUNERATION (i) The Managing Director s remuneration, which is included under Employees remuneration and welfare benefits, is as follows: Particulars (a) Salary 3,023 5,694 (b) Contribution to provident & superannuation funds (c) Value of perquisites Total 3,880 6,600 Note: (a) (b) The above remuneration is in accordance with the requirements of Section 34A of the Insurance Act, 1938 and approval for the same has been applied to IRDA. The remuneration excludes gratuity and leave encashment, which is accrued based on an actuarial valuation for the Insurer s overall liability. (ii) Sitting fees paid to Independent Directors amounts to Rs. 60 (2003 Rs. 80). 7 CAPITAL COMMITMENTS Particulars Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) 10,842 21,389 8 RISK RETENTION During the year ended March 31, 2004, the Insurer wrote policies with sum at risk worth Rs. 51,642 million (2003 Rs. 22,158 million), reinsured therefrom Rs. 25,538 million (2003 Rs. 9,588 million) and thereby retained risk of 50.5 per cent ( per cent). 9 BUSINESS, SECTOR-WISE Particulars Policies Premium Income Policies Premium Income Rural Sector per cent 1.65 per cent per cent 0.29 per cent Urban Sector per cent per cent per cent per cent Social Sector 0.01 per cent 0.01 per cent 0.01 per cent 0.12 per cent The Insurer has issued 4 policies ( policy), covered 12,533 lives ( ,499 lives) and underwritten gross premium of Rs. 147 (2003 Rs. 488) in the social sector. 10 ACCUMULATED FUND ADDITION TO PARTICIPATING POLICYHOLDERS The Board of Directors has at its meeting held on May 18, 2004, declared an accumulated fund addition of Rs million, as actuarially determined, to meet an effective 6.5 per cent return on each participating policyholder s accumulated fund (2003 Rs million to meet an effective 7.5 per cent). Also refer Note 4 above. 11 CONTRIBUTION MADE TO THE POLICYHOLDERS ACCOUNT The Shareholders contribution of Rs. 975,813 to the Policyholders Accounts results in a surplus of Rs. 565,223 for the year in the Participating Policyholders Accounts. This surplus is used to offset the cumulative deficit of Rs. 564,214 in Insurance Reserves for Participating Policyholders as at March 31, The balance Rs. 1,009 is shown as Funds for Future Appropriation in the Balance Sheet as at March 31, The Shareholders contribution is irreversible in nature and shall not be recouped to the Shareholders at any point of time. Approval from the Shareholders will be obtained for such contribution at the ensuing Annual General Meeting of Company. 12 ENCUMBRANCES ON ASSETS There are no encumbrances on the assets of the Insurer as at the Balance Sheet date.

154 145 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Amounts in thousands of Indian Rupees) Schedule 16 : Notes to the Financial Statements (Contd.) (Amounts in thousands of Indian Rupees unless otherwise stated) 13 OPERATING LEASE COMMITMENTS The Insurer has taken various office and residential premises on operating lease and leave & license agreements. Lease payments are recognized in the Revenue Account under Rent, Rates and Taxes. The future minimum lease payments under non-cancelable operating leases for such premises are as follows: Particulars Not later than one year 22,457 27,717 Later than one year not later than five years 14,637 28,907 Later than five years RATIOS (in per cent) Participating Non-participating Annuities- Unit Linked Participating Non-Participating New business premium (7.59) Not Not Not income growth applicable applicable applicable Net retention ratio Ratio of expenses of management Commission ratio Ratio of policyholders liabilities to shareholders funds Growth rate of shareholders funds (39.64) Ratio of surplus to policyholders liabilities (31.45) (245.46) 8. Change in net worth (24.91) (9.47) 9. Profit after tax / Total Income (35.02) (Total real estate + loans) / (Cash + Invested Assets) Total Investments / (Capital + Surplus) Total affiliated investments / (Capital + Surplus) INVESTMENTS A. All the investments of the Insurer are performing investments in accordance with the directions issued by IRDA. B. For the purposes of meeting requirement of Section 7 of the Insurance Act, 1938, the Company has earmarked 11.68% Government of India, 2006, having face value Rs. 50,000, in a constituent SGL Account with Deutsche Bank. This is classified under Investments Shareholders (Refer Schedule 8). C. Value of contracts in relation to investments for: Particulars Purchases where deliveries are pending 140,420 Sales where payments are overdue 16 TAXATION The Company carries on life insurance business and therefore the provisions of Section 44 and the First Schedule of the Income-tax Act, 1961 are applicable for computation of profit and gains of business. The Company has not made any provision for taxation in the financial statements, since it does not have any taxable income for the year ended March 31, Since life insurance is a long gestation period business, the Company, as a matter of prudence has not taken any credit for deferred tax on losses incurred.

155 146 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Amounts in thousands of Indian Rupees) Schedule 16 : Notes to the Financial Statements (Contd.) (Amounts in thousands of Indian Rupees unless otherwise stated) 17 RELATED PARTIES DISCLOSURES A. Related Parties where control exists Nature of relationship Holding Company Related Party Kotak Mahindra Bank Ltd. B. Related parties (where transactions have taken place during the years ended March 31, 2004 and March 31, 2003) (i) Holding Company Kotak Mahindra Bank Ltd. (ii) Associate Company / Joint Venture Partner Old Mutual plc Old Mutual Life Assurance Company (South Africa) Ltd. (iii) Fellow Subsidiaries Kotak Securities Ltd. Kotak Mahindra Capital Company Ltd. Kotak Mahindra Asset Management Company Ltd. Kotak Mahindra Primus Ltd. (iv) Enterprises in which Directors have significant influence ( Others ) Aero Agencies Ltd (v) Key management personnel Non-Executive Directors Mr. Uday Kotak, Chairman Mr. Hasan Askari, Vice-Chairman Mr. James Harry Sutcliffe, Director Mr. Dipak Gupta, Director Executive Director Mr. Shivaji Dam, Managing Director C. The following are transactions and closing balances of related parties in the ordinary course of business: Nature of transaction Holding Associate Fellow Others Holding Associate Fellow Others Company Company Subsidiaries Company Company Subsidiary Expenses/reimbursement of expenses; received/delivered (net) *24,350 7, ,523 *21,585 3, ,531 Premium Income 2,301 1,047 Commission paid 9,967 9,306 Fixed Assets (net) 942 Outstanding Receivables/ (Payables) (12,662) (7,088) (1,579) (136) (4,357) (4,835) (157) Issue of share capital 147,686 51, ,220 78,780 * Relates to rent, administrative, information technology infrastructure, tax & legal expenses and share in corporate advertisements. D. Refer Note (6) above for the details of managerial remuneration for the details of payments to Directors. 18 SEGMENT BALANCE SHEET Particulars Participating Non-Participating Annuties Unit-Linked Shareholders Total business business Participating Investments 413,807 97, , ,034 61,835 17,232 9, , ,563 1,298,904 1,150,469 Assets held to cover linked liabilities 503, ,076 Loans against policies Reinsurance premium for future period 8,827 4,315 4,997 4, ,991 20,064 9,071 Outstanding Premium 19,898 8,956 1, ,854 23,116 9,410 Unallocated Assets 1,801, ,262 1,801, ,262 Total Assets 442, , , ,015 63,938 17, ,109 2,373,124 1,291,825 3,647,312 1,579,000

156 147 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Amounts in thousands of Indian Rupees) Schedule 16 : Notes to the Financial Statements (Contd.) (Amounts in thousands of Indian Rupees unless otherwise stated) 18 SEGMENT BALANCE SHEET (Contd.) Particulars Participating Non-Participating Annuties Unit-Linked Shareholders Total business business Participating Proposal Deposits 16,987 16,829 40,684 8,898 1,348 1,417 12,415 71,434 27,144 Premium received in advance 30,195 30,195 Balance due to reinsurance companies 20,438 6,147 3,688 7, ,120 40,581 14,078 Policy liabilities 413,583 97, , ,034 61,353 17,232 9, , ,906 Provision for linked liabilities 503, ,076 Insurance reserve (520,332) (93,378) (43,882) (657,592) Unallocated Liabilities 261,274 99, ,274 99,262 Shareholders Funds * (8,476) * 510,627 (55,224) 82, ,454 (22,503) 2,111,850 1,192,563 2,026,549 1,828,202 Total Liabilities 442, , , ,015 63,938 17, ,109 2,373,124 1,291,825 3,647,312 1,579,000 * Balancing figure 19 ADDITIONAL SEGMENTAL REPORTING Particulars Participating Non-Participating Annuties Unit-Linked Shareholders Total business business Participating Non-cash expenses other than depreciation Liability against life policies 309,509 97,640 77, ,034 43,195 17,232 9, , ,906 Transfer to linked fund 503, ,076 Accumulated fund addition to policyholders 6,434 1, ,360 1,081 Amortization of premium on investments 23,275 25,865 23,275 25,865 Gratuity and leave encashment 2,854 3, ,575 4, SUMMARY OF FINANCIAL STATEMENTS Particulars Policyholders Account 1. Gross premium income 1,507, ,234 75, Net premium income 1,467, ,227 73, Income from investments (net) 77,397 4, Other income 976, Total Income 2,521, ,369 73, Commission 191,957 76,053 18, Brokerage / Amortisation 7, Operating expenses related to insurance business 898, , ,852 28, Total Expenses 1,098, , ,974 28, Payment to policy holders 40,844 2, Increase in actuarial liability 446, ,961 34, Surplus/ (Deficit) from operations (432,997) (522,565) (348,951) (28,739)

157 148 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Amounts in thousands of Indian Rupees) Schedule 16 : Notes to the Financial Statements (Contd.) (Amounts in thousands of Indian Rupees unless otherwise stated) 20 SUMMARY OF FINANCIAL STATEMENTS (Contd.) Particulars Shareholders Account 13. Total income under Shareholders Account 75, , ,303 33, Profit/(Loss) before tax (924,214) 1, Provision for tax 16. Profit/(Loss) after tax (924,214) 1, Profit/(Loss) carried to Balance Sheet (922,985) 1,229 1,229 1,229 Miscellaneous 18. (A) Policyholders account: * Total funds 714, ,906 34,864 Total Investments 727, ,906 34,864 Yield on investments (%) 8.63% 10.05% Not applicable Not applicable (B) Shareholders account: Total funds 878,969 1,170,610 1,292,999 1,525,900 Total Investments 571, ,563 1,003,091 1,198,220 Yield on investments (%) 7.49% 8.60% 8.35% 9.21% 19. Yield on total investments 7.85% 8.64% 8.35% 9.21% 20. Paid up equity capital 1,512,576 1,313,000 1,010,000 1,010, Net Worth 878,969 1,170,610 1,292,999 1,525, Total Assets 2,098,491 1,438,516 1,327,863 1,525, Earnings per share (Rupees) (6.46) Nil Nil Book Value per share (Rupees) * Excludes Unit-Linked Business 21 EARNINGS PER SHARE Earnings Per Share is calculated by dividing the Profit in the Shareholders Account by the weighted average number of equity shares outstanding during the year. The numbers used in calculating basic and diluted earnings per equity share are as follows: Particulars Profit after taxation and before exceptional items (924,214) Profit after taxation (924,214) Weighted average number of shares 143,110, ,996,164 Earnings per share before exceptional items (Basic and Diluted) (6.46) Earnings per share (Basic and Diluted) (6.46) Face value per share Rs.10 Rs ADDITIONAL INFORMATION ON REMUNERATION Information as per Section 217 (2A) of the Companies Act, 1956, read with Companies (Particulars of Employees) Rules, Employed for the full year Name Gross Designation Qualifications Exp. Age Date of Last Employment Remuneration Years Years commence- held (Rs.) ment Nihar Rao 2,889,534 Vice President IT B.E. (IIT), PGDM (IIM) Jul-01 Indian Hotels Company Ltd. G. Murlidhar 2,922,306 Chief Financial Officer B. Sc., ACA, ACS, Apr-01 Kotak and Company Secretary ICWA Mahindra Finance Ltd. Shivaji Dam* 3,880,307 Managing Director B. Com., ACA, ACS, Jan-01 Kotak Mahindra AICWA Finance Ltd. Brett Cameron 7,368,337 Product Actuary B. Bus. Sc., MBA Feb-03 Old Mutual Life (INSEAD), CFP, FIA, Assurance Co. (South FASSA Africa) Ltd. J. Eksteen de Waal 4,858,552 Head Sales Training Biuris, LLB, FILPA Jan-03 PFA James Thompson 6,743,662 Appointed Actuary FIA, FIAA, FASI Apr-02 Old Mutual Life Assurance Co. (South Africa) Ltd. Nandip Vaidya 3,016,795 Vice President B. Tech (IIT), PGDM Oct-02 Kotak Mahindra Tied Agency (IIM) Finance Ltd. Gagan Bhalla 2,723,806 Manager Sales B. Com Apr-02 LG Electronics Ltd.

158 149 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Amounts in thousands of Indian Rupees) Schedule 16 : Notes to the Financial Statements (Contd.) (Amounts in thousands of Indian Rupees unless otherwise stated) 22 ADDITIONAL INFORMATION ON REMUNERATION (Contd.) 2. Employed for part of the year Name Gross Designation Qualifications Exp. Age Date of Last Employment Remuneration Years Years commence- held (Rs.) ment Ashutosh Bishnoi 3,257,948 Vice President B. Com., MBA Jan-03 JM Capital Marketing Management P. Ltd. Rajesh Puri 1,242,907 Vice President BE (Mech.), MMS May-02 Whirlpool of India Ltd. Tied Agency Notes: 1. Gross remuneration includes salary, house rent allowance, reimbursement of medical expenses and leave travel passage, Company s contribution to Provident & Superannuation funds and monetary value of perquisites calculated in accordance with the provisions of the Income Tax Act, 1961 and the Rules made thereunder. 2. The nature of employment in all cases is non-contractual except in cases marked (*) and the terms and conditions of employment are as per the Company s rules. 3. None of the above employees is related to any Director of the Company and holds more than 2% of the total share capital of the Company. 23 BALANCE SHEET OF LINKED BUSINESS AS AT MARCH 31, 2004 Particulars Bond Fund Money Market Gilt Balanced Growth Total SOURCES OF FUNDS Policyholders Contribution , ,703 39, , ,344 Revenue account ,113 12,323 14,732 Total , ,875 41, , ,076 APPLICATION OF FUNDS Investments Equity 22, , ,662 Debt , ,337 26,201 82, ,756 Current Assets Interest Receivable 27 6, ,934 Sub-Total (A) 27 6, ,934 Current Liabilities Outstanding purchases 7,236 32,014 39,250 Other current liabilities Sub-Total (B) 7 7,239 32,030 39,276 Net Current Assets (C) = (A-B) 27 6,538 (7,129) (31,778) (32,342) Total , ,875 41, , , REVENUE ACCOUNT FOR LINKED BUSINESS FOR THE PERIOD ENDED MARCH 31, 2004 Particulars Bond Fund Money Market Gilt Balanced Growth Total INCOME Dividend income Interest income ,938 3,682 Net unrealised gain 888 6,496 7,384 Net profit on sale of Investments 922 3,398 4,320 Other income 3 3 Total ,256 13,217 15,825 EXPENSES Custody charges Fund management fees Total ,093 Net Income carried to Balance Sheet ,113 12,323 14, PRIOR YEAR COMPARATIVES Prior year amounts have been reclassified wherever necessary to conform to current year s presentation. The Insurer has commenced linked business during the current year and hence no prior year figures for this business are available.

159 150 OM Kotak Mahindra Life Insurance Company Limited Registration No: 107; Date of Registration: January 10, 2001 STATEMENT OF RECEIPTS & PAYMENTS FOR THE YEAR ENDED MARCH 31, 2004 (Amounts in thousands of Indian Rupees) Particulars Year ended Year ended March 31, 2004 March 31, 2003 Cash Flows from Operating Activities Premium and Deposits from Policyholders 1,567, ,308 Cash paid to Agents, Suppliers and Employees (929,238) (647,314) Advances/Loans/Deposits placed (14,539) (37,052) Reinsurance premium (net) (27,540) (2,671) Claims paid (net of reinsurance) (31,668) (2,144) Deposits held for regulatory purposes 5,500 (4,500) Income-tax paid 3,193 (8,270) Net cash from/(deployed in) Operating Activities 573,697 (295,643) Cash Flows from Investing Activities Purchase of fixed assets (123,029) (141,198) Interest received on Investments (net of interest expended on purchase of investments) See Note (c) below 107, ,640 Decrease/(Increase) in investments (net) (541,793) (112,806) Advances to Suppliers of fixed assets 11,305 (2,846) Proceeds on sale of fixed assets 2,408 Net cash deployed in Investing Activities (544,042) (146,210) Cash Flows from Financing Activities Proceeds from issue of Share Capital 199, ,000 Expenses on subscription of shares (2,121) Net cash from Financing Activities 199, ,879 Net (decrease)/ increase in Cash and Cash Equivalents 229,231 (140,974) Cash and Cash Equivalents at start of year 64, ,919 Cash and Cash Equivalents at end of year 294,176 64,945 Notes: (a) Cash and cash equivalents at the end of the year includes: Cash (including cheques on hand, drafts and stamps) 34,712 28,813 Bank Balances (including deposits) 259,464 36, ,176 64,945 (b) The above Statement of Receipts and Payments has been prepared as prescribed by Insurance Regulatory (Preparation of Financial Statements & Auditor s Report of Insurance Companies) Regulations, 2002 under the Direct Method laid out in Accounting Standard 3 Cash Flow Statements issued by the Institute of Chartered Accountants of India. (c) Net of tax deducted at source Rs. Nil (2003 Rs. 203). (d) Due to large volume of investments transactions, cash flow is reported on net basis in accordance with Accounting Standard 3 issued by the Institute of Chartered Accountants of India. As per our report of even date attached For and on behalf of the Board of Directors Sharmila A. Karve Akeel Master Uday Kotak Hasan Askari Partner Partner Chairman Vice-Chairman Membership No Membership No For and on behalf of For and on behalf of Dipak Gupta Shivaji Dam Lovelock & Lewes Bharat S. Raut & Co. Director Managing Director Chartered Accountants Chartered Accountants G. Murlidhar James Thompson Mumbai Chief Financial Officer Appointed Actuary May 18, 2004 & Company Secretary

160 151 OM Kotak Mahindra Life Insurance Company Limited MANAGEMENT REPORT FOR THE YEAR ENDED MARCH 31, 2004 In accordance with the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor s Report of Insurance Companies) Regulations, 2002, the Board of Directors presents its Management Report for the year ended March 31, Validity of Registration: Your Directors confirm that the registration granted to the Company by the Insurance Regulatory and Development Authority is valid on this date. 2 Statutory Dues: Your Directors certify that all the dues payable to the statutory authorities have been duly paid. 3 Shareholding pattern: Your Directors confirm that the shareholding pattern is in accordance with the statutory and regulatory requirements. During the year, shares of the Company were not transferred. 4 Investment of policyholders funds: During the year, your Company has not directly or indirectly invested outside India the funds of the holders of policies issued in India. 5 Solvency margins: Your Directors confirm that the solvency margins as required by regulations prescribed by Insurance Regulatory and Development Authority of India have been maintained. 6 Values of assets: Your Directors certify that the values of all the assets have been reviewed on the date of the Balance Sheet and that the assets set forth in the Balance Sheet are shown in the aggregate at amounts not exceeding their realisable or market value under the several headings Investments, Outstanding Premiums, Interest, Dividends and Rents outstanding, Interest, Dividends and Rents accruing but not due, Advances and other assets, Cash and the several items specified under Other Accounts. 7 Application of life insurance funds: Your Directors certify that no part of the life insurance fund has been directly or indirectly applied in contravention of the provisions of the Insurance Act, 1938 (4 of 1938) relating to the application and investment of the life insurance funds. 8 Risk exposure: Your Company recognises the risks associated with the life insurance business and plans to manage it by adopting prudent policies commensurate with the needs of the life insurance business. The key risks affecting the operations of the Company are underwriting risks and investment risks. The underwriting risk is managed by the Company s underwriting function and further by establishing reinsurance treaties with various reinsurance companies. All risks above the pre-determined retention limits are automatically reinsured. The investment risk is managed by creating a portfolio of different asset classes and of varied maturities so as to spread the risk across a wide category of investee companies. Your Company has constituted an Investment Committee, which acts as the policy making body for the investment operations. The Investment Committee lays down various internal policies and norms governing the functioning of the Investment Department. The Investment Committee periodically discusses the investment strategy, portfolio structures, performance of the portfolio and other issues relating to the investment portfolio. 9 Operations in other countries: Your Directors confirm that during the year ended March 31, 2004, your Company had no operations in other countries. 10 Ageing of claims: The Company does not have claims that have been undisputed and are not provided in the books of account as at March 31, Claims, lodged during the year, were settled within the internal processing standards. 11 Valuation of investments: Your Company considers its debt securities as held to maturity and measures them at historical cost subject to amortisation. Debt securities purchased at a discount are carried at a value after accruing the implied yield thereon. As at March 31, 2004, in respect of equity shares, the difference between the purchase price and the market value is shown under the Fair Value Change Account. The market value of quoted securities is taken at the closing value of the respective securities on the Balance Sheet date. All the shares in the Company s portfolio are quoted. In respect of the unit-linked business, all securities are valued on a Mark to Market basis. 12 Review of asset quality and performance of investment: Your Company has investments in debt securities issued by the Government of India, public financial institutions, select multinational banks and public sector undertakings with a AAA rating/guaranteed by the Government. Shares of blue chip companies quoted on Indian Stock Exchanges are also a part of your Company s investment portfolio. The value of equity shares held in the Participating and Annuity segments is lower by approx. 11% (Rs crore) on this date. The Management believes that the diminution in value is temporary. 13 Responsibility Statement: Your Directors state that: (a) (b) (c) (d) (e) In the preparation of financial statements, the applicable accounting standards, principles and policies have been followed; The accounting policies have been adopted and applied consistently and the judgements and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the year and of the surplus/ deficit under Revenue Account and of the loss in the Profit and Loss Account for the year ended March 31, 2004; Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the applicable provisions of the Insurance Act, 1938 (4 of 1938)/Companies Act, 1956 (1 of 1956), for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities; The financial statements are prepared on a going concern basis; An internal audit system commensurate with the size and nature of the business exists and is operating effectively. 14 Schedule of payments made to individuals, firms, companies and organizations in which the Directors are interested: Your Company has made the following payments to individuals, firms, companies and organizations in which the Directors are interested: Company the Director/s is/are Name of Directors Interested as Amount paid in the financial interested year (Rs 000) Kotak Mahindra Bank Ltd. Uday Kotak, Shivaji Dam and Dipak Gupta Director 34,317 Old Mutual Life Assurance Co. James Sutcliffe Director 7,774 (South Africa) Ltd. Aero Agencies Ltd. Uday Kotak Relative of a Director 7,523 Kotak Securities Ltd. Uday Kotak Director 9,306 OM Kotak Mahindra Life Insurance Company Limited Uday Kotak Chairman Mumbai, May 18, 2004 Shivaji Dam Managing Director

161 152 Kotak Mahindra Primus Limited BOARD OF DIRECTORS: UDAY KOTAK (C), PANKAJ DESAI (ED), DIPAK GUPTA, C. JAYARAM, GAURANG SHAH, NARPAL AHLUWALIA, MICHAEL KOZEL, GREGORY COHEN DIRECTORS REPORT To the Members of Kotak Mahindra Primus Limited The Directors present their Eighth Annual Report together with audited accounts of your Company for the year ended 31 st March FINANCIAL RESULTS (Rs. in lakhs) 31 st March st March 2003 Gross Income 23, , Profit before Depreciation and Tax 2, , Depreciation Profit before Tax 1, , Provision for Tax Profit after Tax 1, , Balance of Profit from previous years 1, Amount available for appropriation 2, , Appropriations: Special Reserve u/s 45IC of the RBI Act, Surplus carried forward to the Balance Sheet 2, , DIVIDEND With a view to conserve your Company s resources, the Directors do not recommend any Dividend (Previous Year: Nil). 3 CAPITAL/DEBENTURES On 23 rd December 2003, out of the 11,82,600 Fully Convertible Debentures (FCDs) of Rs. 10 each issued for cash at par to Kotak Mahindra Finance Limited (now, Kotak Mahindra Bank Limited) (KMBL) 1,47,825 Debentures were converted into 1,47,825 equity shares of Rs. 10 each and 98,550 Zero Coupon Fully Convertible Debentures of Rs. 3,600 each were allotted to Ford Credit International Inc. These Zero Coupon debentures were converted into 98,550 equity shares of Rs. 10 each at a premium of Rs. 3,590 per share, immediately on allotment. After the said conversion, there are no outstanding FCDs issued to KMBL. The paid up equity share capital of the Company as on 31 st March 2004 was Rs lakhs and the net worth as on that date was Rs. 46, lakhs. Pursuant to circulars issued by the Securities and Exchange Board of India and the Reserve Bank of India, the Company has made an application to the Stock Exchange, Mumbai to list the debentures issued/to be issued on a private placement basis, under a Shelf Information Memorandum, for a period upto 31 st March 2005 or upto an issued amount of Rs. 3,700 crores, whichever is earlier. Accordingly, the approval of the Stock Exchange, Mumbai is awaited. The Company has appointed M/s. IndusInd Bank Limited, Mamta House, 231 S.V. Road, Bandra (West), Mumbai , as the Debenture Trustees for the debentures issued/to be issued, as aforesaid. 4 CAPITAL ADEQUACY The Capital to Risk Assets Ratio (CRAR) of your Company as on 31 st March 2004, was at a comfortable level of 19.9%. 5 CREDIT RATING During the year under review, Credit Rating Information Services of India Limited (CRISIL) has reaffirmed the rating of AA for the Company s long-term Non- Convertible Debentures. The Company s short-term borrowing programme, continued to enjoy the highest rating of P1+. ICRA Limited has also reaffirmed the rating of MAA+ for the Company s medium-term Non-Convertible Debentures. AA indicates high safety with regard to timely payment of interest and principal. P1+ indicates very strong safety with regard to timely payment of interest and principal. MAA+ indicates high safety with regard to timely payment of interest and principal. 6 FINANCE Your Company continued its strategy of a diversified funding strategy. The Company introduced new lenders and borrowed through innovative and flexible instruments like MIBOR linked Debentures, FCNR(B) loans, etc. Your Company also made adequate use of derivative products like interest rate swaps to manage its Asset/Liability GAP and optimize borrowings costs. The average cost of borrowing was substantially reduced during the period under review. 7 MANAGEMENT DISCUSSION AND ANALYSIS Company Business Your Company is a dedicated car finance company, engaged in financing of non-ford passenger cars and multi-utility vehicles and also non-ford car dealers. Your Company finances new and used cars under retail loan and lease contract and provides inventory and term funding to non-ford car dealers. The main

162 153 Kotak Mahindra Primus Limited streams of income for your Company are retail income, dealer finance income and fee based income. The major expenses for your Company are interest expense, business sourcing expense and cost of running operations. During FY , your Company maintained its strong position in the car finance industry. In a challenging environment in terms of competition, your Company managed to increase its disbursements by 27% to Rs. 1,515 crores in FY from Rs. 1,189 crores in FY Your Company also maintained its profitability margins by focussing on measured market share gain and control over cost and delinquency. During the year under review, net advances crossed Rs. 2,000 crores and the customer base crossed the 1,00,000 mark. Your Company also has good relationships across major car manufacturers and dealers in the country. As detailed in the Financial Results section above, Gross Income of your Company has increased from Rs. 21, lakhs during the FY to Rs. 23, lakhs during the FY , a growth of 8.88%. Profit before Tax has improved from Rs. 1, lakhs in the FY to Rs. 1, lakhs in the FY , a growth of 11.79%. The credit loss ratio of your Company has been consistently maintained in the range of 0.25% to 0.35% over the last two years. Industry Scenario The car market in India saw a substantial growth of 26% for the period under review, after a relatively flat growth period. Total unit sales of cars and MUVs for FY touched 9 lakh compared to 7.14 lakh units in FY Almost 80% of the cars and MUVs, we believe are being purchased under finance schemes. The car finance market has grown at a rapid pace due to economic growth of about 8%, launch of new and improved models, stable automotive prices and lower interest rates. The existing players in the car finance industry have consolidated their position. The top seven players, we believe, control close to 70% of the car finance market. Prospects Indian economy in the current financial year is expected to maintain the growth momentum. The car market in particular is expected to reach total sales of 10 lakh units. The increase in finance penetration will also add to the total car finance market size in the country. Your Company has, carved out a niche for itself in the car-financing segment focusing on distribution and relationship management across manufacturers, dealers, channel partners and customers. Distribution of motor insurance products and other fee based products are important initiatives of your Company, which provides greater value addition to the customer and results in fee income. Customer knowledge, easy accessibility through its wide network of branches and a firm commitment to deliver superior customer service are key drivers for your Company s performance. Internal Controls Your Company maintains a system of internal control, including suitable monitoring procedures. The Internal Control department regularly conducts a review to assess the financial and operating controls at various locations of your Company including Head Office functions. Reports of the audits conducted by the Internal Control department are presented to the Audit Committee. Representatives of the statutory auditors are permanent invitees to the Audit Committee. Human Resources Your Company is professionally managed with key management personnel having relatively long tenure with the Company. Your Company follows a policy of building strong teams of talented professionals by recruiting laterally from across the industry and from business and other schools. Your Company encourages and facilitates long term careers with your Company through carefully designated management development programs and performance management systems. Information Technology Retail Receivable system (FOCUS) continues to support the growth in volumes of your Company. The capacity of the system to handle upto 10 lakh contracts makes its easily scalable to cater to your Company s future growth at reasonable incremental costs. The modular nature of the system supports efficiency in operations coupled with strong systems and operational controls. The system is robust to cater to efficient customer service and support marketing initiatives. Cautionary Note Certain statements in the Management Discussion and Analysis section may be forward-looking and are stated as may be required by applicable laws and regulations. Many factors may affect the actual results, which could be different from what the Directors envisage in terms of future performance and outlook. Your Company does not undertake to update these statements. 8 DIRECTORS Mr. Francis Brogan ceased to be an Alternate Director to Mr. Gregory Cohen and Mr. Michael Kozel with effect from 20 th May 2003 and 17 th June 2003, respectively. Mr. Uday Kotak, Mr. Michael Kozel and Mr. Dipak Gupta, retire by rotation at the Eighth Annual General Meeting and, being eligible, offer themselves for reappointment. 9 AUDIT COMMITTEE The Audit Committee consists of Mr. Dipak Gupta, Chairman, Mr. Gaurang Shah, Member, Mr. Pankaj Desai, Member, Mr. Narpal Ahluwalia, Member Secretary and Mr. Gregory Cohen, Member. Mr. Michael Kozel represents Mr. Gregory Cohen in his absence. The Quorum comprises of two Directors, of whom one shall be Mr. Narpal Ahluwalia or Mr. Gregory Cohen, or their duly appointed alternates.

163 154 Kotak Mahindra Primus Limited During the year, the Audit Committee met five times on 9 th June 2003, 20 th June 2003, 4 th November 2003, 17 th March 2004 and thereafter on 17 th May REMUNERATION COMMITTEE The Remuneration Committee consists of Mr. Dipak Gupta, Mr. Gaurang Shah, Mr. Michael Kozel and Mr. Gregory Cohen and has been formed to approve the remuneration payable to the Whole-time Director/s of the Company, as required under the amended Part II in Section II of Schedule XIII of the Companies Act, During the year, the Remuneration Committee met once on 20 th June 2003 to approve the enhanced remuneration payable to Mr. Pankaj Desai as Whole-time Director of the Company. It may be noted that, the payment of remuneration to Mr. Pankaj Desai was within the provisions of Schedule XIII of the Companies Act, Your Company had received the approval of the Central Government vide Letter bearing Ref. No. 1/385/2002-CL.VII dated 1 st July 2003 for payment of remuneration to Mr. Narpal Ahluwalia for the period 5 th July 2002 to 27 th February AUDITORS Your Company s auditors, Messrs. Price Waterhouse, Chartered Accountants, Mumbai and Messrs Deloitte Haskins & Sells, Chartered Accountants, Mumbai, retire at the Eighth Annual General Meeting and are eligible for re-appointment. 12 STATUTORY INFORMATION A statement giving the particulars of employees as required under Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, is annexed. During the year under review, your Company did not accept any deposits from the public. There are no deposits due and outstanding as on 31 st March Your Company s foreign exchange outgo was Rs lakhs. It had no foreign exchange earnings. The other particulars prescribed under the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are not applicable since your Company is not a manufacturing company. 13 DIRECTORS RESPONSIBILITY STATEMENT Based on representations from the Management, the Directors state, in pursuance of Section 217 (2AA) of the Companies Act, 1956, that: (i) (ii) (iii) (iv) the Company has, in the preparation of the annual accounts for the year ended 31 st March 2004, followed the applicable accounting standards along with proper explanations relating to material departures, if any; the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 st March 2004 and of the profit of the Company for the financial year ended 31 st March 2004; the Directors have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and the Directors have prepared the annual accounts on a going concern basis. 14 ACKNOWLEDGEMENT The Directors thank the shareholders, its dealers and their staff for the strong support that they have continued to extend to your Company. The Board also takes this opportunity to place on record its appreciation of the outstanding performance and dedication of your Company s employees at all levels, without whose commitment, the achievement of results as indicated above could not have been possible. The Board also acknowledges the faith reposed in the Company by the Company s lending institutions. For and on behalf of the Board of Directors Mumbai, 17 th May UDAY KOTAK Chairman

164 155 Kotak Mahindra Primus Limited AUDITORS REPORT To the Members of Kotak Mahindra Primus Limited 1 We have audited the attached balance sheet of Kotak Mahindra Primus Limited, as at 31 st March 2004, the profit and loss account and also the cash flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the company s management. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3 As required by the Companies (Auditor s Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Companies Act, 1956 and on the basis of such checks as we considered appropriate and according to the information and explanations given to us, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4 Further to our comments in the Annexure referred to above, we report that: (a) (b) (c) (d) (e) (f) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit; In our opinion, proper books of account as required by law have been kept by the company so far as appears from our examination of those books; The balance sheet, profit and loss account and cash flow statement dealt with by this report are in agreement with the books of account; In our opinion, the balance sheet, profit and loss account and cash flow statement dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; On the basis of written representations received from the directors, as on 31 st March 2004 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31 st March 2004 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956; In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in the case of the balance sheet, of the state of affairs of the company as at 31 st March 2004; (ii) (iii) in the case of the profit and loss account, of the profit for the year ended on that date; and in the case of the cash flow statement, of the cash flows for the year ended on that date. For Price Waterhouse For Deloitte Haskins & Sells Chartered Accountants Chartered Accountants Sharmila A. Karve R. Laxminarayan Partner Partner Membership Number: Membership Number: Mumbai, 17 th May 2004

165 156 Kotak Mahindra Primus Limited ANNEXURE TO THE AUDITORS REPORT (referred to in paragraph 3 of our Report of even date to the Members of Kotak Mahindra Primus Limited on the accounts for the year ended 31 st March 2004). 1 (a) The Company has maintained proper records showing full particulars including quantitative details and situation of its fixed assets. (b) (c) The fixed assets of the Company have been physically verified by the Management during the year and no material discrepancies were noticed between book records and physical inventory. The Company has not disposed off substantial part of its fixed assets during the year. 2 (a) According to the information and explanations given to us, the company has taken unsecured loans from one company covered in the register maintained under Section 301 of the Companies Act, The maximum amount involved during the year and the year-end balance of such loans aggregates to Rs. 80 crores and Rs crores. (b) (c) (d) In our opinion, the rate of interest and other terms and conditions on which loans have been taken from the said company listed in the register maintained under Section 301 of the Companies Act, 1956 are not, prima facie, prejudicial to the interest of the Company. The payment of principal amounts and interest in the case of aforesaid loans are regular. With regard to the aforesaid loans, there is no overdue amount. 3 In our opinion, and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of fixed assets. Further on the basis of our examination of the books and records of the company, and according to the information and explanations given to us, we have neither come across nor have been informed of any continuing failure to correct major weakness in the aforesaid internal control procedures. 4 (a) In our opinion and according to the information and explanations given to us, the transactions that need to be entered in the register in pursuance of Section 301 of the Companies Act, 1956 have been so entered. (b) According to the information and explanations given to us, in respect of transactions amounting to Rs. 500,000 or more: (i) (ii) Some of the above transactions are of special nature for which no comparative prices are available; and In respect of other transactions, in case of each party they have been made at prices, which are reasonable, having regard to the prevailing market prices at the relevant time. 5 The Company has not accepted any deposits from the public during the year. 6 In our opinion, the Company has an internal audit system commensurate with its size and the nature of its business. 7 (a) According to the books and records as produced and examined by us in accordance with generally accepted auditing practices in India and as per the information and explanations given to us, undisputed statutory dues in respect of provident fund, employees state insurance, income-tax, sales-tax, wealth-tax, cess and other material statutory dues as applicable, have been regularly deposited by the Company during the year with the appropriate authorities. (b) According to the information and explanations given to us and the records of the company examined by us, there are no dues of sales- tax, income-tax, wealth-tax, and cess which have not been deposited on account of any dispute as at 31 st March The Company has no accumulated losses as at 31 st March 2004 and has not incurred any cash loss during the financial year ended on that date and in the immediately preceding financial year. 9 According to the books and records and as per the information and explanations given to us, the Company has not defaulted in repayment of dues to any financial institution, bank or debenture holders during the year. 10 According to the information and explanations given to us, the Company has not granted any loans or advances on the basis of security by way of pledge of shares, debentures and other securities. 11 Based on our examination of the records and evaluation of the related internal controls, the Company has maintained proper records of transactions and contracts in respect of its dealing in securities and timely entries have been made therein. The aforesaid securities have been held by the Company in its own name, except to the extent of the exemption granted under Section 49 of the Companies Act, According to the information and explanations given to us, the Company has not given any guarantee for the loans taken by others from banks or financial institutions during the year.

166 157 Kotak Mahindra Primus Limited 13 In our opinion and according to the information and explanations given to us the term loans were applied for the purpose for which they were obtained. Pending utilisation of the term loan for the stated purpose, the funds were temporarily used for the purpose other than for which the loans were sanctioned but were ultimately utilised for the stated end-use. 14 On the basis of review of Asset/Liability Gap Analysis Report, giving utilisation of funds on overall basis and the related information made available to us and as per the explanations given to us, we report that funds raised on long term basis have been used for short term retail assets to the extent of Rs crores. However, funds raised on short term basis have not been used for long term purpose. 15 The Company has not made any preferential allotment of shares during the year. 16 The Company has issued only unsecured debentures and hence the question of creation of security does not arise. However, unsecured debentures are covered by a negative lien on specified receivables under auto finance. 17 The Company has not raised any money by public issue during the year. 18 During the course of our examination of the books of account carried out in accordance with the generally accepted auditing standards in India and as per the information and explanations given to us, we have not come across any instance of fraud, either noticed or reported during the year, on or by the Company, except that there have been instances of misappropriation of vehicles or use of deception to obtain vehicle loans by some of the customers involving an aggregate amount of Rs crores. However, as informed to us, such instances are inherent in the nature of business of the Company and adequate provision in respect thereof has been made in accounts for the year. 19 As per the information and explanations given to us and taking into consideration the nature of the business of the Company, clauses 4(ii), 4(viii) and 4(xiii) of paragraph 4 of the Order are not applicable to the Company for the year. For Price Waterhouse Chartered Accountants For Deloitte Haskins & Sells Chartered Accountants Sharmila A. Karve R. Laxminarayan Partner Partner Membership Number: Membership Number: Mumbai, 17 th May 2004

167 158 Kotak Mahindra Primus Limited BALANCE SHEET AS AT 31 ST MARCH 2004 Schedule As at As at 31 st March st March 2003 Rupees Rupees Rupees Rupees Sources of Funds Shareholders Funds Capital 1 29,710,000 27,246,250 Reserves and Surplus 2 4,613,103,153 4,132,318,507 4,642,813,153 4,159,564,757 Loan Funds Unsecured Loans 3 17,502,742,067 13,068,226,384 Deferred Tax 4 Deferred tax liability 115,711,280 77,430,410 Less: Deferred tax asset 35,794,557 33,773,868 79,916,723 43,656,542 Total 22,225,471,943 17,271,447,683 Application of Funds Fixed Assets 5 Gross Block 66,455,591 58,468,436 Less: Depreciation 43,665,181 37,723,346 Net Block 22,790,410 20,745,090 Receivables under Auto Finance 6 21,940,167,408 17,534,866,827 Current Assets, Loans and Advances 7 Sundry Debtors 67,342,181 55,373,047 Cash and Bank Balances 434,485, ,588,368 Loans and Advances 1,279,804, ,962,562 Properties held for disposal 14,326,000 1,795,957,598 1,163,923,977 Less: Current Liabilities and Provisions Liabilities 8 1,484,715,399 1,419,694,520 Provisions 9 48,728,074 28,393,691 1,533,443,473 1,448,088,211 Net Current Assets 262,514,125 (284,164,234) Total 22,225,471,943 17,271,447,683 Significant Accounting Policies and Notes to the Accounts 16 Schedules referred to above form an integral part of the Balance Sheet As per our attached report of even date: For and on behalf of the Board of Directors For Price Waterhouse For Deloitte Haskins & Sells Uday Kotak Narpal Ahluwalia Chartered Accountants Chartered Accountants Chairman Director Sharmila A. Karve R. Laxminarayan Harish Shah Pankaj Desai Partner Partner Company Secretary Executive Director Membership No. : Membership No. : Mumbai Dated : 17 th May 2004

168 159 Kotak Mahindra Primus Limited PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2004 Schedule Year ended Year ended 31 st March st March 2003 Rupees Rupees Income Income from Operations 10 2,341,006,633 2,145,481,823 Other Income 11 22,611,352 25,437,194 Total 2,363,617,985 2,170,919,017 Expenditure Payments to Employees ,355,021 96,558,320 Interest and Finance charges 13 1,032,890,303 1,033,247,145 Administrative and other expenses ,558, ,237,881 Provisions/Write offs for Non-Performing Assets 15 56,761,877 51,513,621 Depreciation 10,156,931 10,702,410 Total 2,171,722,505 1,999,259,377 Profit before tax 191,895, ,659,640 Provision for taxation Current Tax 32,437,985 40,000,000 Deferred Tax 36,260,181 22,275,911 Taxation adjustment of Previous Years (3,792,832) (40,889) Profit after tax 126,990, ,424,618 Profit brought forward from Previous Year 130,884,622 43,345, ,874, ,769,622 Appropriations Special Reserve u/s 45 IC of the RBI Act, ,398,030 21,885,000 Surplus carried to Balance Sheet 232,476, ,884,622 Total 257,874, ,769,622 Earnings per share (Refer Note No. II (G) of Schedule 16) Basic Diluted Significant Accounting Policies and 16 Notes to the Accounts Schedules referred to above form an integral part of the Profit and Loss Account As per our attached report of even date: For and on behalf of the Board of Directors For Price Waterhouse For Deloitte Haskins & Sells Uday Kotak Narpal Ahluwalia Chartered Accountants Chartered Accountants Chairman Director Sharmila A. Karve R. Laxminarayan Harish Shah Pankaj Desai Partner Partner Company Secretary Executive Director Membership No. : Membership No. : Mumbai Dated : 17 th May 2004

169 160 Kotak Mahindra Primus Limited CASH FLOW STATEMENT FOR THE YEAR ENDED 31 ST MARCH Rupees Rupees Rupees Rupees Cash Flows from Operating Activities Net profit before taxation and extraordinary items 191,895, ,659,640 Add/(Less) : Adjustment for Depreciation 10,156,931 10,702,410 Profit on sale of investments (321,185) (1,606,858) Profit on sale of assets (1,826,574) (973,207) Provision for gratuity and leave encashment 1,227, ,000 Miscellaneous expenses written off 3,333,334 Provision for doubtful debts, receivables and advances (14,861,099) 9,838,961 Provision for standard assets 19,107,383 9,828,690 Provision for diminution in value of properties 1,749,815 Operating profit before working capital changes 207,127, ,761,970 Increase in Receivables under Auto Finance (4,401,643,111) (4,048,422,793) Increase in Loans and Advances (Refer Note No. 3) (106,761,033) (142,560,474) Increase in Sundry Debtors (4,901,886) (10,427,708) Increase in Current Liabilities 65,020, ,348,170 Cash used in operations (4,241,157,400) (3,794,300,835) Income Tax Paid (22,665,241) (37,233,560) Net cash used in operating activities A (4,263,822,641) (3,831,534,395) Cash Flows from Investing Activities Increase in fixed deposits lodged with government departments (1,406,518) (Increase)/Decrease in Inter Corporate Deposits (400,000,000) 300,000,000 Purchase of Fixed assets (12,701,330) (13,150,876) Sale of Fixed assets 2,325,653 2,232,143 Purchase of Investments (1,523,700,000) (2,691,000,000) Sale of Investments 1,524,021,185 2,692,606,858 Net cash (used in)/from investing activities B (410,054,492) 289,281,607 Cash flows from financing activities Increase/(Decrease) in deep discount debentures 588,396,839 (82,633,836) Increase in debentures issued at discount 49,993,753 Increase in Unsecured Non-convertible debentures 3,096,000, ,000,000 (Decrease)/Increase in Short Term Borrowings (91,446,791) 705,521,879 Increase in other Loans and Advances 793,050,132 2,456,787,712 Issue of Shares 354,780, ,780,000 Net cash from financing activities C 4,790,773,933 3,723,455,755 Net increase in cash and cash equivalents A+B+C 116,896, ,202,967 Cash and cash equivalents at the beginning of the year 315,608, ,405,545 Cash and cash equivalents at the end of the year 432,505, ,608,512 Notes: 1. Cash and cash equivalents include: Cash on Hand 11,987 Bank balances 432,505, ,596,525 Total cash and cash equivalents 432,505, ,608, The Cash Flow Statement has been prepared under the Indirect Method as set out in the Accounting Standard 3 on Cash Flow Statements issued by the Institute of Chartered Accountants of India. 3. The above includes property acquired in satisfaction of debts. 4. The previous year s figures have been regrouped wherever necessary in order to conform to this year s presentation. This is the Cash Flow Statement referred to in our report of even date. As per our attached report of even date: For and on behalf of the Board of Directors For Price Waterhouse For Deloitte Haskins & Sells Uday Kotak Narpal Ahluwalia Chartered Accountants Chartered Accountants Chairman Director Sharmila A. Karve R. Laxminarayan Harish Shah Pankaj Desai Partner Partner Company Secretary Executive Director Membership No. : Membership No. : Mumbai Dated : 17 th May 2004

170 161 Kotak Mahindra Primus Limited SCHEDULES FORMING PART OF THE BALANCE SHEET 31 st March st March 2003 Rupees Rupees Rupees Schedule 1 : Capital Share Capital Authorised 4,000,000 Equity Shares of Rs. 10/- each 40,000,000 40,000,000 Issued and Subscribed 2,971,000 (Previous Year 2,724,625) equity shares of Rs. 10/- each, fully paid 29,710,000 27,246,250 Total 29,710,000 27,246,250 Note : Of the above : (i) 1,782,600 (Previous Year 1,634,775) shares are held by Kotak Mahindra Bank Limited, the holding company and its nominees. (ii) 1,971,000 (Previous Year 1,724,625) shares are allotted as fully paid-up pursuant to conversion of Fully Convertible Debentures. Schedule 2 : Reserves and Surplus Share Premium Account As per last Balance Sheet 3,911,673,500 3,557,879,000 Add : Amount received during the year 353,794, ,794,500 4,265,468,000 3,911,673,500 Special Reserve u/s 45 IC of the RBI Act, 1934 As per last Balance Sheet 60,251,150 38,366,150 Add : Transferred from Profit and Loss Account 25,398,030 21,885,000 85,649,180 60,251,150 General Reserve 29,509,235 29,509,235 Surplus in Profit and Loss Account 232,476, ,884,622 Total 4,613,103,153 4,132,318,507 Schedule 3 : Unsecured Loans Notes NIL (Previous Year 147,825) 16.5% Unsecured Fully 1 1,478,250 Convertible Debentures of Rs. 10 each Unsecured Non-Convertible Debentures 2 9,580,000,000 6,484,000,000 Deep Discount Debentures 3 600,000,000 Less : Discount not written off 11,603, ,396,839 Debentures issued at discount 4 50,000,000 Less : Discount not written off 6,247 49,993,753 Debenture Application Money pending allotment 100,000,000 49,810,000 (subsequently allotted on ) Short Term Loans : From Banks 5 1,887,465,072 2,468,732,204 From Others Inter Corporate Deposits 100,000,000 89,000,000 Commercial Paper 650,000, ,000,000 Less : Discount not written off (Maximum amount outstanding during the year Rs. 650,000,000, Previous Year Rs. 558,000,000) 24,795,599 3,615, ,204, ,384,060

171 162 Kotak Mahindra Primus Limited Schedules forming part of the Balance Sheet (Contd.) Notes 31 st March st March 2003 Rupees Rupees Rupees Schedule 3 : Unsecured Loans (Contd.) Other Loans and Advances: From Banks 5 2,375,000,000 2,218,000,000 From Others 5 2,012,222,225 1,400,000,000 Hire Purchase/Loan/Lease deposits 184,459, ,821,870 (Including matured and unclaimed Rs. 8,768,681 Previous Year Rs. 10,165,475) Total 17,502,742,067 13,068,226,384 Notes: (1) The 16.5% Unsecured Fully Convertible Debentures of Rs. 10 each are convertible in to equity shares of Rs. 10/- each at par as mentioned below: Debenture Conversion Series Rupees Rupees VIII NIL 1,478,250 Conversion after but before (2) The Debentures are redeemable at par. The Debentures are secured by way of a pari passu mortgage and charge in favour of the Debenture Trustees on the Company s immoveable property amounting to Rs. 1,807,472 and further covered by a negative lien on specified receivables under auto finance of the Company. The details of Unsecured Non-Convertible Debentures are as under : As at As at Earliest Description 31 st March st March 2003 Put/Call Option Redemption Rupees Rupees Date Date 500 debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 15,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 3,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 200,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 6,000, debentures of Rs. 1,00,000 each 200,000, debentures of Rs. 1,00,000 each 50,000,

172 163 Kotak Mahindra Primus Limited Schedules forming part of the Balance Sheet (Contd.) As at As at Earliest Description 31 st March st March 2003 Put/Call Option Redemption Rupees Rupees Date Date 500 debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 70,000, debentures of Rs. 10,000,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 250,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 150,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 200,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, ,000, debentures of Rs. 1,00,000 each 200,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 250,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,000,000 each 100,000, debentures of Rs. 1,00,000 each 150,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 250,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 200,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,000,000 each 150,000,

173 164 Kotak Mahindra Primus Limited Schedules forming part of the Balance Sheet (Contd.) As at As at Earliest Description 31 st March st March 2003 Put/Call Option Redemption Rupees Rupees Date Date 1000 debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 70,000, debentures of Rs. 1,000,000 each 130,000, debentures of Rs. 1,00,000 each 250,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 70,000,000 70,000, debentures of Rs. 1,000,000 each 150,000, debentures of Rs. 1,00,000 each 50,000,000 50,000, debentures of Rs. 1,00,000 each 150,000, ,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,000,000 each 250,000, debentures of Rs. 1,00,000 each 50,000,000 50,000, debentures of Rs. 1,00,000 each 80,000,000 80,000, debentures of Rs. 1,00,000 each 160,000, ,000, debentures of Rs. 1,00,000 each 50,000,000 50,000, debentures of Rs. 1,00,000 each 130,000, ,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,000,000 each 250,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 250,000, debentures of Rs. 1,00,000 each 250,000, debentures of Rs. 1,00,000 each 50,000,000 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,000,000 each 200,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 250,000, debentures of Rs. 1,00,000 each 150,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 240,000, debentures of Rs. 1,00,000 each 250,000, debentures of Rs. 1,000,000 each 100,000, debentures of Rs. 1,00,000 each 250,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 150,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 500,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,00,000 each 50,000, debentures of Rs. 1,000,000 each 250,000, debentures of Rs. 1,00,000 each 200,000, debentures of Rs. 1,00,000 each 250,000, debentures of Rs. 1,00,000 each 100,000, debentures of Rs. 1,000,000 each 150,000, debentures of Rs. 1,000,000 each 200,000, debentures of Rs. 1,000,000 each 250,000, ,580,000,000 6,484,000,000

174 165 Kotak Mahindra Primus Limited Schedules forming part of the Balance Sheet (Contd.) As at As at Earliest Description 31 st March st March 2003 Put/Call Option Redemption Rupees Rupees Date Date (3) The details of Deep Discount Debentures are as under: Unsecured, Reedemable Non-Convertible Debenture of Face value of Rs. 100,000,000 issued at Rs. 94,443,000 99,251, Face value of Rs. 250,000,000 issued at Rs. 235,819, ,493, Face value of Rs. 250,000,000 issued at Rs. 232,577, ,651, ,396,839 (4) The details of Debentures issued at discount are as under: Unsecured, Reedemable Non-Convertible Debenture of face value of Rs. 50,000,000 issued at Rs. 49,810,000 49,993, (5) The short term and other loans and advances from Banks/Financial Institution/Corporates are covered by a negative lien on specified receivables under auto finance of the Company in favour of the Banks/Financial Institution/Corporates. 31 st March st March 2003 Rupees Rupees Rupees Schedule 4 : Deferred Tax Liabilities Depreciation on fixed assets 25,173,208 22,503,142 Brokerage 90,538,072 54,927, ,711,280 77,430,410 Assets Provision for doubtful debts, loans and advances and standard assets 32,843,022 31,319,667 Provison for gratuity 1,836,441 1,541,549 Provision for unencashed leave 581, ,599 Expenses allowable for tax purposes when paid 533, ,053 35,794,557 33,773,868 Total 79,916,723 43,656,542 Schedule 5 : Fixed Assets Rupees Description GROSS BLOCK DEPRECIATION NET BLOCK For Additions Deductions the year Withdrawn Buildings 1,807,472 1,807, ,332 65, ,700 1,512,772 1,578,140 Office Equipment 15,330,840 1,131, ,809 16,178,976 9,347,394 2,759, ,339 11,868,841 4,310,135 5,983,446 Computers 24,272,028 3,691,664 27,963,692 18,007,519 4,081,504 22,089,023 5,874,669 6,264,509 Furniture & Fixtures 4,168, ,447 19,650 4,418,244 2,886, ,393 19,650 3,468, ,967 1,281,913 Vehicles 12,889,649 7,608,274 4,410,716 16,087,207 7,252,567 2,648,880 3,957,107 5,944,340 10,142,867 5,637,082 Total 58,468,436 12,701,330 4,714,175 66,455,591 37,723,346 10,156,931 4,215,096 43,665,181 22,790,410 20,745,090 Previous Year 54,301,403 13,150,876 8,983,843 58,468,436 34,745,843 10,702,410 7,724,907 37,723,346 20,745,090

175 166 Kotak Mahindra Primus Limited Schedules forming part of the Balance Sheet (Contd.) 31 st March st March 2003 Rupees Rupees Rupees Schedule 6 : Receivables under Auto Finance (Secured by vehicles under Hire Purchase/Loan/Lease agreements) Hire Purchase 253,714,714 1,211,702,891 Loans 20,850,453,624 15,741,847,822 Lease 868,103, ,078,357 21,972,272,181 17,570,629,070 Less : Provision for doubtful receivables 32,104,773 35,762,243 Total 21,940,167,408 17,534,866,827 Notes: (i) The above includes Rs. 17,668,225/- (Previous year Rs.19,437,746/-) being receivables on vehicles repossessed, necessary provision for which is made. (ii) Details of Gross Investment, unearned finance income and present value of rentals under Hire Purchase and Lease. Gross Investment (a) not later than 1 year 698,199,207 1,325,197,778 (b) between 1 and 5 years 600,292, ,097,640 (c) later than 5 years 1,298,492,110 2,078,295,418 Unearned Finance Income (a) not later than 1 year 120,522, ,885,081 (b) between 1 and 5 years 56,151,525 68,629,089 (c) later than 5 years 176,673, ,514,170 Present value of rentals (a) not later than 1 year 577,677,179 1,144,312,697 (b) between 1 and 5 years 544,141, ,468,551 (c) later than 5 years 1,121,818,557 1,828,781,248 (iii) Also refer Note No. II (I) of Schedule 16

176 167 Kotak Mahindra Primus Limited Schedules forming part of the Balance Sheet (Contd.) 31 st March st March 2003 Rupees Rupees Rupees Schedule 7 : Current Assets, Loans and Advances (a) Sundry Debtors ( secured) Debts outstanding for a period exceeding six months Considered Good 1,911,174 3,521,788 Considered Doubtful 15,506,491 22,548,163 17,417,665 26,069,951 Less : Provision for doubtful debts 15,506,491 22,548,163 1,911,174 3,521,788 Other Debts Considered Good 65,431,007 51,851,259 Considered Doubtful 1,342,225 1,367,801 66,773,232 53,219,060 Less : Provision for doubtful debts 1,342,225 1,367,801 65,431,007 51,851,259 67,342,181 55,373,047 (b) Cash and Bank Balances Cash on hand 11,987 Bank balances (with scheduled banks) (i) Current accounts 432,505, ,596,525 (ii) Fixed deposit (lodged with government department) 1,979,856 1,979,856 Bank balances (with others) in Current account 100,000,000 (Maximum amount outstanding during the year Rs.100,000,000 Previous year Rs.100,000,000) 434,485, ,588,368 (c) Loans and Advances (Unsecured, considered good unless otherwise specified) Advances recoverable in cash or in kind or for value to be received Secured Considered Good 107,204, ,550,573 Unsecured Considered Good 280,114, ,055,632 Unsecured Considered Doubtful 2,500,930 6,637,311 (d) 389,820, ,243,516 Less : Provision for doubtful advances 2,500,930 6,637, ,319, ,606,205 Inter Corporate Deposits 400,000,000 Advance payment of taxes and tax deducted at source 28,573,250 34,553,162 (net of provision for taxation of Rs.161,951,429 Previous year Rs.133,164,296) Security deposit for premises 463,911, ,803,195 1,279,804, ,962,562 Properties held for disposal (at lower of cost or market value) 14,326,000 Total 1,795,957,598 1,163,923,977 Note: Unsecured - Considered Good Loans and advances include

177 168 Kotak Mahindra Primus Limited Schedules forming part of the Balance Sheet (Contd.) Rupees Rupees Rupees Rupees Maximum Outstanding Maximum Outstanding Outstanding Outstanding Schedule 7 : Current Assets, Loans and Advances (Contd.) Due from companies under the same management Ford Credit Kotak Mahindra Limited on current account 8,605,911 2,845,002 11,864,495 5,959,100 on ICD 236,000,000 Kotak Securities Limited on current account 9,048 on ICD 120,000,000 Kotak Mahindra Asset Management Company Limited 22,319 22,844 OM Kotak Mahindra Life Insurance Company Limited 505 Kotak Mahindra Investments Limited ICD 400,000, ,000, st March st March 2003 Rupees Rupees Schedule 8 : Liabilities Sundry creditors : Other than small scale industrial undertakings 643,978, ,221,993 Interest accrued but not due on loans 347,222, ,175,466 Advances received against hire purchase/loan/lease agreements 78,493,819 40,743,670 Book overdraft with banks 401,901, ,469,634 Other liabilities 13,119,139 10,083,757 Total 1,484,715,399 1,419,694,520 Schedule 9 : Provisions Provision for gratuity and leave encashment 8,634,000 7,407,000 Provision for standard assets 40,094,074 20,986,691 Total 48,728,074 28,393,691

178 169 Kotak Mahindra Primus Limited SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT Year ended Year ended 31 st March st March 2003 Rupees Rupees Schedule 10 : Income from Operations Lease rentals 281,123, ,820,227 Less : Capital Recovery 201,431, ,100,926 79,692,044 68,719,301 Income from Hire Purchase /Loans etc. 2,085,278,336 1,891,068,884 (Tax deducted at source Rs.1,307,796 Previous year Rs.154,828) Interest from Wholesale Trade Advances 152,755, ,938,018 (Tax deducted at source Rs. 29,133,43 Previous year Rs. 26,031) Income from fee based activities 23,280,886 11,755,620 (Tax deducted at source Rs. 939,637 Previous year Rs. 609,244) Total 2,341,006,633 2,145,481,823 Schedule 11 : Other Income Profit on sale of current investments 321,185 1,606,858 Dividend from Mutual Fund 91,204 Interest (Gross) : On deposits/advances etc. (Tax deducted at source Rs. 271,274 Previous year Rs. 2,435) 7,483,423 10,794,468 Profit on sale of fixed assets (Net) 1,826, ,207 Other Miscellaneous Income (Net) 12,888,966 12,062,661 (Tax deducted at source Rs. 996,764 Previous year Rs. 996,286) (Refer Note No.II (J) of Schedule 16) Total 22,611,352 25,437,194 Schedule 12 : Payments to Employees Salaries, Allowances and Bonus 109,659,302 93,670,481 Contribution to Employees Provident Fund and Provision for Gratuity 6,547,971 6,693,282 Staff Welfare expenses 6,123,473 5,594,328 Recovery of expenses (Refer Note No. II (L) of Schedule 16) (10,975,725) (9,399,771) Total 111,355,021 96,558,320 Schedule 13 : Interest and Finance Charges (a) Interest On Debentures 534,592, ,950,731 Term borrowings 342,208, ,003,834 Others 114,668,435 27,267,908 (b) Bank and other finance charges 22,110,900 19,571,398 (c) Premium on Forward Exchange Contract 18,845,272 34,453,274 (d) Interest Rate Swap payments 465,080 Total 1,032,890,303 1,033,247,145

179 170 Kotak Mahindra Primus Limited Schedules forming part of the Profit and Loss Account (Contd.) Year ended Year ended 31 st March st March 2003 Rupees Rupees Schedule 14 : Administrative and Other Expenses Travelling and Conveyance 16,133,620 15,472,819 Professional fees 55,934,579 39,280,754 Auditors Remuneration Audit Fees 1,600,000 1,600,000 Others : Certification Work 918, ,000 Tax audit fees 100, ,000 Out of pocket expenses 36,960 24,884 Service tax on above services 202, ,650 Service tax input credit (186,820) 2,670,320 2,186,534 Brokerage and Commission 278,833, ,513,033 Software Expenses 4,239,048 Office Expenses 6,580,525 6,034,761 Electricity Expenses 5,459,454 5,123,310 Common Establishment Expenses Reimbursements 8,011,034 3,780,305 Telephone, Telex and Postage 18,822,718 16,143,436 Data Processing and Communication Expenses 33,159,157 30,877,717 Loss on Foreign Exchange Transactions (Net) 19,470 1,396,902 Rent and licence fees for premises (Refer Note No. II (J) of Schedule 16) 17,382,318 18,826,104 Royalty 452,500, ,000,000 Advertisement Expenses 26,429,957 25,001,356 Miscellaneous Expenses 8,163,750 7,600,767 Maintenance Expenses 8,253,238 8,562,714 Insurance Expenses 1,065, ,992 Printing and Stationery 10,196,484 7,424,160 Rates and Taxes 12,952,382 12,300,004 Business Promotion expenses 12,757,917 6,388,288 Wealth Tax 10,051 59,446 Recovery of expenses (Refer Note No. II (L) of Schedule 16) (14,777,820) (15,284,569) Total 960,558, ,237,881 Schedule 15 : Provisions/Write offs for Non-performing Assets Loss on sale of repossessed vehicles/termination of contracts (Net) 59,186,682 33,603,682 Provision for doubtful debts, advances and receivables under auto finance (14,861,099) 9,838,961 Provision for standard assets 19,107,383 9,828,690 Provision for diminution in value of properties 1,749,815 Write offs recovered (8,420,904) (1,757,712) Total 56,761,877 51,513,621

180 171 Kotak Mahindra Primus Limited Schedules Forming Part of the Financial Statements for the year ended 31 st March 2004 Schedule 16 : Significant Accounting Policies and Notes to the Accounts I. SIGNIFICANT ACCOUNTING POLICIES: A. BASIS OF ACCOUNTING The Accounts are prepared on accrual basis under the historical cost convention and to comply in all material aspects with applicable accounting principles in India, the accounting standards issued by the Institute of Chartered Accountants of India and the relevant provisions of the Companies Act, B. REVENUE RECOGNITION i. Auto Finance Income (including service charges, incentives) is accounted for by using the internal rate of return method to provide a constant periodic rate of return after adjustment of brokerage expenses on the net investment outstanding on the contract. In the case of volume-based incentives and brokerage, income is accounted as and when the said volumes are achieved. Income also includes gains made on termination of contracts. ii. The Company complies with prudential norms for income recognition and provisioning for non-performing assets as prescribed by the Reserve Bank of India for Non-Banking Financial Companies. In addition, the Company adopts an approach to provisioning that is based on the past experience, realisation of security, erosion over time in value of security and other related factors. C. FIXED ASSETS i. All the fixed assets have been stated at cost inclusive of incidental expenses less accumulated depreciation. ii. Depreciation on fixed assets is provided on the straight line method over the useful life of the assets as under (these rates being equal to or higher than those prescribed under Schedule XIV of the Companies Act, 1956) : Computers 3 years Office Equipment 5 years Furniture and Fixtures 6 years Vehicles 4 years Buildings 30 years iii. Depreciation on assets whose cost does not exceed Rs. 5,000/- is fully depreciated in the year of purchase. D. INVESTMENTS Investments are classified into long term investments and current investments. Investments which are intended to be held for more than one year, are classified as long term investments and investments, which are intended to be held for less than one year, are classified as current investments. Long term investments are accounted at cost and any decline in value, other than temporary is provided for. Current investments are valued at cost or market/ fair value whichever is lower. E. RETIREMENT BENEFITS Provision for Gratuity and Leave encashment liability to employees is made on the basis of actuarial valuation. Contribution as required by statute made to the Government Provident Fund is debited to the Profit and Loss Account. F. FOREIGN CURRENCY TRANSACTIONS Revenue and expenses are recorded at the exchange rate prevailing on the date of the transaction. Monetary items denominated in foreign currencies are restated at the exchange rate prevailing on the balance sheet date. Exchange differences arising on settlement of the transaction and on account of restatement of monetary items are dealt with in the Profit and Loss Account. Foreign currency liabilities covered by forward exchange contracts are stated at the rate of exchange ruling on the date of the transaction. The difference between forward rate and exchange rate at the inception of the forward exchange contract is recognised as income or expense over the life of the contract. G. ZERO COUPON INSTRUMENTS The difference between the acquisition cost and redemption value of Commercial Papers and Deep Discount Debentures are apportioned on time basis and recognised as discounting charges/debenture interest expense. H. TAXES ON INCOME Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognised subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the difference between taxable income and accounting income that originates in one period and are capable of reversal in one or more subsequent periods. I. BORROWING COST Borrowing costs other than those directly attributable to qualifying Fixed Assets are recognised as an expense in the period in which they are incurred.

181 172 Kotak Mahindra Primus Limited Schedules Forming Part of the Financial Statements for the year ended 31 st March 2004 (Contd.) J. DERIVATIVE TRANSACTIONS The derivative transactions are considered off balance sheet items and the outstanding swap trades at the reporting date are disclosed at the contract rates. The interest rate swaps are matched to the underlying liabilities and the interest swap is accounted on an accrual basis. Accrued interest is adjusted against the interest cost of the underlying liability. K. TREATMENT OF CONTINGENT LIABILITIES Contingent Liabilities are disclosed by way of notes in the Balance Sheet. Provision is made in accounts for those liabilities, which are likely to materialise after the year end and having effect on the position stated in Balance Sheet as at the year end. II. NOTES TO THE ACCOUNTS A. Contingent Liabilities Claims against the Company for Rs. 1,315,338/- (Previous year Rs. 1,315,338/-) not acknowledged as debts against which bank guarantees of Rs. 1,530,676/- have been furnished (Previous year Rs. 1,530,676/-). B. Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 1,777,050/- (Previous year Rs. NIL). C. During the year the Company has reviewed the useful life of vehicles and has revised upwards the useful life to 4 years from the present useful life of 3 years. Depreciation is provided on straight line method over such revised estimated useful life of the assets. Consequently the depreciation charge to the profit and loss account for the current year is lower by Rs. 1,106,618/- with corresponding increase in profit for the year. D. Managerial remuneration under Section 198 of the Companies Act 1956 to an Executive Director for the year (Previous year to an Executive Director for the period 1 st April 2002 to 31 st December 2002, another Executive Director for the period 10 th December 2002 to 31 st March 2003, to Director Finance for the period 1 st April 2002 to 5 th July 2002 and another Director Finance for the period 5 th July 2002 to 27 th February 2003) Rupees Rupees Salary 3,695,791 7,567,981 Contribution to Provident Fund 214, ,139 Employee Stock Option Plan (Refer note K) 206,546 Perquisites in cash or in kind 216,000 4,149,523 Total 4,332,351 11,925,643 Note: (i) Provision for gratuity benefits, which is based on actuarial valuation done on an overall basis for the Company is excluded in the remuneration shown above. E. Expenditure in foreign currency on travelling, salaries and communication Rs. 36,324,883/- (Previous year Rs. 27,248,655/-). F. The amount of premium on forward exchange contract to be recognised in the Profit and Loss Account in the next financial year is Rs. 1,898,048/- (Previous year Rs. 16,188,977/-). G. Earnings Per Share ( EPS ) The numerators and denominators used to calculate Basic and Diluted Earnings Per Share : Profit attributable to the Equity Shareholders (Rs.) (A) 126,990, ,424,618 Add: Interest net of tax on fully convertible debentures (B) 154,274 Diluted profit attributable to the Equity Shareholders (Rs.) (A + B= C) 126,990, ,578,892 Basic/Weighted average number of Equity Shares outstanding during the year (D) 2,791,941 2,549,800 Add: Conversion of fully convertible debentures in to shares 147,825 Diluted number of Equity Shares outstanding during the year ( E ) 2,791,941 2,697,625 Nominal value of Equity Shares ( Rs.) Basic Earnings per share ( Rs. ) (A)/(D) Diluted earnings per share ( Rs. ) (C)/(E) H. Investment: The Company has purchased and sold during the year 123,091,542 (Previous year 231,978,238) units of the face value of Rs. 10/- each costing Rs. 1,523,700,000/- (Previous year Rs. 2,691,000,000) of K Liquid Growth Scheme and 46,474,203 (Previous year Nil) units of the face value of Rs. 10/- each costing Rs. 568,291,204/- (Previous year Rs. Nil) of K Liquid Dividend Scheme of Kotak Mahindra Mutual Fund.

182 173 Kotak Mahindra Primus Limited Schedules Forming Part of the Financial Statements for the year ended 31 st March 2004 (Contd.) I. The Company is in the business of vehicle financing. The Company enters into finance lease agreements ranging between one to five years. The accumulated provision for uncollectible minimum lease/hire purchase payments receivable is Rs. 5,993,855/- (Previous Year Rs. 16,715,240/-). J. The Company has taken various premises under operating lease and has sub let some of them. (a) Where the Company is a lessee (i) The Company has taken various offices, residential and godown premises under operating lease or leave and licence agreements. These are generally cancellable and range between 11 months and 3 years under leave and licence agreement and are renewable by mutual consent on mutually agreeable terms. (ii) Lease payments recognised in the statement of Profit and Loss Account under Rent and licence fees for Premises in Schedule-14 Rs. 17,054,899/- (Previous year Rs. 18,653,644/-). (iii) The future minimum lease payments under non-cancellable operating lease not later than one year : Rs. 4,980,000/- (Previous year Rs. 180,000/-) later than one year and not later than five years: Rs. 340,000/- (Previous year Rs. Nil ) (b) Where the Company is a sub-lessor (i) The Company has sub-let some of the premises under operating lease. These are generally cancellable and are renewable by mutual consent on mutually agreeable terms. (ii) The sub-lease income recognised in the profit and loss account under Other Miscellaneous Income in Schedule-11 is Rs. 4,437,696/- (Previous year Rs. 4,566,288/-). K. During the year, the Company has paid an amount of Rs. 206,546/- (Previous year Rs.Nil) towards Kotak Mahindra Equity Option Plan of Kotak Mahindra Bank Limited, the holding company, in respect of stock options granted to its employees. This amount has been charged to the Profit and Loss account and included under the head Salaries, allowances and bonus under Schedule 12. L. Recovery of expenses in Schedule 12 and 14 are amounts recovered from the holding company and associates towards the value of costs apportioned of the Company s employees and facilities in accordance with the agreements on allocation of expenses with the companies. M. Derivative Transactions : The Company has outstanding Interest Rate Swap covering the underlying liability aggregating to Rs. 2,300,000,000/- (Previous year Rs. Nil). N. Segmental Reporting : In accordance with Accounting Standard 17 on Segment Reporting issued by The Institute of Chartered Accountants of India, the Company has determined one business segment, i.e. vehicle financing, and one geographical segment, i.e. India. O. Related Party Disclosures : Parties where control exist: Holding Company Kotak Mahindra Bank Limited holds 60% of the share capital Mr. Uday S. Kotak along with relatives and companies controlled by him holds 56.29% of the equity share capital of Kotak Mahindra Bank Limited Other related parties: Fellow Subsidiaries Kotak Mahindra Capital Company Limited Kotak Securities Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Investments Limited OM Kotak Mahindra Life Insurance Company Limited Enterprises having significant influence Ford Credit International Inc., USA holds 40% of the share capital over the Company Ford Credit Kotak Mahindra Limited Key Management Personnel Mr. Uday Kotak, Non-Executive Chairman Mr. Pankaj Desai, Executive Director Mr. Ravi Barot, Sr. Vice President Finance & Systems Others: Enterprises over which Director/relatives/ Key Management Personnel have significant influence Mutual Fund managed by fellow subsidiary Aero Agencies Limited Mr. Uday Kotak Ford Credit Kotak Mahindra Limited Mr. Ravi Barot, Sr. Vice President Finance & Systems Kotak Mahindra Mutual Fund Managed by fellow subsidiary Kotak Mahindra Asset Management Company Limited

183 174 Kotak Mahindra Primus Limited Schedules Forming Part of the Financial Statements for the year ended 31 st March 2004 (Contd.) The following transactions were carried out with related parties in the ordinary course of business:- Enterprises over Enterprises which Nature of transaction Holding Fellow having Key Director/ Mutual Fund Total Company Subsidiaries significant Management Relatives/Key managed by influence Personnel Management Fellow over the Personnel have Subsidiary Company significant influence Inter Corporate Deposits taken 248,000, ,000,000 (13,500,000) (1,803,700,000) (1,817,200,000) Inter Corporate Deposits given 400,000, ,000,000 (185,500,000) (152,500,000) (303,000,000) (641,000,000) Interest paid 205, ,000 (1,264,425) (997,987) (2,262,412) Interest received 1,323,288 1,323,288 (56,374) (611,447) (5,807,736) (6,475,557) Debentures issued 354,780, ,780,000 (354,780,000) (354,780,000) Debentures redeemed (240,000,000) (240,000,000) Debentures converted into shares 1,478, ,500 2,463,750 (1,478,250) (985,500) (2,463,750) Premium received on conversion of debentures 353,794, ,794,500 (353,794,500) (353,794,500) Debenture interest paid 177, ,755 (416,988) (24,366,246) (24,783,234) Shares issued 1,478, ,500 2,463,750 (1,478,250) (985,500) (2,463,750) Commercial Paper issued 650,000, ,000,000 Issuing and Paying Agency Charges 41,541 41,541 Contracts for Interest Rate Swaps 2,300,000,000 2,300,000,000 (Off Balance Sheet) Premium on Interest Rate Swaps 465, ,080 Bank charges 374, ,234 Outstandings Inter Corporate Deposits taken (89,000,000) (89,000,000) Inter Corporate Deposits given 400,000, ,000,000 Debentures (1,478,250) (1,478,250) Commercial Paper 625,204, ,204,401 Interest Rate Swaps 2,300,000,000 2,300,000,000 (Off Balance Sheet) Security Deposit for premises 450,000, ,000,000 (450,000,000) (450,000,000) Bank Balance in Current/OD Account 17,324,138 17,324,138 (100,000,000) (100,000,000)

184 175 Kotak Mahindra Primus Limited Schedules Forming Part of the Financial Statements for the year ended 31 st March 2004 (Contd.) Enterprises over Enterprises which Nature of transaction Holding Fellow having Key Director/ Mutual Fund Total Company Subsidiaries significant Management Relatives/Key managed by influence Personnel Management Fellow over the Personnel have Subsidiary Company significant influence Investments Purchases 2,091,991,204 2,091,991,204 (2,691,000,000) (2,691,000,000) Sales 2,092,312,389 2,092,312,389 (2,692,606,858) (2,692,606,858) Dividend 91,204 91,204 Income from vehicle financing 2,887,979 2,887,979 (3,212,476) (56,386) (3,268,862) Amount Financed 14,146,902 14,146,902 (12,446,322) (12,446,322) Receivables under Auto Finance 21,499,888 21,499,888 (17,362,917) (17,362,917) Other Receipts and Payments Recovery of expenses 25,753,545 25,753,545 (1,794,370) (22,889,970) (24,684,340) Common Establishment Expenses Reimbursed 7,487, ,051 8,011,034 (3,350,144) (430,161) (3,780,305) Royalty paid 452,500, ,500,000 (430,000,000) (430,000,000) Fee based income 3,191,505 3,191,505 License fees received 84, ,424 3,364,788 3,562,404 (276,126) (129,036) (3,322,026) (3,727,188) License fees paid 4,685,405 1,621 4,687,026 (4,790,711) (4,790,711) Demat charges paid Fee for private placement of debentures 485, ,000 Cost of travel tickets purchased 1,603,750 1,603,750 (1,377,074) (1,377,074) Expense reimbursement by other company 309,113 17, ,618 1,084,428 (668,957) (18,463) (10,442,065) (11,129,485) Expense reimbursement to other company 8,021, ,607 3,909,701 12,227,326 (7,706,905) (2,162,397) (9,869,302) Outstandings Receivables 1,607,155 2,845,002 4,452,157 (1,255,799) (5,959,100) (7,214,899) Outstandings Payables 2,604, , ,203 3,507,267 (1,685,073) (2,569,974) (4,255,047) Remuneration to key management personnel* 19,149,233 19,149,233 (11,925,643) (11,925,643) * Excludes provision for gratuity, since it is based on actuarial valuation done on an overall basis. Figures in bracket indicates previous year figures.

185 176 Kotak Mahindra Primus Limited Schedules Forming Part of the Financial Statements for the year ended 31 st March 2004 (Contd.) P. Schedule in terms of Paragraph 9BB of Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, (Amount in Rs. lakhs) Particulars Liabilities side : Amount Outstanding Amount Overdue (1) Loans and advances availed by the NBFCs inclusive of interest accrued thereon but not paid: (a) Debentures : Secured Nil Nil : Unsecured 102,184 Nil (other than falling within the meaning of public deposits*) (b) Deferred Credits Nil Nil (c) Term Loans 46,625 Nil (d) Inter-corporate loans and borrowing 17,122 Nil (e) Commercial Paper 6,252 Nil (f) Public Deposits* Nil Nil (g) Other Loans (specify nature) Debenture Application Money 1,000 Nil Security Deposits from customers 1,844 Nil * Please see Note 1 below (2) Break-up of (1)(f) above (Outstanding public deposits inclusive of interest accrued thereon but not paid): (a) In the form of Unsecured debentures: Nil Nil (b) In the form of partly secured debentures i.e. debentures where there is a shortfall in the value of security Nil Nil (c) Other public deposits Nil Nil *Please see Note 1 below Assets side : Amount Outstanding (3) Break-up of Loans and Advances including bills receivables [other than those included in (4) below: ] (a) Secured 1,072 (b) Unsecured (includes advance payment of taxes, net of tax provision of Rs. 1,620/- lakhs) 11,726 (4) Break-up of Leased Assets and stock on hire and hypothecation loans counting towards EL/HP activities (net of provision) (i) Lease assets including lease rentals under sundry debtors: (a) Financial lease 8,699 (b) Operating lease Nil (ii) (iii) Stock on hire including hire charges under sundry debtors: (a) Assets on hire 2,560 (b) Repossessed Assets 4 Hypothecation loans counting towards EL/HP activities: (a) Loans where assets have been repossessed 163 (b) Loans other than (a) above 208,649

186 177 Kotak Mahindra Primus Limited Schedules Forming Part of the Financial Statements for the year ended 31 st March 2004 (Contd.) (Amount in Rs. lakhs) Particulars Liabilities side : Amount Outstanding (5) Break-up of Investments : Current Investments : 1. Quoted : (i) Shares : (a) Equity NIL (b) Preference NIL (ii) Debentures and Bonds NIL (iii) Units of Mutual Funds NIL (iv) Government Securities NIL (v) Others (please specify) NIL 2. Unquoted : (i) Shares : (a) Equity NIL (b) Preference NIL (ii) Debentures and Bonds NIL (iii) Units of Mutual Funds NIL (iv) Government Securities NIL (v) Others (please specify) NIL Long Term Investments : 1. Quoted : (i) Shares : (a) Equity NIL (b) Preference NIL (ii) Debentures and Bonds NIL (iii) Units of Mutual Funds NIL (iv) Government Securities NIL (v) Others (please specify) NIL 2. Unquoted : (i) Shares : (a) Equity NIL (b) Preference NIL (ii) Debentures and Bonds NIL (iii) Units of Mutual Funds NIL (iv) Government Securities NIL (v) Others (please specify) NIL

187 178 Kotak Mahindra Primus Limited Schedules Forming Part of the Financial Statements for the year ended 31 st March 2004 (Contd.) (6) Borrower group-wise classification of all leased assets, stock-on-hire and loans and advances : Please see Note 2 below (Amount in Rs. lakhs) Category Amount net of provisions Secured Unsecured Total 1. Related Parties ** (a) Subsidiaries NIL NIL NIL (b) Companies in the same group 215 8,500 8,715 (c) Other related parties NIL NIL NIL 2. Other than related parties 220,932 3, ,158 Total 221,147 11, ,873 (7) Investor group-wise classification of all investments (current and long term) in shares and securities (both quoted and unquoted): Please see note 3 below Category Market Value/Break up Book Value or fair value or NAV (Net of Provisions) 1. Related Parties ** NIL NIL (a) Subsidiaries NIL NIL (b) Companies in the same group NIL NIL (c) Other related parties NIL NIL 2. Other than related parties NIL NIL Total NIL NIL ** As per Accounting Standard of ICAI (Please see Note 3) (8) Other information Particulars Amount (i) (ii) Gross Non-Performing Assets (a) Related parties NIL (b) Other than related parties 960 Net Non-Performing Assets (a) Related parties NIL (b) Other than related parties 471 (iii) Assets acquired in satisfaction of debt 143 Notes: 1. As defined in Paragraph 2(1)(xii) of the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, Provisioning norms shall be applicable as prescribed in the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 (Refer Note No. I B(ii) of Schedule 16). 3. All Accounting Standards and Guidance Notes issued by ICAI are applicable including for valuation of investments and other assets as also assets acquired in satisfaction of debt. However, market value in respect of quoted investments and break up/fair value/nav in respect of unquoted investments should be disclosed irrespective of whether they are classified as long term or current in column (5) above. Q. Previous year's figures have been regrouped/reclassified wherever necessary to conform to figures of the current year.

188 179 Kotak Mahindra Primus Limited Schedules Forming Part of the Financial Statements for the year ended 31 st March 2004 (Contd.) R. BALANCE SHEET ABSTRACT AND COMPANY S GENERAL BUSINESS PROFILE AS PER PART IV, SCHEDULE VI OF THE COMPANIES ACT, 1956 I. Registration Details Registration No State Code 1 1 Balance Sheet Date Date Month Year II. III. IV. Capital raised during the year (Amount in Rs. Thousands) Public Issue Rights Issue N I L N I L Bonus Issue Private Placement N I L Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands) Total Liabilities Total Assets Sources of Funds Paid-up Capital Reserves and Surplus Secured Loans Unsecured Loans N I L Deferred Tax Liability Application of Funds Net Fixed Assets Investments N I L Net Current Assets Miscellaneous Expenditure N I L Accumulated Losses N I L Performance of Company (Amount in Rs. Thousands) Turnover Total Expenditure Profit before Tax Profit after Tax Earning per share in Rs. (pro-rata) Dividend Rate(%) V. Generic Names of three Principal Products/Services of the Company (as per monetary terms) Item Code No. N A (ITC Code) Product Description V E H I C L E F I N A N C E For and on behalf of the Board of Directors Harish Shah Uday Kotak Narpal Ahluwalia Company Secretary Chairman Director Pankaj Desai Executive Director Mumbai Dated : 17 th May 2004

189 180 Kotak Mahindra Asset Management Company Limited BOARD OF DIRECTORS: UDAY KOTAK (C), R. C. KHANNA, SUKANT KELKAR, C. JAYARAM, S. A. NARAYAN, BIPIN R. SHAH DIRECTORS REPORT To the Members of Kotak Mahindra Asset Management Company Limited The Directors present their Tenth Annual Report together with the audited accounts of your Company for the year ended 31 st March FINANCIAL RESULTS (Rs. in lakhs) Gross Income Profit for the year after Tax Loss brought forward from previous year (442.60) (668.73) Write back of excess provisions of earlier year Loss carried to Balance Sheet (103.78) (442.60) 2 DIVIDEND Your Directors do not recommend any dividend. 3 OPERATIONS During the year under review, the mainstream debt schemes of Kotak Mahindra Mutual Fund ( the Fund ) continued to do well. Outlook Money adjudged your Company The Best Wealth Creator (Debt) for Kotak Mahindra Bond Unit Scheme 99 ( Kotak Bond ) Wholesale Plan won the CNBC-BNP Paribas Best performing Open-Ended Debt/Income Fund award in the 3 year category for the third time in a row. Besides, Kotak Bond Wholesale Plan was also ranked the Best Performing Open-Ended Income Fund in the Crisil Best Fund Awards, Our Equity Schemes also did well during the year. While performance was assisted by a strong rally in the Stock Markets, Kotak Mahindra 30 Unit Scheme ( Kotak 30 ), our flagship diversified equity scheme, performed well in the last six months of the year and moved into the top quartile of its peer group. During the year, Kotak 30 declared two dividends, Rs. 5 per Unit in January 2004 and Rs. 2 per Unit in October Kotak Mahindra Balance Unit Scheme 99 declared a dividend of Rs per Unit in December The year also saw the introduction of a few new Schemes, Plans and facilities. There were two major Initial Public Offers ( IPO ) in the Financial Year Kotak Mahindra Income Plus Scheme ( Kotak Income Plus ) and Kotak Mahindra Global India Scheme ( Kotak Global India ). Kotak Income Plus, an Open-Ended Income Scheme with upto 20% equity exposure, was launched in October It met with a very encouraging response fetching a corpus of over Rs. 170 crores. Kotak Global India, an Open-Ended Equity Growth Scheme, had its IPO in December This was our most successful IPO for the year with an inflow of over Rs. 360 crores. Besides, we also launched Kotak Mahindra Floating Rate Scheme, a Floating Rate Scheme; Kotak Mahindra Dynamic Income Scheme, a debt scheme with an active management strategy and Kotak FMP (8), a fixed maturity plan. A plan to meet the specific requirements of Provident Fund and Trust investors was also launched under the Investment Plan of Kotak Mahindra Gilt Unit Scheme 98. The total Assets Under Management ( AUM ) of the Fund as on 31 st March 2004 were Rs crores. 4 FUTURE OUTLOOK In the last financial year, the AUM by the Mutual Fund Industry grew from Rs. 79,464 crores to Rs. 1,39,616 crores. This is a growth of 75.70%. Retail as well as institutional investors showed increasing preference for investing in Mutual Funds. There was a shift from pure savings towards investing and we believe that this trend will continue. Indians typically save a high percentage of their income (around 24%). Hence the trend to channel savings to investments augurs well for the growth of the Mutual Fund Industry.

190 181 Kotak Mahindra Asset Management Company Limited The Mutual Fund Industry is collaborating towards setting down guidelines for the introduction of capital guaranteed products as well as investment in commodities. Hence innovation in products will offer investors new avenues for investments. This too, we believe, will assist in the growth of the industry. 5 DIRECTORS Mr. Sukant Kelkar retires by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment. Mr. Bipin R. Shah and Mr. S. A. Narayan were appointed as additional Directors of your Company with effect from 8 th May They hold office upto the date of the ensuing Annual General Meeting. Your Company has received notices under Section 257 of the Companies Act, 1956 in writing, proposing their candidature for the office of Director. 6 AUDITORS Your Company s Auditors, Messrs. Deloitte Haskins & Sells, Chartered Accountants, Mumbai, retire at the Annual General Meeting and are eligible for re-appointment on such remuneration as may be fixed by the Board of the Directors of your Company. 7 STATUTORY INFORMATION A statement giving the information required under Section 217(2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, is annexed. During the year under review your Company did not accept any deposits. There were no earnings or outgo of foreign exchange and the other requirements pursuant to the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, do not apply since your Company is not a manufacturing company. 8 DIRECTORS RESPONSIBILITY STATEMENT Based on representations from the Management, the Directors state, in pursuance of Section 217(2AA) of the Companies Act, 1956, that : (i) your Company has, in the preparation of the annual accounts for the year ended 31 st March 2004, followed the applicable accounting standards along with proper explanations relating to material departures, if any; (ii) the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at 31 st March 2004 and of the loss of your Company for the financial year ended 31 st March 2004; (iii) the Directors have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities; and (iv) the Directors have prepared the annual accounts on a going concern basis. 9 AUDIT COMMITTEE Pursuant to Section 292A of the Companies Act, 1956, your Company has constituted an Audit Committee of the Board consisting of Mr. R. C. Khanna, Mr. Uday Kotak, Mr. C. Jayaram and Mr. Sukant Kelkar. Mr. R. C. Khanna, independent Director on the Board, is the Chairman of the Audit Committee. 10 ACKNOWLEDGEMENTS Your Directors would like to place on record their gratitude for the valuable guidance and support received from the Securities and Exchange Board of India, Reserve Bank of India and other Government and Regulatory Agencies. Your Directors acknowledge and wish to place their appreciation of employees for their commendable efforts, teamwork and professionalism. Mumbai, 10 th May For and on behalf of the Board of Directors Uday Kotak Chairman

191 182 Kotak Mahindra Asset Management Company Limited MANAGEMENT DISCUSSION AND ANALYSIS 1 Industry structure, developments and segment-wise performance During the financial year ended 31 st March 2004, the Assets Under Management ( AUM ) by the Mutual Fund Industry grew from Rs. 79,464 crores to Rs. 1,39,616 crores, a growth of 75.70%. Of this, the private sector grew from Rs. 55,522 crores to Rs. 1,04,992 crores, a growth of 89%. Interest rates reached a historic low, with the yield on 10 year Government Securities coming down from 6.11% at the beginning of the year to 5.15% on the closing day of the financial year. Indian GDP grew by about 8% during the year. This was reflected in the growth of the capital markets. During the year, BSE Sensex grew by 81.46%. The healthy growth of the equity markets, thanks to the economic and corporate performance, vigilant regulation, and realisation for the need of better corporate governance, brought back the much needed investor confidence in the capital market. Given the relatively lower returns from debt funds and the well performing equity markets, many investors allocated a part of their debt investments to schemes which take a limited (normally upto 20%) exposure to equities. The assets under this product category, popularly known as Monthly Income Plans, grew by more than 10 times during the last year. The growth in AUM of equity schemes was also remarkable during the same period. The Equity AUM of the industry grew by more than 175% from Rs. 8,041 crores on 31 st March 2003 to Rs. 22,154 crores on 31 st March Opportunities, threats, risks and concerns, and outlook In India, 2% of household savings is held in equities. With fixed income securities offering/anticipating historical low returns, the allocation to equity by investors is set to go up. Bank deposit rates have also turned unattractive. The trend is towards selecting actively managed (market linked) investment products. Interest rates in major economies in the world are lower than the prevailing interest rates in India. This interest rate difference, coupled with adequate liquidity in the Indian financial sector, is likely to keep the interest rates subdued (the interest rates in India are not likely to go up significantly over the near to medium term). We believe that debt schemes will do well both in terms of performance and asset growth. The Indian Mutual Fund Industry has just begun seeing long-term institutional money coming to the industry in the form of Provident Fund and Trust investments. We sense a great opportunity here for the industry as well as for the investors. We may also see innovations in the form of mutual funds investing in commodities, bullion and real estate. This is of course subject to regulatory approvals. RBI has allowed individuals to invest up to 25,000 US$ in assets outside India. This is a move towards greater capital account convertibility in India. We sense a great opportunity for the Indian mutual fund industry to offer products, enabling Indian investors to diversify investments across countries and currencies. Conventionally, Indian investors are conservative and have shown a preference for fixed returns. But lately, they have been increasingly entrusting their investments to market linked investment avenues like mutual funds. At this juncture, failure in delivering on the fiduciary responsibilities, by any player in the industry may adversely impact investor confidence. However, we believe that the regulatory vigilance and strong governance standards generally prevailing in the industry will strengthen the investor confidence in the industry and its constituents. 3 Internal control systems and their adequacy Before the launch of any new scheme, your Company reviews the adequacy of internal controls, audit and systems through checks carried out by professionals specialising in the mutual fund sphere. There is also a continuous internal audit process carried out by an independent firm of Chartered Accountants, where the activities of the Fund are checked for, inter alia, Regulatory compliance and adequacy of internal controls. The activities of your Company are also reviewed by the Directors and an Audit Committee oversees the Internal Audit carried out by an independent Internal Audit team. 4 Discussion on financial performance with respect to operational performance The management fee income of your Company increased by 56% on the back of higher AUM of the Fund. The income from investments of your Company was lower by 17% as a result of declining returns on investments. The expenditure showed an increase of 50%, the significant contributor being business promotion and distribution costs with an increase of 173%. The profit after tax also showed a healthy growth of 50%. 5 Material developments in Human Resources/Industrial Relations front, including number of people employed At the start of the year, your Company had 77 employees on board. While your Company had some minimal attrition, and also some fresh intake, the overall increase at the end of the financial year was very small. As on 31 st March 2004, your Company had 85 personnel on its rolls. This document contains certain forward-looking statements based on current expectations of your Company s management. Actual results may vary significantly from the forward-looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India and outside India, volatility in interest rates, new regulations and Government policies that may impact the business as well as its ability to implement the strategy. Your Company does not undertake to update these statements.

192 183 Kotak Mahindra Asset Management Company Limited AUDITORS REPORT TO THE SHAREHOLDERS 1 We have audited the attached Balance Sheet of Kotak Mahindra Asset Management Company Limited as at 31 st March 2004, the Profit and Loss account and also the Cash Flow Statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the company s management. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3 As required by the Companies (Auditor s Report) Order, 2003 issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, we give in Annexure, a Statement on the matters specified in paragraphs 4 and 5 of the said Order. 4 Further to our comments in the Annexure referred to in paragraph 3 above, we report that: (a) (b) (c) (d) (e) (f) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our audit; In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books; The Balance Sheet, Profit and Loss account and the Cash Flow Statement dealt with by this report are in agreement with the books of account; In our opinion, the Balance Sheet, Profit and Loss account and the Cash Flow Statement dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, On the basis of written representations received from the directors, as on 31 st March 2004, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31 st March 2004 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, In our opinion and to the best of our information and according to the explanations given to us, the said accounts, read together with the notes thereon, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (i) in the case of the Balance Sheet, of the state of affairs of the Company as at 31 st March 2004; (ii) (iii) in the case of the Profit and Loss account, of the profit for the year ended on that date; and in the case of the Cash Flow Statement, of the cash flows for the year ended on that date. For Deloitte Haskins & Sells. Chartered Accountants R. Laxminarayan Partner Membership No.: Mumbai Dated: 10 th May 2004

193 184 Kotak Mahindra Asset Management Company Limited ANNEXURE TO THE AUDITORS REPORT REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE The nature of the Company s activities during the year has been such that clauses (ii), (viii) and (xiii) of Paragraph 4 of the Order are not applicable to the Company for the year. (i) In respect of its fixed assets: (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. (b) Fixed assets were physically verified during the year by the management in accordance with a programme of verification, which in our opinion, provides for physical verification of all the fixed assets at reasonable intervals. According to the information and explanations given to us no material discrepancies were noticed on such verification. (c) The Company has not disposed off substantial part of its fixed assets during the year. (ii) According to the information and explanations given to us the Company has neither granted nor taken any loans, secured or unsecured, to or from companies, firms or other parties covered in the register maintained under Section 301 of the Companies Act, In view of what has been stated above, clause (iii)(b) regarding terms and conditions of such loans, clause (iii)(c) regarding payment of principal amount and interest and clause (iii)(d) regarding steps for recovery of overdue amount of Para 4 of the Order are not applicable to the company for the year. (iii) In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business with regard to purchase of fixed assets. During the course of our audit, no major weakness has been noticed in the internal controls. (iv) (a) To the best of our knowledge and belief and according to the information and explanations given to us the transactions that need to be entered into register in pursuance of Section 301 of the Act have been so entered. (b) According to the information and explanations given to us, in respect of transactions amounting to Rs. 500,000 or more: (i) Some of the above transactions are of special nature and for which no comparative prices are available; and (ii) In respect of other transactions, in case of each party they have been made at prices, which are reasonable, having regard to the prevailing market prices at the relevant time. (v) The Company has not accepted any deposits from the public during the year. (vi) In our opinion, the internal audit functions carried out during the year by a firm of Chartered Accountants appointed by the management have been commensurate with the size of the Company and the nature of its business. (vii) According to the information and explanations given to us in respect of statutory and other dues: (a) The Company has been regular in depositing undisputed statutory dues, including Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income-tax, Sales-tax, Wealth Tax, Custom Duty, Excise Duty, cess and any other statutory dues as applicable with the appropriate authorities during the year. (b) No undisputed amounts payable in respect of Income Tax and Wealth Tax were outstanding as at 31 st March 2004 for a period of more than six months from the date they became payable. We have been informed that the provisions of the Investor Education and Protection Fund, Employees State Insurance Act, Sales Tax, Custom Duty and Excise Duty are not applicable to the Company for the year. (c) There are no dues of Income Tax, Wealth Tax and Cess, which have not been deposited on account of any dispute. We have been informed that the provisions of Sales Tax, Custom Duty and Excise Duty are not applicable to the Company for the year. (viii) The accumulated losses of the Company have not exceeded fifty percent of its net worth as at the end of the year. The Company has not incurred cash losses in the current and immediately preceding financial year. (ix) Based on our audit procedures and the information and explanations given by the management, during the year, the Company did not have any dues to a financial institution or bank or debenture holders. (x) According to the information and explanations given to us, the Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. (xi) Based on our examination of the records and evaluation of the related internal controls, the Company has maintained proper records of transactions and contracts in respect of its dealing in shares, securities, debentures and other investments and timely entries have been made therein. The aforesaid securities have been held by the Company in its own name, except to the extent of the exemption granted under Section 49 of the Companies Act, (xii) According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions. (xiii) To the best of our knowledge and belief and according to the information and explanations given to us, there has been no term loans availed during the year. (xiv) According to the information and explanations given to us and on an overall examination of the Balance Sheet and other records of the Company, we report that no funds raised on short-term basis have been used for long term investment. However, funds raised till 31 st March 2004 on long-term basis have been used for short-term investments to the extent of Rs. 1, lacs. (xv) The Company has not made any preferential allotment of shares during the year. (xvi) The Company has not issued any debentures during the year. (xvii) The Company has not raised money by public issues during the year. (xviii) To the best of our knowledge and belief and according to the information and explanations given to us, no fraud on or by the Company was noticed or reported during the year. For Deloitte Haskins & Sells. Chartered Accountants R. Laxminarayan Partner Membership No.: Mumbai Dated: 10 th May 2004

194 185 Kotak Mahindra Asset Management Company Limited BALANCE SHEET AS AT 31 ST MARCH 2004 Schedule As at As at 31 st March st March 2003 Rupees Rupees Rupees Rupees Sources of Funds Shareholders Funds Share capital 1 240,000, ,000,000 Total 240,000, ,000,000 Application of Funds Fixed Assets 2 Gross Block 33,709,781 19,743,512 Less: Depreciation 15,507,814 10,971,455 Net Block 18,201,967 8,772,057 Capital Work-in-Progress 90, ,490 18,291,967 9,630,547 Investments 3 137,780, ,965,936 Current Assets, Loans and Advances Sundry debtors 4 6,929,622 7,909,531 Cash and bank balances 5 2,622,907 2,176,247 Other Current Assets Interest accrued on Investments 268,733 7,860,000 Loans and advances 6 116,376,486 24,575, ,197,748 42,520,972 Less: Current Liabilities and Provisions 7 (a) Liabilities 42,523,782 24,694,056 (b) Provisions 10,124,265 6,683,357 52,648,047 31,377,413 Net Current Assets 73,549,701 11,143,559 PROFIT AND LOSS ACCOUNT 10,377,752 44,259,958 Total 240,000, ,000,000 Significant Accounting Policies and Notes to the Accounts 12 As per our attached report of even date For and on behalf of the Board of Directors For Deloitte Haskins and Sells Uday S. Kotak Romesh C. Khanna Chartered Accountants Chairman Director R. Laxminarayan Sukesh Khandelwal Partner Manager Mumbai Dated: 10 th May 2004 Dated: 10 th May 2004

195 186 Kotak Mahindra Asset Management Company Limited PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2004 Income Year ended Year ended Schedule 31 st March st March 2003 Rupees Rupees Management fees 220,168, ,097,635 Income from Investments 8 7,924,663 9,630,779 Other income 9 4,036,577 3,685,293 Total 232,129, ,413,707 Expenditure Employee costs 10 74,576,398 58,681,800 Other expenses ,490,896 66,947,321 Depreciation 5,682,404 4,721,606 Total 195,749, ,350,727 Profit before tax 36,380,206 24,062,980 Provision for taxation Current (including Wealth Tax provision Rs. 44,000, Previous Year Rs. 25,000) (2,498,000) (1,450,000) Profit after tax 33,882,206 22,612,980 Loss brought forward from previous year (44,259,958) (66,872,938) Loss carried to Balance Sheet (10,377,752) (44,259,958) Basic and Diluted earnings per share (in Rs.) (Refer Note II (E) of Schedule 12) Significant Accounting Policies and Notes to the Accounts 12 As per our attached report of even date For and on behalf of the Board of Directors For Deloitte Haskins and Sells Uday S. Kotak Romesh C. Khanna Chartered Accountants Chairman Director R. Laxminarayan Sukesh Khandelwal Partner Manager Mumbai Dated: 10 th May 2004 Dated: 10 th May 2004

196 187 Kotak Mahindra Asset Management Company Limited SCHEDULES FORMING PART OF THE BALANCE SHEET As at As at 31 st March st March 2003 Rupees Rupees Schedule 1 : Share Capital Authorised 2,50,00,000 equity shares of Rs. 10/- each 250,000, ,000,000 Issued, subscribed and paid-up 2,40,00,000 equity shares of Rs. 10/- each, fully paid up 240,000, ,000,000 All the above shares are held by Kotak Mahindra Bank Ltd., the holding company and its nominees. Schedule 2 : Fixed Assets Rupees Description GROSS BLOCK DEPRECIATION NET BLOCK As on Additions Deductions As on As on For the Deductions As on As on As on year Leasehold Improvement 2,746,068 2,746,068 98,321 98,321 2,647,747 Computers & Software 10,552,254 7,395,870 17,948,124 7,243,819 3,141,998 10,385,817 7,562,307 3,308,435 Office Equipments 3,624,066 1,583, ,500 4,712,146 2,132, , ,059 2,538,248 2,173,898 1,491,684 Furniture & Fixtures 508, ,299 38, , , ,036 33, , , ,183 Vehicles 5,058,623 4,511,670 2,182,601 7,387,692 1,242,868 1,453, ,913 1,977,079 5,410,613 3,815,754 Total 19,743,512 16,682,487 2,716,218 33,709,781 10,971,455 5,682,404 1,146,045 15,507,814 18,201,967 Previous year 15,575,185 6,081,247 1,912,920 19,743,512 7,827,876 4,721,606 1,578,027 10,971,455 8,772,057 Capital Work-in-Progress 90, ,490 Total 18,291,967 9,630,547 As at As at 31 st March st March 2003 Rupees Rupees Schedule 3 : Investments (Non-trade, unquoted, fully paid): Long Term Investments (at cost) Debentures/Bonds Nil (Previous Year 10) 9.25% Non-Convertible Debentures of Face Value of Rs. 10,000,000/- each of Kotak Mahindra Bank Ltd. 100,000, % Bonds of Face Value of Rs. 10,000/- each of Rural Electrification Corporation 1,920,000 1,920,000 Current Investments (at lower of cost or net realisable value) Investment in Units of Mutual Fund Nil (Previous Year 6,059, ) units of Kotak Mahindra Liquid Scheme Institutional Plan Growth Option of Rs. 10/- each 73,045,936 4,932, (Previous Year Nil) units of Kotak Mahindra Dynamic Income Scheme Growth Option of Rs. 10/- each 50,000,000 4,880, (Previous Year Nil) units of Kotak Mahindra Income Plus Scheme Growth Option of Rs. 10/- each 50,000,000 2,289, (Previous Year Nil) units of Kotak Mahindra Floating Rate Scheme Weekly Dividend Option of Rs. 10/- each 22,897,886 1,293, (Previous Year Nil) units of Kotak Mahindra Floating Rate Scheme Monthly Dividend Option of Rs. 10/- each 12,962,694 Total 137,780, ,965,936

197 188 Kotak Mahindra Asset Management Company Limited Schedules forming part of the Balance Sheet (Contd.) As at As at 31 st March st March 2003 Rupees Rupees Schedule 3 : Investments (Contd.) (Non-trade, unquoted, fully paid): Note: In addition to the above, following investments were purchased as well as sold during the year: Particulars Investment in Units of Mutual Fund 1,250, (Previous Year Nil) units of Kotak Mahindra Liquid Scheme Institutional Plan, Dividend Option of Rs. 10/- each 12,531,879 16,385, (Previous Year Nil) units of Kotak Mahindra Liquid Scheme Institutional Plan, Daily Dividend Option of Rs. 10/- each 200,362,588 1,927, (Previous Year 1,109, ) units of Kotak Mahindra Liquid Scheme Institutional Plan, Growth Option of Rs. 10/- each 23,400,000 13,374,386 Nil (Previous Year 29,752, ) units of Kotak Mahindra Liquid Scheme Growth Option of Rs. 10/- each 346,099,173 14,944, (Previous Year 5,731, ) units of Kotak Mahindra Short Term Bond Scheme Growth Option of Rs. 10/- each 150,888,354 59,600,000 5,192, (Previous Year Nil) units of Kotak Mahindra Floating Rate Scheme Monthly Dividend Option of Rs. 10/- each 52,044,190 6,927, (Previous Year Nil) units of Kotak Mahindra Floating Rate Scheme Weekly Dividend Option of Rs. 10/- each 69,288,282 Debentures/Bonds 3 (Previous Year Nil) 6.25% Redeemable Non-Convertible Debentures of Face Value of Rs. 10,000,000/- each of Kotak Mahindra Investments Ltd. 30,000,000 Schedule 4 : Sundry Debtors (Unsecured, considered good) Debts outstanding for less than six months 6,929,622 7,909,531 Total 6,929,622 7,909,531 Schedule 5 : Cash and Bank Balances Balances with scheduled banks in current accounts 2,622,907 2,176,247 Total 2,622,907 2,176,247 Schedule 6 : Loans and Advances (Unsecured, considered good) Loans to employees 455, ,001 Inter-corporate Deposits 80,000,000 Advance payment of taxes and Tax deducted at source 22,512,769 9,077,816 Advances recoverable in cash or in kind or for value to be received 4,086,752 2,821,887 Other Deposits 9,321,240 12,330,490 Total 116,376,486 24,575,194 Due from Companies under same management OM Kotak Mahindra Life Insurance Company Limited Outstanding 135, ,818 Maximum Outstanding 287, ,000 Kotak Mahindra Trustee Company Limited Outstanding 172,613 Maximum Outstanding 363,452 1,760,261 Kotak Mahindra Investments Limited Outstanding 50,816,781 Maximum Outstanding 50,816,781 Kotak Securities Limited Outstanding 31,049,073 Maximum Outstanding 51,728,635

198 189 Kotak Mahindra Asset Management Company Limited Schedules forming part of the Balance Sheet (Contd.) As at As at 31 st March st March 2003 Rupees Rupees Schedule 7 : Current Liabilities and Provisions Current liabilities Sundry creditors (Other than Small Scale Industries) 34,209,486 21,145,773 Other liabilities 8,314,296 3,548,283 42,523,782 24,694,056 Provisions Gratuity and Leave encashment 4,256,908 3,314,000 Taxation 5,867,357 3,369,357 10,124,265 6,683,357 Total 52,648,047 31,377,413 SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT Year ended Year ended 31 st March st March 2003 Rupees Rupees Schedule 8 : Income from Investments Interest on Long-term Investments (Gross) : (TDS Rs. 1,984,568, Previous Year Rs. Nil) 2,089,554 7,860,000 Interest on Current Investments (Gross) : (TDS Rs. 22,115, Previous Year Rs. Nil) 107,877 Profit on sale/redemption of Current Investments 1,258,238 1,770,779 Dividend from Current Investments 4,468,994 Total 7,924,663 9,630,779 Schedule 9 : Other Income Interest on Deposits (Gross): (TDS Rs. 693,012, Previous Year Rs. 44,992) 3,380,548 1,328,562 Interest on employee loans 63,164 49,076 Interest on income-tax refunds 160,996 1,949,582 Gain on sale of fixed assets (net) 126, ,837 Miscellaneous income 305, ,236 Total 4,036,577 3,685,293 Schedule 10 : Employee Costs Salaries and allowances (Refer Note II (I) of Schedule 12) 72,930,554 58,261,529 Contribution to provident and other funds 2,864,680 2,441,337 Staff welfare 1,179,403 1,023,720 76,974,637 61,726,586 Less: Recovery of common establishment expenses 2,398,239 1,689,269 Total 74,576,398 60,037,317

199 190 Kotak Mahindra Asset Management Company Limited Schedules forming part of the Profit and Loss Account (Contd.) Year ended Year ended 31 st March st March 2003 Rupees Rupees Schedule 11 : Other Expenses Rent, rates and taxes 10,808,223 9,445,023 Legal and professional fees 1,495,405 1,227,478 Insurance 601, ,896 Reimbursement of common administrative cost 1,898,664 1,532,932 Shared cost 4,800,000 3,666,301 Travel and conveyance 7,972,464 5,730,512 Communication expenses 5,494,729 4,966,880 Business promotion and distribution costs 63,043,621 23,062,683 Printing and stationery 1,824,946 1,429,927 Membership subscription 3,431,095 2,300,782 Electricity 2,106,117 1,725,913 Share issue expenses 50,000 Computer and software related expenses 3,011,185 4,410,410 Directors sitting fees 140, ,000 Repairs and maintenance 641, ,006 Recruitment expenses 2,974, ,092 Auditors Remuneration and expenses 522, ,500 Miscellaneous expenses 5,110,529 4,003, ,876,996 65,977,904 Less: Recovery of common administrative expenses 386, ,100 Total 115,490,896 65,591,804 SCHEDULES FORMING PART OF THE BALANCE SHEET AND THE PROFIT AND LOSS ACCOUNT Schedule 12 : Significant Accounting Policies and Notes to the Accounts I. SIGNIFICANT ACCOUNTING POLICIES: A. BASIS OF ACCOUNTING The financial statements are prepared under the historical cost convention, on the accrual basis of accounting. B. REVENUE RECOGNITION Management fee is recognised at specific rates agreed with the relevant schemes, applied on the average daily net assets of each scheme (excluding inter-scheme investments and investments made by the Company in the respective scheme). Gains and losses on sale of investments are determined using the weighted average cost method. Revenue is recognised only when it is reasonably certain that the ultimate collection will be made. C. FIXED ASSETS AND DEPRECIATION Fixed assets are stated at cost less accumulated depreciation. The Company capitalises all costs relating to the acquisition and installation of fixed assets. Depreciation on fixed assets is provided pro-rata to the period of use, on the straight-line method, based on the estimated useful life of the assets, at the following rates, which are equal to or higher than those prescribed under Schedule XIV of the Companies Act, 1956: Asset Rate Motor vehicles 25.00% Computers and Software 33.33% Furniture and fixtures 16.67% Office equipment 20.00% Leasehold Improvements Over the primary period of lease subject to maximum of 6 years Depreciation on assets whose cost do not exceed Rs. 5,000/- is provided at the rate of 100%.

200 191 Kotak Mahindra Asset Management Company Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) D. INVESTMENTS Investments are classified into long term investments and current investments. Investments which are intended to be held for more than one year, are classified as long term investments and investments, which are intended to be held for less than one year are classified as current investments. Long term investments are accounted at cost and any decline in value, other than temporary is provided for. Current investments are valued at cost or market value whichever is lower. E. RETIREMENT BENEFITS FOR EMPLOYEES Contribution as required by statute made to Government Provident Fund is debited to the Profit and Loss Account. Provision for gratuity and leave encashment liability to employees is made on the basis of an actuarial valuation done at the year end. F. TAXES ON INCOME Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognized subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent years. G. BORROWING COSTS Borrowing Costs other than those directly attributable to qualifying Fixed Assets are recognised as an expense in the period in which they are incurred. H. FOREIGN CURRENCY TRANSACTIONS Transactions in foreign currencies are recorded at the exchange rate prevailing at the time of occurrence of the transactions. Monetary items denominated in foreign currency remaining unsettled at the end of the year are translated at the buying rates as at the last day of the year. Any gains or losses on account of exchange difference either on settlement or translation are recognized in Profit and Loss Account except in case where it relates to the acquisition of fixed asset in which case it is adjusted to the carrying cost of such asset. I. TREATMENT OF CONTINGENT LIABILITIES Contingent Liabilities are disclosed by way of notes in the Balance Sheet. Provision is made in accounts for those liabilities, which are likely to materialize after the year-end and having effect on the position stated in Balance Sheet as at the year-end. II. NOTES TO THE ACCOUNTS A. Contingent Liability: An appeal, against a penalty of Rs. 50,000 levied by the Securities and Exchange Board of India (SEBI), is pending before the Securities Apellate Tribunal and hence liability for the penalty has not been provided for. This penalty was levied on the Company for alleged violation of a SEBI Circular regarding change in launch date of a close-ended Fixed Maturity Plan of Kotak Mahindra Mutual Fund. B. Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 228,250/- (Previous Year Rs. 154,000/-). C. Managerial remuneration under Section 198 of the Companies Act, 1956 to the Manager for the year: Rupees Rupees Salaries & Allowances 766, ,043 Contribution to provident and other funds 31,044 29,568 Perquisites in cash or in kind 36,464 35,533 Total 834, ,144 Note : Provision for gratuity benefits which is based on actuarial valuation done on an overall basis for the company is excluded in the remuneration shown above. D. Additional information pursuant to the provisions of paragraph 4B and 4D of part II of Schedule VI to the Companies Act, 1956 to the extent applicable is given below: (i) Auditors' Remuneration and Expenses: Rupees Rupees Audit Fees 400, ,000 Tax Audit Fees 150, ,000 Out of Pocket Expenses 359 Service Tax on above services 44,000 27,500 (ii) Total 594, ,500 Expenditure in Foreign Currency on travelling Rs. 3,163/- (Previous Year Rs. Nil).

201 192 Kotak Mahindra Asset Management Company Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) E. Earnings Per Share ('EPS') - The numerators and denominators used to calculate Basic and Diluted Earnings Per Share: (a) Nominal Value of an Equity Share (Rs.) 10/- 10/- (b) Net profit available to Equity Shareholders (Rs.) 33,882,206 22,612,980 (c) Weighted average number of shares outstanding 24,000,000 24,000,000 (d) Basic and Diluted EPS (Rs.) = (b) / (c) F. Operating Leases: The company has taken office and residential premises under operating lease or leave and license agreements. These are generally cancellable in nature and range between 11 months to 55 months. These leave and license agreements are generally renewable or cancellable at the option of the Company. The lease payments (net of recoveries) recognised in the profit and loss account is Rs. 9,320,863/- (Previous Year Rs. 9,236,090/-). The future minimum lease payments under non-cancellable operating lease not later than one year Rs. 2,642,468/- (Previous Year Rs. 8,226,000/-); later than one year and not later than five years Rs. Nil (Previous Year Rs. 2,642,468/-). G. The Company has reviewed the useful life of vehicles during the year and has revised upwards the useful life to four years from the present useful life of three years. The depreciation is provided on straight-line method over such revised estimated useful life of the assets. Consequently, depreciation for the current year is lower by Rs. 597,949/- with corresponding increase in profit for the year. H. For and up to the accounting year ended on 31 st March 2003, the Company has been writing off software expenditure in the year of incurrence. During the year, the Company has changed its method of accounting and has capitalized the same to be depreciated over a period of three years. Consequent to this change, the Profit Before Tax for the year is higher by Rs. 2,669,790/-. I. At the General Meeting held on 28 th July 2000 of the holding company, viz., Kotak Mahindra Bank Limited ("the Bank"), the shareholders of the Bank approved an Employee Stock Option Scheme ("Scheme") for granting of stock options to employees of the Bank and employees of the subsidiaries of the Bank. Consequent to the above, the Bank has granted stock options to employees of the Company. In terms of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase) Guidelines, 1999, the option discount (being excess of the market price of the share over the exercise price of the option) is to be accounted for as employee compensation and shall be amortised on a straight-line basis over the vesting period. The Company has reimbursed the Bank Rs. 512,333/- during the year on account of such costs and the same is forming part of Employee costs under Schedule 10. J. As the net deferred tax liability for the current year is Nil, there is no charge of deferred tax expenses in the Profit and Loss Account for the current year. Components of net deferred tax liabilities are as follows: Rupees Rupees Deferred Tax Liabilities Interest Accrued but not due on Debentures (41,303) (2,819,774) Depreciation on Fixed Assets (428,197) (A) (469,501) (2,819,774) Deferred Tax Assets Unabsorbed Depreciation 2,373,625 2,373,625 Unabsorbed Business Loss 3,286,147 17,051,928 Provisions 1,368,957 1,015,651 Depreciation on Fixed Assets 26,159 Others 5,993 19,265 7,034,722 20,486,628 Restricted to the extent of Deferred Tax Liabilities (B) 469,501 2,819,774 Net Deferred Tax Liabilities (A - B) Nil Nil Deferred Tax benefits are recognized on assets to the extent that it is more likely than not future taxable profit will be available against which the asset can be utilized. K. Previous year's figures have been regrouped/reclassified wherever necessary to conform to figures of the current year.

202 193 Kotak Mahindra Asset Management Company Limited Schedules forming part of the Balance Sheet and the Profit and Loss Account (Contd.) Notes to the Accounts (Contd.) L. BALANCE SHEET ABSTRACT AND COMPANY S GENERAL BUSINESS PROFILE AS PER PART IV, SCHEDULE VI OF THE COMPANIES ACT, 1956 I. Registration Details Registration Number State code 1 1 Balance Sheet Date Date Month Year II. III. IV. Capital raised during the year (Amount in Rs. Thousands) Public Issue Rights Issue N I L N I L Bonus Issue Private Placement N I L N I L Position of mobilisation and deployment of funds (Amount in Rs. Thousands) Total Liabilities Total Assets Sources of Funds Paid up Capital Reserves and Surplus N I L Secured Loans Unsecured Loans N I L N I L Application of Funds Net Fixed Assets Investments Net Current Assets Miscellaneous Expenditure N I L Accumulated Losses Performance of Company (Amount in Rs. Thousands) Turnover Total Expenditure Profit/Loss before Tax + Profit/Loss after Tax (Please tick appropriate box + for profit, for loss) Earning per share in Rs. Dividend Rate(%) V. Generic Names of three Principal Products/Services of Company (as per monetary terms) Item Code No. (ITC Code) N A Product Description A S S E T M A N A G E M E N T

203 194 Kotak Mahindra Asset Management Company Limited CASH FLOW STATEMENT FOR THE YEAR ENDED 31 ST MARCH 2004 (A) (B) (C) Rupees Rupees Rupees Rupees CASH FLOW FROM OPERATING ACTIVITIES Net Profit before taxation and extraordinary items 36,380,206 24,062,980 Add/(Less) Adjustments for: Depreciation 5,682,404 4,721,606 Provision for gratuity and leave encashment 942, ,000 Profit on sale of investments (1,258,238) (1,770,779) Interest/Dividend received (10,046,973) (9,188,562) Profit on sale of assets (126,241) (237,837) OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 31,574,066 18,521,408 (Increase)/Decrease in loans and advances (76,400,992) 35,574,138 (Increase)/Decrease in sundry debtors 979,909 4,039,825 Increase/(Decrease) in current liabilities 18,235,362 (13,720,281) (57,185,721) 25,893,682 CASH GENERATED FROM OPERATIONS (25,611,655) 44,415,090 Payment of Taxes (15,400,300) (5,167,578) NET CASH FLOW FROM OPERATING ACTIVITIES (A) (41,011,955) 39,247,512 CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets (owned) (16,229,633) (6,081,247) Advance paid towards capital purchase (90,000) (452,854) Sale of fixed assets (owned) 1,696, ,730 Purchase of investments (674,375,874) (594,039,613) Sale of investments 712,819, ,844,456 Interest received 13,169,246 1,328,562 Dividend received 4,468,994 NET CASH FLOW FROM INVESTMENT ACTIVITIES (B) 41,458,615 (37,827,966) CASH FLOW FROM FINANCING ACTIVITIES Increase/(Decrease) in long term borrowings (147,546) NET CASH FLOW FROM FINANCING ACTIVITIES (C) (147,546) NET INCREASE/(DECREASE) IN CASH & CASH EQUIVALENTS (A + B + C) 446,660 1,272,000 CASH & CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 2,176, ,247 CASH & CASH EQUIVALENTS AT THE END OF THE YEAR 2,622,907 2,176,247 Mumbai Dated: 10 th May 2004 For and on behalf of the Board of Directors Uday S. Kotak Romesh C. Khanna Chairman Director Sukesh Khandelwal Manager AUDITORS CERTIFICATE We have examined the above Cash Flow Statement of Kotak Mahindra Asset Management Company Limited for the year ended 31 st March The statement has been prepared by the Company in accordance with the requirements of Accounting Standard (AS)-3 Cash Flow Statements issued by the Institute of Chartered Accountants of India and is based on and in agreement with the corresponding Profit and Loss Account and Balance Sheet of the Company covered by our report to the members of the Company. For Deloitte Haskins & Sells. Chartered Accountants R. Laxminarayan Partner Membership No.: Mumbai Dated: 10 th May 2004

204 195 Kotak Mahindra Trustee Company Limited BOARD OF DIRECTORS: AMIT DESAI (C), GIRISH SHAREDALAL, TUSHAR MAVANI, ANIRUDHA BARWE, CHANDRASHEKHAR SATHE DIRECTORS REPORT To the Members of Kotak Mahindra Trustee Company Limited The Directors present their Ninth Annual Report together with the audited accounts of your Company for the year ended 31 st March FINANCIAL RESULTS (Rs. in lakhs) Gross Income Profit before Tax Provision for Tax Profit after Tax Profit brought forward from previous year Profit carried to Balance Sheet DIVIDEND Your Directors do not recommend any dividend. 3 OPERATIONS AND PERSONNEL During the year under review, the mainstream debt schemes of Kotak Mahindra Mutual Fund ( the Fund ) continued to do well. Kotak Mahindra Bond Unit Scheme 99 ( Kotak Bond ) Wholesale Plan won the CNBC-BNP Paribas Best performing Open-Ended Debt/Income Fund award in the 3 year category for the third time in a row. Besides, Kotak Bond Wholesale Plan was also ranked the Best Performing Open-Ended Income Fund in the Crisil Best Fund Awards, Our Equity Schemes also did well during the year. While performance was assisted by a strong rally in the Stock Markets, Kotak Mahindra 30 Unit Scheme ( Kotak 30 ), our flagship diversified equity scheme, performed well in the last six months of the year and moved into the top quartile of its peer group. During the year, Kotak 30 declared two dividends, Rs. 5 per Unit in January 2004 and Rs. 2 per Unit in October Kotak Mahindra Balance Unit Scheme 99 declared a dividend of Rs per Unit in December The year also saw the introduction of a few new Schemes, Plans and facilities. There were two major Initial Public Offers ( IPO ) in the Financial Year Kotak Mahindra Income Plus Scheme ( Kotak Income Plus ) and Kotak Mahindra Global India Scheme ( Kotak Global India ). Kotak Income Plus, an Open-Ended Income Scheme with upto 20% equity exposure, was launched in October It met with a very encouraging response fetching a corpus of over Rs. 170 crores. Kotak Global India, an Open-Ended Equity Growth Scheme, had its IPO in December This was our most successful IPO for the year with an inflow of over Rs. 360 crores. Besides, we also launched Kotak Mahindra Floating Rate Scheme, a floating rate scheme; Kotak Mahindra Dynamic Income Scheme, a debt scheme with an active management strategy and Kotak FMP (8), a fixed maturity plan. A plan to meet the specific requirements of Provident Fund and Trust investors was also launched under the Investment Plan of Kotak Mahindra Gilt Unit Scheme 98. The total Assets Under Management ( AUM ) of the Fund as on 31 st March 2004 were Rs. 5, crore. Your Company has no office premises or employees of its own and uses the facilities of Kotak Mahindra Asset Management Company Limited ( KMAMCL ). The employees of KMAMCL carry out all routine administrative functions of your Company. For the principal responsibilities of your Company of monitoring and ensuring the observance of the Regulations, your Company is assisted by KMAMCL s Compliance Officer and his team. 4 FUTURE OUTLOOK In the last financial year, the AUM by the Mutual Fund Industry grew from Rs. 79,464 crores to Rs. 1,39,616 crores. This is a growth of 75.70%. Retail as well as institutional investors showed increasing preference for investing in Mutual Funds. There was a shift from pure savings towards investing and we believe that this trend will continue. Indians typically save a high percentage of their income (around 24%). Hence the trend to channel savings to investments augurs well for the growth of the Mutual Fund Industry. The Mutual Fund Industry is collaborating towards setting down guidelines for the introduction of capital guaranteed products as well as investment in commodities. Hence innovation in products will offer investors new avenues for investments. This too, we believe, will assist in the growth of the industry.

205 196 Kotak Mahindra Trustee Company Limited 5 DIRECTORS Mr. Tushar Mavani retires by rotation at the Annual General Meeting and being eligible, offers himself for re-appointment. Mr. Anirudha Barwe was appointed as Additional Director of your Company with effect from 26 th July He holds office upto the date of the ensuing Annual General Meeting. Your Company has received a notice under Section 257 of the Companies Act, 1956 in writing, proposing his candidature for the office of Director. 6 AUDITORS Your Company s Auditors, Messrs Price Waterhouse, Chartered Accountants, Mumbai, retire at the Annual General Meeting and are eligible for re-appointment. 7 STATUTORY INFORMATION Your Company did not have any employee during the year, nor did it accept any deposits during the year. It had no foreign exchange earnings or outgo. The other particulars prescribed under the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are not applicable since your Company is not a manufacturing company. 8 DIRECTORS RESPONSIBILITY STATEMENT Based on representations from the Management of KMAMCL who is entrusted with maintenance of the books of account of your Company and the confirmation from M. P. Chitale & Co., Chartered Accountants, the Directors state, in pursuance of Section 217 (2AA) of the Companies Act, 1956, that: (i) (ii) (iii) (iv) in the preparation of the annual accounts for the year ended 31 st March 2004, the applicable accounting standards have been followed along with proper explanations relating to material departures, if any; they have, in the selection of the accounting policies, consulted the statutory auditors and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Company as at 31 st March 2004 and of the profit of your Company for the financial year ended 31 st March 2004; they have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of your Company and for preventing and detecting fraud and other irregularities; and they have prepared the annual accounts on a going concern basis. 9 ACKNOWLEDGEMENTS Your Directors would like to place on record their gratitude for the valuable guidance and support received from the Securities and Exchange Board of India, Reserve Bank of India and other Government and Regulatory agencies. For and on behalf of the Board of Directors Tushar Mawani Director Chandrashekhar Sathe Director Mumbai, 28 th April 2004

206 197 Kotak Mahindra Trustee Company Limited MANAGEMENT DISCUSSION AND ANALYSIS 1 Industry structure, developments and segment-wise performance During the financial year ended 31 st March 2004, the Assets Under Management ( AUM ) by the Mutual Fund industry grew from Rs. 79,464 crore to Rs. 1,39,616 crore, a growth of 75.70%. Of this, the private sector grew from Rs. 55,522 crore to Rs. 1,04,992 crore, a growth of 89%. Interest rates reached a historic low, with the yield on 10 year Government Securities coming down from 6.11% at the beginning of the year to 5.15% on the closing day of the financial year. Indian GDP grew by about 8% during the year. This was reflected in the growth of the capital markets. During the year, BSE Sensex grew by 81.46%. The healthy growth of the equity markets, thanks to the economic and corporate performance, vigilant regulation, and realisation for the need of better corporate governance, brought back the much needed investor confidence in the capital market. Given the relatively lower returns from debt funds and the well performing equity markets, many investors allocated a part of their debt investments to schemes which take a limited (normally upto 20%) exposure to equities. The assets under this product category, popularly known as Monthly Income Plans, grew by more than 10 times during the last year. The growth in AUM of equity schemes was also remarkable during the same period. The Equity AUM of the industry grew by more than 175% from Rs. 8,041 crore on March 31, 2003 to Rs. 22,154 crore on March 31, Opportunities, threats, risks and concerns, and outlook In India, 2% of household savings is held in equities. With fixed income securities offering/anticipating historical low returns, the allocation to equity by investors is set to go up. Bank deposit rates have also turned unattractive. The trend is towards selecting actively managed (market linked) investment products. Interest rates in major economies in the world are lower than the prevailing interest rates in India. This interest rate difference, coupled with adequate liquidity in the Indian financial sector, is likely to keep the interest rates subdued (the interest rates in India are not likely to go up significantly over the near to medium term). We believe that debt schemes will do well both in terms of performance and asset growth. The Indian Mutual Fund Industry has just begun seeing long-term institutional money coming to the industry in the form of Provident Fund and Trust Investments. We sense a great opportunity here for the industry as well as for the investors. We may also see innovations in the form of mutual funds investing in commodities, bullion and real estate. This is of course subject to regulatory approvals. RBI has allowed individuals to invest up to US$ 25,000 in assets outside India. This is a move towards greater capital account convertibility in India. We sense a great opportunity for the Indian Mutual Fund Industry to offer products, enabling Indian investors to diversify investments across countries and currencies. Conventionally, Indian investors are conservative and have shown a preference for fixed returns. But lately, they have been increasingly entrusting their investments to market linked investment avenues like mutual funds. At this juncture, failure in delivering on the fiduciary responsibilities, by any player in the industry may adversely impact investor confidence. However, we believe that the regulatory vigilance and strong governance standards generally prevailing in the industry will strengthen the investor confidence in the industry and its constituents. 3 Internal control systems and their adequacy The Mutual Fund operations are managed by Kotak Mahindra Asset Management Company Limited ( KMAMCL ). Before the launch of any new scheme, your Company reviews the adequacy of internal controls, audit and systems through checks carried out by Professionals specialising in the Mutual Fund sphere. There is also a continuous Internal Audit process carried out by an independent firm of Chartered Accountants where the activities of the Fund are checked for, inter alia, Regulatory compliance and adequacy of internal controls. The activities of your Company are also reviewed by the Directors and an Audit Committee oversees the Internal Audit carried out by an independent Internal Audit team from Kotak Mahindra Bank Limited. 4 Discussion on financial performance with respect to operational performance Trustee fee income of your Company increased by 9% on the back of higher AUM of the Mutual Fund. The income from investments of your Company has shown a substantial growth from 0.77 lacs to lacs. The expenditure has shown an increase of 33%, mainly on account of the increase in Compliance and administrative costs and Legal and professional charges. The profit after tax has shown a healthy growth of 20%. 5 Material developments in Human Resources/Industrial Relations front, including number of people employed Your Company does not have personnel or infrastructure of its own and uses the facilities of KMAMCL. This document contains certain forward-looking statements based on current expectations of your Company s management. Actual results may vary significantly from the forward-looking statements contained in this document due to various risks and uncertainties. These risks and uncertainties include the effect of economic and political conditions in India and outside India, volatility in interest rates, new regulations and Government policies that may impact the business as well as its ability to implement the strategy. Your Company does not undertake to update these statements.

207 198 Kotak Mahindra Trustee Company Limited AUDITORS REPORT To the Members of Kotak Mahindra Trustee Company Limited 1 We have audited the attached Balance Sheet of Kotak Mahindra Trustee Company Limited ("the Company") as at 31 st March 2004 and the related Profit and Loss Account for the year ended on that date, both of which we have signed under reference to this report. These financial statements are the responsibility of the management of the Company. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatment. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. 3 In our opinion, and to the best of our information and according to the explanations given to us, the Balance Sheet and the Profit and Loss Account together with the notes thereon and attached thereto, give in the prescribed manner, the information required by the Companies Act, 1956, of India (The Act), and give, a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the Balance sheet, of the state of affairs of the Company as at 31 st March 2004; and (b) in the case of the Profit and Loss Account, of the profit for the year ended on that date. 4 We have obtained all the information and explanations, which to the best of our knowledge and belief, were necessary for the purposes of our audit. 5 In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books. 6 The Balance Sheet and the Profit and Loss Account dealt with by this report are in agreement with the books of account. 7 In our opinion, the Balance Sheet and the Profit and Loss Account dealt with by this report have been prepared in compliance with the applicable accounting standards referred to in sub-section (3C) of Section 211 of the Act. 8 On the basis of written representations received from the Directors of the Company as on 31 st March 2004, and taken on record by the Board of Directors of the Company, none of the Directors of the Company is disqualified as on 31 st March 2004 from being appointed as a Director in terms of clause (g) of subsection (1) of Section 274 of the Act. 9 As required by the Companies (Auditor's Report) Order, 2003, issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Act, and on the basis of such checks as we considered appropriate, and according to the information and explanations given to us, we further report that: (i) The Company has neither granted nor taken any loans, secured or unsecured to/from companies, firms or order parties covered in the register maintained under Section 301 of the Act. (ii) The Company has neither purchased inventory and fixed assets nor sold goods during the year. (iii) On the basis of our examination of the books of account, the Company has not entered into any transactions exceeding Rs. 500,000 in respect of any party during the financial year that needs to be entered in the register maintained under Section 301 of the Act. (iv) The Company has not accepted any deposits from the public within the meaning of Sections 58A and 58AA of the Act and the rules framed there under. (v) In our opinion, the Company has an internal audit system commensurate with its size and nature of its business. (vi) According to the books of account and records of the Company as produced and examined by us in accordance with the generally accepted auditing practices in India and also management representations: (a) the Company has been regular in depositing undisputed statutory dues including provident fund, investor education and protection fund, employees' state insurance, income-tax, sales tax, wealth tax, custom duty, excise duty, cess and other material statutory dues as applicable with the appropriate authorities in India; (b) there are no dues in respect of sales tax, income-tax, customs duty, wealth tax, excise duty and cess which have not been deposited on account of any dispute as at 31 st March (vii) In our opinion the Company has maintained proper records of transactions and contracts relating to dealing in shares, securities, debentures and other investments during the year and timely entries have been made therein. Further such securities have been held by the Company in its own name except to the extent of exemption granted under Section 49 of the Act. (viii) During the course of our examination of the books of account and records of the Company carried out in accordance with the generally accepted auditing standards in India, we have not come across any instance of fraud on or by the Company, noticed or reported during the year, nor have we been informed of any such case by the management. (ix) Other clauses of the Companies (Auditor's Report) Order, 2003 issued by the Central Government of India are not applicable to the Company during the year. For and on behalf of Price Waterhouse Chartered Accountants K. H. VACHHA Partner Membership No. F30798 Place: Mumbai Date: 28 th April 2004

208 199 Kotak Mahindra Trustee Company Limited BALANCE SHEET AS AT 31 ST MARCH 2004 Sources of Funds Schedule As at As at 31 st March st March 2003 Rupees Rupees Rupees Shareholders Funds: Capital 1 500, ,700 Reserves and Surplus 2 33,971,036 22,278,631 34,471,736 22,779,331 Total 34,471,736 22,779,331 Application of Funds Investments 3 33,507,831 22,472,330 Current Assets, Loans And Advances Trusteeship Remuneration Receivable 2,299,406 1,227,424 Cash and bank balances 4 39, ,405 Loans and advances 5 8,939,644 12,997,949 11,278,456 14,341,778 Less: Current Liabilities And Provisions Current Liabilities 6 1,714,051 1,246,177 Provisions 7 8,624,000 12,811,300 10,338,051 14,057,477 Net Current Assets 940, ,301 Deferred Tax Asset 8 23,500 22,700 Total 34,471,736 22,779,331 Notes to the financial statements 9 This is the Balance Sheet referred to in our report of even date: For and on behalf of Price Waterhouse Chartered Accountants For and on behalf of the Board of Directors K. H. Vachha Chandrashekhar Sathe Girish Sharedalal Partner Director Director Mumbai Date: 28 th April 2004.

209 200 Kotak Mahindra Trustee Company Limited PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2004 Schedule 1 st April 2003 to 1 st April 2002 to 31 st March s t March 2003 Income Trusteeship fees Gross [Tax deducted at source Rs. 1,149,709 (Previous year Rs. 1,033,678)] Rupees 20,822,946 Rupees 19,098,094 Dividend on units of mutual fund 624,426 Profit on sale of Current Investments (Net) 1,283,617 77,330 Interest on Income tax refund 183,555 Total 22,730,989 19,358,979 Expenditure Auditors remuneration (Refer Schedule 9 Note 4) 30,000 30,000 Filing fees 2,000 2,500 Directors sitting fees 222, ,000 Compliance and administrative 4,085,149 3,472,212 Insurance 99,206 15,534 Preliminary expenses written off 23,696 Legal and professional 965, ,200 Miscellaneous 4,935 66,072 Total 5,408,922 4,073,214 Profit before taxation 17,322,067 15,285,765 Provision for taxation Current tax 5,630,462 5,598,360 [Net of write back of provision for earlier years Rs. 1,538 (Previous year Rs. 45,640)] Deferred tax (800) (16,400) Profit after tax 11,692,405 9,703,805 Profit and loss account balance brought forward 22,095,631 12,391,826 Profit and loss account balance carried forward 33,788,036 22,095,631 Earnings per share Basic and Diluted Face Value of Rs. 10 each (Refer Schedule 9 Note 7) Notes to the financial statements 9 This is the Revenue Account referred to in our report of even date: For and on behalf of Price Waterhouse Chartered Accountants For and on behalf of the Board of Directors K. H. Vachha Chandrashekhar Sathe Girish Sharedalal Partner Director Director Mumbai Date: 28 th April 2004.

210 201 Kotak Mahindra Trustee Company Limited SCHEDULES FORMING PART OF THE BALANCE SHEET As at As at 31 st March st March 2003 Rupees Rupees Schedule 1 : Share Capital Authorised 1,000,000 Equity Shares of Rs. 10 each 10,000,000 10,000,000 Issued, Subscribed and Paid Up 50,070 equity shares of Rs. 10 each, fully paid up 500, ,700 (all the above shares are held by Kotak Mahindra Bank Limited, the Holding Company and its nominees) 500, ,700 Schedule 2 : Reserves and Surplus General Reserve As per last Balance Sheet 183, , , ,000 Profit and loss account 33,788,036 22,095,631 33,971,036 22,278,631 Schedule 3 : Investments Current Investments: Unquoted 162, (Previous Year 1,922, ) units of Rs. 10 each of Kotak Mahindra Liquid Scheme Regular Plan Growth Option 1,904,583 22,472,330 3,045, (Previous Year Nil) units of Rs. 10 each of Kotak Mahindra Floating Rate Scheme Growth Option 31,603,248 33,507,831 22,472,330 Schedule 4 : Cash and Bank Balances Balance with scheduled bank in current account 39, ,405 39, ,405 Schedule 5 : Loans and Advances (Unsecured, considered good) Advance payment of tax and tax deducted at source 8,797,094 12,904,108 Advances recoverable in cash or in kind or for value to be received 142,550 93,841 8,939,644 12,997,949 Schedule 6 : Current Liabilities Sundry creditors (other than small scale industrial undertakings) *1,714,051 *1,246,177 There are no amounts due and outstanding to be credited to Investor Education and Protection Fund. * Includes Rs. 2,50,000 (Previous year Rs. 2,50,000) received from Kotak Mahindra Bank Limited towards corpus of Kotak Mahindra Mutual Fund 1,714,051 1,246,177 Schedule 7 : Provisions Taxation 8,624,000 12,811,300 8,624,000 12,811,300 Schedule 8 : Deferred Tax Asset Short term capital loss 23,500 22,700 23,500 22,700

211 202 Kotak Mahindra Trustee Company Limited SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT Schedule 9 : Notes to the Financial Statements 1 Significant Accounting Policies: (a) The financial statements are prepared under historical cost convention on the accrual basis of accounting and in accordance with the standards on accounting issued by the Institute of Chartered Accountants of India and referred to in Section 211(3C) of the Companies Act,1956. (b) Current Investments are valued at lower of cost or net asset value as at the end of the financial year. (c) Revenue is recognised when no significant uncertainty as to measurability or collectability exists. (d) Deferred tax is recognised, subject to the consideration of prudence in respect of deferred tax asset on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. 2 Contingent Liability: An appeal, against a penalty of Rs. 50,000 levied by the Securities and Exchange Board of India (SEBI), is pending before the Securities Apellate Tribunal and hence liability for the penalty has not been provided for. This penalty was levied on Kotak Mahindra Mutual Fund for alleged violation of a SEBI Circular regarding change in launch date of a close-ended fixed maturity plan. 3 The following Investments have been purchased and sold during the year: Purchase Sale Units of Rs. 10 each of Kotak Mahindra Bond Unit Scheme 99 Short Term Plan, Dividend Option 3,160, ,160, Units of Rs. 10 each of Kotak Mahindra Liquid Scheme Regular Plan Growth Option 162, ,922, Units of Rs. 10 each of Kotak Mahindra Liquid Scheme Regular Plan Weekly Dividend Option 339, , Units of Rs. 10 each of Kotak Mahindra Floating Rate Scheme Weekly Dividend Option 3,119, ,119, Units of Rs. 10 each of Kotak Mahindra Floating Rate Scheme Growth Option 3,045, Auditors remuneration: Rupees Rupees Audit fees 20,000 20,000 Other services 10,000 10,000 30,000 30,000 5 Information with regard to matters specified in paragraph 4, 4A, 4C and 4D of Part II of Schedule VI to the Companies Act,1956 is either nil or not applicable to the Company for the year ended 31 sr March Segment information: The Company acts as a Trustee for the schemes of Kotak Mahindra Mutual Fund. As the Company is engaged only in one business segment and no geographical segments, the Balance Sheet as at 31 sr March 2004 and the Profit and Loss Account for the year ended 31 sr March 2004 pertain to one business segment. 7 Earnings Per Share: 31 st March st March 2003 Profit for the year (Rupees) (A) 11,692,405 9,703,805 Weighted average number of equity shares (B) 50,070 50,070 Earnings per share basic and diluted (Rupees) (A/B) Nominal value of an equity share (Rupees) 10 10

212 203 Kotak Mahindra Trustee Company Limited Notes to the financial statements (contd.) 8 BALANCE SHEET ABSTRACT AND COMPANY S GENERAL BUSINESS PROFILE I. Registration Details Registration Number State code 1 1 Balance Sheet Date Date Month Year II. Capital raised during the year (Amount in Rs. Thousands) Public Issue Rights Issue N I L N I L Bonus Issue Private Placement N I L N I L III. Position of mobilisation and deployment of funds (Amount in Rs. Thousands) Total Liabilities Total Assets Sources of Funds Paid up Capital Reserves and Surplus Secured Loans Unsecured Loans N I L N I L Application of Funds Net Fixed Assets Investments N I L Net Current Assets Miscellaneous Expenditure N I L Deferred Tax Asset 2 4 Accumulated Losses N I L IV. Performance of Company (Amount in Rs. Thousands) Turnover/Income Total Expenditure Profit/Loss before tax + Profit/Loss after Tax Earning per share in Rs. Dividend Rate (%) V. Generic Names of three Principal Products/Services of the Company (as per monetary terms) Item Code No. (ITC Code) N A Product Description T R U S T E E F O R M U T U A L F U N D S 9 Previous year s figures have been reclassified, wherever necessary, to conform with current year s classification. Signatures to schedules 1 to 9 forming an integral part of the financial statements For and on behalf of Price Waterhouse Chartered Accountants For and on behalf of the Board of Directors K. H. Vachha Chandrashekhar Sathe Girish Sharedalal Partner Director Director Mumbai Date: 28 th April 2004.

213 204 Kotak Mahindra Trustee Company Limited CASH FLOW STATEMENT FOR THE YEAR ENDED 31 ST MARCH, 2004 (A) (B) Rupees Rupees Rupees Rupees Cash Flow from Operating Activities Profit before taxation 17,322,067 15,285,765 Adjustments for: Preliminary expenses written off 23,696 Dividend income (624,426) Profit on sale of investments (1,283,617) (77,330) Interest income (183,555) OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 15,414,024 15,048,576 (Increase)/Decrease in trusteeship remuneration receivable (1,071,982) 12,971,196 (Increase)/Decrease in loans and advances (48,709) (86,966) Increase/(Decrease) in current liabilities 467,874 (1,447,322) (652,817) 11,436,908 CASH GENERATED FROM OPERATIONS 14,761,207 26,485,484 Payment of Taxes (net of refunds) (5,710,748) (4,739,067) NET CASH FROM OPERATING ACTIVITIES (A) 9,050,459 21,746,417 Cash Flow from Investing Activities (Purchase)/sale of investments (net) (9,751,884) (22,395,000) Interest received 183,555 Dividend received 624,426 NET CASH FROM/(USED) IN INVESTMENT ACTIVITIES (B) (9,127,458) (22,211,445) (C) Cash Flow from Financing Activities NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (A + B + C) (76,999) (465,028) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 116, ,433 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 39, ,405 76, ,028 Note: The above cash flow statement has been prepared under the indirect method setout in Accounting Standard (AS)-3 issued by the Institute of Chartered Accountants of India. Mumbai, Date: 28 th April For and on behalf of the Board of Directors Chandrashekhar Sathe Girish Sharedalal Director Director AUDITORS CERTIFICATE The above Cash Flow Statement has been compiled from and is based on the audited financial statements of Kotak Mahindra Trustee Company Limited for the year ended 31 st March 2004 reported upon by us on 28 th April According to the information and explanations given to us together with the note thereon, the aforesaid Cash Flow Statement has been prepared in consonance with the requirements of the Accounting Standard (AS) 3 on Cash Flow Statements issued by the Institute of Chartered Accountants of India and the reallocations required for the purpose are as made by the Company. For and on behalf of Price Waterhouse Chartered Accountants K. H. Vachha Partner Mumbai Date: 28 th April 2004.

214 205 Kotak Mahindra Investments Limited BOARD OF DIRECTORS: DIPAK GUPTA, GAURANG SHAH, K.V.S. MANIAN, JAIMIN BHATT, R. SUNDARRAMAN DIRECTORS REPORT The Directors present their Sixteenth Annual Report together with the audited accounts of the Company for the year ended 31 st March FINANCIAL HIGHLIGHTS For the year ended For the year ended 31 st March st March 2003 (Rs. in Lakhs) (Rs. in lakhs) Gross Income Profit before tax Provision for tax Profit after tax Net Profit after tax Carried to Balance Sheet The previous year s profits included an amount of Rs lakhs on account of sale of investments. 2 THE BUSINESS OF THE COMPANY Your Company is engaged in holding long term strategic investments of the Group, providing finance against securities and mutual fund units, providing overdraft against shares and such other activities. The vibrant and strong capital markets helped your Company s growth during the year under review. Strong credit and collateral value monitoring mechanism put in place by your Company ensures zero credit losses in this business. Your Company s strategy has been of continuous product innovation coupled with tight control on credit quality and effective risk management. The operating team of the Company is confident of maintaining the growth momentum along with superior quality of loan portfolio. 3 DIVIDEND With a view to conserve the resources of the Company, the Directors do not recommend any Dividend. 4 DIRECTORS Mr. Gaurang Shah and Mr. Jaimin Bhatt, Directors, retire by rotation at the Annual General Meeting and, being eligible, offer themselves for re-appointment. 5 AUDIT COMMITTEE The Company has, during the year, re-constituted the Audit Committee. The Committee consists of Mr. Dipak Gupta (as Chairman), Mr. Gaurang Shah and Mr. Jaimin Bhatt. 6 AUDITORS The Company s Auditors, Messrs. V. C. Shah & Co., Chartered Accountants, Mumbai, retire at the Annual General Meeting and are eligible for re-appointment. You are requested to re-appoint them and fix their remuneration. 7 STATUTORY INFORMATION The Company did not have any employees falling within the scope of sub-section (2A) of Section 217 of the Companies Act, 1956, nor did it accept any deposits from the public during the year. There were no earnings or outgo of foreign exchange and the other requirements pursuant to the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, do not apply since the Company is not a manufacturing company. 8 DIRECTORS RESPONSIBILITY STATEMENT The Directors, based on the representations received from the operational management, confirm in pursuance of Section 217 (2AA) of the Companies Act, 1956, that: (i) the Company has, in the preparation of the annual accounts, followed the applicable accounting standards along with proper explanations relating to material departures, if any; (ii) the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 st March 2004 and of the profit of the Company for the financial year ended 31 st March 2004; (iii) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and (iv) the Directors have prepared the annual accounts on a going concern basis. For and on behalf of the Board of Directors Mumbai, 14 th May DIPAK GUPTA Director JAIMIN BHATT Director

215 206 Kotak Mahindra Investments Limited AUDITORS REPORT To the Members of Kotak Mahindra Investments Limited 1 We have audited the attached Balance Sheet of KOTAK MAHINDRA INVESTMENTS LIMITED as at 31 st March 2004 and the Profit and Loss Account of the company for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion. 3 As required by Companies (Auditor s Report) Order, 2003 issued by the Central Government of India in term of sub-section (4A) of section 227 of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4 Further to our comments in the Annexure referred to above, we report that: (i) (ii) (iii) (iv) (v) (vi) We have obtained all the information and explanations, which to the best of our knowledge and belief, were necessary for the purposes of our audit; In our opinion, proper books of account as required by law have been kept by the company, so far as appears from our examination of those books: The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of account; In our opinion, the Balance Sheet and Profit and Loss Account dealt with by this report comply with the Accounting Standards referred to in sub-section (3C) of section 211 of the Companies Act, 1956; On the basis of the written representations received from the directors, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31 st March 2004 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, In our opinion and to the best of our information and according to the explanations given to us, the said accounts read with the notes thereon, give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (a) In the case of the Balance Sheet, of the state of affairs of the Company as at 31 st March 2004; and (b) In the case of Profit and Loss Account, of the Profit for the year ended on that date. For V. C. Shah & Co. Chartered Accountants V. C. Shah Partner Membership No Mumbai, 14 th May 2004.

216 207 Kotak Mahindra Investments Limited ANNEXURE TO THE AUDITORS REPORT [referred to in paragraph 3 of our report of even date] i. (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. (b) The fixed assets of the Company have been physically verified by the management at reasonable intervals and no material discrepancies were noticed on such verification. (c) The Company has not disposed off any fixed assets during the year under report. ii. (a) The physical verification of stock of shares and units of mutual fund has been conducted at reasonable intervals by the management. (b) In our opinion, the procedure of physical verification of stock of shares and units followed by the management is reasonable and adequate in relation to the size of the Company and the nature of its business. (c) The Company is maintaining proper records of stock of shares and units and no material discrepancies were noticed on physical verification. iii. (a) The Company has neither granted nor taken any loans, secured or unsecured, to / from companies, firms or other parties covered in the register maintained under section 301 of the Companies Act, Hence sub-clauses (b), (c) and (d) of clause 4 (iii) are not applicable to the Company during the year under report. iv. In our opinion and according to the information and explanations given to us, there are adequate internal control procedures commensurate with the size of the Company and the nature of its business, for purchase of shares and units and fixed assets. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal controls. v. (a) There are no transactions that need to be entered into the register maintained under section 301 of Companies Act, Hence sub-clause (b) of this clause is not applicable to the Company during the year under report. vi. The Company has not accepted any deposits from the public during the year under report. vii. In our opinion, the Company has an internal audit system commensurate with its size and nature of its business. viii. The provisions of section 209(1)(d) of the Companies Act, 1956 in respect of maintenance of cost records as may be prescribed by the Central Government, are not applicable to the Company. ix. (a) The Company is generally regular in depositing with appropriate authorities undisputed statutory dues including provident fund, investor education protection fund, employees state insurance, income tax, sales tax, wealth tax, custom duty, excise duty, cess and other material statutory dues, if any, applicable to it. (b) According to the information and explanations given to us, there are no dues of sales tax, income tax, custom tax, wealth tax, excise duty, cess that have not been deposited on account of any dispute. x. There are no accumulated losses of the Company at the end of the financial year. The Company has also not incurred cash losses during the financial year covered by our audit and the immediately preceding financial year. xi. In our opinion and according to the information and explanations given to us, the company has not defaulted in repayment of dues to a financial institution and debenture holders. There are no borrowings from a bank. xii. In our opinion and according to the information and explanations given to us, that the company has maintained adequate records in cases where the company has granted loans and advances on the basis of security by way of pledge of shares, debentures or other securities. xiii. The Company is not a chit fund or a nidhi/mutual benefit fund/society. Therefore, the provisions of causes 4 (xiii) of the Companies (Auditor s Report) Order, 2003 are not applicable to the Company. xiv. The Company has maintained proper records of its transactions and contracts in shares, securities, and other investments and timely entries have been made therein. The shares, securities and other investments, are held by the company, in its own name or are in the process of being transferred in the name of the Company. xv. According to the information and explanations given to us, the Company has not given any guarantee for loans taken by others from banks or financial institutions. xvi. In our opinion, the term loans have been applied for the purpose for which they were obtained. xvii. According to the information and explanations given to us and on an overall examination of the balance sheet of the Company, we report that no funds raised on short-term basis have been used for the long-term investments and vice versa. xviii. During the year under report, the Company has not made any preferential allotment of shares to parties and companies covered in the Register maintained under section 301 of the Act. xix. According to the information and explanations given to us, the company has created security, in respect of secured debentures issued during the year under report. xx. The Company has not raised any money by public issues, during the year under report. xxi. According to the information and explanations given to us, no fraud on or by the company has been noticed or reported during the year under report. For V. C. Shah & Co. Chartered Accountants V. C. Shah Partner Mumbai, 14 th May 2004.

217 208 Kotak Mahindra Investments Limited BALANCE SHEET AS AT 31 ST MARCH 2004 Schedule As at As at 31 st March st March 2003 Rupees Rupees SOURCES OF FUNDS 1. Shareholders Funds (a) Share Capital 1 130,502, ,502,800 (b) Reserves and Surplus 2 616,133, ,631, Loan Funds (a) Secured 3 91,500,000 (b) Unsecured 4 4,397,500, ,000,000 Total 5,235,636, ,134,292 APPLICATION OF FUNDS 1. Fixed Assets (a) Gross Block 1,025,656 (b) Less: Depreciation 3,173 (c) Net Block 5 1,022, Investments 6 198,296, ,940, Current Assets, Loans & Advances (a) Stock-in-trade 7 1,150,805,270 (b) Cash and Bank Balances 8 266,928, ,713,105 (c) Loans and Advances 9 3,652,818, ,457,476 (d) Other Current Assets 10 2,348,780 (e) Interest accrued on Investments 6,843,726 6,356,391 5,079,744, ,526,973 Less: Current Liabilities and Provisions (a) Current Liabilities 11 43,539,715 25,957,422 (b) Provisions ,000 38,000 43,868,715 25,995,422 Net Current Assets 5,035,875, ,531, Deferred Tax Asset ,880 11,662,111 Total 5,235,636, ,134,292 Significant Accounting Policies and 14 Notes to the Accounts As per our report attached For and on behalf of the Board of Directors For V. C. Shah & Co. Chartered Accountants V. C. Shah Pallavi Khandelwal Dipak Gupta Jaimin Bhatt Partner Company Secretary Director Director Mumbai, Dated: 14 th May 2004.

218 209 Kotak Mahindra Investments Limited PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2004 Schedule For the year ended For the year ended 31 st March st March 2003 Rupees Rupees INCOME Interest (TDS Rs. 2,10,26,071/-.; PY Rs. 39,26,234/-) 292,353,144 20,978,263 Interest on Investments (TDS Rs. NIL; PY Rs. NIL) 5,679,360 6,177,276 Profit on Sale of Current Investments 3,817 7,297,612 Profit on Sale of Long term Investments 136,170,000 Profit/(Loss) on trading in Options /Futures 2,675,653 1,164,111 Dividend (TDS Rs. NIL; PY Rs. 7,490/- ) 9,584,963 96,347 Interest Others (TDS Rs. 557,273/-. ; PY Rs. 1,582/-) 3,475,538 7,534 Other Income 451, ,427 Total 314,224, ,143,570 EXPENDITURE Salaries, Allowances & Bonus 3,610,160 1,259,288 Contribution to Provident & Other Funds 286,662 26,619 Interest on Debentures and Fixed period loans 109,230,680 7,726,370 Interest others 19,808,317 2,513,040 Brokerage 15,072,738 Administrative & Operating Expenses 928, ,093 Professional Charges 224,427 1,525,546 Securities Issue expenses 434, ,000 Auditor s Remuneration (including service tax) Audit fees 64,800 31,500 Tax Audit Fees 21,600 15,750 Other Capacity 15,750 Filing fees 7,600 12,600 Rent Expenses 342,250 83,783 Loss on share transactions (net) 13,215,787 1,493,258 Loss on trading in share/units of mutual funds 512,618 Donation (*) 1,500,000 Bad debts w/off 14,835 Miscellaneous Expenses 7,388 10,028 Total 165,283,191 15,125,626 (*) Donation made for political purpose: India Ahead Foundation Rs.15,00,000 (PY Rs. NIL) Profit before Depreciation and Tax 148,941, ,017,944 Depreciation (3,173) Profit before Tax 148,937, ,017,944 Provision for Taxation: Current Tax (50,218,000) (5,300,000) Deferred Tax (11,220,231) 1,484,832 Profit after Tax 87,499, ,202,776 Prior period expenses (43,312) Prior Period tax adjustments 1,002,246 (72,974) 88,501, ,086,490 Balance brought forward from previous year 481,316, ,914,202 Less: Interim Dividend (45,754,200) Less: Transfer to General Reserve (15,310,000) Less: Transfer to Special Reserve under section 45IC of Reserve Bank of India, Act 1934 (17,500,000) (30,620,000) Balance carried to Balance Sheet 552,318, ,316,492 Significant Accounting Policies and 14 Notes to the Accounts As per our report attached For and on behalf of the Board of Directors For V. C. Shah & Co. Chartered Accountants V. C. Shah Pallavi Khandelwal Dipak Gupta Jaimin Bhatt Partner Company Secretary Director Director Mumbai, Dated: 14 th May 2004.

219 210 Kotak Mahindra Investments Limited SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT 31 ST MARCH 2004 Schedule 1 : Share Capital As at As at 31 st March, st March, 2003 Rupees Rupees Rupees Authorised 58,000,000 Equity Shares of Rs. 10/- each 580,000, ,000,000 1,200 Non Cumulative Redeemable Preference Shares of Rs. 1,00,000/- each 120,000, ,000,000 Total 700,000, ,000,000 Issued, Subscribed and Paid up 3,050,280 (P.Y 3,050,280) Equity Shares of Rs. 10/- each fully paid up 30,502,800 30,502, % Non-Cumulative Redeemable Preference Shares of 100,000, ,000,000 Rs. 1,00,000/- each fully paid up (Redeemable, at par, on 20 th March, 2007, with an option to the Company to redeem earlier) The above shares are held by Kotak Mahindra Bank Ltd, the holding company, and its nominees Total 130,502, ,502,800 Schedule 2 : Reserves and Surplus General Reserve As per last Balance Sheet 15,310,000 15,310,000 Special Reserve Under Section 45 IC of the Reserve Bank of India Act, 1934 As per last Balance Sheet 30,620,000 Add: Transferred from Profit and Loss Account 17,500,000 48,120,000 30,620,000 Capital Redemption Reserve As per last Balance Sheet 385, ,000 Securities Premium Account As per last Balance Sheet Add: Received during the year on issue of debentures 4,675,000 4,675,000 Less: Expenses on issue of debentures adjusted 4,675,000 Profit and Loss Account Balance in Profit and Loss Account 552,318, ,316,492 Schedule 3 : Secured Loans Total 616,133, ,631, (P.Y. NIL) Secured Redeemable Non Convertible Debentures 91,500,000 fully paid, privately placed (Face Value Rs.5 lakhs each) Secured by way of mortgage/charge on specified movable/immovable assets of the company in favour of the Trustees and are redeemable at par Total 91,500,000

220 211 Kotak Mahindra Investments Limited Schedules forming part of the Balance Sheet as at 31 st March 2004 (Contd.) The details of debentures are as under: Description Amount Amount P.Y. Redemption (in Rs.) (in Rs.) Date 8 Debentures of Rs. 5,00,000 Each 4,000, Sep-04 2 Debentures of Rs. 5,00,000 Each 1,000, Sep-04 4 Debentures of Rs. 5,00,000 Each 2,000, Sep-04 5 Debentures of Rs. 5,00,000 Each 2,500, Sep-04 3 Debentures of Rs. 5,00,000 Each 1,500, Sep Debentures of Rs. 5,00,000 Each 5,000, Sep-04 9 Debentures of Rs. 5,00,000 Each 4,500, Sep Debentures of Rs. 5,00,000 Each 5,000, Sep-04 5 Debentures of Rs. 5,00,000 Each 2,500, Oct-04 3 Debentures of Rs. 5,00,000 Each 1,500, Nov-04 1 Debenture of Rs. 5,00,000 Each 500, Nov Debentures of Rs. 5,00,000 Each 20,000, Nov-04 1 Debenture of Rs. 5,00,000 Each 500, Nov-04 5 Debentures of Rs. 5,00,000 Each 2,500, Nov-04 5 Debentures of Rs. 5,00,000 Each 2,500, Nov Debentures of Rs. 5,00,000 Each 10,000, Nov Debentures of Rs. 5,00,000 Each 10,000, Nov-04 5 Debentures of Rs. 5,00,000 Each 2,500, Jan Debentures of Rs. 5,00,000 Each 9,500, Jan-05 5 Debentures of Rs. 5,00,000 Each 2,500, Feb-05 2 Debentures of Rs. 5,00,000 Each 1,000, Feb-05 1 Debenture of Rs. 5,00,000 Each 500, Apr-03 Total 91,500,000 As at As at 31 st March st March 2003 Rupees Rupees Schedule 4 : Unsecured Loans Short Term Loans from others Unsecured Redeemable Non-Convertible Debentures Fully paid, privately placed (**) 3,502,500,000 21,000,000 Inter Corporate Deposits 650,000,000 Other Loans 350,000 (P.Y. 450,000) Unsecured Fully Convertible Debentures of Rs.100/- each, 35,000,000 35,000,000 fully paid (Redeemable at issue price, at the exercise of put or call option on or before 1 st February If option to redeem is not exercised, the debentures shall be convertible at par into equity shares on the said date) 2,100,000 (P.Y. 2,100,000) Unsecured Fully Convertible Debentures of Rs.100/- each, fully paid 210,000, ,000,000 (Redeemable at issue price, at the exercise of put or call option on or before 1 st February If to option redeem is not exercised, the debentures shall be convertible at par into equity shares on the said date) (All the above debentures are held by Kotak Mahindra Bank Ltd., the Holding Company) Total 4,397,500, ,000,000 (**) The details of debentures are as under: Description Amount Amount (in Rs.) (in Rs.) P.Y. 5 (P.Y. 42) Debentures of Rs.5 lakh each 2,500,000 21,000, (P.Y.NIL) Debentures of Rs.10 lakh each 2,750,000, (P.Y. NIL) Debentures of Rs.1 Crore each 750,000,000 Total 3,502,500,000 21,000,000

221 212 Kotak Mahindra Investments Limited Schedules forming part of the Balance Sheet as at 31 st March 2004 (Contd.) Schedule 5 : Fixed Assets DESCRIPTION GROSS BLOCK DEPRECIATION NET BLOCK As at Additions Deduc- As at Upto For Upto As at As at During tions the year the year PREMISES 1,025,656 1,025,656 3,173 3,173 1,022,483 TOTAL 1,025,656 1,025,656 3,173 3,173 1,022,483 Previous Year Face Value As at As at As at As at Quantity Amount Quantity Amount Rs. Rs. Rs. Schedule 6 : Investments (Non Trade) (I) CURRENT : (At cost or market value, whichever is lower) A. Unquoted & Fully paid up Units in : Kotak Mahindra Mutual Fund K-Liquid Growth Scheme 132, ,600,000 Sub Total (A) 1,600,000 TOTAL CURRENT INVESTMENTS (A) 1,600,000 (II) LONG TERM : (At cost ) A. Unquoted fully paid up Equity shares Business Standard Ltd ,219, ,750,943 15,277, ,765,806 Komaf Financial Services Limited 10 31,000 10,000 31,000 10,000 Ford Credit Kotak Mahindra Limited 10 3,000,000 30,150,000 3,000,000 30,150,000 Friday Content Solutions Limited 10 12,275 25,404,954 12,275 25,404,954 Amitabh Bachchan Corporation Ltd ,000 26,000, ,000 26,000,000 Arun Processors Ltd , ,000 Less: Provision for Diminution (120,839,847) (155,270,130) Sub Total (A) 132,976, ,060,630 B. Bonds 8.70% Rural Electrification Corporation Bonds 65,280,000 65,280,000 Sub Total (B) 65,280,000 65,280,000 C. Others Pass Through Certificates India Loan Securitisation ,000 Pass Through Certificates Corporate Loan Securitisation ,000 Sub Total (C) 40,000 TOTAL LONG TERM INVESTMENTS (A+B+C) 198,296, ,340,630 GRAND TOTAL (I + II) 198,296, ,940,630 Aggregate of Unquoted investments : At Cost 198,296, ,940,630

222 213 Kotak Mahindra Investments Limited Schedules forming part of the Balance Sheet as at 31 st March 2004 (Contd.) As at As at As at As at 31 st March st March st March st March 2003 Quantity Quantity Rs. Rs. Schedule 7 : Stock-in-trade (At cost or market value, whichever is lower) Unquoted & Fully paid up Units in Kotak Mahindra Mutual Fund: K-Liquid Institutional Dividend 88,837, ,099,020 Quoted & fully paid up Equity shares in : Oil and Natural Gas Corporation Limited 210, ,920,000 Dredging Corporation of India Limited 14,910 5,964,000 IBP Co.Limited 160,000 94,192,000 Unquoted & fully paid up Equity shares in : Biocon Limited 8,350 2,630,250 Total 1,150,805,270 Schedule 8 : Cash and Bank Balances Cash on hand 2,645 Balances with Banks (Scheduled Banks) in Current Accounts 266,925,793 3,959,028 Balances with Banks (others) in Current Account 366,754,077 (Maximum amount outstanding during the year Rs. 366,754,077/- (PY Rs. 366,754,077)) in Fixed Deposits Account 50,000,000 (Maximum amount outstanding during the year Rs. 32,92,00,000/- (PY Rs. 50,000,000)) Total 266,928, ,713,105 Schedule 9 : Loans and Advances Advances Recoverable in cash or in kind or for value to be received Secured and Considered Good 3,429,682, ,503,929 Unsecured and Considered Good 212,806,000 45,000,088 Advance Tax paid and tax deducted at source (net of provision Rs. 5,12,49,230/- ; 10,329,992 14,953,460 PY Rs.1,00,41,769/-) Total 3,652,818, ,457,476 Schedule 10 : Other Current Assets Equity Index Options Premium Account 2,348,780 2,348,780 Schedule 11 : Current Liabilities Sundry Creditors (Other than Small Scale Industrial undertakings) 352, ,754 Interest Accrued but not due 34,678,449 Other Liabilities 8,509,046 25,016,668 Total 43,539,715 25,957,422 Schedule 12 : Provisions Provision for Gratuity 195,000 38,000 Provision for Leave Encashment 134,000 Total 329,000 38,000 Schedule 13 : Deferred Tax Asset Deferred tax asset As at 1 st April, 2003 (P.Y. 1 st April 2002) 11,662,111 10,177,279 For the year (11,220,231) 1,484,832 Total 441,880 11,662,111

223 214 Kotak Mahindra Investments Limited SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT SCHEDULE 14 SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS I. SIGNIFICANT ACCOUNTING POLICIES A. ACCOUNTING METHODOLOGY The Accounts have been prepared on historical cost basis of accounting. The Company adopts the accrual system of accounting. B. REVENUE RECOGNITION a. Interest income is recognised on accrual basis. b. Dividend on investments is recognised when the right to receive payment is established. c. The Company has followed the prudential norms for income recognition and provisioning for non-performing assets as prescribed by Reserve Bank of India for Non-Banking Financial Companies. C. FIXED ASSETS a. Fixed assets have been stated at cost inclusive of incidental expenses less accumulated depreciation. b. Depreciation: The Company adopts the Straight Line Method of depreciation so as to write off 100% of the cost of the assets at rates higher than those prescribed under Schedule XIV to the Companies Act, 1956 based on the management s estimates of the useful life of all assets as follows: Asset Type Useful life in years Premises 30 D. INVESTMENTS a. Long term Investments of the Company, have been valued at weighted average cost of acquisition and provision for decline in value, other than temporary, is made in the accounts. b. Current investments are valued at weighted average cost of acquisition or fair/market value, whichever is lower. E. STOCK IN TRADE Stock in trade is valued at weighted average cost or market value, whichever is lower. F. BORROWING COST Borrowing costs other than those directly attributable to qualifying Fixed Assets are recognised as an expense in the period in which they are incurred. G. TAXES ON INCOME Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognized, subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the difference between taxable income and accounting income that originates in one period and is capable of reversal in one or more subsequent periods. H. RETIREMENT BENEFITS a. The Company has made contributions to Government Provident Fund and the same is accounted on accrual basis. b. Provision for Gratuity and Leave Encashment liability to employees is made on the basis of actuarial valuation. I. EQUITY INDEX/STOCK FUTURES: Equity Index/Stock Futures are marked to market on a daily basis and the resultant gain or loss is recognised in the profit and loss account. On final settlement or squaring up of contracts for equity index/stock futures, the profit or loss is calculated as the difference between the settlement/ squaring up price and the contract price and is recognised in the profit and loss account and the same is shown as Profit / (Loss) on trading in Options/Futures. J. EQUITY INDEX/STOCK OPTIONS Equity Index Options Premium Account represents premium paid on buying the options during the year. The premium paid on buying the options is recognised in the profit and loss account alongwith realized income on all expired/squared up/settled contracts. As at the balance sheet date, in case of long positions outstanding, the same has been represented in Other Current Assets as Equity Index Options Premium Account and provision is made for the amount by which the premium paid for those options exceeds the prevailing premium on the balance sheet date.

224 215 Kotak Mahindra Investments Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) II. NOTES TO ACCOUNTS 1 CONTINGENT LIABILITIES: Claims made against the Company not acknowledged as debts Rs. 5,00,000 (PY Rs. 5,00,000). 2 Components of net deferred tax asset as at 31st March, 2004: As at As at 31 st March 2004, 31 st March 2003, Amount (Rs.) Amount (Rs.) Deferred tax assets Amalgamation Expenditure allowed over 5 years 3,38,428 2,64,408 Provision for Diminution in value of Investments NIL 53,30,000 Unabsorbed business loss NIL NIL Unabsorbed capital loss NIL 1,45,11,272 Others 1,03,452 8,97,035 Total Deferred Tax Assets 4,41,880 2,10,02,715 Deferred tax liabilities Difference in valuation of book and tax cost investments NIL 93,40,605 Total Deferred Tax Liabilities NIL 93,40,605 Net deferred tax Asset/(Liability) 4,41,880 1,16,62,110 3 During the year, the Company has effected partial sale of its investments in its associate Business Standard Limited. There was an existing provision for diminution in value of the said shares which has been adjusted against the cost thereof to arrive at the carrying cost of such investments, as required by Accounting Standard 13. There is no resultant profit/loss on sale of these investments after considering the sale proceeds against the carrying cost of the said investments. 4 (a) Quantitative information in respect of trading in units of mutual funds KMMF K liquid Institutional Dividend Scheme - Weekly: Description 31 st March st March 2003 Quantity Amount (in Rs.) Quantity Amount (in Rs.) Opening Stock NIL NIL NIL NIL Add : Purchases 2,01,14,68,486 20,15,62,26,051 NIL NIL Less : Sales 1,92,26,31,058 19,26,68,91,394 NIL NIL Closing Stock 8,88,37,428 89,00,99,020 NIL NIL (b) Quantitative information in respect of trading in equity shares: Description 31 st March st March 2003 Quantity Amount (in Rs.) Quantity Amount (in Rs.) Opening Stock NIL NIL NIL NIL Add : Purchases 4,48,909 27,16,48,859 NIL NIL Less : Sales 55,089 96,65,629 NIL NIL Closing Stock 3,93,820 26,07,06,250 NIL NIL 5 Outstanding Index Option contract as on 31 st March 2004: Name of the Option OPTIDXNIFTY INDEX NIFTY OPTION Rs. 23,48,780/- Total premium carried forward as at year end 6 Schedule in terms of paragraph 9BB of Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions,1998. Amount (in Rs.) Particulars Liabilities side: Amount Amount Outstanding Overdue 1 Loans and advances availed by the NBFCs inclusive of interest accrued thereon but not paid: (a) Debentures : Secured 9,68,31,941 NIL Unsecured 377,44,28,836 NIL (other than falling within the meaning of public deposits *) (b) Deferred Credits NIL NIL (c) Terms Loans NIL NIL (d) Inter-corporate loans and borrowing 65,24,17,672 NIL (e) Commercial Paper NIL NIL (f) Public Deposits * NIL NIL (g) Other Loans (specify nature) NIL NIL * Please see Note 1 below

225 216 Kotak Mahindra Investments Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Amount Amount Outstanding Overdue 2 Break-up of (1) (f) above (Outstanding public deposits inclusive of interest accrued thereon but not paid): (a) In the form of unsecured debentures: NIL NIL (b) In the form of partly unsecured debentures: NIL NIL (c) Other public deposits NIL NIL * Please see Note 1 below Assets side: Amount Outstanding 3 Break-up of Loans and Advances including bills receivables (other than those included in (4) below: (a) Secured 342,96,82,304 (b) Unsecured 22,31,35,992 4 Break-up of Leased Assets and stock on hire and hypothecation loans counting towards EL / HP activities (i) Leased Assets including lease rentals under sundry debtors (a) Financial Lease NIL (b) Operating Lease NIL (ii) Stock on hire including hire charges under sundry debtors (a) Assets on hire NIL (b) Repossessed Assets NIL (iii) Hypothecation loans counting towards EL / HP activities (a) Loans where assets have been repossessed NIL (b) Loans other than (a) above NIL 5 Break-up of Investments: Current Investments: 1 Quoted: (i) Shares-: (a) Equity NIL (b) Preference NIL (ii) Debentures and Bonds NIL (iii) Units of Mutual Funds NIL (iv) Government Securities NIL (v) Others (please specify) NIL 2 Unquoted: (i) Shares-: (a) Equity NIL (b) Preference NIL (ii) Debentures and Bonds NIL (iii) Units of Mutual Funds NIL (iv) Government Securities NIL (v) Others (please specify) NIL Long Term Investments: 1 Quoted: (i) Shares-: (a) Equity NIL (b) Preference NIL (ii) Debentures and Bonds NIL (iii) Units of Mutual Funds NIL (iv) Government Securities NIL (v) Others (please specify) NIL 2 Unquoted: (i) Shares-: (a) Equity 13,29,76,050 (b) Preference NIL (ii) Debentures and Bonds 6,52,80,000 (iii) Units of Mutual Funds NIL (iv) Government Securities NIL (v) Others Pass Through Certificates 40,000

226 217 Kotak Mahindra Investments Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 6 Borrower group-wise classification of all leased assets, stock-on-hire and loans and advances: Please see Note 2 below Category Amount Net of provisions Secured Unsecured Total 1 Related Parties ** (a) Subsidiaries NIL NIL NIL (b) Companies in the same group NIL 1,50,000 1,50,000 (c) Other related parties NIL NIL NIL 2 Other Than Related Parties 342,96,82,304 22,29,85, ,26,68,296 Total 342,96,82,304 22,31,35, ,28,18,296 7 Investor group-wise classification of all investments (current and long term) in the shares and securities (both quoted and unquoted) : Please see Note 3 below Category Amount Net of provisions Market Value/Break up Book Value of fair value or NAV (Net of Provisions) 1 Related Parties ** (a) Subsidiaries NIL NIL (b) Companies in the same group NIL NIL (c) Other related parties 14,50,93,300 13,23,43,300 2 Other than related Parties 6,59,52,750 6,59,52,750 Total 21,10,46,050 19,82,96,050 ** As per Accounting Standard of ICAI (Please see Note 3) 8 Other information : Particulars Amount (i) Gross Non-Performing Assets (a) Related parties NIL (b) Other than related parties NIL (ii) Net Non-Performing Assets (a) Related parties NIL (b) Other than related parties NIL (iii) Assets acquired in satisfaction of debt NIL Notes: 1. As defined in Paragraph 2(1)(xii) of the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, Provisioning norms shall be applicable as prescribed in the Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 (Refer Note No. 1 B(ii) of Schedule 16). 3. All Accounting Standards and Guidance Notes issued by ICAI are applicable including for valuation of investments and other assets as also assets acquired in satisfaction of debt. However, market value in respect of quoted investments and break up/fair value/nav in respect of unquoted investments should be disclosed irrespective of whether they are classified as long term or current in column (5) above. 9 Previous year s figures have been regrouped/reclassified wherever necessary to conform to figures of the current year. As per our report attached For and on behalf of the Board of Directors For V. C. Shah & Co. Chartered Accountants V. C. Shah Pallavi Khandelwal Dipak Gupta Jaimin Bhatt Partner Company Secretary Director Director Mumbai. Date: 14 th May 2004.

227 218 Kotak Mahindra Investments Limited BALANCE SHEET ABSTRACT AND COMPANY S GENERAL BUSINESS PROFILE Additional Information pursuant to Part IV of Schedule V of the Companies Act, 1956 (a) Registration Details Registration Number State code 1 1 Balance Sheet Date Date Month Year (b) Capital raised during the year (Amount in Rs. 000) Public Issue Rights Issue N I L N I L Bonus Issue Private Placement N I L N I L (c) Position of mobilisation and deployment of funds (Amount in Rupees) Total Liabilities Total Assets Sources of Funds Paid-up Capital Reserves and Surplus Secured Loans Unsecured Loans Application of Funds Net Fixed Assets Investments Net Current Assets Miscellaneous Expenditure N I L Accumulated Loss Deferred Tax N I L (d) Performance of Company (Amount in Rs. Thousands) Turnover Total Expenditure Profit before tax Profit after Tax Earning per share in Rs. (Basic) Earnings per share in Rs. (Dilute) Dividend Rate (%) (e) Generic Names of three Principal Products/Services of the Company (as per monetary terms) Item Code No N. A. Product Description I N V E S T M E N T C O M P A N Y As per our report attached For and on behalf of the Board of Directors For V. C. Shah & Co. Chartered Accountants V. C. Shah Pallavi Khandelwal Dipak Gupta Jaimin Bhatt Partner Company Secretary Director Director Mumbai. Dated: 14th May 2004.

228 219 Kotak Mahindra (International) Limited BOARD OF DIRECTORS: KISHORE SUNIL BANYMANDHUB, ASHRAF RAMTOOLA, RAVI LOCHAN POLA, PAUL PARAMBI, SHYAM KUMAR DIRECTORS REPORT The Directors have pleasure in presenting their Annual Report together with the audited accounts of your Company for the year ended 31 st December OPERATIONS The Company s principal activity is to carry on business of financial services, corporate advisory services, international trading, investment in shares, bonds and other securities. The subsidiary s principal activities are to provide brokerage services and investment funds. Recently your Company has been authorize to underwrite depository issuance of Indian Companies. 2 FINANNCIAL RESULTS AND DIVIDEND The Company s profit for the financial year ended 31 st December 2003 amounted to Rs. 1,91,61,027 (2002 Rs. 1,32,55,278). The Directors do not recommend any dividend for the year under review. 3 DIRECTORS RESPONSIBILITY STATEMENT The Directors state as an averment of their responsibility that : (a) (b) (c) (d) the Company has, in the preparation of the annual accounts for the year ended 31 st December 2003, followed the applicable accounting standards along with proper explanations relating to material departures, if any; the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 st December 2003 and of the profit/loss of the Company for the financial year ended 31 st December 2003; the Directors have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and the Directors have prepared the annual accounts on a going concern basis. For and on behalf of the Board of Directors Paul Parambi Director Ravi Lochan Pola Director 6 th May 2004.

229 220 Kotak Mahindra (International) Limited AUDITORS REPORT To the Members of Kotak Mahindra (International) Limited. The financial statements of Kotak Mahindra (International) Limited for the accounting year ended 31 st December 2003, being a company registered in Mauritius, are audited by KPMG, Public Accountants, Mauritius, and we have been furnished with their audit report dated, 6 th April We are presented with the accounts in Indian Rupees prepared on the basis of aforesaid accounts to comply with the requirements of Section 212 of the Companies Act, We give our report hereunder: 1 We have audited the attached Balance Sheet of Kotak Mahindra (International) Limited as at 31 st December 2003 and the Profit and Loss Account for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's Management. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3 As required by the Manufacturing and Other Companies (Auditor's Report) Order, 1988 issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4 Further to our comments in the Annexure referred to above, we report that: (a) (b) (c) We have obtained all the information and explanations, which to the best of our knowledge and belief, were necessary for the purpose of our audit; In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of the books; The Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of accounts; (d) In our opinion, the Profit and Loss Account and the Balance Sheet comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, (e) On the basis of the written representations received from the directors, we report that none of the directors is disqualified as on 31 st December 2003 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, (f) In our opinion, on the basis of information and explanations given to us and relying upon the above referred financial statements and auditors' report thereon, the accounts read with the notes thereon give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India; (i) (ii) in the case of Balance Sheet of the state of affairs of the Company as at 31 st December 2003; and in the case of Profit & Loss Account, of the Profit for the year ended on that date. For V.C. Shah & Co. Chartered Accountants A.N. Shah Partner Membership No Place: Mumbai Date: 6 th May 2004

230 221 Kotak Mahindra (International) Limited ANNEXURE TO THE AUDITORS REPORT (Referred to in Paragraph 3 of our report of even date) As required by the Manufacturing and other Companies (Audiror's Report) Order, 1988 issued by the Central Government in terms of Section 227(4) of the Companies Act, 1956 and on the basis of such checks as we considered appropriate and according to the information and explantions given to us we report that: 1 The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. The fixed assets have been physically verified by the management during the year and no material discrepancies were noticed on such verification. 2 None of the Fixed Assets have been revalued during the year. 3 The Company has granted loans to its subsidiary and a fellow subsidiary company. The rate of interest and other terms and conditions on which these loans have been given, are prima facie not prejudicial to the interest of the Company. 4 The Parties to whom loans or advances in the nature of loans have been given by the Company are repaying the principal amount as stipulated and are also regular in the payment of interest wherever applicable. 5 According to the information and explanations given to us, there are adequate internal control procedures, commensurate with the size of the Company and the nature of its business, for purchase of equipment and other assets and for purchase and sale of shares and other securities. 6 As informed to us, the Company does not have an internal audit system. 7 According to the information and explanations given to us, no personal expenses have been charged to revenue account other than those payable under the contractual obligations or in accordance with the generally accepted business practices. 8 In respect of service activities: (a) (b) the system of allocating man-hours utilized to the relative jobs, is not yet formalized; there is a reasonable system of authorization at proper levels and adequate system of internal control commensurate with the size of the Company and the nature of its business. 9 According to the information and explanations given to us, proper records have been maintained in respect of transactions and contracts in shares, securities, debentures and other investments and timely entries have been made therein. The shares and other securities have been held by the Company in its own name. In our opinion clauses (iii), (iv), (v), (vi), (vii), (xi), (xii), (xiii), (xiv), (xvi), (xvii), (xviii) & (xx) of para 4(A), clause (ii) and (iii) of para 4(B), and clause (ii) and (iii) of para 4(D) of the aforesaid order are not applicable to the Company for the year under report. Place: Mumbai Date: 6 th May 2004 For V.C. Shah & Co. Chartered Accountants A.N. Shah Partner

231 222 Kotak Mahindra (International) Limited BALANCE SHEET AS AT 31 ST DECEMBER 2003 SOURCES OF FUNDS: Schedule 31 st December 31 st December Rupees (Rupees) (Rupees) Shareholders Funds: Share Capital 1 67,174,000 67,174,000 Reserves and Surplus 2 33,852,583 18,236,913 Unsecured Loans 3 195,834,332 73,312,272 Total 296,860, ,723,185 APPLICATION OF FUNDS: Fixed Assets: Gross Block 4 3,577,427 2,652,118 Less : Depreciation 2,362,823 1,875,828 Net Block 1,214, ,290 Investments 5 176,575,609 66,563,960 Current Assets, Loans and Advances : Sundry Debtors 6 63,896,114 23,878,595 Cash and Bank Balances 7 73,198,356 54,552,234 Loans and Advances 8 51,177,332 69,076,314 Less : Current Liabilities and Provisions : 188,271, ,507,142 Liabilities 9 67,764,248 55,227,584 Provisions 10 1,436, ,624 69,201,100 56,124,208 Net Current Assets 119,070,702 91,382,935 Total 296,860, ,723,185 Significant Accounting Policies and Notes to Financial Statements 16 Schedules referred to above form an integral part of the Balance Sheet In terms of our report of even date For V. C. Shah and Co. Chartered Accountants For and on behalf of the Board of Directors A. N. Shah Paul Parambi Ravi Lochan Pola Partner Director Director Mumbai Dated: 6 th May 2004

232 223 Kotak Mahindra (International) Limited PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST DECEMBER 2003 INCOME: Schedule For the year For the year ended ended 31 st December 31 st December (Rupees) (Rupees) Income from Services 11 24,985,089 21,441,093 Profit/(Loss) on Sale of Investments (Net) 122,395,110 32,208,403 Profit/(Loss) on Trading in Securities (Net) (89,309,515) (4,622,860) Other Income 12 3,159, ,579 Total Income 61,229,947 49,202,215 EXPENDITURE: Personnel 13 5,667,903 8,164,147 Interest and Other Financial Charges 14 10,638,761 6,149,165 Other Expenses 15 25,275,268 21,447,510 Total Expenditure 41,581,932 35,760,822 Profit Before Depreciation and Taxation 19,648,015 13,441,393 Depreciation 486, ,115 Profit Before Taxation 19,161,027 13,255,278 Provision for Taxation 558,499 Profit After Taxation 18,602,528 13,255,278 Add: Balance Brought Forward From Previous Year (1,562,994) (14,818,272) Profit Carried to Balance Sheet 17,039,534 (1,562,994) Significant Accounting Policies and Notes to Financial Statements 16 Schedules referred to above form an integral part of the Balance Sheet In terms of our report of even date For V. C. Shah and Co. Chartered Accountants For and on behalf of the Board of Directors A. N. Shah Paul Parambi Ravi Lochan Pola Partner Director Director Mumbai Dated: 6 th May 2004

233 224 Kotak Mahindra (International) Limited SCHEDULES FORMING PART OF THE BALANCE SHEET Schedule 1 Share Capital 31 st December 31 st December (Rupees) (Rupees) Authorised 2,000,000 ordinary shares of US $ 1 each 67,174,000 67,174,000 Issued, Subscribed and Paidup 2,000,000 ordinary shares of US $ 1 each fully paid up (All the above 2,000,000 shares are held by Kotak Mahindra Capital Company Limited, the holding company). 67,174,000 67,174,000 TOTAL 67,174,000 67,174,000 Schedule 2 Reserves and Surplus Profit and Loss Account 17,039,534 (1,562,994) Translation Reserve 16,813,049 19,799,907 TOTAL 33,852,583 18,236,913 Schedule 3 Unsecured Loans Bank overdraft (Refer note 5 in schedule 16) 81,809,332 73,312,272 From others 114,025,000 TOTAL 195,834,332 73,312,272 Schedule 4 Fixed Assets (At Cost) Rupees GROSS BLOCK DEPRECIATION NET BLOCK Description As at 1 st Additions Deduction As at 31 st As at 1 st For the Withdrawn As at 31 st As at 31 st As at 31 st January December January year December December December ASSETS Office Equipment and furniture 1,814, ,154 2,087,855 1,038, ,987 1,398, , ,290 Vehicles 837, ,814 1,226, ,417 64, , ,891 Computers 263, ,341 62,084 62, ,257 TOTAL 2,652, ,309 3,577,427 1,875, ,995 2,362,823 1,214, ,290 PREVIOUS YEAR 3,100, ,113 1,193,716 2,652,118 2,883, ,115 1,193,716 1,875, ,290 Note: Fixed asset includes translation reserve of Rs. 58,482 (Previous year Rs. 341,213). Depreciation for the year includes translation reserve of Rs.1,683 (Previous year Rs. 109). Schedule 5 Investments 31 st December, 31 st December, (Rupees) (Rupees) Long Term Investments Unquoted (at cost) 4,70,000 equity shares of Sterling Pound 1 each fully paid up of Kotak Mahindra (UK) limited 26,287,575 26,287, Management shares of USD 1 each in Kotak Mahindra 4,818 4,818 Investment Company Limited, PCC 1 Equity share (Previous year 1) each fully paid up of Kotak Mahindra Inc Current Investments Nil (Previous year 1,500) Redeemable Participating Preference shares of Global Investment Opportunities Fund limited [Formerly Kotak Mahindra Investment Company Limited, PCC] 72,045 Quoted (at cost) (Refer note 8 of Schedule 16) 150,283,171 40,199, ,575,609 66,563,960 Schedule 6 Sundry Debtors (Unsecured) Considered good Over six months Others 63,896,114 23,878,595 TOTAL 63,896,114 23,878,595

234 225 Kotak Mahindra (International) Limited Schedules forming part of the Balance Sheet (Contd.) 31 st December 31 st December (Rupees) (Rupees) Schedule 7 Cash and Bank Balances Cash on hand 27,617 27,298 Bank balances with unscheduled Banks (Refer note 9 in Schedule 16) 73,170,739 54,524,936 TOTAL 73,198,356 54,552,234 Schedule 8 Loans and Advances (Unsecured, considered good unless otherwise stated) Loans and Advances to Subsidiary Company 4,066,816 53,432,847 Other loans 13,683,000 9,606,000 Margin held towards futures and options trading 32,169,600 4,799,974 Less: Provision for loss on Equity stock futures account (11,984,583) (28,866) Advances recoverable in cash or in kind or for value to be received 13,242,499 1,266,359 TOTAL 51,177,332 69,076,314 Schedule 9 Liabilities Sundry creditors 35,172,889 15,828,863 Other liabilities 14,181,522 Short positions on Investments (Refer note 8 in Schedule 16) 15,938,232 37,045,587 Interest accrued and not due on loans 2,471,605 2,353,134 TOTAL 67,764,248 55,227,584 Schedule 10 Provisions Provision for gratuity 889, ,624 Provision for tax 547,320 TOTAL 1,436, ,624 SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT For the year For the year ended ended 31 st December 31 st December (Rupees) (Rupees) Schedule 11 Income from Services Referral Fees 8,401,863 15,798,250 Advisory and Placement Fees (Net) 16,583,226 5,642,843 TOTAL 24,985,089 21,441,093 Schedule 12 Other Income Dividend 178, ,052 Interest 5,058 2,527 Foreign Exchange Gain 2,556,414 Miscellaneous Income 418,888 TOTAL 3,159, ,579 Schedule 13 Personnel Salaries and other allowances 4,068,230 6,925,272 Gratuity 126, ,283 Other related costs 1,473, ,592 TOTAL 5,667,903 8,164,147 Schedule 14 Interest and Other Financial Charges Interest on : Bank overdraft 3,130,793 1,439,974 Other interest 3,199,588 2,327,787 Foreign Currency loss 498,204 Other Finance charges 4,308,380 1,883,200 TOTAL 10,638,761 6,149,165 Schedule 15 Establishment and Other Expenses Travelling 475, ,136 Foreign Auditors remuneration 602, ,526 Legal and consultancy charges 1,204,301 4,577,434 Custodial Charges 719,922 5,787,596 Rent 836, ,789 Communication expenses 4,011,532 3,051,762 Directors Remuneration 3,713,071 1,249,131 Administrator and sub account charges 5,190,959 2,090,716 Other expenses 8,520,171 2,824,420 TOTAL 25,275,268 21,447,510

235 226 Kotak Mahindra (International) Limited Schedule 16 SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS 1 Significant Accounting Policies: (i) Method of Accounting The accounts are prepared in accordance with accounting principles generally accepted in India. The Company follows accrual method of accounting. (ii) Conversion to Indian Rupees For the purpose of accounts, all income and expense items are converted at the average rate of exchange applicable for the year. All assets and liabilities are translated at the closing rate as on the Balance Sheet date. The exchange difference arising out of the year-end translation is debited or credited to Translation Reserve. The Share Capital and Investments in subsidiary are carried forward at the rate of exchange prevailing on the transaction date. The resulting exchange difference on account of translation at the year end are transferred to Translation Reserve Account and the said account is being treated as Reserve and Surplus. (iii) Revenue Recognition Commission, fees and other revenue is invoiced and recognised on an accrual basis. Interest income is recognised in the income statement as accrued. Dividends are recognised as income on the dates the securities are first quoted ex-dividend to the extent that information thereon is reasonably available to the group and the company. (iv) Taxes Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognized, subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the differences between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. (v) Investments Investment in subsidiary is stated at cost. The Company has classified its investments in equity securities as current investment and in respect of GDRs securities sold short, the same is classified as liabilities held for trading. Investments are initially recognised at cost, including transaction costs. Long equity securities and GDRs equity securities sold short are subsequently carried at cost or market value on an overall category basis, whichever is less, based on the quoted bid and offer prices, respectively. When current bid and offer prices are unavailable, the price of the most recent transaction is used. Provision for decline in value is recognized in the accounts. All derivative financial instruments are classified as held for trading. Derivative financial instruments are initially recognised at cost and subsequently measured at cost or market value whichever is less. Futures contracts are collateralised by cash and changes in the futures contracts values are settled with the exchange on a daily basis. The fair values of open positions in futures contracts are calculated as the difference between the contract prices and the settlement prices established each day by the exchange on which the contracts are traded. All investment transactions are recorded on a trade date basis and costs of investments are determined on a first-in, first-out basis. (vi) Securities lending and borrowings Securities borrowing and lending transactions are recorded at the amount of cash collateral advanced or received. Securities borrowing transactions require the borrower to provide collateral in the form of cash and cash collateral is received for securities lending transactions. For these transactions, the fee income is recognised over the period of contract. On a daily basis, the group monitors the market value of securities borrowed or lent against the collateral value. The collateral value received against lending of securities is based on the risk assessment procedures of the group. (vii) Fixed assets Fixed assets are stated at cost less accumulated depreciation. Depreciation is calculated to write off the cost of the assets over the expected useful lives of such assets. Additions during the year bear a due proportion of the annual depreciation charge. The annual depreciation rates are as under: Office Equipment, furniture and Fittings 33.1/3% Motor Vehicles 33.1/3% Computers 33.1/3% (viii)gratuity Provision for gratuity represents the liability that would arise if the employment of all eligible staff of the representative office were terminated as of the balance sheet date and is calculated in accordance with the UAE Federal Labour Law. 2 The Company is a wholly owned subsidiary of Kotak Mahindra Capital Company Limited. The accounts have been prepared and audited for the purpose of attachment to the accounts of the Holding Company to comply with the provisions of the Indian Companies Act, The transactions are in local currency, which have been converted into Indian Currency for reporting and the rate applied is as per para (ii) of the significant accounting policies. 4 Contingent Liability: Guarantee to third parties given by the Company s bankers outstanding at the year end amounted to Rs.136,830,000 (previous year Rs.144,090,000/-). No loss is expected on this guarantee at the balance sheet date. 5 The Company has an overdraft facility of Rs.136,830,000 (previous year Rs.144,090,000) that is secured by a guarantee by the holding company. 6 The Company is subject to income tax in Mauritius at 15%. It is entitled, however, to a tax credit equivalent to the higher of the actual foreign tax suffered and 80% of the Mauritius tax on its foreign source income. At 31 st December 2003, the Company has accumulated tax losses of Rs.Nil (previous year Rs. 466,659/-) and is not liable to tax.

236 227 Kotak Mahindra (International) Limited Significant Accounting Policies and Notes to the Accounts (Contd.) Schedule 16 7 Deferred tax assets have not been recognized in respect of the tax losses carried forward as the directors consider it to prudent not to recognize these assets based on current trading level. 8 List of Quoted Investments: Scrip name Quantity Quantity Cost at Cost at Equity Stock Dr. Reddy s Laboratories Ltd. 1,600 14,397 2,130,899 1,28,67,071 Grasim Industries Ltd. 8,400 7,892,354 Gas Authority of India Ltd. 30,000 7,027,315 Gujarat Ambuja Cements Ltd. 73,626 21,732,834 Hindalco Industries Ltd. 7,200 9,841,679 ICICI Bank Ltd. 22,500 32,63,891 ITC Ltd. 1,500 9,92,060 Mahindra & Mahindra Ltd. 1, ,837 Reliance Industries Ltd. 6,350 2,505,495 Tata Engineering and Locomotive Co. Ltd ,877 Videsh Sanchar Nigam Ltd. 13,200 13,40,757 Mahanagar Telephone Nigam Ltd. 16,300 16,10,679 Wipro Ltd. 1,800 29,11,092 TOTAL 52,155,291 2,29,85,550 ADR/GDR STOCK Gas Authority of India Ltd. GDR 44,000 61,840,373 Gujarat Ambuja Cements Ltd. GDR 73,774 21,776,521 ITC Ltd. GDR 6,600 6,571,939 Jain Irrigation Systems Ltd. GDR 1,500 67,047 Mahanagar Telephone Nigam Ltd. ADR 12,900 3,033,454 Grasim Industries Ltd. GDR 13,300 40,57,382 ICICI Bank Ltd. GDR 1,200 3,69,927 Mahindra & Mahindra Ltd. GDR 10,288 65,000 3,848,390 67,72,230 Satyam Computers Ltd. GDR 3,850 24,30,126 Silverline Technologies Ltd. GDR 25,000 11,04,690 Tata Engineering and Locomotive Co. Ltd. GDR 2, ,157 Videsh Sanchar Ltd. ADR 12,300 25,09,568 TOTAL 98,127,880 1,72,43, ,283,171 40,229,473 Less: Diminution in value (29,996) Total cost 150,283,171 40,199,477 Market value 159,847,932 40,561,735 Short positions on investments Dr. Reddy s Laboratories Ltd. 1,600 23,200 2,316,988 21,338,768 Hindalco Industries Ltd. 6,305 8,699,024 ICICI Bank Ltd. 10,000 3,121,950 Mahanagar Telephone Nigam Ltd. 5, ,615 Reliance Industries Ltd. 3,000 4,310,145 Satyam Computers Ltd. 12,150 7,551,325 Silverline Technologies Ltd. 25,000 1,152,720 VSNL 2, ,075 Wipro Ltd. 1,800 2,896,210 Total Cost 15,938,232 37,045,588 9 Details of Bank Balances As on 31 st As on 31 st December December Scheduled Banks 48,243,414 37,482,135 Others Standard Chartered Bank 597,037 1,214,900 Barclays Bank 1,187,280 HSBC Bank (Mauritius) 24,330,288 14,640,621 24,866,037 17,042,801 Total 73,170,739 54,524,936

237 228 Kotak Mahindra (International) Limited Significant Accounting Policies and Notes to the Accounts (Contd.) Schedule Leases: The total annual commitments of the Company under non-cancelable operating leases are as under: Land and Buildings Operating leases which expire Within One year 280,091 Between One to Five years 11 For the purpose of comparison, figures for the previous year have been given, which have been regrouped/reclassified wherever necessary. 12 Immediate and ultimate holding companies The directors consider Kotak Mahindra Capital Company Limited, a company incorporated in India, as the company s holding company and Kotak Mahindra Bank Limited (Formerly Kotak Mahindra Finance Limited), a company incorporated in India, as the company s ultimate holding company. Signatures to Schedules 1 to 16 Per our report attached For V. C. Shah and Co. Chartered Accountants For and on behalf of the Board of Directors A. N. Shah Paul Parambi Ravi Lochan Pola Partner Director Director Mumbai Dated: 6 th May 2004

238 229 Kotak Mahindra (UK) Limited BOARD OF DIRECTORS: PAUL PARAMBI, SHYAM KUMAR, V. VARADARAJAN DIRECTORS REPORT The Directors have pleasure in presenting their Annual Report together with the audited accounts of your Company for the year ended 31 st December OPERATIONS The principal business of the Company is dealing in Indian GDR s and Indian ADR s and acting as a Foreign Institutional Investor for investments into India. Your Company recently successfully Lead Managed a FCCB issue of an Indian Company. 2 FINANNCIAL RESULTS AND DIVIDEND The Company s loss for the financial year ended 31 st December 2003 amounted to Rs. 23,45,569 (2002 loss of Rs. 69,62,239). The Directors do not recommend any dividend for the year under review. 3 DIRECTORS RESPONSIBILITY STATEMENT The Directors state as an averment of their responsibility that: a. the Company has, in the preparation of the annual accounts for the year ended 31 st December 2003, followed the applicable accounting standards along with proper explanations relating to material departures, if any; b. the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 st December 2003 and of the profit/loss of the Company for the financial year ended 31 st December 2003; c. the Directors have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and d. the Directors have prepared the annual accounts on a going concern basis. For and on behalf of the Board of Directors Paul Parambi Director V. Varadarajan Director 6 th May 2004

239 230 Kotak Mahindra (UK) Limited AUDITORS REPORT To the Members of Kotak Mahindra (UK) Limited The financial statements of Kotak Mahindra (UK) Limited for the accounting year ended 31 st December 2003, being a Company registered in the United Kingdom, are audited by KPMG Audit Plc, Chartered Accountants and Registered Auditors, London, and we have been furnished with their audit report dated 17 th March We are presented with the accounts in Indian Rupees prepared on the basis of aforesaid accounts to comply with the requirements of Section 212 of the Companies Act We give our report hereunder: 1 We have audited the attached Balance Sheet of Kotak Mahindra (UK) Limited as at 31 st December 2003 and the Profit and Loss Account for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's Management. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3 As required by the Manufacturing and Other Companies (Audiror's Report) Order, 1988 issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4 Further to our comments in the Annexure referred to above, we report that: (a) (b) (c) We have obtained all the information and explanations, which to the best of our knowledge and belief, were necessary for the purpose of our audit; In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of the books; The Balance Sheet and Profit and Loss account dealt with by this report are in agreement with the books of account; (d) In our opinion, the Profit and Loss Account and the Balance Sheet comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, (e) On the basis of the written representations received from the directors, we report that none of the directors is disqualified as on 31 st December 2003 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, (f) In our opinion, on the basis of information and explantions given to us and relying upon the above referred financial statements and auditor's report thereon, the accounts read with the notes thereon give the information required by the Companies Act 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India; (i) (ii) in the case of Balance Sheet of the state of affairs of the Company as at 31 st December 2003; and in the case of Profit & Loss Account, of the Loss for the year ended on that date. For V. C. SHAH & Co. Chartered Accountants A. N. SHAH Partner Membership No Place : Mumbai Date : 6 th May 2004

240 231 Kotak Mahindra (UK) Limited ANNEXURE TO THE AUDITORS REPORT REFERRED TO IN PARAGRAPH 3 OF OUR REPORT OF EVEN DATE As required by the Manufacturing and other Companies (Audiror's Report) Order, 1988 issued by the Central Government in terms of Section 227(4) of the Companies Act, 1956 and on the basis of such checks as we considered appropriate and according to the information and explantions given to us we report that: 1 The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. The fixed assets have been physically verified by the management during the year and no material discrepancies were noticed on such verification. 2 None of the Fixed Assets have been revalued during the year. 3 The Company has taken unsecured loan from its holding company. The rate of interest and other terms and conditions on which this loan has been taken are prima facie not prejudicial to the interest of the Company. 4 The Parties to whom loans or advances in the nature of loans have been given by the Company are repaying the principal amount as stipulated and are also regular in the payment of interest wherever applicable. 5 According to the information and explanations given to us, there are adequate internal control procedures, commensurate with the size of the Company and the nature of its business, for purchase of equipment and other assets. 6. As informed to us, the Company does not have an internal audit system. 7 According to the information and explanations given to us, no personal expenses have been charged to revenue account other than those payable under the contractual obligations or in accordance with the generally accepted business practices. 8 In respect of service activities: (a) (b) the system of allocating man-hours utilized to the relative jobs, is not yet formalized; there is a reasonable system of authorization at proper levels and adequate system of internal control commensurate with the size of the Company and the nature of its business. In our opinion clauses (iii), (iv), (v), (vi), (viii), (xi), (xii), (xiii), (xiv), (xvi), (xvii), (xviii) & (xx) of para 4(A), clause (ii) and (iii) of paragraph 4(B) of the aforesaid order are not applicable to the Company for the year under report. For V. C. SHAH & Co. Chartered Accountants A. N. SHAH Partner Place : Mumbai Date : 6 th May 2004

241 232 Kotak Mahindra (UK) Limited BALANCE SHEET AS AT 31 ST DECEMBER 2003 Schedule 31 st December 31 st December Rupees Rupees Rupees Sources of Funds Shareholders Funds: Share Capital 1 26,287,575 26,287,575 Reserves and Surplus 2 18,230,363 23,021,895 Unsecured Loans: 3 7,635,114 4,851,030 Total 52,153,052 54,160,500 Application of Funds Fixed Assets: Gross Block 4 7,940,697 7,565,250 Less: Depreciation 7,470,750 7,342,393 Net Block 469, ,857 Current Assets, Loans and Advances: Sundry Debtors 5 128,757, ,847,590 Cash and Bank Balances 6 65,718,807 66,438,508 Loans and Advances 7 586,681 1,633, ,063, ,919,117 Less: Current Liabilities and Provisions: Liabilities 8 143,380, ,981,474 Provisions 143,380,006 Net Current Assets 51,683,105 53,937,643 Total 52,153,052 54,160,500 Significant Accounting Policies and Notes to Financial Statements 12 Schedules referred to above form an integral part of the Balance Sheet In terms of our report of even date For and on behalf of the Board of Directors For V. C. SHAH & Co. Paul Parambi V. Varadarajan Chartered Accountants Director Director A. N. SHAH Partner Mumbai Dated: 6 th May 2004

242 233 Kotak Mahindra (UK) Limited PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST DECEMBER 2003 Schedule For the year ended For the year ended 31 st December st December 2002 Rupees Rupees Income Service Income 69,111,947 71,553,920 Interest 339, ,100 Other Income 1,835,398 Total Income 71,286,388 72,040,020 Expenditure Personnel 9 29,848,894 25,154,800 Interest And Other Financial Charges , ,927 Establishment And Other Expenses 11 42,928,729 52,516,266 Total Expenditure 73,503,601 78,115,993 Profit/(Loss) Before Depreciation And Taxation (2,217,212) (6,075,973) Depreciation 128, ,266 Profit/(Loss) Before Taxation (2,345,569) (6,962,239) Provision For Taxation Profit/(Loss) After Taxation (2,345,569) (6,962,239) Add: Balance Brought Forward From Previous Year 14,418,872 21,381,111 Profit Carried To Balance Sheet 12,073,303 14,418,872 Significant Accounting Policies and Notes to Financial Statements 12 Schedules referred to above form an integral part of the Balance Sheet In terms of our report of even date For and on behalf of the Board of Directors For V. C. SHAH & Co. Paul Parambi V. Varadarajan Chartered Accountants Director Director A. N. SHAH Partner Mumbai Dated: 6 th May 2004

243 234 Kotak Mahindra (UK) Limited SCHEDULES FORMING PART OF THE BALANCE SHEET 31 st December 31 st December Rupees Rupees Schedule 1 : Share Capital Authorised 1,000,000 Ordinary Shares of Sterling Pound 1 each 55,931,010 55,931,011 Issued and Subscribed and fully paid up 4,70,000 equity shares of Sterling Pound 1 each fully paid up 26,287,575 26,287,575 (All the above 470,000 shares are held by Kotak Mahindra International Limited, the holding company) Total 26,287,575 26,287,575 Schedule 2 : Reserves and Surplus Profit and Loss Account 12,073,303 14,418,872 Translation Reserve 6,157,061 8,603,023 Total 18,230,364 23,021,895 Schedule 3 : Unsecured Loans Loan from Others (Refer note 4, Schedule 12) 4,066,816 3,602,250 Bank Overdraft 3,568,298 1,248,780 Total 7,635,114 4,851,030 Schedule 4 : Fixed Assets (at cost) Rupees Description GROSS BLOCK DEPRECIATION NET BLOCK As at As at 31 st As at As at 31 st As at 31 st As at 31 st 1 st January December 1 st January For the December December December 2003 Additions Deductions year Withdrawn ASSETS Fixtures and fittings 4,673, ,447 5,048,907 4,625,706 96,803 4,722, ,398 47,754 Computers 2,891,790 2,891,790 2,716,687 31,554 2,748, , ,103 Total 7,565, ,447 7,940,697 7,342, ,357 7,470, , ,857 Previous Year 7,419, ,530 7,565,250 6,456, ,273 7,342, ,857 Note: Fixed asset includes translation reserve of Rs. 1,293,631 (Previous year Rs. 1,291,229). Depreciation for the year includes translation reserve of Rs. 172 (Previous year Rs. 16). 31 st December 31 st December Rupees Rupees Schedule 5 : Sundry Debtors (Unsecured) Considered good Over six months Others 128,757, ,847,590 (including Rs. 106,994 due from a Director; Previous year Rs. 137,895) Maximum outstanding during the year Rs. 106,994; Previous year Rs. 137,895) Total 128,757, ,847,590 Schedule 6 : Cash and Bank Balances Cash on hand Bank balances abroad (Refer note 6, Schedule 12) 65,718,807 66,438,508 Total 65,718,807 66,438,508

244 235 Kotak Mahindra (UK) Limited Schedules forming part of the Balance Sheet (Contd.) 31 st December 31 st December Rupees Rupees Schedule 7 : Loans and Advances (Unsecured, considered good unless otherwise stated) Advances recoverable in cash or in kind or for value to be received 586,681 1,633,019 Total 586,681 1,633,019 Schedule 8 : Liabilities Sundry creditors 141,907, ,772,094 Other liabilities 1,472,793 2,209,380 Total 143,380, ,981,474 SCHEDULES FORMING PART OF THE PROFIT AND LOSS ACCOUNT For the year ended For the year ended 31 st December st December 2002 Rupees Rupees Schedule 9 : Personnel Salaries And Allowances 25,376,400 22,129,314 Social Security Costs 4,472,494 3,025,486 Total 29,848,894 25,154,800 Schedule 10 : Interest and Other Financial Charges Interest Expenses 558, ,050 Bank Charges 167, ,877 Total 725, ,927 Schedule 11 : Establishment and Other Expenses Travelling Expenses 4,199,118 2,620,176 Foreign Auditors Remuneration 2,157,874 2,110,349 Directors Remuneration 12,572,595 12,130,280 Legal And Professional Expenses 1,608,143 3,019,264 Communication Expenses 3,953,247 3,613,401 Dealing Expenses 10,718,162 8,250,138 Rent 2,476,859 2,188,908 Lease Rentals 347, ,395 Bad Debts 3, ,351 Donation 14,893 7,778 Other Expenses 4,877,383 4,655,428 Total 42,928,729 39,697,468

245 236 Kotak Mahindra (UK) Limited SIGNIFICANT ACCOUNTING POLICIES AND NOTES TO THE ACCOUNTS Schedule 12 : Notes to the Financial Statements 1 Significant Accounting Policies: (i) (ii) Method of Accounting The accounts are prepared in accordance with accounting principles generally accepted in India. The Company follows accrual method of accounting. Conversion to Indian Rupees For the purpose of accounts, all income and expense items are converted at the average rate of exchange applicable for the year. All assets and liabilities are translated at the closing rate as on the Balance Sheet date. The exchange difference arising out of the year-end translation is debited or credited to Translation Reserve. The Share Capital is carried forward at the rate of exchange prevailing on the transaction date. The resulting exchange difference on account of translation at the year end are transferred to Translation Reserve Account and the said account is being treated as Reserve and Surplus. (iii) (iv) (v) (vi) Revenue Recognition Commission, fees and other revenue is invoiced and recognised on an accrual basis. Interest income is recognised in the income statement as accrued. Taxes Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognized, subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the differences between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. Securities lending and borrowings Securities borrowing and lending transactions are recorded at the amount of cash collateral advanced or received. Securities borrowing transactions require the borrower to provide collateral in the form of cash/other acceptable securities and cash/other acceptable securities is received for securities lending transactions. The fee income on these transactions is recognised over the period of contract. Fixed assets Fixed assets are stated at cost less accumulated depreciation. Depreciation is provided on a straight-line basis over the expected useful lives of such assets as estimated by the Management. Additions during the year bear a due proportion of the annual depreciation charge. The annual depreciation rates are as under: Furniture and Fittings 33 1/3% Computers 33 1/3% (vii) Operating Leases Costs in respect of operating leases are charged on a straight line basis over the lease term. 2 The Company is a wholly owned subsidiary of Kotak Mahindra Capital Company Limited. The accounts have been prepared and audited for the purpose of attachment to the accounts of the Holding Company to comply with the provisions of the Indian Companies Act, The transactions are in local currency, which have been converted into Indian Currency for reporting and the rate applied is as per para (ii) of the significant accounting policies. 4 Unsecured loan from others represents long term subordinated loan from the company s immediate parent undertaking, Kotak Mahindra (International) Limited. The loan is interest free and repayable upon giving or receiving two years notice to or from the immediate parent undertaking. No such notice had been given or received at the Balance sheet date. 5 Leases: The total annual commitments of the Company under non-cancelable operating leases are as under: Operating leases which expire Land and Buildings Other Operating Leases Within one year 2,690,990 2,094, , ,032 Between one to five years 10,672, , ,788

246 237 Kotak Mahindra (UK) Limited Significant Accounting Policies and Notes to the Accounts (Contd.) 6 Details of Bank Balances* As on As on 31 st December 31 st December Rupees Rupees Scheduled Banks 612,588 Others Morgan Guaranty Trust Company of New York Euroclear Operations Centre, Belgium 63,714,499 26,607,711 Standard Chartered Bank, London 307,209 36,713,346 Barclays Bank Plc 1,084,510 3,117,451 Total 65,718,807 66,438,508 *Excludes Client money deposits aggregating Rs. 73,445,578 earmarked in a separate bank account held in the name of the Company 7 Deferred tax assets in respect of tax losses and accelerated capital losses aggregating Rs. 2,827,820 (Previous year Rs. 2,305,440) have not been recognized in respect of tax losses carried forward as the Directors consider it prudent not to recognize these assets based on current trading levels. 8 For the purpose of comparison, figures for the previous year have been given, which have been regrouped/reclassified wherever necessary. 9 The Company s immediate parent company is Kotak Mahindra (International) Limited which is incorporated in Mauritius. The Company s ultimate holding company is Kotak Mahindra Bank Limited, a company incorporated in India. Signatures to Schedules 1 to 12 Per our Report attached For and on behalf of the Board of Directors For V. C. SHAH & Co. Paul Parambi V. Varadarajan Chartered Accountants Director Director A. N. SHAH Partner Mumbai Dated: 6 th May 2004

247 238 Kotak Mahindra, Inc. BOARD OF DIRECTORS: PAUL PARAMBI, RAVI LOCHAN POLA, VISWANATH VARDARAJAN, SHYAM KUMAR DIRECTORS REPORT To the Members of Kotak Mahindra, Inc. The Directors have pleasure in presenting their Annual Report together with the audited accounts of your Company for the year ended 31 st December OPERATIONS The company is a broker dealer registered with the NASD. Your Company during the year assisted in distribution of large Indian Equity Offering of Indian Companies in US. 2 FINANCIAL RESULTS AND DIVIDEND The Company s loss for the financial year ended 31 st December 2003 amounted to Rs. 1,04,03,226 ( ,13,618). The Directors do not recommend any dividend for the year under review. 3 DIRECTOR S RESPONSIBILITY STATEMENT The Directors state as an averment of their responsibility that: (a) the Company has, in the preparation of the annual accounts for the year ended 31 st December 2003, followed the applicable accounting standards along with proper explanations relating to material departures, if any; (b) the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 st December 2003 and of the profit/loss of the Company for the financial year ended 31 st December 2003; (c) the Directors have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and (d) the Directors have prepared the annual accounts on a going concern basis. For and on behalf of the Board of Directors Paul Parambi Ravi Lochan Pola 6 th May, Director Director

248 239 Kotak Mahindra Inc. AUDITORS REPORT TO THE SHAREHOLDERS To the Members of Kotak Mahindra, Inc. The Financial statements of Kotak Mahindra, Inc. for the accounting year ended 31 st December 2003, being a company registered in the United States of America, are audited by Rothstein Kass & Company, P.C., Certified Public Accountants, New Jersey, and we have been furnished with their audit report dated 9 th January We are presented with the accounts in Indian Rupess prepared on the basis of aforesaid accounts to comply with the requirements of Section 212 of the Companies Act We give our report hereunder: 1 We have audited the attached Balance Sheet of Kotak Mahindra Inc. as at 31 st December 2003 and the Profit and Loss Account for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company s Management. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3 As required by the Manufacturing and other Companies (Auditor s Report) Order, 1988 issued by the Central Government of India in terms of Section 227(4A) of the Companies Act, 1956, we enclose in the Annexure, a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4 Further to our comments in the Annexure referred to above, we report that: (a) (b) (c) (d) We have obtained all the information and explanations, which to the best of our knowledge and belief, were necessary for the purposes of our audit; In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of the books; The Balance Sheet and Profit and Loss account dealt with by this report are in agreement with the books of account; In our opinion, the Profit and Loss Account and the Balance Sheet comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, 1956; (e) On the basis of the written representations received from the directors, we report that none of the directors is disqualified as on 31 st December 2003 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, (f) In our opinion, on the basis of information and explanations given to us and relying upon the above referred financial statements and auditors's report thereon, the accounts read with the notes thereon give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India: (i) (ii) in the case of Balance Sheet of the state of affairs of the Company as at 31 st December 2003; and in the case of Profit and Loss Account of the Loss for the year ended on that date. For and on behalf of V. C. SHAH & CO. Chartered Accountants A. N. SHAH Partner Membership No Place: Mumbai Date: 6 th May, 2004

249 240 Kotak Mahindra, Inc. ANNEXURE TO THE AUDITORS REPORT (Referred to in paragraph 3 of our report of even date) As required by the Manufacturing and other Companies (Auditor s Report) Order, 1988 issued by the Central Government in terms of Section 227(4) of the Companies Act, 1956 and on the basis of such checks as we considered appropriate and according to the information and explanations given to us we report that: 1 The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. The fixed assets have been physically verified by the management during the year and no material discrpancies were noticed on such verification. 2 None of the Fixed Assets have been revalued during the year. 3 The Company has taken unsecured loans from a fellow subsidiary company. The rate of interest and other terms and conditions on which these loans have been taken, are prima facie, not prejudicial to the interest of the Company. 4 The parties to whom loans, or advances in the nature of loans have been given by the Company are repaying the same as stipulated and are also regular in the payment of interest wherever applicable. 5 According to the information and explanations given to us, there are adequate internal control procedures, commensurate with the size of the Company and the nature of its business for purchase of equipment and other assets. 6 As informed to us, the Company does not have an internal audit system. 7 According to the information and explanations given to us, no personal expenses have been charged to revenue account other than those payable under the contractual obligations or in accordance with the generally accepted business practices. 8 In respect of service activities: (a) (b) the system of allocating man-hours utilized to the relative jobs, is not yet formalized; there is a reasonable system of authorization at proper levels and adequate system of internal control commensurate with the size of the Company and the nature of its business. In our opinion claues (iii), (iv), (v), (vi), (viii), (xi), (xii), (xiii), (xiv), (xvi), (xvii), (xviii) & (xx) of para 4(A), and (ii) and (iii) of para 4(B) of the aforesaid order are not applicable to the Company for the year under report. For and on behalf of V. C. SHAH & CO. Chartered Accountants A. N. SHAH Partner Place: Mumbai Date: 6 th May, 2004

250 241 Kotak Mahindra, Inc. BALANCE SHEET AS AT 31 ST DECEMBER 2003 Schedule 31 st December 31 st December Rupees Rupees Rupees SOURCES OF FUNDS : Shareholders Funds : Share Capital 1 343, ,767 Reserves and Surplus 2 35,584,597 30,948,530 Loan Funds : Unsecured Loans 3 13,683,000 9,606,000 Total 49,611,372 40,852,297 APPLICATION OF FUNDS : Fixed Assets : 4 Gross Block 718, ,858 Less : Depreciation 557, ,915 Net Block 161, ,943 Current Assets, Loans and Advances : Sundry Debtors 5 424, ,276 Cash and Bank Balances 6 8,708,363 7,728,555 Loans and Advances 7 613,819 3,066,331 9,746,948 11,556,162 Less : Current Liabilities And Provisions : Liabilities 8 41, ,962 9,705,899 11,360,200 Net Current Assets Profit and Loss Account 39,744,381 29,341,155 TOTAL 49,611,372 40,852,297 Significant Accounting Policies and Notes to Financial Statements 12 Schedules referred to above form an integral part of the Balance Sheet In terms of our report of even date For and on behalf of the Board of Directors For V. C. Shah and Co. Chartered Accountants A. N. Shah Partner Mumbai Dated : 6 th May 2004 Paul Parambi Director Ravi Lochan Pola Director

251 242 Kotak Mahindra, Inc. PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST DECEMBER 2003 INCOME Schedule For the year ended For the year ended 31 st December 31 st December Rupees Rupees Rupees Income from Services 9 14,119,584 16,786,005 TOTAL INCOME 14,119,584 16,786,005 EXPENDITURE Personnel 10 11,632,115 12,839,603 Establishment and Other Expenses 11 12,784,166 13,649,882 TOTAL EXPENDITURE 24,416,280 26,489,485 Profit before Depreciation and Taxation (10,296,696) (9,703,480) Depreciation 106, ,138 Profit/(Loss) Before Taxation (10,403,226) (9,813,618) Provision for Taxation Profit/(Loss) After Taxation (10,403,226) (9,813,618) Add: Balance Brought Forward From Previous Year (29,341,155) (19,527,537) Profit/(Loss) Carried to Balance Sheet (39,744,381) (29,341,155) Significant Accounting Policies and Notes to Financial Statements 12 Schedules referred to above form an integral part of the Profit and Loss Account In terms of our report of even date For and on behalf of the Board of Directors For V. C. Shah and Co. Chartered Accountants A. N. Shah Partner Mumbai Dated : 6 th May 2004 Paul Parambi Director Ravi Lochan Pola Director

252 243 Kotak Mahindra, Inc. SCHEDULES FORMING PART OF THE BALANCE SHEET Schedule 1 : Share Capital Authorised 1,000,000 Common stock, US$ 0.01 each Schedule 4 : Fixed Assets (at cost) 31 st December 31 st December Rupees Rupees Issued, Subscribed and Paidup 750,001 Common Stock of US $ 0.01 each fully paid-up (Previous year 650,001) (Of the above, 750,000 common stocks are held by Kotak Mahindra Capital Company Limited, the holding company). 343, ,767 (Of the above, 100,000 Common stock was issued, consequent to conversion of subordinated loan to equity) Total 343, ,767 Schedule 2 : Reserves And Surplus Share Premium Account As per last Balance Sheet 29,478,933 14,962,365 Additions during the year 4,554,792 14,516,568 34,033,725 29,478,933 Translation Reserve 1,550,872 1,469,597 Total 35,584,597 30,948,530 Schedule 3 : Unsecured Loans Loan Others (Refer note 4, Schedule 12) 13,683,000 9,606,000 Total 13,683,000 9,606,000 Description GROSS BLOCK DEPRECIATION NET BLOCK As at 1 st Additions Deductions As at 31 st As at 1 st For the Withdrawn As at 31 st As at 31 st As at 31 st January December January year December December December ASSETS Office Equipment 601, , , , , , , ,943 Total 601, , , , , , , ,943 Previour Year 532,004 69, , , , , ,943 Note: Fixed asset includes translation reserve of Rs. 41,209 Depreciation for the year includes translation reseve of Rs. 263/- Schedule 5 : Sundry Debtors (Unsecured) Considered good Over six months Rupees 31 st December 31 st December Rupees Rupees Others 424, ,276 Total 424, ,276 Schedule 6 : Cash and Bank Balances Bank balances with Bank of Newyork (other than scheduled bank) 8,708,363 7,728,555 Total 8,708,363 7,728,555 Schedule 7 : Loans and Advances (Unsecured, considered good unless otherwise stated) Advances recoverable in cash or in kind or for value to be received 613,819 3,066,331 Total 613,819 3,066,331 Schedule 8 : Liabilities Other liabilities 41, ,962 Total 41, ,962

253 244 Kotak Mahindra, Inc. Schedules forming Part of the Profit and Loss Account (Contd.) For the year ended For the year ended 31 st December 31 st December Rupees Rupees Schedule 9 : Income From Services Business development fees 7,446,400 4,374,900 Advisory fees 1,356,315 2,439,639 Commissions 5,316,869 9,971,467 Total 14,119,584 16,786,006 Schedule 10 : Personnel Salaries and other allowances 11,632,115 12,839,602 Total 11,632,115 12,839,602 Schedule 11 : Establishment and Other Expenses Foreign Auditors Remuneration 651, ,322 Legal and Professional 463, ,263 Communication expenses 2,782,720 3,679,291 Directors Remuneration 4,374,760 4,703,018 Rent 949, ,353 Travelling and Conveyance 1,609,260 2,188,422 Accounting charges 670, ,324 Licensing and Registration 312, ,784 Other Expenses 970, ,106 Total 12,784,166 13,649,883 Schedule 12 : Significant Accounting Policies and Notes to the Accounts 1 Significant Accounting Policies: (i) Method of Accounting The accounts are prepared in accordance with accounting principles generally accepted in India. The Company follows accrual method of accounting. (ii) (iii) (iv) (v) Conversion to Indian Rupees For the purpose of the accounts during the year, all income and expense items are converted at the average rate of exchange. All assets and liabilities are translated at the closing rate as on the Balance Sheet date. The exchange difference arising out of the year-end translation is being debited or credited to Translation Reserve. The Share Capital is carried forward at the rate of exchange prevailing on the transaction date. The resulting exchange difference on account of translation at the year-end is being treated transferred to Translation Reserve Account and the said account is being treated as Reserve and Surplus. Revenue Recognition Securities transactions and the related revenue and expenses are recorded on a trade date basis. Fixed Assets Fixed assets are stated net of depreciation. Depreciation has been provided on Straight Line Method. The rates of depreciation are fixed after considering the management s estimation of the useful life of the asset. Description of the Fixed Asset Estimated Useful Life Office Equipments 5 Years Taxes Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred Tax is recognized, subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the differences between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods.

254 245 Kotak Mahindra, Inc. Significant Accounting Policies and Notes to the Accounts (Contd.) 2 The Company is a wholly owned subsidiary of Kotak Mahindra Capital Company Limited. The accounts have been prepared and audited for the purpose of attachment to the accounts of the Holding Company to comply with the provisions of the Indian Companies Act, The transactions are in local currency (US Dollars), which have been converted into Indian Currency (Indian Rupees) for reporting and the rate applied is as per para (ii) of the significant accounting policies. 4 At 31st December, 2003, the Company has amounts due of Rs.13,683,000/- [US $ 300,000] (previous year Rs. 9,606,000) under three subordinated loans of US $ 100,000 each to Kotak Mahindra (International) Limited, which are pursuant to agreements approved by the National Association of Securities Dealer. The three loans mature on 30th September 2007, 30th September 2006 and 30 th August, 2006, respectively and are non-interest bearing. 5 The Company has a deferred tax asset of approximately Rs. 15,188,130 (Previous year Rs. 1,17,19,320), primarily attributable to Federal and New York State net operating loss carry-forwards. The Company has established a valuation allowance of the same amount due to uncertainty as to the realization of these carry forwards. These carry-forwards expire by the year Figures for the previous year have been regrouped/reclassified wherever necessary. Signatures to Schedules 1 to 12 In terms of our report of even date For and on behalf of the Board of Directors For V. C. Shah and Co. Chartered Accountants A. N. Shah Partner Mumbai Dated : 6 th May 2004 Paul Parambi Director Ravi Lochan Pola Director

255 246 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) BOARD OF DIRECTORS: UDAY KUMAR GUJADHAR, YUVRAJ KUMAR JUWAHEER, PAUL PARAMBI, SHYAM KUMAR, RAVI LOCHAN POLA DIRECTORS REPORT The Directors have pleasure in presenting their Annual Report together with the audited accounts of your Company for the year ended 31 st December OPERATIONS The Company was incorporated in Mauritius and the main objective of the Company is to seek capital appreciation by investing in portfolio of securities. 2 FINANCIAL RESULTS AND DIVIDEND The Company s profit for the financial year ended 31 st December 2003 amounted to Rs. 1,16,85,961 (2002 loss of Rs. 6,74,54,564). The Directors do not recommend any dividend for the year under review. 3 DIRECTORS RESPONSIBILITY STATEMENT The Directors state as an averment of their responsibility that: a. the Company has, in the preparation of the annual accounts for the year ended 31 st December 2003, followed the applicable accounting standards along with proper explanations relating to material departures, if any; b. the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 st December 2003 and of the profit/loss of the Company for the financial year ended 31 st December 2003; c. the Directors have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and d. the Directors have prepared the annual accounts on a going concern basis. For and on behalf of the Board of Directors 6 th May, Paul Parambi Director Ravi Lochan Pola Director

256 247 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) AUDITORS REPORT To the Members of Global Investment Opportunities Fund Limited (Formerly Known as Kotak Mahindra Investment Company Limited, PCC) The financial statements of Global Investment Opportunities Fund Limited. (Formerly known as Kotak Mahindra Investment Company Limited, PCC) for the accounting year ended 31 st December 2003, being a company registered in Mauritius, are audited by KPMG, Public Accountants, Mauritius, and we have been furnished with their audit report dated 6 th April We are presented with the accounts in Indian Rupees prepared on the basis of aforesaid accounts to comply with the requirements of Section 212 of the Companies Act We give our report hereunder: 1 We have audited the attached Balance Sheet of Global Investment Opportunities Fund Limited. (Formerly known as Kotak Mahindra Investment Company Limited, PCC) as at 31 st December 2003 and the Profit and Loss Account for the year ended on that date annexed thereto. These financial statements are the responsibility of the Company's Management. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3 As required by the Manufacturing and Other Companies (Audiror's Report) Order, 1988 issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, we enclosed in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. 4 Further to our comments in the Annexure referred to above, we report that: (a) (b) We have obtained all the information and explanations, which to the best of our knowledge and belief, were necessary for the purpose of our audit; In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of the books; (c) The Balance Sheet and Profit and Loss account dealt with by this report are in agreement with the books of account; (d) In our opinion, the Profit and Loss Account and the Balance Sheet comply with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act, (e) On the basis of the written representations received from the directors, we report that none of the directors is disqualified as on 31 st December 2003 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, (f) In our opinion, on the basis of information and explantions given to us and relying upon the above referred financial statements and auditor's report thereon, the accounts read with the notes thereon give the information required by the Companies Act, 1956 in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India; (i) (ii) in the case of Balance Sheet of the state of affairs of the Company as at 31 st December 2003; and in the case of Profit & Loss Account, of the Profit for the year ended on that date. For V. C. Shah & Co. Chartered Accountants A. N. Shah Partner Membership No Place : Mumbai Date : 6 th May, 2004

257 248 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) ANNEXURE TO THE AUDITORS REPORT (Referred to in Paragraph 3 of our report of even date) As required by the Manufacturing and other Companies (Audiror's Report) Order, 1988 issued by the Central Government in terms of Section 227(4) of the Companies Act, 1956 and on the basis of such checks as we considered appropriate and according to the information and explantions given to us we report that: 1 The Parties to whom loans or advances in the nature of loans have been given by the Company are repaying the principal amount as stipulated and are also regular in the payment of interest wherever applicable. 2 According to the information and explanations given to us, there are adequate internal control procedures, commensurate with the size of the Company and the nature of its business, for purchase and sale of shares and other securities. 3 As informed to us, the Company does not have an internal audit system. 4 According to the information and explanations given to us, no personal expenses have been charged to revenue account other than those payable under the contractual obligations or in accordance with the generally accepted business practices. 5 In respect of service activities: (a) (b) the system of allocating man-hours utilized to the relative jobs, is not yet formalized; there is a reasonable system of authorization at proper levels and adequate system of internal control commensurate with the size of the Company and the nature of its business. 6 According to the information and explanations given to us, proper records have been maintained in respect of transactions and contracts in shares, securities, debentures and other investments and timely entries have been made therein. The shares and other securities have been held by the Company in its own name. In our opinion clauses (i), (ii), (iii), (iv), (v), (vi), (vii), (viii), (xi), (xii), (xiii), (xiv), (xvi), (xvii), (xviii) & (xx) of para 4(A), clause (ii) and (iii) of para 4(B), and clause (ii) and (iii) of para 4(D) of the aforesaid order are not applicable to the Company for the year under report. For V. C. Shah & Co. Chartered Accountants A. N. Shah Partner Place : Mumbai Date : 6 th May, 2004

258 249 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) BALANCE SHEET AS AT 31 ST DECEMBER 2003 Schedule 31 st December st December 2002 Consolidated Consolidated Consolidated Consolidated Management Class Cell Management Class Cell Shares Accounts Accounts Total Shares Accounts Accounts Total Rupees Rupees Rupees Rupees Rupees Rupees SOURCES OF FUNDS Shareholders Funds: Share Capital 1 4,818 40,723 45,541 4,818 9,060,625 9,065,443 Reserves and Surplus 2 (257) 473,973, ,973,443 (15) 976,155, ,155,551 Total 4, ,014, ,018,983 4, ,216, ,220,994 APPLICATION OF FUNDS Investments 3 465,367, ,367, ,927, ,927,743 Current Assets, Loans and Advances : Sundry Debtors 4 4,595,253 4,595,253 24,165,286 24,165,286 Cash and Bank Balances 5 4,561 12,725,600 12,730,161 4, ,129, ,134,048 Loans and Advances 6 48,620 48,620 50,610,748 50,610,748 4,561 17,369,474 17,374,035 4, ,905, ,910,081 Less : Current Liabilities and Provisions: Liabilities 7 8,722,183 8,722,183 20,616,830 20,616,830 Net Current Assets 4,561 8,647,291 8,651,852 4, ,288, ,293,251 Total 4, ,014, ,018,983 4, ,216, ,220,994 Significant Accounting Policies and Notes to Financial Statements 8 Schedules referred to above form an integral part of the Balance Sheet In terms of our report of even date For and on behalf of the Board of Directors: For V. C. Shah & Co. Paul Parambi Ravi Lochan Pola Chartered Accountants Director Director A. N. Shah Partner Mumbai Dated: 6 th May 2004

259 250 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST DECEMBER 2003 Schedule For the year ended 31 st December 2003 For the year ended 31 st December 2002 Consolidated Consolidated Consolidated Consolidated Management Class Cell Management Class Cell Shares Accounts Accounts Total Shares Accounts Accounts Total Rupees Rupees Rupees Rupees Rupees Rupees INCOME Dividends 694, ,066 1,642,490 8,991,100 8,991,100 Interest 31, , ,051 2,840,428 2,840,428 Service Income 3,238,951 2,421,476 5,660,428 18,518,125 18,518,125 Profit on Sale of Investments (Net) 15,731,590 (65,238,702) (49,507,111) 106,343, ,343,805 Profit on Trading in Securities (Net) (3,681,576) (3,681,576) Other Income 826, ,923 Total Income 19,696,519 (60,494,740) (40,798,221) 133,011, ,011,882 EXPENDITURE Interest 2,606 2,606 5,639 5,639 Transaction and Custody Charges 537,351 1,781,039 2,318,390 8,477,584 8,477,584 Other Operating Expenses (Refer Note 8, Schedule 8) 2,341,660 1,391,406 3,733,066 5,282,449 5,282,449 Foreign Auditors Remuneration 279, , , ,867 Legal and Professional Fees 4,456, ,234 5,183,439 Brokerage Fees 3,057,538 3,057,538 20,022,556 20,022,556 Exchange Loss 396, ,102 1,519,597 1,519,597 Total Expenditure 8,010,558 6,959,824 14,970,382 35,672,692 35,672,692 Profit Before Taxation 11,685,961 (67,454,564) (55,768,603) 97,339,190 97,339,190 Provision for Taxation Profit After Taxation 11,685,961 (67,454,564) (55,768,603) 97,339,190 97,339,190 Add: Balance Brought Forward From Previous Year 90,381,336 90,381,336 7,028,896 7,028,896 11,685,961 22,926,772 34,612, ,368, ,368,086 Less: Transferred To Share Premium (22,926,772) (22,926,772) (13,986,750) (13,986,750) Balance Carried Forward 11,685,961 11,685,961 90,381,336 90,381,336 Significant Accounting Policies and Notes to Financial Statements 8 Schedules referred to above form an integral part of the Balance Sheet In terms of our report of even date For and on behalf of the Board of Directors: For V. C. Shah & Co. Paul Parambi Ravi Lochan Pola Chartered Accountants Director Director A. N. Shah Partner Mumbai Dated: 6 th May 2004

260 251 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) SCHEDULES FORMING PART OF THE BALANCE SHEET 31 st December st December 2002 Consolidated Consolidated Consolidated Consolidated Management Class Cell Management Class Cell Shares Accounts Accounts Total Shares Accounts Accounts Total Rupees Rupees Rupees Rupees Rupees Rupees Schedule 1 : Share Capital Issued, Subscribed and paid-up 100 Management shares of USD 0.01 each (All the above 100 shares are held by Kotak Mahindra International Limited, the holding company) 4,818 4,818 4,818 4,818 Nil (Previous year 18,658,105) Redeemable Participating preference shares of USD 0.01 each 9,060,625 9,060,625 60,712 (Previous year Nil) Class A Participating shares of USD 0.01 each 28,250 28,250 26,846 (Previous year Nil) Class B Participating shares of USD 0.01 each (Refer note 6, Schedule 8) 12,473 12,473 Total 4,818 40,723 45,541 4,818 9,060,625 9,065,443 Schedule 2 : Reserves and Surplus Share Premium As per last Balance sheet 895,822, ,822,369 73,089,028 73,089,028 Add: Received during the year 479,168,301 8,060, ,229,029 1,184,926,110 1,184,926,110 Less: Paid on redemption (7,215,282) (880,956,325) (888,171,607) (376,179,519) (376,179,519) Transfer from Retained earnings (22,926,772) (22,926,772) 13,986,750 13,986,750 [Refer note 2(e) and 6 of Schedule 8] 471,953, ,953, ,822, ,822,369 Profit and Loss Account 11,685,961 11,685,961 90,381,337 90,381,337 Translation Reserve (257) (9,665,279) (9,665,536) (15) (10,048,140) (10,048,155) Total (257) 473,973, ,973,442 (15) 976,155, ,155,551 Schedule 3 : Investments As per list in note 5 of Schedule 8 465,367, ,367, ,927, ,927, ,367, ,367, ,927, ,927,743 Schedule 4 : Sundry Debtors (Unsecured) Considered good Over six months Others 4,595,253 4,595,253 24,165,286 24,165,286 Total 4,595,253 4,595,253 24,165,286 24,165,286 Schedule 5 : Cash and Bank Balances Bank balances - (Refer note 9, Schedule 8) 4,561 12,725,600 12,730,161 4, ,129, ,134,048 Total 4,561 12,725,600 12,730,161 4, ,129, ,134,048

261 252 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) Schedules forming part of the Balance Sheet (Contd.) Schedule 6 : Loans and Advances (Unsecured, considered good unless otherwise stated) 31 st December st December 2002 Consolidated Consolidated Consolidated Consolidated Management Class Cell Management Class Cell Shares Accounts Accounts Total Shares Accounts Accounts Total Rupees Rupees Rupees Rupees Rupees Rupees Purchased options [Refer note 5(c) of Schedule 8] 3,427,565 3,427,565 Deposits 40,312,347 40,312,347 Margin accounts on futures contracts 5,732,236 5,732,236 Advances recoverable in cash or in kind or for value to be received 48,620 48,620 1,138,599 1,138,599 Total 48,620 48,620 50,610,748 50,610,748 Schedule 7 : Liabilities Sundry Creditors 8,722,183 8,722,183 Investments sold short [Refer note 5(b) of Schedule 8] 18,880,881 18,880,881 Written options [Refer note 5(c) of Schedule 8] 190, ,199 Unrealised loss on futures contracts 289, ,957 Other liabilities 1,255,793 1,255,793 Total 8,722,183 8,722,183 20,616,830 20,616,830 Schedule 8 : Significant Accounting Policies and Notes to the Accounts 1 GENERAL INFORMATION The Company was incorporated in Mauritius on 31 st January 2001 as a private company limited by shares and was structured as a Protected Cell Company ( PCC ). On 13 th June 2003, the Company converted into a public company of a non-pcc status with a multi-class structure. On 13 th June 2003, the Company changed its name from Kotak Mahindra Investment Company Limited, PCC to Global Investment Opportunities Fund Limited. A PCC is a special purpose vehicle providing legal segregation of assets and liabilities of one cell from those of other cells. Shareholders and creditors of one particular cell have access only against the assets of that cell but not against the assets in another protected cell. The assets of the PCC can either be cellular assets or non-cellular assets. The cellular assets comprise of assets represented by the cell share capital, reserves and any other assets attributable to that cell. The non-cellular assets comprise of assets which are not cellular and which are attributable to the core cell. Where a liability arises from a transaction in respect of a particular cell, and there are insufficient assets within this cell, then there is recourse to the non-cellular assets but not to the assets of any other cells. 2 ACCOUNTING POLICIES The following accounting policies have been consistently applied in dealing with items which are considered material in relation to the Company s financial statements. (a) (b) (c) Basis of preparation The financial statements have been prepared under the historical cost convention on accrual basis Conversion to Indian Rupees For the purpose of accounts, all income and expense items are converted at the average rate of exchange applicable for the year. All assets and liabilities are translated at the closing rate as on the Balance Sheet date. The exchange difference arising out of the year-end translation is debited or credited to Translation Reserve. The Share Capital is carried forward at the rate of exchange prevailing on the transaction date. The resulting exchange difference on account of translation at the year-end are transferred to Translation Reserve Account and the said account is being treated as Reserve and Surplus. Investment The Company classified its investments in equity securities as current investments, and in respect of GDR securities sold short, the same is classified as liabilities held for trading. Investments are initially recognised at cost, including transaction costs. Long equity securities and GDRs equity securities sold short are subsequently carried at cost or market value, whichever is lower on an overall category basis, based on the quoted bid and offer prices, respectively. When current bid and offer prices are unavailable, the price of the most recent transaction is used.

262 253 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) Schedules forming part of the Balance Sheet (Contd.) Schedule 8 : Significant Accounting Policies and Notes to the Accounts (Contd.) All derivative financial instruments are classified as held for trading. Derivative financial instruments are initially recognised at cost and subsequently measured at fair values. Premiums received on the written options are recorded as a liability and the premiums paid on purchased options are recorded as an asset at inception. The fair value of unexpired purchased options contract is based on the closing bid and in case of unexpired written options contracts, the fair value is based on closing offer prices, offer prices, respectively. Futures contracts are collateralised by cash and changes in the futures contracts values are settled with the exchange on a daily basis. The fair value of open positions in futures contracts are calculated as the difference between the contract price and the settlement price established each day by the exchange on which the contracts are traded. All investment transactions are recorded on a trade date basis and costs of investments are determined on a first-in, first-out basis. (d) (e) (f) Securities borrowings Securities borrowed transactions require the company to provide the counter party with collateral in the form of cash. For these transactions, transaction fees are recognised over the period of contract in terms of the agreement with the respective brokers. On a daily basis, the Company monitors the market value of securities borrowed against the collateral value. Share capital On the issue of participating preference shares, the difference between the issue price and the nominal value is credited to the share premium account. On redemption, the premium repayable is debited to the share premium account up to the amount of the original premium paid in and any excess to retained earnings. Revenue recognition Interest income is recognised in the income statement as accrued. Dividend income relating to listed long equity securities and dividend expense relating to GDRs equity securities sold short are recognised in the income statement on the ex-dividend date. 3 The Company is a wholly owned subsidiary of Kotak Mahindra (International) Limited. The accounts have been prepared and audited for the purpose of attachment to the accounts of the Holding Company to comply with the provisions of the Indian Companies Act, The transactions are in local currency, which have been converted into Indian Currency for reporting and the rate applied is as per para (b) of the significant accounting policies. 5 INVESTMENTS (a) Schedule of listed equities Long Positions Consolidated Consolidated class accounts cell Accounts Holdings Holdings Cost value Cost value Description Quantity Quantity Rs. Rs. Banking and finance Bank of Baroda 57,200 19,306 11,687,242 1,228,988 Bank of India 30,000 1,033,391 Corporation Bank 20,250 2,894,121 HDFC Bank 24,600 50,000 7,692,809 9,469,655 Hinduja TMT 110,772 36,655,718 Himachal Futuristic Ltd. 1,769,500 76,656,898 ICICI Bank Ltd. 66,400 12,121 16,343,185 1,597,904 Oriental Bank of Commerce 22,700 5,394,290 UTI Bank Ltd. 83,700 6,523,879 Energy Bharat Petroleum Corporation Ltd. 55,000 12,026,503 Gas Authority of India Ltd. 48,700 9,231,583 Hindustan Petroleum Corporation Ltd. 44,414 11,970,995 Hub Power Ltd. (GDR) 2,600 1,408,624 Indian Oil Corporation Ltd. 34,800 13,158,150 Oil and Natural Gas Corporation Ltd. 16,000 14,500 10,387,054 4,927,641 Reliance Industries Ltd. 15,909 5,195,941 Reliance Industries Ltd. (GDR) 28,600 14,889,986

263 254 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) Schedules forming part of the Balance Sheet (Contd.) Schedule 8 : Significant Accounting Policies and Notes to the Accounts (Contd.) Consolidated Consolidated class accounts cell Accounts Holdings Holdings Cost value Cost value Description Quantity Quantity Rs. Rs. Machinery, Electricals and Engineering Associated Cement Co. Ltd. 10,000 1,574,189 Bharat Electronics Ltd. 18,700 10,698,400 Bharat Heavy Electricals Ltd. 23,550 12,000 10,544,150 1,738,848 Eicher Motors Ltd. 30,000 2,263,714 Engineers India Ltd. 13,337 4,053,300 Hero Honda Motors Ltd. 10,000 2,567,577 Hindalco Industries Ltd. 4,800 10,060 5,036,699 5,403,508 Larsen and Toubro Ltd. 22,600 5,000 11,724,271 1,829,943 Mahindra and Mahindra Ltd. 30,600 10,000 10,982,584 1,109,493 Mahindra and Mahindra Ltd. (GDR) 50,000 5,205,251 Maruti Udyog Ltd. 33,300 10,178,246 Munjal Auto Ltd. 20,000 1,320,038 NALCO Ltd. 61,300 45,000 10,189,864 4,474,287 Tata Power Company Ltd. 16,950 10,000 3,765,548 1,084,294 Tata Engineering and Locomotive Co. Ltd. 27,100 16,500 10,971,098 2,626,884 Tata Iron and Steel Co. Ltd. 32,600 10,000 12,971,180 1,420,859 Telecommunications and Technology Digital Globalsoft Ltd. 274, ,549,368 Geometric Software Solutions Ltd. 16,900 8,909,314 Global Telesystems Ltd. 35,000 4,479,269 HCL Technologies Ltd. 34,100 6,800 8,526,436 1,920,792 Hughes Software Systems Ltd. 15,000 2,808,204 Infosys Technologies Ltd. 14,500 65,841,862 I-Flex Solutions Ltd ,512 Cybermate Infotek Ltd. 100,000 26,382,190 Mphasis BFL Ltd. 12,850 6,463,787 ITI Ltd. 46,860 2,572,036 Pak Telecommunications Ltd. (GDR) 1,700 3,475,883 Satyam Computers Services Ltd. 111,200 26,371,869 Satyam Computers Services Ltd. (GDR) 14,100 8,910,911 Siemens Ltd. 11,286 6,742,221 Tata Telecom Ltd. 35,800 7,919,740 Videsh Sanchar Nigam Ltd. 21,000 2,171,916 Videsh Sanchar Nigam Ltd. (GDR) 4, ,250 Health and Personal Care Apollo Hospitals Enterprise Ltd. 20,200 3,468,858 Aurobindo Pharma Ltd. 9,400 3,322,823 Aventis Pharma Ltd. 8,509 5,040,109 Cadila Healthcare Ltd. 32,700 12,128,507 Cipla Ltd. 9,500 11,598,220 Divi s Laboratories Ltd. 9,790 10,737,127 Dr. Reddy s Labs Ltd. 13,344 2,000 17,700,374 1,681,295 Dr. Reddy s Labs Ltd. (GDR) ,011 Glaxo Smithkline Ltd. 15,000 8,071,585 Hikal Ltd. 18,632 6,532,891 IPCA Laboratories Ltd. 9,600 10,000 5,432,710 1,138,006 Lupin Laboratories Ltd. 29,636 18,801,267 Matrix Laboratories Ltd. 6,142 7,995,520 Morepen Ltd. 15, ,023 Monsanto India Ltd. 5,125 6,478,135 Nicholas Piramal India Ltd. 11,800 6,515,078

264 255 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) Schedules forming part of the Balance Sheet (Contd.) Schedule 8 : Significant Accounting Policies and Notes to the Accounts (Contd.) Consolidated Consolidated class accounts cell Accounts Holdings Holdings Cost value Cost value Description Quantity Quantity Rs. Rs. Pfizer Ltd. 10,150 5,056,915 Ranbaxy Laboratories Ltd. 19,900 6,400 21,312,265 3,539,496 Shasun Chemicals & Drugs Ltd. 18,055 6,848,769 Sun Pharmaceutical Industries Ltd. 9,850 5,926,203 Wockhardt Ltd. 6,152 4,213,137 Wyeth Lederle Ltd. 10,327 4,353,903 Consumer products Ballarpur Industries Ltd. 40,000 2,004,624 Century Textiles & Industries Ltd. 80,200 11,267,292 Grasim Technologies Ltd. (GDR) 11,500 34,000 10,874,144 10,488,791 Hindustan Lever Ltd. 5, ,499 ITC Ltd. 12,600 5,000 11,683,847 2,997,072 Pantaloon Retail (I) Ltd. 18,100 4,995,988 Tata Tea Ltd. 31,300 8,922,700 Siv Industries Ltd. (GDR) Chemicals GNFC Ltd. 80,000 2,649,381 Tata Chemicals Ltd. 90,400 11,963,432 (b) Others CMC Ltd. 8,772 4,909,533 Mangalore Refinery & Petrochemicals Ltd. 77, ,000 3,568,315 2,260,929 Zee Telefilms Ltd. 32,000 3,053,736 Container Corporation of India Ltd. 15,000 4,549,812 Shipping Corporation of India Ltd. 55,900 9,512,242 SE Asia Marine Ltd. 9,200 1,100,901 Thermax Ltd. 65 Preference Shares 1,100 Total long positions at cost 465,367, ,927,743 Total long Positions at Market Value 538,072, ,681,337 Short positions Satyam Computers Services Ltd. (GDR) (27,400) (17,029,325) Ranbaxy Laboratories Ltd. (GDR) (3,000) (1,851,556) Total short positions (18,880,881) (c) Schedule of purchased and written call options There were no call options purchased or written outstanding as at 31 st December The details in respect of purchased and written call options outstanding as on 31 st December 2002 are as under : 2002 Consolidated cell Shares subject accounts Expiration date Exercise price to call Market value Rs. Purchased options State Bank of India 31 Jan , ,072 State Bank of India 31 Jan , ,455 Infosys Technologies 31 Jan ,600 37,000 1,126,880 Infosys Technologies 31 Jan ,700 37,000 1,393,158 Total purchased options 3,427,565

265 256 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) Schedules forming part of the Balance Sheet (Contd.) Schedule 8 : Significant Accounting Policies and Notes to the Accounts (Contd.) 2002 Consolidated cell Shares subject accounts Expiration date Exercise price to call Market value Rs. Written options Hindustan Petroleum Corporation 31 Jan (5,200) (67,914) Hindustan Lever Ltd. 31 Jan (5,000) (31,556) Reliance Industries Ltd. 31 Jan (4,800) (51632) Bharat Heavy Electricals Ltd. 31 Jan (2,400) (17,051) Dr Reddy s Laboratories 31 Jan (800) (22,046) Total written options (190,199) (d) Schedule of long and short futures contracts There were no outstanding positions in future contracts as on 31 st December The details in respect of outstanding positions in future contracts as on 31 st December 2002 are as under: 2002 Consolidated cell accounts Expiration date Number of shares Market value Unrealised Loss Rs. Rs. Long futures contracts Satyam Computers 31 Jan ,600 6,073,778 (181,457) Total long futures contracts 6,073,778 (181,457) Short futures contracts Dr. Reddy s Laboratories 31 Jan 2003 (800) (727,991) (6,964) Grasim Industries 31 Jan 2003 (28,700) (9,123,202) (77,761) Mahindra & Mahindra 31 Jan 2003 (50,000) (5,710,959) (190,343) Videsh Sanchar Nigam Ltd. 31 Jan 2003 (30,800) (3,073,920) 166,568 Total short futures contracts (18,636,072) (108,500) 6 SHARE CAPITAL AND SHARE PREMIUM Following the conversion of the company from a private company of a PCC status into a public company of a non-pcc status with a multi-class structure, the company adopted a new constitution on 13 th June The following information relates prior to the change in the status and structure of the company. Prior to 13 th June 2003, the company issued non-cellular and cellular shares. The non-cellular shares were the Management shares and the cellular shares were the Redeemable Participating Preference shares ( RPPS ) Number of shares Rs. Authorised Management shares of USD 1 each Redeemable participating preference shares of USD 0.01 each 50,000,000, ,000,000 Issued and fully paid Management shares at 31 st December Consolidated cell accounts Number of shares At 1 st January ,658,105 Issued during the period 174,950 Redeemed during the period (18,833,055) At 31 st December 2003

266 257 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) Schedules forming part of the Balance Sheet (Contd.) Schedule 8 : Significant Accounting Policies and Notes to the Accounts (Contd.) Share capital Consolidated cell accounts Rs. At 1 st January ,060,625 Issued during the period 81,445 Redeemed during the period (9,142,070) At 31 st December 2003 Share premium At 1 st January ,822,369 Issued during the period 8,060,728 Redeemed during the period (903,883,097) At 31 st December 2003 Management shares were issued at par value and holders had voting rights in any general meeting of the Company. RPPS were issued at a price not below the nominal value of the shares or at such higher prices as the directors may determine. RPPS had no voting rights except in case of modification or variation of rights of that class of shares or of winding up of the cell to which the shares are attributable. Dividends and winding up Dividends were payable to the holders of the RPPS of a particular cell provided the directors so determine. No dividends were payable in respect of any cell other than out of the assets of the relevant cell as may be lawfully distributed as dividends. No dividends were payable to the holders of the Management shares. In the event the company is wound up, the liquidator shall discharge the liabilities of a cell out of the assets comprised in that cell and no recourse shall be had to the asset of one cell to meet the liabilities of any other cell. Liabilities not attributable to any cell shall be discharged out of non-cellular assets. The liquidator shall apply the assets of a cell in satisfaction of creditors claim relating to that cell in such manner and order as he thinks fit, subject of course to prior charges whether fixed or floating, if any. The assets available for distribution among the members are applied in the following priority : (a) (b) (c) (d) First, in the payment to the holders of the RPPS of each cell of a sum in United States dollars (or in any other currency selected by the liquidator) as nearly as possible equal to the nominal amount of the RPPS of such cell held by such holders respectively provided that there are sufficient assets available in the relevant cell to enable such payment to be made. In the event that there are insufficient assets available in the relevant cell to enable such payment to be made, the available cellular assets shall be distributed exclusively to the holders of RPPS of that cell pro-rata to their respective shareholdings; Second, in the payment to the holders of the Management shares of sums up to the nominal amount paid-up thereon out of the assets of the company. In the event that there are insufficient assets as aforesaid to enable such payment in full to the holders of the Management shares to be made, no recourse shall be had to any other assets of the company whether comprised within any of the cells or otherwise; Third, in the payment to the holders of RPPS of each cell of any balance then remaining, in the relevant cell, such payment being made as nearly as practicable in proportion to the number of RPPS held in that cell; Fourth, in the payment to the holders of Management shares of any balance then remaining as non-cellular assets, such payment being made as nearly as practicable in proportion to the number of Management shares held. Subsequent to 13 th June 2003, the Company issued Management shares (par value: USD 1 each) and Participating shares (par value: USD 0.01 each). Participating shares Consolidated class Class A Class B accounts Number of shares At 1 st January 2003 Issued by the period 61,838 26,846 88,684 Redeemed during the period (1,126) (1,126) At 31 st December ,712 26,846 87,558 Share capital Rs. Rs. Rs. At 1 st January 2003 Issued during the period 28,761 12,473 41,234 Redeemed during the period (511) (511) At 31 st December ,250 12,473 40,723

267 258 Global Investment Opportunities Fund Limited (Formerly known as Kotak Mahindra Investment Company Limited, PCC) Schedules forming part of the Balance Sheet (Contd.) Schedule 8 : Significant Accounting Policies and Notes to the Accounts (Contd.) Share premium Rs. Rs. Rs. At 1 st January 2003 Issued during the period 338,781, ,387, ,168,301 Redeemed during the period (7,215,282) (7,215,282) At 31 st December ,565, ,387, ,953,018 Management shares Management shares shall only be issued at par value and shall not be redeemed. The Management shares shall not be class shares. All proceeds of allotment of Management shares shall be kept separately identifiable from class portfolio. Management shares shall confer on the holders thereof : (a) voting rights in any members meeting other than class meetings of holders of class shares. Each Management share shall carry one vote. (b) the right to participate in so much only of the profits and assets of the company as are attributable to the Management shares; and (c) in a winding up the right set out in Article 52 of the Constitution. No Management shares shall at any time be held otherwise than by the subscribers set out in the first schedule to the Constitution or such person as may be approved by an unanimous resolution of the Board of Directors. The Management shares are currently held by Kotak Mahindra (International) Limited, the investment advisor. Participating shares The Participating shares shall: (a) be class shares and be issued in respect of a specifically designated class, at a price not below the nominal value of the shares or at such higher price as the Directors may determine from time to time; (b) carry a right to class dividend; and (c) confer upon the holders thereof in a winding up to the rights set out in Article 52 of the Constitution. The Participating shares shall be divided into such number of classes as the Board may from time to time determine. On or before the issue or allotment of a Participating share, the Directors shall determine to which class it shall be attributable and each Participating share shall be issued or allotted as a Participating share or a designated class. The Directors shall at their sole discretion determine the voting rights for Participating shares of a designated class. Each Participating share of a class will confer upon the holder thereof the same voting rights as every other share of that class. The Directors at their sole discretion may determine that all Participating shares of a class, but not some, may be issued with no voting rights. 7 TAXATION The Company is subject to income tax in Mauritius at the rate of 15%. However, it is entitled to a tax credit equivalent to the higher of the actual foreign tax suffered and 80% of the Mauritian tax on its foreign source income resulting. No tax provision has been made for the year ended 31 st December 2003 as the Company has no chargeable income (2002 tax losses: Rs. 5,322,277). No deferred tax asset has been recognised in respect of tax losses under the Company s accounting policy for recognising deferred tax assets. 8 Other operating expenses for the year ended 31 st December, 2002 include Rs. Nil (Previous year Rs. 1,359,281/- being tax deducted at source on income). 9 DETAILS OF BANK BALANCES As on As on 31 st December st December 2002 Rs. Rs. Scheduled Banks 7,832,380 46,239,301 Others HSBC Bank Mauritius 4,897, ,894,747 Total 12,730, ,134, For the purpose of comparison, figures for the previous year have been given, which have been regrouped/reclassified wherever necessary. Signatures to Schedules 1 to 8 In terms of our report of even date For and on behalf of the Board of Directors: For V. C. Shah & Co. Paul Parambi Ravi Lochan Pola Chartered Accountants Director Director A. N. Shah Partner Mumbai Dated: 6 th May 2004

268 259 Kotak Mahindra Securities Limited BOARD OF DIRECTORS: SHANTI EKAMBARAM, CHANDRASHEKHAR SATHE, JAIMIN BHATT DIRECTORS REPORT To the Members of Kotak Mahindra Securities Limited The Directors have pleasure in presenting their Annual Report together with the audited accounts of the Company for the year ended 31 st March FINANCIAL RESULTS AND OPERATIONS During the year under review, the company earned an income of Rs. 10,70,705 (previous year Rs. 81,46,626) resulting in a net profit before tax of Rs. 73,816 (previous year Rs. 12,16,509). 2 DIVIDEND With a view to conserve resources, the Directors do not recommend any Dividend. 3 DIRECTORS Ms. Shanti Ekambaram retires at the forthcoming Annual General Meeting and, being eligible, offer herself for re-appointment. 4 AUDITORS The Company s Auditors, Messrs. Price Waterhouse, Chartered Accountants, Mumbai, retire at the Annual General Meeting and are eligible for re-appointment. 5 STATUTORY INFORMATION During the year under review, the Company has not accepted any deposits from the public. The Company did not have any employees falling within the scope of Section 217(2A) of the Companies Act, The Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, require the disclosure of particulars regarding Conservation of Energy in Form A and Technology Absorption in Form B prescribed by the Rules. Since the Company is not a manufacturing company, Forms A & B are not applicable to it. As regards foreign exchange, there were no earnings or outgo on this account. In pursuance of Section 217(2AA) of the Companies Act, 1956 ( the Act ), the Directors state as an averment of their responsibility that : (i) (ii) (iii) (iv) the Company has, in the preparation of the annual accounts for the year ended 31 st March 2004, followed the applicable accounting standards along with proper explanations relating to material departures, if any; the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 st March 2004 and of the profit/loss of the Company for the financial year ended 31 st March 2004; the Directors have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and the Directors have prepared the annual accounts on a going concern basis. For and on behalf of the Board of Directors SHANTI EKAMBARAM CHANDRASHEKHAR SATHE Director Director Mumbai, 7 th May 2004

269 260 Kotak Mahindra Securities Limited AUDITORS REPORT To the Members of Kotak Mahindra Securities Limited 1 We have audited the attached Balance Sheet of KOTAK MAHINDRA SECURITIES LIMITED (the Company) as at 31 st March 2004 and the related Profit and Loss Account for the year ended on that date, both of which we have signed under reference to this report. These financial statements are the responsibility of the Management of the Company. Our responsibility is to express an opinion on these financial statements based on our audit. 2 We have conducted our audit in accordance with auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. 3 In our opinion and to the best of our information and according to the explanations given to us, the Balance Sheet and the Profit and Loss Account together with the notes thereon and attached thereto give in the prescribed manner the information required by the Companies Act, 1956 of India (the Act), and give, a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the Balance Sheet, of the state of affairs of the Company as at 31 st March 2004; and (b) in the case of the Profit and Loss Account, of the profit for the year ended on that date. 4 We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purposes of our audit. 5 In our opinion, proper books of account as required by law have been kept by the Company so far as appears from our examination of those books. 6 The Balance Sheet and the Profit and Loss Account dealt with by this report are in agreement with the books of account. 7 In our opinion, the Balance Sheet and the Profit and Loss Account dealt with by this report comply with the accounting standards referred to in sub-section (3C) of Section 211 of the Act. 8 On the basis of written representation received from the Directors of the Company, as on 31 st March 2004, and taken on record by the Board of Directors of the Company, none of the Directors of the Company is disqualified as on 31 st March 2004 from being appointed as a Director in terms of clause (g) of sub-section (1) of Section 274 of the Act; 9 As required by the Companies (Auditor s Report) Order, 2003 issued by the Central Government of India in terms of sub-section (4A) of Section 227 of the Act and on the basis of such checks as we considered appropriate and according to the information and explanations given to us, we further report that: (i) The Company has neither granted nor taken any loans, secured or unsecured to/from companies, firms or other parties covered in the register maintained under Section 301 of the Act. (ii) In our opinion and according to the explanations given to us; (a) transactions that need to be entered in the register in pursuance of Section 301 of the Act have been so entered. (b) transactions made in pursuance of contracts or arrangements entered in the register in pursuance of Section 301 of the Act and exceeding the value of Rs. 5 lakhs in respect of any party during the year have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time. (iii) The Company has not accepted any deposits from the public under the provisions of Section 58A and 58AA of the Act and the rules framed there under. (iv) In our opinion, the Company has an internal audit system commensurate with its size and nature of its business. (v) (a) According to the books of account and records of the Company as produced and examined by us in accordance with generally accepted auditing practices in India and also management representations the Company has been regular in depositing undisputed statutory dues in respect of provident fund in the provident fund account of its holding company (Refer Schedule 9 Note 4) and investor education and protection fund, employees state insurance, income-tax, sales-tax, wealth-tax, custom duty, excise duty, cess and other material statutory dues as applicable with the appropriate authorities in India. (b) According to the information and explanations given to us as at 31 st March 2004 there are no disputed dues in respect of sales-tax, income-tax, customs duty, wealth-tax, excise duty and cess. (vi) The Company has neither accumulated losses as at 31 st March 2004 nor has it incurred any cash loss either during the financial year ended on that date or in the immediately preceding financial year. (vii) In our opinion the Company has maintained proper records of transactions and contracts relating to dealing in shares, securities, debentures and other investments during the year and timely entries have been made therein. Further such securities have been held by the Company in its own name except to the extent of exemption granted under Section 49 of the Act. (viii) During the course of examination of the books of account and records of the Company carried out in accordance with the generally accepted auditing standards in India, we have not come across any fraud on or by the Company, noticed or reported during the year, nor have been informed of any such case by the management. (ix) The other clauses of the Companies (Auditor s Report) Order, 2003 issued by the Central Govenment of India are not applicable to the Company for the current year. For and on behalf of Price Waterhouse Chartered Accountants Place : Mumbai Date : 7 th May K. H. VACHHA Partner Membership No. F30798

270 261 Kotak Mahindra Securities Limited BALANCE SHEET AS AT 31 ST MARCH 2004 Schedule 31 st March st March 2003 Rupees Rupees SOURCES OF FUNDS Shareholders Funds Capital 1 20,000,700 20,000,700 Reserves and Surplus 2 16,038,866 15,773,665 Total 36,039,566 35,774,365 APPLICATION OF FUNDS Investments 3 10,739,203 6,400,987 Deferred Tax Asset 710, ,895 [refer note 3 on Schedule 9] CURRENT ASSETS, LOANS AND ADVANCES Cash and bank balances 4 175,062 20,281,345 Other current assets 5 3,150 Loans and advances 6 26,133,440 11,321,470 LESS: CURRENT LIABILITIES AND PROVISIONS 26,308,502 31,605,965 Liabilities 7 1,687,700 2,657,147 Provisions 8 31,407 24,335 1,719,107 2,681,482 NET CURRENT ASSETS 24,589,395 28,924,483 Total 36,039,566 35,774,365 NOTES TO THE FINANCIAL STATEMENTS 9 Schedules referred to above form an integral part of the Balance Sheet This is the Balance Sheet referred to in of our report of even date For and on behalf of the Board of Directors For and on behalf of Price Waterhouse Chartered Accountants K. H. VACHHA Avan Doomasia Shanti Ekambaram Jaimin Bhatt Partner Company Secretary Director Director Mumbai, Date: 7 th May 2004.

271 262 Kotak Mahindra Securities Limited PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST MARCH 2004 Schedule 31 st March st March 2003 Rupees Rupees INCOME Brokerage Gross (Tax deducted at source Rs. Nil; previous year Rs. 161) 6,174,598 Profit on sale of current investments (Net) 14, ,197 Interest on : Intercorporate Deposits Gross (Tax deducted at source Rs. Nil; 1,145,349 previous year Rs. 240,523) Fixed deposits (Tax deducted at source Rs. 9,688; Previous year Rs. Nil) 47,261 3,150 Income tax refund 190, , ,950 Provision for doubtful debts no longer required written back 15,450 Dividend on current investments Gross (Tax deducted at source Rs. Nil; 804, ,929 previous year Rs. 4,714) Other income Gross (Tax deducted at source Rs. Nil; previous year Rs. 2,063) 14, ,750 Total 1,070,705 8,146,626 EXPENDITURE Salaries, allowances and bonus 483,195 1,118,001 Gratuity and leave encashment 7, ,802 Contribution to provident and other funds (Refer Note 4 on Schedule 9) 14,021 58,198 Staff welfare 1,629 Professional charges 1,171,575 Communication 483,985 Auditors remuneration Audit fees 125, ,000 Tax audit fees 52,500 50,000 In other capacity 5,000 5,000 Out of pocket expenses 361 Stamping 1,974,295 Service charges 900,000 Bad debts written off 38,500 Rates and taxes 18, ,041 National Stock Exchange of India Limited Charges 229, ,466 Insurance 2,348 2,160 Interest on turnover tax 162,012 Diminution in value of Investments 2,960 Membership and Subscription 53,000 6,500 Other expenses 3,548 76,953 Total 996,889 6,930,117 Profit Before Taxation and Prior Period Expenses 73,816 1,216,509 Prior period expenses turnover tax and interest thereon Taxation 1,999,818 Current tax (including for earlier years Rs. 70,688; previous year Rs. 133,377) 70, ,377 Deferred tax (262,073) (351,009) (191,385) Profit/(Loss) after taxation and prior period expenses 265,201 (640,677) Balance brought forward from previous year 10,273,665 10,914,342 Balance carried to balance sheet 10,538,866 10,273,665 Earnings per share on equity shares of Rs. 10 each Basic and Diluted 0.13 (0.32) NOTES TO THE FINANCIAL STATEMENTS 9 Schedules referred to above form an integral part of the Profit and Loss Account This is the Profit and Loss Account referred to in of our report of even date For and on behalf of the Board of Directors For and on behalf of Price Waterhouse Chartered Accountants K. H. VACHHA Avan Doomasia Shanti Ekambaram Jaimin Bhatt Partner Company Secretary Director Director Mumbai, Date: 7 th May 2004.

272 263 Kotak Mahindra Securities Limited SCHEDULES FORMING PART OF THE BALANCE SHEET 31 st March st March 2003 Rupees Rupees Schedule 1 : Capital Authorised 25,00,000 equity shares of Rs. 10 each 25,000,000 25,000, preference shares of Rs. 100,000 each 25,000,000 25,000,000 Total 50,000,000 50,000,000 Issued and Subscribed 2,000,070 equity shares of Rs. 10 each fully paid up 20,000,700 20,000,700 {All the above shares are held by the holding company Kotak Mahindra Capital Company Limited and its nominees} Total 20,000,700 20,000,700 Schedule 2 : Reserves and Surplus Capital Redemption Reserve 5,500,000 5,500,000 Profit and Loss Account 10,538,866 10,273,665 Total 16,038,866 15,773,665 Schedule 3 : Investments 31st March 31st March 31st March 31st March Face Value Quantity Quantity Rs. Rs. Rs. Long Term Investments (Non-Trade) (At Cost) In Equity Shares of Other Companies (Unquoted, fully paid up) Multifaced Finstock Private Limited , ,200 4,402,000 4,402,000 Jaykay Finholding (India) Private Limited , ,000 1,260,000 1,260,000 Current Investments (Non-Trade) (At Cost or Market/Fair Value, whichever is lower) In Units of Mutual Fund (Unquoted, Fully Paid up) Kotak Mahindra Mutual Fund Kotak Mahindra Liquid Scheme Growth 10 62, ,987 Kotak Mahindra Liquid Scheme Institutional Dividend ,732 5,077,203 Units purchased during the year : Kotak Mahindra Liquid Scheme Dividend : 760,559 units Kotak Mahindra Liquid Scheme Institutional Dividend- : 2,083,236 units Units sold during the year : Kotak Mahindra Liquid Scheme Dividend : 760,559 units Kotak Mahindra Liquid Institutional Plan Dividend : 1,576,504 units Kotak Mahindra Liquid Scheme Growth : 62,146 units Total 10,739,203 6,400,987 Aggregate Value of Unquoted Investments : At Book value 10,739,203 6,400,987

273 264 Kotak Mahindra Securities Limited Schedules forming part of the Balance Sheet (Contd.) Schedule 4 : Cash and Bank Balances 31 st March st March 2003 Rupees Rupees Cash on hand 356 1,522 Balances with scheduled banks on current account 174, ,823 Balance with Kotak Mahindra Bank Limited on deposit account 20,000,000 (Maximum amount outstanding during the year Rs. 20,000,000; Previous year Rs. 20,000,000) Total 175,062 20,281,345 Schedule 5 : Other Current Assets Interest accrued on fixed deposit 3,150 Total 3,150 Schedule 6 : Loans and Advances (Unsecured, considered good) Advances recoverable in cash or in kind or for value to be received 992,931 1,114,671 Deposits with National Stock Exchange of India Limited 21,000,000 10,000,000 Deposits with National Securities Clearing Corporation Limited 4,000,000 Advance payment of income taxes (net of provision for tax Rs. 1,975,203; Previous year Rs. 2,175,169) 140, ,799 Total 26,133,440 11,321,470 Schedule 7 : Liabilities Sundry creditors (Other than small scale industrial undertaking) * 411, ,705 Other liabilities 1,276,209 2,403,442 * There are no amounts due and outstanding to be credited to investor education and protection fund. Total 1,687,700 2,657,147 Schedule 8 : Provisions Gratuity and leave encashment 31,407 24,335 Total 31,407 24,335

274 265 Kotak Mahindra Securities Limited SCHEDULES FORMING PART OF THE BALANCE SHEET AND PROFIT AND LOSS ACCOUNT Schedule 9 : Notes to the Financial Statements 1 SIGNIFICANT ACCOUNTING POLICIES A. ACCOUNTING CONVENTION The financial statements are prepared under the historical cost convention and on accrual basis of accounting. B. REVENUE RECOGNITION Brokerage is recognized as income on the date of contract. C. INVESTMENTS Investments are classified into long term investments and current investments. Investments which are intended to be held for more than one year, are classified as long term investments and investments, which are intended to be held for less than one year, are classified as current investments. Long term investments are accounted at cost and any decline in the carrying value, other than temporary in nature is provided for. Current investments are valued at cost or market/fair value whichever is lower. In case of investments in mutual funds, the net asset value of units is considered as market/fair value. D. RETIREMENT BENEFITS Provision for gratuity and leave encashment liability to employees is made on the basis of actuarial valuation. E. TAXATION Current tax is determined as the amount of tax payable in respect of taxable income for the year. Deferred tax is recognized subject to the consideration of prudence in respect of deferred tax assets, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods. 2 The Board of Directors of the Company at their meeting held on 5 th December 2002 have decided to temporarily suspend operations in broking services of debt securities on the wholesale debt market segment of the National Stock Exchange of India Limited. 3 Components of deferred tax balances as at 31 st March 2004 : 31 st March st March 2003 Rupees Rupees Deferred tax assets Capital loss carried forward 30,530 30,530 Provision for gratuity and leave encashment 11,267 8,730 Preliminary expenditure 10,327 20,654 Difference in allowances under Section 43B of Income Tax Act, , ,461 Business Loss 269,452 Others , ,895 In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on the level of historical taxable income and projections for future taxable income over the period in which the deferred tax assets are deductible, Management is of the view that it is more likely than not that the Company will realize the benefits of these deductible differences. 4 As the Company does not have the minimum number of employees required for registration with the provident fund authorities, provident fund dues, have been deposited in the provident fund account of its holding company. 5 Information with regard to other matters specified in paragraphs 4, 4A, 4C and 4D of Part II of Schedule VI to the Companies Act 1956 is either nil or not applicable to the Company for the financial year ended 31 st March 2004.

275 266 Kotak Mahindra Securities Limited Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Schedule 9 : Notes to the Financial Statements (continued) 6 BALANCE SHEET ABSTRACT AND COMPANY S GENERAL BUSINESS PROFILE (a) (b) (c) (d) (e) Registration Details Registration Number State code 1 1 Balance Sheet Date Date Month Year Capital raised during the year (Rs. 000s) Public Issue Rights Issue N I L N I L Bonus Issue Private Placement N I L N I L Position of mobilization and deployment of funds (Rs. 000s) Total Liabilities Total Assets Sources of Funds (Rs. 000s) Paid up Capital Reserves and Surplus Secured Loans Unsecured Loans N I L N I L Application of Funds (Rs. 000s) Net Fixed Assets Investments N I L Deferred Tax Assets Miscellaneous Expenditure N I L Net Current Assets Accumulated Losses N I L Performances of Company (Rs. 000s) Turnover/Income Total Expenditure Profit before Tax Profits after Tax Earning per share (in Rs.) Dividend Rate (%) N I L Generic Names of three Principal Products/Services of Company Item Code No. N A (ITC Code) Product Description D E B T B R O K I N G 7 Figures for the previous year have been regrouped wherever necessary to conform to current year s classification. Signature to Schedules 1 to 9 form part of the financial statements and to the above notes. For and on behalf of Price Waterhouse Chartered Accountants For and on behalf of the Board of Directors K. H. VACHHA Avan Doomasia Shanti Ekambaram Jaimin Bhatt Partner Company Secretary Director Director Mumbai, Date: 7 th May 2004.