AUDITORS Deloitte Haskins & Sells Chartered Accountants. PRINCIPAL BANKERS HDFC Bank Limited

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1 IDFC Securities Limited DIRECTORS Mr. Vikram Limaye - Chairman Mr. Tara Sankar Bhattacharya Mr. Yuvraj Narayan Mr. Anil Singhvi Mr. Tapasije Mishra Mr. Sunil Kakar Mr. Sadashiv S. Rao Dr. Rajeev Uberoi AUDITORS Deloitte Haskins & Sells Chartered Accountants PRINCIPAL BANKERS HDFC Bank Limited REGISTERED OFFICE Naman Chambers C-32, G-Block Bandra-Kurla Complex Bandra (East) Mumbai TEL: FAX: Website:

2 Directors Report TO THE MEMBERS Your Directors have pleasure in presenting the Twentieth Annual Report together with the audited accounts for the year ended. Operational Review And Future Outlook FY13 was another tough year for the global economy, which has been at a low ebb since Back home too, investment activity remained tepid, with the top 10 corporate groups in India struggling with a 40% CAGR in debt over FY07-12 and sluggish pace of regulatory clearances for new infrastructure projects. Also, supply-led inflation prevented the RBI from cutting interest rates despite the lowest GDP growth in the last decade (seen at ~5% for FY13), and the economy reeled under the twin impact of low investments and high prices. However, for the financial services space, the strong correlation to the broader economy was somewhat offset by a few positive policy measures and change in perception to one of cautious optimism from despair 12 months earlier. Global liquidity helped channel FII fund flows into India, which have boosted the stock markets over FY13. Having said that, ever-increasing competition in the broking space kept players on tenterhooks even as volumes were higher year-on-year basis. The Company, in the face of stiff competition, has managed to largely hold on to its market share. For FY14, we strive to gain market share with rigorous service delivery-led deeper client mining and best-in-class research. The Company has enhanced the quality of its research team, reflected in higher rankings across various industry polls. The US sales office has also stabilized, which implies improved business prospects in the region. Financial Results PARTICULARS FOR THE YEAR ENDED MARCH 31, 2013 FOR THE YEAR ENDED MARCH 31, 2012 Total Income 421,085, ,165,433 Less: Total Expenses 414,507, ,076,885 Profit/(Loss) before Tax 6,578,113 11,088,548 Less: Provision for Tax 6,050,000 1,734,125 Profit/(Loss) after Tax 528,113 9,354,423 Dividend The Directors do not recommend any dividend for the year ended. Subsidiary Companies IDFC Securities Ltd. has three direct wholly owned subsidiary companies IDFC Capital (USA) INC., IDFC Capital Ltd. and IDFC Distribution Company Ltd. In addition IDFC Capital Ltd. has three wholly owned subsidiaries namely IDFC Capital (Singapore) Pte. Ltd., IDFC Fund of Funds Ltd and IDFC Securities Singapore Pte Limited. During the year, IDFC General Partners, a wholly owned subsidiary of IDFC Capital Limited was placed in liquidation on March 2, 2012 and it was dissolved under voluntary liquidation process with effect from September 21, As required under the provisions of Section 212 of the Companies Act, 1956, a statement of holding company s interest in the subsidiary companies and the Annual Report of such subsidiary companies have been attached to this report. Directors During the year Dr. Rajiv B. Lall resigned as Director fo the Company w.e.f. August 13, The Board placed on record its appreciation for the valuable contribution made by Dr. Lall during his tenure as Director of the Company. In accordance with the provisions of the Companies Act, 1956 and Company's Articles of Association, Mr. Sadashiv S. Rao and Dr. Rajeev Uberoi are retiring by rotation and being eligible offer themselves for re-appointment at the ensuing Annual General Meeting (AGM). The Board of Directors recommends re-appointment of all the above Directors at the ensuing AGM. Audit Committee The Audit Committee comprises five Directors as its Members namely Mr. Tara Sankar Bhattacharya, Mr. Yuvraj Narayan, Mr. Sunil Kakar, Mr. Sadashiv S. Rao and Dr. Rajeev Uberoi. The Audit Committee met four times during the year under review. Auditors M/s. Deloitte Haskins & Sells, Chartered Accountants, Ahmedabad will retire as the Statutory Auditors of the Company at the conclusion of the ensuing AGM. The Board at its meeting held on April 22, 2013 has proposed their re-appointment as Auditors to audit the accounts of the Company for the financial year ending March 31, M/s. Deloitte Haskins & Sells, Ahmedabad, the retiring Auditors, have confirmed that their re-appointment, if made, would be in conformity with the provisions of Sections 224 and 226 of the Companies Act, 1956 and also indicated their willingness to be re-appointed. You are requested to consider their re-appointment. 88 IDFC ANNUAL REPORT

3 Directors Report Public Deposits During the year under review, your Company has not accepted any public deposits under provisions of Section 58A of the Companies Act, Particulars Regarding Conservation of Energy and Technology Absorption Since the Company does not own any manufacturing facility, the disclosure of information on other matters required to be disclosed in terms of Section 217(1)(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the report of Board of Directors) Rules, 1988, are not applicable and hence not given. Foreign Exchange earnings and expenditure The particulars regarding foreign exchange earnings and expenditure are furnished at Note No. 26 in the Notes to the financial statements. Particulars of Employees and Remuneration The Company had 31 employees as on. As required by the provisions of Section 217 (2A) of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, as amended, the names and other particulars of employees are annexed to the Directors Report. Directors Responsibility Statement Pursuant to Section 217(2AA) of the Companies Act, 1956, the Directors confirm that: in preparation of the annual accounts, the applicable accounting standards have been followed alongwith proper explanation relating to the material departures; they 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 and the profit of the Company for the year ended on that date; they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and they have prepared annual accounts on a going concern basis. Acknowledgements The Board wishes to thank the clients, custodians, Securities and Exchange Board of India, Stock Exchanges, Banks and other statutory and regulatory authorities for their support to your Company. The Board also places on record its appreciation for the sincere efforts of the staff. The Board would also like to express its gratitude for the unstinted support and guidance received from IDFC Limited, the parent organisation and also other group companies. For And On Behalf Of The Board Of Directors Vikram Limaye Chairman Mumbai, July 1, 2013 IDFC Securities Limited 89

4 Auditors' Report TO THE MEMBERS OF IDFC SECURITIES LIMITED Report on the Financial Statements We have audited the accompanying financial statements of IDFC SECURITIES LIMITED ( the Company ), which comprise the Balance Sheet as at, the Statement of Profit and Loss and the Cash Flow Statement for the year then ended, and a summary of the significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements The Company s Management is responsible for the preparation of these financial statements that give a true and fair view of the financial position, financial performance and cash flows of the Company in accordance with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956 ( the Act ). This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion and to the best of our information and according to the explanations given to us, the aforesaid financial statements give the information required by the Act 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 ; (b) in the case of the Statement of Profit and Loss, of the profit of the Company for the year ended on that date; and (c) in the case of the Cash Flow Statement, of the cash flows of the Company for the year ended on that date. Report on Other Legal and Regulatory Requirements 1. As required by the Companies (Auditor s Report) Order, 2003 ( the Order ) issued by the Central Government in terms of Section 227(4A) of the Act, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the Order. 2. As required by Section 227(3) of the Act, we report that: (a) 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. (b) In our opinion, proper books of account as required by law have been kept by the Company so far as it appears from our examination of those books. (c) The Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement dealt with by this Report are in agreement with the books of account. (d) In our opinion, the Balance Sheet, the Statement of Profit and Loss, and the Cash Flow Statement comply with the Accounting Standards referred to in Section 211(3C) of the Act. (e) On the basis of the written representations received from the directors as on taken on record by the Board of Directors, none of the directors is disqualified as on from being appointed as a director in terms of Section 274(1)(g) of the Act. For DELOITTE HASKINS & SELLS Chartered Accountants (Registration No W) Z.F. Billimoria Partner (Membership No.: 42791) Mumbai, April 22, IDFC ANNUAL REPORT

5 Annexure to the Auditors Report (Referred to in paragraph 1 under Report on Other Legal and Regulatory Requirements section of our report of even date) (i) Having regard to the nature of the Company s business / activities / results / transactions, etc. clauses (ii), (vi), (viii), (x), (xii), (xiii), (xv), (xvi), (xviii), (xix) and (xx) of CARO are not applicable. (ii) In respect of its fixed assets: (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of the fixed assets. (b) The fixed assets were physically verified during the year by the Management in accordance with a regular programme of verification which, in our opinion, provides for physical verification of all the fixed assets at reasonable intervals. According to the information and explanation given to us, no material discrepancies were noticed on such verification. (c) The fixed assets disposed off during the year, in our opinion, do not constitute a substantial part of the fixed assets of the Company and such disposal has, in our opinion, not affected the going concern status of the Company. (iii) In respect of loans, secured or unsecured, granted by the Company to companies, firms or other parties covered in the Register maintained under Section 301 of the Companies Act, 1956, according to the information and explanations given to us: (a) The Company has subscribed to Zero Coupon Optionally Convertible Debentures aggregating Rs. 1,200,000,000 of one party during the year. At the year-end, the outstanding balance of such debentures aggregated Rs. 1,200,000,000 and the maximum amount involved during the year was Rs. 1,200,000,000. (b) The rate of interest and other terms and conditions of such loans are, in our opinion, prima facie not prejudicial to the interests of the Company. (iv) In case of loans, secured or unsecured, taken by the Company from companies, firms or other parties listed in the Register maintained under Section 301 of the Companies Act, 1956, according to the information and explanations given to us: (a) The Company has taken loans to Rs. 1,782,500,000 during the year. At the year-end, the outstanding balance of such debentures aggregated to Rs. 1,250,000,000 and the maximum amount involved during the year was Rs. 1,370,000,000. (b) The rate of interest and other terms and conditions of such loans are, in our opinion, prima facie not prejudicial to the interests of the Company. (c) The payments of principal amounts and interest in respect of such loans are regular/ as per stipulations. (v) In our opinion and according to the information and explanations given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of its business with regard to purchases of fixed assets and the sale of services. During the course of our audit, we have not observed any major weakness in such internal control system. (vi) To the best of our knowledge and belief and according to the information and explanations given to us, there were no contracts or arrangements that needed to be entered in the Register maintained under Section 301 of the Companies Act, (vii) 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. (viii) According to the information and explanations given to us in respect of statutory dues: (a) The Company has generally been regular in depositing undisputed dues, including Provident Fund, Income-tax, Service Tax, Cess and other material statutory dues applicable to it with the appropriate authorities. (b) There were no undisputed amounts payable in respect of Income-tax, Service tax, Cess and other material statutory dues in arrears as at for a period of more than six months from the date they became payable. (c) Details of dues of Income-tax which have not been deposited as on on account of disputes are given below: Name of Statute Nature of Dues Forum where dispute is pending Period to which the amount relates Amount involved (H) Income Tax Act, 1961 Income Tax Deputy Commissioner of Income Tax A.Y ,002,830 A.Y ,480,255 A.Y ,379,010 High Court A.Y ,171,492 A.Y ,926,224 A.Y ,235,703 Income Tax Appellate Tribunal A.Y ,000 (ix) In our opinion and according to the information and explanation given to us, the Company has not defaulted in the repayment of dues to banks and financial institutions. (x) Based on our examination of the records and evaluation of the related internal controls, the Company has maintained proper records of the transactions and contracts in respect of its dealing in mutual fund investments and timely entries have been made therein. The aforesaid securities have been held by the Company in its own name. IDFC Securities Limited 91

6 Annexure to the Auditors Report (xi) In our opinion and according to the information and explanations given to us and on an overall examination of the Balance Sheet, we report that funds raised on short-term basis have not been used during the year for long- term investment. (xii) To the best of our knowledge and according to the information and explanations given to us, no fraud by or on the Company has been noticed or reported during the year. For DELOITTE HASKINS & SELLS Chartered Accountants (Registration No W) Z.F. Billimoria Partner (Membership No.: 42791) Mumbai, April 22, IDFC ANNUAL REPORT

7 Balance Sheet AS AT MARCH 31, 2013 As at As at Notes Equity and liabilities Shareholders funds (a) Share capital 3 141,372, ,372,000 (b) Reserves and surplus 4 996,152, ,623,985 1,137,524,098 1,136,995,985 Non-current liabilities (a) Long -term borrowings 5 1,250,000,000 - (b) Other long-term liabilities 6 153,909 27,698,948 1,250,153,909 27,698,948 Current liabilities (a) Trade payables 7 60,981,100 70,633,185 (b) Other current liabilities 8 11,766,039 34,973,522 72,747, ,606,707 TOTAL 2,460,425,146 1,270,301,640 Assets Non-current assets (a) Fixed assets Tangible assets 9 7,215,774 9,736,341 Intangible assets 10 2,929,082 2,008,151 10,144,856 11,744,492 (b) Non-current investments 11 1,384,554, ,554,650 (c) Deferred tax asset (net) 12 3,400,000 9,450,000 (d) Long-term loans and advances ,238, ,405,772 (e) Other non-current assets 14 30,830,275 12,168,743 1,598,168, ,323,657 Current assets (a) Current investments ,184,539 - (b) Trade receivables 16 91,343,546 49,843,865 (c) Cash and bank balances ,212, ,492,226 (d) Short-term loans and advances 13 11,341, ,282,778 (e) Other current assets 14 20,174,811 65,359, ,257, ,977,983 TOTAL 2,460,425,146 1,270,301,640 See accompanying notes forming part of the financial statements. In terms of our report attached. For Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board of Directors of IDFC Securities Limited Z. F. Billimoria Partner Mumbai April 22, 2013 Sunil Kakar Director Amol Ranade Company Secretary Tapasije Mishra Whole-time Director IDFC Securities Limited 93

8 Statement of Profit and Loss FOR THE YEAR ENDED MARCH 31, 2013 Notes I Income Revenue from operations ,390, ,490,022 Other income 19 61,695,270 75,675,411 Total Income (I) 421,085, ,165,433 II Expenses Operating expenses 20 34,976,885 38,523,424 Employee benefits expenses ,704, ,782,572 Finance costs 22 4,272,725 5,650,752 Depreciation and amortisation expense 9 & 10 5,119,260 4,706,983 Other expenses ,433, ,413,154 Total Expenses (II) 414,507, ,076,885 III Profit before Tax (I - II) 6,578,113 11,088,548 IV Tax expense Current tax - - Deferred tax 12 6,050, ,000 Current tax expense relating to prior years - 884,125 Total tax expense 6,050,000 1,734,125 V Profit for the year from continuing operations (III-IV) 528,113 9,354,423 Earnings per equity share (nominal value of share 10) 27 Basic () Diluted () See accompanying notes forming part of the financial statements. In terms of our report attached. For Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board of Directors of IDFC Securities Limited Z. F. Billimoria Partner Mumbai April 22, 2013 Sunil Kakar Director Amol Ranade Company Secretary Tapasije Mishra Whole-time Director 94 IDFC ANNUAL REPORT

9 Cash Flow Statement FOR THE YEAR ENDED MARCH 31, 2013 Cash flow from operating activities Profit before tax 6,578,113 11,088,548 Adjustments for Depreciation and amortisation 5,119,260 4,706,983 Interest income (39,785,208) (45,478,108) Interest on borrowings 304, ,334 Dividend income (19,759,490) (20,369,606) Unrealised loss/(gain) on foreign exchange (9,325) - (Profit)/loss on sale of fixed assets (25,921) 161,562 Gain on sale of current investment (2,103,314) (1,334,248) Provision for employee benefits (16,108,280) 13,516,157 (72,368,113) (48,285,926) Operating profit before working capital changes (65,790,000) (37,197,378) Changes in working capital: Adjustments for (increase) / decrease in operating assets: Trade receivables (41,490,357) 27,390,707 Short-term loans and advances 227,940,976 (227,941,039) Long-term loans and advances (200,000) 447,000 Other current assets 45,184,303 (55,323,541) Other non-current assets 338,468 24,501,032 Adjustments for increase / (decrease) in operating liabilities: Trade payables (9,652,085) (230,462,742) Other current liabilities (7,099,203) 8,206,620 Other long-term liabilities (27,545,039) 1,959, ,477,063 (451,222,085) Cash (used in) /generated from operations 121,687,063 (488,419,463) Net income tax paid (60,367) (17,176,489) Net cash from / (used in) operating activities (A) 121,626,696 (505,595,952) Cash flow from investing activities Capital advances (572,207) (500,831) Proceeds from sale of fixed assets 315,040 1,897 Bank balances not considered as cash and cash equivalents - Placed (387,550,000) (130,900,000) - Matured 504,350, ,433,626 Purchase of fixed assets (3,808,744) (7,245,917) Purchase of investments - others (3,277,751,889) - Investments in subsidiary (1,200,000,000) - Proceeds from sale of current investments 2,941,670, ,780,378 Interest received 39,785,208 45,478,108 Dividend received 19,759,490 20,369,606 Net cash from / (used in) investing activities (B) (1,363,802,439) 837,416,867 IDFC Securities Limited 95

10 Cash Flow Statement FOR THE YEAR ENDED MARCH 31, 2013 Cash flow from financing activities Proceeds from fresh issue of debenture 1,250,000,000 - Interest on borrowings (304,165) (511,334) Dividends paid - (282,744,000) Tax on dividend - (45,868,145) Net cash from / (used in) financing activities (C) 1,249,695,835 (329,123,479) net decreased in Cash and cash equivalents (A+B+C) 7,520,092 2,697,436 Cash and cash equivalents as at the beginning of year (see note 17) 25,142,226 22,444,790 Cash and cash equivalents as at the end of year (see note 17) 32,662,318 25,142,226 7,520,092 2,697,436 In terms of our report attached. For Deloitte Haskins & Sells Chartered Accountants For and on behalf of the Board of Directors of IDFC Securities Limited Z. F. Billimoria Partner Mumbai April 22, 2013 Sunil Kakar Director Amol Ranade Company Secretary Tapasije Mishra Whole-time Director 96 IDFC ANNUAL REPORT

11 Notes forming part of financial statements as AT AND 01 Background IDFC Securities Limited ('the Company') is a wholly owned subsidiary of IDFC Limited (formerly Infrastructure Development Finance Company Limited ), (the 'Holding Company') incorporated in India and regulated by the Securities Exchange Board of India (SEBI) as a stock broking company. 02 Significant accounting policies a Basis of preparation The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in India (Indian GAAP) with the accounting standards notified by The Companies (Accounting Standards) Rules, 2006, (as amended) and the relevant provisions of The Companies Act, The financial statements have been prepared on an accrual basis under the historical cost convention. The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the previous year. b Use of estimates The Company adopts the accrual concept in the preparation of the accounts. The preparation of financial statements in conformity with Indian GAAP 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. The management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ due to these estimates and the difference between the actual results and the estimates are recongnised in the period in which the results are known/materalise. c Revenue recognition (a) Income from brokerage activities is recognised on trade date basis and is net of statutory payments. (b) Interest income is recognised on an accrual basis. (c) Advisory fees are recognised when reasonable right of recovery is established, the revenue can be reliably measured and there is no uncertainty regarding recoverability. (d) Dividend is recognised when the right to receive is established as at the Balance sheet date. d Fixed assets and intangible assets Fixed assets are stated at cost of acquisition, including any cost attributable for bringing the asset to its working condition, less accumulated depreciation. Intangible assets comprising of system software are stated at cost of acquisition, including any cost attributable for bringing the asset to its working condition, less accumulated amortisation. Any technology support cost or annual maintenance cost for such software is charged annually to the Statement of Profit and Loss. Consideration paid for transfer of tenancy rights is capitalised as an intangible asset. Capital work-in-progress: Project under which tangible fixed assets are not yet ready for their intended use are carried at cost. The Company has regular programme of evaluating useful life of its assets. e Depreciation and Amortisation Tangible assets Depreciation on fixed assets, excluding certain electronic items, is provided on the written down value method, at the rates prescribed by Schedule XIV of the Companies Act, Certain electronic items are depreciated over a period of two years on straight-line method based on the management s estimate of the useful life of assets. Depreciation on additions during the year is provided on a pro-rata basis. Assets costing less than 5,000 each are written off in the year of capitalisation. Intangible assets Computer software is amortised over a period of 3 years and tenancy rights are amortised over a period of 10 years by using straight-line method. f Investments Investments which are readily realisable and intended to be held for not more than one year from the date on which such investments are made are classified as current investments in accordance with the RBI guidelines and Accounting Standard 13 on Accounting for Investments as notified by the Companies (Accounting Standards) Rules, All other investments are classified as long-term investments. All investments are initially recorded at cost. The cost of an investment includes purchase price, directly attributable acquisition charges and reduced by recovery of costs, if any. On disposal of an investment, the difference between its carrying amount and the net disposal proceeds is charged or credited to the Statement of Profit and Loss. Long Term Investments are carried at acquisition cost. A provision is made for diminution other than temporary on an individual basis. Current Investments' are carried at the lower of cost or fair value on an individual basis. IDFC Securities Limited 97

12 Notes forming part of financial statements as AT AND g Cash and cash equivalents (for purposes of Cash Flow Statement) Cash comprises cash on hand, Cash equivalents are short-term balances (with an original maturity of three months or less from the date of acquisition) that are readily convertible into known amounts of cash and which are subject to insignificant risk of changes in value. h Misdeal stock Misdeal stock comprises of stock that has devolved on the Company due to erroneous execution of trades on behalf of the institutional clients in the normal course of business. These securities are valued at lower of cost or market value/ realisable value on an individual basis. Any valuation loss based on the above is debited to the Statement of Profit and Loss. i Employee benefits Defined contribution plans The Company s contribution to provident fund is deposited with the Regional Provident Fund Commissioner and is charged to the Statement of Profit and Loss every year. The Company participates in the holding company s superannuation policy for future payments of superannuation and the Company s contribution paid / payable during the year is charged to the Statement of Profit and Loss every year. Defined benefit plan The net present value of the Company s obligation towards gratuity to employees is funded and actuarially determined as at the Balance Sheet date based on the projected unit credit method. Actuarial gains and losses are recognised in the Statement of Profit and Loss. Other benefits Based on the leave rules of the Company, employees are not permitted to accumulate leave. Any unavailed privilege leave to the extent encashable is paid to the employees and charged to the Statement of Profit and Loss for the year. j Income - tax The provision for tax in the accounts comprises both, current tax and deferred tax. Current tax is the amount payable on taxable income for the year as determined in accordance with the provisions of Income-tax Act The accounting treatment for income-tax in respect of the Company's income is based on Accounting Standard 22 on 'Accounting for Taxes on Income' as notified by the Companies (Accounting Standards) Rules, The deferred tax assets and liabilities for the year arising on account of timing differences are recognised in the Statement of Profit and Loss and the cumulative effect thereof is reflected in the Balance Sheet. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax asset is recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In situations where the Company has unabsorbed depreciation or carried forward losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that the same can be realised against future taxable profits. k Earnings per share Basic earnings per share is computed by dividing the profit / (loss) after tax by the weighted average number of equity shares outstanding during the year. Diluted earnings per share is computed by dividing the profit / (loss) after tax as adjusted for expense or income relating to the dilutive potential equity shares, by the weighted average number of equity shares considered for deriving basic earnings per share and the weighted average number of equity shares which could have been issued on the conversion of all dilutive potential equity shares. l Provisions and contingencies A provision is recognised when the Company has a present obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation in respect of which a reliable estimate can be made. Provisions are not discounted to their present value and are determined based on the best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. Contingent liabilities if any are disclosed in the notes. m Foreign currency transactions Foreign currency transactions are accounted at the exchange rates prevailing on the date of the transaction. Foreign currency monetary items outstanding as at the Balance Sheet date are reported using the closing rate. Gains and losses resulting from the settlement of such transactions and translation of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Profit and Loss. n Insurance Claims Insurance claims are accounted for on the basis of claims admitted/expected to be admitted and to the extent that there is no uncertainty in receiving the claims. 98 IDFC ANNUAL REPORT

13 Notes forming part of financial statements as AT AND o Service tax input credit Service tax input credit is accounted in the period in which the underlying services are received and when there is no uncertainty in availing/utilising the credits. p Operating cycle Based on the nature of products / activities of the Company and the normal time between acquisition of assets and their realisation in cash or cash equivalents, the Company has determined its operating cycle as 12 months for the purpose of classification of its assets and liabilities as current and non-current. 03 Share capital As at As at Number Number Authorised Equity shares of 10 each 20,000, ,000,000 20,000, ,000,000 Issued, subscribed & fully paid up Equity shares of 10 each 14,137, ,372,000 14,137, ,372,000 (All the above equity shares are held by IDFC Limited, (formerly Infrastructure Development Finance Company Limited) the holding company and its nominees) Total 141,372, ,372,000 (a) Reconciliation of the number of equity shares outstanding at the beginning and at the end of the year As at As at Number Number Outstanding at the beginning of the year 14,137, ,372,000 14,137, ,372,000 Issued during the year Outstanding at the end of the year 14,137, ,372,000 14,137, ,372,000 (b) Terms / rights attached to equity shares The Company has only one class of equity shares having a par value of 10 per share. Each holder of equity share is entitled to one vote per share. The dividend proposed by the Board of Directors is subject to approval of the share holders in the ensuing Annual General Meeting. In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of all preferential amounts. However, no such preferential amounts exists currently. The distribution will be in proportion to the number of equity shares held by the shareholders. (d) Details of shareholders holding more than 5% of the equity shares in the Company Equity shares IDFC Limited (formerly Infrastructure Development Finance Company Limited) As at As at Number % of Holding Number % of Holding 14,137, ,137, IDFC Securities Limited 99

14 Notes forming part of financial statements as AT AND 04 Reserves and surplus As at As at (a) Securities premium account 142,578, ,578,000 (b) General reserve 55,628,577 55,628,577 (c) Debenture redemption reserve Opening balance - - Add:- Transferred from surplus in statement of Profit and Loss 312,500,000 - Closing balance 312,500,000 - Debenture redemption reserve has been created in accordance with section 117C of the Companies Act, 1956 in respect of the privately placed Zero Coupon Optionally Convertible Debentures ('ZCOCD''). (d) Surplus in the statement of profit and loss Opening balance 797,417, ,062,985 Add: Profit for the year 528,113 9,354,423 Less: Transfer to debenture redemption reserve 312,500,000 - Closing balance 485,445, ,417,408 Total 996,152, ,623, Long -term borrowings As at As at Zero coupon optionally convertible debentures (Unsecured) (see note 29) 1,250,000,000 - Total 1,250,000,000 - The Company has issued the ZCOCDs to the Holding Company. The term of the ZCOCDs is for a period of 5 years and is convertible into 3,786, per share. The tenure can be renewed / extended as may be mutually agreed upon between the parties. The redemption/ conversion is at the option of the holder of ZCOCDs i.e. the Holding Company. 06 Other long - term liabilities As at As at Others * 153,909 27,698,948 Total 153,909 27,698,948 * Represents amounts withheld from erstwhile promoters in terms of the Share Purchase Agreement. 07 Trade payables As at As at Provision for expenses (see note 29) 55,135,189 56,414,368 Payable to vendors (see note 29) 5,845,911 14,218,817 Total 60,981,100 70,633,185 No amount is payable to "Suppliers" registered under Micro Small and Medium Enterprises Development Act, No interest has been paid / is payable by the Company during the year to the suppliers covered under the Micro, Small and Medium Enterprises Development Act, The above information takes into account only those suppliers who have responded to inquiries made by the Company for this purpose. 08 Other current liabilities As at As at Payable to gratuity fund (see note 25) 198,447 16,306,727 Statutory remittances 11,567,592 18,666,795 Total 11,766,039 34,973, IDFC ANNUAL REPORT

15 Notes forming part of financial statements as AT AND 09 Tangible assets Gross block Depreciation and Amortisation Net block Balance as at April 1, 2012 Additions Disposals Balance as at Balance as at April 1, 2012 Charge for the year On disposals Balance as at Balance as at Balance as at Furniture and fixtures 385, , ,876 25, , , ,124 Office equipment 4,676, , ,520 5,123,062 2,596, ,406 80,828 3,200,446 1,922,616 2,079,215 Computers 22,876,478 1,016, ,877 23,067,720 15,358,476 3,122, ,449 17,888,505 5,179,215 7,518,002 Total 27,937,561 1,600, ,397 28,575,782 18,201,220 3,832, ,277 21,360,008 7,215,774 9,736,341 Balance as at 22,704,126 7,222,408 1,988,973 27,937,561 16,614,537 3,412,197 1,825,514 18,201,220 9,736, Intangible assets Gross block Depreciation and Amortisation Net block Balance as at April 1, 2012 Additions Disposals Balance as at Balance as at April 1, 2012 Charge for the year On disposals Balance as at Balance as at Balance as at Tenancy rights 1,083, ,083, , , , , ,853 Computer software 9,971,261 2,208,126-12,179,387 8,710,963 1,178,875-9,889,838 2,289,549 1,260,298 Total 11,054,461 2,208,126-13,262,587 9,046,310 1,287,195-10,333,505 2,929,082 2,008,151 Balance as at 11,030,952 23,509-11,054,461 7,751,524 1,294,786-9,046,310 2,008,151 Total tangible & intangible assets 38,992,022 3,808, ,397 41,838,369 27,247,530 5,119, ,277 31,693,513 10,144,856 11,744,492 Balance as at 33,735,078 7,245,917 1,988,973 38,992,022 24,366,061 4,706,983 1,825,514 27,247,530 11,744, Non-current investments Face value As at As at Quantity Quantity Trade investments (valued at cost unless stated otherwise) Unquoted equity shares (fully paid) Investment in subsidiaries IDFC Capital Limited 10 6,035, ,304,650 6,035, ,304,650 IDFC Distribution Company Limited 10 1,500,000 15,000,000 1,500,000 15,000,000 IDFC Capital (USA) INC. USD ,000,000 46,240, ,000,000 46,240, ,544, ,544,650 Trade investments (valued at cost unless stated otherwise) Investment in equity shares (unquoted) (fully paid) Bombay Stock Exchange Limited 1 130,000 10, ,000 10,000 10,000 10,000 Investments in debentures Zero coupon optionally convertible debentures Investment in subsidiaries IDFC Capital Limited 1,000,000 1,200 1,200,000,000-1,200,000,000 - Total 1,384,554, ,554,650 IDFC Securities Limited 101

16 Notes forming part of financial statements as AT AND 12 Deferred tax asset (net) As at As at Tax effects of items constituting deferred tax assets (a) On difference between book balance and tax balance of fixed assets 3,335,000 3,900,000 (b) Provision for gratuity and others 65,000 5,550,000 Total 3,400,000 9,450,000 As per Accounting Standard 22 relating to Accounting for Taxes on Income as notified by The Companies (Accounting Standards) Rules, 2006, the Company has taken debit of 6,050,000 (previous year credit of 850,000) in the Statement of Profit and Loss towards deferred tax asset (net) on account of timing differences. 13 Loans and advances (unsecured, considered good) Non-current portion As at As at Current maturities Non-current portion Current maturities Capital advances 1,073, ,831 - Security deposits - Deposits with stock exchanges 29,552,200-29,352, Other deposits 675, , ,000 Loan and advances to subsidiary company ,500,000 Loan and advances to employees - 201,670-67,033 Prepaid expenses - 6,622,561-8,420,750 Advance payment of income tax 133,158, ,097,718 - [net of provision for tax of 537,950,000 (Previous year 537,950,000)] Advance payment of fringe benefit tax 4,779,103-4,779,103 - [net of provision for tax of 5,720,000 (Previous year 5,720,000)] Balances with government authorities - Service tax credit receivable - 595, ,311 Other loans and advances - 3,921, ,684 Total 169,238,346 11,341, ,405, ,282, Other assets Non-current portion As at As at Current maturities Non-current portion Current maturities Bank deposit (see note 17) 29,900,000-10,900,000 - Interest accrued on bank deposits 930,275 13,910,322 1,268,743 55,137,963 Gratuity receivable - 3,082,112-9,971,151 Mediclaim receivable ,000 Insurance claim receivable - 1,463, Other receivable from subsidiary company (see note 29) - 1,719, Total 30,830,275 20,174,811 12,168,743 65,359, IDFC ANNUAL REPORT

17 Notes forming part of financial statements as AT AND 15 Current investments (Valued at lower of cost and fair value, unless stated otherwise) Mutual funds (Unquoted) Face value As at As at Quantity Quantity IDFC Cash Fund - Daily dividend (Direct plan) 1, , ,958, IDFC Dynamics Bond Fund-Growth (Direct 10 5,484, ,226, plan) IDFC Fixed Maturity Plan 366 days series ,000, ,000, Monthly Dividend Total 338,184,539 - Aggregate amount of Investments in unquoted mutual funds Cost 338,184,539 - Market value 338,767,574 - Market value of investment in unquoted mutual funds represents the repurchase price of the units issued by the mutual funds. 16 Trade receivables (unsecured) (considered good unless stated otherwise) Outstanding for a period less than six months from the date they are due for payment (see note 29) Outstanding for a period more than six months from the date they are due for payment (see note 29) As at As at 58,912,935 17,414,966 32,430,611 32,428,899 Total 91,343,546 49,843,865 Trade receivables include 82,705,268 (previous year 32,428,899) receivable from a subsidiary company. 17 Cash and bank balances Non-current portion As at As at Current maturities Non-current portion Current maturities Cash and cash equivalents Cash on hand - 7,468-4,269 Cheques on hand ,067,443 Balances with banks: - In current accounts - 32,654,850-23,070,514-32,662,318-25,142,226 Others Balances with banks: - In deposit accounts [see note (a) and (b)] 29,900, ,550,000 10,900, ,350,000 29,900, ,550,000 10,900, ,350,000 Amount disclosed under "other assets" (see note 14) (29,900,000) - (10,900,000) - Total - 401,212, ,492,226 a b Balances with banks include deposits amounting to 389,450,000 (Previous year 515,250,000) which have an original maturity of more than 12 months. Balances with banks include deposits amounting to 389,450,000 (Previous year 515,250,000) which are under lien. IDFC Securities Limited 103

18 Notes forming part of financial statements as AT AND 18 Revenue from operations Brokerage (see note 29) 250,246, ,462,615 Advisory Fee income (see note 26 and 29) 109,143,731 39,027,407 Total 359,390, ,490,022 The Company has an arrangement with its wholly owned subsidiary, IDFC Capital Limited to provide research, financial advisory and other distribution services on some of the assignments/mandates. In consideration of these services, the Company receives a share from the subsidiary company in the ratio mutually agreed upon. An amount of 86,495,242 (previous year 12,952,258) has been shared during the year in respect of the above services and the same has been included under fee income (Advisory). 19 Other income Dividend from long-term investments 780, ,000 Dividend from current investments 18,979,490 19,849,606 Interest on bank deposit 39,785,208 45,478,108 Gain on sale of current investment 2,103,314 1,334,248 Interest on income tax refund - 6,622,069 Net gain on foreign exchange fluctuation 12,067 13,950 Profit on sale of fixed assets 25,921 - Expenses written back 9, ,947 Miscellaneous income - 1,628,483 Total 61,695,270 75,675, Operating expenses Membership and subscription 34,220,826 37,147,735 Clearing house maintenance charges 170, ,479 Depository charges 319, ,003 Loss on sale of misdeal stock (net) 182, ,600 Others 83, ,607 Total 34,976,885 38,523, Employee benefit expenses Salaries and bonus * (see note 30) 203,132, ,653,482 Contribution to provident and other funds (see note 25) 12,761,039 27,032,617 Staff welfare expenses 9,810,839 5,096,473 Total 225,704, ,782,572 * Salaries and bonus is net of deputation charges of 6,700,000 (previous year Nil) recovered /recoverable from IDFC Capital Limited. 104 IDFC ANNUAL REPORT

19 Notes forming part of financial statements as AT AND 22 Finance costs Interest on borrowings (see note 29) 304, ,334 Bank guarantee charges 3,933,930 4,949,703 Bank charges 34, ,715 Total 4,272,725 5,650,752 The bank guarantee facilities were availed from the nationalised/scheduled banks and were submitted to BSE/NSE (Exchanges) as margin deposit. The temporary borrowings are taken in the normal course of broking business. 23 Other expenses Rent - 14,000 Repairs and maintenance - Equipment 1,118,905 1,078,031 - Others 82, ,132 Insurance charges 825,250 1,009,480 Travelling and conveyance 23,893,055 28,745,049 Printing and stationery 1,332,078 1,780,638 Postage, telephone and fax 8,663,572 10,876,949 Advertising and publicity 18,400,047 16,409,546 Professional fees (see note 26 and 29) 54,689,954 36,342,746 Loss on sale / discarding of fixed assets (net) - 161,562 Service tax credit written off 3,444,267 - Miscellaneous expenses 1,653, ,690 Bad debts - 111,625 Directors' fees (see note 26) 220, ,000 Auditor's remuneration * 2,255,000 2,465,172 Shared services costs (see note 29) 27,855,517 39,602,534 Total 144,433, ,413,154 * Break up of auditor's remuneration: Audit fee 800,000 1,200,000 Tax audit fee 200, ,000 Taxation matters 200, ,000 Other services 1,055, ,000 Out of pocket expenses - 10,172 Service Tax 278, ,913 Total 2,533,718 2,719,085 Less: Service tax set off claimed 278, ,913 Total 2,255,000 2,465,172 IDFC Securities Limited 105

20 Notes forming part of financial statements as AT AND 24 Contingent liabilities not provided for in respect of: As at As at Claims not acknowledged as debts in respect of : Disputed Income-tax demands (net of amounts provided). The matters in dispute are 48,355,514 9,990,201 under appeal. Commitments Estimated amount of contracts remaining to be executed on capital amount and not provided for: Tangible assets 555,854 - Intangible assets 1,073, Employee benefits (i) In accordance with Accounting Standard 15 on Employee Benefits, notified by the Companies (Accounting Standards) Rules 2006, the following disclosures have been made: The Company has recognised the following amounts in the Statement of Profit and Loss towards contribution to defined contribution plans which are included under contribution to provident and other funds: Provident fund 9,889,959 12,264,427 Superannuation fund 360, ,532 Pension fund 726, ,501 ii) The details of the company s post-retirement benefit plans for gratuity for its employees are given below which is certified by the actuary and relied upon by the auditors: Change in the benefit obligations: Liability at the beginning of the year 28,599,509 23,006,622 Current service cost 7,599,349 8,036,058 Interest cost 2,865,757 2,507,714 Actuarial loss /(gain) (3,280,817) 3,088,094 Past service cost - - Benefits paid (8,064,354) (8,038,979) Liability at the end of the year 27,719,444 28,599,509 Fair value of plan assets: Fair value of plan assets at the beginning of the year 11,955,878 19,205,340 Expected return on plan assets 836,368 1,790,086 Contributions 17,892,487 - Actuarial gain /(loss) on plan assets 4,900,618 (1,000,569) Benefits paid (8,064,354) (8,038,979) Fair value of plan assets at the end of the year 27,520,997 11,955,878 Total actuarial gain to be recognized 8,181,435 4,088,663 Actual return on plan assets: Expected return on plan assets 836,368 1,790,086 Actuarial gain /(loss) on plan assets 4,900,618 (1,000,569) Actual return on plan assets 5,736, , IDFC ANNUAL REPORT

21 Notes forming part of financial statements as AT AND amout recognised in the balance sheet: Liability at the end of the year 27,719,444 28,599,509 Fair value of plan assets at the end of the year 27,520,997 11,955,878 Unrecognized past service cost - 336,904 Amount recognised in the balance sheet under Payable to gratuity fund 198,447 16,306,727 Expenses recognised in the profit and loss account under employee benefits expenses Current service cost 7,599,349 8,036,058 Interest cost 2,865,757 2,507,714 Expected return on plan assets (836,368) (1,790,086) Net actuarial gain to be recognised (8,181,435) 4,088,663 Past service cost 336, ,808 Expense recognised in the profit and loss account under Employee benefits expenses 1,784,207 13,516,157 Reconciliation of the liability recognised in the balance sheet Opening net liability 16,306,727 2,790,570 Expense recognised 1,784,207 13,516,157 Contribution by the company 17,892,487 - Amount recognised in the balance sheet under Payable to gratuity fund 198,447 16,306,727 Expected employer s contribution next year 6,000,000 1,000,000 March 31, 2011 March 31, 2010 March 31, 2009 Experience adjustments Defined benefit obligation 27,719,444 28,599,509 23,006,622 10,993,766 8,745,683 Plan assets 27,520,997 11,955,878 19,205,340 5,736,494 4,828,911 Deficit (198,447) (16,643,631) (3,801,282) (5,257,273) (3,916,772) Experience adjustment on plan liabilities (4,187,437) 1,884,005 (3,007,273) (5,986,757) (383,113) Experience adjustment on plan assets 4,900,618 (1,000,569) (567,142) (202,914) (12,514) As at As at Investment pattern % % Insurer managed fund Principal assumptions Discount rate Return on plan assets Salary escalation rate As the Gratuity fund is managed by Life Insurance Company details of investments are not available with the Company. The estimates of future salary increase, considered in the actuarial valuation takes account of inflation, seniority, promotion and other relevant factors. IDFC Securities Limited 107