Kotak Mahindra Bank Ltd. TWENTY-SECOND ANNUAL REPORT Global Reports LLC

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2 Group Consolidated Financial Statements... 2 Kotak Mahindra Bank Limited subsidiaries Kotak Mahindra Capital Company Limited Kotak Securities Limited Kotak Mahindra Old Mutual Life Insurance Limited Kotak Mahindra Prime Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Trustee Company Limited Kotak Mahindra Investments Limited Kotak Mahindra (International) Limited Kotak Mahindra (UK) Limited Kotak Mahindra Inc Global Investent Opportunities Fund Limited Kotak Mahindra Securities Limited Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) Kotak Forex Brokerage Limited Kotak Mahindra Bank Limited (Consolidated)

3 Consolidation at a Glance Rupees in Lakhs March 31, 2007 March 31, 2006 Profit before Tax Profit after Tax Profit before Tax Profit after Tax Networth Networth Kotak Mahindra Bank Ltd. 20, , , , , , Subsidiaries Kotak Mahindra Capital Company Ltd.* 9, , , , , , Kotak Securities Ltd. 36, , , , , , Kotak Mahindra Prime Ltd. 8, , , , , , Kotak Mahindra Old Mutual Life Insurance Ltd. (5,563.16) (5,834.88) (4,133.76) (4,323.70) 11, , Kotak Mahindra Asset Management Ltd. 1, , , Kotak Mahindra Trustee Company Ltd , Kotak Mahindra Investments Ltd. 3, , , , , , Kotak Mahindra (International) Ltd ** 1, , , , , , Kotak Mahindra UK Limited** 2, , , Kotak Mahindra Inc. 1, , Kotak Mahindra Securities Ltd.* , , , Kotak Mahindra Trusteeship Services Limited (Formerly Known as Kotak Mahindra Private Equity Trustee Limited) Kotak Forex Brokerage Ltd. (51.76) (52.01) (37.65) (37.97) Total 79, , , , , , Add: Associates* 1, , , Less: Dividend, Minority Interest, inter company and other adjustment 1, , , , Consolidated Profit after Tax * 53, , , , Consolidated Earnings per Share (Rs.) * Consolidated Book Value per Share (Rs.) * For , the number excludes non recurring item. ** Kotak Mahindra UK Limited (KMUK) was subsidiary of Kotak Mahindra (International) Limited - KM(I)L in previous year. Accordingly in figures for KM(I)L are consolidated with KMUK. Kotak Mahindra Bank Limited (Consolidated)

4 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 audited the attached Consolidated Balance Sheet of KOTAK MAHINDRA BANK LIMITED ( the Bank ) and its subsidiaries ( the Group ) as at 31st March, 2007, 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 financial statements 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 auditing standards generally accepted 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 any of the subsidiaries, whose financial statements reflect total assets of Rs. 881, lakhs as at 31st March, 2007, total revenues of Rs. 283, lakhs and cash flows amounting to Rs. 67, lakhs for the year ended on that date as considered in the consolidated financial statements. The accounts of the affiliates have not been audited except for Multifaced Finstock Private Limited. The financial statements of the subsidiaries have been audited by other auditors whose reports have been furnished to us and 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 Accountants of India. 5. Based on our audit and on consideration of the reports of other auditors on separate financial statements of the subsidiaries and the 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, in our opinion, the aforesaid consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India : (a) (b) (c) in the case of the Consolidated Balance Sheet, of the consolidated state of affairs of the Group as at 31st March, 2007; 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. Place : Mumbai Date : 17th May, 2007 For S. B. BILLIMORIA & CO. Chartered Accountants Nalin M. Shah Partner (Membership No ) Kotak Mahindra Bank Limited (Consolidated)

5 Consolidated Balance Sheet as at 31st March, 2007 Capital and Liabilities Schedule As at 31st March, 2007 (Rupees in lakhs) As at 31st March, 2006 (Rupees in lakhs) Capital 1 32, , Reserves and Surplus 2 290, , Minority Interest 3, , Employees' Stock Options (Grants) Outstanding 2, , Deposits 3 966, , Borrowings 4 998, , Policy Holders' Funds 167, , Other Liabilities and Provisions 5 401, , Total 2,863, ,796, Assets Cash and Balances with Reserve Bank of India 6 79, , Balances with Banks and Money at Call and Short Notice 7 135, , Investments 8 912, , Advances 9 1,557, ,041, Fixed Assets 10 23, , Other Assets , , Goodwill on Consolidation Total 2,863, ,796, Contingent Liabilities 12 10,121, ,953, Bills for Collection 21, , Significant Accounting Policies and Notes to the Consolidated 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. Chartered Accountants Dr. Shankar Acharya Uday Kotak Chairman Executive Vice Chairman & Managing Director Nalin M. Shah Dipak Gupta Partner Executive Director Mumbai Jaimin Bhatt Bina Chandarana Dated: 17th May, 2007 Group Chief Financial Officer Company Secretary Kotak Mahindra Bank Limited (Consolidated)

6 Consolidated Profit and Loss Account for the year ended 31st March, 2007 Schedule ended 31st March, 2007 (Rupees in lakhs) ended 31st March, 2006 (Rupees in lakhs) I. Income Interest earned , , Other Income [Refer Note 11(a) - Schedule 18] , , Ii. Iii. IV. Total 435, , Expenditure Interest expended 15 97, , Operating expenses , , Provisions & Contingencies (includes tax provision of Rs. 25, lakhs (previous year Rs. 21, lakhs) 17 40, , Total 382, , Profit Net Profit for the year 52, , Less: Share of Minority Interest [Refer Note 11(a) - Schedule 18] , Add: Share in profit of Associates [Refer Note 11(b) - Schedule 18] 1, , Consolidated Profit for the year 53, , Add: Surplus brought forward from previous year [Refer Note 7(a) - Schedule 18] 98, , Total 152, , Appropriations Transfer to Statutory Reserve 3, , Transfer to/(from) Special Reserve u/s 45 IC of RBI Act, 1934 (7,006.19) 4, Transfer to General Reserve Transfer to Capital Reserve Transfer to Capital Redemption Reserve 1, Transfer to Debenture Redemption Reserve 2, , Transfer from Investment Fluctuation Reserve (3,830.00) Proposed Dividend [Refer Note 21 - Schedule 18] 2, , Corporate Dividend Tax [Refer Note 21 - Schedule 18] Balance carried over to Balance Sheet 149, , Total 152, , V. Earnings Per Share [Refer Note 11 - Schedule 18] Basic Diluted Significant Accounting Policies and Notes to the Consolidated 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. Chartered Accountants Dr. Shankar Acharya Uday Kotak Chairman Executive Vice Chairman & Managing Director Nalin M. Shah Dipak Gupta Partner Executive Director Mumbai Jaimin Bhatt Bina Chandarana Dated: 17th May, 2007 Group Chief Financial Officer Company Secretary Kotak Mahindra Bank Limited (Consolidated) 5

7 Consolidated Cash Flow Statement for the year ended 31st March, 2007 Ended 31st March, 2007 (Rupees in lakhs) Ended 31st March, 2006 (Rupees in lakhs) Cash Flow From Operating Activities Net Profit After Tax 53, , Add: Provision for tax 25, , Profit before tax 79, , Adjustments for: Employee Stock Options Grants 1, Depreciation on Group s property 7, , Diminution in the value of investments (53.17) 5.39 Loss on revaluation of investments (net) 6, Provision for Non Performing Assets and contingencies 15, , Profit on sale of assets (99.35) (56.87) Increase/(decrease) in Translation Reserve [Refer Note 2(F)(ix) Schedule 18] (285.64) Wealth tax , , Adjustements for: Increase in Investments other than Associates (403,429.48) (233,357.12) Increase in Advances (523,572.57) (332,065.98) Increase in Other Assets (29,389.90) (54,880.75) (Increase)/Decrease in Cash Collateral with Banks (1,221.10) 1, Increase in Deposits 404, , Increase in Borrowings 419, , Debenture issue expenses (91.17) (14.30) Increase in Policyholders Funds 64, , Increase in Other Liabilities & Provisions 93, , , (37,635.74) Income Taxes Paid (25,371.73) (21,253.74) Net Cash Flow From Operating Activities (A) 107, , Cash Flow From Investing Activities Purchase of Fixed assets (13,618.51) (8,206.10) Sale of Fixed assets Increase in Investments in Associates (11,364.85) (1,834.33) Acquisition of additional stake in subsidiaries (33,300.00) (12,098.27) Net Cash Used In Investment Activities (B) (57,924.39) (21,869.07) Kotak Mahindra Bank Limited (Consolidated) 6

8 Consolidated Cash Flow Statement for the year ended 31st March, 2007 (Contd.) Ended 31st March, 2007 (Rupees in lakhs) Ended 31st March, 2006 (Rupees in lakhs) Cash Flow From Financing Activities Dividend paid including Corporate Dividend Tax (2,222.09) (1,840.64) Fresh issue of share/money received on exercise of stock options 46, Share issue expenses (429.84) (87.17) Increase in Minority Interest 12, , Net Cash Flow From Financing Activities (C) 56, , Net Increase In Cash & Cash Equivalents (A + B + C) 106, , Cash & Cash Equivalents At The Beginning Of The (Refer Note below) 105, , Cash & Cash Equivalents At The End Of The (Refer Note below) 211, , Note: Balance with banks in India in Fixed Deposit (As per Schedule 7 I (i) (b)) Cash Collateral Security shown separately in operating activities Balance with banks in India in current account (As per Schedule 7 I (i) (a)) 65, , (2,728.88) 63, (1,507.78) 29, , , Money at call and short notice in India (As per Schedule 7 I (ii)) 5, Cash in hand (As per Schedule 6 I) 13, , Balance with RBI in current account (As per Schedule 6 II) 66, , Balance with banks Outside India: (i) In current account (As per Schedule 7 II (i)) 11, , (ii) In Other Deposit Accounts (As per Schedule 7 II (ii)) 33, , Cash & Cash Equivalents At The End Of The 211, , As per our report of even date attached. For and on behalf of the Board of Directors For S. B. Billimoria & Co. Chartered Accountants Dr. Shankar Acharya Uday Kotak Chairman Executive Vice Chairman & Managing Director Nalin M. Shah Dipak Gupta Partner Executive Director Mumbai Jaimin Bhatt Bina Chandarana Dated: 17th May, 2007 Group Chief Financial Officer Company Secretary Kotak Mahindra Bank Limited (Consolidated) 7

9 Schedules Forming part of Consolidated Balance Sheet as at 31st March, 2007 As at 31st March, 2007 (Rupees in lakhs) As at 31st March, 2006 (Rupees in lakhs) Schedule 1 Capital Authorised Capital 35,00,00,000 Equity Shares of Rs. 10/- each 35, , Issued Subscribed & Paid-up Capital 32,61,55,708 (31st March, 2006: 30,92,94,625) Equity Shares of Rs. 10/- each fully paid-up 32, , Total 32, , Schedule 2 Reserves & Surplus I. Statutory Reserve Opening Balance 12, , Add: Transfer from Profit and Loss Account 3, , Total 16, , II. III. IV. Capital Reserve Opening balance 1, Add: Transfer from Profit and Loss Account Total 1, , General Reserve Opening Balance 9, , Add: Transfer from Profit and Loss Account Add: Transfer from Capital Redemption Reserve 1, Add: Transfer from share of Retained Earnings in Associates Less: Utilised for issue of Bonus Shares 10, Less: Transitional adjustment for Employee Benefits [Refer Note 7(a) - Schedule 18] 1, Add/(Less): Translation Reserve [Refer Note 2(F)(ix) - Schedule 18] (285.64) 4.30 Total 9, , Securities Premium Account Opening Balance 41, , Add: Received during the year (net of tax) 45, Less: Utilised for Issue of Bonus Shares 8, Less: Utilised for Share Issue Expenses Less: Utilised for Debenture Issue Expenses (net of tax) Total 86, , V. Investment Fluctuation Reserve Opening Balance 3, Less: Transfer to Profit and Loss Account 3, Total Kotak Mahindra Bank Limited (Consolidated) 8

10 Schedules Forming part of Consolidated Balance Sheet as at 31st March, 2007 (Contd.) As at 31st March, 2007 (Rupees in lakhs) As at 31st March, 2006 (Rupees in lakhs) Schedule 2 Reserves & Surplus (Contd.) VI. Special Reserve under Section 45IC of the RBI Act, 1934 Opening Balance 9, , Add: Transfer from Profit and Loss Account 4, Less: Transfer to Profit and Loss Account 7, Total 2, , VII. Debenture Redemption Reserve Opening Balance 7, Add: Transfer from Profit and Loss Account 2, , Total 9, , VIII. Capital Redemption Reserve Opening Balance 1, Addition during the year 1, Less: Transfer to General Reserve 1, Total 1, IX. Capital Reserve on Consolidation Opening Balance 11, , Addition during the year [Refer Note 1 (b) - Schedule 18] 2, , Total 14, , X. Share of Retained Earnings in Associates Opening Balance Less: Transfer to General Reserve Total XI. Reserve for Doubtful Debts Opening Balance Less: Deduction during the year Less: Transfer to Provision and Contingencies Total XII. Profit and Loss Account 149, , Total 290, , Schedule 3 Deposits I. Demand Deposit i. From Banks 2, , ii. From Others 200, , Total 202, , II. Savings Bank Deposits 88, , III. Term Deposits i. From Banks 314, , ii. From Others 360, , Total 674, , Total Deposits of branches in India (I to III) 966, , Kotak Mahindra Bank Limited (Consolidated) 9

11 Schedules Forming part of Consolidated Balance Sheet as at 31st March, 2007 (Contd.) As at 31st March, 2007 (Rupees in lakhs) As at 31st March, 2006 (Rupees in lakhs) Schedule 4 Borrowings I. Borrowings in India (i) Reserve Bank of India 159, (ii) Other Banks 279, , (iii) Institutions, Agencies and others* 537, , Total 976, , II. Borrowings outside India 21, , Total Borrowings (I & II) 998, , Secured Borrowings included in I & II above 26, , *Includes Debenture application money pending allotment amounting to Rs. 9,400 lakhs (previous year: Rs. 4,500 lakhs) Schedule 5 Other Liabilities & Provisions I. Bills Payable 28, , II. Interest Accrued 27, , III. Others (including provisions) 280, , IV. Proposed Dividend (includes tax on dividend) 2, , V. Sub-ordinated Debt (Tier II Capital) 42, , VI. Upper Tier II Bonds 19, Total 401, , Schedule 6 Cash and Balances with Reserve Bank of India I. Cash and cheques on hand (including foreign currency notes) 13, , II. Balances with RBI in current account 66, , Total 79, , Schedule 7 Balances with Banks and Money at Call and Short Notice I. In India (i) Balances with Banks [Refer Note 8 - Schedule 18] (a) In Current Accounts 24, , (b) In Other Deposit Accounts 65, , Total 90, , (ii) Money at call and Short Notice: With Banks 5, Total 5, Total (i + ii) 90, , II. Outside India (i) In Current Accounts 11, , (ii) In Other Deposit Accounts 33, , Total 44, , Total (I & II) 135, , Kotak Mahindra Bank Limited (Consolidated) 10

12 Schedules Forming part of Consolidated Balance Sheet as at 31st March, 2007 (Contd.) As at 31st March, 2007 (Rupees in lakhs) As at 31st March, 2006 (Rupees in lakhs) Schedule 8 Investments I. Investments in India in i. Government Securities ii. Other approved Securities iii. Shares iv. Debentures and Bonds v. Associates ** 613, , , , , , , , vi. Others (Units Certificate of Deposits, Commercial Paper and Pass Through Certificates) 92, , Total 912, , II. Investments Outside India in i. Shares ii. Others Total Total Investments (I and II) 912, , ** Investment in Associates [Refer Note 19 - Schedule 18] Equity Investment in Associates 10, Add: Goodwill on acquisition of Associates 2, , (Share of pre-acquisition losses) Less: Capital reserve on Consolidation (Share of pre-acquisition profits) 9, Cost of Investment in Associates 2, , Less: Provision for diminution in value , , Add: Post-acquisition profit/loss of Associates (Equity method) 40, , Total 43, , Schedule 9 Advances A. (i) Bills purchased and discounted # 25, , (ii) Cash Credits Overdrafts and loans repayable on demand 86, , (iii) Term Loans 1,445, , # Bills purchased and discounted is net off Bills Rediscounted Rs. 18, lakhs (previous year Rs. 16, lakhs) Total 1,557, ,041, B. (i) Secured by tangible assets * 1,229, , (ii) Unsecured 327, , Total 1,557, ,041, * including advances against book debts Kotak Mahindra Bank Limited (Consolidated) 11

13 Schedules Forming part of Consolidated Balance Sheet as at 31st March, 2007 (Contd.) Schedule 10 Fixed Assets A. Premises (Including Land) As at 31st March, 2007 (Rupees in lakhs) As at 31st March, 2006 (Rupees in lakhs) Gross Block At cost on 31st March of the preceding year 7, , Additions during the year 2, Deductions during the year Total 10, , Depreciation As at 31st March of the preceding year 2, , Charge for the year [Refer Note 17 - Schedule 18] Deductions during the year Depreciation to date 2, , Net Block 7, , B. Other Fixed Assets (including furniture & fixtures) Gross Block At cost on 31st March of the preceding year 28, , Additions during the year 11, , Deductions during the year Total 38, , Depreciation As at 31st March of the preceding year 16, , Charge for the year 7, , Deductions during the year Depreciation to date 22, , Net Block 16, , Total (A) + (B) 23, , Schedule 11 Other Assets I. Interest accrued 26, , II. Advance tax (net of provision) 2, , III. Stationery and Stamps IV. Non Banking assets acquired in satisfaction of claims 1, V. Cheques in course of collection , VI. Others 123, , Total 154, , Kotak Mahindra Bank Limited (Consolidated) 12

14 Schedules Forming part of Consolidated Balance Sheet as at 31st March, 2007 (Contd.) As at 31st March, 2007 (Rupees in lakhs) As at 31st March, 2006 (Rupees in lakhs) Schedule 12 - Contingent Liabilities I. Claims not acknowledged as debts 4, , II. Liability on account of outstanding forward exchange contracts 387, , III. Guarantees on behalf of constituents in India 49, , IV. Guarantees on behalf of constituents outside India 14, , V. Acceptances Endorsements and Other Obligations 29, , VI. Other items for which the Group is contingently liable: Liability in respect of interest rate & currency swaps & forward rate agreements 8,230, ,630, Liability in respect of options contracts 1,394, , Capital commitments 11, , Total 10,121, ,953, Schedules Forming Part of Consolidated Profit & Loss Account for the year ended 31st March, 2007 ended 31st March, 2007 (Rupees in lakhs) ended 31st March, 2006 (Rupees in lakhs) Schedule 13 Interest Earned I. Interest/discount on advances/bills 148, , II. Income from investments 44, , III. Interest on balance with RBI and other inter-bank funds 4, , IV. Others 4, , Total 202, , Schedule 14 - Other Income I. Commission exchange and brokerage 111, , II. Profit on sale of Investments (net) 18, , III. Loss on revaluation of investments (6,874.28) (886.86) IV. Profit on sale of building & other assets (net) V. Profit on exchange transactions (net) 1, , VI. Premium on Insurance business 95, , VII. Profit on recoveries of non-performing assets acquired 4, , VIII. Profit/(Loss) on Derivatives 6, (677.41) IX. Miscellaneous Income 2, , Total 232, , Kotak Mahindra Bank Limited (Consolidated) 13

15 Schedules Forming Part of Consolidated Profit & Loss Account for the year ended 31st March, 2007 (Contd.) ended 31st March, 2007 (Rupees in lakhs) ended 31st March, 2006 (Rupees in lakhs) Schedule 15 Interest Expended I. Interest on Deposits 41, , II. Interest on RBI/Inter-Bank Borrowings 19, , III. Other Interest 36, , Total 97, , Schedule 16 Operating Expenses I. Payments to and provision for employees [Refer Note 7 - Schedule 18 ] 68, , II. Rent taxes & lighting 8, , III. Printing & Stationery 2, , IV. Advertisement Publicity and Promotion 7, , V. Depreciation on Group s property [Refer Note 17 - Schedule 18] 7, , VI. Directors fees allowances & expenses VII. Auditors fees and expenses VIII. Law Charges IX. Postage, telephones etc. 5, , X. Repairs and maintenance 3, , XI. Insurance XII. Travel and Conveyance 5, , XIII. Professional Charges 9, , XIV. Brokerage 23, , XV. Stamping Expenses 2, , XVI. Policyholder s reserves 64, , XVII. Other Expenditure 33, , Total 244, , Schedule 17 Provisions & Contingencies I. Provision for taxation (including wealth tax Rs lakhs previous year Rs lakhs and fringe benefit Tax Rs lakhs previous year Rs lakhs) 25, , II. Provision for Non -performing Assets and Contingencies (including write-offs and net of recoveries) 15, , III. Provision for Diminution in value of Investments (53.17) 5.39 Total 40, , Kotak Mahindra Bank Limited (Consolidated) 14

16 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. Kotak Mahindra Bank Limited (KMBL) and its subsidiaries which have been consolidated, constitute the Group. Further, the Bank accounts for investments in Associates as defined by AS- 23 by the equity method of accounting. b. The list of subsidiaries is as under: Name of the Subsidiary Country of Origin % Shareholding of KMBL (31st March, 2007) % Shareholding of KMBL (31st March, 2006) Kotak Mahindra Capital Company Limited* India Kotak Mahindra Securities Limited* India Kotak Mahindra Inc. * USA Kotak Mahindra (International) Limited * Mauritius Global Investments Opportunities Fund Limited (GIOFL) * # Mauritius Kotak Mahindra (UK) Limited * U.K Kotak Securities Limited* India Kotak Mahindra Old Mutual Life Insurance Limited ** India Kotak Mahindra Prime 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 Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) India * The Group held 74.99% of the equity till 30th May, Effective 31st May, 2006, Kotak Group acquired 25.01% stake held by Goldman Sachs Mauritius LLC (GS) in Kotak Mahindra Capital Limited (KMCC) and Kotak Securities Limited (KS). The consideration for the acquisition of 25.01% stake of GS was Rs. 33, lakhs. The transaction was consummated on 31st May, KS bought the stake held by GS in KMCC while KMCC bought the stake held by GS in KS. Till such time, Kotak Mahindra (International) Ltd (KMIntl) and Kotak Mahindra Inc. (KMInc) were wholly owned by KMCC while Kotak Mahindra (UK) Limited (KMUK) was wholly owned by KMIntl. The management shares of GIOFL were wholly owned by KMIntl. Subsequent to this, KMCC, KS, KMIntl, KMInc and KMUK have become wholly owned subsidiaries of the Bank. Consequent to the above, the consolidated results for the year include 100% share of profits with effect from 31st May, 2006 of the above companies and the incremental share in profits of an associate as detailed in Note 19 below. The excess of the book value of the net assets acquired over purchase consideration amounting to Rs. 2, lakhs has been accounted as capital reserve on consolidation. ** The Bank, together with its subsidiaries Kotak Mahindra Prime Limited and Kotak Mahindra Capital Company Limited, holds 74% in the subsidiary. # Global Investments Opportunities Fund Limited is a hybrid entity comprising of asset management and mutual fund activities. Consolidation is done in respect of the asset management portion of the entity having regard to the substance over form of the entity. Kotak Mahindra Bank Limited (Consolidated) 15

17 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) c. As per AS-23 issued by the ICAI, the Consolidated Financial Statements incorporate the financial statements of the following associates for the year ended 31st March, 2007 except as indicated. Name of the Associate Country of Origin % Shareholding of the group (31st March, 2007) % Shareholding of the group (31st March, 2006) Business Standard Limited (Unaudited) India Business Standard Digital Limited (wholly owned subsidiary of Business Standard Limited) (Unaudited) India IndiaCar Private Limited (#) India Multifaced Finstock Private Limited ($) India Kotak Mahindra Asset Reconstruction Company Limited (***) India Ford Credit Kotak Mahindra Limited (Unaudited) (up to 4th October, 2005)* India Jaykay Finholding Private Limited (up to 1st March, 2006)** India # The financial statements of IndiaCar Private Limited have been consolidated based on the audited financial statements for the year ended 31st March, $ The Group held effective stake of 37.49% in the equity till 30th May, Consequent to acquisition of equity stake in KS and KMCC by the Group from Goldman Sachs Mauritius LLC, the Group holds 49.99% effective stake in the company, which is reflected as an increase in the Investments in Associates (Refer Note 19). The percentage shareholding indicated above is held by Kotak Mahindra Capital Company Limited and Kotak Mahindra Securities Limited. * The Bank along with its 100% subsidiary Kotak Mahindra Investments Limited held a 35% stake in Ford Credit Kotak Mahindra Limited (FCKM) till 4th October, Consequent to the realignment of the joint ventures with Ford Credit International (FCI), the equity shares held in FCKM were sold to FCI on 4th October, Consequent to the same, the financial statements of the Group for the previous year ended 31st March, 2006 include the share of profits of FCKM till 4th October, ** The Bank s subsidiaries Kotak Mahindra Capital Company Limited (KMCC) and Kotak Mahindra Securities Limited (KMSL) held 30% and 6% stake respectively in Jaykay Finholding Private Limited (Jaykay). The shareholding in Jaykay has been sold on 1st March, Consequent to the same, the financial statements of the Group for the previous year ended 31st March, 2006 include the share of profits of Jaykay till 1st March, *** The financial statements of Kotak Mahindra Asset Reconstruction Company Limited have not been consolidated under AS-23, as the permanent diminution in the value of the same is fully provided for. 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. 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 on 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. Actual results could differ from these estimates. B. REVENUE RECOGNITION a. Banking/Investing Activity: i. Interest income is recognised on accrual basis except in case of non-performing assets where it is recognized, upon realisation, as per RBI guidelines. In respect of non-performing assets, overdue interest is recognised as income on realisation. Kotak Mahindra Bank Limited (Consolidated) 16

18 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) ii. Interest income in respect of retail advances {except for the subsidiary, Kotak Mahindra Prime 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 and 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, Fees and Commission income are recognised when due except for Guarantee Commission which is recognised over the period of the guarantee, except as indicated in para iii above. v. Interest income on discounted instruments is recognised over the tenure of the instruments so as to provide a constant periodic rate of return. vi. Gain on account of securitisation of assets is amortised over the life of the securities issued in accordance with the guidelines issued by the RBI. vii. Dividend income is accounted on an accrual basis when the right to receive the dividend is established. viii. In respect of non-performing assets acquired from other banks and NBFCs, collections in excess of the consideration paid at each asset level (or portfolio level in certain cases based on clarifications received from the RBI from time to time) is treated as income. (Refer Note G(v) also). b. Investment Banking Activity: i. Issue management fees, underwriting commission, financial advisory fees and placement fees are accounted for based on stage of completion of assignments. ii. Brokerage and sub-brokerage on fixed income securities placements are accounted on completion of the transaction. c. Insurance Activity: i. Premium is recognised as income when it is due from policyholders except on unit linked policies, where the premium is recognised when associated units are allotted. ii. Uncollected premium on lapsed policies is not recognised as income until revived. iii. Top Up/ Lump sum contributions are accounted as a part of the single premium. iv. Income from linked policies, which include asset management fees and other charges, if any, are recovered from the linked fund in accordance with the terms and conditions of the policies. v. 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. vi. Re-insurance premium and commission is recognised over the period of the risk. d. Broking Activity: i. Placement and other fee based income are accounted for on the basis of the progress of the assignment. ii. Brokerage Income: On fixed deposit management, is accounted on completion of the transaction. On primary market subscription/mobilisation is accounted on receipt of intimation of allotment. On secondary market transaction is recognised 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 receipt of intimation of allotment. v. In respect of depository activity, 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 are recognised on time basis over the period of contract. vii. Portfolio management fees are accounted on accrual basis as follows: a. In case of fees based on fixed percentage of the corpus/fixed amount, income is accrued over the period of the agreement. b. In case of fees, based on the returns of the portfolio, income is accounted on the termination of the portfolio agreement/ on each anniversary as per the agreement. c. In case of upfront non-refundable fee, income is accounted in the year of receipt. Kotak Mahindra Bank Limited (Consolidated) 17

19 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) e. Asset Management Mutual Fund 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, where applicable, and investments made by the Company in the respective scheme), and are in conformity with the limits specified under SEBI (Mutual Funds) Regulations, 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 for all assets other than premises, 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 (Refer Note 17) 58 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 Card of the Bombay Stock Exchange Limited (Refer Note 17) 20 Assets costing less than Rs. 5,000 are fully depreciated in the year of purchase. D. EMPLOYEE BENEFITS i. Provident Fund Contribution as required by the Statute made to the Government Provident Fund is debited to the Profit and Loss Account. ii. iii. iv. Gratuity The Group accounts for the liability for future gratuity benefits based on an actuarial valuation. The Bank makes annual contribution to a Gratuity Fund administered by trustees and managed by a life insurance company. In other entities gratuity obligation is wholly unfunded. The net present value of the Group s obligation towards the same is actuarially determined based on the projected unit credit method as at the Balance Sheet date. Actuarial gains/losses are immediately taken to the profit and loss account and are not deferred. Superannuation Fund The Group contributes a sum equivalent to 15% (previous year: 0.15%), subject to a maximum of Rs. 1 lakh, of eligible employees eligible salary to a Superannuation Fund administered by trustees and managed by a Life Insurance Company. The Group recognises such contributions as an expense in the year they are incurred. The Life Insurance subsidiary s liability towards superannuation fund is accrued for the relevant period of employee participation. v. Other Employee Benefits The undiscounted amount of employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the service. These benefits include performance incentives and compensated absences on paid annual leave. Kotak Mahindra Bank Limited (Consolidated) 18

20 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) E. INVESTMENTS For the Bank 1. Classification 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 Associates and Other Investments for the purpose of disclosure in the balance sheet. i. Investments that are held for resale within 90 days from the date of purchase are 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. 2. Valuation The cost of investments is determined on the weighted average basis. Broken period interest on debt instruments is treated as revenue item. The transaction costs including brokerage, commission etc. paid at the time of acquisition of investments is charged to revenue. The valuation of investments is made in accordance with the RBI guidelines as indicated hereunder: 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. Further, provision for diminution other than temporary is made for, at the individual security level. 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. The market value of investments where current quotations are not available is determined as per the norms laid down by the RBI. c. Repurchase and reverse repurchase transactions These are accounted as outright purchase and outright sale respectively. The difference between the clean price of the first leg and the clean price of the second leg is recognised as interest income/interest expense over the period of the transaction. However, depreciation in their value, if any, compared to their original cost, is provided for. 3. Transfer Between Categories Transfer between categories is done at the lower of 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. For The Insurance Company a. Investments are recorded at cost on the date of purchase which include transaction costs and excludes pre-acquisition interest, if any. b. Impairment in the value of investments as at the Balance Sheet date which is other than temporary, is provided for. c. Investments maturing within twelve months from the Balance Sheet date and investments made with the specific intention to dispose them off within twelve months from the Balance Sheet date are classified as Short Term Investments. Investments other than Short Term Investments are classified as Long Term Investments. d. All debt securities are considered as held to maturity and accordingly recorded at historical 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 on a straight line basis. Kotak Mahindra Bank Limited (Consolidated) 19

21 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) e. In respect of unit linked business, the gain/ loss on sale of investments is the difference between the sale consideration and the book cost, which is computed on weighted average basis, on the date of sale. f. In respect of unit linked business, all Government securities, except treasury bills, are valued at prices obtained from Crisil Limited. Debt Securities other than Government Securities are valued on the basis of Crisil Bond valuer. Floating rate instruments are valued at cost. The discount on purchase of treasury bills, certificate of deposit, commercial papers, deep discount bonds and zero coupon bonds is amortised over the period to maturity on a straight line basis. Listed equity shares are valued at fair value, being the last quoted closing price on the National Stock Exchange of India Limited (NSE) [In case of securities not listed on NSE, the last quoted closing price on Bombay Stock Exchange Limited (BSE) is used] Equity shares awaiting listing are stated at historical cost subject to provision for diminution, if any, in the value of such investment determined separately for each individual investment. Unrealised gains and losses are recognised in the respective scheme s revenue account. g. In respect of shareholders and non-linked policyholders investments, listed equity shares as at Balance Sheet date are stated at fair value being the lower of last quoted closing price on BSE and NSE. Equity shares awaiting listing are stated at historical cost subject to provision for diminution, if any, in the value of such investment determined separately for each individual investment. 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. h. Transfer of debt securities from shareholders to policyholders fund is transacted at the lower of net amortised cost or market value. Transfer of securities between unit linked funds is done at market value. For Other Entities As required by Accounting Standard 13 (AS-13) issued by the ICAI, 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. Securities acquired with the intention to trade are considered as Stock-in-Trade. Investments classified as Stock in Trade by some of the subsidiaries are valued at cost or market price, whichever is lower. Brokerage, stamping and additional charges paid are included in the cost of investments. F. FOREIGN CURRENCY AND DERIVATIVE TRANSACTIONS For The Bank i. Foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers Association of India (FEDAI). ii. iii. iv. Income and Expenditure items are translated at the rates of exchange prevailing on the date of the transaction. 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 income/ expense. Derivative transactions comprising of swaps and options are disclosed as off balance sheet exposures. The swaps are segregated into trading or hedge transactions. Trading swaps outstanding as at the Balance Sheet dates are marked to market and the resulting profits or losses, are recorded in the Profit and Loss Account. Outstanding derivative transactions designated as Hedges are accounted on an accrual basis over the life of the transaction. Option premium paid is accounted for in the Profit and Loss Account on expiry of the option. v. Contingent liabilities at the balance sheet date on account of outstanding foreign exchange contracts are restated at year end rates reported by FEDAI. For Other Entities i. Transactions in foreign currencies are translated to Indian Rupees at the rate of exchange ruling on the date of the transaction. ii. Assets and liabilities contracted in foreign currencies are translated into Indian Rupees at the rate of exchange ruling at the Balance Sheet date. Kotak Mahindra Bank Limited (Consolidated) 20

22 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) iii. iv. 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. The financial statements of all subsidiaries incorporated outside India which are in the nature of non-integral foreign operations 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 as Translation Reserve forming part of General Reserve in Reserves and Surplus. Equity Index/Stock Futures/options i. Gains are recognised only on settlement/ expiry of the derivative instruments. ii. All open positions are marked to market and the unrealised gains/ loss are netted on a scripwise basis. Mark to market gains, if any, are not recognised. iii. Debit/credit balances on open positions are shown as other assets/ other liabilities, as the case may be. G. ADVANCES i. 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 assets. ii. Provision for non-performing assets comprising sub-standard, doubtful and loss assets is made in accordance with the 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. In accordance with the RBI guidelines, the Bank provides general provision in respect of Standard Assets as follows: Category of Advance General Provision All Direct Advances to Agricultural and SME sector 0.25% (previous year 0.25%) Residential Housing loans beyond Rs. 20 lakhs 1.00% (previous year 0.40%) Loans and Advances qualifying as Capital Market exposures and Commercial Real Estate loans 2.00% (previous year 0.40%) Personal Loans 2.00% (previous year 0.50%) All other Standard Advances 0.40% (previous year 0.40%) One of the Non-Banking Finance Company subsidiary provides general provision in respect of Standard Assets as follows: Category of Advance General Provision Vehicle Loans 0.15% Dealer Finance 1.00% Personal Loans to existing vehicle loan customers 0.15% Personal Loans 1.00% iv. Amounts paid for acquiring non-performing assets from other banks and NBFCs are considered as advances. Actual collections received on such non-performing assets are compared with the cash flows estimated while purchasing the asset to ascertain default. If the default is in excess of 90 days, then the assets are classified into sub-standard, doubtful or loss as required by the RBI guidelines on purchase of non-performing assets. v. Upto 31st May, 2006, in accordance with the RBI guidelines on purchase of non-performing assets, the bank was recognising income at individual asset level. The Bank had also created a floating provision towards such assets, equivalent to the income recognised on individual accounts under a portfolio, whenever the total collection was less than the cost paid for that portfolio. Vide circular dated 22nd June, 2006, the RBI has mandated specific conditions for creation and utilisation of floating provisions. Consequent to the same, the Bank has discontinued its policy of creating floating provisions for a portfolio and continues to recognise income and provision for NPA at the asset level. (Refer Note 18) Kotak Mahindra Bank Limited (Consolidated) 21

23 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) H. ACTUARIAL METHOD LIFE INSURANCE i. Actuarial method and assumptions : The actuarial liabilities have been calculated in accordance with generally accepted actuarial principles, the requirements of the Insurance Act 1938, IRDA regulations and the prescribed guidance notes of the Actuarial Society of India. In respect of unit linked policies, a unit reserve equal to the value of units as on the balance sheet date and an additional non-unit reserve calculated on gross premium prospective valuation method is created. The method adopted for par policies (accumulation contracts) is the value of the accumulated fund and an additional non-unit reserve calculated on gross premium prospective valuation method. For non-par conventional business the gross premium prospective method is used. ii. The assumptions used in the Gross Premium valuation are based on conservative best estimates together with appropriate margins for adverse deviations from experience. The principal assumptions are interest, inflation, return to policyholders accounts, lapses, expenses, mortality and morbidity. iii. Reserves for group life business are calculated as the risk premium for the unexpired term with an allowance for expenses and a margin for adverse deviations. I. ACQUISITION COSTS Acquisition costs such as commission and other costs are expensed in the year in which they are incurred. J. TAXES ON INCOME The Income Tax expense comprises Current tax, Deferred tax and Fringe Benefit tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income tax Act. Deferred tax adjustments comprises of changes in the deferred tax assets and liabilities. Deferred tax assets and liabilities are recognised for the future tax consequences of 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 judgment that realisation is more likely than not. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantially enacted before the balance sheet date. Changes in deferred tax assets/liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of the change. K. SEGMENT REPORTING In accordance with Accounting Standard 17 (AS-17) on Segment Reporting issued by the ICAI, the Group s business has been segregated into the following segments whose principal activities are as under: Segment Lending Corporate Banking Treasury and Investments Retail Liabilities Broking Advisory and Transactional Services Asset Management Insurance Corporate Centre (upto 31st March, 2006) Principal activity Car finance, commercial vehicle finance, personal loans, home loans, agriculture finance, other loans/services and fee income from distribution of products. Wholesale borrowings and lendings and other related services to the corporate sector. Dealing in debt, equity, money market, forex market, derivatives and investments. Retail borrowings covering savings and current accounts and Branch Banking network and services. Brokerage income on market transactions done on behalf of clients, interest on delayed payments, distribution of financial products and forex broking. Providing financial advisory and transactional services such as mergers and acquisition advice and equity/debt issue management services and revenue from being a professional clearing member. Management of investments on behalf of clients and funds. Life insurance Strategic investments and group activities. Effective 1st April, 2006, Corporate Centre has ceased to be a reportable segment under AS-17. Further, the Group has realigned its business segments after considering internal financial reporting and the organisational structure. 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. Kotak Mahindra Bank Limited (Consolidated) 22

24 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) A transfer pricing mechanism between 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 and provisions. Segment results are a result of segment revenue and segment expenses. Segment assets include assets related to segments and exclude tax related assets. Segment liabilities include liabilities related to the segment excluding net worth, minority interest and employees stock option (grants outstanding). Since the business operations of the Group are primarily concentrated in India, the Group is considered to operate only in the domestic segment. L. EMPLOYEE STOCK OPTION SCHEME The Bank has formulated Employee Stock Option Schemes (ESOSs) in accordance with SEBI (Employee Stock Option Scheme) Guidelines, The Schemes provide for grant of options to employees of the Group to acquire the equity shares of the Bank that vest in cliff vesting or in a graded manner and that are to be exercised within a specified period. In accordance with the SEBI Guidelines and the guidance note on Accounting for Employee Share based payments issued by the ICAI, the excess, if any, of the market price of the share preceding the date of grant of the option under ESOSs 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/BENEFITS Benefits paid comprise of policy benefit amount, surrenders and specific claims settlement costs where applicable. Surrender and claims by death are accounted when intimated. Survival benefits are accounted when due. Maturity claims are accounted on the date of maturity. Amounts recoverable from reinsurers are accounted for in the same period as the related claim. O. SECURITISATION The Group enters into sale of loans through Special Purpose Vehicles (SPVs). In most cases, post securitisation, the Group continues to service the loans transferred to the SPV. The Group also provides credit enhancement in the form of cash collaterals and/or by subordination of cash flows to Senior Pass Through Certificate (PTC) holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Group, appropriate provision/disclosure is made at the time of sale in accordance with Accounting Standard 29, Provisions, Contingent Liabilities and Contingent Assets. The gain/ premium on account of securitisation of assets at the time of sale based on the difference between the sale consideration and the book value of the securitised asset is amortised over the tenure of the securities issued. 3. GLOBAL DEPOSITORY SHARES (GDSS) ISSUE OF KOTAK MAHINDRA BANK LIMITED During the year ended 31st March, 2007, the Bank raised equity capital amounting to Rs. 45, lakhs. The net issue expenses of Rs lakhs related to the aforesaid issue have been charged to the share premium account as allowed under section 78 of the Companies Act, The Bank issued 15,000,000 GDSs representing 15,000,000 underlying equity shares of Rs. 10/- each at price of US$ 6.66 (equivalent to Rs. 300 per share at the exchange rate of Rs = US$ 1.00 in effect on 21st April, 2006). 4. 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. KMP, 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. 3, lakhs (previous year Rs. 3, lakhs) is carried forward in the Balance Sheet under Other Assets. 5. Investments include Rs. 5, lakhs (previous year Rs. 19, lakhs) as securities earmarked, partially or wholly towards initial margin for equity index/stock futures account, stocks pledged with National Securities Clearing Corporation Limited towards exposure in derivatives and stocks pledged with Bombay Stock Exchange Limited towards additional base capital in cash segment. 6. Investments include investments totalling Rs lakhs (previous year Rs lakhs) in GDRs. Kotak Mahindra Bank Limited (Consolidated) 23

25 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) 7. EMPLOYEE BENEFITS Consequent to the early adoption of Accounting Standard on Employee Benefits (AS 15) (Revised 2005) issued by the Institute of Chartered Accountants of India, the following disclosures have been made as required by the Standard: a. An amount of Rs. 1, lakhs (including Rs lakhs adjusted by some subsidiaries against the opening balance in their Profit and Loss Account) being the difference (net of tax and minority effect) between the liability as on 31st March, 2006 on employee benefits including defined benefits plans determined based on revised AS-15 and the liability as per the Group s previous accounting policy has been adjusted against the opening balance of General Reserve. b. The charge to the Profit and Loss Account for the year towards employee benefits is higher by Rs lakhs as compared to the expense as per the Group s previous accounting policy. c. The Group has recognised the following amounts in the Profit and Loss Account towards contributions to Provident Fund and Other Funds. Provident Fund Superannuation Fund Rs. 2, lakhs Rs lakhs d. In accordance with Indian regulations, the Group provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee s salary and the years of employment with the Company subject to maximum of Rs lakhs. The gratuity benefit is provided to the employees of the Bank through a fund administered by a Board of Trustees and managed by a life insurance company. The Bank is responsible for settling the gratuity obligation through contributions to the fund. The plan is fully funded. In respect of other companies in the Group, the gratuity obligation is wholly unfunded. e. Reconciliation of opening and closing balance of the present value of the defined benefit obligation for gratuity benefits is given below. Rs. in lakhs As of 31st March, 2007 Funded Others Change in benefit obligations Liability at the beginning of the year Current Service cost Interest cost Actuarial (gain)/loss on obligations (6.73) Liability assumed on transfer of employees Benefits paid (29.48) (131.00) Liability at the end of the year Change in plan assets Fair value of plan assets at the beginning of the year Expected return on plan assets Actuarial Gain 9.92 Benefits paid (29.48) Employer contributions Fair value of plan assets as at the end of the year Kotak Mahindra Bank Limited (Consolidated) 24

26 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Reconciliation of present value of the obligation and the fair value of the plan assets Rs. in lakhs As of 31st March, 2007 Funded Fair value of plan assets as at the end of the year Liability at the end of the year Net asset as at 31st March, 2007 included in Others under Other Assets and Others Liabilities (740.71) Expenses recognised for the period Current service cost Interest cost Expected return on plan assets (43.10) Actuarial (gain)/loss (16.65) Net gratuity expense included in [payments to and provision for employees] under Operating Expenses [Schedule 16 (1)] Reconciliation of the Liability recognised in the Balance Sheet Net Liability at the beginning of the year Expense recognised Liability assumed on transfer of employees Employer contributions/ Transfers (569.60) (125.25) Net (asset)/liability as at 31st March, 2007 is included in Others under Other Assets and Other Liabilities (71.78) Investment details of plan assets Majority of the plan assets are invested in insurer managed funds. Actuarial assumptions used Others Interest rate Salary escalation rate Expected rate of return on plan assets Mortality 8.20% p.a. 15% p.a.for first 2 yrs, 10% p.a. for next 2 yrs & 6% p.a. thereafter 7.50% p.a. Published rates under the LIC ( ) mortality table The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors. The above information is as certified by the actuary and relied upon by the auditors. Previous year s figures have not been given since this is the first year of adoption. 8. Balances in Banks in other deposit accounts include Rs. 26, lakhs (previous year Rs. 4, lakhs) which are under lien. The Balances with Banks in Current Accounts {Schedule 7-I (i)(a)} include Rs. 2, lakhs (previous year Rs. 1, lakhs) maintained as collateral in respect of receivables securitised by the Bank. 9. Others in Other Liabilities and Provisions (Schedule 5) include the following items shown as Provision for Contingencies by the Bank and a subsidiary, which have been recognised in the accounts in respect of obligations arising from past event, the settlement of which is expected to result in an outflow embodying economic benefits. Kotak Mahindra Bank Limited (Consolidated) 25

27 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Provision for Contingencies: (Rs. in lakhs) Description Balance as on April 1, 2006 Addition during the year Reversed/paid during the year Balance as on March 31, 2007 Interest on Stamp Duty* Stamp duty on Proprietary Trades* Provision on securitised assets** Total , (*) The aforesaid provision is based on the likely levy of duty/interest on transactions carried out on the stock exchanges. (**) The aforesaid provision is based on the past history of losses on the asset/product securitised and the outflows are expected over the tenure of the securitisation, which is spread over a period of three years. 10. DESCRIPTION OF CONTINGENT LIABILITIES: Sr. No. Contingent Liability* Brief Description 1. Claims not acknowledged as debts 2. Liability on account of outstanding forward exchange contracts 3. Guarantees on behalf of constituents in India 4. Acceptances, endorsements and other obligations This includes liability on account of income tax, interest tax, sales tax, lease tax demands and legal cases filed against the Group. The Group is a party to various legal proceedings in the normal course of business. The Group does not expect the outcome of these proceedings to have a material adverse effect on the Group s financial conditions, result of operations or cash flows. Against the above Rs. 1, lakhs (previous year Rs. 1, lakhs) have been paid, which shall be refunded to the Group, if the outcome of the legal proceedings will be in the favour of the Group. The Bank enters into foreign exchange contracts with inter-bank participants on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. The Group issues documentary credit and guarantees on behalf of its customers. Documentary credits such as letters of obligations, enhance the credit standing of the customers of the Group. Guarantees generally represent irrevocable assurances that the Group will make payments in the event of customer failing to fulfill its financial or performance obligations. These include contingent liabilities on account of bills re-discounted by the Group and cash collateral provided by the Group on assets which have been securitised. The maximum liability in respect of cash collateral provided is Rs. 2, lakhs (previous year Rs. 1, lakhs). 5. Other items for which the Group is contingently liable * Also refer Schedule 12 Contingent Liabilities These include liabilities in respect of interest rate and currency swaps and forward rate agreements, liability in respect of options contracts and capital commitments, which includes undrawn commitments in respect of investments. The Group enters into currency options, forward rate agreements, currency swaps and interest rate swaps with inter bank participants on its own account and for customers. Currency swaps are commitments to exchange cash flows by way of interest/principal in one currency against another, based on predetermined rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. The notional amounts that are recorded as contingent liabilities are amounts used as a benchmark for the calculation of interest component of the contracts. Kotak Mahindra Bank Limited (Consolidated) 26

28 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) 11. EARNINGS PER EQUITY SHARE Particulars As at 31st March, 2007 (Rs. in lakhs) As at 31st March, 2006 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 324,186, ,688,947 Effect of potential equity shares for stock options outstanding 2,576,394 2,191,296 Weighted average number of equity shares used in computation of diluted earnings per share 326,762, ,880,243 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) 53, , The Profit and Loss Account for the previous year includes the following income which is considered as non-recurring in nature. a. Profit on sale of investments (Other income Schedule 14) includes Rs. 12, lakhs being profit on sale of equity shares of investments in a telecom venture by the Bank s subsidiaries, Kotak Mahindra Capital Company Limited and Kotak Mahindra Securities Limited. The Minority Interest includes Rs. 3, lakhs, being the minority share of profits on the above sale. b. Share in profits of associate includes Rs. 29, lakhs being the share of profits in Mutilfaced Finstock Private Limited (Multifaced). This is related to profits earned by Multifaced on sale of investments in a telecom venture. c. Consequent to the above, the consolidated profit for the year attributable to the Group includes Rs. 38, lakhs of non-recurring nature. Net of these profits the Basic earnings per share for the year is Rs and diluted earnings per share is Rs 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: (Rs. in lakhs) 31st March, st March, 2006 Segmental Revenues: Lending 143, , Corporate Banking 37, , Treasury and Investments 65, , Retail Liabilities 36, , Broking 64, , Advisory and Transactional Services 12, , Asset Management 24, , Insurance 107, , Corporate Centre 5, Sub-total 492, , Add: Unallocated Income Less: inter-segmental revenues (57,584.51) (29,007.89) Total Income 435, , Kotak Mahindra Bank Limited (Consolidated) 27

29 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Segmental Results: (Rs. in lakhs) 31st March, st March, 2006 Lending 23, , Corporate Banking 10, , Treasury and Investments 11, , Retail Liabilities (4,232.64) Broking 27, , Advisory and Transactional Services 6, , Asset Management 9, , Insurance Corporate Centre (5,563.17) (4,133.76) 2, Segmental Results 77, , Add Unallocated Income Total Profit before tax and before minority interest and associates 77, , Assets: Lending 1,356, , Corporate Banking 443, , Treasury and Investments 1,124, , Retail Liabilities 488, , Broking 49, , Advisory and Transactional Services 60, , Asset Management 13, , Insurance 202, , Corporate Centre 35, Total Segmental Assets 3,737, ,307, Less: Inter-segmental assets (885,304.65) (506,074.25) Total Assets 2,852, ,801, Liabilities: Lending 1,166, , Corporate Banking 409, , Treasury and Investments 1,017, , Retail Liabilities 492, , Broking 71, , Advisory and Transactional Services 62, , Asset Management 5, , Insurance 190, , Corporate Centre 31, Total Segmental Liabilities 3,416, ,056, Less: Inter-segmental liabilities (885,304.65) (506,074.25) Total Liabilities 2,530, ,550, Unallocated assets net of liabilities 4, Kotak Mahindra Bank Limited (Consolidated) 28

30 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Capital Expenditure (Rs. in lakhs) 31st March, st March, 2006 Lending 1, Corporate Banking Treasury and Investments 1, Retail Liabilities 3, , Broking 2, , Advisory and Transactional Services 1, Asset Management Insurance 1, Corporate Centre Total 13, , Depreciation Lending Corporate Banking Treasury and Investments Retail Liabilities 1, , Broking 2, , Advisory and Transactional Services Asset Management Insurance 1, , Corporate Centre Total 7, , The Group has taken various premises under operating lease. The lease payments recognised in the Profit and Loss Account are Rs. 5, lakhs (previous year Rs. 3, lakhs). The sub-lease income recognised in the Profit and Loss Account is Rs lakhs (previous year Rs. Nil). 14. The future minimum lease payments under non/cancellable operating lease not later than one year is Rs lakhs (previous year Rs lakhs), later than one year but not later than five years is Rs. 2, lakhs (previous year Rs lakhs) and later than five years Rs lakhs (previous year Rs. Nil). Details of gross investments, unearned finance income in respect of assets given under finance lease are as under: (Rs. in lakhs) Particulars As at 31st March, 2007 As at 31st March, 2006 Gross Investments: (i) Not later than 1 year 2, , (ii) Between 1-5 years 1, , Total 3, , Unearned Finance Income: (i) Not later than 1 year (ii) Between 1-5 years Total Accumulated provision on the Gross Investments Kotak Mahindra Bank Limited (Consolidated) 29

31 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) 15. Other Liabilities and Provisions (Schedule 5.III) includes Deferred Tax Liability and Others Other Assets (Schedule 11.VI) includes Deferred Tax Assets as follows: Particulars Deferred Tax Assets As at 31st March, 2007 (Rs. in lakhs) As at 31st March, 2006 Provision for doubtful debts and contingencies 6, , Depreciation on assets 1, Unabsorbed capital losses/provision for investments* Expenditure allowed on payment basis and others 2, Total Deferred Tax Assets 9, , Deferred Tax Liabilities Deferred expenses 1, , Depreciation on assets Others Total Deferred Tax Liabilities 1, , Net Deferred Tax Assets/(Liabilities) 8, , (*) Deferred Tax assets on Unabsorbed Capital Loss is recognised as there are investments which are intended to be sold and the capital gains arising therefrom will be used for setting off the unabsorbed capital loss. 16. FIXED ASSETS a. Fixed Assets as per Schedule 10 include intangible assets, details of which are as follows: Particulars ended 31st March, 2007 (Rs. in lakhs) ended 31st March, 2006 SOFTWARE Gross Block At cost on 31st March of the preceding year 4, , Additions during the year 1, , Deductions during the year Total 6, , Depreciation As at 31st March of the preceding year 3, , Charge for the year 1, , Deductions during the year Depreciation to date 4, , Net Block 2, , MEMBERSHIP CARDS OF STOCK EXCHANGE Gross Block At cost on 31st March of the preceding year Total Kotak Mahindra Bank Limited (Consolidated) 30

32 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Particulars ended 31st March, 2007 (Rs. in lakhs) ended 31st March, 2006 Depreciation As at 31st March of the preceding year Charge for the year Depreciation to date Net Block GOODWILL Gross Block At cost on 31st March of the preceding year Total Depreciation As at 31st March of the preceding year Charge for the year Depreciation to date Net Block FOREX BROKING BUSINESS RIGHTS Gross Block At cost on 31st March of the preceding year Total Depreciation As at 31st March of the preceding year Charge for the year Depreciation to date Net Block FIXED ASSETS AND DEPRECIATION: The Group has revised the estimated useful life of premises from 30 years to 58 years with effect from 1st April, In accordance with Accounting Standard (AS)-6. Depreciation Accounting the unamortised depreciable amount of the premises is charged to revenue over the revised remaining useful life. However, the minimum depreciation as prescribed by the Company s Act, 1956 is provided in respect of premises wherein the effective depreciation rate after the change in estimated useful life is less than the prescribed minimum rate. Accordingly, depreciation charged for the current period is lesser by Rs lakhs. The Group has revised the estimated useful life of Membership Cards of Stock Exchange from 10 years to 20 years after considering the industry in which the broking subsidiary operates, the volume generated and the share of the company in the total market volume. The impact of the change is not material. 18. FLOATING PROVISIONS The Bank had adopted the policy of creating a floating provision on the purchased non-performing assets portfolio equivalent to the income recognised on individual assets wherever the total collection was less than the cost of that portfolio. The Bank has discontinued its policy of creating floating provisions and continues to recognise income and provision for NPA at the asset level. Consequent to a clarification received from the RBI, the Bank has written back floating provision amounting to Rs lakhs during the year ended 31st March, 2007 on those assets which have been fully realised. 19. The consideration paid for the acquisition of additional 25.01% stake in KMCC includes the payment for additional effective 12.50% stake in Multifaced Finstock Private Limited (MFPL). Based on the unaudited financial statements the 12.50% stake in MFPL amounts to Rs. 9, lakhs which has been considered while arriving at capital reserve on acquisition of stake in KMCC and in arriving at the share pre-acquisition profits in MFPL. Kotak Mahindra Bank Limited (Consolidated) 31

33 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) 20. RELATED PARTY DISCLOSURES: A Nature of relationship Name of Related Party B Individual having control over the enterprise Other Related Parties Associates Investing Party of the subsidiaries Associate of the subsidiary Enterprises over which relatives of Key Management Personnel have significant influence Key Management Personnel Relatives of Key Management Personnel Uday Kotak, Executive Vice Chairman and Managing Director (also considered as Key Management personnel), along with relatives and enterprise in which he has beneficial interest, holds 51.46% of the equity share capital of Kotak Mahindra Bank Limited Business Standard Limited India Car Private Limited Kotak Mahindra Asset Reconstruction Company Limited Ford Credit Kotak Mahindra Limited (up to 4th October, 2005) Old Mutual Plc. Old Mutual Life Assurance Company (South Africa ) Limited Goldman Sachs (Mauritius) LLC (up to 30th May, 2006) Multifaced Finstock Private Limited Aero Agencies Limited Kotak and Company Limited Kotak Commodity Services Limited Mr. Uday S. Kotak - Vice Chairman & Managing Director- KMBL Mr. C. Jayaram - Executive Director- KMBL Mr. Dipak Gupta - Executive Director- KMBL Mr.Ajay Sondhi Vice Chairman & Managing Director KMCC (till 30th June 2005) Ms. Pallavi Kotak Mr. Suresh Kotak Ms. Indira Kotak Mr. Jay Kotak Mr. Dhawal Kotak Ms. Aarti Chandaria Ms. Usha Jayaram Ms. Anita Gupta Ms. Urmila Gupta Kotak Mahindra Bank Limited (Consolidated) 32

34 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) C. Details of related party transactions Sr. No. Items/Related Party Individual having Control Associates Investing Party of the subsidiaries Associate of the subsidiary Enterprises over which relatives of Key Management Personnel have significant influence Key Management Personnel Rupees in lakhs Relatives of Key Management Personnel I. Liabilities Other Liabilities (19.06) (10,525.00) (5.80) II. Assets Investments/Goodwill Gross 3, (3,563.09) Diminution on Investments (774.23) Others (333.33) (66.65) (0.25) III. Expenses Salaries/fees* (529.91) Others (53.33) (726.24) IV. Income Dividend 4.50 (4.50) Others 1, (142.29) (6,094.73) ( ) (60.31) (0.01) (0.04) V. Other Transactions Dividend paid (837.78) (1.68) (4.94) Reimbursement to companies (7.78) (21.96) (0.27) Reimbursement from companies (146.91) (25.04) (10.52) Issue of Share Capital 2, (853.40) Purchase of Investments 33, ( ) ICDs taken and repaid during the year 10, ( ) Loans repaid during the year 10, ( ) * excludes incentive payment for the current year Kotak Mahindra Bank Limited (Consolidated) 33

35 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) D. Material transactions with related parties Rs. in lakhs Sr. No. Items/Related Party Individual having control Associates Investing Party of the subsidiary Associate party of the subsidiary Enterprises over which relatives of Key Management Personnel have significant influence Key Management Personnel Relatives of Key Management Personnel TOTAL I. Liabilities: Other liabilities Old Mutual Life Assurance Company (South Africa) Limited (19.06) (19.06) Aero Agencies Limited (5.80) (5.80) Multifaced Finstock Private Limited (10,525.00) II. Assets: Investments/Goodwill Business Standard Limited 3, , (3,291.59) (3,291.59) IndiaCar Private Limited (270.00) (270.00) Kotak Mahindra Asset Reconstruction Company Limited (1.50) (1.50) Diminution on investments Business Standard Limited (695.58) (695.58) IndiaCar Private Limited (77.15) (77.15) Kotak Mahindra Asset Reconstruction Company Limited (1.50) (1.50) Others Kotak Commodity Services Limited (66.65) (66.65) Mr. Suresh Kotak (0.25) (0.25) Goldman Sachs (Mauritius) LLC (332.44) (332.44) Kotak Mahindra Bank Limited (Consolidated) 34

36 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Rs. in lakhs Sr. No. Items/Related Party Individual having control Associates Investing Party of the subsidiary Associate party of the subsidiary Enterprises over which relatives of Key Management Personnel have significant influence Key Management Personnel Relatives of Key Management Personnel TOTAL Old Mutual PLC (0.89) (0.89) III. Expenses: Salaries Mr. Uday Kotak* (104.25) (104.25) Mr. C. Jayaram* (176.67) (176.67) Mr. Dipak Gupta* (154.99) (154.99) Mr. Ajay Sondhi (94.00) (94.00) Others Aero Agencies Limited (722.36) (722.36) Multifaced Finstock Private Limited (53.33) (53.33) Others parties (3.88) (3.88) IV. Income: Dividend IndiaCar Private Limited (4.50) (4.50) Others License Fees and Other Income Ford Credit Kotak Mahindra Limited (142.29) (142.29) Brokerage Goldman Sachs (Mauritius) LLC 1, , (6,094.73) (6,094.73) Others ( ) ( ) Interest Multifaced Finstock Private Limited ( ) ( ) Kotak Mahindra Bank Limited (Consolidated) 35

37 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Sr. No. Items/Related Party Individual having control Associates Investing Party of the subsidiary Associate party of the subsidiary Enterprises over which relatives of Key Management Personnel have significant influence Key Management Personnel Relatives of Key Management Personnel Rs. in lakhs Fee Income Kotak Commodity Services Limited (60.00) (60.00) Others (0.31) (0.31) Brokerage Mr. C Jayaram (0.01) (0.01) Mr. Suresh Kotak (0.01) (0.01) Ms. Indira Kotak (0.03) (0.03) V. Other Transactions: Dividend Paid Mr. Uday Kotak (837.78) (837.78) Mr. C Jayaram (0.73) (0.73) Mr. Dipak Gupta (0.95) (0.95) Ms. Pallavi Kotak (1.39) (1.39) Ms. Indira Kotak (3.03) (3.03) Others (0.52) (0.52) Reimbursements made Aero Agencies Limited (0.27) (0.27) Old Mutual Life Assurance Company Limited (21.96) (21.96) Ford Credit Kotak Mahindra Limited (7.78) (7.78) Reimbursements received Old Mutual Life Assurance Company Limited (24.15) (24.15) TOTAL Kotak Mahindra Bank Limited (Consolidated) 36

38 Schedules forming part of the Consolidated Balance Sheet and Profit and Loss Account (Contd.) Sr. No. Items/Related Party Individual having control Associates Investing Party of the subsidiary Associate party of the subsidiary Enterprises over which relatives of Key Management Personnel have significant influence Key Management Personnel Relatives of Key Management Personnel Rs. in lakhs Old Mutual PLC (0.89) (0.89) Kotak Commodity Services Limited (10.52) (10.52) Ford Credit Kotak Mahindra Limited (146.91) (146.91) Issue of Share Capital Old Mutual Plc 2, , (853.40) (853.40) Purchase of Investments Goldman Sachs 33, , ( ) ( ) ICD taken and repaid during the year Multifaced Finstock Private Limited 10, , ( ) ( ) Loan repaid during the year Multifaced Finstock Private Limited 10,525,00 10, ( ) ( ) *excludes incentive payment for the current year Note: Figures of previous year are given in bracket. 21. Proposed Dividend (including corporate dividend tax) for the financial year ended 31st March, 2007 includes an amount of Rs lakhs in respect of dividend paid by the bank for the previous year on 429,953 equity shares allotted before the date of book closure as they ranked pari-passu with the existing equity shares for dividend. 22. 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 TOTAL Dr. Shankar Acharya Chairman Dipak Gupta Executive Director Uday Kotak Executive Vice Chairman & Managing Director Mumbai Jaimin Bhatt Bina Chandarana Dated: 17th May, 2007 Group Chief Financial Officer Company Secretary Kotak Mahindra Bank Limited (Consolidated) 37

39 Financial Information of Subsidiaries for the year ended 31st March, 2007 Rs. in Lakhs Particulars Kotak Mahindra Capital Company Limited Kotak Securities Limited Kotak Mahindra Prime Limited Kotak Mahindra Old Mutual Life Insurance Company Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Trustee Company Limited Kotak Mahindra Investments Limited Kotak Mahindra (Intern) Limited Kotak Mahindra (UK) Limited Kotak Mahindra Inc. Global Investment Opportunities Fund Limited Kotak Mahindra Securities Limited Kotak Mahindra Trusteeship Services Limited (Formerly Kotak Mahindra Private Equity Trustee Limited) Kotak Forex Brokerage Limited Capital , , , Reserves 26, , , (21,113.67) , , , , , (0.01) 3, (193.72) Total Networth 26, , , , , , , , , , , Total Assets 88, , , , , , , , , , , Total Liabilites 61, , , , , , , Investments (excluding investment in subsidiaries) 11, , , , , , , Turnover 20, , , , , , , , , Profit before taxation 9, , , (5,563.16) 1, , , , , (51.76) Provision for taxation 2, , , Profit after taxation 6, , , (5,834.88) , , , (52.01) Proposed Dividend Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil Nil (1) Total liabilities include current liabilities and provision and exclude capital and reserves. (2) Turnover is the total income reported by each of the entities in the financial statements. (3) Investments include investments and stock in Trade reported by the above entities and also include investments held to cover policy holder's liabilities and unit linked liabilities. For and on behalf of the Board of Directors Bina Chandarana Company Secretary Jaimin Bhatt Group Chief Financial Officer Dr. Shankar Acharya Chairman Uday Kotak Dipak Gupta Executive Vice Chairman & Executive Director Managing Director Mumbai Dated: 17th May, 2007 Kotak Mahindra Bank Limited (Consolidated) 38

40 Directors Report To the Members of KOTAK MAHINDRA BANK LIMITED The Directors present their Twenty Second Annual Report together with the audited accounts of your Bank for the year ended 31st March FINANCIAL HIGHLIGHTS A) Kotak Mahindra Bank Limited Consolidated Financial Highlights: 31st March 2007 Rs. crore 31st March 2006 Rs. crore Total income Total expenditure, excluding provisions and contingencies Operating Profit 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 (Rs.) Diluted (Rs.) The above figures for the previous year ended 31st March 2006 excludes non recurring income related to profit on sale of investments of Hutch. B) Kotak Mahindra Bank Limited Standalone Financial Highlights: 31st March 2007 Rs. crore 31st March 2006 Rs. crore Total Income 1, Operating Profit Total expenditure, excluding provisions and contingencies 1, Provisions and contingencies, excluding tax provisions Profit before tax Provision for taxes Profit after tax Add: Surplus brought forward from the previous year st March 2007 Rs. crore 31st March 2006 Rs. crore Add: Transfer from Kotak Mahindra Capital Company Limited on demerger Amount available for appropriation Appropriations: Transfer from Kotak Mahindra Capital Company Limited on demerger appropriated to General Reserve Statutory Reserve under Section 17 of the Banking Regulation Act, General Reserve Transfer to Capital Reserve Transfer from Investment Fluctuation Reserve (38.30) Proposed Dividend Corporate Dividend Tax Surplus carried to Balance Sheet DIVIDEND Keeping in mind the overall performance and the outlook for your Bank, the Directors recommend a dividend of 7% (previous year 6%), entailing a payout of Rs crores (previous year Rs crores). The corporate dividend tax amounts to Rs crores (previous year Rs crores). The dividend would be paid to all the shareholders, including holders of Global Depository Shares, whose names appear on the Register of Members/ Beneficial Holders list on the Book Closure date. CAPITAL Tier I Capital During the year your Bank has successfully raised approximately US $ 100 million through issue of Global Depository Shares (GDS) at an issue price of US $ 6.66 (then approximately Rs. 300/-) per GDS. During the year, your Bank has allotted 18,61,083 shares arising out of the exercise of employees stock options granted to the employees, employees of your subsidiaries and Executive Directors of your Bank. Tier II Capital During the year your Bank has issued Unsecured Redeemable Non- Convertible Subordinated Debt Bonds in the form of Promissory Notes/ Debentures through private placement for an amount aggregating to Rs crore to augment the Tier-II capital to meet the growth in assets of your Bank and to enhance the Capital Adequacy Ratio. These Bonds Kotak Mahindra Bank Limited 39

41 have been listed on the Wholesale Debt Market segment of the National Stock Exchange of India Limited. Your Bank has appointed IDBI Trusteeship Services Limited as the Trustees for these Bonds issued, as aforesaid. Outstanding Unsecured Redeemable Non-Convertible Subordinated Debt Bonds as at 31st March 2007 stood at Rs crore. Upper Tier II Capital During the year your Bank also issued and allotted Unsecured, Non Convertible Redeemable Subordinated Debt (US$ denominated debentures) that qualify for Upper Tier II capital of the Bank for an aggregate amount of US$ 45 million to International Finance Corporation, Washington. OPERATIONS Your Bank has completed four years of successful operations as a commercial bank. During the year the Bank crossed the significant milestone of 100 full fledged branches. It ended the year with 105 branches and 135 ATMs. The footprint of the Bank now covers 69 locations. The Bank offers a very wide range of products and services targeted at retail customers, delivered through a state of the art technology platform. In addition to branch banking, convenience banking facilities offered by the Bank include telephone banking, internet banking, mobile banking, direct pay services, payment gateway for online shopping, a global debit card, a prepaid spending card and facility to transfer of funds to all Visa debit and credit cards in India. Your Bank also offers depository services that allow customers to hold equity shares, government securities, bonds and other securities in electronic or dematerialised format. Your Bank targets to have around 200 full-fledged branches by mid next year. Your Bank continues to acquire customers at a reasonable pace and maintains its strong presence in distribution of third party products (primarily mutual funds and life insurance). Overall the trajectory of our businesses continue to remain in line with the plans and has given your Bank the confidence to plan for further growth in the years to come. The year continued to see a surge in credit demand from the corporate and SME business segments both for working capital and term facilities. Your Bank was able to tap this opportunity by offering a variety of products from plain vanilla debt issuance to Asset Backed Securities, Mortgage Backed Securities, structured products and loan syndication. The year also saw an increase in demand for trade finance both domestic and international and your Bank was able to tap this opportunity through structured product offerings to customers. Your Bank was also able to provide products and services to segments of financial institutions group through customized credit and transaction banking offerings. Your Bank increased its thrust in offering customized solutions on derivatives, foreign exchange, and transaction banking across the spectrum of customers. Your Bank continued its presence as a collection banker in a number of the Initial Public Offers and New Fund Offers. Commercial Vehicles division maintained its momentum in line with the movement in transportation industry. With continued thrust on investment in infrastructure, the construction equipment segment witnessed good growth in its business volumes. The division reaffirmed the status of having best in class portfolio through robust risk management practices. During the year the commercial vehicles & construction equipments division has moved one step closer to becoming one stop shop for the needs of transportation and infrastructure industry through launch of unique products to meet their working capital requirement and through fund and non-fund based products to cater to their specific requirements. The thrust on cross sell of other banking products saw a good growth in fee income for the division, which the division proposes to focus on, going forward. With the government s emphasis on the Agriculture Finance sector, the Agriculture Finance business in the Bank is well set to develop the potential that the sector is offering. The Agriculture Finance business has segmented its client profile and developed products like project financing, working capital funding, commodity funding, contract farming finance besides tractor and retail loans. The Home Finance business saw the continued growth rate it has witnessed since inception as a result of the growth in the real estate market. Similarly the Personal loan business grew significantly and your Bank improved its presence across newer geographies. Your Bank consolidated its position in the Stressed Assets Portfolio by resolving several accounts pertaining to the previous year s purchase and buying accounts at a reasonable price. Last year, as a result of a general economic buoyancy further aided by surge in real estate prices, there was a slowdown in auction of the NPA portfolios by banks/nbfcs. Of the assets that were auctioned by banks/nbfcs, pricing mismatch between the buyers and sellers resulted in the failure of many auctions. As a strategy, to counter the impact of reduced portfolio sale by the banks/nbfcs, your Bank invested in single asset transactions. For stressed companies with a good turn around prospects, your Bank managed to buy out the entire or majority loan portfolios and restructured their debt. These investments would enable in contributing significant returns in the coming years. Moving forward, a combination of portfolio buy out and single asset transactions would provide good return for this business. Your Bank has an active proprietary desk trading in all products such as Fixed Income, Money Markets, Derivatives, Foreign Exchange and Bullion. The proprietary desk helped the treasury to build robust client businesses which included Forex and Derivatives, Bullion and Debt Capital Markets (DCM). Apart from the above the Treasury plays an important role in Balance Sheet Management and implementation of Funds Transfer Price between various business units. Your Bank s Treasury has developed the capability to price and value complex currency and interest rate derivative transactions. This capability was developed through significant investment in technology and qualified personnel. This gave it a distinct competitive advantage in the market place. In the area of DCM the Bank offered Securitisation, Loan and Bond syndication, mezzanine financing, promoter funding and acquisition financing products. The Bank is one of the active players in the securitisation market particularly in corporate loan securitisation. Kotak Mahindra Bank Limited 40

42 India Growth Fund, a SEBI registered Venture Capital Fund with a committed corpus of Rs. 707 crore, which is managed by the Private Equity Division of your Bank, continues to be in an active investment mode and as at 31st March 2007, had made investment in 10 companies. The portfolio of India Growth Fund comprises companies in a diverse mix of growth sectors like home retail, logistics, home textiles, airline, light engineering, life sciences and software technology. As at the end of the year, your Bank s Capital Adequacy was 13.46% and the Tier 1 Capital Adequacy was 8.81% and the net NPAs were at 0.18% of net advances excluding stressed assets portfolio. The net NPAs of the Bank including stressed assets portfolio were at 1.98%. SUBSIDIARIES Your Bank along with its subsidiaries offers complete financial solutions to its customers. The key business segments where the subsidiaries operate include investment banking, stock broking, car finance, asset management and life insurance. Kotak Mahindra Capital Company Limited and Kotak Securities Limited posted a good financial performance on the back of strong capital markets and the robust overall economic growth. The life insurance subsidiary, Kotak Mahindra Old Mutual Life Insurance Limited continued its growth momentum in premium income. The international subsidiaries have gained impetus and have now become gainful contributors to the profits of the Group. Kotak Mahindra Asset Management Company Limited, Kotak Mahindra Prime Limited and the other subsidiaries also posted growth in profits and had a good year. The various activities of the subsidiaries are outlined in the Management Discussion and Analysis section appended to this Report. During the year, the name of Kotak Mahindra Private Equity Trustee Limited was changed to Kotak Mahindra Trusteeship Services Limited. During the year, the shareholders of the Bank, at the Court convened meeting held on 5 th December 2006, approved a Scheme of Arrangement between the Bank, Kotak Mahindra Capital Company Limited (KMCC) and their respective shareholders and creditors, for demerger of undertaking, comprising of Trading & Principal, including Primary Dealership division (PD division) of KMCC, to the Bank. In this regard, the Hon ble High Court of Judicature at Bombay accorded its approval to the petition filed, pursuant to Sections 391 to 394 of the Companies Act, 1956, vide Order dated 15 th February The Scheme of Arrangement became effective from 20th March The aforesaid demerger was carried out with a view to consolidate and synergise the financial services business of the Kotak Group. The PD division of KMCC has been effectively consolidated with the treasury function of the Bank for a more integrated and synergistic functioning of the division. The Bank, with its substantially higher net worth, will further strengthen in future, the growth and profitability of the PD division. Limited (KMSL), KMCC and their respective shareholders and creditors, for demerger of undertaking comprising of the Trading and Clearing operations and strategic investments of KMSL to KMCC. The Hon ble Bombay High Court granted its approval to the Scheme, vide Order dated 15 th February 2007 and the necessary approval from the National Stock Exchange of India Limited / Securities and Exchange Board of India is pending. This demerger was carried out with a view to consolidate all capital market related activities into KMCC, which has a substantially higher net worth than KMSL. As per the Banking License granted to the Bank by the Reserve Bank of India in February 2003, it was stipulated that all indirect (second level) subsidiaries should either be merged or made direct (first level) subsidiaries of the Bank. The Bank had the following indirect subsidiaries: 1. Kotak Mahindra Securities Limited 2. Kotak Mahindra (International) Limited 3. Kotak Mahindra (UK) Limited 4. Kotak Mahindra Inc. 5. Global Investment Opportunities Fund Limited With a view to comply with the foregoing license condition, the Bank made further investments to subscribe to additional shares in the aforesaid companies in order to make them direct subsidiaries. The Bank now holds 51% of each of these companies. In terms of the approval granted by the Central Government vide their letter dated 11 th January 2007 under Section 212(8) of the Companies Act, 1956, abridged Annual Report which consists of the financial statements of your Bank on standalone basis as well as consolidated financial statements of the group for the year ended 31st March 2007 have been sent to all the members of the Bank. It does not contain Annual Reports of the Bank s subsidiary companies. The Bank will make available full Annual Report (including the Annual Reports of all subsidiaries) upon request by any member of the Bank. These Annual Reports will be available on Bank s website and will also be available for inspection by any member at the Registered Office of the Bank. EMPLOYEE STOCK OPTION SCHEME The stock options granted to the employees currently operate under two schemes, namely Kotak Mahindra Equity Option Plan ( Plan ) and Kotak Mahindra Equity Option Scheme 2005 ( Scheme 2005 ). The disclosures below are in respect of the year ended 31st March Another petition was filed before the Hon ble High Court of Judicature at Bombay pursuant to Sections 391 to 394 of the Companies Act, 1956, in respect of a Scheme of Arrangement between Kotak Mahindra Securities Kotak Mahindra Bank Limited 41

43 Options granted during the year Plan Nil Scheme ,86,600 options Series 1 to 6. Options Vested Plan ,31,825 options. Scheme 2005 Nil Options exercised Plan ,61,083 options. Scheme 2005 Nil Total number of shares arising as a result of exercise of options Options lapsed Plan ,02,833 options. Scheme ,62,000 options. Variation of terms of options Money realized by exercise of options Total number of options in force Details of options granted to (i) Senior management personnel (ii) Any other employee who receives a grant in any one year of options amounting to 5% or more of options granted during that year Plan ,61,083 equity shares of Rs. 10/- each. Scheme 2005 Nil No variations made in the terms of the options granted. Plan Rs. 8,02,34,140/- Scheme 2005 Nil Plan Outstanding options not yet vested - 17,40,034 options. Scheme 2005 Outstanding options not yet vested - 53,24,600 options. Plan Nil Scheme 2005 Name of Senior Management Personnel No. of options granted Mr. C. Jayaram 85,000 Mr. Dipak Gupta 75,000 Plan Nil Scheme ,00,000 options granted to Mr. Vikram Sud, Group Chief Operating Officer under Series 4 constituting 5.47 % of the options granted during the year. (iii) Identified employees who were granted option, 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 Diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of options calculated in accordance with AS20 Earnings Per Share Where the company has calculated the employee compensation cost using the intrinsic value of stock options, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of the options, shall be disclosed. The impact of this difference on profits and on EPS of the company shall also be disclosed. Weighted average exercise prices and weighted average fair values of options shall be disclosed separately for options whose exercise price either equals or exceeds or is less than the market price of the stock. Plan Nil Scheme 2005 Nil The diluted Earnings Per Share (EPS) pursuant to issue of shares on exercise of options calculated in accordance with AS20 is (Consolidated) 4.33 (standalone). * Had the Bank (Consolidated) followed the fair value method for accounting the stock option compensation expense would have been higher by Rs. 4,55,21,197, with consequent lower consolidated profits. On account of the same the diluted EPS of the Bank (Consolidated) would have been lower by Rs per share. * The weighted average price of the stock options exercised is Rs and the weighted average fair value is Rs * Note: Above figures are derived by considering the Kotak Group as a whole (Consolidated). Kotak Mahindra Bank Limited 42

44 A description of the method and significant assumptions used during the year to estimate the fair values of options, including the following weighted average information: CORPORATE GOVERNANCE A. Stock price It is the closing market price on the National Stock Exchange of India Limited (NSE) on the date of the respective grant. B. Volatility Volatility is a measure of the amount by which a price has fluctuated or is expected to fluctuate during a period. The measure of volatility used in the Black-Scholes option-pricing model is the annualized standard deviation of the continuously compounded rates of return on the stock over a period of time. Accordingly, daily volatility of the Bank s stock price on the NSE for the period corresponding to the respective expected live of the different vests, prior to the grant date has been considered. C. Risk free interest rate The risk-free interest rate being considered for the calculation is the interest rate applicable for maturity equal to the expected life of the options based on the zero-coupon yield curve for Government Securities as on the date of the respective grant. D. Time to Maturity / Expected Life of options The minimum life of a stock option is the vesting period and the maximum life is vesting period plus the exercise period. The Expected life of the options has been calculated as the average of the two extremes the minimum life and the maximum life. Since each vest has been considered as a separate grant, the expected life has been calculated for each vest separately. E. Dividend yield The dividend yield for each year has been derived by dividing the dividend per share by the average market price per share. 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. DIRECTORS Mr. Cyril Shroff and Mr. Anand Mahindra retire at the Twenty Second Annual General Meeting and are eligible for re-appointment. The shareholders of the Bank at the Annual General Meeting held on 20 th July 2006 approved the appointment and payment of remuneration to Dr. Shankar Acharya as part time Chairman of the Bank for a period of three years. The Ministry of Company Affairs and the Reserve Bank of India, vide their letters dated 11 th September 2006 and 16 th June 2006 respectively granted their approvals for the said appointment and remuneration payable to Dr. Shankar Acharya. AUDITORS Messrs S. B. Billimoria & Co., Chartered Accountants, auditors of your Bank, retire on the conclusion of Twenty Second Annual General Meeting. Pursuant to the guidelines issued by the Reserve Bank of India, an audit firm is allowed to continue as the Statutory Central Auditor of a bank for a period of four years and thereafter the said firm is to be rested for a period of at least two years. Accordingly, it is proposed to appoint Messrs S. R. Batliboi & Co., Chartered Accountants as the statutory auditors of the Bank for the current financial year in place of Messrs S. B. Billimoria & Co. who have completed four years as the statutory auditors. The approval of the shareholders in this regard is being sought at the ensuing Annual General Meeting of the Bank. STATUTORY INFORMATION The Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1998, are not applicable to your Bank. EMPLOYEES There was a significant increase in your Bank s staffing particularly in the Retail Banking business. The employee strength of your Bank along with its subsidiaries as of 31st March 2007 was over 10,800 as compared to 6,700 employees last year. The Bank standalone had around 5,400 employees as of 31st March 2007 (previous year around 3,600). 86 employees employed throughout the year and 36 employees employed for part of the year were in receipt of remuneration of Rs. 24 lacs or more per annum. 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 various areas including Regulatory Compliance, Risk Management, Customer Care and Communication, Trade Finance, Foreign Exchange Rules and Treasury. In accordance with the provisions of Section 217(2A) of the Companies Act, 1956 and the rules framed thereunder, the names and other particulars of employees are set out in the annexure to the Directors Report. In terms of the provisions of Section 219 (1)(b)(iv) of the Companies Act, 1956, the Directors Report is being sent to all the shareholders of the Bank excluding Kotak Mahindra Bank Limited 43

45 the aforesaid annexure. The annexure is available for inspection at the Registered Office of the Bank. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of the Bank. 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 31st March 2007, followed the applicable accounting standards along with proper explanations relating to material departures, if any; iv) 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 the annual accounts have been prepared on a going concern basis. 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, Insurance Regulatory and Development Authority 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. 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 31st March, 2007 and of the profit of your Bank for the financial year ended 31st March 2007; For and on behalf of the Board of Directors iii) they have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting Mumbai, 17th May Dr. Shankar Acharya Chairman Kotak Mahindra Bank Limited 44

46 Management Discussion and Analysis Macro-economic and Industry Developments In , the Indian economy was characterised by robust overall economic growth, strong macro-economic fundamentals, accelerated growth in both consumption and investment, rising interest rates and higher levels of inflation mainly on account of shortages in the primary agricultural articles was also marked by shifts in the global economy. While in August 2006, the Federal Reserve, the Central Bank of the United States of America, paused in its tightening interest rate cycle, Japan also embarked on removing its monetary policy accommodation. May 2006 witnessed a sharp unwinding of the Yen carry trades on fears that global liquidity will reduce and led to significant volatilities in the financial markets globally. However, this phenomenon failed to sustain as it became evident that Japan would be very cautious in increasing its own interest rates. Advance estimates of GDP released by the Central Statistical Organisation (CSO) on February 7, 2007, place real GDP growth for at 9.2% on top of 9.0% in Domestic price levels were affected by continued high levels of international crude oil prices during the first half of Prices of primary food articles and manufactured products exerted upward pressure on headline wholesale price index (WPI) inflation in on-year inflation based on the WPI was within the RBI s projected levels of % upto mid-november 2006 but rose higher thereafter. While the headline WPI inflation ended at 5.74%, at a disaggregated level, prices of primary articles, fuel group and manufactured products registered year-on-year increase of 10.72%, 1.04% and 5.77%. In this year even as the Federal Reserve, the Central Bank of the United States of America paused on its interest rate hiking cycle in June 2006, European Central Bank increased its policy rate five times by 25 bps each. Bank of England also raised its policy rate thrice by 25 bps each while other advanced economies such as Australia, Canada, Japan, New Zealand, Switzerland etc increased their policy rates in this year. Central Banks in the emerging markets such as China, South Korea, Taiwan etc also increased their policy rates. Reserve Bank of India also significantly tightened its policy rates in with the objective of containing inflationary expectations and maintaining financial stability. Reserve Bank of India (RBI) increased reverse repo rate from 5.50% to 5.75% (with effect from June 9, 2006), and to 6.00% (with effect from July 25, 2006). Repo rate has been increased five times during the year by 25 basis points each from 6.50% to 7.75% on June 9, 2006, July 25, 2006, October 31, 2006, January 31, 2007 and March 31, Similarly, Cash Reserve Ratio (CRR) was hiked to 5.25% (with effect from December 23, 2006), to 5.50% (with effect from January 6, 2007), to 5.75% (with effect from February 17, 2007), to 6.00% (with effect from March 3, 2007), to 6.25% (with effect from April 14, 2007) and to 6.50% (with effect from April 28, 2007). The Bank Rate has been kept unchanged at 6.00% throughout In , in terms of the monthly average of the exchange rate of Rupee vis-à-vis US Dollar, the Rupee depreciated steadily until August 2006, before starting to appreciate thereafter (High: on March 28, 2007, Low: on July 19, 2006). -on-year appreciation in the Rupee vis-à-vis US Dollar was 2.3%. The trend was mirrored in Rupee rates vis-à-vis other major currencies like Euro and Pound. Against Yen, however, the Rupee started appreciating from June 2006 onwards. Resurgence in the manufacturing sector and sustained demand from major trading partners resulted in growth of exports by 36.3% (to US $ 89.5 billion) during the period ended December 31, 2006, though the pace appeared to slacken a bit in the fourth quarter of Foreign exchange reserves increased by US $ 47.6 billion in to US $ billion. Capital markets reflected the improved growth prospects of the economy. The benchmark BSE Sensex rallied from a low of 8,929 on June 14, 2006 to an all-time intra-day high of 14,724 on February 9, The Sensex closed at 13,072 on March 30, 2007 from 11,280 on March 31, 2006 (year-on-year increase of 15.9%). Aggregate resource mobilisation through the primary market, particularly private placements and Initial Public Offerings (IPOs), increased by 30.5% to Rs. 161,769 crore in the calendar year In order to make Indian markets more competitive and efficient, Securities & Exchange Board of India (SEBI) introduced an additional mode for listed companies to raise funds from domestic market in the form of Qualified Institutions Placement (QIP). India s market capitalisation compares well with other emerging economies and shows signs of catching up with some of the mature economies. Net investment by Foreign Institutional Investors (FIIs) in the equity spot market fell by around 22% to Rs. 36,540 crore in calendar year Net purchases by mutual funds in the equity segment of stock exchanges amounted to Rs. 15,384 crore in calendar year 2006 (Rs. 13,436 crore in calendar year 2005). Corporate India witnessed strong growth in revenue and profit due to higher domestic demand, improved global competitiveness and the benefit of expansion and modernisation of the past few years. With increasing profit, Indian companies have been increasingly expanding their capacities and have also ventured into multi-billion dollar cross-border acquisitions. There has been a sharp rise in the rate of investment reflecting a high degree of business optimism. Indian companies are becoming globally competitive through strategic and operational initiatives, and are not just banking on low cost labour. Corporates have been permitted to avail External Commercial Borrowing (ECB) of an additional amount of US $ 250 million with average maturity of more than 10 years under the approval route, over and above the existing limit of US $ 500 million under the automatic route, during a financial year. During , the real-estate market has been on a bull-run. Both housing sector and commercial property space have been growing at a rapid pace. The information technology, retail, fast-moving consumer goods, telecom, media (multiplexes), and banking and financial services sectors have been active participants. The Special Economic Zones (SEZ) Act 2005 has acted as a catalyst. On March 30, 2007, credit-deposit ratio of the scheduled commercial banks stood at 74.13%. Aggregate deposits of scheduled commercial banks increased by 23.0% (Rs. 4,85,210 crore) during as against 18.1% (Rs. 3,23,913 crore) in the previous year. Non-food credit extended by the scheduled commercial banks increased by 28.0% (Rs. 4,10,285 crore) Kotak Mahindra Bank Limited 45

47 on top of 31.8% (Rs. 3,54,193 crore) in the previous year. Food credit of scheduled commercial banks increased by Rs. 5,830 crore compared to an increase of Rs. 675 crore in the previous year. RBI has specified new norms for Non-Banking Financial Companies (NBFCs) to bridge the regulatory gaps and thereby creating a level playing field with minimum potential systematic risk in the area of banking and NBFC operations. The major amendments relating to regulation of NBFCs pertain to exposures by banks to NBFCs, capital adequacy ratio for NBFCs and single/group exposure norms for NBFCs. During the year, RBI permitted banks to undertake Primary Dealership business. RBI, in order to have a calibrated growth in personal loans, capital market lending, residential housing beyond Rs. 20 lakh and commercial real estate loans, increased the provisioning requirement for loans and advances in the standard assets category to 1% and then again to 2% for the year ended March 31, RBI also increased the risk weight on exposure to commercial real estate from 125% to 150%. According to RBI, Indian banks having a presence outside India and foreign banks have to migrate to the standardized approach for credit risk and the basic indicator approach for operational risk under BASEL II with effect from March 31, For all other scheduled commercial banks, the date has been extended to March 31, Source: Economic Survey , Union Budget , RBI and CMIE Consolidated Financial Performance Overview The Bank along with its subsidiaries continue to build the businesses with focus on scale with value creation. The group has been investing significantly in building two of its key businesses retail liabilities and life insurance. As on March 31, 2007, the Group employs around 10,800 people in its various businesses and has a distribution network of branches, franchisees, representative offices and satellite offices across 300 cities and towns in India and offices in New York, London, Dubai, Mauritius and Singapore. The Group services around 26 lakh customer accounts. Kotak Mahindra Bank completed four years as a scheduled commercial bank in The Bank opened its 100th branch in January As on March 31, 2007, the Bank has built a network of 105 full fledged branches spread across 69 cities and towns (65 branches as on March 31, 2006). The Bank proposes to have around 200 full-fledged branches by mid next year. Kotak Mahindra Capital Company and Kotak Securities continued to report good financial performance on the back of strong capital markets and the robust overall economic growth. The life insurance subsidiary, Kotak Mahindra Old Mutual Life Insurance continued its growth momentum but posted an accounting loss. Assets under management (AUM) as on March 31, 2007 was over Rs. 22,350 crore comprising assets managed/advised by the group. Of the above AUM, equity assets managed/advised by the group as on March 31, 2007 were over Rs. 11,800 crore. AUM of Kotak Mahindra Mutual Fund (Kotak Mutual) was over Rs. 12,100 crore as on March 31, The group continues to have a significant presence in distribution of mutual funds and is among the top three distributors of mutual funds in India. The stressed assets portfolio acquired from other banks/nbfcs was Rs. 512 crore with principal outstanding of around Rs. 3,300 crore as on March 31, India Growth Fund (the private equity fund) manages Rs. 707 crore, from domestic as well as international investors. The Fund continues to be in active investment mode and as at March 31, 2007, had made investments in 10 companies. Kotak India Real Estate Fund 1 manages contributions of Rs. 460 crore from investors and had made investments in 6 companies. During the year, the international subsidiaries have been converted to direct subsidiaries (51% holding) of the Bank. These companies are mainly engaged in investment advisory and investment management of funds, management of GDR/FCCB issuances, broker and broker dealer activities as well as investments. Kotak Mahindra (UK) Limited is a SEBI registered Foreign Institutional Investor (FII). The international subsidiaries have gained impetus and have now become gainful contributors to the profits of the Group. On May 31, 2006, the group consummated the buy-out of Goldman Sachs stake in Kotak Mahindra Capital Company Limited (KMCC) and Kotak Securities Limited (KS). The consideration for the 25% stake in KS was Rs. 123 crore and the consideration for the 25% stake in KMCC was Rs. 210 crore. During the year, the Trading and Principal Division (including Primary Dealership) of KMCC was de-merged into the Bank with effect from March 20, 2007 upon receiving requisite approvals from the court and the regulatory authorities. As a result of this restructuring, net worth of Rs crore has moved into the Bank. Consolidated Financials The consolidated financial performance of the Bank for the year ended March 31, 2007 is summarised below. In order to facilitate comparison with the current financial year the numbers for in this section are shown excluding the profit made on sale of stake in Hutchison Essar Limited (HEL). Rs. crore Income and Profit Growth Total income * 4, , % Operating profit % Consolidated Profit after tax (PAT) % * Brokerage income is considered net of sub-brokerage Kotak Mahindra Bank Limited 46

48 Key Financial Indicators Consolidated Net worth after minority interest (Rs. crore) 3, , Earnings per share (diluted) (Rs.) Book value per share (Rs.) Net Interest Margins (NIMs) (%) 5.2% 5.1% Return on Average Net Worth (%) 19.6% 20.6% Net NPA % excluding stressed assets portfolio 0.17% 0.21% Consolidated profit after tax (after minority interest and share of profit in associates) was up 57% to Rs crore for from Rs crore in For the consolidated earnings per share was Rs (Rs for ). The consolidated book value per share was Rs as on March 31, 2007 (Rs as on March 31, 2006). The consolidated total income (brokerage income is considered net of sub-brokerage) was Rs. 4, crore up 51% during Other income grew 39% from Rs. 1, crore in to Rs. 2, crore in Consolidated other income had three main components: Commission, fees, exchange & brokerage, profit on sale of investments and premium on life insurance business. Commission, fees, exchange & brokerage increased by 22% to Rs. 1, crore in from Rs crore in , with key growth drivers being fee income from the stock broking business, asset management/advisory fees and investment banking. Premium income from life insurance business grew by over 55% to Rs crore reflecting significant momentum in the business. Operating expenses (excluding sub-brokerage netted-off from brokerage income) increased from Rs. 1, crore in to Rs. 2, crore in , driven primarily by an increase in employee costs by 57% from Rs crore to Rs crore and the policy holders reserves, surrender expenses and claims, by 37% from Rs crore to Rs crore. Consolidated advances were up 49% from Rs. 10, crore as on March 31, 2006 to Rs. 15, crore as on March 31, As on March 31, 2007, consolidated net NPAs were 0.17% of net advances (0.21% as on March 31, 2006) excluding stressed assets portfolio. The breakup of the consolidated advances is given below: Rs. crore Advances March 31, 2007 Commercial Vehicles & Construction Equipments March 31, 2006 Growth 2, , % Auto Loans 3, , % Personal Loans 1, , % Home Loans 1, % Corporate Banking 2, , % Stressed Assets Portfolio % Others 2, , % Total Advances 15, , % Bank and its Key Subsidiaries: Financial and Operating Performance The Bank along with its subsidiaries, offers wide range of financial products and services to its customers. The key businesses are commercial banking, investment banking, stock broking, car finance, asset management and life insurance. Kotak Mahindra Bank (Commercial Banking) Kotak Mahindra Bank completed four full years of operation as a commercial bank in The Bank is the central platform for customer relationships across the group. The banking business model is directed towards maximising revenue generation from customers by offering a wide range of products and services to address all their banking needs. The Bank has five broad business segments: lending retail liabilities corporate banking (including small and medium enterprises SME) treasury and investments and venture fund management The profit before tax of the Bank for was Rs crore up 17% as compared to Rs crore in The profit after tax of the Bank was up 20% to Rs crore as compared to Rs crore in This was after considering (a) additional standard provision consequent to the change in RBI guidelines of Rs crore (b) provision on stressed assets portfolio of Rs crore and (c) Impact of revised Accounting Standard 15 on Employee Benefits of Rs crore. Rs. crore Segment Revenues Growth Lending % Corporate Banking % Retail liabilities % Treasury and investments % Venture Fund Management % Corporate Centre Inter-segment revenue (441.39) (200.63) Un-allocable revenue (net) Total Revenues 1, % Rs. crore Segmental Results Growth Lending % Corporate Banking % Retail liabilities (42.33) 1.78 Treasury and investments (17.39) Venture Fund Management % Corporate Centre Un-allocable revenue (net) Profit before tax % Profit after tax % Kotak Mahindra Bank Limited 47

49 The capital adequacy of the Bank as on March 31, 2007 was 13.46% (Previous year %). Tier I ratio was 8.81%. The advances of the bank stood at Rs. 10, crore. As on March 31, 2007, the net NPAs of the Bank were at 0.18% of net advances excluding stressed assets portfolio (0.20% of net advances excluding stressed assets portfolio as on March 31, 2006). The Net NPAs of the Bank including stressed assets portfolio were at 1.98% (0.24% of net advances excluding stressed assets portfolio as on March 31, 2006). As on March 31, 2007, the deposits of the Bank increased by 68% to Rs. 11, crore as compared to Rs. 6, crore as on March 31, Excluding the monies held as collection bankers, the deposits of the Bank increased by 56% to Rs. 10, crore as compared to Rs. 6, crore as on March 31, As on March 31, 2007, total deposits comprised of Rs. 2, crore of demand deposits (Rs crore as on March 31, 2006), Rs crore of savings deposits (Rs crore as on March 31, 2006) and Rs. 8, crore of term deposits (Rs. 5, crore as on March 31, 2006). The Bank had around 3,50,000 deposit accounts as on March 31, 2007 (1, 68,200 as on March 31, 2006). Lending The Bank continues to leverage its experience in the field of retail lending business and has shown a robust growth in disbursements and advances in this area. The total advances of the Bank increased by 72% from Rs. 6, crore in to Rs. 10, crore in The break up of the advances of the Bank is given below: Advances March 31, 2007 Commercial Vehicles & Construction Equipments March 31, 2006 Rs. crore Growth 2, , % Personal Loans 1, , % Home Loans 1, % Corporate Banking 2, , % Others 2, , % Total Advances 10, , % Retail and commercial advances grew 70% from Rs. 5, crore in to Rs. 8, crore in The Bank has witnessed significant traction in some of the new products like home finance, agri-finance and Saral. The Bank has a widespread geographical distribution network to distribute its retail lending products. Commercial vehicles & construction equipments advances recorded a growth of 38% to Rs. 2, crore in Margins continue to be under pressure due to the competitive nature of the industry. However, the Bank has maintained operating economies and delinquency levels comparable to among the best in the industry. During the year Commercial vehicles & construction equipments division has moved one step closer to becoming one stop shop for the needs of transportation industry through launch of unique products to meet their specific requirements. Going forward this will be an area of focus for the division. Saral loans which are essentially targeted at asset backed lending to customers, where organized credit does not reach easily, expanded its scope during to prime category of customers through business loans with or without asset backed security. In , personal loans grew by 94% to Rs. 1, crore and the Bank improved its presence across newer geographies. The Bank had launched home loans in 2003, which has grown 81% YoY to Rs. 1, crore. With a view to focus on the agricultural sector, the Bank has a full fledged agri business division which has the required expertise and offers a range of project finance and working capital funding to meet the financing requirements of agricultural machinery, horticultural projects, storage warehouses and farmers implementing new farming techniques. Asset reconstruction business is one of the key focus areas of the Bank, and the Bank has a pre-eminent position in the industry. The Bank purchases stressed assets and portfolios from other banks and financial intermediaries and helps in the resolution of the non performing loans. During the year, the Bank has made significant investments in buying stressed asset portfolios, the economic benefits of which will accrue over the next few years. The Reserve Bank of India published guidelines for sale of NPAs, which further added impetus to the business. The profit before tax for the lending segment was marginally down by 2% from Rs crore in to Rs crore in The fall in profit can be attributable to the revision in the standard provisioning norms by RBI during the year which requires it to be 2% in respect of personal loans, capital market lending, residential housing beyond Rs. 20 lakh and commercial real estate loans. The Bank made a provision of Rs crore in on account of such additional standard provision. Retail Liabilities As on March 31, 2007, the Bank had 105 full-fledged (including 22 semi urban/rural) branches across 69 towns and cities (65 branches across 43 cities as on March 31, 2006). The Bank offers a very wide range of products and services targeted at retail customers, delivered through a state of the art technology platform. In addition to branch banking, the convenience banking facilities offered by Kotak Mahindra Bank include telephone banking, internet banking, mobile banking, direct pay services, payment gateway for online shopping, a Global Debit Card which allows certain customers free access at any Visa ATM in India or abroad, and Kotak Visa Money Transfer, which permits the transfer of funds to all Visa debit and credit cards in India. Kotak Direct Pay currently allows transfer of funds to more than 60 companies across the country. Kotak VISA money transfer permits transfer of funds to more than 44 million VISA debit/credit cards across more than 150 locations. As a part of its platform, Kotak Mahindra Bank offers depository services that allow customers to hold equity shares, Government securities, bonds and other securities in electronic or dematerialised Kotak Mahindra Bank Limited 48

50 format. Another product offered by Kotak Mahindra Bank is the Best Compliments Card, a prepaid spending card accepted at over 150,000 merchant establishments in India, at all establishments which accept Visa credit cards. The Bank provides tailored investment services to individual and institutional clients in various stages and economic cycles. The focus is to attract, retain and deepen customer relationships through enhanced contact mechanisms. In addition to the existing focus on the mass affluent segment, the Bank plans to increase customer acquisition in the middle and lower end of the pyramid through personalised wealth advisory services. During the year, the Bank launched Gold Eternity, 24 carat pure gold coins and bars, carrying a 99.99% Assay Certification, signifying the highest level of purity as per international standards. The retail liabilities segment reported a loss of Rs crore in as compared to a profit before tax of Rs crore in The Bank continues to invest in this segment and expand its branch network with the objective of building a long-term, low cost and stable deposit base. The Bank proposes to have around 200 full-fledged branches by mid next year. Corporate Banking Corporate banking provides a broad range of financial services to domestic and international corporations, financial institutions, and government entities. The Bank s services include working capital, trade services, transaction banking, money market and foreign exchange services offered to corporates and small and medium enterprises (SMEs). The Bank offers the entire range of debt and fixed income products with a team of experienced and highly qualified professionals who structure products to suit the dynamic and varied needs of customers across segments. The Bank offers a variety of products from plain vanilla debt issuance to Asset Backed Securities (ABS), Mortgage Backed Securities (MBS), structured products and loan syndication. The Bank s strength lies in its ability to customise instruments/structures, develop innovative products and then deliver these through high level of execution capabilities and a wide distribution network across the country. The Bank s strategy in this business is to align the resources with the sectors where it can deliver value-added financial advisory solutions to the clients. The focus is on orientation of all organisational silos to customer service through greater cross functional synergies. The Bank has managed to improvise the solutions approach to meet varied needs of the clients. In spite of intense competition, the Bank witnessed a significant growth in corporate bank advances (including SME). The total advances of this segment grew 78% from Rs. 1, crore as on March 31, 2006 to Rs. 2, crore as on March 31, The profit before tax for the Corporate Banking segment was up 163% from Rs crore in to Rs crore in Treasury The financial year was marked by tightening of monetary policy in major advanced economies as well as emerging market economies as many central banks continued monetary tightening to contain inflation and stabilize inflationary expectations. The surplus liquidity was significantly high at the start of the financial year due to interventions by RBI in the foreign exchange market. Till end-september 2006 the average bids accepted by RBI at its reverse repo auction window amounted to Rs. 45,395 crore whilst in the second half of the year it turned negative by an average amount of Rs. 393 crore. The real squeeze on system liquidity came with the CRR tightening phase and between mid-december 2006 and end-march 2007, acceptance of bids by RBI at its Repo window amounted to Rs. 7,536 crore. Reflecting the developments in the liquidity scenario, spells of volatility was witnessed in the overnight money market rates. While the call money rate edged up along with the upward move in the policy rates of RBI, it had stayed mostly within the upper and lower ends of the interest rate corridor set by RBI in April to November Coinciding with the CRR hikes and the advance tax outflows in December 2006 and March 2007, call money rates witnessed sharp volatility, often exceeding the repo rate significantly. Along with a hardening of the G-sec yields in , the yield curve also flattened during the financial year. The financial year started with yields on a firming path even as liquidity remained adequate. The market was cautious and grappled with uncertainties of US interest rates and increases in the domestic price of fuel. The increase in the Reverse Repo rate on 9th June 2006 also led to some nervousness and 10-year benchmark bond yield increased to an intra-year peak of 8.40% on July 11, 2006, an increase of 88 bps over end-march Subsequently the trend reversed and the 10-year benchmark yield softened as the Federal Reserve, Central Bank of United States of America paused in its interest rate cycle. US Government bond yields came down and the softening bias in GoI bond yields was helped by the reduction in the global crude oil prices. The 10-year benchmark bond yield thus fell to 7.38% on November 28, However, this failed to sustain for long as yields once again started to harden from the second half of December 2006 with RBI tightening money market liquidity via the CRR increases. The 10-year benchmark G-sec yield finished in at 7.97%. The yield curve flattened during , with the spread between 1-10 year G-sec yields narrowing to 42 bps at end-march 2007 from 98 bps at end-march The yields on the 5-year AAA rated corporate bonds increased in , following the higher G-sec yields. However, the rise in yields on the corporate bonds was faster, indicated in the increase in the spread between the two to 142 bps by end-march 2007 compared to 91 bps at end-march Bank deposit and lending rates also moved up, especially in the second half of the year. The weighted average discount rate of CDs increased by 215 bps in the year to end the year at 10.77% while the weighted average discount rate on CPs increased from 8.59% in the fortnight ending March 31, 2006 to 10.24% in the fortnight ending March 15, Interest rates offered by PSU banks on its deposits of 1-3 year maturity were at % by Kotak Mahindra Bank Limited 49

51 end-march 2007, higher than % at end-march The Benchmark PLRs of PSU banks were in the range of % in March 2007, up from % in March During the year Bank Treasury continued to focus on garnering client flows from derivatives and foreign exchange remittances and such client flows provided stability to treasury income amidst a volatile fixed income and foreign exchange market. The Bank Treasury continued its endeavour of diversifying revenue sources. Bullion desk and Custodial services commenced operation during the period and contributed towards treasury revenues. Venture Fund Management The Bank has co-sponsored Kotak SEAF India Fund which has been set up as a Trust registered with SEBI as a Venture Capital Fund. India Growth Fund (the Fund) was set up as a unit scheme of Kotak SEAF India Fund. The private equity division has an experienced investment management team with a successful track record in the venture capital industry. India Growth Fund has commitments of Rs. 707 crore, from domestic as well as international investors. The Fund continues to be in an active investment mode and as at March 31, 2007, had made investments in 10 companies. These investments are in high growth sectors of home retail, logistics, home textiles, airline, light engineering, life sciences and software and information technology. Kotak Mahindra Capital Company (Investment Banking) Kotak Mahindra Capital Company (KMCC), post the demerger of the Principal and Trading business segment (including primary dealership) with effect from March 20, 2007, primarily operates as a full service Investment Bank. The demerger of the aforesaid division has resulted in an outflow of Rs crore of networth into the parent company viz. Kotak Mahindra Bank Limited. KMCC has now two main segments of business (a) Advisory and Transactional Services (b) Long Term Investments. Rs. crore Segment Income Growth Advisory and Transactional Services Trading and Principal Investments % % Long Term Investments Add: Unallocated income 0.60 Total % Rs. crore Segment Results Growth Advisory and Transactional Services Trading and Principal Investments % % Long Term Investments Add Unallocated Income 0.60 Profit before tax % Profit after tax % The year under review saw 85 equity issuances excluding QIPs (previous year 102). KMCC had a market share of 19.7% of the total value of issuances. Notable deals where Kotak Investment Banking played the book runner role were: Rs. 997 crore Power Finance Corporation IPO which mobilized Rs. 76,725 crore, the second highest amount ever for any book-built issue in the Indian capital markets Rs. 782 crore Indian Bank IPO, the first Book-built IPO of a Public Sector Bank in India Rs. 602 crore Sun TV IPO Rs. 569 crore Sobha Developers IPO Rs. 465 crore Tech Mahindra IPO There were 25 QIP issues during the year and KMCC topped the list with a 19.7% share by value. The deals in which Kotak Investment Banking was involved as book runner were: US $ 105 million issue of Mahindra Gesco Developers US $ 75 million issue of Kalpataru Power Transmission US $ 34 million issue of Marico KMCC, through the international subsidiaries of the Bank, also topped the list of GDR issuances by value with a total share of 30.1%. During the year , Kotak Investment Banking acted as: Sole investment banking advisor to both the Blackstone Group and Ushodaya Enterprises in the US $ 275 million financing for Ushodaya, the owner of the Eenadu newspaper and ETV channels. This is the largest ever media financing in the country Exclusive advisor to the INX group in the financing for both its entertainment and news media company Financial advisors to Mahindra & Mahindra for their acquisition of controlling stake in Punjab Tractors Ltd Sole Financial Advisor to Kingston Properties Private Limited for US $150 mn Private Equity Funding by Morgan Stanley Sole Financial Advisor to Divyasree Group for the Rs. 460 crore Private Equity funding by TPG-Axon Kotak Mahindra Bank Limited 50

52 Exclusive financial advisor to IFFCO for the sale of its holding in Godavari Fertilisers and Chemicals to Coromandel Fertilisers Ltd. and Manager to the consequent open offer Advisor to Pioneer Global Asset Management, a US $ 370 billion asset management subsidiary of Unicredit Group of Italy, in a majority joint venture with Bank of Baroda for mutual funds in India Financial Advisors to Mahindra & Mahindra Limited for their acquisition of 67.9% stake in JECO Holding AG of Germany, the largest outbound auto component acquisition by an Indian Company Sole Financial advisors to Raymond in setting up a transnational joint venture denim company with UCO textiles of Belgium, by contribution of their respective existing denim businesses, creating a company with an estimated enterprise value of Euro 200 million Financial advisors to Mahindra & Mahindra for their acquisition of Schoneweiss & Co., GmbH, a leading company in the forgings sector in Germany Exclusive Financial advisors to Great Eastern Shipping Limted for de-merger of the Offshore division Sole Financial advisor to Mahindra Group on acquisition of the Chakan unit of Amforge In April 2007, Kotak Investment Banking closed the following transactions where it acted as: Exclusive financial advisor to Bombay Stock Exchange Ltd ( BSE ) in its demutualization, involving a private placement of 51% of BSE to strategic investors valued at Rs. 2,050 crore Sole Financial Advisor to the approximately Rs. 2,000 crore sale of promoter holding in Anchor Electricals (AEPL) to Matsushita Electric Works, Japan KMCC is also acting as the advisor to Hutchison Telecom for the US$ 18.8 billion sale of its Indian operations to Vodafone. KMCC has a healthy pipeline of mandates in various sectors for both equity offerings and Mergers & Acquisitions which are expected to be closed in The Trading and Principal Investment business registered a profit after tax of Rs crore for against Rs crore in The principle reason being, in , the profits substantially included a one time gain on account of sale of economic interest in Hutchison Essar Limited. Kotak Securities (Stock broking) Kotak Securities (KS) is India s leading stock broking company and accounted for 9.0% of total average daily market volumes in (8.5% in ). In May 2006, Kotak Mahindra Group ownership in KS increased to 100% following the acquisition of 25% stake held by Goldman Sachs (Mauritius) LLC. Whereas the year was an historic year for the Indian economy, as the benchmark BSE Sensex crossed the 10,000 mark on February 7, 2006, the year , saw the benchmark BSE Sensex crossing the 14,800 mark. Similarly the benchmark Nifty which had touched the year s high of 3,418 on March 30, 2006 crossed the 4,200 mark in the year KS clocked average daily volumes of around Rs. 3,720 crore during as compared to around Rs. 2,440 crore during Rs. crore Particulars Growth Total Income % Profit before Tax % Profit after Tax % The profit after tax grew by 19% YoY to Rs crore in The growth was achieved by both, increased volumes, as well as, increased market share. As on March 31, 2007, in the retail segment, KS had around 3,20,000 secondary market customers and serviced them through a network of 813 offices (own and franchised) across 277 cities. The online trading portal continued to do well. A number of new schemes and products for online customers were launched. The most significant being a flat brokerage product for clients with relatively smaller transaction size. The number of online registered customers as on March 31, 2007 was in excess of 1,15,000. The online volumes continued to grow and crossed the Rs. 1,000 crore mark in the year In the Portfolio Management Services (PMS), three of the close-ended schemes launched in earlier years matured in KS continues to focus on increasing product offerings and improving service standards. The total discretionary equity Assets under Management (AUM) as on March 31, 2007 was Rs. 2,300 crore. The buoyant capital markets saw the number of primary market issues increasing over the last year. KS participated in the distribution of 90 public offer issues, mobilizing in excess of Rs. 24,600 crore in the retail segment itself. KS s institutional equities division has made steady growth during the year. This was achieved through a larger customer base and servicing of global and domestic asset managers. Kotak Institutional Equities strives to provide high quality fundamental equity research and globally compliant execution service to clients. It has a strong research team with wide research coverage of over 130 companies. Kotak Institutional Equities clientele includes Foreign Institutional Investors, Financial Institutions, Banks, Mutual Funds and Insurance companies. Significant focus on Futures & Options segment contributed substantially to the revenue growth and market share. Kotak Mahindra Prime Limited (car finance, other lending) Kotak Mahindra Prime Limited (KMP) is into car finance, engaged in financing of retail customers of passenger cars and multi-utility vehicles and inventory and term funding to car dealers. The Company finances new and Kotak Mahindra Bank Limited 51

53 used cars under retail loan, hire purchase and lease contracts. In addition to car finance, KMP also carries out other lending activities. During , KMP s auto advances were Rs. 3,611 crore recording an increase of 18% as compared to The year witnessed volatile interest rate scenario and increased interest rates on car and other loans. The pressure continued on maintaining the margins in the retail car finance business. KMP continued to focus on control over cost and credit losses, while maintaining its positioning in the car finance market. KMP also maintained its good relationships across car manufacturers, dealers and channel partners in the country. Rs. crore Particulars Growth Total Income % Profit before royalty and tax % Profit before tax % Profit after tax % The passenger car market in India saw a growth of 21% for the year as compared to a growth of 6% for Total unit sales of cars and MUV s crossed 13.5 lakh units in the year The car market has grown at a rapid pace due to robust economic growth, launch of new and improved models and stable automotive prices. Indian economy in the current financial year is expected to maintain the growth momentum. KMP 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. Fee based income is an important initiative of KMP. Dedicated infrastructure is in place to give a further impetus to the growth of fee based income with a twin objective of offering value added services to customers and leveraging the large existing customer database to generate further fee based income. Customer knowledge, easy accessibility through its wide network of branches and a firm commitment to deliver superior customer service are key drivers for KMP s performance. KMP has entered the debt capital market segment and carried out various securitisation transactions during and the same are structured to suit the varied needs of the customers. KMP has during the year also ventured into business of retail personal loans, overdraft against securities and other retail lending. Kotak Mahindra Asset Management Company Limited Kotak Mahindra Trustee Company Limited (Mutual Fund) Kotak Mahindra Asset Management Company Limited (KMAMC) and Kotak Mahindra Trustee Company Limited (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. Indian mutual funds industry is evolving, in terms of breadth and depth. It is broadening in terms of total number of investors it is catering to and deepening in terms of its product offering and investment and distribution practices. The following is the list of policy level changes effected during that had an influence on the mutual funds industry: Introduction of Gold Exchange traded fund Introduction of Dividend Distribution procedures to rationalize the process and to bring in uniformity into the practice of declaring and disbursing dividends Rationalization of the initial issue expenses wherein they will be permitted for closed-ended schemes only. Also, the Open-ended schemes are to meet their sales, marketing and distribution related expenses from the entry load. Total limit for investing in foreign equity is increased from US $ 2 billion to US $ 3 billion. Introduction of Capital Protection Oriented Schemes as well as revision in the fees payable by the mutual funds for filing offer document with SEBI AUM as on March 31, 2007 was Rs. 12,125 crore, as compared to Rs. 10,408 crore as of March 31, The number of folios as on March 31, 2007 was more than 5,36,000 as compared to over 4,00,000 as on March 31, The year saw the launch of several new schemes and facilities, increased distribution reach and market expansion. During , the mainstream debt schemes of the Fund continued their commendable performance. KMAMC announced the tie up with T. Rowe Price to launch a fund for resident Indians to invest in a global fund - T. Rowe Price Funds SICAV Global Emerging Markets Equity Fund. Rs. crore KMAMC Growth Total Income % Profit before tax % Profit after tax % Rs. crore KMTC Growth Total Income % Profit before tax % Profit after tax % The two key growth drivers would be to increase visibility further in metro and non-metro regions and focus on geographic expansion. New product offerings, value added service initiatives and continued focus on fund performance would also hold key to growth. Kotak Mahindra Bank Limited 52

54 Kotak Mahindra Old Mutual Life Insurance (Life Insurance) Kotak Mahindra Old Mutual Life Insurance (Kotak Life) is 74: 26 joint venture of the Bank with Old Mutual plc. The life insurance industry s growth is related to demographics, purchasing power, economy growth rate, share of savings and government support through tax and fiscal sops. All these factors were favourable to the industry in the year In the coming years, India is likely to have a growing middle and affluent class with a burgeoning service sector contributing significantly to the growth of life insurance industry. Introduction of new products and focus on service delivery were primary drivers for the growth of the private life insurers during Consumer confidence in the private sector has substantially improved over the years, and going by the current trends, it is expected that the private sector will improve upon the perceived value to the consumer. Kotak Life offers life insurance, deferred annuity and employee benefit products to individuals and groups. The business is distributed through three distribution channels viz. Tied Agency, Alternate Channels and Group Insurance. The business is value-driven with a focus on long-term shareholder value and an aspiration to meet policyholder expectations. The premium income for the year grew to Rs crore (previous year Rs crore). During the year, Kotak Life wrote over 1,65,200 policies (previous year 96,750 policies) of adjusted first year annualised premium (single premium weighted at 1/10th) of Rs. 572 crore (previous year Rs. 367 crore), representing a sum assured of Rs. 20,163 crore (previous year Rs. 8,631 crore). Riders are not included in the sum assured. As at March 31, 2007, Kotak Life Insurance had around 24,500 active life advisors who are continuously being trained to facilitate them to advise customers in a proper manner. The philosophy of Kotak Life to focus on Quality life advisors has started yielding results. Currently, Kotak Life operates from 74 branches in 49 cities with a primary focus on the middle class and affluent population. During the year 29 new branches were opened and this expansion was in second tier cities which offer good opportunity and also provide a window to reach to rural areas. A survey conducted by AC Nielsen ORG MARG in September 2006 in top 8 towns placed Kotak Life at the top 6 brands among the life insurance brands recalled. Rs. crore Growth Premium income % Deficit During , Kotak Life introduced two products. In unit linked segment Kotak Life introduced Kotak Head Start Plan; a product designed to offer protection to individual by securing the future of his child and it met with good success. In the participating segment Kotak Life introduced Sukhi Jeevan, meant for the semi-urban and rural segments. The product was received well and will be an important part of Kotak Life s expansion goals in the coming years. International Subsidiaries The Bank has overseas subsidiaries with offices in Mauritius, London, Dubai and New York. Kotak Mahindra (UK) Limited received authorisation from the Monetary Authority of Singapore under the CMS license to set up a branch in Singapore. The branch commenced operations in March 2007 and would essentially be a marketing office. The overseas subsidiaries are mainly engaged in investment advisory and investment management of funds, management of GDR/FCCB issuances, broker and broker dealer activities as well as investments. During the year, the Bank infused US $ 3.01 million into the hitherto subsidiaries of KMCC, thereby making them the Tier I subsidiaries (51% holding) of the Bank. The assets under management through international operations increased from US $ 1.1 billion as on March 31, 2006 to US $ 1.4 billion as on March 31, 2007 translating to an increase of 26%. A significant achievement during the year was the investment management mandate of Indian Equities Fund Limited, an Australian Stock Exchange listed fund, which raised approximately AUD 75 million from Australian investors. KMUK also acted as lead manager to GDR issuance by 2 companies. To give further boost to its asset management business, the fund management team, which is based out of Dubai, shall be strengthened during During the forthcoming year, the international business intends to launch a number of niche asset management products, which shall increase the presence and penetration of the Group in the international markets. Kotak Mahindra Group - Awards and Recognition Bank adjudged the 10th Best Employer in India by Hewitt Best Employer Survey Bank awarded IT Team of the - Annual Banking Technology Awards 2006, IBA Most Popular Investor Relation Website for the Asia/Pacific Region IR Global Ranking 2007 Winner in 16 categories in Annual Private Banking Survey Poll for 2007 for India - Euromoney Kotak Investment Bank ranked # 4 for entire Asia (ex Japan) M&A deals by value -MergerMarket Kotak Investment Bank topped the League table as Book runners for Global Depository Receipts (GDRs) and Qualified Institutional Placements (QIPs) for the financial year in terms of value of deals - Prime Database Best Domestic Investment Bank and the Best Equity House Asset Triple A Country Awards KS topped the Brokers Poll as the Best Local Broker: 2006 Asia Money KS adjudged the Most Customer Responsive Company for 2006 Avaya Global Connect Winner in 33 categories in the Private Banking Poll 2006 Asiamoney Kotak Mahindra Bank Limited 53

55 KMP: Best Passenger Vehicle Finance Company in India 2006 Frost & Sullivan KMP: Voice of Customers 2006 Best Auto Finance Company in India Frost & Sullivan Best Bond Fund House Lipper Best Fund over Five years in the Bond Indian Rupee General Category for Kotak Bond Regular Plan-Growth - Lipper Fund Awards India 2007 Best Fund group over three year in the Bond category - Lipper Fund Awards India 2007 Gold Award for Best Performance in the category of Open Ended Debt - Short Term for one-year period ending December 31, 2006 for Kotak Flexi Debt Fund - ICRA - MFR 1 Gold Award for Best Performance in the category of Open Ended Debt - Short Term for three-year period ending December 31, 2006 for Kotak Bond Short Term Plan - ICRA - MFR 1 Kotak Mutual Fund was also adjudged the Best Mutual Fund and received NDTV Profit Business Leadership Award in the Mutual Fund category for NDTV Technology witnessed a continued focus on innovation in harnessing technologies to provide business the competitive edge. In addition, it developed a focus on achieving improved customer satisfaction and cost synergies through a strategy that leverages common systems across the Group. Special attention was paid towards providing customers improved access to information and online transactions. The Bank launched a new Internet Platform, which has been benchmarked to have the fastest response time amongst our major competitors according to a leading Independent Internet monitoring Agency. Kotak Life introduced MyKotaklife.com which increased productivity for agents and sales. Kotak Securities enhanced their cutting edge trading portal to provide an improved look and feel, and also to provide new offerings for their retail customers. Innovation continued to be coupled with productivity and quality, as evidenced by the Bank s technology team winning the prestigious IT Team of the award at the annual Banking Technology Awards 2006 organized by the Indian Banking Association. In addition, this year saw the commencement of a strategy of integrated technology platforms, which will provide synergies across the Kotak Group of Companies. Human Resource Management, General Ledger, Anti Money Laundering and CRM were identified as potential areas in which common systems could be leveraged. Benefits from common systems for Human Resources and General Ledger have already started to accrue from the common systems implemented in these areas. Common systems for Anti Money Laundering and CRM systems have been initiated. Synergies in technology management were also achieved on the infrastructure side. Reverse auctioning was commenced for purchasing IT products and significant steps taken to enjoy substantial benefits through improved purchasing power by leveraging the combined purchases for the Group. Group level strategic vendor management also ensured benefits for disaster recovery and infrastructure planning and procurement. A data center and networks consolidation initiative has provided improved control as well as scalability. Risk Management The diversified business activities require the Bank to identify, measure, aggregate and manage risks effectively and to allocate capital among its businesses appropriately. The risk management framework lays emphasis on the group s risk philosophy, proper organizational structure, risk and reward balance and is supported by dedicated monitoring and risk measuring mechanism. Risk Control systems are being enhanced with a view to enable business gain and maintain competitive advantage while growing assets profitably. Consumer Banking continues to take initiatives to further improve its risk management capability. Basic Principles and Risk and Capital Management The Board is involved in defining risk appetite and capital at risk for the Bank, at an integrated level, covering all activities of the Bank. Development of the risk strategy and risk appetite is an ongoing process and is based on past experience and future plans. The risk strategy is consistent with the Board s overall risk tolerance, management s expertise in each business unit and the total financial amount that the Bank is prepared to place at risk of loss (Capital at risk). The Management Committee provides overall risk management supervision for the consolidated group as a whole. Various risk committees, namely Asset Liability Committee (ALCO), Credit Committee, First Tier Audit Committee, Risk Management Committee, Information Security Committee etc, review specific risk areas and supervise the activities of enterprise wide risk management. Categories of Risk The most important risks are specific banking risks and reputational risk as well as risk arising from the general business environment. Specific Banking Risks In consonance with the guidelines of Reserve Bank of India with regards to BASEL II, the risk management processes of the Bank distinguish among four kinds of banking risk: credit, market, liquidity and operational risk. Risk Management Tools The Bank uses a comprehensive range of quantitative tools and metrics for monitoring and managing risks. Some of these tools are common to a number of risk categories whereas the others are tailored to address the particular features of specific risk categories. Kotak Mahindra Bank Limited 54

56 Both with a view to bringing in risk sensitivity through policies and to duly meet the regulatory requirements, the Bank continually assesses the appropriateness and the reliability of the quantitative tools and metrics in the light of the changing risk environment Credit Risk Credit risk arises from all transactions that give rise to actual, contingent or potential claims against any counterparty, borrower or obligor. The Bank s credit exposure is primarily categorized into retail and wholesale borrowers. Retail exposure is mostly term loans and asset backed other than personal loans. Wholesale borrowers are internally categorized into emerging corporate, corporate and financial institutional group. While retail credit lending is largely based on predefined parameters and is mostly decentralized, credit appraisal is undertaken by an independent dedicated credit risk team for wholesale exposure. Credit Risk Management Tool During the year the Bank has put in place an internal credit rating model for the comprehensive risk assessment of the wholesale banking credit exposures. Each obligation is evaluated on two dimensions to assign obligor and facility rating. The rating tool rates Large Corporates, SMEs, Brokers, Traders and Services separately. The parameters in each risk entity (viz. business risk, industry risk, management risk and financial risk) to evaluate ratings and appropriate weight-age to these parameters have been decided based on past experience and after assessing the rating methodology. The final output of the model helps the bank to assess the expected probable loss number attached to each borrower after duly considering the securities provided to mitigate the risk. The internal credit rating system would facilitate migrating the Bank to be compliant under the internal rating based approaches of Basel II Accord in due course. The rating tool grades obligors into 18 categories and each rating category has been assigned a Probability of Default (PD) number. The facility extended by the bank to the borrower is also rated on a comprehensive scale of 30 categories of ratings. Such a facility rating provides the Loss Given Default (LGD) number to each facility rating category. The combination of Obligor and Facility Rating provides Combined Rating which is divided into 18 categories. Internal rating is assigned to each obligor based on quantitative and qualitative factors and forms an important element of credit lending decision. These ratings are reviewed at least annually. Independent credit appraisal, monitoring, administration, policy and credit risk measurement units are in place encompassing the entire gamut of credit risk management. Credit Risk Management Principles The Bank measures and manages its credit risk based on the following principles The extension/renewal of any Credit Facility to a particular borrower requires Credit Approval at the appropriate authority level. The Rating Tool, which is already in place, helps the authorities in such decision The approval of all the limits to the counterparties should be in line with the Corporate Credit Policy and Collateral Risk Management Policy of the bank. Such approval should generally be within the Bank s portfolio guidelines and credit strategies There will be a regular review of the credit worthiness of the borrowers not only using the rating tool of the bank but also by its Credit Risk Management team Market Risk Market risk arises from the uncertainty concerning changes in market prices and rates viz interest rates, equity prices, foreign exchange rates, the correlations among them and their levels of volatility. Market risk management framework is laid down in the investment and ALM policy of the bank. The bank runs exposure on interest rates, equity, foreign exchange and a combination of them through derivatives. Exposure is managed through a set of risk limits such as open position, PVO1, gap limits, cash value etc. These limits are monitored on daily basis by the independent mid-office cell and are reviewed based on market conditions on frequent basis by ALCO. In addition to the above, Bank computes value at risk (VAR) for the aforesaid risk on an individual basis and on aggregated basis after considering correlation effect. Value at risk is reported on a daily basis and back testing/ stress testing is undertaken to confirm the validity of the measurement models. Interest rate risk of the balance sheet is managed through gap analysis, especially duration gap of the assets and liabilities. Liquidity Risk Liquidity risk is the risk arising from the potential inability of the Bank to meet all payment obligations when they become due. Liquidity risk is managed through setting limits on the negative gap for maturity bucket. As part of liquidity risk management the bank initiated behaviour analysis of its CASA and term deposits to analyse the impact of inbuilt option in these products. Operational Risk Operational risk is the potential for incurring losses due to failure of employees, technology, system or a process and disasters, projects, external factors, frauds etc, including legal and regulatory risk. The bank seeks to ensure that key operational risk are managed in a timely and effective manner through a framework of policies, procedures and tools to identify, assess, monitor, control and report such risk. The group internal audit team and the compliance department have set a sound platform for operational risk management, along with the operational risk management unit. Unusual event reporting and creation of loss database have been institutionalized as a stepping stone towards measurement of operational risk. Basel II The Bank has made considerable progress in capturing data and implementing systems with regards to computing capital adequacy as Kotak Mahindra Bank Limited 55

57 per the standardized approach of Basel II for credit risk. Efforts are on to automate the process of capital computation as per Basel II and application system is being implemented to that effect. As on March 31, 2007 the estimated capital adequacy ratio as per the standardized approach is 13.62% as compared to existing 13.46%. The revised framework of capital adequacy norms is applicable to Indian banks having operational presence outside India and foreign banks with effect from March 31, 2008 and other scheduled commercial banks have been encouraged to migrate with effect from March 31, 2008, but not later than March 31, A multidisciplinary group having members from various department of the banks have been formed to ensure setting process and develop infrastructure to comply with the requirements of Basel II. In addition to the regular monitoring and oversight, in the coming years, the focus of risk function would be to develop sophisticated measurement tools to statistically quantify risk in the lending business and operations. Compliance The group has in place an independent and comprehensive compliance structure to address compliance and reputation risk on a group wide basis. The compliance function is headed by a senior resource in all group companies. The Group Head Compliance reports to the Board of Directors of the Bank. The Compliance Department oversees adherence to all regulatory prescriptions both domestic and international. The department is also responsible for ensuring adherence to Know Your Customer (KYC) and Anti Money Laundering (AML) standards. The senior compliance resource in each of the group companies is also designated as the Principal Officer under the Prevention of Money Laundering Act The Bank and key subsidiaries are implementing a sophisticated AML application. Dissemination of regulatory information is done on an online basis by using knowledge management tools. The department also brings out a quarterly compliance newsletter to update employees on regulatory developments. The department is also responsible for ensuring adherence to standards and codes by Reserve Bank of India (RBI), Banking Codes and Standards Board of India (BCSBI), Indian Banks Association (IBA), Foreign Exchange Dealers Association of India (FEDAI), Fixed Income Money Market and Derivatives Association (FIMMDA), Securities and Exchange Board of India (SEBI), Association of Mutual Funds in India (AMFI), Insurance Regulatory and Development Authority (IRDA), and international regulators/sro s. The Bank and its companies have adequate compliance monitoring and reporting systems in place. They have also adopted a Whistle Blower Policy encouraging employees to report any instances of irregularity to senior management. Training on compliance matters is imparted to employees on an ongoing basis. The group has hired a reputed consulting firm to benchmark the compliance processes and practices with the best in the world. Internal Controls The Bank s internal audit department undertakes a comprehensive audit of all branches and businesses under a risk-based internal audit model recommended by the Reserve Bank of India and approved by the Audit Committee of the Board of Directors. An annual risk-based internal audit plan is drawn up on the basis of risk profiling of Bank s branches and businesses/departments which is approved by the Audit Committee. When required, the internal audit department seeks assistance from external firms. After assessing the overall risk of a branch or business/department, the Bank takes measures to minimize such risk. Senior officers also assess and evaluate the mitigating measures taken by the branch during their visits. Higher risk areas and branches are targeted for more frequent audits. The Bank has a process of concurrent audit of critical functions using external consulting/accounting firm(s). Concurrent audit is also carried out for the Bank s treasury operations, in particular for sovereign and corporate debt investments and foreign exchange operations. This has been undertaken to ensure the existence of and adherence to internal and regulatory controls. The subsidiaries of the Bank, where applicable, are also subjected to internal audit, either by internal auditors or by external auditors. All auditors report to the respective Audit Committees. The scope of all companies is approved by the respective Audit Committees. All audit reports are placed before the Audit Committee of the respective companies and key/significant issues communicated to the Bank (the holding company). Mitigating measures are taken where risk is more than acceptable levels. Human Resources As on March 31, 2007, the Bank along with its subsidiaries employed more than 10,800 employees at various locations in India and abroad, an addition of around 4,100 employees over The Bank was adjudged the 10th Best Employer in India by Hewitt Best Employer Survey. The Bank and its subsidiaries have in place policies relating to employee benefits, service conditions, welfare and training. The Group continues to focus on training and development of its employees on a continuing basis by deputing to reputed training institutions and by holding workshops on various areas including Regulatory Compliance, Risk Management, Customer Care and Communication, Trade Finance, Foreign Exchange Rules and Treasury along with the soft skill programs. With a healthy and dynamic work environment, the Bank and its subsidiaries have created a talent pool which seeks to deliver the best quality service to its customers and associates. Opportunities and Threats Opportunities Scalability through increased brand awareness, market penetration and service offerings across all categories of financial services Increase in customer s wallet share Leveraging the latest technology for providing quality and client centric services Growth in economy would lead to higher demand for credit Burgeoning middle class - consumerist with high earnings Threats Increasing interest rate scenario Rising inflation Kotak Mahindra Bank Limited 56

58 Execution risk Competition from local and multinational players Slowdown in global liquidity flows Outlook Stability and confidence was witnessed in the Indian financial markets in The robust performance of the banking industry in indicates a further acceleration of the Indian economy. Kotak Mahindra Group s results for the financial year demonstrate the strong fundamental growth in the India story. However, the economy inhibits the concerns over the impact of inflation, the weakness of the US $ and rising crude oil prices. The Group believes that the present economic scenario offers immense opportunities for it to grow in scale and reach coupled with value creation. The group is confident that with its integrated business model it shall be able to take advantage of the significant growth opportunities in the coming years. Safe Harbour This document contains certain forward-looking statements based on current expectations of Kotak Mahindra 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 and in the securities market, new regulations and Government policies that may impact the businesses of Kotak Mahindra Group as well as its ability to implement the strategy. Kotak Mahindra does not undertake to update these statements. This document does not constitute an offer or recommendation to buy or sell any securities of Kotak Mahindra Bank or any of its subsidiaries and associate companies. This document also does not constitute an offer or recommendation to buy or sell any financial products offered by Kotak Mahindra, including but not limited to units of its mutual fund and life insurance policies. All investments in mutual funds and securities are subject to market risks and the NAV of the schemes may go up or down depending upon the factors and forces affecting the securities market. The performance of the sponsor, Kotak Mahindra Bank Limited, has no bearing on the expected performance of Kotak Mahindra Mutual Fund or any schemes thereunder. Figures for the previous year have been regrouped wherever necessary to conform to current year s presentation. Kotak Mahindra Bank Limited 57

59 Report On Corporate Governance Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society (Sir Adrian Cadbury in Global Corporate Governance Forum, World Bank, 2000). The Bank believes in adopting and adhering to the best standards of corporate governance to all the stakeholders. The Bank s corporate governance is, therefore 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 believes that good corporate governance leads to the optimal utilization of resources and enhances the value of the enterprise and an ethical behavior of the enterprise leads to honoring and protecting the rights of all the stakeholders. The Report on the Bank s corporate governance, as per the applicable provisions of the Clause 49 is as under: 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 nonexecutive Directors, presently consists of nine members, of whom six are non-executive Directors. The Chairman of the Board is a non-executive Director and five out of nine Directors are independent. 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: Dr. Shankar Acharya, Non-Executive Part-time Chairman Dr. Shankar Acharya, B.A. (Hons.) from Oxford University and Ph. D. (Economics) from Harvard University, aged 61 years, has considerable experience in various fields of economics and finance. He is honorary professor at the Indian Council for Research on International Economic Relations (ICRIER) and a Board Member of ICRIER, the National Council of Applied & Economic Research and the National Institute of Public Finance and Policy. He was Chief Economic Adviser, Ministry of Finance ( ), Member, Prime Minister s Economic Advisory Council ( ) and Member, Twelfth Finance Commission (2004). Earlier, he held several senior positions in the World Bank, including Director of World Development Report (1979) and Research Adviser. Dr. Acharya has authored four books on the Indian economy and numerous scholarly articles on a wide range of economic and financial topics. He was appointed as the Non-Executive Part-time Chairman of the Bank at the Annual General Meeting held on 20th July, Dr. Shankar Acharya was a member of Audit Committee of the Bank until 8th May Mr. Uday Kotak, Executive Vice-Chairman and Managing Director Mr. Uday Kotak, B.Com, MMS (Masters in Management Studies), aged 48 years, is the Executive Vice-Chairman and Managing Director of the Bank and its principal founder and promoter. Over the past 21 years, he has built a team of 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 also on the Board of Indian Council for Research on International Economic Relations (ICRIER) and Indian School of Business. He is on the Board of the following companies: Kotak Forex Brokerage Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Capital Company Limited Kotak Mahindra Prime Limited Kotak Mahindra Old Mutual Life Insurance Limited Kotak Securities Limited Mr. Uday Kotak is also a member of the Investor Relations (Shareholders / Investor Grievance) Committee of the Bank, Chairman of the Audit Committee of Kotak Mahindra Capital Company Limited and Kotak Securities Limited, member of the Audit Committee of Kotak Mahindra Asset Management Company Limited. Mr. K. M. Gherda Mr. K. M. Gherda, B.Com., A.C.A., F.C.A. (England & Wales), F.C.S., aged 78 years, was the Non-Executive Chairman of the Bank. His term as the Chairman expired at the end of the Annual General Meeting of the Bank held on 20 th July 2006 but he continues on the Board of the Bank as a Non-Executive Director. Mr. Gherda has over 51 years of financial and management experience with foreign and Indian companies. He served 27 years with Tata Electric Companies and retired as their Vice-Chairman and Managing Director. He was also on the Local Advisory Board of the Bank of Nova Scotia in India and was, at one point, it s Chairman. He has a long association with the Bank and has been on its Board as an independent director since He was the President of the Bombay Management Kotak Mahindra Bank Limited 58

60 Association and the Regional Director for India of the Institute of Internal Auditors, Florida. He is on the Board of the following companies: ASL Advanced Systems Private Limited Deutsche Asset Management (India) Private Limited Emersons Network Power India Private Limited K M Dastur Reinsurance Brokers Private Limited Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private Equity Trustee Limited) Nelito Systems Limited Pallonji Leasing Private Limited Tata Ceramics Limited Universal Ferro & Allied Chemicals Limited Vakksh Capital Company Limited WTI Advanced Technology Limited Yashmun Engineers Limited Zenta Private Limited (upto 31st March, 2007) Mr. K. M. Gherda is also Chairman of the Audit Committee of the Bank and member of the Audit Committee of Tata Ceramics Limited and Deutsche Asset Management (India) Private Limited. Mr. Anand Mahindra Mr. Anand Mahindra, aged 52 years, a graduate of Harvard University and a MBA from Harvard Business School, is the co-promoter of the Bank. He is also the Vice-Chairman and Managing Director of Mahindra & Mahindra Limited. He was the President of the Confederation of Indian Industry (CII) for , Vice-President of the CII for and was Chairman of the CII Agriculture Committee for and the CII Agro Tech for Additionally, he is the key promoter of the Indian Farmers and Industry Alliance (IFIA), which has been established to promote farmers interests and bring about more effective management of the agricultural sector. He is on the Board of the following companies: Angular Constructions Private Limited Automartindia Limited Avion Aerosols Private Limited M.A.R.K. Hotels Private Limited Mahindra Forgings Limited (Formerly known as Mahindra Automotive Steels Limited) Mahindra & Mahindra Financial Services Limited Mahindra & Mahindra Limited Mahindra Holdings & Finance Limited Mahindra Sona Limited Mahindra Ugine Steel Company Limited Mahindra Gesco Developers Limited Mahindra International Limited MW.Com India Private Limited National Stock Exchange of India Limited Tech Mahindra Limited He is a member of the Share Transfer & Shareholders/Investors Grievance Committee of Mahindra & Mahindra Limited. Mr. Cyril Shroff Mr. Cyril Shroff, B.Com, L.L.B., aged 47 years, is a Solicitor, High Court, Mumbai and Advocate on record, Supreme Court of India. He is the managing partner of the law firm M/s. Amarchand & Mangaldas & Suresh A. Shroff & Co. and practices in the area of corporate law and project finance. He has been a member of numerous Government committees. He is on the Board of the following companies: Grasim Industries Limited Osin s Connoisseurs of Art Private Limited Thirumalai Chemicals Limited (Upto 24th April, 2007) Mr. Cyril Shroff is also a partner in M/s. Suresh A. Shroff & Co. and M/s. Amarchand Mangaldas & Hiralal Shroff & Co. Mr. Cyril Shroff is a Chairman of the Shareholders Grievance/Allotment and Transfer Committee of Grasim Industries Limited. Mr. Pradeep N. Kotak Mr. Pradeep N. Kotak, B.Com, aged 53 years, is the Chairman and Managing Director of Kotak Agri International Private Limited and has vast experience in agricultural sector. Mr. Pradeep Kotak has been in both the domestic and international commodities market, for more than 31 years. He has also served as Chairman of the Indian Oilseeds and Producers Exporters Association (IOPEA), Mumbai where he led many delegations to foreign countries throughout North America, the Far East and the Middle East. He has represented India at many international conferences. He has also served as 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 and other world bodies. He is also a Co-Chairman (International Trade Committee) and Committee Member Agri Business and Rural Development Wing for the year of Indian Merchant Chambers. He is on the Board of the following companies: Asian Machinery & Equipment Private Limited Kotak Agri International Private Limited Kotak Thaker Farm Private Limited Mr. Pradeep Kotak is a Chairman of the Investor Relations (Shareholders / Investor Grievance) Committee of the Bank. He was appointed as a member of the Audit Committee of the Bank w.e.f 8th May Mr. Shivaji Dam Mr. Shivaji Dam, B.Com, AICWA, ACA, ACS, aged 50 years, has a strong accounting and cost accounting background with over 23 years experience, of which 17 years have been with the Kotak Group. He has experience in fields such as corporate finance, proprietary investments and investment banking within the Kotak Group. He led the Kotak Group into the life insurance business and was managing director of Kotak Mahindra Old Mutual Life Insurance Limited, a subsidiary of the Bank, for four years. He is on the Board of the following companies: Kotak Mahindra Old Mutual Life Insurance Limited Kotak Mahindra Prime Limited Kotak Securities Limited Mr. Shivaji Dam is a member of the Audit Committee of the Bank. Kotak Mahindra Bank Limited 59

61 Mr. C. Jayaram, Executive Director Mr. C. Jayaram, B. A. (Economics), PGDM-IIM, Kolkata, aged 51 years, is an Executive Director of the Bank and is currently in charge of the Wealth Management Business of the Kotak Group. He has a varied experience of over 29 years in many areas of finance and business and was the CEO of Kotak Securities Limited. He has been with the Kotak Group for 17 years and has been instrumental in building some of the new businesses of the Kotak Group. He is on the Board of the following companies: Kotak Mahindra Asset Management Company Limited Kotak Mahindra Investments Limited Kotak Mahindra Prime Limited Kotak Securities Limited Mr. C. Jayaram is a member of Audit Committee of Kotak Securities Limited and also a member of the Investor Relations (Shareholders /Investor Grievance) Committee of the Bank. He was a member of Audit Committee of the Bank and has resigned w.e.f 8th May Mr. Dipak Gupta, Executive Director Mr. Dipak Gupta, B.E. (Electronics), PGDM IIM, Ahmedabad, aged 46 years, is an Executive Director of the Bank and has over 19 years experience in the financial services industry, out of which 15 years have been with the Kotak Group. He was responsible for leading the Kotak Group s initiatives into the banking arena and is in charge of the retail banking business and operations. He was also the CEO of Kotak Mahindra Prime Limited, a subsidiary company of the Bank. He is on the Board of the following companies: Kotak Forex Brokerage Limited Kotak Mahindra Capital Company Limited Kotak Mahindra Investments Limited Kotak Mahindra Prime Limited Kotak Mahindra Old Mutual Life Insurance Limited Mr. Dipak Gupta is also member of the Investor Relations (Shareholder s/ Investor Grievance) Committee of the Bank, Audit Committee of Kotak Mahindra Prime Limited, Kotak Mahindra Capital Company Limited and Kotak Mahindra Old Mutual Life Insurance Limited and He is a Chairman of the Audit Committee Kotak Mahindra Investments Limited. Note: The Committee Memberships of Audit Committee, Shareholders / Investors Grievance Committee are considered. The following table gives the composition of Bank s Board and the number of outside directorships held by each of the Directors and the committee positions held by the Directors as on 31 st March Name of Directors Position No. of Directorships in other Companies No. of Committee Positions held in Bank and other Public Companies Public Other Chairman Member Dr. Shankar Acharya Independent Non-Executive Nil Nil Nil 1 Part-time Chairman Mr. Uday Kotak Executive Vice-Chairman & 6 Nil 2 2 Managing Director, Promoter Mr. K. M. Gherda Independent Director Mr. Anand Mahindra Non-Executive Director, 11 4 Nil 1 Promoter Mr. Cyril Shroff Independent Non-Executive Nil Director Mr. Pradeep N. Kotak Independent Non-Executive Nil 3 1 Nil Director Mr. Shivaji Dam Independent Non-Executive 3 Nil Nil 1 Director Mr. C. Jayaram Executive Director 4 Nil Nil 3 Mr. Dipak Gupta Executive Director 5 Nil 1 4 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 and Shareholders /Investors Grievance Committee. 2. None of the Directors on the Board is a member of more than ten committees and the Chairman of more than five committees in all the companies in which he is a Director (for this purpose the membership of Audit Committee and Shareholders Grievance Committee have been taken into consideration). All the Directors have made disclosures regarding their membership on various committees in other companies. 3. In Compliance with the clause 49 of the Listing Agreement, an independent director on the board of the Bank has been appointed on the boards of Material Non-listed Indian subsidiaries of the Bank as mentioned below: Kotak Mahindra Old Mutual Life Insurance Limited Kotak Mahindra Prime Limited Kotak Securities Limited Kotak Mahindra Bank Limited 60

62 Board Meetings Scheduling and selection of agenda items for Board Meetings Dates of the Board Meetings are decided in advance. The Board Meetings are convened by giving appropriate notice after obtaining the approval of the Chairman and the Executive Vice-Chairman and Managing Director. 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. The agenda papers are prepared by the concerned officials of the respective department and are approved by the Executive Director/s and/or Executive Vice-Chairman and Managing Director. Duly approved agenda papers are circulated to the Board by the Company Secretary. Additional items on the agenda are permitted with the permission of the Chairman. To address specific urgent need, meetings are also convened at short notice. The Board also passes resolution by Circulation on need basis. Minutes of the proceedings of the board meeting are prepared within 48 hours of the Meeting as per the requirement laid down by the Reserve Bank of India. Draft minutes are circulated to the Chairman for his comments. The minutes of all the Committees of the Board of Directors of the Bank and the minutes of the Board of Directors of the subsidiary companies of the Bank are placed before the Board. The quarterly, half-yearly and the annual results for the consolidated entity and for the Bank stand alone are first placed before the Audit Committee of the Bank and thereafter the same are placed before the Board of Directors. A Compliance Certificate, signed by the Executive Vice-Chairman and Managing Director in respect of various laws, rules and regulations applicable to the Bank is placed before the Board, every quarter. The Bank has put in place a post meeting follow-up, review and reporting process for the action taken on decisions of the Board. The Company Secretary submits follow-up Action Taken Report to the Board at each meeting on the compliance of the decisions/instructions of the Board. During the year under review, ten meetings of the Board of Directors were held on 14 th April 2006, 15 th May 2006, 9 th June 2006, 20 th July 2006, 29 th August 2006, 29 th September 2006, 19 th October 2006, 5th December 2006, 22 nd January 2007 and 9 th March Subsequently, one meeting of the Board of Directors was held on 8 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 2006 and ending 31 st March 2007 and at the last AGM are as under : Sr. No. Directors Board Meetings attended during the year, out of the total 10 meetings held Whether attended last AGM held on 20 th July Dr. Shankar Acharya 7 Yes 2. Mr. Uday Kotak 10 Yes 3. Mr. K. M. Gherda 9 Yes 4. Mr. Anand Mahindra 4 Yes 5. Mr. Cyril Shroff 4 No 6. Mr. Pradeep N. Kotak 9 Yes 7. Mr. Shivaji Dam 9 Yes 8. Mr. C. Jayaram 10 Yes 9. Mr. Dipak Gupta 10 Yes 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. Directors Remuneration Remuneration of the Directors for the year ended 31 st March 2007 is as follows: Name of Director Sitting fees (Rs. 000) Salary & Perquisites (Rs. 000) Dr. Shankar Acharya (See Note 1 below) Mr. Uday Kotak * (See Note 2 below) Mr. K. M. Gherda Mr. Anand Mahindra Mr. Cyril Shroff Mr. Pradeep N. Kotak Mr. Shivaji Dam Mr. C. Jayaram * (See Note 2 below) Mr. Dipak Gupta * (See Note 2 below) *The amount shown above excludes gratuity payable under the Payment of Kotak Mahindra Bank Limited 61

63 Gratuity Act and incentives, but includes ESOP compensation expenditure, if any, value of car perquisites under the Income Tax Act, 1961, superannuation if any. Notes: 1. Dr. Shankar Acharya was appointed as the Non-Executive Part-time Chairman of the Bank at the Annual General Meeting held on 20th July, The Reserve Bank of India ( RBI ) vide its letter dated 16 th June 2006 has approved an appointment on a remuneration of Rs. 6,00,000 (Rupees Six lakhs Only) per annum. 2. The Reserve Bank of India ( RBI ) vide its letter dated 23 rd June 2006 has approved the annual incentive payable to Mr. Uday Kotak, Executive Vice-Chairman and Managing Director (Rs. 30 lakhs), Mr. C. Jayaram (Rs. 45 lakhs) and Mr. Dipak Gupta (Rs. 30 lakhs), Executive Directors of the Bank for the financial year ended 31st March, The performance incentives to the Executive Directors are 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. 4. At the Annual General Meeting of the Bank held on 26 th July 2005, the shareholders approved the re-appointment of Mr. C. Jayaram and Mr. Dipak Gupta, the Executive Directors of the Bank, on the revised terms of remuneration, from 1 st January 2006 till 30 th September The RBI granted its approval for the re-appointment of Mr. C. Jayaram and Mr. Dipak Gupta up to 31 st December At the Annual General Meeting of the Bank held on 26 th July 2005, the shareholders approved the re-appointment of Mr. Uday Kotak, Executive Vice-Chairman & Managing Director of the Bank on the revised terms of remuneration for a period up to 30 th September The RBI granted its approval for the re-appointment of Mr. Uday Kotak from 22 nd March 2006 to 21 st March 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. 7. The Non-Executive Directors of the Bank except Dr. Shankar Acharya are not paid any remuneration other than the sitting fees. Employee Stock Options The details of the options granted during the year under the Kotak Mahindra Equity Option Scheme 2005 to the Directors are as under: 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 /Investor Grievance 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 ESOP/Compensation Committee, Share Transfer and Routine Transactions Committee (START), Management Committee, Name of Director Date of Grant No. of Options granted Exercise Price Exercise Period Options Vested Vesting Date Series 1 of Kotak Mahindra Equity Option Scheme 2005 Mr. C. Jayaram 85, th June 2007 to } 31 st May 2008 Rs. 150/- per th April 2006 June 2008 to share 31 st May, 2009 Mr. Dipak Gupta 75, st July 2009 to 31 st May, % 30 th June % 30 th June % 31 st July 2009 Note: The RBI vide its letter dated 23 rd June 2006 has approved stock options granted under Series 1 of Kotak Mahindra Equity Option Scheme 2005 to Mr. Dipak Gupta and Mr. C. Jayaram. Kotak Mahindra Bank Limited 62

64 Premises Committee, Asset Liability Committee (ALCO), Nomination Committee, Investment Committee, Risk Management Committee, Information Technology Committee, First Tier Audit Committee, Customer Services Committee and Committee on Frauds. Audit Committee The Audit Committee of the Bank comprises of four members, with any three forming the quorum. 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 to ensure that the financial statement is correct, sufficient and credible. b. Recommending to the Board, the appointment, reappointment and, if required, the replacement or removal of the statutory auditor and the fixation of audit fees. c. Approval of payment to statutory auditors for any other services rendered by the statutory auditors. d. Reviewing, with the management, the annual financial statements before submission to the board for approval, with particular reference to: Matters required to be included in the Director s Responsibility Statement to be included in the Board s report in terms of clause (2AA) of Section 217 of the Companies Act, Changes, if any, in accounting policies and practices and reasons for the same. Major accounting entries involving estimates based on the exercise of judgment by management. Significant adjustments made in the financial statements arising out of audit findings. Compliance with listing and other legal requirements relating to the financial statements. Disclosure of any related party transactions. Qualifications in the draft audit report. e. Reviewing with the management, the quarterly financial statements before submission to the board for approval. f. Reviewing with the management, performance of statutory and internal auditors, and adequacy of the internal control systems. g. Reviewing the adequacy of internal audit function, if any, 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. h. Discussion with internal auditors any significant findings and follow up there on. i. 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. 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. k. To review the functioning of the Whistle Blower mechanism. l. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee. The majority of the members of the Committee are non-executive independent Directors. All members of the Committee are financial literate within the meaning of the Clause 49 of the listing agreement. Mr. K. M. Gherda and Mr. Shivaji Dam possess accounting and financial management expertise. 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, ten meetings of the Committee were held on 15 th May 2006, 19 th May 2006, 22 nd May 2006, 20 th July 2006, 10 th August 2006, 29 th August 2006, 19 th October 2006, 5 th December 2006, 20 th December 2006 and 22 nd January The Committee meets for approximately two hours. The maximum time gap between any two meetings was not more than four calendar months. 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) 10 Dr. Shankar Acharya 4 Mr. Shivaji Dam 9 Mr. C. Jayaram 10 The Audit Committee was reconstituted by the Board at its meeting held on 8 th May 2007 consisting of Mr. K. M. Gherda (Chairman), Mr. Pradeep Kotak and Mr. Shivaji Dam with any two forming the quorum. The Bank has constituted a First Tier Audit Committee as per the guidelines issued by the Reserve Bank of India. The Committee comprises of four members viz., Mr. Dipak Gupta-Executive Director, Mr. Chandrashekhar Sathe-Group Head-Risk Management, Mr. Ravi Duvvuru Group Head- Compliance 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, 9 meetings of the Committee were held. The Committee meets for approximately three hours. Investor Relations (Shareholders /Investor Grievance) Committee The Investor Relations Committee of the Bank consists of four members, with any two forming the quorum. Presently the Committee consists of Mr. Pradeep Kotak (Chairman), Mr. Uday Kotak, Mr. C. Jayaram and Mr. Dipak Gupta. The Investor Relations Committee reviews the complaints received Kotak Mahindra Bank Limited 63

65 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 as the Compliance Officer of the Committee. During the year, two meetings of the Committee were held on 11 th July 2006 and 23 rd January The Committee meets for approximately thirty minutes. All the meetings were attended by all the members of the Committee. On 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, 135 investor complaints were received. All of these have been resolved during the year. As on 31 st March 2007, 13 instruments of transfer of shares, comprising 4855 shares were pending and since then the same have been processed. No penalties or strictures were imposed on the Bank by any of the Stock Exchanges, SEBI or any other statutory authority on any matter related to capital markets, during the last three years. Esop/Compensation Committee The ESOP/Compensation Committee of the Bank 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 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 various stock option plans, details of which are provided in the Directors Report. During the year, six meetings of the Committee were held on 15 th April 2006, 26 th April 2006, 15 th May 2006, 19 th October 2006, 29 th October 2006 and 18 th November 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) 3 Mr. K. M. Gherda 6 Mr. Cyril Shroff 4 Share Transfer And Routine Transactions (Start) Committee The START Committee of the Bank consists of three members, with any two forming the quorum. The term of reference of the START Committee is as follows: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) To approve transfer, transmission, transposition, name deletion, consolidation and splitting of share and debenture certificates of the Company. To issue duplicate share/debenture certificates. To apply for registration of the Company 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. To apply, in the name of and for the Company for telephone, telex, fax and other telecommunication and electrical/electronic connections and to do all matters relating to such applications. To open, operate and close Bank Accounts of the Company and change the operating instructions of existing Bank Accounts of the Company. To authorise persons to sign on behalf of the Company Share Certificates, Share Allotment Letters, Deposit Receipts. To authorise persons to represent the Company at General Meetings of any company or cooperative society of which the Company is a shareholder/member. To fix the dates for Closure of the Company 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. To authorise the opening of Securities General Ledger Account or any other account with any scheduled banks or with any department of the Reserve Bank of India. 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 Company. To authorise officials of the Company to execute transfer deeds on behalf of the Company. To authorise officials of the Company 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 Company, agreements, applications, deeds, documents and any other writings in connection with the business of the Company 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 Company before any Court, Tribunal, Consumer Redressal Forum or any Statutory Kotak Mahindra Bank Limited 64

66 (o) or other Authority on any matter relating to the operations of the Company or with which the Company is in any way connected or to represent the Company generally or for any specific purpose or purposes and, if required, issue Power of Attorney in favour of such persons for the purpose. To appoint or change nominees to hold shares for and on behalf of the Company in any subsidiary/associate companies. Name of Members of Management Committee Meetings Attended Mr. Uday Kotak (Chairman) 6 Mr. C. Jayaram 5 Mr. Dipak Gupta 6 (p) (q) To grant permission and authorise incorporation of companies, with a prefix Kotak Mahindra before the name. To authorise the use of the Common Seal of the Company and to appoint persons to sign/countersign documents, etc. on which the Common Seal is to be affixed. During the year, forty five 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 45 Mr. C. Jayaram 37 Mr. Dipak Gupta 41 Nomination Committee The Nomination Committee of the Bank 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. During the year, two meetings of the Committee were held on 14 th April 2006 and on 1 st June 2006 and all Directors attended the meetings. Management Committee The Management Committee of the Bank consists of four 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. The Committee consists of Mr. Uday Kotak (Chairman), Mr. C. Jayaram, Mr. Dipak Gupta and Mr. Shivaji Dam. During the year, six meetings of the Committee were held on 11 th May 2006, 5 th July 2006, 19 th July 2006, 21 st September 2006, 13 th October 2006 and 4 th December The Meetings were attended by the members of the Committee, as detailed below: Mr. Shivaji Dam* *The Committee was reconstituted by the Board at its meeting held on 9 th March 2007 whereby, Mr. Shivaji Dam was included as the member of the Management Committee. Committee On Frauds Pursuant to the directives of the Reserve Bank of India, the Bank has constituted a Committee on Frauds on 27 th January 2004 for monitoring and reviewing all the frauds involving amounts of Rs. 1 crore and above. The Committee consists of five members viz., Mr. Uday Kotak, Mr. K. M. Gherda, Mr. Pradeep N. Kotak, Mr. C. Jayaram and Mr. Dipak Gupta with any two forming the quorum. During the year, no fraud of an amount exceeding Rs. 1 crores was reported and as a result, no meeting of the Committee was held during the year. Customer Services Committee The Bank has, pursuant to the directives issued by the Reserve Bank of India, constituted a Customer Services Committee on 22 nd September The Committee consists of three members viz., Mr. Pradeep Kotak (Chairman), Mr. Uday Kotak and Mr. Dipak Gupta. The Committee has been constituted to bring about ongoing improvements in the quality of customer services provided by the Bank. The Committee would also oversee the functioning of the Customer Service Standing Committee, compliance with the recommendations of the Committee on Procedures and Performance Audit and Public Services (CPPAPS) and also mount innovative measures for enhancing the quality of customer service and improving the level of customer satisfaction for all categories of cliental, at all times. During the year, two meetings of the Committee were held on 11 th July 2006 and 23 rd January All the meetings were attended by all the members of the Committee. Code of Conduct The Board of Directors of the Bank at its meeting held on 15 th May 2006 adopted the Code of Conduct for the purpose of clause 49 applicable to Directors and Senior Management personnel. This Code of Conduct has been posted on the website of the Bank, i.e. General Meetings During the last three years, two Extraordinary General Meetings, three Annual General Meetings i.e. Twenty First, Twentieth, Nineteenth Annual General Meetings of the Bank and a Court Convened meeting of equity Kotak Mahindra Bank Limited 65

67 shareholders were held at Indian Merchants Chamber, Walchand Hirachand Hall, 4th Floor, Churchgate, Mumbai General Meetings Court Convened Meeting of Equity Shareholders Twenty First Annual General Meeting Extraordinary General Meeting Twentieth Annual General Meeting Day, Date and Time Tuesday, 5th December 2006, 11:00 a.m. Thursday, 20th July 2006, 12:00 noon Thursday, 27th October 2005, 12:00 noon Tuesday, 26th July :00 noon Special Resolutions passed thereat Resolution with the requisite majority of shareholders prescribed u/s. 391 of the Companies Act, 1956 for approving the arrangement embodied in the Scheme of Arrangement between Kotak Mahindra Capital Company Limited, the Bank and their respective shareholders and creditors. Special Resolution u/s 309(4) of the Companies Act, 1956 and u/s 35-B of the Banking Regulation Act, 1949 for appointment of Dr. Shankar Acharya as parttime Chairman of the Bank for three years on terms of remuneration to be fixed by the Board of Directors of the Bank. Special Resolution u/s 81 (1A) of the Companies Act, 1956 for issue and allotment of equity shares and/or equity shares through depository receipts, in the course of one or more international or domestic public offerings and/or private placements basis in domestic and/or one or more international market(s). 1. Special Resolution u/s 81 (1A) of the Companies Act, 1956 for issue and allotment of equity shares to the employees of the Bank under Kotak Mahindra Equity Option Scheme Special Resolution u/s 81 (1A) of the Companies Act, 1956 for issue and allotment of equity shares to the employees of the subsidiaries of the Bank under Kotak Mahindra Equity Option Scheme 2005 General Meetings Extraordinary General Meeting Nineteenth Annual General Meeting Day, Date and Time Monday, 27th December :30 a.m. Monday, 26 th July, a.m. Special Resolutions passed thereat 1. Special Resolution u/s 81 (1A) of the Companies Act, 1956 for issue and allotment of shares on preferential basis. 2. Special Resolution for increasing the ceiling limit on total holdings of Foreign Institutional Investors (FIIs)/ SEBI approved sub-accounts of FII in the equity share capital of the Bank. Special Resolution u/s 81 (1A) of the Companies Act, 1956 for issue of equity shares in terms of SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines to employees of the Bank and its subsidiary companies under the various ESOP Schemes of the Bank formulated and implemented from time to time. 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. The Bank has not entered into any material financial or commercial transactions with its subsidiaries and other related parties as per AS-18 that may have potential conflict with the interest of the Bank at large. 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 Corporate Identification No. : L65110MH1985PLC Registered Office : 36-38A, Nariman Bhavan, 227, Nariman Point, Mumbai Tel. No. (022) Fax No. : (022) Website : Kotak Mahindra Bank Limited 66

68 Contact Registrars & Share Transfer Agents : Ms. Bina Chandarana, Company Secretary & Sr. Vice President : Karvy Computershare Private Limited (earlier Karvy Consultants Limited) (i) Karvy House, 46, Avenue 4, Street No. 1, Banjara Hills, Hyderabad Tel Nos. : (040) /816/817 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 Venue : Thursday, 5 th July 2007 at 12:00 noon. : Indian Merchants Chamber, Walchnd Hirachand Hall, 4 th Floor, Churchgate, Mumbai Date of Book Closure : 26 th June 2007 to 5 th July 2007 (both days inclusive) for payment of dividend Dividend Payment : On or after Friday, 6 th July Date Investor Relations The Bank publishes 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 31st 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. Name & Address of Stock Exchange No. 1. The Bombay Stock Exchange Limited Phiroze Jeejeebhoy Towers Dalal Street, Fort, Mumbai National Stock Exchange of India Limited Exchange Plaza, 5 th Floor, Bandra-Kurla Complex, Bandra, Mumbai Luxembourg Stock Exchange BP 165, L-2011 Luxembourg Market Scrip Code KOTAKBANK KMBLYD744A The annual fees for have been paid to the Bombay Stock Exchange Limited and the National Stock Exchange of India Limited, where the shares of the Bank are listed. 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. Investor Helpdesk: Share transfers, dividend payments and all other investor related activities are attended to and processed at the office of our Registrars & Share 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: As advised by Securities and Exchange Board of India ( SEBI ) the Bank has designated - id of its Compliance Officer i.e. bina.chandrana@ kotak.com for the purpose of registering complaints by the investors. The same has also been displayed on the website of the Bank. 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 Education and 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 and the corresponding dates when unclaimed dividends are due to be transferred to the Central Government. Kotak Mahindra Bank Limited 67

69 Dividend- Type Date of Declaration Due Date of Transfer 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 Final 26 th July th August Final 26 th July th August Final 20 th July th August 2013 Share Price Details The Monthly high and low quotation of shares traded on BSE : Month High (Rs.) Low (Rs.) Close (Rs.) Bse Sensex (Close) Bankex April May June July August September October November December January February March The Monthly high and low quotation of shares traded on NSE: Month High (Rs.) Low (Rs.) Close (Rs.) S&p & Cnx Nifty Bank Nifty April May June July August September October November December January February March Kotak Mahindra Bank Limited 68

70 Share Holding: Shareholding Pattern : Category As on 31 st March 2007 As on 31 st March 2006 No. of Shares Held Percentage of Shares No. of Shares Held Percentage of Shares A. Promoters Holding Promoters 18,13,04, ,10,78, Sub-Total 18,13,04, ,10,78, B. Non-Promoters Holding 1. Institutional Investors a. Mutual Funds & UTI b. Banks, Financial Institutions, Insurance Companies (State/Central Govt. Institutions) c. Foreign Institutional Investors 1,38,14,183 5,40,427 7,31,54, ,13,83,635 48,140 6,44,17, Sub-Total 8,75,09, ,58,48, C. Others a. Private Corporate Bodies b. Indian Public including Directors & relatives c. NRIs/OCBs d. Global Depository Shares (GDS) e. Foreign Bodies DR f. Clearing Members 41,99,692 4,40,82,937 45,06,974 37,08,523 5,91,259 2,52, ,24,076 4,40,37,273 46,13,685 1,92, Sub-Total 5,73,41, ,23,67, Grand Total 32,61,55, ,92,94, The increase in capital is due to allotment of 18,61,083 equity share of Rs. 10/- each under various ESOP Schemes of the Bank and allotment of 1,50,00,000 equity shares underlying GDS during the financial year Shareholding Pattern for Non-Executive Directors : Name of the Non Executive Director As on 31 st March 2007 No. of Shares Held Percentage of Shares Dr. Shankar Acharya Mr. K. M. Gherda 10, Mr. Anand Mahindra 6,10, Mr. Cyril Shroff 8,76, Mr. Pradeep N. Kotak 5,29, Mr. Shivaji Dam 2,74, List of Top 10 Shareholders of Kotak Mahindra Bank Limited as on 31 st March 2007: Name No of shares % holding Category Uday Suresh Kotak Indian Promoter Melany Holdings Limited FII Madison Holding Ltd FII Kotak Trustee Company Pvt. Ltd. (Beneficial Owner Mr. Uday S. Kotak) Indian Promoter s Co. Anuradha Mahindra Indian Promoter Kotak Mahindra Bank Limited 69

71 Name No of shares % holding Category Small Cap World Fund Inc FII J. P. Morgan Fleming Asset Management (Europe) S.A.R.L. A/c Flagship Indian Investment Company (Mauritius) Limited FII UBS Securities Asia Limited A/c Swiss Finance Corporation (Mauritius) Limited FII Avion Aerosols Pvt. Ltd Indian Promoter s Co. The Bank of New York (Depository) Global Depository Shares (GDS) Note: Melany Holdings Limited and Madison Holding Ltd. are the registered sub-accounts of M/s. Warburg Pincus International LLC, which is a Foreign Institutional Investor registered as such with Securities and Exchange Board of India. Distribution Schedule as on 31 st March, 2007 Sr. No. Category From To No. of Holders % of Holders No. of Shares % of Shares & ABOVE Total Shares held in physical and electronic mode by the promoters and others as on 31 st March, 2007 are given in the below mentioned table: Physical mode Electronic mode Category Total Shares % to Total Shares % to Equity Equity Promoters 16,74,79, % 1,38,25, % Others 61,39, % 13,87,11, % Total 17,36,19, % 15,25,36, % Compliance With Non-mandatory Requirements: (1) The Board The office of non-executive Chairman of the Bank is maintained by the Bank at its expenses and all the expenses incurred in performance of his duties are reimbursed by the Bank. Pursuant to Section 10(2A) of the Banking Regulation Act, 1949 all Directors other than its Chairman and / or Whole-time Directors cannot hold office continuously for a period exceeding eight years. (2) Remuneration Committee The Bank has set up ESOP / Compensation Committee of Directors to recommend/review overall compensation structure and policies of the Bank. Details of the said Committee have already been provided hereinabove. (3) Shareholders Rights The quarterly results of the Bank are published in one English and one Marathi newspaper, having wide circulation in Maharashtra. Further, the quarterly results are also posted on the website of the Bank Along with the quarterly results, detailed earnings updates are also given on the website of the Bank. Further, the quarterly investors /analysts conference call is made to discuss the financial results and performance of the Bank and the Group. The results are also available on In view of the foregoing, the half-yearly results of the Bank are not sent to the shareholders individually. (4) Audit qualifications During the period under review, there were no audit qualifications in the Bank s financial statements. The Bank continues to adopt best accounting practices and has complied with the Accounting Standards and there is no diffrence in the treatment. (5) Mechanism for evaluating non-executive Board Members The Bank has constituted the Nomimation Committee which evaluates every year whether the members of the Board adhere to the fit and proper criteria as prescribed by the Reserve Bank of India. The adherence to the fit & proper criteria by the members of the Nomination Committee, i.e. the Executive Directors is evaluated by the Board of Directors. (6) Whistle Blower Policy The Bank has adopted the Whistle Blower Policy pursuant to which employees of the Bank can raise their concerns relating to the fraud, malpractice or any other untoward activity or event which is against the interest of the Bank or society as a whole.the Bank hereby affirms that no personnel has been denied access to the audit Committee. Kotak Mahindra Bank Limited 70

72 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 the Earnings Updates and presentations made to investors and analysts. In addition to this, the quarterly results and earnings update are also prepared and posted on the website of the Bank. 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 Declaration In accordance with Clause 49 of the Listing Agreement with the Stock Exchanges, I hereby confirm that, all the Directors and the Senior Management personnel of the Bank have affirmed compliance to the Code of Conduct for the financial year ended March 31, For Kotak Mahindra Bank Limited Uday Kotak Executive Vice Chairman and Managing Director Dated 14th May, 2007 Kotak Mahindra Bank Limited 71

73 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 along with the annual return to be filed by the Bank. Certificate To the Members of KOTAK MAHINDRA BANK LIMITED We have examined the compliance of conditions of Corporate Governance by KOTAK MAHINDRA BANK LIMITED ( the Bank ) for the year ended on 31st March, 2007 as stipulated in Clause 49 of the Listing Agreement of the said Bank with the stock exchanges. The compliance of conditions of Corporate Governance is the responsibility of the Bank s Management. Our examination was limited to a review of the procedures and implementation thereof adopted by the Bank for ensuring compliance with the conditions of Corporate Governance as stipulated in the said Clause. 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 and the representations made to us by the Management, we certify that the Bank has complied with the conditions of Corporate Governance as stipulated in the above mentioned Listing Agreement. 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. For S. B. BILLIMORIA & CO. Chartered Accountants Place : Mumbai Date : 23rd May, 2007 Nalin M. Shah Partner (Membership No ) Kotak Mahindra Bank Limited 72

74 Auditors Report To The Members of Kotak Mahindra Bank Limited 1. We have audited the attached Balance Sheet of KOTAK MAHINDRA BANK LIMITED ( the Bank ) as at 31st March, 2007, 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. (f) (g) The Balance Sheet, the 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, 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. 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) (b) The Balance Sheet and the Profit and Loss Account have been drawn up in conformity with the Forms set out in the Third Schedule to the Banking Regulation Act, 1949, read with Section 211 of the Companies Act, 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 to be satisfactory. (h) 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 give a true and fair view in conformity with the accounting principles generally accepted in India: (i) (ii) in the case of the Balance Sheet, of the state of affairs of the Bank as at 31st March, 2007; 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 as on 31st March, 2007, taken on record by the Board of Directors, none of the directors is disqualified as on 31st March, 2007 from being appointed as a director under Section 274 (1)(g) of the Companies Act, (c) (d) (e) 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. Mumbai, 8th May, 2007 For S. B. BILLIMORIA & CO. Chartered Accountants Nalin M. Shah Partner (Membership No ) Kotak Mahindra Bank Limited 73

75 Balance Sheet as at 31st March, 2007 Schedule As at 31st March, 2007 Rupees in lakhs As at 31st March, 2006 Rupees in lakhs Capital And Liabilities Capital 1 32, , Reserves and Surplus 2 130, , Employees Stock Options (Grants) Outstanding 2, , Deposits 3 1,100, , Borrowings 4 509, , Other Liabilities and Provisions 5 215, , Total 1,991, ,017, Assets Cash and Balances with Reserve Bank of India 6 75, , Balances with Banks and Money at Call and Short Notice 7 54, , Investments 8 686, , Advances 9 1,092, , Fixed Assets 10 14, , Other Assets 11 69, , Total 1,991, ,017, Contingent Liabilities 12 10,065, ,950, Bills for Collection 21, , 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. Chartered Accountants Dr. Shankar Acharya Uday Kotak Chairman Executive Vice Chairman & Managing Director Nalin M. Shah Dipak Gupta Partner Executive Director Mumbai Jaimin Bhatt Bina Chandarana Dated: 8th May, 2007 Group Chief Financial Officer Company Secretary Kotak Mahindra Bank Limited 74

76 Profit And Loss Account for the Ended 31st March, 2007 Schedule ended 31st March, 2007 Rupees in lakhs ended 31st March, 2006 Rupees in lakhs I. Income Interest earned , , Other Income 14 28, , II. Total 163, , Expenditure Interest expended 15 69, , Operating expenses 16 61, , Provisions and Contingencies [includes tax provision of Rs. 6,188 lakhs (previous year Rs. 5, lakhs)] 17 18, , Total 149, , III. Profit Net Profit for the year 14, , Add: Surplus brought forward from previous year 28, , Add: Transfer from Kotak Mahindra Capital Company Limited on demerger (refer note 13 schedule 18 II B) 21, Total 64, , IV. Appropriations Transfer from Kotak Mahindra Capital Company Limited on demerger appropriated to General Reserve (refer note 13 schedule 18 II B) 21, Transfer to Statutory Reserve 3, , Transfer to General Reserve Transfer to Capital Reserve Transfer from Investment Fluctuation Reserve - (3,830.00) Proposed Dividend [refer Note 24 - Schedule 18 II B] 2, , Corporate Dividend Tax [refer Note 24 - Schedule 18 II B] Balance carried over to Balance Sheet 35, , Total 64, , V. Earnings Per Share (Face value of Rs 10/-) Basic [refer Note 3 - Schedule 18 II B] Diluted [refer Note 3 - Schedule 18 II B] 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. Chartered Accountants Dr. Shankar Acharya Uday Kotak Chairman Executive Vice Chairman & Managing Director Nalin M. Shah Dipak Gupta Partner Executive Director Mumbai Jaimin Bhatt Bina Chandarana Dated: 8th May, 2007 Group Chief Financial Officer Company Secretary Kotak Mahindra Bank Limited 75

77 Cash Flow Statement for the Ended 31st March, 2007 Ended 31st March, 2007 Rupees in lakhs Ended 31st March, 2006 Rupees in lakhs Cash Flow From Operating Activities Net Profit Before Taxes 20, , Adjustments for : Employee Stock Options Grants Depreciation on bank property 3, , Diminution in the value of investments written back (53.17) (52.45) Dividend from Subsidiaries/ Joint Ventures (4.50) (598.24) Loss on revaluation of Investments (net) 4, , Provision for Non Performing Assets 12, , Wealth Tax Profit on sale of fixed assets (54.87) (27.52) Adjustments for : 41, , Increase in Investments other than Subsidiaries, Joint Ventures & Other Long term Investments (377,711.50) (116,048.19) Increase in Advances (463,595.54) (235,378.68) Increase in Other Assets (37,213.94) (9,884.45) Increase in Cash Collateral with Banks (628.06) (982.78) Increase in Deposits 443, , Increase in Borrowings 349, , Increase in Other Liabilities & Provisions 93, , , (9,914.03) Direct Taxes Paid (10,143.27) (6,619.00) Net Cash Flow From Operating Activities (A) 38, , Cash Flow From Investing Activities Purchase of Fixed assets (7,125.25) (3,866.70) Sale of Fixed assets (Increase) / Decrease in Investments in Subsidiaries & Joint Ventures (5,564.55) 8, Dividend from Subsidiaries/ Joint Ventures Net Cash Flow From/ (Used In) Investment Activities (B) (12,518.91) 5, Kotak Mahindra Bank Limited 76

78 Cash Flow Statement for the Ended 31st March 2007 (Contd.) Ended 31st March, 2007 Rupees in lakhs Ended 31st March, 2006 Rupees in lakhs Cash Flow From/(used in) Financing Activities Fresh issue of shares/money received on exercise of stock options 46, Share issue expenses (879.89) (87.17) Dividend paid including Corporate Dividend Tax (2,222.10) (1,757.74) Net Cash Flow From Financing Activities (C) 43, (1,174.79) Net Increase In Cash & Cash Equivalents (A+B+C) 69, , Cash & Cash Equivalents at the Beginning of the (Refer Note below) 58, , Cash & Cash Equivalents at the end of the (Refer Note below) 127, , Note: Balance with banks in India in Fixed Deposit (As per Schedule 7 I (i) (b)) 5, Balance with banks in India in current account (As per Schedule 7 I (i) (a)) 13, , Less Bank balances on acquisition of business from a subsidiary (20.65) Cash Collateral Security shown separately in Operating Activities (1,735.84) 11, (1,107.78) 8, Money at call and short notice in India (as per Schedule 7 I (ii)) 5, Cash in hand (including foreign currency notes) (As per Schedule 6 I.) 9, , Balance with RBI in current accounts (As per Schedule 6 II.) 66, , Balance with banks Outside India: (i) In current account (As per Schedule 7 II (i)) 2, (ii) In other Deposit Accounts (As per Schedule 7 II (ii)) 33, , Cash & Cash Equivalents at the end of the 127, , As per our report of even date attached. For and on behalf of the Board of Directors For S. B. Billimoria & Co. Chartered Accountants Dr. Shankar Acharya Uday Kotak Chairman Executive Vice Chairman & Managing Director Nalin M. Shah Dipak Gupta Partner Executive Director Mumbai Jaimin Bhatt Bina Chandarana Dated: 8th May, 2007 Group Chief Financial Officer Company Secretary Kotak Mahindra Bank Limited 77

79 Schedules forming part of Balance Sheet as at 31st March, 2007 As at 31st March, 2007 Rupees in lakhs As at 31st March, 2006 Rupees in lakhs Schedule 1 Capital Authorised Capital 35,00,00,000 Equity Shares of Rs.10/- each 35, , Issued, Subscribed and Paid-up Capital 32,61,55,708 ( 31st March, 2006: 30,92,94,625) Equity Shares of Rs.10/- each, fully paid-up 32, , (Of the above 18,49,85,250 Equity shares have been issued as bonus shares by capitalisation of Reserves) Total 32, , Schedule 2 Reserves And Surplus I. Statutory Reserve Opening Balance 12, , Add: Transfer from Profit and Loss Account 3, , Total 16, , II. III. Capital Reserve Opening balance 1, Add: Transfer from Profit and Loss Account Total 1, , General Reserve Opening Balance 3, , Add: Transfer from Profit and Loss Account being transfer from Kotak Mahindra Capital Company Limited on demerger (refer note 13 schedule 18 II B) 21, Add: Transfer from Profit and Loss Account Less: Transitional adjustment for Employee Benefits (refer Note 16 i - Schedule 18 II B) 1, Less: Utilised for Issue of Bonus shares 10, Total 25, , IV. Share Premium Account Opening Balance 7, , Add: Received during the year * 45, Less: Utilised for Issue of Bonus shares 8, Less: Utilised for Share Issue Expenses ** Total 51, , * Includes Rs. 43, lakhs consequent to issue of GDS vide prospectus dated 23rd April, 2006 ** Represents GDS issue expenses written-off (refer Note 1 Schedule 18 II B) V. Investment Fluctuation Reserve Opening Balance 3, Less: Transfer to Profit and Loss Account 3, Total VI. Balance in the Profit and Loss Account 35, , Total 130, , Kotak Mahindra Bank Limited 78

80 Schedules forming part of Balance Sheet as at 31st March, 2007 (Contd.) As at 31st March, 2007 Rupees in lakhs As at 31st March, 2006 Rupees in lakhs Schedule 3 Deposits I. Demand Deposits i. From Banks 2, , ii. From Others 208, , Total 210, , II. Savings Bank Deposits 88, , III. Term Deposits i. From Banks 314, , ii. From Others [refer Note 17- Schedule 18 II B] 485, , Total 800, , Total Deposits of branches in India (I to III) 1,100, , Schedule 4 Borrowings I. Borrowings in India i. Reserve Bank of India 159, ii. Banks 219, , iii. Institutions and Agencies 109, , Total 488, , II. Borrowings outside India 21, , Total Borrowings (I and II) 509, , Secured Borrowings under CBLO included in I (iii) above 14, Schedule 5 Other Liabilities and Provisions I. Bills Payable 28, , II. Interest Accrued 16, , III. Others (including provisions) 105, , IV Proposed Dividend (includes tax on dividend for the current year) 2, , V. Sub-ordinated Debt (Tier II Capital) (refer Note 19-Schedule 18 II B) 42, , VI. Upper Tier II Bonds (refer Note 20-Schedule 18 II B) 19, Total 215, , Kotak Mahindra Bank Limited 79

81 Schedules forming part of Balance Sheet as at 31st March, 2007 (Contd.) As at 31st March, 2007 Rupees in lakhs As at 31st March, 2006 Rupees in lakhs Schedule 6 Cash and Balances with Reserve Bank of India I. Cash and cheques on hand (including foreign currency notes) 9, , II. Balances with RBI in current account 66, , Total 75, , Schedule 7 Balances with Banks and Money at Call and Short Notice I. In India (i) Balances with Banks (a) In Current Accounts (refer Note 8-Schedule 18 II B) 13, , (b) In Other Deposit Accounts 5, , , (ii) Money at Call and Short Notice With Banks 5, , Total 18, , II. Outside India (i) In current accounts 2, (ii) In other Deposit Accounts 33, , Total 35, , Total (I and II) 54, , Schedule 8 Investments I. Investments in India in I. Government Securities* 586, , II. Other approved Securities III. Shares IV. Debentures and Bonds 17, , V. Subsidiaries and Joint Ventures 21, , VI. Others [Units, Certificate of Deposits, Commercial Paper (CP) and Pass Through Certificates (PTC)] 58, , Total 684, , * Investments include Repo Lending under Liquidity Adjustment Facility of RBI Rs. Nil (previous year Rs. 7,500 lakhs) and net of Repo of Rs. 2,919 lakhs (Previous Rs. Nil) II. Investments outside India in I. Subsidiaries and Joint Ventures 1, Total 1, Total Investments (I and II) 686, , Kotak Mahindra Bank Limited 80

82 Schedules forming part of Balance Sheet as at 31st March, 2007 (Contd.) As at 31st March, 2007 Rupees in lakhs As at 31st March, 2006 Rupees in lakhs Schedule 9 Advances A. (i) Bills purchased and discounted# 25, , (ii) Cash Credits, Overdrafts and loans repayable on demand 84, , (iii) Term Loans 982, , # Bills purchased and discounted is net off Bills Rediscounted Rs. 18, lakhs (Previous Rs. 16, lakhs) Total 1,092, , B. (i) Secured by tangible assets * 781, , (ii) Unsecured 311, , Total 1,092, , * including advances against book debts C. Advances in India (i) Priority Sector 396, , (ii) Public Sector (iii) Banks (iv) Others 695, , Total 1,092, , Schedule 10 Fixed Assets A. Premises (Including Land) Gross Block At cost on 31st March of the preceding year 7, , Additions during the year Less: Deductions during the year Total 8, , Depreciation (refer Note 2-Schedule 18 II B) As at 31st March of the preceding year 2, , Add: Charge for the year Less: Deductions during the year Depreciation to date 2, , Net Block 5, , B. Other Fixed Assets (including Furniture and Fixtures) Gross Block At cost on 31st March of the preceding year 12, , Additions during the year 6, , Less: Deductions during the year Total 18, , Depreciation As at 31st March of the preceding year 7, , Add: Charge for the year 3, , Less: Deductions during the year Depreciation to date 10, , Net Block 8, , Total (A) + (B) 14, , Kotak Mahindra Bank Limited 81

83 Schedules forming part of Balance Sheet as at 31st March, 2007 (Contd.) As at 31st March, 2007 Rupees in lakhs As at 31st March, 2006 Rupees in lakhs Schedule 11 Other Assets I. Interest accrued 20, , II. Advance tax (net of provision) 1, III. Stationery and Stamps IV. Cheques in course of collection , V. Non banking assets acquired 1, VI. Others (refer Note 6-Schedule 18 II B) 45, , Total 69, , Schedule 12 Contingent Liabilities I. Claims not acknowledged as debts 2, , II. Liability on account of Outstanding Forward Exchange Contracts 387, , III. Guarantees on behalf of Constituents in India 15, , IV. Acceptances, Endorsements and other obligations 28, , V. Other Items for which the Bank is contingently liable : (a) Liability in respect of interest rate & currency swaps & forward rate agreements 8,230, ,685, (b) Liability in respect of Options Contracts 1,394, , (c) Capital commitments not provided 6, , Total 10,065, ,950, Schedules Forming Part of Profit and Loss Account for the Ended 31st March, 2007 ended 31st March, 2007 Rupees in lakhs ended 31st March, 2006 Rupees in lakhs Schedule 13 Interest Earned I. Interest/discount on advances/bills 100, , II. Income on investments 31, , III. Interest on balances with RBI and other inter-bank funds 3, , IV. Others Total 135, , Schedule 14 Other Income I. Commission, exchange and brokerage 18, , II. Profit on sale of Investments (net) 2, , III. Loss on revaluation of Investments (net) (4,392.42) (4,503.23) IV. Profit on sale of building and other assets (net) V. Profit on exchange transactions (net) 1, , VI. Income earned from Subsidiaries/ Joint Ventures , VII. Profit on recoveries of non-performing assets acquired 3, , VIII. Profit/ (Loss) on Derivatives 4, (579.60) IX. Miscellaneous Income Total 28, , Kotak Mahindra Bank Limited 82

84 Schedules Forming Part of Profit and Loss Account for the Ended 31st March, 2007 Schedule 15 Interest Expended ended 31st March, 2007 Rupees in lakhs ended 31st March, 2006 Rupees in lakhs I. Interest on Deposits 52, , II. Interest on RBI / Inter-Bank Borrowings 9, , III. Others 7, , Total 69, , Schedule 16 Operating Expenses I. Payments to and provision for employees (refer Note 16-Schedule 18 II B) 29, , II. Rent, taxes and lighting 4, , III. Printing and Stationery 1, IV. Advertisement,Publicity and Promotion 1, , V. Depreciation on Bank s property (refer Note 2-Schedule 18 II B) 3, , VI. Directors fees, allowances and expenses VII. Auditors fees and expenses (refer Note 1- Schedule 18 II B) VIII. Law Charges IX. Postage, telephone etc. 2, , X. Repairs and maintenance 2, , XI. Insurance XII. Travel and Conveyance 2, , XIII. Professional Charges 4, , XIV. Brokerage 6, , XV. Stamping Expenses XVI. Other Expenditure 5, , , , Less: Recovery of Costs from Group Companies 3, , Total 61, , Schedule 17 Provisions And Contingencies I. Provision for taxation (refer Note 14-Schedule 18 II A ) 6, , II. Provision for Non-performing Assets and contingencies (including write-offs and net of recoveries) 12, , III. Provision for Diminution in value of Held to Maturity Investments written back (53.17) (52.45) Total 18, , Kotak Mahindra Bank Limited 83

85 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. Actual results could differ from these estimates. B. REVENUE RECOGNITION a. Interest income is recognised on accrual basis except in case of non-performing assets where it is recognised, upon realisation, as per RBI guidelines. In respect 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. Interest income on discounted instruments is recognised over the tenure of the instruments so as to provide a constant periodic rate of return. d. Service charges, Fees and Commission income are recognised when due except for Guarantee Commission which is recognised over the period of the guarantee. e. Dividend income is accounted on an accrual basis when the Bank s right to receive the dividend is established. f. Gain on account of securitisation of assets is amortised over the life of the securities issued in accordance with the guidelines issued by the RBI. g. In respect of non-performing assets acquired from other banks and NBFCs, collections in excess of the consideration paid at each asset level (or portfolio level in certain cases based on clarifications received from the RBI from time to time) is treated as income [See G(e) also]. 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 assets at rates higher than those prescribed under Schedule XIV to the Companies Act, 1956 for all assets other than premises, based on the Management s estimate of useful lives of all assets as follows: Asset Type Useful life in years Premises (Refer note 2 II B) 58 (previous year 30 years) Improvement to leasehold premises Over the primary 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. EMPLOYEE BENEFITS a. Provident Fund Contribution as required by the Statute made to the Government Provident Fund is debited to the Profit and Loss Account. Kotak Mahindra Bank Limited 84

86 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) b. Gratuity The Bank makes annual contribution to a Gratuity Fund administered by trustees and managed by a life insurance company. The net present value of the Bank s obligation towards the same is actuarially determined based on the projected unit credit method as at the Balance Sheet date. Actuarial gains and losses are immediately recognised in the Profit and Loss Account. c. Superannuation Fund The Bank contributes a sum equivalent to 15% (previous year 0.15%) of eligible employees salary, subject to a maximum of Rs. 1 lakh per employee to a Fund administered by trustees and managed by a life insurance company. The Bank recognises such contributions as an expense in the year they are incurred. d. Other Employee Benefits The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the service. These benefits include performance incentives and compensated absences on paid annual leave. 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. b. Investments which are held for resale within 90 days from the date of purchase are classified as Held for Trading. c. 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. d. Investments which are not classified in either of the above two categories are classified as Available for Sale. 2. Valuation The cost of investments is determined on the weighted average basis. Broken period interest on debt instruments is treated as a revenue item. The transaction costs including brokerage, commission etc. paid at the time of acquisition of investments is charged to revenue. 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. Further, provision for diminution other than temporary is made for, at the individual security level. 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 such securities is provided for. The market value of investments where current quotations are not available is determined as per the norms laid down by the RBI. c. Repurchase and reverse repurchase transactions These are accounted as outright purchase and outright sale respectively. The difference between the clean price of the first leg and the clean price of the second leg is recognised as interest income/ interest expense over the period of the transaction. However, depreciation in their value, if any, compared to their original cost, 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. Kotak Mahindra Bank Limited 85

87 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 income/expense. d. Derivative transactions comprising of swaps and options are disclosed as off Balance Sheet exposures. The swaps are segregated into trading or hedge transactions. Trading swaps outstanding as at the Balance Sheet dates are marked to market and the resulting profits or losses, are recorded in the Profit and Loss Account. Outstanding derivative transactions designated as Hedges are accounted on an accrual basis over the life of the transaction. Option premium paid is accounted for in the Profit and Loss Account on expiry of the option. e. Contingent liabilities as at the Balance Sheet date on account of outstanding foreign exchange contracts are restated at year end rates reported by FEDAI. 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. In accordance with the RBI guidelines, the Bank provides general provision in respect of Standard Assets as follows: Category of Advance General Provision All Direct Advances to Agricultural and SME sector 0.25% (previous year 0.25%) Residential Housing loans beyond Rs. 20 lakhs 1.00% (previous year 0.40%) Loans and Advances qualifying as Capital Market exposures and Commercial Real Estate loans 2.00% (previous year 0.40%) Personal loans 2.00% (previous year 0.50%) All other Standard Advances 0.40% (previous year 0.40%) d. Amounts paid for acquiring non-performing assets from other banks and NBFCs are considered as advances. Actual collections received on such non-performing assets are compared with the cash flows estimated while purchasing the asset to ascertain default. If the default is in excess of 90 days, then the assets are classified into sub-standard, doubtful or loss as required by the RBI guidelines on purchase of non-performing assets. e. Upto 31 st May, 2006, in accordance with the RBI guidelines on purchase of non-performing assets, the Bank was recognising income at individual asset level. The Bank had also created a floating provision towards such assets, equivalent to the income recognised on individual accounts under a portfolio, whenever the total collection was less than the cost paid for that portfolio. Vide circular dated 22 nd June, 2006, the RBI has mandated specific conditions for creation and utilisation of floating provisions. Consequent to the same, the Bank has discontinued its policy of creating floating provisions for a portfolio and continues to recognise income and provision for NPA at the asset level. (Refer Note 21 II B) H. SECURITISATION The Bank enters into arrangements for sale of loans through Special Purpose Vehicles (SPVs). In most cases, post securitisation, the Bank continues to service the loans transferred to the SPV. The Bank also provides credit enhancement in the form of cash collaterals and/or by subordination of cash flows to Senior Pass Through Certificate (PTC) holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Bank, appropriate provision/disclosure is made at the time of sale in accordance with Accounting Standard 29, Provisions, Contingent Liabilities and Contingent Assets. Kotak Mahindra Bank Limited 86

88 The gain/premium on account of securitisation of assets at the time of sale based on the difference between the sale consideration and the book value of the securitised asset is amortised over the tenure of the securities issued. I. TAXES ON INCOME The Income Tax expense comprises Current tax, Deferred tax and Fringe Benefit tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income tax Act. Deferred tax adjustments comprise of changes in the deferred tax assets and liabilities. Deferred tax assets and liabilities are recognised for the future tax consequences of 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 judgment that realisation is more likely than not. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantially enacted before the Balance Sheet date. Changes in deferred tax assets/liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of the change. J. SEGMENT REPORTING In accordance with Accounting Standard 17 (AS-17) on Segment Reporting, the Bank s business is segregated into the following segments whose principal activities are as under: Segment Corporate Banking Lending Retail liabilities Treasury and Investments Venture Fund Management [From 1 st April, 2006] Corporate Centre [upto 31 st March, 2006(*)] Principal activity Wholesale borrowings and lendings and other related services to the corporate sector. Commercial vehicle finance, personal loans, home loans, agriculture finance, asset reconstruction and other loans/services. Retail borrowings covering savings and current accounts and Branch Banking network and services. Money market, forex market, derivatives and investments, primary dealership of government securities. Management of Venture capital and private equity fund. Strategic investments and group activities. (*) Effective 1 st April, 2006, Corporate Centre has ceased to be a reportable segment under AS-17. 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. Segment revenues consist of earnings from external customers and inter-segment revenues based on a transfer pricing mechanism. Segment expenses consist of interest expenses including allocated, operating expenses and provisions. Segment results are net of segment revenues and segment expenses. Segment assets include assets related to segments and exclude tax related assets. Segment liabilities include liabilities related to the segment excluding networth. Since the business operations of the Bank are concentrated in India, the Bank is considered to operate only in the domestic segment. K. EMPLOYEE STOCK OPTION SCHEME The Bank has formulated Employee Stock Option Schemes (ESOS) in accordance with SEBI (Employee Stock Option Scheme) Guidelines, The Schemes provide for grant of options to employees of the Bank and its subsidiaries to acquire the equity shares of the Bank that vest in cliff vesting or in a graded manner and that are to be exercised within a specified period. In accordance with the SEBI Guidelines and the guidance note on Accounting for Employee Share based payments issued by the ICAI, the excess, if any, of the market price of the share preceding 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 granted to employees of the subsidiaries, the Bank recovers the related compensation cost from the respective subsidiaries. Kotak Mahindra Bank Limited 87

89 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) II. NOTES TO ACCOUNTS A. DISCLOSURES AS LAID DOWN BY RBI CIRCULARS: 1. Capital Adequacy Ratio: The Bank s Capital Adequacy Ratios calculated in accordance with the RBI Guidelines are as follows: Rupees in lakhs As at 31 st March, 2007 As at 31 st March, 2006 Tier I Capital 133, , Tier II Capital 70, , Total Capital 204, , Total Risk weighted assets and contingencies 1,518, , Capital Ratios: Tier I 8.81% 8.07% Tier II 4.65% 3.20% Total Capital 13.46% 11.27% Amount of subordinated debt considered in Tier II capital 42, , Amount of subordinated debt considered in Upper Tier II Capital 19, Note: Tier I 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. (c) 50% of Credit enhancement provided for securitisation transactions. Tier II Capital consists of eligible Tier II, Upper Tier II Bonds and Provision on Standard Assets/Contingencies and is net of balance 50% of the credit enhancement provided for securitisation transactions. The Capital Adequacy Ratios have been calculated after factoring the capital requirement for market risk on the held for trading, available for sale and other off Balance Sheet exposures as prescribed by the RBI. 2. Business ratios/information: ended 31 st March, 2007 ended 31 st March, 2006 Interest income as a percentage of working funds 8.98% 8.15% Net interest income as a percentage of working funds 4.35% 4.17% Non interest income as a percentage of working funds 1.88% 2.85% Operating profit as a percentage of working funds 2.16% 2.48% Return on assets (average) 0.94% 1.39% Business (deposit plus advance) per employee (Rs. in lakhs) Profit per employee (Rs. in lakhs) Definitions: (A) Working funds is the monthly average of total assets as reported to the RBI under Section 27 of the Banking Regulation Act, (B) Operating profit = (Interest Income + Other Income Interest expenses Operating expenses). (C) Business is monthly average of net advances and deposits. The average of deposits for the years ended 31 st March, 2007 and 31 st March, 2006 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, 2007, the deposits in Schedule 3(I)(ii) includes Rs. 74, lakhs (previous year Rs. 1, lakhs) of such monies collected and remaining to be repaid. Inter bank deposits are excluded for the purposes of computation of this ratio. (D) Productivity ratios are based on average number of employees. Kotak Mahindra Bank Limited 88

90 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: As at 31 st March, 2007 As at 31st March, 2006 Rupees in lakhs HFT AFS HTM Total HFT AFS HTM Total Government Securities 58, , , , , , , Other Approved Securities Shares Debentures and Bonds 2, , , , , , , Subsidiaries and Joint Ventures 23, , , , Units, Certificate of Deposits, CP and PTCs 8, , , , , Total 69, , , , , , , Movement in provisions for depreciation on investments: ended 31 st March, 2007 Rupees in lakhs ended 31 st March, Value of Investments i. Gross value of Investments a. In India 688, , b. Outside India 1, ii. Provision for Depreciation c. In India (3,412.95) (2,296.27) d. Outside India iii. Net value of Investments e. In India 684, , f. Outside India 1, Movement of provisions held towards depreciation on investments i. Opening balance 2, ii. Add: Provisions made during the year 3, , iii. Less:Write-off/write-back of excess provisions during the year 2, iv. Closing balance 3, , Disclosure in respect of Non-SLR investments: (i) Issuer composition of Non-SLR investments as at 31 st March, 2007: Rupees in lakhs No. Issuer Amount Extent of Private Placement Extent of Below Investment Grade Securities Extent of Unrated Securities Extent of Unlisted Securities (1) (2) (3) (4) (5) (6) (7) 1. PSUs 12, , , , Banks 1, , Private Corporates Subsidiaries/Joint ventures 23, , , , Others 62, , Provision held towards depreciation 1, Total 99, , , , Kotak Mahindra Bank Limited 89

91 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Issuer composition of Non-SLR investments as at 31 st March, 2006: No. Issuer Amount Extent of Private Placement Extent of Below Investment Grade Securities Extent of Unrated Securities Rupees in lakhs Extent of Unlisted Securities (1) (2) (3) (4) (5) (6) (7) 1. PSUs 16, , , , Banks 1, , Private Corporates Subsidiaries/Joint ventures 17, , , , Others 12, , Provision held towards depreciation Total 48, , , , (ii) Non-performing Non-SLR investments: Rupees in lakhs Particulars 31 st March, st March, 2006 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 (excluding LAF transactions for the year) deals: Done during the year: Rupees in lakhs Particulars Minimum outstanding during the year Maximum outstanding during the year Daily Average outstanding during the year As at 31 st March, 2007 Securities sold under repos , , , Securities purchased under reverse repos , , , Done during the previous year ended 31 st March, 2006: Rupees in lakhs Particulars Minimum outstanding during the year Maximum outstanding during the year Daily Average outstanding during the year As at 31 st March, 2006 Securities sold under repos 1, , , Securities purchased under reverse repos , , , Kotak Mahindra Bank Limited 90

92 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 7. Lending to sensitive sectors: (a) Exposure to Capital Markets: (b) Particulars As at 31 st March, 2007 Rupees in lakhs As at 31 st March, 2006 i. Investments made in equity shares 1, , ii. Investments in bonds/convertible debentures iii. Investments in units of equity-oriented mutual/venture capital funds 2, iv. Advances against shares for investment in equity shares (including IPOs/ ESOPs), bonds and debentures, units of equity oriented mutual funds v. Secured and unsecured advances to stockbrokers and guarantees issued on behalf of stockbrokers and market makers 12, , vi. Others (Application bids for Initial Public Offer) 3, Total Exposure to Capital Market* Of the v. above, the total finance extended to stockbrokers for margin trading 19, , Advances as of the previous year 634, , Capital Market exposure as % to advances 3.14% 3.24% * based on approved limits Real Estate Sector* Rupees in lakhs Particulars As at 31 st March, 2007 As at 31 st March, 2006 (a) Direct exposure 214, , i. Residential Mortgages Lendings fully secured by mortgages on residential property that is or will be occupied by the borrower or that is rented 150, , ii. Commercial Real Estate Lendings secured by mortgages on commercial real estates (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction, etc.). Exposure would also include non-fund based (NFB) limits 63, , iii Investments in Mortgage Backed Securities (MBS) and other securitised exposures a. Residential, b. Commercial Real Estate (b) Indirect Exposure 4, , Fund based and non-fund based exposures on National Housing Bank (NHB) and Housing Finance Companies (HFCs). 4, , * Based on limits (c) Risk category wise country exposure Rupees in lakhs Risk Category Exposure (net) as at 31st March, 2007 Provision held as at 31st March, 2007 Exposure (net) as at 31st March, 2006 Provision held as at 31st March, 2006 Insignificant 22, Kotak Mahindra Bank Limited 91

93 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 8. Movements in NPAs (Funded): Particulars ended 31 st March, 2007 Rupees in lakhs ended 31 st March, 2006 i. Net NPA to Net Advances % 1.98% 0.24% ii. iii iv. Movement of NPAs (Gross) a. Opening balance 3, , Opening Interest Suspense b. Additions during the year 28, , c. Reductions during the year (3,962.14) (3,079.20) d. Closing Interest Suspense (458.19) (219.87) e. Closing balance 27, , Movement of Net NPAs a. Opening balance 1, , b. Additions during the year 21, , c. Reductions during the year (1,211.75) (1,046.03) d. Closing balance 21, , Movement of provisions for NPAs (excluding provisions on standard assets) a. Opening balance 2, , Opening Interest Suspense b. Provision made during the year 6, , c. Write-off/write-back of excess provisions (2,750.39) (2,033.17) Closing Interest Suspense (458.19) (219.87) d. Closing balance 6, , Provisions on Standard Assets Particulars ended 31 st March, 2007 Rupees in lakhs ended 31 st March, 2006 Provisions towards Standard Assets 8, , Gross NPA, Provisions for NPA and Net NPA include the following non- performing assets acquired from other Banks and NBFCs: Particulars As at 31 st March, 2007 Rupees in lakhs As at 31 st March, 2006 Gross NPA 22, Provision for NPA (2,928.78) (248.61) Net NPA 19, Further, the following information in respect of such assets acquired as required by the above guidelines is as under: Number of accounts purchased during the year 95 Aggregate outstanding in the selling Banks books Rs. 56, lakhs This information has been furnished by the Management and relied upon by the auditors. Kotak Mahindra Bank Limited 92

94 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, 2007: Rupees in lakhs 1-14 days days 29 days 3 months Over 3 months to 6 months Over 6 months to 12 months Over 1 year to 3 years Over 3 year to 5 years Over 5 years Total Advances* 46, , , , , , , , ,090, Investments 193, , , , , , , , , Deposits 149, , , , , , , , ,100, Borrowings 260, , , , , , , , Foreign Currency Assets 32, , , , , , , Foreign Currency Liabilites , , , , , , (*) Advances shown above are net of the Advance EMI received amounting to Rs.2, lakhs. As at 31 st March, 2006: Rupees in lakhs 1-14 days days 29 days 3 Months Over 3 months to 6 months Over 6 months to 12 months Over 1 year to 3 years Over 3 year to 5 years Over 5 years Total Advances* 17, , , , , , , , , Investments 76, , , , , , , , , Deposits 68, , , , , , , , Borrowings 70, , , , , , , , , Foreign Currency Assets , , , , , Foreign Currency Liabilities , , , , , (*) Advances shown above are net of the Advance EMI received amounting to Rs.1, lakhs. 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: A. Forward Rate Agreements/Interest Rate Swaps: Rupees in lakhs Particulars 31 st March, st March, 2006 The notional principal of swap agreements 8,103, ,582, Losses which would be incurred if counterparties failed to fulfill their obligations under the agreements 76, , Collateral required by the Bank upon entering into swaps NA NA Concentration of credit risk arising from the swaps 81.40% (Banks) 85.37% (Banks) The fair value of the swap book (589.06) Kotak Mahindra Bank Limited 93

95 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) B. Exchange Traded Interest Rate Derivatives: Particulars Notional principal amount of exchange traded interest rate derivatives undertaken during the year (instrument wise) Notional principal amount of exchange traded interest rate derivatives outstanding as on 31 st March, 2007 Notional principal amount of exchange traded interest rate derivatives outstanding and not highly effective (instrument wise) Mark to market value of exchange traded interest rate derivatives outstanding and not highly effective Rupees in lakhs Amount NA NA NA NA C. Disclosures on risk exposures in derivatives: Qualitative disclosures: i. Structure and organisation for management of risk in derivatives trading, the scope and nature of risk measurement, risk reporting and risk monitoring systems and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants: The Bank enters into derivative transactions for trading and hedging purposes. The Derivative policy defines the framework for carrying out the Derivative business and lays down the policies and processes adopted to measure, monitor and report risk arising from derivative transactions. The Asset Liability Management Committee ( ALCO ) is responsible for implementing the derivative policy. To effect this, the ALCO: approves a new derivative product determines appropriate limits for different derivative products within broad policy framework reviews the limit breaches and take appropriate actions The Risk department of the Bank is responsible for measuring, reporting and monitoring risk arising from Derivative transactions and functions independently of the Treasury. The risk management methods generally applied are quantitative like counter party limits, deal sizes, overnight, PVBP and stop-loss limits. The Risk Management function undertakes the following activities: monitors daily derivatives operations against the set out policies and limits reviews daily dealers profitability and activity reports for derivative operations reports MIS to the ALCO on a periodic basis as well as exception reporting approves non-vanilla derivative deals for proprietary business ensures monitoring the continuing effectiveness of derivative deals identified as hedges having regard to the terms of the hedging instrument and the underlying hedged risk. ii. iii. Accounting policy for recording hedge and non-hedge transactions, recognition of income, premiums and discounts, valuation of outstanding contracts: Derivative transactions identified as Hedges are not marked to market and income on these is recorded on an accrual basis. All other derivative transactions are marked to market and the resultant gains/loss is accounted for in the Profit and Loss Account. Option premia paid is accounted for in the profit and loss account on expiry of the Option. Provisioning, collateral and credit risk mitigation: The derivative limit sanctioned to clients is part of the overall limit sanctioned post credit appraisal. The Bank conforms to Reserve Bank of India guidelines on provisioning. Collateral is accepted on a case to case basis considering the volatility of the price of the collateral and any increase in operational, legal and liquidity risk. Kotak Mahindra Bank Limited 94

96 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Quantitative Disclosures : Sr. No. Particulars Currency Derivatives Rupees in lakhs Interest rate Derivatives 1. Derivatives (Notional Principal Amount) 127, ,096, (a) For hedging 6, , (b) For trading 120, ,091, Marked to Market Positions ** (a) Asset (+) 2, , (b) Liability ( ) 1, , Credit Exposure 34, , Likely impact of one percentage change in interest rate (100*PV01) (a) on hedging derivatives (b) on trading derivatives , Maximum of 100*PV01 observed during the year (a) on hedging derivatives (b) on trading derivatives , Minimum of 100*PV01 observed during the year (a) on hedging derivatives (b) on trading derivatives Interest rate swaps: As at 31 st March,2007 Rupees in lakhs As at 31 st March,2006 Notional Principal 8,096, ,580, Fair Value (594.86) Credit risk concentration-exposure to banks 81.38% 85.37% Default risk-losses which would be incurred if the counter parties failed to fulfill their obligations under the agreements 76, , Currency interest rate swaps have been included under currency derivatives. ** MTM has been considered at product level. The net position is shown under asset/liability, as the case is for each type of derivatives. 12. None of the loan assets have been subjected to restructuring. 13. During the year, the Bank had sanctioned credit limits, with the approval of the board, to two borrowers which were in excess of 15% of capital funds as indicated hereunder: Rupees in lakhs Name of the Party (#) 31 st March, st March, 2006 Total Exposure (*) % age of Capital Funds Total Exposure (*) % age of Capital Funds A 17, , B 25, , C 10, ,200 32,000 # The Bank has not received any permission from the borrowers to quote their names in the aforesaid disclosure. * Including non-funded exposure As on 31 st March, 2007, the aforesaid exposures are within the 15% limit of capital funds. Kotak Mahindra Bank Limited 95

97 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 14. Provision made for taxes during the year: Rupees in lakhs 31 st March, st March, 2006 Current tax 9, , Deferred tax (3,340.00) (1,250.00) Fringe benefit tax Wealth Tax Total 6, , No penalties or strictures have been imposed on the Bank during the year by the RBI. 16. (a) Status of Shareholder Complaints during the year ended 31st March, 2007: (a) No. of Complaints pending at the beginning of the year Nil (b) No. of Complaints received during the year 135 (c) No. of Complaints redressed during the year 135 (d) No. of Complaints pending at the end of the year Nil (b) Status of Customer Complaints during the year ended 31st March, 2007: (a) No. of Complaints pending at the beginning of the year 127 (b) No. of Complaints received during the year 11,299 (c) No. of Complaints redressed during the year 11,276 (d) No. of Complaints pending at the end of the year *150 * 150 Complaints redressed post 31st March 2007 (c) Status of Awards passed by the Banking Ombudsman during the year ended 31st March, 2007: (a) No. of unimplemented Awards at the beginning of the year 0 (b) No. of Awards passed by the Banking Ombudsman during the year 2 (c) No. of Awards Implemented during the year 1 (d) No. of unimplemented Awards at the end of the year *1 * Complaint received on 26th March 2007 and Award implemented on 12th April This has been furnished by the Management and relied upon by the auditors. B. OTHER DISCLOSURES : 1. Global Depository Shares Issue (GDSs): During the year ended 31st March, 2007, the Bank raised equity capital amounting to Rs. 45, lakhs. The net issue expenses of Rs lakhs related to the aforesaid issue have been charged to the share premium account as allowed under section 78 of the Companies Act, The Bank issued 15,000,000 GDSs representing 15,000,000 underlying equity shares of Rs. 10/- each at price of US$ 6.66 (equivalent to Rs. 300 per share at the exchange rate of Rs = US$1.00 in effect on April 21, 2006). The above expenses include Rs. 28 lakhs paid to the auditors in connection with the issue. 2. Fixed Assets and Depreciation: The Bank has revised the estimated useful life of premises from 30 years to 58 years with effect from 1st April, In accordance with Accounting Standard (AS) 6 Depreciation Accounting the unamortised depreciable amount of the premises is charged to revenue over the revised remaining useful life. However, the minimum depreciation as prescribed by the Companies Act, 1956 is provided in respect of premises wherein the effective depreciation rate after the change in estimated useful life is less than the prescribed minimum rate. Accordingly, depreciation charged for the current year is lesser by Rs lakhs. Kotak Mahindra Bank Limited 96

98 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 3. Earnings per Equity Share: ended 31 st March, 2007 ended 31 st March, 2006 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 32,41,86,155 30,86,88,947 Effect of potential equity shares for stock options outstanding 25,76,394 21,91,296 Weighted average number of equity shares used in computation of diluted earnings per share 32,67,62,549 31,08,80,243 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) 14, , Segment Reporting: In accordance with Accounting Standard 17 (AS-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: Rupees in lakhs 31 st March, st March, Segment Revenue a. Lending 91, , b. Corporate Banking 37, , c. Treasury & Investments 40, , d. Retail Liabilities 36, , e. Corporate Centre [upto 31 st March, 2006] 5, f. Venture Fund Management 1, , Sub-total 207, , Add : Unallocated Income Less : Inter-segmental revenue 44, , Total 163, , Segment Results a. Lending 11, , b. Corporate Banking 10, , c. Treasury & Investments 2, (1,738.56) d. Retail Liabilities (4,232.64) e. Corporate Centre [upto 31 st March, 2006] 2, f. Venture Fund Management Total 20, , Add : Unallocated Income Total Profit Before Tax 20, , Kotak Mahindra Bank Limited 97

99 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Rupees in lakhs 31 st March, st March, Segment Assets a. Lending 868, , b. Corporate Banking 443, , c. Treasury & Investments 932, , d. Retail Liabilities 488, , e. Corporate Centre (upto 31 st March, 2006) 35, f. Venture Fund Management Sub-total 2,733, ,432, Less: Inter-segmental Assets (748,739.08) (417,111.76) Total 1,984, ,014, Segment Liabilities a. Lending 784, , b. Corporate Banking 409, , c. Treasury & Investments 884, , d. Retail Liabilities 492, , e. Corporate Centre (upto 31 st March, 2006) 31, f. Venture Fund Management Sub-total 2,571, ,345, Less: Inter-segmental Liabilities (748,739.08) (417,111.76) Total 1,822, , Unallocated Assets net of Liabilities 1, (874.15) 6. Capital Expenditure a. Lending b. Corporate Banking c. Treasury & Investments 1, d. Retail Liabilities and Branch banking 3, , e. Corporate Centre (upto 31 st March, 2006) f. Venture Fund Management 7.24 Total 7, , Depreciation a. Lending b. Corporate Banking c. Treasury & Investments d. Retail Liabilities and Branch banking 1, , e. Corporate Centre (upto 31 st March, 2006) f. Venture Fund Management 1.51 Total 3, , Kotak Mahindra Bank Limited 98

100 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 5. Lease Disclosures: a. The Bank has taken various premises under operating lease. The lease payments recognised in the Profit and Loss Account are Rs. 3, lakhs (previous year Rs. 2, lakhs). The sub-lease income recognised in the Profit and Loss Account is Rs lakhs (previous year Rs lakhs). b. Details of gross investments, unearned finance income in respect of assets given under finance lease are as under: Rupees in lakhs Particulars As at 31 st March, 2007 As at 31 st March, 2006 Gross Investments: (i) Not later than 1 year (ii) Between 1-5 years Total Unearned Finance Income: (i) Not later than 1 year (ii) Between 1-5 years 0.04 Total Accumulated provision on the Gross Investments Deferred Taxes: Others in Other Assets (Schedule 11.VI) includes deferred tax asset (net) of Rs. 5, lakhs (previous year Rs. 1, lakhs). The components of the same are as follows: Rupees in lakhs Particulars ended 31 st March, 2007 ended 31 st March, 2006 Deferred Tax Liability: Depreciation Sub-total Deferred Tax Assets: Provision for NPA 4, , Expenditure allowed on payment basis/others Sub-total 5, , Net Deferred Tax Asset 5, , Fixed Assets as per Schedule 10 include intangible assets relating to software and system development expenditure which are as follows : Rupees in lakhs Particulars ended 31 st March, 2007 ended 31 st March, 2006 Gross Block At cost on 31 st March of the preceeding year 2, , Additions during the year Deductions during the year - Total 2, , Depreciation As at 31 st March of the preceeding year 1, , Charge for the year Deductions during the year Depreciation to date 1, , Net Block Kotak Mahindra Bank Limited 99

101 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 8. Balances with banks in current accounts (Schedule 7 - I (i) (a)) include Rs.1, lakhs (previous year Rs. 1, lakhs) maintained as collateral in respect of receivables securitised by the Bank. 9. Related Party Disclosures : A. Parties where control exists: Nature of relationship Individual having control over the enterprise Subsidiary Companies Related Party Mr. Uday S. Kotak, Executive Vice Chairman and Managing Director (also considered as Key Management Personnel), along with relatives and enterprises in which he has beneficial interest, holds 51.46% of the equity share capital of Kotak Mahindra Bank Limited Kotak Mahindra Prime 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. Kotak Mahindra Old Mutual Life Insurance Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Trusteeship Services Limited (formerly known as Kotak Mahindra Private Equity Trustee Limited) Kotak Mahindra Trustee Company Limited Kotak Forex Brokerage Limited Kotak Mahindra Investments Limited B. Other Related Parties: Nature of Relationship Associates Key Management Personnel Relatives of Key Management Personnel Related Party Business Standard Limited India Car Private Limited Kotak Mahindra Asset Reconstruction Company Limited Ford Credit Kotak Mahindra Limited (upto 4 th October, 2005) Pranavaditya Spinning Mills Limited (upto 23 rd April, 2005) Mr. Uday S. Kotak, Executive Vice Chairman and Managing Director Mr. C Jayaram, Executive Director Mr. Dipak Gupta, Executive Director Ms. Pallavi Kotak Mr. Suresh Kotak Ms. Indira Kotak Ms. Aarti Chandaria Ms. Anita Gupta Ms. Urmila Gupta Ms. Usha Jayaram Kotak Mahindra Bank Limited 100

102 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) C. Related Parties: Rupees in lakhs Sr. No Items/Related Party Individual having Control Subsidiary Companies Associates Key Management Personnel Relatives of Key Management Personnel I. Liabilities II. Assets Other Liabilities (107.58) Investments-Gross 22, (16,577.95) 1, (1,199.27) Diminution on Investments (78.65) Commission Receivable (213.87) Others (1,102.13) III. Expenses Salaries/fees* (435.91) Others (173.43) IV. Income Royalty (2,351.30) Dividend (591.02) Others 2, (1,845.82) V. Other Transactions GDS Issue Management Fees (-) Dividend paid (765.66) Reimbursement to companies (272.80) Reimbursement from companies 5, (4,473.12) Purchase of Fixed assets (7.34) Sale of Fixed assets 8.33 (1.82) 4.50 (4.50) (1.06) (134.49) 2.48 (1.68) 5.93 (4.94) * Excludes incentive payment for current year. Kotak Mahindra Bank Limited 101

103 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Rupees in lakhs Sr. No. Items/Related Party Individual having Control Subsidiary Companies Associates Key Management Personnel Relatives of Key Management Personnel TOTAL I. Liabilities: Other liabilities Kotak Mahindra Prime Limited Brokerage payable (107.58) (107.58) II. Assets: Investments Kotak Mahindra Old Mutual Life Insurance Limited 16, (12,473.76) 16, (12,473.76) Kotak Mahindra Asset Management Company Limited 1, (2,400.00) 1, (2,400.00) Kotak Mahindra Investments Limited (305.03) (305.03) Other Subsidiaries 3, (1,399.16) 3, (1,399.16) Business Standard Limited (927.77) (927.77) India Car Private Limited (270.00) (270.00) Kotak Mahindra Asset Reconstruction Company Limited 1.50 (1.50) 1.50 (1.50) Diminution on Investments India Car Private Limited (77.15) (77.15) Kotak Mahindra Asset Reconstruction Company Limited 1.50 (1.50) 1.50 (1.50) Commission Receivable Kotak Mahindra Old Mutual Life Insurance Limited (213.87) (213.87) Others Kotak Mahindra Prime Limited (97.66) (97.66) Kotak Securities Limited (744.62) (744.62) Kotak Mahindra Old Mutual Life Insurance Limited (81.63) (81.63) Kotak Mahindra Capital Company Limited (75.76) (75.76) Kotak Mahindra Bank Limited 102

104 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Sr. No. Items/Related Party Individual having Control Subsidiary Companies Associates Key Management Personnel Kotak Mahindra Asset Management Company Limited (44.53) Other Subsidiaries (57.93) III. Expenses: Salaries* Mr. Uday Kotak (104.25) Mr. C Jayaram (176.67) Mr.Dipak Gupta (154.99) Other Expenses Brokerage Kotak Mahindra Prime Limited (107.58) Kotak Securities Limited ( ) Premium Kotak Mahindra Old Mutual Life Insurance Limited (63.90) Other Subsidiaries (1.95) IV. Income: Royalty Income Kotak Mahindra Prime Limited (2,351.30) Dividend Kotak Mahindra Asset Management Company Limited (408.00) Kotak Mahindra Investments Limited (183.02) India Car Private Limited 4.50 (4.50) Other Income Insurance Commission and Rental Income Kotak Mahindra Old Mutual Life Insurance Limited 1, (1,036.21) Rental and other Income Kotak Securities Limited (438.38) Relatives of Key Management Personnel Rupees in lakhs TOTAL (44.53) (57.93) (104.25) (176.67) (154.99) (107.58) ( ) (63.90) (1.95) (2,351.30) (408.00) (183.02) 4.50 (4.50) 1, (1,036.21) (438.38) Kotak Mahindra Bank Limited 103

105 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Rupees in lakhs Sr. No. Items/Related Party Individual having Control Subsidiary Companies Associates Key Management Personnel Relatives of Key Management Personnel TOTAL Kotak Mahindra Capital Company Limited (111.60) (111.60) Kotak Mahindra Asset Management Company Limited (106.70) (106.70) Kotak Mahindra Prime Limited (129.04) (129.04) Other Subsidiaries (23.89) (23.89) Ford Credit Kotak Mahindra Limited (1.06) (1.06) V. Other Transactions: GDR Issue Management Fees ( ) Dividend paid Mr. Uday Kotak (765.66) Mr. C. Jayaram 1.11 (0.73) Mr. Dipak Gupta 1.37 (0.95) Ms. Pallavi Kotak 1.67 (1.39) Ms. Indira Kotak 3.64 (3.03) Others 0.62 (0.52) Reimbursements to companies Kotak Mahindra Capital Company Limited (105.22) Kotak Mahindra Prime Limited (13.60) Kotak Mahindra Old Mutual Life Insurance Limited (35.05) Kotak Securities Limited (91.26) Kotak Mahindra Asset Management Company Limited 9.43 (27.47) Kotak Mahindra Investments Limited ( ) Other Subsidiaries 1.12 (0.20) ( ) (765.66) 1.11 (0.73) 1.37 (0.95) 1.67 (1.39) 3.64 (3.03) 0.62 (0.52) (105.22) (13.60) (35.05) (91.26) 9.43 (27.47) ( ) 1.12 (0.20) Kotak Mahindra Bank Limited 104

106 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Rupees in lakhs Sr. No. Items/Related Party Individual having Control Subsidiary Companies Associates Key Management Personnel Relatives of Key Management Personnel TOTAL Reimbursements from companies Kotak Mahindra Capital Company Limited (405.70) (405.70) Kotak Mahindra Prime Limited (323.02) (323.02) Kotak Mahindra Old Mutual Life Insurance Limited (464.25) (464.25) Kotak Securities Limited 3, (2,801.00) 3, (2,801.00) Other Subsidiaries (479.15) (479.15) Ford Credit Kotak Mahindra Limited (134.49) (134.49) Purchase of Fixed assets Kotak Mahindra Prime Limited 2.91 (0.20) 2.91 (0.20) Kotak Mahindra Asset Management Company Limited 1.53 (7.14) 1.53 (7.14) Kotak Securities Limited 5.49 ( ) 5.49 ( ) Kotak Mahindra Capital Company Limited ( ) ( ) Sale of Fixed assets Kotak Securities Limited (1.73) (1.73) Kotak Mahindra Old Mutual Life Insurance Limited 6.78 ( ) 6.78 ( ) Kotak Mahindra Capital Company Limited 1.55 ( ) 1.55 ( ) Other Subsidiaries (0.09) (0.09) Note: Figures in brackets represent previous year s figures. * Excludes incentive payment for current year. Kotak Mahindra Bank Limited 105

107 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 10. ESOPs : The Bank, under its various ESOP Plan/Schemes, has granted in aggregate 1,49,45,100 options, as on 31 st March, 2007 (previous year 94,58,500). The details of outstanding options are as under: Particulars As at 31st March, 2007 As at 31st March, 2006 Options outstanding at the beginning 37,01,250 21,59,750 Add: Options granted during the year 54,86,600 28,52,500 Less: Options exercised during the year 18,61,083 9,85,875 Less: Options forfeited during the year Nil Nil Less: Options Lapsed during the year 2,62,133 3,25,125 Options outstanding at the end of the year 70,64,634 37,01, Advances securitised by the Bank : Particulars As at 31 st March, 2007 Rupees in lakhs As at 31 st March, 2006 Book value of advances securitised 169, , Number of accounts 1,087 5,840 Sale consideration received for the accounts securitised 169, , Gain on securitisation Credit enhancement, liquidity support provided 1, , Nature of post securitisation support Collection and paying agent or servicer Collection and paying agent or servicer 12. Provisions on securitised assets : Particulars ended 31 st March, 2007 Rupees in lakhs ended 31 st March, 2006 a. Opening balance b. Provision made during the year c. Closing balance The aforesaid provision is based on the past history of losses on the asset/product securitised and the outflows are expected over the tenure of the securitisation, which is spread over a period of three years. 13. Demerger of the Trading and Principal Activity including Primary Dealership business of Kotak Mahindra Capital Company Limited with the Bank: The scheme of arrangement under Sections 391 and 394 of the Companies Act, 1956 between Kotak Mahindra Bank Limited and Kotak Mahindra Capital Company Limited (KMCCL) and their respective shareholders, for the vesting of the trading and principal activity including primary dealership business (Demerged Undertaking) to and in the Bank was approved by the Hon ble High Court at Mumbai on 15 th February, 2007 and by the Reserve Bank of India on 12 th March, 2007 with effective date as 20 th March, The Demerged Undertaking had investments in mutual funds and equities, short-term and long-term debt instruments issued by the Government, such as Central and State Government securities, treasury bills of varying maturities and public sector bonds and commercial papers. The assets and liabilities of the Demerged Undertaking have been transferred to the Bank at the values appearing in the books of account of KMCCL immediately before the demerger. The shareholders of KMCCL have not been issued shares in consideration for the demerger. Kotak Mahindra Bank Limited 106

108 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) In accordance with the scheme, all the assets and liabilities pertaining to the Demerged Undertaking together with other related functions have been transferred to and vested in the Bank at book values with effect from 20 th March, 2007, being the appointed date. The excess of the book value of the assets over the book value of the liabilities amounting to Rs. 21, lakhs has been taken to the Profit and Loss Account in terms of the scheme of arrangement and has been appropriated to General Reserve in terms of Accounting Standard 14 (AS-14) on Accounting for Amalgamations. The scheme has, accordingly, been given effect to in these accounts. Figures for the current year include the figures for Demerged Undertaking from 20 th March, The result of acquired business from 20 th March, 2007 has been reflected in Treasury Segment in the segmental reporting. 14. Interest Expended-Others (Schedule 15(III)) includes interest on subordinated debt Rs.2, lakhs (Previous Rs. 1, lakhs). 15. The Bank has agreed with International Finance Corporation ( IFC ) in a loan agreement dated 8 th November, 2004 that it shall (i) not create or permit to exist any lien over and above what was existing prior to the Bank converting into a scheduled commercial bank (ii) request IFC s consent before granting any lien which is not pre-authorised, should the Reserve Bank of India allow the Bank to grant liens and (iii) grant in favour of IFC a similar lien which shall rank pari passu with the lien created in case it creates any such lien which is not a preauthorised lien. 16. Employee Benefits Consequent to the early adoption of Accounting Standard on Employee Benefits (AS 15) (Revised 2005) issued by the Institute of Chartered Accountants of India, the following disclosures have been made as required by the Standard: i. An amount of Rs.1, lakhs being the difference (net of tax effect of Rs lakhs) between the liability as on 31 st March, 2006 on employee benefits including defined benefits plans determined based on revised AS-15 and the liability as per the Bank s previous accounting policy has been adjusted against the opening balance of General Reserve. ii. The charge to the Profit and Loss Account for the year towards employee benefits is higher by Rs lakhs as compared to the expense as per the Bank s previous accounting policy. iii. The Bank has recognised the following amounts in the Profit and Loss Account towards contributions to Provident Fund and Other Funds. Provident Fund Superannuation Fund 1, lakhs lakhs iv. In accordance with law, the Bank provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee s salary and the years of employment with the Company subject to maximum of Rs lakhs. The gratuity benefit is provided to the employees through a fund administered by a Board of Trustees and managed by Kotak Mahindra Old Mutual Life Insurance Limited. The Bank is responsible for settling the gratuity obligation through contributions to the fund. The plan is fully funded. v. Reconciliation of opening and closing balance of present value of defined benefit obligation for gratuity benefits is given below. Rupees in lakhs As of 31 st March, 2007 Change in benefit obligations Liability at the beginning of the year Current Service cost Interest cost Actuarial Gain on obligations (6.73) Liability assumed on transfer of employees Benefits paid (29.48) Liability at the end of the year Kotak Mahindra Bank Limited 107

109 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Rupees in lakhs As of 31 st March, 2007 Change in plan assets Fair value of plan assets at the beginning of the year Expected return on plan assets Actuarial Gain 9.92 Benefits paid (29.48) Employer contributions Fair value of plan assets at the end of the year Reconciliation of present value of the obligation and the fair value of the plan assets Fair value of plan assets at the end of the year Liability at the end of the year Net asset as at 31 st March, 2007 included in Others under Other Assets [Schedule 11(VI)] Expense recognised for the year Current Service cost Interest cost Expected return on plan assets (43.10) Actuarial (gain)/loss (16.65) Net gratuity expense included in Payments to and provision for employees under Operating Expenses [Schedule 16(I)] Reconciliation of the Liability recognised in the Balance Sheet Net Liability at the beginning of the year Expense recognised Liability assumed on transfer of employees Employer contributions (569.60) Net asset as at 31 st March, 2007 included in Others under Other Assets [Schedule 11(VI)] (71.78) Investment details of plan assets Majority of the plan assets are invested in insurer managed funds. Actuarial assumptions used Interest rate Salary escalation rate Expected return on plan assets Mortality 8.20% p.a. 15% p.a. for first 2 yrs, 10% p.a. for next 2 yrs & 6% p.a. thereafter 7.50% p.a. Published rates under the LIC ( ) mortality tables. The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors. The above information is as certified by the actuary and relied upon by the auditors. Previous year s figures have not been given since this is the first year of adoption. 17. The Bank receives deposits from customers as part of margin requirements in respect of its professional clearing member (PCM) business with National Securities Clearing Corporation Ltd (NSCCL). Correspondingly, the Bank is required to maintain margins/deposits with NSCCL. For the said purpose of placing margins/deposits, the Bank has issued its own Fixed Deposit receipts amounting to Rs. 53,134 lakhs (Previous year Rs.22,198 lakhs) in favour of NSCCL which have not been included in Term Deposits from Others [Schedule 3 (III) (ii) ]. Kotak Mahindra Bank Limited 108

110 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 18. Advances include an amount of Rs. 8,254 lakhs (Previous year Rs. 7,254 lakhs) being amount paid for acquiring non-performing assets from Public Sector Banks, represented by Redeemable Non Convertible Debentures issued by a NBFC. A suit has been filed in the High Court of Mumbai questioning the sale of the said Redeemable Non Convertible Debentures to the Bank. The matter is pending disposal by the High Court of Mumbai. 19. Subordinated debt outstanding as on 31 st March, 2007 is a long- term unsecured non-convertible debt aggregating to Rs. 42,990 lakhs (previous year Rs. 24,000 lakhs). During the year, the Bank raised Rs. 18,990 lakhs of subordinated debt of fixed rates with annualised coupon between 8.90% and 10.15%. The maturity of these debts ranges from 10 years to 10 years and 5 months. Based on the balance term to maturity as on 31 st March, 2007, subordinate debt of the book value of Rs.100 lakhs is not considered as Tier II Capital for the purposes of capital adequacy computation. 20. Upper Tier II Bonds During the year, the Bank has raised Unsecured, Redeemable, Non-convertible, Subordinated Debt- debentures (US $ denominated) 45 million which qualify as Upper Tier II capital of the bank, from International Finance Corporation, Washington, USA at a floating interest rate linked to 6 month USD LIBOR. 21. Floating Provisions The Bank had adopted the policy of creating a floating provision on the purchased non-performing assets portfolio equivalent to the income recognised on individual assets wherever the total collection was less than the cost of that portfolio. The Bank has discontinued its policy of creating floating provisions and continues to recognise income and provision for NPA at the asset level. Consequent to a clarification received from the RBI, the Bank has written back floating provision amounting to Rs lakhs during the year on those assets which have been fully realised. 22. Description of Contingent Liabilities: Sr. No. Contingent Liability* Brief Description 1. Claims not acknowledged as debts 2. Liability on account of outstanding forward exchange contracts 3. Guarantees on behalf of constituents in India 4. Acceptances, endorsements and other obligations 5. Other items for which the Bank is contingently liable * Also refer Schedule 12 Contingent Liabilities This includes liability on account of income tax, interest tax, sales tax and lease tax demands and legal cases filed against the Bank The Bank is a party to various legal proceedings in the normal course of business. The Bank does not expect the outcome of these proceedings to have a material adverse effect on the Bank s financial conditions, result of operations or cash flows. Against the above Rs lakhs have been paid, which shall be refunded to the Bank, if the outcome of the legal proceedings will be in the favour of the Bank. The Bank enters into foreign exchange contracts with inter bank participants on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. As a part of its banking activities, the Bank issues documentary credit and guarantees on behalf of its customers. Documentary credits such as letters of obligations, enhance the credit standing of the customers of the Bank. Guarantees generally represent irrevocable assurances that the Bank will make payments in the event of customer failing to fulfill its financial or performance obligations. These include contingent liabilities on account of bills re-discounted by the Bank and cash collateral provided by the Bank on assets which have been securitised. The maximum liability in respect of cash collateral provided is Rs. 1, lakhs. These include Liabilities in respect of interest rate and currency swaps and forward rate agreements, liability in respect of options contracts and Capital commitments, which includes undrawn commitments in respect of investments The Bank enters into currency options, forward rate agreements, currency swaps and interest rate swaps with inter bank participants on its own account and for customers. Currency Swaps are commitments to exchange cash flows by way of interest/principal in one currency against another, based on predetermined rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. The notional amounts that are recorded as contingent liabilities are amounts used as a benchmark for the calculation of interest component of the contracts. Kotak Mahindra Bank Limited 109

111 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 23. The Bank has received a confirmation from Deposit Insurance and Credit Guarantee Corporation to adjust excess insurance premium paid in respect of earlier years against the future payments. An amount of Rs lakhs has been recognised by the Bank during the year with a corresponding reduction to insurance expenses under Schedule 16 (XI). 24. Proposed Dividend (including corporate dividend tax) for the financial year ended 31 st March, 2007 includes an amount of Rs lakhs in respect of dividend paid by the bank for the previous year on 429,953 equity shares allotted before the date of book closure as they ranked pari-passu with the existing equity shares for dividend. 25. The Bank has not received any intimation from suppliers regarding their status under the Micro, Small and Medium Enterprises Development Act,2006 and hence disclosures, if any, relating to amounts unpaid as at the year end together with interest paid/payable as required under the said Act have not been given 26. 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 Dr. Shankar Acharya Chairman Dipak Gupta Executive Director Uday Kotak Executive Vice Chairman & Managing Director Mumbai Jaimin Bhatt Bina Chandarana Dated: 8th May, 2007 Group Chief Financial Officer Company Secretary Kotak Mahindra Bank Limited 110

112 BOARD OF DIRECTORS: Mr. Uday Kotak, Ms. Falguni Nayar, Mr. Jaimin Bhatt, Ms. Shanti Ekambaram, Mr. Dipak Gupta Directors Report To the Members of Kotak Mahindra Capital Company Limited The Directors present their Twelfth Annual Report together with the audited accounts of your Company for the year ended 31st March Financial Results Ended 31st March, 2007 Rupees in Lakhs ended 31st March 2006 Rupees in Lakhs Gross Income 20,518 25,989 Profit before Tax 9,390 18,215 Provision for Tax 2,602 1,992 Profit after Tax 6,788 16,223 Balance of Profit from previous years 21,979 9,001 Amount available for appropriation 28,767 25,224 Appropriations: Special Reserve under section 45 I C of The Reserve Bank of India Act, (8,693) 3,245 Difference between the value of assets and liabilities transferred pursuant to a scheme of demerger 17,141 General Reserve Dividend (including Distribution Tax) Surplus carried forward to the Balance Sheet 20,319 21, Dividend The Directors do not recommend any dividend for the year. 3. Business Operations Franchise Business (a) Equities The buoyancy in the primary market continued this year also with 85 public issues all of them being equity share issues. The total amount of funds raised in the year through public issues was approximately Rs. 2,499, lakhs. Your Company once again maintained its dominant position in the equity market in India with a market share of about 19.7%. The issues managed by your Company include large equity offerings such as SUN TV Limited, Tech Mahindra Limited, Lanco Infratech, Limited, Power Finance Corporation, Mindtree Consulting Limited, Sobha Developers and ICRA Limited. Your Company once again was the recipient of prestigious awards such as the Best Investment Bank in India 2006 by Finance Asia and as best domestic investment bank, 2006 from Asset Asia. Your Company has a robust pipeline of mandates in across various sectors and would strive to be positioned as the most preferred Investment Banker. Your Company s associate companies handled two GDR issues, which maintained the cross border execution capabilities of the Group. (b) (c) Advisory Your Company was recently involved in many significant M&A transactions such as being exclusive financial advisor to Bombay Stock Exchange Ltd. ( BSE ) in its demutualization, involving a private placement of 51% of BSE to strategic investors, sole financial advisor to the approx. Rs. 20 billion sale of promoter holding in Anchor Electricals (AEPL) to Matsushita Electric Works, Advisor to Hutchison Telecom for the US$ 18.8 billion sale of its Indian operations to Vodafone, sole investment banking advisor to both the Blackstone Group and Ushodaya Enterprises in the US$ 275 million financing for Ushodaya, the owner of the Eenadu newspaper and ETV channels, the largest ever media financing in the country, exclusive advisor to the INX group in the financing for both its entertainment and news media company. Your Company did significant work for the Mahindra and Mahindra as financial advisors to their acquisition of controlling stake in Punjab Tractors Ltd., for their acquisition of 67.9% stake in JECO Holding AG of Germany, the largest outbound auto component acquisition by an Indian Company, for their acquisition of Schoneweiss & Co., GmbH, a leading company in the forgings sector in Germany and on acquisition of the Chakan unit of Amforge. Your Company established its leadership position in real estate sector. It was the sole financial Advisor to Kingston Properties Private Limited for US$150 million private equity funding by Morgan Stanley, as well as sole financial advisor to Divyasree Group for the Rs. 4.6 billion private equity funding by TPG-Axon. Other significant transactions were being exclusive financial advisor to IFFCO for the sale of its holding in Godavari Fertilizers and Chemicals to Coromandel Fertilizers Ltd. and Manager to the consequent open offer, Advisor to Pioneer Global Asset Management, a USD 370 billion asset management subsidiary of Unicredit Group of Italy, in a majority joint venture with Bank of Baroda for mutual funds in India, sole financial advisors to Raymond in setting up a transnational joint venture denim company with UCO textiles of Belgium, by contribution of their respective existing denim businesses, creating a company with an estimated enterprise value of Euro 200 million, exclusive financial advisors to Great Eastern Shipping Limited for de-merger of the Offshore division. Your Company has a healthy pipeline of advisory transactions and hopes to close significant transactions during FY08. Clearing Your Company continued with its clearing business as a Professional Clearing Member (PCM) of the National Securities and Clearing Corporation where it acts as clearing member to its clients for derivative transactions executed on the National Stock Exchange. Your Company has earned good revenues from this business. Kotak Mahindra Capital Company Limited 111

113 A petition was filed before the Hon ble High Court of Judicature at Bombay pursuant to Sections 391 to 394 of the Companies Act, 1956 in respect of a Scheme of Arrangement between Kotak Mahindra Securities Limited (KMSL), Kotak Mahindra Capital Company Limited (KMCC) and their respective shareholders and creditors for demerger of undertaking comprising of the Trading and Clearing operations and strategic investments of KMSL to KMCC. The Hon ble Bombay High Court granted its approval to the same vide Order dated 15th February This scheme as of date is pending approval of the Securities and Exchange Board. Prior to the demerger KMSL was a Trading and Clearing Member of the Cash, Future & Options and Wholesale Debt Market segment of the National Stock Exchange of India Limited. The demerger is being done with a view to consolidate all capital market related activities into KMCC, which has a substantially higher net worth than KMSL. Principal Business Primary Dealership and Treasury Operations A Petition was also filed before the Hon ble High Court of Judicature at Bombay pursuant to Sections 391 to 394 of the Companies Act, 1956 in respect of a Scheme of Arrangement between Kotak Mahindra Bank Limited (KMBL), Kotak Mahindra Capital Company Limited (KMCC) and their respective shareholders and creditors for demerger of undertaking comprising of the Principal and Trading including Primary Dealership business of KMCC to KMBL. The Hon ble Bombay High Court granted its approval to the same vide Order dated 15th February This scheme has become effective from March 20, Human Resources Your Company considers human capital to be very important for the success of its business and focus on recruitments as well as retention of its employees. Remuneration is constantly benchmarked with the best in the Industry. 5. Subsidiaries During the Kotak Mahindra Securities Limited, Kotak Mahindra (UK) Limited, Kotak Mahindra International Limited, Kotak Mahindra Inc and Global Investment Opportunities Fund Limited ceased to be subsidiaries of your Company as they become the direct subsidiaries of Kotak Mahindra Bank Limited. However your Company still holds about 49% of the equity capital in these Companies. 6. Directors Mr. Jaimin Bhatt and Ms. Shanti Ekambaram retire at the Twelfth Annual General Meeting and are eligible for re-appointment. 8. Auditors The statutory auditors Messrs. Deloitte Haskins & Sells, Chartered Accountants retire at the ensuing Annual General Meeting and are eligible for reappointment. 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 31st March, Your Company s foreign exchange income was Rs Lakhs while the outgo was Rs. 25 Lakhs. 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 Based on representations from the Management, the Directors state, in pursuance of Section 217 (2AA) of the Companies Act, 1956, that: Your Company has, in the preparation of the annual accounts for the year ended 31st March, 2007, 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 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 31st March, 2007 and of profit/loss of the Company for the financial year ended 31st March, 2007; 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. 11. Acknowledgements Your Directors would like to place on record their gratitude for the valuable 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. 7. Audit Committee The constitution of the Audit Committee of the Company is as set out below: Mr. Uday Kotak Mr. Dipak Gupta Mr. Jaimin Bhatt Mumbai, 2nd May, 2007 For and on behalf of the Board of Directors Uday S. Kotak Chairman Kotak Mahindra Capital Company Limited 112

114 Auditors Report To The Members of Kotak Mahindra Capital Company Limited 1. We have audited the attached balance sheet of Kotak Mahindra Capital Company Limited, as at 31st March, 2007, 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 of the books and records of the company as we considered appropriate and according to the information and explanations given to us, we give in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. (c) (d) (e) (f) 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 31st March, 2007 and taken on record by the Board of Directors, we report that none of the Directors is disqualified as on 31st March, 2007 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) (ii) in the case of the balance sheet, of the state of affairs of the company as at 31st March, 2007; in the case of the profit and loss account, of the profit for the year ended on that date; and (iii) in the case of the cash flow statement, of the cash flows for the year ended on that date. 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 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; Mumbai Dated: 2nd May, 2007 R. Laxminarayan Partner Membership Number: For Deloitte Haskins & Sells Chartered Accountants Kotak Mahindra Capital Company Limited 113

115 Annexure to the Auditors Report (Referred to in paragraph 3 of our Report of even date to the Members of Kotak Mahindra Capital Company Limited on the accounts for the year ended 31st March, 2007) 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. 1. (a) The Company has maintained proper records showing full particulars, including quantitative details and situation of its fixed assets. (b) (c) Some of the 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. The Company has sold a substantial part of fixed assets during the year under the scheme of arrangement entered into with its holding Company Kotak Mahindra Bank Limited and their respective shareholders and creditors under Section of the Companies Act 1956, which was sanctioned by the Honourable High Court of Judicature at Bombay. The fixed assets disposed off constitute assets attributable to its trading and principal business segment and operations relating to the other business segment continue as before. Such disposal has, in our opinion, not affected the going concern status of the Company. 2. (a) The Company has granted loans to a Company covered in the register maintained under Section 301 of the Companies Act, At the year-end the outstanding balance of loans granted to the party was Rs. Nil and the maximum amount involved during the year was Rs. 2,485 Lakhs. (b) (c) (d) (e) The rate of interest and other terms and conditions of such loans are, in our opinion, prima facie not prejudicial to the interest of the Company. The Company has repaid the principal amounts as stipulated and has also been regular in the payment of interest to the Company. There is no overdue amount in excess of Rs. 1 lakh in respect of loans granted to the Company covered in the register maintained under section 301 of the Companies Act, According to the information and explanations given to us, the Company has taken an unsecured loan from a Company covered in the register maintained under Section 301 of the Companies Act, At the year-end, the outstanding balance of such loan taken was Rs. Nil and the maximum amount involved during the year was Rs. 2,000 Lakhs. (f) (g) In our opinion, the rate of interest and other terms and conditions of such loan taken from the said Company covered 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 case of the aforesaid loan is as per stipulations. 3. 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 for the purchase of fixed assets and for the sale of goods and services and we have not observed any continuing failure to correct major weaknesses in such internal control system. 4. In respect of the contracts or arrangements entered in the Register maintained in pursuance of Section 301 of the Companies Act, 1956: (a) (b) To the best of our knowledge and belief and according to the information and explanations given to us, the particulars of contracts or arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that section; and In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements exceeding the value of rupees five 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. 5. The Company has not accepted any deposits from the public during the year. Hence, clause (vi) of paragraph 4 of the said Order is not applicable to the Company. 6. 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. 7. In respect of Statutory dues: (a) (b) According to the information and explanations given to us, 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, Service tax, Customs Duty, Excise Duty, Cess and any other material statutory dues applicable to it with the appropriate authorities during the year. According to the information and explanations given to us, no undisputed amounts payable in respect of Income tax, Wealth tax, Service tax, Sales tax, Customs duty, Excise duty and cess were outstanding as at March 31, 2007 for a period of more than six months from the date they became payable. Kotak Mahindra Capital Company Limited 114

116 8. The Company has no accumulated losses as at 31st March, 2007 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 or bank 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, In our opinion and according to the information and explanations given to us, the terms and conditions on which the Company has given guarantees for loans taken by others from banks and financial institutions, are not prima facie prejudicial to the interests of the Company. 13. To the best of our knowledge and belief and according to the information and explanations given to us, there have been no term loans availed during the year. Hence clause (xvi) of paragraph 4 of the said Order is not applicable to the Company. 14. 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. 15. The Company has not made any preferential allotment of shares during the year. Hence clause (xviii) of paragraph 4 of the said Order is not applicable to the Company. 16. According to the information and explanations given to us, the Company has not issued any debentures during the year and hence clause (xix) of paragraph 4 of the Order is not applicable to the Company for the year. 17. According to the information and explanations given to us, the Company has not raised any money by public issue during the year. Hence, clause (xx) of paragraph 4 of the Order is not applicable to the Company for the year. 18. 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. R. Laxminarayan Partner Membership Number: For Deloitte Haskins & Sells Chartered Accountants Mumbai Dated: 2nd May, 2007 Kotak Mahindra Capital Company Limited 115

117 Balance Sheet as at 31st March, 2007 Schedule As at 31st March, 2007 As at 31st March, 2006 (Rs. in Lakhs) (Rs. in Lakhs) (Rs. in Lakhs) Sources of Funds Shareholders Funds : Capital Reserves and Surplus 2 26,509 41,537 26,905 41,933 Loan Funds : Secured Loans Unsecured Loans 4 3,419 18,025 3,419 18,181 Total 30,324 60,114 Application of Funds Fixed Assets : Gross Block 5 2, Less : Depreciation Net Block 2, Investments 6 27,316 24,899 Deferred Tax Asset (Net) Current Assets, Loans and Advances : Stock-in-trade 7 27,227 Sundry Debtors 8 2,228 4,747 Cash and Bank Balances 9 55,026 40,367 Other Current Assets Loans and Advances 11 1,500 9,598 59,330 82,707 Less : Current Liabilities and Provisions : Liabilities 12 58,187 47,729 Provisions ,554 47,842 Net Current Assets ,865 Total 30,324 60,114 Significant Accounting Policies and Notes to Accounts 20 As per our attached report of even date For Deloitte Haskins and Sells Chartered Accountants For and on behalf of the Board of Directors R. Laxminarayan Uday Kotak Falguni Nayar Partner Chairman Managing Director Ajay Vaidya Shanti Ekambaram Mumbai, 2nd May, 2007 Company Secretary Director Kotak Mahindra Capital Company Limited 116

118 Profit and Loss Account for the year ended 31st March, 2007 Schedule Ended 31st March, 2007 Ended 31st March, 2006 (Rs. in Lakhs) (Rs. in Lakhs) (Rs. in Lakhs) Income Financial Advisory and Transactional Services 14 8,936 9,596 Interest and Discounting Income 15 8,985 3,958 Profit on Sale of Current Investments (Net) Profit on Sale of Long Term Investments 10,565 Profit on Trading in Securities (Net) Other Income 16 1,139 1,374 Total Income 20,518 25,989 Expenditure Personnel 17 4,060 3,680 Interest and other Financial Charges 18 4,589 2,137 Other Expenses 19 2,322 1,797 Depreciation Total Expenditure 11,128 7,774 Profit Before Taxation * 9,390 18,215 Provision for Taxation * Current Tax 2,686 1,918 (Excess) Provision in Respect of Earlier s (9) (9) Deferred Tax (112) 36 Fringe Benefits Tax ,602 1,992 Profit After Taxation 6,788 16,223 Balance Brought Forward from Previous 21,979 9,001 28,767 25,224 Appropriations Transfer (from)/to Special Reserve Under Section 45IC of The Reserve Bank of India Act, 1934 (8,693) 3,245 Less: Difference Between the Value of Assets and Liabilities Transferred Pursuant to a Scheme of Demerger (Refer Note No. 3 of Schedule 20) 17,141 Balance Carried to Balance Sheet 20,319 21,979 28,767 25,224 Basic and Diluted Earnings Per Share (In Rs.) Including Discontinuing Operations Basic and Diluted Earnings Per Share (In Rs.) Excluding Discontinuing Operations (Refer Note 27 of Schedule 20) * Includes Profit from Discontinuing Operations Rs. 2,115 Lakhs (Previous Rs. 12,584 Lakhs) and Related Tax Expense thereon Rs. 115 lakhs (Previous Rs. 98 Lakhs) Significant Accounting Policies and Notes to Accounts 20 As per our attached report of even date For Deloitte Haskins and Sells Chartered Accountants For and on behalf of the Board of Directors R. Laxminarayan Uday Kotak Falguni Nayar Partner Chairman Managing Director Ajay Vaidya Shanti Ekambaram Mumbai, 2nd May, 2007 Company Secretary Director Kotak Mahindra Capital Company Limited 117

119 Cash Flow Statement for the Ended 31st March, 2007 Cash Flow from Operating Activities Rs. in Lakhs Rs. in Lakhs Net Profit before taxation 9,390 18,215 Adjustments for: Depreciation Dimunition in value of current Investments 208 (Profit) on sale of Current Investments (net) (539) (470) (Profit) on sale of Long Term Investments (net) (10,565) Interest/dividend received on Investments (1,207) (951) Interest on Income Tax Refund (34) Dimunition in value of long term investments written back (172) (Profit)/loss on sale of assets (14) (9) OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 7,789 6,380 Adjustments for: (Increase)/Decrease in stock-in-trade 27,227 (2,727) Increase/(Decrease) in money market borrowings (14,606) 8,025 (Increase)/Decrease in loans and advances 7,676 (7,843) Decrease in sundry debtors 2, (Increase)/Decrease in other current assets 190 (382) Increase/(Decrease) in current liabilities 10,457 40,286 Increase in provision for gratuity and leave encashment Leave encashment/gratuity provision adjusted in General Reserve - gross of Deferred Tax (210) Net current assets transferred under the scheme of demerger (7,833) Cash Generated from Operations 33,435 44,511 Direct taxes paid (net of refunds and Interest thereon) (2,229) (2,107) Net Cash Flow from Operating Activities (A) 31,206 42,404 Cash Flow from Investing Activities Purchase of fixed assets (1,974) (198) Sale of fixed assets Purchase of other investments (97,413) (85,983) Sale of other investments 95,500 83,035 Transfer of investments under demerger (13,776) Interest/dividend received on Investments 1, Net Cash Flow (Used in)/from Investing Activities (B) (16,370) (2,170) Kotak Mahindra Capital Company Limited 118

120 Cash Flow Statement for the Ended 31st March, 2007 (Contd.) Rs. in Lakhs Rs. in Lakhs Cash Flow from Financing Activities Proceeds/(repayment) of long term borrowings (156) 49 Net Cash Flow (Used in)/from Financing Activities (C) (156) 49 Cash transferred pursuant to the scheme of demerger (21) Net Increase/(Decrease) in Cash and Cash Equivalents (A + B + C) 14,659 40,283 Cash and Cash Equivalents at the beginning of the 40, Cash and Cash Equivalents at the end of the 55,026 40,367 Notes: 14,659 40, 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. Direct Taxes paid are treated as arising from operating activities and are not bifurcated between investing and financing activities. 3. Figures of the previous year are recast wherever necessary to conform to figures of the previous year. As per our attached report of even date For Deloitte Haskins and Sells Chartered Accountants For and on behalf of the Board of Directors R. Laxminarayan Uday Kotak Falguni Nayar Partner Chairman Managing Director Ajay Vaidya Shanti Ekambaram Mumbai, 2nd May, 2007 Company Secretary Director Kotak Mahindra Capital Company Limited 119

121 Schedules forming part of the Balance Sheet 31st March, st March, 2006 (Rs. in Lakhs) (Rs. in Lakhs) (Rs. in Lakhs) Schedule 1 Capital Authorised 10,000,000 equity shares of Rs. 10 each 1,000 1,000 Total 1,000 1,000 Issued and Subscribed 3,960,020 equity shares of Rs. 10 each fully paid up (Of the above, 2,970,005 shares are held by Kotak Mahindra Bank Limited, the holding company and its nominees and 990,015 (Previous year NIL) shares are held by Kotak Securities Limited, a subsidiary of the holding company) Total Schedule 2 Reserves and Surplus Share Premium Account As per last Balance Sheet 6,190 6,190 Special Reserve under Section 45-IC of The Reserve Bank of India Act, 1934 As per last Balance Sheet 8,693 5,448 (Less)/Add: Transfer (to)/from Profit and Loss Account (8,693) 3,245 8,693 General Reserve As per last Balance Sheet 4,675 4,675 Less: Leave encashment/gratuity liability as on adjusted (140) Less: Difference between the value of assets and liabilities transferred pursuant to scheme of Demerger (Refer Note No. 3 of Schedule 20) (4,535) 4,675 Balance in Profit and Loss Account 20,319 21,979 Total 26,509 41,537 Schedule 3 Secured Loans Loan from a Financial Institution (Secured against hypothecation of vehicles purchased under Hire Purchase Agreement) Less : Unmatured Charges Total 156 Schedule 4 Unsecured Loans (Repayable within one year) Money at call/short notice - from banks 7,500 Commercial Paper (Maximum balance outstanding during the year Rs. 4,917 Lakhs; Previous year Rs. 4,931 Lakhs) 3,419 Intercorporate deposits 10,525 Total 3,419 18,025 Schedule 5 Fixed Assets Rupees in lakhs Description Gross Block (At Cost) Depreciation Net Block As at 1st April, 2006 Additions Deduction As at 31st March, 2007 As at 1st April, 2006 For the year Deductions As at 31st March, 2007 As at 31st March, 2007 As at 31st March, 2006 Tangible Assets Buildings - Leased out 1,773 1, ,766 Leasehold Improvement Computers Furniture Office Equipment # Vehicles ** Intangible Assets Software Total 846 1, , , Previous # Office equipments include assets aggregating to Rs Lakhs (50% of the original cost) jointly owned with other enterprises. The depreciation for the year is Rs lakh (Previous Rs.1 Lakh) and the written down value of the asset as on 31st March 2007 is Rs. NIL (Previous year Rs Lakh). ** Vehicles include Rs. NIL (Previous Rs. 287 Lakhs) being cost of vehicles purchased on hire purchase basis on which the lendors have a lien. Kotak Mahindra Capital Company Limited 120

122 Schedules forming part of the Balance Sheet (Contd.) Face Value (Rupees) As at 31st March, 2007 Quantity Amount As at 31st March, 31st March, (Rs. in Lakhs) 31st March, 2006 (Rs. in Lakhs) Schedule 6 Investments (Non Trade) Long Term Investments (at cost, fully paid) In Equity Shares of Subsidiary Companies (Unquoted) Kotak Mahindra (International) Limited US $ 1 2,000, Kotak Mahindra Inc US $ , Kotak Mahindra Securities Limited 10 2,250, In Equity Shares of Other Companies (Unquoted) Kotak Mahindra (International) US $ 1 2,000, Kotak Mahindra US $ , Kotak Mahindra Securities 10 2,250, Kotak Securities ,010 12,300 Multifaced Finstock Private Limited , , Kotak Mahindra Old Mutual Life Insurance 10 21,979,721 2,198 INX Media Private Ltd ,400 Companies under the same management In Units of Venture Capital Fund (partly paid) (Unquoted) Kotak India Growth Fund 1,000 50, Kotak India Real Estate Fund 100,000 1, In Bonds (Quoted - Previous Unquoted) SIDBI Capital Gains Bond 10, , ,247 10,525 10,525 26,390 12,132 Less: Provision for dimunition in value (172) (A) 26,390 11,960 Current Investments (Fully paid) (at cost or fair/market value, whichever is lower) In Units of Mutual Fund (Unquoted) Kotak Mahindra Mutual Fund: Kotak 30 Dividend Plan 10 2,048, Kotak Floater Short term Plan Weekly dividend 10 9,247,472 95,609, ,568 Kotak Midcap Dividend Plan 10 1,195, Kotak Oppurtunities Dividend Plan 10 4,263, HDFC Mutual Fund: HDFC Top 200 Fund Dividend Plan , HDFC Equity Fund Dividend Plan 10 1,915, Franklin Templeton Mutual Fund: Franklin India Blue Chip Fund Dividend Plan , Franklin India Prima Fund Dividend Plan 10 1,235, Birla Sunlife Equity Fund Dividend Plan , Prudential ICICI Power Dividend 10 1,194, (B) ,939 (A)+(B) 27,316 24,899 Aggregate Value of Quoted Investments At Book Value 10,525 Market Value # Aggregate Value of Unquoted Investments At Book Value 16,790 24,899 # - Listed but not traded, hence market value is not ascertainable. Kotak Mahindra Capital Company Limited 121

123 Schedules forming part of the Balance Sheet (Contd.) Face Value 31st March, st March, 2006 Amount 31st March, 2007 (Rs. in Lakhs) 31st March, 2006 (Rs. in Lakhs) Schedule 7 Stock-in-Trade [At cost or market/ fair value whichever is lower] A. Government Dated Securities and Treasury Bills 182 Day Treasury Bill 05/05/ ,000,000 2, Day Treasury Bill 14/04/2006 4,700, Day Treasury Bill 01/09/ ,625,000 1, Day Treasury Bill 29/09/ ,000, % Government of India ,600, % Government of India ,650, % Government of India , % Government of India , % Government of India ,900, % Government of India ,000, % Government of India ,500, % Government of India , % Government of India ,580, % Government of India ,000,000 2, % Government of India , % Government of India ,000, % Government of India ,990, % Government of India ,900,000 *@ % Government of India ,300, % Government of India % Government of India % Government of India 2010-I 500, % Government of India ,800, % Government of India 2015-I 33,300, % Government of India ,900, % Government of India , % Government of India 2011-I 1,500, % Government of India , % Government of India 2006-I 250,000,000 2, % Government of India , % Government of India % Government of India ,400, % Government of India 2016-I 850, % Government of India ,700, % Government of India 2006-III 10,000, % Government of India , % Government of India ,000, % Government of India , % Government of India , % Uttar Pradesh State Development Loan ,500, % Uttar Pradesh State Development Loan , % Goa State Development Loan ,000, % Maharashtra State Development Loan , % Tamilnadu State Development Loan ,900, Total (A) 12,177 * Partially or wholly endorsed as security for obtaining intra day liquidity facility from Reserve Bank of India and towards settlement guarantee fund of Clearing Corporation of India Excludes security sold under repurchase agreement. Kotak Mahindra Capital Company Limited 122

124 Schedules forming part of the Balance Sheet (Contd.) Face Value (Rupees) Quantity 31st March, st March, 2006 Amount 31st March, 2007 (Rs. in Lakhs) 31st March, 2006 (Rs. in Lakhs) Schedule 7 Stock-in-Trade (Contd). B. Equity Shares * Allahabad Bank 10 29, Andhra Bank 10 52, Associated Cement Companies Limited 10 7, Bank of Baroda , Bharat Electronics Limited 10 41, Bongaigaon Refinery & Petrochemicals Limited 10 38, Century Textiles & Industries Limited 10 12, C E S C Limited 10 9, Chennai Petroleum Corporation Limited 10 16, Colgate-Palmolive (India) Limited 10 51, Cummins India Limited 2 76, Divis Laboratories Limited 10 14, Gujarat Narmada Valley Fertilizers Company Limited , Gujarat Ambuja Cements Limited 2 90, Industrial Development Bank of India Limited 10 33, Indian Hotels Company Limited 10 47, India Cements Limited 10 26, Indian Petrochemicals Corporation Limited 10 13, IVRCL Infrastructure & Projects Limited 2 162, Jindal Stainless Limited 2 48, LIC Housing Finance Limited 10 40, New Delhi Television Limited 4 95, Polaris Software Lab Limited 5 44, Punj Lloyd Limited ,400 1,150 Ranbaxy Laboratories Limited 5 10, Reliance Capital Limited ,000 2,346 Siemens Limited 10 2, SRF Limited , State Bank of India ,650 3,706 Syndicate Bank , Tata Steel Limited ,425 1,342 Tata Tea Limited , Wockhardt Limited 5 50, * Earmarked towards initial margin equity index/stock futures account to the extent of Rs. 37 crores. Total (B) 15,050 Grand Total (A) + (B) 27,227 Aggregate Value of Quoted Stock in Trade Book value 27,227 Market value 27,602 31st March 2007, 31st March, 2006 (Rs. in Lakhs) (Rs. in Lakhs) (Rs. in Lakhs) Schedule 8 Sundry Debtors (Unsecured) Debts outstanding for a period exceeding six months considered good considered doubtful Less: Provision for doubtful debts (28) (14) Other debts (considered good) 2,228 4,747 Total 2,228 4,747 Kotak Mahindra Capital Company Limited 123

125 Schedules forming part of the Balance Sheet (Contd.) 31st March, st March, 2006 (Rs. in Lakhs) (Rs. in Lakhs) (Rs. in Lakhs) Schedule 9 Cash and Bank Balances Cash on hand 1 Balances with : Scheduled banks in current account Scheduled banks in Deposit account 55,009 39,867 (Including Rs. 43,893 Lakhs; previous year Rs. 33,690 Lakhs) under lien of National Securities Clearing Corporation Limited and Rs Lakhs (Previous year Rs Lakhs) under lien for Bank Guarantee) Reserve Bank of India in current account 11 Total 55,026 40,367 Schedule 10 Other Current Assets Interest accrued on Investments Interest accrued on stock in trade of securities 381 Interest accrued others Dividend receivable 1 Total Schedule 11 Loans and Advances (Unsecured, considered good unless otherwise stated) Advances recoverable in cash or in kind or for value to be received [includes deposit with the Clearing Corporation of India Limited Rs Lakh (Previous year Rs. 106 Lakhs) and capital advances of Rs. Nil (Previous year Rs Lakh] Repo Price Adjustment 145 Initial margin equity index/stock futures account 3,723 Equity Index/Stock Option Premium account 493 Less: Provision for loss (1) 492 Lending in Call Market 450 Deposits with National Securities Clearing Corporation Limited 639 3,835 Advance tax (net of provision for taxation) (Previous year Rs. 7,207 Lakhs) 423 Total 1,500 9,598 Advances include: Due from Kotak Mahindra Securities Ltd., a company under the same management 250 Maximum amount during the year 250 Schedule 12 Liabilities Sundry creditors (Other than small scale industrial undertakings) 57,718 46,723 Other liabilities Repo Interest Adjustment 137 Equity Index/Stock Option Premium account 246 Less: Provision for loss (132) 114 Mark-to-market margin equity index/stock futures account 55 Provision for loss-equity index/stock futures account 208 Interest accrued but not due on loans 72 Total 58,187 47,729 Schedule 13 Provisions Provision for Gratuity and Leave encashment Provision for Tax (Net of Advance Tax Rs. 4,642 Lakhs) 28 Total Kotak Mahindra Capital Company Limited 124

126 Schedules forming part of the Balance Sheet (Contd.) Schedule 14 Advisory and Transactional Services For the year ended 31st March, 2007 For the year ended 31st March, 2006 (Rs. in Lakhs) (Rs. in Lakhs) (Rs. in Lakhs) Issue management and placement fees and underwriting commission (Net) (Refer note 8 of Schedule 20) 3,321 4,180 Financial advisory fees 4,664 5,055 Clearing Commission Total 8,936 9,596 Schedule 15 Interest and Discounting Income Interest on: Stock-in-trade (Government dated securities, bonds and debentures) 4,560 2,512 Repo Lendings 1 Current investments (Gross) Call lendings and money at short notice 2 3 Income tax refund 34 Other interest (Gross) 3, (Tax deducted at source Rs. 692 Lakhs; Previous Rs. 199 Lakhs) Discounting and redemption premium income on: Stock in trade treasury bills Total 8,985 3,958 Schedule 16 Other Income Dividend Income on: Long term investments (others) Current investments Stock-in-trade Profit on sale of fixed assets (net) 14 9 Income Distribution by Venture Capital Funds 1 Provision for doubtful debts no longer required written back Foreign Exchange gain 3 Provision for dimunition in value of Long term Investments no longer required written back 172 Rent Income 26 Service Income Interest on Staff Loan 2 Miscellaneous income Total 1,139 1,374 Schedule 17 Personnel Salaries, allowances and bonus 4,081 3,791 Contribution to employees provident and other funds Gratuity and Leave encashment benefits Staff welfare Less: Recovery of expenses (260) (228) Total 4,060 3,680 Kotak Mahindra Capital Company Limited 125

127 Schedules forming part of the Balance Sheet (Contd.) For the year ended 31st March, 2007 For the year ended 31st March, 2006 (Rs. in Lakhs) (Rs. in Lakhs) (Rs. in Lakhs) Schedule 18 Interest and Other Financial Charges Interest on : Inter corporate deposits 23 9 Borrowings on call/short notice Interest Rate Swaps 3, Repo borrowings Commercial paper Other interest Bank and other charges 2 1 Total 4,589 2,137 Schedule 19 Other Expenses Travelling, conveyance and vehicle Auditors remuneration Audit fees 10 8 Tax audit fees 2 In other capacity 1 2 Out of pocket expenses Legal and professional fees Office Advertisement Electricity Communication Rent Rates and taxes 2 1 Insurance Repairs and maintenance others Common establishment expenses reimbursement Service charges Diminution in value of investments Current investments 208 Long term investments Commission to a Non-Wholetime Director 75 Donation 12 1 Bad debts written off Provision for doubtful debts Foreign exchange loss (net) 11 Other expenses Less: Recovery of expenses (118) (60) Total 2,322 1,797 Kotak Mahindra Capital Company Limited 126

128 Schedules forming part of the Balance Sheet and Profit and Loss Account Schedule 20 Significant Accounting Policies and Notes to the Financial Statements 1. 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, 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 reported period. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. B. REVENUE RECOGNITION Revenue is recognized when there is reasonable certainty of its ultimate realization/collection. (i) (ii) Issue management and placement fees, underwriting commission and financial advisory fees are accounted based on stage of completion of assignments. Brokerage on fixed income securities placements are accounted net of sub-brokerage on completion of the transaction. (iii) Revenue excludes Service Tax. C. FIXED ASSETS AND DEPRECIATION (i) (ii) Fixed assets are stated at cost inclusive of incidental expenses less accumulated 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 of the Companies Act, 1956 based on the Managements estimate of the useful lives of all the assets as follows: Leasehold improvements Computers and software Furniture Office Equipment Vehicles Premises Over the primary period of lease 3 years 6 years 5 years 4 years 58 years (iii) Fixed assets costing less than Rs. 5,000 are fully depreciated in the year of purchase. (iv) Fixed assets leased out on Operating lease are shown at cost. D. INTANGIBLE ASSETS Intangible assets (software) are amortised over a period of three years, on straight-line basis. E. IMPAIRMENT OF ASSETS An asset is impaired when the carrying amount of the asset exceeds its recoverable amount. An impairment loss is charged to the Profit and Loss account in the year in which an asset is identified as impaired. An impairment loss recognized in prior accounting periods is reversed if there has been a change in the estimate of the recoverable amount. F. INVESTMENTS Investments are classified into long-term investments and current investments. Kotak Mahindra Capital Company Limited 127

129 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 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 debt instruments, fair value is worked out on the basis of 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. Investments include investments in shares of companies registered outside India. They are stated at cost by converting at the rate of exchange prevalent at the time of acquisition thereof. G. 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. H. 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. I. 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. J. FOREIGN CURRENCY TRANSACTIONS (i) Transactions in foreign currencies are recorded at the rate of exchange in force at the time of occurrence of the transactions. (ii) Exchange differences arising on settlement of revenue transactions are recognized in the profit and Loss account. (iii) Monetary items (other than those related to acquisition of fixed assets) denominated in a foreign currency are restated using the exchange rates prevailing at the date of balance sheet and the resulting net exchange difference is recognized in the profit and loss account, if no forward cover is taken. K. TAXES ON INCOME Income Taxes are accounted for in accordance with Accounting Standard (AS 22) Accounting for Taxes on Income issued by the Institute of Chartered Accountants of India. Income Tax comprises of Current and Deferred tax. Current tax is measured on the basis of estimated taxable income and tax credits computed in accordance with the provisions of the Income Tax Act, Provision for Fringe Benefits Tax is made in accordance with Chapter XII-H of the Income Tax Act, The tax effect of the timing differences that result between taxable income and accounting income and are capable of reversal in one or more subsequent periods are recorded as a deferred tax asset or deferred tax liability. They are measured using the substantively enacted tax rates and tax regulations as of the Balance Sheet date. Deferred Tax assets arising mainly on account of brought forward losses and unabsorbed depreciation under tax laws, are recognized, only if there is virtual certainty of its realization, supported by convincing evidence. Deferred tax assets on account of other timing differences are recognized only to the extent there is reasonable certainty of its realization. L. EMPLOYEE BENEFITS (a) Provident fund is a defined contribution scheme and the contributions as required by the statute to Government Provident Fund are charged to profit and loss account. Kotak Mahindra Capital Company Limited 128

130 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) (b) (c) (d) Gratuity liability is defined benefit obligation and is wholly unfunded. The Company accounts for liability for future gratuity benefits based on actuarial valuation at the end of each financial year. Superannuation fund is a defined contribution scheme. The Company contributes a sum equivalent to 15% (Previous year 0.15%), subject to a maximum of Rs Lakh, of eligible employees salary to Superannuation Fund administered by trustees and managed by a life insurance Company. The Company recognizes such contribution as an expense as and when incurred. The undiscounted amount of short-term employees benefits expected to be paid in exchange for the services rendered by employee is recognized during the period when the employee renders the service. These benefits include performance incentives and non-vesting accumulated compensated absences. M. Borrowing costs Borrowing costs other than those directly attributable to qualifying fixed assets are recognized as an expense in the period in which they are incurred. N. Provisions, Contingent Liabilities & Contingent Assets Provisions involving substantial degree of estimation in measurement are recognized when there is a present obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent liabilities are not recognized but are disclosed in the notes. Contingent assets are neither recognized nor disclosed in the financial statements. O. Operating lease: As lessee: Assets acquired on leases where significant portions of the risks and rewards incidental to ownership are retained by the lessors are classified as Operating Leases. Lease rentals are charged to the Profit and Loss account on accrual basis. As Lessor: Assets given on leases where significant portions of risks and rewards incidental to ownership are retained by the Company are classified as Operating Leases. Lease incomes are recognized in the Profit and Loss account on accrual basis. Initial direct costs incurred specifically to earn revenue from operating leases are charged to Profit and Loss account as and when incurred. P. SEGMENT ACCOUNTING POLICIES (a) Segment assets and liabilities: All Segment assets and liabilities are directly attributable to the segment. Segment assets include all operating assets used by the segment and consist principally of fixed assets, investments, stock in trade, sundry debtors, loans and advances and cash and bank balances. Segment assets and liabilities do not include share capital, reserves and surplus and income tax (both current and deferred). (b) Segment revenue and expenses: Segment revenue and expenses are directly attributable to segment. It does not include provision for income tax. Q. DERIVATIVE TRANSACTIONS Derivative transactions comprising of Interest rate swaps, equity index/stock futures and Options are disclosed as off balance sheet exposures. I. Equity Index/stock Futures and Options (a) (b) (c) Gains are recognized only on settlement/expiry of the derivative instruments. All open positions are marked to market and the unrealized loss is netted off on a scrip wise basis. Mark to market gains, if any are not recognized. Debit/credit balance on open positions are shown as current assets/current liabilities, as the case may be. Kotak Mahindra Capital Company Limited 129

131 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) II. Interest Rate Swaps (IRS) (a) (b) (c) (d) Interest rate swap transactions are entered into for trading purposes. Income/expenses and gains/losses relating to these swaps are accounted for on accrual basis over the life of the swap. Gains/losses on termination/expiry are recorded as income/expense on termination/expiry date. IRS contracts outstanding as at the balance sheet date are marked to market and unrealized losses are provided for in the profit and loss account. Mark to market gains, if any, are not recognized. 2. Contingent Liability: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Guarantee of Rs. 4,359 Lakhs (Rupee equivalent of US $10,000,000) [(Previous year Rs. 4,461 Lakhs] given to Standard Chartered Bank (Mauritius) Limited in respect of borrowings by an associate (previous year subsidiary company). Guarantee of Rs. Nil (Rupee equivalent of US $3,000,000) [Previous year Rs. 1,338 Lakhs] given to Deutsche Bank AG on behalf of a subsidiary company. Guarantee of Rs. 436 Lakhs (Rupee equivalent of US $1,000,000) [Previous year Rs. 446 Lakhs] given to Bank of India on behalf of an associate (previous year subsidiary company). Guarantee of Rs. 5,667 Lakhs (Rupee equivalent of US $13,000,000) [Previous year Rs. 5,799] given to Hongkong and Shanghai Banking Corporation Limited on behalf of an associate (previous year subsidiary company). Guarantee of Rs. 2,500 Lakhs (Previous year Rs Lakhs) given to Standard Chartered Bank, Mumbai on behalf of an associate (previous year subsidiary company). Amount of guarantee issued by the bank to the associate (previous year subsidiary) and outstanding as at the year end Rs. 500 Lakhs (Previous year Rs. NIL). Guarantee of Rs. 574 Lakhs (Rupee equivalent of Singapore $2,000,000) [Previous year Rs. Nil] given to Hongkong and Shanghai Banking Corporation Limited on behalf of an associate. Counter Guarantee of Rs. 25 Lakhs (Previous year Rs. 25 Lakhs) given on behalf of the Company in favor of National Securities Clearing Corporation Limited towards base capital. Commitment towards investment in venture capital funds Kotak India Growth fund Rs. NIL (Previous year Rs. 350 Lakhs) and Kotak India Real Estate Fund Rs. NIL (Previous year Rs. 900 Lakhs). Show cause cum demand in respect of service tax Rs. 10 Lakhs (Previous year Rs. 10 Lakhs). Taxation matters in respect of which appeal is pending Rs. 283 Lakhs (Previous year Rs. 80 Lakhs). 3. The Board of Directors of the Company at their meeting held on 19th July 2006 have approved a Scheme of Arrangement (Scheme) between the Company, its holding company Kotak Mahindra Bank Limited (KMBL) and their respective shareholders and creditors under section of the Companies Act, 1956, which was sanctioned by the Honorable High Court of Judicature at Bombay on February 15, Upon coming into effect of the same on March 20, 2007, the appointed date as per the scheme, the Company has discontinued the Primary Dealership and Trading and Principal business (demerged undertaking) and the assets and liabilities of the demerged undertaking have been transferred to KMBL at the values appearing in the books of accounts of the Company as on the appointed date. The difference between the value of the assets and the value of the liabilities transferred pursuant to the scheme as aforesaid amounting to Rs. 21,676 Lakhs has been adjusted to the extent of Rs. 4,535 Lakhs from General Reserves and the balance of Rs 17,141 Lakhs has been debited to the Profit and Loss Account for the year. The disclosures in terms of the accounting standard AS 24 Discontinuing Operations, issued by the Institute of Chartered Accountants of India are as follows: (a) (b) The discontinued operations comprise the primary dealership and trading and principal business of the Company. The operations are reported under the Trading and Principal business segment for the purpose of segment reporting under AS 17 Segment Reporting. During the current year, the Scheme for transfer of the demerged undertaking was approved, announced and executed. The date of the Initial Disclosure Event was July 19, 2006 and the Effective date on which the discontinuance was completed was March 20, Kotak Mahindra Capital Company Limited 130

132 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) (c) Disclosures in respect of the Ordinary Activities of continuing and discontinuing operations are as under: 31st March, 2007 Continuing Discontinuing 31st March, 2006 Continuing Discontinuing Total Assets 88,878 64,450 47,702 Total liabilities 61,973 62,219 8,000 Total Income 12,912 7,606 10,488 15,501 Total Expenditure 5,637 5,491 4,857 2,917 Net cash flows 7,978 6,681 43,171 (2,888) 4. Pursuant to the sanction obtained from Reserve Bank of India (RBI) to discontinue its Primary Dealership business with effect from March 20, 2007, the Company had applied to the RBI to deregister the Company as a Non Banking Finance Company (NBFC) effective March 20, The RBI in exercise of its powers conferred under Section 45-IA of the Reserve Bank of India Act, 1934 has passed an order dated April 12, 2007 cancelling the Certificate of Registration as a NBFC with effect from March 20, Consequently the Reserve amount of Rs. 8,693 Lakhs created by the Company in terms of Section 45 IC of the Reserve Bank of India Act, 1934 in the previous years has been credited back to the Profit and Loss account. Further, the disclosures required to be made by an NBFC in its Financial statements have not been made. 5. The Company was classified as an investment Company by the Reserve Bank of India upto 19th March, During the period 20th March, 2007 to 31st March, 2007, the Company has purchased and sold 29,210,988 units of the face value of Rs. 10/- each costing Rs. 2,927 Lakhs of Kotak Floater Short Term Plan Weekly Dividend scheme of Kotak Mahindra Mutual Fund. 6. The Company has a 49% equity stake in Kotak Mahindra Securities Limited (KMSL), a fellow subsidiary of the Company. In terms of a scheme of arrangement approved by the Honourable High Court of Bombay on February 15, 2007, the operations of KMSL s undertaking in relation to the Trading and Clearing membership of the National Stock Exchange of India Limited along with the long term investments are to be merged at book values with the Company under the Companies Act, The aforesaid scheme is awaiting the approval of the concerned regulatory authorities and will be given effect to in the books of accounts on receipt of the necessary approvals. 7. Components of deferred tax balances: Deferred tax liability Differential treatment of accounting and valuation of stock of debt securities and interest thereon (Rupees in Lakhs) 31st March, st March, Deferred tax asset Provision for doubtful debts 10 5 Depreciation Provision for gratuity and leave encashment Unabsorbed Capital loss 37 Others Deferred Tax Asset (Net) Deferred tax benefits are recognized on assets to the extent that it is more likely than not that future taxable profits will be available against which the asset can be utilized. Deferred Tax assets on Unabsorbed Capital Loss is recognized as the Company has investments which it intends to sell and the capital gains there from will be used for setting off the unabsorbed capital loss. 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. 2,595 Lakhs (Previous year Rs. 2,847 Lakhs). Kotak Mahindra Capital Company Limited 131

133 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 9. At the General meeting of the holding company, Kotak Mahindra Bank Limited ( the bank ), the shareholders of the Bank had unanimously passed Special Resolutions on 28th July, 2000, 26th July, 2004, and 26th July, 2005, to grant options to the eligible employees of the Bank and its subsidiary companies. Pursuant to these resolutions, the following three Employees Stock Option schemes have been formulated and adopted (a) Kotak Mahindra Equity Option Scheme (b) Kotak Mahindra Equity Option Scheme (c) Kotak Mahindra Equity Option Scheme 2005 Consequent to the above, the Bank has granted stock options to employees of the Company under the above schemes. In terms of the Securities and Exchange Board of India (Employees 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. 563 Lakhs (Previous year Rs. 173 Lakhs) on account of such costs and the same is forming part of Employee costs under Schedule Recovery of expenses in schedule 17 and schedule 19 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. 11. The Company has adopted the revised AS 15 Employee benefits issued by the Institute of Chartered Accountants of India during the current financial year. Consequently, the Company has accounted for the liability on account of Short Term Compensated balances in respect of leave outstanding to the credit of its employees and in respect of gratuity. In accordance with the transitionary provisions of the standard, the liability determined on the basis of the management s estimates as on 1st April, 2006 of Rs. 140 Lakhs (net of deferred tax) has been adjusted to the General Reserve account of the Company. 12. The Company has adopted the revised AS 15 Employee benefits issued by the Institute of Chartered Accountants of India during the current financial year. Previous years figures have not been disclosed as this is the first year of implementation of this Accounting standard and comparable data is not available. Reconciliation of opening and closing balance of the present value of the defined benefit obligation for gratuity benefits is given below: Rs. in Lakhs As of 31st March, 2007 Change in Unfunded benefit obligations Present value of unfunded benefit obligations, 1st April, Service cost 15 Interest cost 5 Benefits paid Actuarial (gain)/loss on obligations 14 Benefits paid (41) Present value of unfunded benefit obligations as at 31st March, Rs. in Lakhs Reconciliation of present value of the obligation and the fair value of the plan assets Fair value of plan assets as at 31st March, 2007 Present value of benefit obligations as at 31st March, Net asset/(liability) as at 31st March, 2007 (65) Cost recognised for the period Current service cost 15 Interest cost 5 Expected return on plan assets Actuarial (gain)/loss 14 Net gratuity cost 34 Actuarial assumptions used Discount rate 8.20% p.a. Salary escalation rate 15% p.a. for first 2 years; 10% p.a. for next 2 years and 6% p.a. thereafter Expected return on plan assets N.A. Kotak Mahindra Capital Company Limited 132

134 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market. Gratuity In accordance with Payment of Gratuity Act, the Company provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee s salary and the years of employment with the Company subject to maximum of Rs Lakhs. The gratuity benefit is provided through unfunded plan and annual contributions are charged to profit and loss account. Under the scheme, the settlement obligation remains with the Company. 13. Quantitative information in respect of trading in securities. Quantity Value Quantity Value Nos. Rs. in Lakhs Nos. Rs. in Lakhs Opening Stock Equity shares of Rs. 2 each 328, Equity shares of Rs. 4 each 95, Equity shares of Rs. 5 each 153, , Equity shares of Rs. 10 each 2,868,375 13,729 1,206,200 4,037 Treasury bills* 4,038 7,836 Government dated securities* 8,139 12,342 Total (a) 27,227 24,500 Purchases Equity shares of Re. 1 each 3,698,505 6,578 1,124,499 3,153 Equity shares of Rs. 2 each 2,260,397 6,243 2,853,161 7,188 Equity shares of Rs. 4 each 14, , Equity shares of Rs. 5 each 1,768,346 9,207 1,922,326 11,918 Equity shares of Rs. 10 each 15,410,145 56,815 28,715, ,700 Treasury bills* 887,790 1,082,866 Government dated securities*# 2,210,955 2,823,109 Total (b) 3,171,045 4,039,534 Sales Equity shares of Re. 1 each 3,698,505 6,568 1,124,499 3,059 Equity shares of Rs. 2 each 2,589,147 6,820 2,524,411 7,016 Equity shares of Rs. 4 each 110, , Equity shares of Rs. 5 each 1,921,946 9,613 2,033,326 12,320 Equity shares of Rs. 10 each 18,369,805 70,207 27,053, ,780 Treasury bills*# 891,784 1,086,625 Government dated securities*# 2,218,686 2,826,806 Total (c) 3,197,343 4,039,016 Closing Stock Equity shares of Rs. 2 each 328, Equity shares of Rs. 4 each 95, Equity shares of Rs. 5 each 153, Equity shares of Rs. 10 each 2,868,375 13,730 Treasury bills*# 4,038 Government dated securities*# 8,139 Total (d) 27,227 Profit/(loss) on trading in futures (net) (e) 1,850 (1,819) Profit/(loss) on trading in Interest Rate Swaps (net) (f) 259 (98) Securities transaction tax (g) Profit/(loss) on trading in securities = c + d + e + f - a - b - g * represents securities purchased and sold during the year on the basis of face value # includes/excludes securities bought/sold under reverse repos/repos transactions Purchase and sale transactions of equity stock futures have not been considered. Kotak Mahindra Capital Company Limited 133

135 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 14. Open Interest in equity stock/index futures and options Equity Stock/Index Futures $* Expiration date No contracts Open short position As at 31st March, 2007 N.A. NIL NIL As at 31st March, 2006 (number of shares) Associated Cement Companies Limited 27 April, (7,500) Allahabad Bank 27 April, (29,400) Andhra Bank 27 April, (52,900) Bank of Baroda 27 April, (382,200) Bharat Electronics Limited 27 April, (41,250) Bongaigaon Refinery & Petrochemicals Limited 27 April, (38,250) Century Textiles & Industries Limited 27 April, (12,750) C E S C Limited 27 April, (9,900) Chennai Petroleum Corporation Limited 27 April, (16,150) Colgate-Palmolive (India) Limited 27 April, (51,450) Cummins India Limited 27 April, (76,000) Divis Laboratories Limited 27 April, (14,750) Gujarat Narmada Valley Fertilizers Company Limited 27 April, (238,950) Gujarat Ambuja Cements Limited 27 April, (90,750) Industrial Development Bank of India Limited 27 April, (33,600) Indian Hotels Company Limited 27 April, (47,950) India Cements Limited 27 April, (26,100) Indian Petrochemicals Corporation Limited 27 April, (13,200) I V R C L Infrastructure & Projects Limited 27 April, (162,000) Jindal Stainless Limited 27 April, (48,000) L I C Housing Finance Limited 27 April, (40,800) New Delhi Television Limited 27 April, (95,700) S & P CNX Nifty 27 April, (96,800) Polaris Software Lab Limited 27 April, (44,800) Punj Lloyd Limited 27 April, (107,400) Ranbaxy Laboratories Limited 27 April, (10,400) Reliance Capital Limited 27 April, (462,000) State Bank Of India 27 April, (400,000) Siemens Limited 27 April, (2,100) S R F Limited 27 April, (210,000) Syndicate Bank 27 April, (277,400) Tata Steel Limited 27 April, (250,425) Tata Tea Limited 27 April, (102,300) Wockhardt Limited 27 April, (50,400) $ The Company has earmarked equity shares held as stock in trade towards initial margin. Aggregate value of such equity securities as at 31st March, 2007 is Rs. NIL (Previous Rs. 3,723 Lakhs) * The Company enters into equity derivative contracts for the purpose of arbitrage 15. Repo/Reverse Repo transactions: (Rupees in Lakhs) Minimum outstanding during the year Maximum outstanding during the year Daily Average outstanding during the year As at March 31, 2007 Securities sold under repos 1,066 21,814 7,728 NIL Securities purchased under reverse repos 2,987 4, NIL Kotak Mahindra Capital Company Limited 134

136 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 16. (a) Managerial Remuneration under Section 198 of the Companies Act, 1956 (Rupees in Lakhs) Salaries, allowances and incentives Contribution to provident fund 5 4 Perquisites 5 4 Employee stock option plan * # Less than Rs. 1 Lakh The above excludes provision for gratuity, since it is based on actuarial valuation done on an overall Company basis. * Includes Rs. 94 Lakhs to a Managing Director for the period from 1st April, 2005 to June 30, 2005 and Rs. 293 Lakhs to another Managing Director for the period from July 1, 2005 to 31st March, (b) Computation of net profits as per Section 349 read with Section 309 (5) and Section 198 of the Companies Act, Rs. in Lakhs Rs. in Lakhs Profit before taxation as per Profit and Loss account 18,215 Add: Depreciation as per financial statements 160 Managerial remuneration 462 Provision for doubtful debts 14 Provision for doubtful debts no longer required (19) Book deficit/(surplus) on fixed assets sold (net) (9) 18,823 Less: Depreciation under Section 350 of the Companies Act, Deficit/(surplus) (net) on disposal of fixed assets under Section 350 of the Companies Act, Profits on sale of Long Term Investments 10,565 Net Profit for Section 198 of Companies Act, ,089 Calculation of Commission to a non-whole time 1% of net profit as above in terms of Special Resolution of the Members dated April 27, Determined and limited by the Board to 75 Figures for the current year have not been furnished since Commission as a percentage of the net profits is not payable for the year to any Director of the Company (Rupees in Lakhs) (Rupees in Lakhs) 17. Earnings in foreign exchange Financial advisory fees 1,918 2,991 Other income CIF Value of Imports Computers Expenditure in foreign currency Travelling 8 25 Professional fees 4 17 Membership and subscription 11 # Insurance 4 Other expenses 2 8 # Less than Rs. 1 Lakh Kotak Mahindra Capital Company Limited 135

137 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 20. Dividend remittances to non-resident shareholders: (a) Number of non-resident shareholders 1 (b) Number of equity shares held by them 990,015 (c) Amount of dividend paid Rs. 119 Lakhs (d) to which dividend relates (Interim) 21. Segmental Information: The Company is organised into three segments namely Advisory and Transactional services Trading and Principal Investments and Long Term Investments. The Advisory and Transactional services segment provides financial advisory services such as mergers and acquisition advice; equity-debt issue management services and Professional Clearing operations of National Securities Clearing Corporation Limited. The Trading and Principal Investments segment deals in debt, equity, money markets and loans/deposits. The Long Term Investments segment includes long term and strategic investments. 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 system. Segment information: Advisory and Transactional Services (Rupees in Lakhs) 31st March, st March, 2006 Trading and Long Term Total Advisory and Trading and Long Term Total Principal Investments Transactional Principal Investments Investments Services Investments Segment Revenue Income from external customers 12,109 7, ,458 10,486 15, ,989 Income from inter segments Total Revenue 12,109 7, ,458 10,486 15, ,989 Segment result Results 6,472 2, ,330 5,632 12, ,215 Add: Unallocated income 60 Less: Unallocated expenses Less : Income tax (including deferred tax and fringe benefit tax) 2,602 1,992 Net Profit 6,788 16,223 Other Information Carrying amount of segment assets 59,768 26,579 86,347 47,551 46,520 11,707 1,05,778 Unallocated corporate assets 2,531 6,375 Total Assets 88,878 1,12,153 Carrying amount of segment liabilities 61,944 61,944 46,975 18,525 65,500 Unallocated corporate liabilities 29 4,719 Total Liabilities 61,973 70,219 Capital Expenditure Tangible 1, , Intangible Depreciation/Amortisation Non cash expenses other than depreciation Kotak Mahindra Capital Company Limited 136

138 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Segment revenue comprises of: (Rupees in Lakhs) 31st March, st March, 2006 Income from services 8,936 9,596 Interest and discounting income 8,951 3,958 Profit on sale of long term investments (net) 10,565 Profit on sale of current term investments (net) Profit on trading in securities (net) Other Income: Dividend income on : Current investments Stock-in-trade Provision for doubtful debts no longer required written back Provision for diminution in value of long term investments no longer required 172 Others Total Segment Revenue 20,458 25,989 Add: Unallocated Income 60 Total Income 20,518 25,989 # less than Rs. 1 Lakh 22. Related parties disclosures (i) 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 51.46% of the equity share capital of KMBL Subsidiary Companies: (100% equity capital held by the Company) Kotak Mahindra Securities Limited (upto 29th September, 2006) Kotak Mahindra Inc. (upto 15th October, 2006) Kotak Mahindra (International) Limited (KMIL) (upto 16th October, 2006) Kotak Mahindra (UK) Limited (upto 12th October 2006) (100% equity capital held by KMIL) Global Investment Opportunities Fund Limited (100% voting shares held by KMIL) (upto 12th October, 2006) B. Other Related parties: (i) Fellow Subsidiaries: Kotak Securities Limited Kotak Mahindra Prime Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Old Mutual Life Insurance Limited Kotak Forex Brokerage Limited Kotak Mahindra Investments Limited Kotak Mahindra Securities Limited (from 30th September, 2006) Kotak Mahindra Inc. (from 16th October, 2006) Kotak Mahindra (International) Limited (KMIL) (from 17th October, 2006) Kotak Mahindra (UK) Limited (from 13th October, 2006) (100% equity capital held by KMIL) Global Investment Opportunities Fund Limited (48.78% voting shares held by KMIL) (from 13th October, 2006) (ii) (iii) Associates (Enterprises in which the Company has significant influence) Venturer in respect of which the Company is an associate or joint venture Multifaced Finstock Private Limited Goldman Sachs (Mauritius) LLC (upto 30th May, 2006) (iv) Joint Venture Kotak Mahindra Old Mutual Life Insurance Limited-Joint Venture with Kotak Mahindra Bank Limited; Old Mutual Plc; Kotak Mahindra Prime Limited (v) Key management personnel Mr. Uday S. Kotak, Non-executive Chairman Ms. Falguni Nayar, Managing Director Kotak Mahindra Capital Company Limited 137

139 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) The following transactions were carried out with related parties in the ordinary course of business (all figures in Rupees Lakhs) Nature of Transaction Holding Company Subsidiary Companies Kotak Mahindra Bank Ltd. Kotak Mahindra Securities Ltd. Kotak Mahindra (International) Ltd. Kotak Mahindra (UK) Ltd. Kotak Mahindra Inc. Total Finance Interest paid 3,139 (643) (6) (6) Loans given 2,985 (5,549) Loan taken 2,000 (1,880) (1,500) (1,500) Loans given repaid 2,985 (5,549) Loan taken repaid 2,000 (1,880) (1,500) (1,500) Interest received 6,298 (1,525) Fixed Deposit Placed 331,598 (111,879) Fixed Deposit encashed/matured 288,657 (72,024) Outstanding Loan taken Loan given Bank Balance 11 (329) Investments Purchase/subscription Sale/redemption Interest/Dividend/Premium on Investments Stock-in-trade (Securities) Purchases/subscription 4,881 (13,615) Sales 230,935 (98,587) Interest/dividend stock-in-trade # Includes transactions in respect of investments in, borrowing from, and purchase from/sale to - schemes of Kotak Mahindra Mutual Fund, managed by a fellow subsidiary. Figures in brackets relates to the pervious year. Kotak Mahindra Capital Company Limited 138

140 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Kotak Mahindra Securities Ltd. Kotak Mahindra (Intl) Ltd. Kotak Mahindra (UK) Ltd. Fellow subsidiary Companies Joint Venture Associates Key Management Personnel Kotak Mahindra Inc. Kotak Securities Ltd. Kotak Mahindra Asset Management Company Ltd. Kotak Mahindra Prime Ltd Kotak Mahindra Invs. Ltd. Total Kotak Mahindra Old Mutual Life Insurance Ltd. Multifaced Finstock Private Ltd. Key Management Personnel Ajay Sondhi Falguni Nayar Other related parties Goldman Sachs (Mauritius) LLC (30) (9) (39) (26) (9,220) (106) (9,326) (10,525) ,525 (9,220) (60) (9,280) 1 1 (156) (156) (10,525) ,294 # 1,723 82, ,300 (73,115) # (73,115) 77,532 # 77,532 (69,583) # (69,583) (392) (392) 501, ,214 # 776,148 (133,559) (158,082) (291,641) 538, ,590 # 812,375 (112,649) (160,674) # (273,323) (29) (29) Kotak Mahindra Capital Company Limited 139

141 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) The following transactions were carried out with related parties in the ordinary course of business (all figures in Rupees Lakhs) Nature of Transaction Holding Company Subsidiary Companies Kotak Mahindra Bank Ltd. Kotak Mahindra Securities Ltd. Kotak Mahindra (International) Ltd. Kotak Mahindra (UK) Ltd. Kotak Mahindra Inc. Total Outstandings in Respect of Stock-in-trade Payables Receivable Other receipt and payments Sale of Fixed assets 36 Purchase of Fixed assets 2 Income from Services (12) (266) (278) Others - Receipts 9 Expenses reimbursement to other companies (275) (1) (1) Expenses reimbursement by other companies 130 (105) Other expenses paid/brokerage paid/fee/ commission sharing 964 (418) (52) (52) Remuneration* Dividend paid/payable - Gross Guarantees given (2,500) (5,759) (8,259) Payables 67 (144) (4) (4) Receivables (66) Guarantees Outstanding (2,500) (11,599) (446) (14,545) Net Assets transferred under scheme of demerger 21,676 * Excludes provision for gratuity and leave encashment, since these are based on actuarial valuations done on an overall Company basis. Figures in brackets relates to the pervious year. Kotak Mahindra Capital Company Limited 140

142 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Kotak Mahindra Securities Ltd. Kotak Mahindra (Intl) Ltd. Kotak Mahindra (UK) Ltd. Fellow subsidiary Companies Joint Venture Associates Key Management Personnel Kotak Mahindra Inc. Kotak Securities Ltd. Kotak Mahindra Asset Management Company Ltd. Kotak Mahindra Prime Ltd Kotak Mahindra Invs. Ltd. Total Kotak Mahindra Old Mutual Life Insurance Ltd. Multifaced Finstock Private Ltd. Key Other related Management parties Personnel Ajay Sondhi Falguni Nayar Goldman Sachs (Mauritius) LLC (598) (598) (0) (0) (12) (2) (14) (224) (1) (225) (19,910) (4) (19,914) (395) (395) (337) (17) (1) (356) 2,576 2,576 3 (25,355) (5) (25,360) (0) 365 (94) (293) (593) (593) (3) (3) 2,500 10,026 1,010 13,536 Kotak Mahindra Capital Company Limited 141

143 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 23. Operating Lease A. Assets taken on lease (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 36 months. (ii) Rent payments are recognized in the Profit and Loss Account under Rent and are disclosed in Schedule 19. (iii) The future minimum lease payments under non-cancellable operating lease not later than one year as at 31st March, 2007 aggregate to Rs. NIL Lakhs (Previous year Rs. 4 Lakhs) and those for period between one to five years aggregate to Rs. Nil (Previous year Rs. Nil). B. Assets given on lease (i) The Company has leased out certain assets under operating leases (ii) Rent receipts are recognized in the Profit and Loss Account under Rent and are disclosed in Schedule 16. (iii) The future minimum lease payments under non-cancellable operating lease not later than one year as at 31st March, 2007 aggregate to Rs. 72 Lakhs (Previous year Rs. NIL) and those for period between one to five years aggregate to Rs. 92 (Previous year Rs. Nil). 24. The Company has not received any intimation from the suppliers regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence the disclosures relating to amount unpaid as at the end of the year together with interest paid/payable as required under the said Act has not been furnished and provision for interest, if any, on delayed payments, is not ascertainable at this stage. 25. Issuer composition of investments in non-government securities (Rs. In Lakhs) Sr. No. Issuer Amount Extent of Private placement Extent of below investment grade securities Extent of unrated securities Extent of unlisted securities 1. Public Sector Units 2. Financial Institutions * (10,525) 3. Banks 4. Other Primary Dealers 5. Private Corporates 6. Subsidiaries/Joint Ventures 7. Others 8. Provision held towards depreciation * Not applicable, since the Company has ceased to be a Primary Dealer effective 20th March, 2007 Figures in brackets relates to the previous year. 26. Interest Rate Swaps (IRS) as at the Balance Sheet date Nos. (Rs. In Lakhs) Nos. (Rs. In Lakhs) Notional Principal Amount Outstanding 9 22,500 Fair value of IRS Contracts outstanding (15) Credit Exposure* 79 Credit Concentration Banks 9 100% Non Banks Kotak Mahindra Capital Company Limited 142

144 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Credit exposure is the potential loss, if the counter parties failed to fulfill their contractual obligation under the IRS contracts. It is computed using the Current Exposure Method prescribed by Reserve Bank of India vide circular no. DBOD. No. BP.BC. 48/ / As per the prevailing market practices, collateral is not insisted upon from counter parties of IRS contracts. 27. Earnings per Share (EPS) The numerator and denominator used to calculate Basic and Diluted Earnings per share: Including Discontinuing 31st March, st March, 2006 Excluding Including Discontinuing Discontinuing Excluding Discontinuing Profit attributable to Equity shareholders (Rs.) (A) 678,787, ,780,304 1,622,300, ,300,000 Basic/Weighted average number of Equity shares outstanding during the year (B) 3,960,020 3,960,020 3,960,020 3,960,020 Nominal value of Equity shares (Rs.) 39,600,200 39,600,200 39,600,200 39,600,200 Basic Earnings per share (Rs.) (A)/(B) In terms of a joint venture agreement entered into by the Company with Kotak Mahindra Bank Limited, Old Mutual Plc. and Kotak Mahindra Prime Limited, the Company has acquired 6.65% ownership interest in Kotak Mahindra Old mutual Life insurance Limited (incorporated in India) which falls under the category of Jointly Controlled Entity as per accounting Standard 27 Financial Reporting of Interests in Joint Ventures issued by the Institute of Chartered Accountants of India. Aggregate amounts of assets, liabilities, income and expenses related to the interest in the jointly controlled entity based on the accounts for the year ended 31st March, 2007 (subject to audit). Rupees in Lakhs Assets 13,009 Liabilities 12,324 Income 7,220 Expenses 7, Figures for the previous year have been regrouped wherever necessary to conform to current year classification. Kotak Mahindra Capital Company Limited 143

145 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 30. Balance Sheet Abstract and Company s General Business Profile (a) Position of Mobilisation and Deployment of Funds (Amount in Rs. Lakhs) Total Liabilities 88,878 Total Assets 88,878 Sources of Funds Paid up Capital 396 Reserves and Surplus 26,509 Secured Loans Unsecured Loans 3,419 Current Liabilities 58,554 Application of Funds Net Fixed Assets 2,014 Investments 27,316 Deferred Tax Asset 218 Current Assets 59,330 Miscellaneous Expenditure (b) Performance of Company Turnover/Income 20,518 Total Expenditure 11,128 Profit before Tax 9,390 Profit after Tax 6,788 Earnings Per Share (in Rs.) Dividend Rate (%) Nil (c) Generic Names of Three Principal Products/Services of Company Product Description Investment Banking and Clearing Primary Dealer in Government of India Securities (upto 19th March 2007) Item Code No. N/A N/A For and on behalf of the Board of Directors Uday Kotak Chairman Falguni Nayar Managing Director Ajay Vaidya Shanti Ekambaram Mumbai, 2nd May, 2007 Company Secretary Director Kotak Mahindra Capital Company Limited 144

146 BOARD OF DIRECTORS: Mr. Uday Kotak (C), Mr. Narayan S.A. (MD), Mr. Alroy lobo (MD-Institutional Equities), Mr. C. Jayaram (D), Ms. Falguni Nayar (D), Mr. Shivaji Dam (D), Mr. D. Kannan, Executive Director & Chief Operating Officer Directors Report To the Members of Kotak Securities Limited Your Directors are pleased to present the 13th Annual Report and the Audited Accounts for the year ended 31st March I. Financial Highlights II. III. (Rupees in Lakhs except per share data) 31st March, st March, 2006 Gross Income 83, , Profit/(Loss) before Depreciation and Tax 38, , Depreciation 2, , Profit/(Loss) before Tax 36, , Provision for Tax 10, , Profit/(Loss) After Tax 25, , Transfer from Debenture Redemption Reserve 7, Balance brought forward from previous year 37, , Amount available for appropriation 70, , Transfer to Debenture Redemption Reserve 10, , Profit/(Loss) carried forward to the Balance Sheet 60, , Earnings per share on equity shares of Rs. 10 each (Basic and Diluted) 1, , Dividend With healthy growth expected in volumes and market share, the Board proposes to employ its resources to augment capital requirements and does not recommend a dividend for the year Operations Where as the fiscal year was an historic year for the Indian economy, as the benchmark BSE Sensex crossed the 10,000 mark on 7th February, 2006, the fiscal year , saw the benchmark BSE Sensex crossing the 14,800 mark. Similarly the benchmark Nifty which had touched the years high of 3418 on 30th March, 2006 crossed the 4200 mark in fiscal year The average daily volumes in the Cash Segment grew from Rs billions in to Rs billions in , an increase of 23%. On the derivative segment on NSE, the Average Daily volumes increased from Rs billions in to Rs billions in , an increase of 53%. The volume traded by your Company in the financial year (FY) as compared with the aggregate reported equity turnover of NSE and BSE for the said FY was in excess of 9%. IV. Retail Segment Your company continued its focus on increasing its market share in the retail segment. Towards this end, your company now has more than 800 outlets across the country comprising own as well as sub-broker outlets. The number of registered sub-brokers stood at 798 for NSE and 762 for BSE on 31st March, The customer base has increased by around 100,000 taking total number to more than 320,000. Online Trading Segment The Online Trading Portal continues to do well. A number of new schemes and products for online customers were launched. The most significant being a flat brokerage product for clients with relatively smaller transaction size. The number of Online registered customers as on 31st March, 2007 was in excess of 115,000. The Online volumes continued to grow and even crossed the Rs. 1,000 Crore mark in fiscal year Institutional Equities The Company s institutional equities division has made steady growth during the year. This was achieved through a larger customer base & servicing of the Global and Domestic Asset Managers. The company strives to provide high quality fundamental equity research and globally compliant execution service to clients. Significant focus on Futures & Options segment contributed substantially to the revenue growth and market share. Primary Market The buoyant capital markets saw the number of primary market issues increasing over the last year. Your company has participated in the distribution of 90 Public offer issues, mobilizing in excess of Rs. 24,600 crores in the retail segment itself. Portfolio Management Services Your company had launched schemes to attract retail Portfolio Management Investors during Financial This segment continues to grow. Three of the Close-ended schemes launched in earlier years matured in the financial year Your company continues to focus on increasing product offerings and improving service standards. The total equity Assets Under Management (AUM) as on 31st March, 2007 was Rs. 2,300 Crores. Awards and Recognitions Your Company has been awarded the following awards during the financial year Best Equities House in India by The Asset Triple A Country Awards for Best Local Broker by Asia Money for The Most Customer Responsive Company for 2006 by Avaya Global Connect Survey. Best Provider of Portfolio Management Equities Award by Euromoney for Kotak Securities Limited 145

147 V. Future Outlook IX. Statutory Information VI. Corporate India continues to provide good results for the year ended March 31, The economy has also registered a robust grow. Foreign Institutional Investor s interest in India saw a significant increase during FY In the back drop of this scenario, Capital Markets are expected to be buoyant and active for the coming year. However, if the interest rate continues to increase as evidenced in FY , it may affect the Corporate profitability. The emerging scenario has also attracted other players who have announced their intention to enter this segment, which may lead to a pressure on realization rates. Regulatory compliance continues to become more stringent and challenging. As a market leader, your company is well positioned to take on the challenges that lie ahead, including that of increased competition. Directors Mr. C. Jayaram and Mr. Narayan S. A. retire by rotation at the ensuing Annual General Meeting and are eligible for re-appointment. During the year, Ms. Jenny Finney and Mr. Vijay Karnani, who were directors nominated by Goldman Sachs (Mauritius) LLC (hereafter referred to as Goldman) stepped down as directors on 31st May, 2006 on sale of its stake by Goldman in the company. The Board places on record its appreciation of Ms. Jenny Finney s and Mr. Vijay Karnani s contribution to the Company. Mr. D. Kannan, Chief Operating Officer was appointed as Additional Director on 11th August, 2006 and was subsequently appointed as Whole Time director designated as Executive Director and Chief Operating Officer for a period upto 31st March, Mr. D. Kannan has been reappointed as Executive Director and Chief Operating Officer for a term of two years w.e.f. 1st April, Mr. Shivaji Dam, who is an Independent Director on the Board of Kotak Mahindra Bank Limited (KMBL), the holding Company, was nominated by KMBL to be appointed as Director on the Board of your Company in pursuance of requirement of Listing agreement, entered into with the stock exchanges by KMBL, for appointment of independent director of holding company on the board of material unlisted Indian subsidiary company. In this regard, Mr. Shivaji Dam was appointed as additional director w.e.f. 11th August, VII. Auditors The Company s auditors, Messrs. Price Waterhouse, Chartered Accountants, Mumbai, retire at the ensuing Annual General Meeting and are eligible for re-appointment. VIII. Fixed Deposits During the year under review, the Company did not accept 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 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 Lacs (Previous year Rs Lacs) and Rs Lacs (Previous year Rs Lacs) respectively. X. Directors Responsibility Statement XI. Based on representations from the Management, the Directors state, in pursuance of Section 217 (2AA) of the Companies Act, 1956, that: (i) (ii) the Company has, in the preparation of the annual accounts for the year ended 31st March, 2007, 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 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 31st March, 2007 and of the profit of the Company for the financial year ended 31st March, 2007; (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. Acknowledgements The Directors wish to thank Securities and Exchange Board of India, the Stock Exchanges, the Depositories and the Company s Bankers for their support. The Directors commend the employees of the Company for their dedicated efforts that made these results achievable. Mumbai, 2nd May, 2007 For and on behalf of the Board of Directors UDAY S. KOTAK Chairman Kotak Securities Limited 146

148 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 31st March, 2007, 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 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 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) (b) (c) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2007; 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. 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 31st March, 2007, and taken on record by the Board of Directors of the Company, none of the Directors of the Company is disqualified as on 31st March, 2007 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 as amended by the Companies (Auditor s Report) (Amendment) Order, 2004 issued by the Central Government of India in terms of subsection (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) (c) 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. In our opinion, a substantial part of the Company s fixed assets have not been disposed off by the Company during the year. (ii) (a) The securities held as stock in trade have been confirmed with the statement of holdings provided by the National Securities Depository Limited (NSDL), Central Depository Services (India) Limited (CDSL) and other depository participants at the financial year end. In our opinion, the frequency of confirmation is reasonable. (b) (c) In our opinion, the procedures of 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. 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 statement of holdings provided by NSDL, CDSL and other depository participants have been noticed. (iii) (a) (i) 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. 11,419,000 ( 000 s ) and the year end balance of such fixed deposits aggregates Rs. 6,624,617 ( 000 s ). Kotak Securities Limited 147

149 Auditors Report (Contd.) (ii) 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. (iii) 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. (b) (i) The Company has taken overdraft facility from its holding company covered in the register maintained under Section 301 of the Act. The facility available to the Company during the year aggregates Rs. 500,000 ( 000 s ) and the year end book balance of such overdrafts aggregates Rs. 186,886 ( 000 s ). (ii) In our opinion, the rate of interest and other terms and conditions of such overdrafts are not prima facie prejudicial to the interest of the Company. (iii) The repayment of principal amounts and payment of interest in case of the aforesaid overdrafts is as per stipulations. (iv) 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 in respect of purchase and sale of securities held as stock in trade, purchase of fixed assets and sale of services. 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 the internal control system. (v) (a) In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangements referred to in Section 301 of the Act, have been entered in the register required to be maintained under Section 301 of the Act. (b) In our opinion and according to the information and explanations given to us, the transactions made in pursuance of such contracts or arrangements entered in the register in pursuance of Section 301 of the Act and exceeding the value of Rs. 500 ( 000 s ) 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) (b) According to the books of account and records as produced and examined by us, in accordance with the 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, service tax, customs duty, excise duty, cess and other material statutory dues as applicable with the appropriate authorities in India. According to the information and explanations given to us, as at 31st March, 2007 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, service tax, excise duty and cess. (ix) The Company has neither accumulated losses as at 31st March, 2007 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) In our opinion, the Company has maintained adequate documents and records in the cases where the Company has granted loans and advances on the basis of security by way of pledge of shares, debentures and other securities. (xii) 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. (xiii) 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. (xiv) 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. (xv) 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. Kotak Securities Limited 148

150 Auditors Report (Contd.) (xvi) All debentures issued and outstanding at the year end are unsecured. Accordingly, the Company is not required to and has not created a charge in respect of these debentures. (xvii) 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 practices in India, and according to the information and explanations given to us, 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 such case by the Management. Refer Note 22 on Schedule 20. (xviii) The other clauses of the Companies (Auditor s Report) Order, 2003 as amended by the Companies (Auditor s Report) (Amendment) Order, 2004 issued by the Central Government of India are not applicable to the Company for the current year. Mumbai, 2nd May, 2007 K. H. Vachha Partner Membership No. F30798 For and on behalf of Price Waterhouse Chartered Accountants Kotak Securities Limited 149

151 Balance Sheet as at 31st March, 2007 SOURCES OF FUNDS Schedule 31st March st March 2006 Rs. in Lacs Rs. in Lacs Shareholders Funds : Capital Reserves and Surplus 2 74, , Loan Funds : Secured Loans 3 3, , Unsecured Loans 4 57, , Total 135, , APPLICATION OF FUNDS Fixed Assets : 5 Gross Block 10, , Less : Depreciation/Amortisation 5, , Net Block 4, , Investments 6 34, , Deferred Tax (Refer Note 4 on Schedule 20) Deferred Tax Asset Deferred Tax Liability Current Assets, Loans and Advances : Stock In Trade 7 12, , Sundry Debtors 8 37, , Cash and Bank Balances 9 107, , Other Current Assets Loans and Advances 11 14, , , , Less : Current Liabilities and Provisions Liabilities 12 75, , Provisions 13 2, , , Net Current Assets 96, , Total 135, , Notes to the Financial Statements 20 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 Partner Sandeep Chordia Uday S. Kotak Membership No : F30798 Company Secretary Chairman For and on behalf of PRICE WATERHOUSE Narayan S. A. Alroy Lobo Chartered Accountants Managing Director Managing Director-Institutional Equities Mumbai, Dated : 2nd May, 2007 Kotak Securities Limited 150

152 Profit and Loss Account for the year ended 31st March, 2007 INCOME Schedule 31st March, 31st March, Rs. in Lacs Rs. in Lacs Income from Services 14 61, , Interest Income 15 12, , Other Income 16 8, , Total Income 83, , EXPENDITURE Personnel 17 16, , Interest and Other Finance Charges 18 6, Other Expenses 19 21, , Total Expenditure 44, , Profit Before Depreciation/Amortisation and Taxation 38, , Depreciation/Amortisation 2, , Profit Before Taxation 36, , Provision For Taxation Current Tax [(Including short provision for taxation relating to earlier years 11, , Rs Lacs (net) (Previous Rs Lacs (Net)] Deferred Tax (Refer Note 4 on Schedule 20) (674.32) (139.70) Fringe Benefits Tax Profit After Taxation 25, , Transfer from Debenture Redemption Reserve 7, Balance Brought Forward 37, , , , APPROPRIATIONS Transfer to Debenture Redemption Reserve 10, , Balance Carried Forward 60, , , , Earnings per Share on Equity Shares of Rs. 10 each Basic and Diluted (In Rupees) 1, , Notes to the Financial Statements 20 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 Partner Sandeep Chordia Uday S. Kotak Membership No : F30798 Company Secretary Chairman For and on behalf of PRICE WATERHOUSE Narayan S. A. Alroy Lobo Chartered Accountants Managing Director Managing Director - Institutional Equities Mumbai, Dated : 2nd May, 2007 Kotak Securities Limited 151

153 Cash Flow Statement for the year ended 31st March, 2007 Rs in lacs Cash flow from operating activities Schedule 31st March, st March, 2006 Net profit before taxation 36, , Add adjustments for : Depreciation/amortisation 2, , Interest and other finance charges 6, Interest income (12,677.87) (4,903.57) Operating interest income 4, , Dividend income (1,022.68) (591.11) Dividend income on stock in trade (Profit)/loss on sale of fixed assets (net) (8.73) (7.49) (Profit)/loss on sale of investments (net) (0.18) (23.32) Operating profit before working capital changes 35, , Adjustments for changes in working capital : Trade and other receivables 27, (46,750.36) Stock in trade 13, (15,120.20) Trade and other payables (30,235.09) 59, Cash generated from operations 45, , Taxes paid including fringe benefits tax (net of refunds) (11,255.97) (10,668.20) Net cash from operating activities (A) 34, , Cash flow from investing activities: Purchase of fixed assets (5,528.09) (3,167.47) Proceeds from sale of fixed assets Sale of investments 2,717, ,089, Purchase of investments (2,742,913.05) (1,098,277.04) Interest received 7, , Dividend on current investments Net cash (used in)/from investing activities (B) (21,966.51) (8,975.89) Kotak Securities Limited 152

154 Cash Flow Statement for the year ended 31st March, 2007 (Contd.) Rs in lacs Schedule 31st March, st March, 2006 Cash flow from financing activities: Proceeds/(repayments) from/of borrowings (net) 27, , Interest and other finance charges paid (5,729.21) (676.15) Net cash from/(used in) financing activities (C) 21, , Net Increase in Cash and Cash Equivalents (A)+(B)+(C) 34, , Cash and cash equivalents at the beginning of the year 73, , Cash and cash equivalents at the end of the year 107, , Cash and cash equivalents comprise of: Cash and cheques in hand Balances with scheduled banks 107, , Total 107, , 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. 75, Lacs (Previous Rs. 43, Lacs) which is under the lien of National Securities Clearing Corporation Limited, Rs. 10, Lacs (Previous Rs. 5,700 Lacs) which is under the lien of The Bombay Stock Exchange Limited and Rs lac (Previous Rs lac) as collateral towards lifting of shares for rectification from custodians. This is the Cash Flow Statement referred to in our report of even date For and on behalf of the Board of Directors K. H. VACHHA Partner Sandeep Chordia Uday S. Kotak Membership No : F30798 Company Secretary Chairman For and on behalf of PRICE WATERHOUSE Narayan S. A. Alroy Lobo Chartered Accountants Managing Director Managing Director-Institutional Equities Mumbai, Dated : 2nd May, 2007 Kotak Securities Limited 153

155 Schedule Forming Part of Balance Sheet 31st March, 31st March, Rs. in Lacs Rs. in Lacs Schedule 1 - Capital Authorised 1,000,000 * (Previous 400,000) Preference Shares of Rs. 100 each 1, ,000,000 Equity Shares of Rs. 10 each , , * During the year, the authorised share capital of the Company has been increased by creation of 600,000 Preference Shares of Rs. 100 each pursuant to the resolution passed at the annual general meeting held on May 5, 2006 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} Total Schedule 2 - Reserves And Surplus Securities Premium Account Balance as per last Balance Sheet 1, , General Reserve Balance as per last Balance Sheet 2, , Less: Leave Encashment and Gratuity Liability (Net of deferred tax asset of Rs Lacs) of Earlier s (Refer Note 5 (a)) , , Debenture Redemption Reserve Balance as per last Balance Sheet 7, Transfer to Profit and Loss Account 7, Transfer from Profit and Loss Account 10, , , , Profit and Loss Account 60, , Total 74, , Schedule 3 - Secured Loans Loan and Overdraft From Banks 3, , (Secured by a pari passu first charge on the stock in trade and business receivables) Other Loans (Secured against hypothecation of vehicles) Total 3, , Kotak Securities Limited 154

156 Schedule Forming Part of Balance Sheet (Contd.) Schedule 4 - Unsecured Loans Nil, (Previous -25) 7.50% Optionally Convertible Debentures of Rs. 10,000,000 each. Redeemed on 21st April, (Convertible into 25,000, 5% Redeemable Non-Convertible Preference Shares of Rs. 100 each at a premium of Rs. 9,900 per share.) Nil, (Previous -20) 8.80% Optionally Convertible Debentures of Rs. 10,000,000 each. Redeemed on 5th May, (Convertible into 20,000,5% Redeemable Non-Convertible Preference Shares of Rs. 100 each at a premium of Rs. 9,900 per share.) Nil, (Previous -20) 8.35% Optionally Convertible Debentures of Rs. 10,000,000 each. Redeemed on 17th May, (Convertible into 20,000,5% Redeemable Non-Convertible Preference Shares of Rs. 100 each at a premium of Rs. 9,900 per share.) Nil, (Previous -20) 8.40% Optionally Convertible Debentures of Rs. 10,000,000 each. Redeemed on 24th May, (Convertible into 20,000,5% Redeemable Non-Convertible Preference Shares of Rs. 100 each at a premium of Rs. 9,900 per share.) Nil, (Previous -25) 8.85% Optionally Convertible Debentures of Rs. 10,000,000 each. Redeemed on 5th June, (Convertible into 25,000,5% Redeemable Non-Convertible Preference Shares of Rs. 100 each at a premium of Rs. 9,900 per share.) Nil, (Previous -20) 8.85% Optionally Convertible Debentures of Rs. 10,000,000 each. Redeemed on 13th June, (Convertible into 20,000,5% Redeemable Non-Convertible Preference Shares of Rs. 100 each at a premium of Rs. 9,900 per share.) Nil, (Previous -24) 8.85% Optionally Convertible Debentures of Rs. 10,000,000 each. Redeemed on 19th June, (Convertible into 24,000,5% Redeemable Non-Convertible Preference Shares of Rs. 100 each at a premium of Rs. 9,900 per share.) Nil, (Previous -15) 8.85% Optionally Convertible Debentures of Rs. 10,000,000 each. Redeemed on 27th June, (Convertible into 15,000,5% Redeemable Non-Convertible Preference Shares of Rs. 100 each at a premium of Rs. 9,900 per share.) Nil, (Previous -15) 8.85% Optionally Convertible Debentures of Rs. 10,000,000 each. Redeemed on 6th September, (Convertible into 15,000,5% Redeemable Non Convertible Preference Shares of Rs. 100 each at a premium of Rs. 9,900 per share.) Nil, (Previous -50) 8.00% Optionally Convertible Debentures of Rs. 10,000,000 each. Redeemed on 2nd February, (Convertible into 50,000,5% Redeemable Non Convertible Preference Shares of Rs. 100 each at a premium of Rs. 9,900 per share.) 31st March, 31st March, Rs. in Lacs Rs. in Lacs 2, , , , , , , , , , Kotak Securities Limited 155

157 Schedule Forming Part of Balance Sheet Schedule 4 - Unsecured Loans (Contd.) 15, (Previous -15) 8.50% Optionally Convertible Debentures of Rs. 10,000,000 each. Date of redemption 16th April, (Convertible into 15,000, 5% Redeemable Non Convertible Preference Shares of Rs. 100 each at a premium of Rs. 9,900 per share.) 31st March, 31st March, Rs. in Lacs Rs. in Lacs 1, , , (Previous -Nil) 8.80% Optionally Convertible Debentures of Rs. 10,000,000 each. Date of Redemption 09th April, (Convertible into 30,000 Redeemable Non-Convertible Preference Shares of Rs. 100 each at a premium of Rs. 9,900 per share) 3, , (Previous -Nil) 8.20% Optionally Convertible Debentures of Rs. 10,000,000 each. Date of Redemption 09th April, (Convertible into 400 Redeemable Non-Convertible Preference Shares of Rs 100 each at a premium of Rs. 49,900 per share) , (Previous -Nil) 8.20% Optionally Convertible Debentures of Rs. 10,000,000 each. Date of Redemption 09th April, (Convertible into 3,400 Redeemable Non-Convertible Preference Shares of Rs. 100 each at a premium of Rs. 49,900 per share) 1, , (Previous -Nil) 8.20% Optionally Convertible Debentures of Rs. 10,000,000 each. Date of Redemption 09th April, (Convertible into 1,200 Redeemable Non-Convertible Preference Shares of Rs 100 each at a premium of Rs. 49,900 per share) , (Previous -Nil) 10% Optionally Convertible Debentures of Rs. 10,000,000 each. Date of Redemption 29th May, (Convertible into 5,000 Redeemable Non-Convertible Preference Shares of Rs. 100 each at a premium of Rs. 49,900 per share) 2, , (Previous -Nil) 10% Optionally Convertible Debentures of Rs. 10,000,000 each. Date of Redemption 11th May, (Convertible into 5,000 Redeemable Non-Convertible Preference Shares of Rs. 100 each at a premium of Rs. 49,900 per share) 2, Debenture Application Money - Pending Allotment 5, Inter Corporate Deposit Commercial Paper 47, Less : Discount Not Written Off 1, Maximum outstanding during the year Rs. 59,500 Lacs (Previous Rs. Nil) 45, Total 57, , Kotak Securities Limited 156

158 Schedule Forming Part of Balance Sheet (Contd.) Schedule 5 : Fixed Assets TANGIBLE DESCRIPTIONS GROSS BLOCK DEPRECIATION/AMORTISATION NET BLOCK (Rupees in Lacs) As at Additions Deductions As at As at For the On As at As at As at 1st April, for the Adjustments 31st March, 1st April, year Deductions 31st March, 31st March, 31st March, 2006 year for the year Leasehold Improvements 1, , , Premises a Furniture and Fixtures Computers 3, , , , , , Office Equipments c 1, , , , , Motors Vehicles INTANGIBLE Software b , TOTAL 7, , , , , , , , Previous 4, , , , , , , a Represents value of shares in the co-operative society, registered in the name of the Company. b Includes asset given on operating lease aggregating to Rs Lacs (Previous Rs Lacs). The depreciation for the year is Rs Lacs (Previous Rs Lacs) and the written down value of the asset as on 31st March, 2007 is Rs Lacs (Previous Rs Lacs). c Includes assets aggregating to Rs Lacs (54% of original cost) jointly owned with other enterprises. The depreciation for the is Rs Lacs (Previous Rs Lacs) and the written down value of the assets as on 31st Mar, 2007 is Rs. Nil (Previous Rs Lacs). Includes assets given on operating lease aggregating to Rs Lacs (Previous Rs Lacs). The depreciation for the year is Rs Lacs (Previous Rs Lacs) and the written down value of the assets as on 31st March, 2007 is Rs Lacs (Previous Rs Lacs). Kotak Securities Limited 157

159 Schedule Forming Part of Balance Sheet (Contd.) Face 31st March 31st March 31st March 31st March Value Particulars Rs. Quantity Quantity Rs. in Lacs Rs. in Lacs Schedule 6 - Investments Long Term Investments (At cost) (Unquoted, fully paid up) Trade Equity Shares of Bombay Stock Exchange Limited 1 20,000 20, Add: Transfer of written down value of the Membership Cards of the Bombay Stock Exchange Limited Non Trade Equity shares of Kotak Mahindra Capital Company Limited ,015 21, Equity shares of Kotak Mahindra Prime Limited 10 1,188,400 12, Equity shares of Kotak Forex Brokerage Limited , % Unsecured Fully Convertible Debentures of Kotak Forex Brokerage Limited, convertible into equity shares of Rs.10 each on 26th March 2012 if call option not exercised on 26th March , (A) 34, Current Investments (Other than Trade) (At cost or fair value, whichever is lower) In Units of Mutual Fund (Unquoted, fully paid up) Kotak Mahindra Mutual Fund - Kotak Liquid Institutional Premium Daily Dividend 10 53,573,494 6, Principal Mutual Fund- Liquid Option Institutional Premium Plan Dividend Reinvestment Daily 10 9,999,300 1, HSBC Mutual Fund Institutional Plus Daily Dividend 10 9,994,403 1, (Refer Note 8 on Schedule 20) (B) 8, TOTAL (A+B) 34, , Kotak Securities Limited 158

160 Schedule Forming Part of Balance Sheet (Contd.) Face 31st March 31st March 31st March 31st March Value Quantity Quantity Rs. in Lacs Rs. in Lacs Schedule 7 - Stock In Trade (At cost or market value whichever is lower) Equity Shares ABG Shipyard Limited 10 2, Andhra Bank Limited , Allahabad Bank Limited 10 7, , Alok Textiles Limited 10 26, Aurobindo Pharma Limited 5 17, Arvind Mills Limited 10 8,600 18, ABB Limited 10 50,034 1, ACC Limited ,375 37,693 1, Bharat Forge & Press Industries Limited 2 6, Bharat Petroleum Corporation Limited Bharti Tele-ventures Limited Bongaigaon Refinery & Petrochemicals Limited 10 74, Bajaj Auto Limited 10 3,700 1, Balkrishana Industries Limited Bank of Baroda , ,200 1, Bank of India ,500 26, Bayer CropScience Limited 10 13, Bharat Electronics Limited 10 83,050 1, Bharat Heavy Electricals Limited Colgate-Palmolive (India) Limited 10 44, Century Textiles & Industries Limited 10 7,650 11, Cipla Limited Cummins India Limited 2 336, Dabur India Limited 1 4, Divis s Laboratories Limited 10 13, Dr. Reddy s Laboratories Limited Federal Bank Limited 10 41, GAIL (India) Limited 10 1, Global Broadcast News Limited 10 2, Glaxo SmithKline Pharmaceuticals Limited 10 25, GMR Infrastructure Limited 10 87, Grasim Induries Limited Great Eastern Shipping Company Limited 10 2, Gujarat Ambuja Cements Limited 2 711, Gujarat Gas Company Limited Gujarat Narmada Fertilisers Limited , Hero Honda Motors Limited HCL Technologies Limited Kotak Securities Limited 159

161 Schedule Forming Part of Balance Sheet (Contd.) Face 31st March 31st March 31st March 31st March Value Quantity Quantity Rs. in Lacs Rs. in Lacs Schedule 7 - Stock In Trade (Contd.) HDFC Bank Limited Housing Development Finance Corporation Limited Hindalco Industries Limited 1 1, , Hindustan Lever Limited , Hindustan Petroleum Corporation Limited HT Media Limited 2 4, ICICI BTank Limited India Cements Limited 10 62, , Indian Hotels Company Limited (Previous Face Value Rs.10) 1 37, Indian Overseas Bank , Indian Petrochemicals Corporation Limited 10 32, Industrial Development Bank Of India , , Infrastructure Development Finance Company Limited , Infosys Technologies Limited , ITC Limited 1 3, IVRCL Infrastructures & Projects Limited 2 160, Jammu and Kashmir Bank Limited 10 1, Jet Airways (India) Limited Jindal Saw Limited 10 4, Jindal Steel & Power Limited 5 10, Jindal Stainless Limited 2 2, Karnataka Bank Limited 10 15, KEC International Limited 10 2, LIC Housing Finance Limited , Mahindra & Mahindra Limited 10 1, Mahanagar Telephone Nigam Limited , Mahindra Gesco Developers Limited 10 3, Maruti Udyog Limited 5 23, Matrix Laboratories Limited 2 133, Mphasis BFL Limited 10 5,000 28, Neyveli Lignite Corporation Limited 10 59, Narmada Chematur Petrochemicals Limited 10 70, Navin Flourite Limited National Aluminium Company Limited New Delhi Television Limited 4 284, National Thermal Power Corporation Limited NIIT Limited 10 2, Oil & Natural Gas Corporation Limited Oriental Bank of Commerce 10 17, Orchid Chemicals & Pharmaceuticals Limited 10 1, Patni Computers Limited 2 18, Praj Industries Limited 2 23, Punj Lloyd Limited (Previous Face Value Rs. 10) 2 138,900 1, Polaris Software Lab Limited 5 151, Kotak Securities Limited 160

162 Schedule Forming Part of Balance Sheet (Contd.) Schedule 7 - Stock In Trade (Contd.) Face 31st March 31st March 31st March 31st March Value Quantity Quantity Rs. in Lacs Rs. in Lacs Punjab National Bank 10 69,600 22, Ranbaxy Laboratories Limited 5 45, Reliance Energy Limited Reliance Energy Ventures Limited 10 2,038, Reliance Capital Limited , , , Reliance Industries Limited 10 13,650 99, Steel Authority of India Limited 10 10, Satyam Computer Services Limited Sesa Goa Limited 10 60,900 1, Shipping Corporation of India Limited , SRF Limited , State Bank of India ,499 35,724 4, Sterlite Industries (India) Limited (Previous Face Value Rs 5) 2 3, Strides Arcolab Limited 10 42, Sun Pharmaceuticals Industries Limited Suzlon Energy Limited 10 73, Tanla Solutions Limited 2 5, Tata Chemicals Limited , Tata Consultancy Services Limited Tata Tea Limited 10 94, Tata Steel Limited 10 10, , , Tata Motors Limited , Tata Power Company Limited Tech Mahindra Limited 10 3, Television Eighteen India Limited 5 2, TV Today Limited 5 5, Titan Industries Limited ,384 1, Union Bank of India 10 1,043,700 1, Videsh Sanchar Nigam Limited 10 3, Vijaya Bank 10 62, Wockhardt Limited 5 76, Subtotal for equity shares 3,667,700 10,497,880 12, , Exchange Traded Fund S&P CNX Nifty UTI Subtotal for exchange traded fund Total 3,667,791 10,497,971 12, , Aggregate Value of Stock-In-Trade At Book Value 12, , At Market Value 13, , Refer Note 6 and 9(b) and 9(c) on Schedule 20 Kotak Securities Limited 161

163 Schedules forming part of Balance Sheet (Contd.) 31st March 31st March Rs. in Lacs Rs. in Lacs Schedule 8 - Sundry Debtors Sundry Debtors * : Considered Good Over Six Months Others ** 37, , , , Considered Doubtful Over Six Months Others , , Less : Provision for Doubtful Debts Total 37, , (Refer Note 11 on Schedule 20) * Sundry debtors include secured debtors Rs. 34, Lacs (Previous Rs. 60, Lacs) ** Maximum amount outstanding during the year, from Directors Rs Lacs (Previous Rs Lacs) Schedule 9 - Cash and Bank Balances Cash on Hand Balances with Scheduled Banks in : Current Accounts , Fixed Deposit Accounts (Refer Note 12 on Schedule 20) 107, , Total 107, , Schedule 10 - Other Current Assets Interest Accrued on Fixed Deposits Total Kotak Securities Limited 162

164 Schedules Forming Part of Balance Sheet (Contd.) 31st March 31st March Rs. in Lacs Rs. in Lacs Rs. in Lacs Rs. in Lacs Schedule 11 - Loans And Advances (Unsecured, unless otherwise stated, considered good) Loans Advances Recoverable in Cash or Kind or for Value to be Received Capital Advances 3, Deposits with Exchanges/Depositories , Deposits -Others Initial Margin - Equity Derivative Instrument 3, , (Refer Note 1 (I) (a) and 1 (J) (a) on Schedule 20) Margin Deposits - Equity Derivative Instrument 5, , (Refer Note 1 (I) (a) and 1 (J) (a) on Schedule 20) Mark-to-Market Margin - Equity Index/Stock Futures (Refer Note 1 (I) (b) on Schedule 20) Less: Provision for Loss (Refer Note 1 (I) (c) on Schedule 20) Equity Index/Stock Option Premium (Refer Note 1 (J) (b) 1, on Schedule 20) Less: Provision for Loss , (Refer Note 1 (J) (c) on Schedule 20) Advance Tax (Net of Provision for Current Taxation and Fringe Benefits Tax - Rs. 39, Lacs (Previous 27, Lacs)) Total 14, , Schedule 12 - Liabilities Sundry Creditors (includes Trade Payables) (other than small scale 70, , industrial undertakings)* Income Received In Advance Book Overdraft from Banks Security Deposits 1, Other Liabilities Interest Accrued But Not Due Equity Index/Stock Option Premium (Refer Note 1 (J) (b) on Schedule 20) 1, Add: Provision for Loss 1, (Refer Note 1 (J) (c) on Schedule 20) Mark-to-Market Margin - Equity Index/Stock Futures (Refer Note 1 (I) (b) on Schedule 20) Total 75, , * The above information regarding small scale industrial undertakings and micro, small and medium enterprises 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 13 - Provisions Leave Encashment (Refer Notes 5(a) on Schedule 20) Gratuity (Refer Notes 5(a) and (b) on Schedule 20) Contingencies (Refer Note 13 on Schedule 20) 1, Total 2, Kotak Securities Limited 163

165 Schedules Forming Part of the Profit and Loss Account 31st March 31st March Rs. in Lacs Rs. in Lacs Schedule 14 - Income From Services Income from Brokerage - Gross 56, , {Tax Deducted at Source Rs Lacs (Previous Rs Lacs)} Recovery on Account of Expenses , , Less : Sub Brokerage/Referral Fees and Expenses 5, , , , Fee Income - Gross {Refer Note 14 (a) on Schedule 20} 11, , {Tax Deducted at Source Rs Lacs (Previous Rs Lacs)} Less : Referral Fees , , Total 61, , Schedule 15 - Interest Income Interest on Bank Deposits 8, , {Tax Deducted at Source Rs. 1, Lacs (Previous Rs Lacs)} Interest on Staff Loans Interest on Income Tax Refund Interest - Others {Refer Note 14 (b) on Schedule 20} 4, , {Tax Deducted at Source Rs Lacs (Previous Rs Lacs)} Total 12, , Schedule 16 - Other Income Dividend Income (Refer Note 15 on Schedule 20) 1, Profit on Sale of Investments (net) (Refer Note 16 on Schedule 20) Profit on Trading in Securities (net) (Refer Note 9(a) on Schedule 20) 6, , Liabilities Written Back As No Longer Required (Refer Note 17 on Schedule 20) Profit on Sale of Fixed Assets (net) Miscellaneous Income Total 8, , Schedule 17 - Personnel Salaries, Allowances and Bonus (Refer Note 18 on Schedule 20) 15, , Contribution to Provident and Other Funds Leave Encashment Gratuity Staff Welfare Total 17, , Less : Recovery of Expenses (Refer Note 19 on Schedule 20) Total 16, , Kotak Securities Limited 164

166 Schedules Forming Part of the Profit and Loss Account (Contd.) Schedule 18 - Interest And Other Finance Charges 31st March 31st March Rs. in Lacs Rs. in Lacs Interest on Inter Corporate Deposits Interest on Debentures 3, Interest/Discount on Term Loan/Other Fixed Loans 2, Interest on Bank Overdraft Bank Guarantee Commission and Other Charges Interest-Other Total 6, Schedule 19 - Other Expenses Travelling, Conveyance and Motor Car Professional and Legal 2, , Auditors Remuneration Audit Fees Tax Audit Fees In Other Capacity Out of Pocket Expenses Provision for Doubtful Debts Provision for Contingencies Repairs and Maintenance - Others Office Communication 1, , Printing and Stationery Stock Exchanges Expenses Electricity Membership and Subscription Rent 1, , Rates and Taxes Director s Sitting Fees 0.20 Advertising, Business Promotion and Entertainment 1, Securities Transaction Tax on Proprietory Trades 1, Bad Debts Written Off Service Charges Common Establishment Expenses-Reimbursement 3, , Depository Charges Stamp/Turnover/Transaction Charges (net of recovery) 2, , Insurance Loss on Account of Trades Not Confirmed by Clients, Error Trades and Other Settlements Cost (net) (Refer Note 22 on Schedule 20) Miscellaneous Total 21, , Less : Recovery of Expenses (Refer Note 19 on Schedule 20) Total 21, , Kotak Securities Limited 165

167 Schedules Forming Part of the Balance Sheet and Profit and Loss Account Schedule 20 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 is accounted on completion of the transaction. on primary market subscription mobilisation is accounted on allotment after intimation received by the Company. 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. Portfolio management fees are accounted on accrual basis as follows: (a) In case of fees based on fixed percentage of the corpus/ fixed amount, income is accrued over the period of the agreement. (b) In case of fees, based on the returns of the portfolio, income is accounted on the termination of the portfolio agreement/on each anniversary as per the agreement. (c) In case of an upfront non-refundable fee, income is accounted in the year of receipt. 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. COMMERCIAL PAPERS The liability is recognised at face value at the time of issue of commercial paper. The discount on issue of commercial paper is amortised over the tenure of the commercial paper. E. 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 58 years (Previous 30 years)* Furniture and Fixtures 6 years Computers and Software 3 years Office Equipments 5 years Motor Vehicles 4 years *Impact of the change is not significant. 3. Fixed assets costing less than Rs. 5,000 are fully depreciated in the year of purchase. F. 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. Kotak Securities Limited 166

168 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) G. STOCK IN TRADE Stock in trade is valued at cost or market value, whichever is lower. H. 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 entered to hedge the foreign currency risk 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. I. EQUITY INDEX/ STOCK FUTURES (a) (b) (c) (d) 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/squaring-up of underlying contracts, are disclosed under Loans and Advances. Equity index/stock futures for arbitrage purposes 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. 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. 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 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. J. EQUITY INDEX / STOCK OPTIONS (a) (b) (c) (d) 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. Equity Index/Stock Option Premium Account represents the premium paid or received for buying or selling the options, respectively. All equity index/stock options are for arbitrage purposes. 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 is reflected in Provision for Loss on Equity Index/ Stock Option Account. When the options are squared up before expiry of the options, the premium prevailing in "Equity Index/Stock Option Premium Account" 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. Kotak Securities Limited 167

169 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) K. EMPLOYEE BENEFITS (a) (b) (c) Provident fund is a defined contribution scheme and the contributions as required by the statute are charged to the Profit and Loss Account as incurred. Gratuity liability is a defined benefit obligation and is wholly unfunded. The Company accounts for liability for future gratuity benefits based on an actuarial valuation. Superannuation fund is a defined contribution scheme. The Company contributes to the Superannuation Fund administered by the trustees and managed by a life insurance company. (d) Short term compensated absences are provided for based on estimates. (e) Actuarial gains/losses are charged to the Profit and Loss Account. (f) The undiscounted amount of short-term employee benefits expected to be paid in exchange for services rendered by an employee is recognised during the period when the employee renders the service. These benefits include performance incentives and compensative absences on paid annual leave. 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. M. IMPAIRMENT OF ASSETS Impairment loss, if any, is provided to the extent the carrying amount of assets exceeds their recoverable amount. Recoverable amount is higher of an asset s net selling price and its value in use. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset and from its disposal at the end of its useful life. N. PROVISIONS A provision is recognised when there is a present obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and in respect of which reliable estimate can be made. Provision is not discounted to its present value and is determined based on the best estimate required to settle the obligation at the year end date. These are reviewed at each year end date and adjusted to reflect the current best estimate. 2. Contingent Liabilities: (a) Income tax matters in respect of which appeal is pending- Rs. Nil (Previous Rs Lacs). (b) Service tax matters in respect of which show cause demand notice has been received Rs Lacs (Previous Rs Lacs). This is being disputed by the Company and hence not provided for. (c) Counter guarantees given to scheduled banks - Rs. 30, Lacs (Previous Rs. 36, Lacs). (d) Guarantees given to Bombay Stock Exchange Limited on behalf of others for which the company has received a counter guarantee - Rs Lacs (Previous Rs. Nil). (e) Capital commitments (net of advances) - Rs. 2, Lacs (Previous Rs Lacs). (f) Claims against the Company Rs Lacs (Previous Rs Lacs) Future cash outflows in respect of (b) and (f) above are determinable only on receipt of judgements/decisions pending with various forums/ authorities. 3. (a) 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 (with a maximum lock-in period of 60 months). These leave and license agreements are generally renewable or cancellable at the option of the Company. (b) Rent payments are recognised in the Profit and Loss Account under the head Rent in Schedule 19. (c) The future minimum lease payments under non-cancellable operating lease not later than one year is Rs Lacs (Previous Rs Lacs) and later than one year but not later than five years is Rs Lacs (Previous Rs Lacs). Kotak Securities Limited 168

170 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) 4. Deferred Income taxes:- (a) Components of deferred tax balances as at 31st March, 2007: (b) Particulars Deferred Tax Assets 31st March, st March, 2006 (Rupees in Lacs) (Rupees in Lacs) Provision for Doubtful Debts and Contingencies Provision for Gratuity Provision for Leave Encashment Leave Encashment and Gratuity Liability of Earlier s {Refer Note 5(a)} Depreciation Others Total Deferred Tax Liability Depreciation (137.22) Total (137.22) Net Deferred Tax The deferred tax credit for the year of Rs Lacs (excluding Rs on the adoption of AS-15 Revised) has been recognised in the Profit And Loss Account. Refer Note 5(a). 5. (a) During the year, the Company has adopted Accounting Standard (AS) 15 (revised 2005) Employee Benefits issued by the Institute of Chartered Accountant of India with effect from 1st April Consequently, the Company recorded the difference between the liability as per revised AS 15 as on 1st April, 2006 and the liability that could have been recognised at the same date under the Company s previous accounting policy amounting to Rs Lacs (net of deferred tax asset of Rs Lacs) against General Reserve as on 1st April, (b) Employee Benefit Obligation (Gratuity) (i) Reconciliation of opening and closing balances of the present value of the defined benefit obligation for gratuity benefits is given below. Particulars 31st March, 2007 (Rupees in Lacs) Change in Defined Benefit Obligation Opening Defined Benefit Obligation Current Service Cost Interest Cost Actuarial Losses/(Gain) Liabilities Extinguished on Curtailment Liabilities Extinguished on Settlements Liabilities Assumed on Acquisition Benefits Paid (19.24) Closing Defined Benefit Obligation (ii) Reconciliation of present value of the obligation and the fair value of the plan assets Particulars 31st March, 2007 (Rupees in Lacs) Present Value of Funded Obligations Fair Value of Plan Assets Present Value of Unfunded Obligations Unrecognized Past Service Cost Net Liability Kotak Securities Limited 169

171 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) Particulars 31st March, 2007 (Rupees in Lacs) Amounts in the Balance Sheet: Liabilities - Provisions (Schedule 13) Assets Net Liability (iii) Cost recognised for the year Particulars 31st March, 2007 (Rupees in Lacs) Current Service Cost Interest on Defined Benefit Obligation Expected Return on Plan Assets Net Actuarial Losses / (Gains) Recognized in Past Service Cost Losses / (Gains) on Curtailments & Settlements Total, included in Schedule 17 Personnel- Gratuity Actual Return on Plan Assets (iv) Principal actuarial assumption at 31st March, 2007 Particulars Discount Rate Salary Escalation Rate Assumptions 8.20% per annum 15% per annum for the first 2 years, 10% per annum for the next 2 years and 6% per annum there after (c) During the year, the Company has recognised the following amounts in the Profit and Loss Account: (Rupees in Lacs) Employers Contribution to Provident Fund Superannuation fund Employees State Insurance Corporation Securities, which are not registered in the name of the Company, are held by the Company with valid transfer documents. 7. Securities received from clients as collateral for margins are held by the Company in its own name in a fiduciary capacity. 8. Units of Mutual Fund Purchased / Allotted and Sold / Redeemed during the year. Mutual Fund Schemes Face Value Purchased / Allotted Sold / Redeemed LIC Liquid fund Dividend Plan 10 18,241,247 18,241,247 ING Vysya Liquid Fund Institutional Daily Dividend Option 10 54,977,652 54,977,652 HSBC Mutual fund Institutional Plus Daily Dividend 10 4,507 9,998,910 Principal Mutual Fund Liquid option Institutional ,047, ,046,362 Kotak Mahindra Mutual Fund Kotak Liquid Institutional Premium Daily Dividend 10 21,958,436,304 22,012,009,798 SBI Mutual Fund-Magnum Institutional Income-Savings-Dividend 10 19,951,232 19,951,232 Deutsche- DWS Insta Cash Plus Fund-Institutional Plan Daily Dividend 10 19,977,872 19,977,872 Kotak Securities Limited 170

172 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) 9. (a) Quantitative Information in Respect of Trading in Securities # Quantity Nos. 31st March, st March, 2006 Value (Rupees in Lacs) Quantity Nos. Value (Rupees in Lacs) Opening Stock (A) Equity Shares 10,495,891 25, ,041,093 10, Bonds and Other Securities TOTAL (A) 10,495,891 25, ,041,093 10, Purchases Equity Shares 132,113, , ,646, , Bonds and Other Securities total (B) 132,113, , ,646, , Sales Equity Shares 138,941, , ,192, , Bonds and Other Securities total (C) 138,941, , ,192, , Closing Stock (D) Equity Shares 3,667,135 12, ,495,891 25, total (D) 3,667,135 12, ,495,891 25, Profit/(Loss) on Trading in Options/ Futures (Net) (E) 10, (2,999.42) Profit (A+B-C-D-E) 6, , # Transactions and stocks on account of error trades/trades not confirmed by clients have not been considered. (b) Stock in Trade pledged with National Securities Clearing Corporation Limited towards Exposure in Derivatives Segment as on 31st March, Name of Scrip Face Value (Rs.) 31st March, st March, 2006 Qty. (Rupees in Qty. (Rupees in Lacs) Lacs) ACC Limited 10 33, Allahabad Bank , Andhra Bank , Asea Brown Boveri Limited 10 27, Bajaj Auto Limited 10 1, Bank of Baroda , , Bank of India 10 26, Bharat Electronics Limited 10 17, Bongaigaon Refinery & Petrochemicals Limited 10 20, Colgate-Palmolive (India) Limited 10 44, Cummins India Limited 2 281, Divi s Laboratories Limited 10 13, Glaxo SmithKline Pharmaceuticals Limited 10 12, GMR Infrastructure Limited 10 43, Gujarat Ambuja Cements Limited 2 4,000 4 Kotak Securities Limited 171

173 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) Name of Scrip Face Value (Rs.) 31st March, st March, 2006 Qty. (Rupees in Qty. (Rupees in Lacs) Lacs) Gujarat Narmada Fertilisers Limited , India Cements Limited , Indian Hotels Co Limited (Previous Face Value Rs. 10) 1 37, Indian Overseas Bank , Industrial Development Bank Of India , , Infosys Technologies Limited 5 17, IVRCL Infrastructures & Projects Limited 2 31, Jammu and Kashmir Bank 10 1, Jindal Stainless Limited 2 2, Jindal Steel & Power Limited 5 10, Karnataka Bank 10 15, LIC Housing Finance Limited , Mahanagar Telephone Nigam Limited , Matrix Laboratories Limited 2 133, New Delhi Television Limited 4 78, Neyveli Lignite Corporation Limited 10 59, Polaris Software Lab Limited 5 151, Praj Industries Limited 2 23, Punj Lloyd Limited (Previous Face Value Rs. 10) 2 138,900 1, Punjab National Bank 10 26, Reliance Capital Limited , ,600 1, Siemens Limited (Previous Face Value Rs. 10) 2 4, SRF Limited , State Bank of India , Sterlite Industries (India) Limited (Previous Face Value Rs. 5) 2 3, Strides Arcolab Limited 10 42, Suzlon Energy Limited 10 68, Tata Chemicals Limited , Tata Tea Limited 10 88, Titan Industries Limited 10 90, Union Bank of India , Vijaya Bank 10 37, Wockhardt Limited 5 76, Total 2,530, ,885,284 15, (c) Stock in Trade pledged with Bombay Stock Exchange Limited towards Additional Base Capital in Cash segment on 31st March, Name of Scrip Face Value (Rs.) 31st March, st March, 2006 Qty. (Rupees in Lacs) Qty. (Rupees in Lacs) Glaxo SmithKline Pharmaceuticals Limited 10 13, Industrial Development Bank Of India , Total 145, Kotak Securities Limited 172

174 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) 10. Open Interest in Individual Stock Futures as on 31st March, (a) (b) Open Long Positions: Name of Equity Index/Stock Futures Expiry Date No of Contracts No of Units Tata Motors Limited 26/04/ Shree Renuka Sugar Limited 26/04/ ,000 JSW steel Limited 26/04/ ,100 S&P CNX Nifty 26/04/ ,050 S&P CNX Nifty 31/05/2007 1,560 78,000 Reliance Industries Limited 26/04/ ,500 Jet Airways India Limited 26/04/ ,000 Wipro Limited 26/04/ ,800 Zee Entertainment Enterprises Limited 26/04/ ,200 Open Short Positions: Name of Equity Index/Stock Futures Expiry Date No of Contracts No of Units S&P CNX Nifty 26/04/ , ,200 ACC Limited 26/04/ ,375 Allahabad Bank 26/04/ ,350 Arvind Mills Limited 26/04/ ,600 Bajaj Auto Limited 26/04/ ,700 Bank of Baroda 26/04/ ,000 Bank of India 26/04/ ,500 Century Textiles Limited 26/04/ ,650 The Great Eastern Shipping company Limited 26/04/ ,400 GMR Infra structure Limited 26/04/ ,000 Gujarat Narmada Fertilizers Company Limited 26/04/ ,600 Industrial Development Bank of India Limited 26/04/ ,800 Idea Cellular Limited 26/04/ ,700 India Cement Limited 26/04/ ,350 Infosys Technologies Limited 26/04/ Mahanagar Telephone Nigam Limited 26/04/ ,800 Punjab National Bank 26/04/ ,600 Praj Industries Limited 26/04/ ,100 Reliance Capital Limited 26/04/ ,050 Reliance Industries Limited 26/04/ ,650 State Bank Of India 26/04/ ,500 Sesa Goa Limited 26/04/ ,900 Tata Motors Limited 26/04/ ,768 Union Bank Of India Limited 26/04/ ,043,700 Initial margin on equity index futures contracts as well as individual stock futures has been paid in cash only. (c) Outstanding Options Contract as on 31st March, 2007 (Rupees in Lacs) Name of the Option Index/Stock Total Premium Carried Forward at 31st March, 2007, Net of Provisions Made S&P CNX Nifty (551.97) Mphasis BFL Limited (0.38) Tata Steel Limited 0.06 Tata Motors Limited (0.22) Grand Total (552.51) Kotak Securities Limited 173

175 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) 11. The Company is a corporate member broker of the National Stock Exchange of India Limited and Bombay Stock Exchange Limited. The Company is eligible to provide margin-trading facility to its clients in terms of the Securities and Exchange Board of India circular. Sundry debtors include Rs. 4, Lacs (Previous Rs. 4, Lacs) on account of loans granted under margin trading facility to clients against pledge of securities. 12. Fixed deposits with scheduled banks include Rs. 75, Lacs (Previous Rs. 43, Lacs) which is under the lien of National Securities Clearing Corporation Limited, Rs. 10, Lacs (Previous Rs. 5, Lacs) which is under the lien of Bombay Stock Exchange Limited and Rs Lacs (Previous Rs Lacs) as collateral towards lifting of shares for rectification from custodians. 13. Provision for Contingencies: Nature of Liability Provision as on 1st April, 2006 Addition Amount Used Unused Amount Reversed (Rupees in Lacs) Provision as on 31st March, 2007 Interest on Stamp Duty Stamp Duty on Trades Total , (a) Fee Income: (b) Particulars 31st March, 2007 (Rupees in Lacs) 31st March, 2006 (Rupees in Lacs) Client Money Management Services 7, , Depository Fees 2, , Loan Syndication Fees Loan Arranging Fees Other Fees Total 11, , Interest Income Others comprises interest on delayed payments and from clients. 15. Dividend income represents dividend on current investments Rs Lacs (Previous Rs Lacs) and on stock in trade Rs Lacs (Previous Rs Lacs). 16. Profit on sale of investments (net) represents profit on sale of current investments (net) (other than trade) Rs Lacs (Previous Rs Lacs). 17. Liabilities written back comprises of provision no longer required in respect of sub brokerage Rs Lacs (Previous Rs Lacs), expenses Rs Lacs (Previous Rs Lacs) and other credit balances Rs Lacs (Previous Rs Lacs). 18. During the year the Company has paid Rs Lacs (Previous Rs Lacs) 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 17 and Schedule 19 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. (a) Managerial Remuneration: (b) Particulars Rupees in Lacs Rupees in Lacs Salaries and Incentives Contribution to Provident and Other Funds Employee Stock Option Plan (Refer Note 18) Total Director sitting fees Rs. 20,000 (Previous Rs. Nil) The above excludes provision for gratuity since this is based on actuarial valuation done on an overall Company basis and excludes allocations from group companies. 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. Kotak Securities Limited 174

176 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) 21. (a) Expenditure in Foreign Currency:- (i) Travelling Rs Lacs (Previous Rs Lacs) (ii) Membership and Subscription Rs Lacs (Previous Rs Lacs) (iii) Conference and Meetings Rs Lacs (Previous Rs Lacs) (iv) Software Rs Lacs (Previous Rs Lacs) (v) Business Promotion Rs Lacs (Previous Rs. Nil) (vi) Common Establishment Expenses- Reimbursement Rs Lacs (Previous Rs. Nil) (b) Earnings in Foreign Currency:- Advisory Fees Rs (Previous Rs Lacs) 22. During the year, the Company has paid Rs Lacs on account of a registered sub-broker of the Company transferring/ misappropriating securities lying to the credit of sub-broker s client s demat beneficiary account. This amount has been charged to the Profit and Loss Account and included under the head Other Expenses Loss on Account of Trades Not Confirmed by Clients, Error Trades and Other Settlement Cost (net). 23. 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 31st March Segment Information for the year ended 31st March, (a) Information about Primary Business Segments (Rupees in Lacs) Particulars Broking Treasury and Portfolio Unallocated Total Investments Management Segment Revenue Income from external customers 59, , , , Previous year 48, , , , Income from inter segments Previous year Liabilities written back as no longer required Previous year Total 59, , , , Previous year 48, , , , Segment Result 27, , , , Previous year 25, , , , Income Tax Current, Deferred and Fringe Benefit Tax 10, , Previous year 10, , Net Profit 25, Previous year 21, Other Information Carrying amount of segment assets 45, , , , Previous year 67, , , Carrying amount of segment liabilities 71, , , , , Previous year 102, , , , Cost to acquire tangible fixed assets 1, , Previous year Depreciation / Amortisation 1, , Previous year 1, , Kotak Securities Limited 175

177 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) (b) Notes: (i) The Company is organised into the following segments, namely Broking comprising of brokerage income earned on secondary market transactions done on behalf of clients, services rendered as depository participant and services rendered in connection with primary market subscription/mobilisation and distribution of life insurance product. It also includes interest on delayed payments, incidental and consequential to secondary market related business received from clients. Treasury and Investments comprising of proprietary trading in securities and interest on fixed deposits with banks. Portfolio Management comprising of portfolio management services. During the year, the Company has changed its segment reporting based on the nature of products and services, the differing risks and returns, the organisation structure and the internal financial reporting system. Such a change does not have a significant impact on the segment information reported and also does not change aggregate financial information for the Company as a whole. The previous years figures have been regrouped to confirm to the changed segments. (ii) Unallocated revenue consists of: 31st March, 2007 (Rupees in Lacs) 31st March, 2006 (Rupees in Lacs) Fee Income Interest Income Dividend on Current Investments Profit on Sale of Investments (net) Liabilities Written Back As No Longer Required Profit on Sale of Fixed Assets Miscellaneous Income Total (iii) Unallocated expenses comprise of general administrative expenses and taxation provided at an enterprise level. (iv) 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 deferred tax, retirement benefits, outstanding expenses and statutory liabilities. 25. 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 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 51.46% of the equity share capital of KMBL B. Other Related Parties: (i) Fellow Subsidiaries: Kotak Mahindra Capital Company Limited Kotak Mahindra Prime 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 Kotak Mahindra Securities Limited Kotak Mahindra Old Mutual Life Insurance Company Limited (Formerly known as OM Kotak Mahindra Life Insurance Company Limited) Global Investment Opportunities Fund Limited Kotak Securities Limited 176

178 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) (ii) Venturer in respect of which the reporting enterprise is an associate or joint venture (iii) Key management personnel (iv) Relatives of key management personnel and other proprietary concerns. (v) Enterprises over which Director/ key management personnel/relatives of key management personnel have significant influence (vi) Mutual fund /venture capital fund managed by fellow subsidiary Goldman Sachs (Mauritius) LLC (up to 30th May, 2006) Mr. Uday S. Kotak, Non Executive Chairman Mr. Narayan S. A., Managing Director Ms. Falguni Nayar, Non Executive Director Mr. C. Jayaram, Non Executive Director Mr. Alroy Lobo, Managing Director Institutional Equities Mr. Shivaji Dam, Independent Director (effective from 11th August, 2006) Mr. D. Kannan, Executive Director (effective from 11th August, 2006) Mr. A. K. S.Mani Mrs. Rekha Narayan Mr. Sanjay Nayar Mrs. Rashmi Mehta Mr. Hemant Mehta Mr. Suresh Kotak Mrs. Indira Kotak Master Jay Kotak Master Dhawal Kotak Mrs. N. Rajambal Mr. D. G. Subramanian Ms. Lakshmi S. Mrs. Suchandra Dam Aero Agencies Private Limited Komaf Financial Services Limited Insurekot Investment Private Limited Kotak and Company Limited Kotak Commodity Services Limited Multifaced Finstock Private Limited Kotak Mahindra Mutual Fund Managed by Kotak Mahindra Asset Management Company Limited Kotak Mahindra Venture Capital Fund sponsored by Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private Equity Trustee Limited). Kotak Securities Limited 177

179 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) 2. Following transactions were carried out with related parties in the ordinary course of business Nature of Transactions Name of the Related Party Holding Company/ Controlling Entity ** Fellow Subsidiary Companies Current Previous Current Previous FINANCE Inter Corporate Deposits Taken Multifaced Finstock Private Limited Inter Corporate Deposits Taken Total Inter Corporate Deposits Repaid Multifaced Finstock Private Limited Inter Corporate Deposits Repaid Total Interest Paid on Inter Corporate Deposits Multifaced Finstock Private Limited Interest Paid on Inter Corporate Deposits Total Interest Paid on Margin Money Kotak Mahindra Investments Limited Kotak Mahindra Prime Limited Interest Paid on Margin Money Total Other Loans Taken Kotak Mahindra Prime Limited Other Loans Taken Total Other Loans Repaid Kotak Mahindra Prime Limited Other Loans Repaid Total Debentures Taken Kotak Forex Brokerage Limited Debentures Taken Total Investments Goldman Sachs (Mauritius) LlC Kotak Forex Brokerage Limited Kotak Mahindra Investments Limited 12, Investments Total 12, Deposits given Kotak Mahindra Old Mutual Life Insurance Limited 5.00 Deposits given Total 5.00 Fixed Deposits Placed during the year Kotak Mahindra Bank Limited 86, , Fixed Deposits Placed during the year Total 86, , Fixed Deposits Repaid during the year Kotak Mahindra Bank Limited 70, , Fixed Deposits Repaid during the year Total 70, , Interest Received on Fixed Deposits Kotak Mahindra Bank Limited 7, , Interest Received on Fixed Deposits Total 7, , mutual FUND INVESTMENTS Purchase Kotak Mahindra Mutual Fund 2,685, ,090, Purchase Total 2,685, ,090, Sale/Redemption Kotak Mahindra Mutual Fund 2,691, ,083, Sale/Redemption Total 2,691, ,083, Dividend Received/Profit Earned Kotak Mahindra Mutual Fund Dividend Received/Profit Earned Total OUTSTANDINGS Overdraft from banks Kotak Mahindra Bank Limited 1, , Overdraft from banks Total 1, , Debentures Kotak Forex Brokerage Limited Debentures Total Interest Accrued on Debentures Kotak Forex Brokerage Limited 0.41 Interest Accrued on Debentures Total 0.41 Kotak Securities Limited 178

180 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) Venture in respect of which the Reporting Enterprise is an Associate Key Management Personnel Relatives of Key Management Personnel Enterprises over which Key Management Personnel/ Relatives thereof are having Significant Influence (Amount in Lacs) Current Previous Current Previous Current Previous Current Previous Current Previous Total 10, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,685, ,090, ,685, ,090, ,691, ,083, ,691, ,083, , , , , Kotak Securities Limited 179

181 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) Nature of Transactions Name of the Related Party Holding Company/ Controlling Entity ** Fellow Subsidiary Companies Current Previous Current Previous Investments Kotak Mahindra Capital Company Limited 21, Kotak Forex Brokerage Limited Kotak Mahindra Prime Limited 12, Investments Total 33, Deposits Kotak Mahindra Old Mutual Life Insurance Limited 5.00 Deposits Total 5.00 Interest Accrued on Fixed Deposits-Receivable Kotak Mahindra Bank Limited Interest Accrued on Fixed Deposits-Receivable Total Fixed Deposits Balance Kotak Mahindra Bank Limited 66, , Fixed Deposits Balance Total 66, , Loan Outstanding for Vehicles Kotak Mahindra Prime Limited Loan Outstanding for Vehicles Total Mutual Fund Investments Kotak Mahindra Mutual Fund 6, Mutual Fund Investments Total 6, BROKING TRANSACTIONS (SECONDARY AND PRIMARY MARKET OPERATIONS) Purchases Kotak Mahindra Bank Limited 0.30 Kotak Mahindra Capital Company Limited 501, , Kotak Mahindra International Limited 13, , Kotak Mahindra Investments Limited 65, , Kotak Mahindra Mutual Fund 45, , Kotak Mahindra Old Mutual Life Insurance Limited 23, Kotak Mahindra Prime Limited 25, Goldman Sachs (Mauritius) LlC D Kannan Narayan S A Multifaced FinstockPrivate Limited Others Purchases Total , , Sales Kotak Mahindra Bank Limited 6, , Kotak Mahindra Capital Company Limited 538, , Kotak Mahindra International Limited 33, , Kotak Mahindra Investments Limited 58, , Kotak Mahindra Mutual Fund 33, , Kotak Mahindra Old Mutual Life Insurance Limited 17, Kotak Mahindra Prime Limited 22, Goldman Sachs (Mauritius) LLC D kannan Narayan S A Others # 1, , Sales Total 6, , , , Kotak Securities Limited 180

182 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) Venture in respect of which the Reporting Enterprise is an Associate Key Management Personnel Relatives of Key Management Personnel Enterprises over which Key Management Personnel/ Relatives thereof are having Significant Influence (Amount in Lacs) Current Previous Current Previous Current Previous Current Previous Current Previous 21, , , Total , , , , , , , , , , , , , , , , , ,577, , ,577, , , , ,577, , ,599, ,113, , , , , , , , , , , , , ,027, ,815, ,027, ,815, , , , ,027, ,815, , ,749, ,367, Kotak Securities Limited 181

183 Schedules forming Part of the Balance Sheet and Profit and Loss Account (Contd.) Nature of Transactions Name of the Related Party Holding Company/ Controlling Entity ** Fellow Subsidiary Companies Current Previous Current Previous Brokerage Earned Kotak Mahindra Bank Limited Kotak Mahindra Capital Company Limited 2, , Kotak Mahindra International Limited Kotak Mahindra Investments Limited Kotak Mahindra Mutual Fund Kotak Mahindra Old Mutual Life Insurance Limited Kotak Mahindra Prime Limited Kotak Mahindra Asset Management Company Limited 0.37 Goldman Sachs (Mauritius) LlC D Kannan Narayan S A Multifaced Finstock Private Limited Kotak Commodity Services Limited Others # Brokerage Earned Total , , Liabilities Written Back Kotak Mahindra Capital Company Limited Liabilities Written Back Total Receivable Kotak Mahindra Bank Limited 0.01 Kotak Mahindra Capital Company Limited 8.82 Kotak Mahindra International Limited 0.01 Kotak Mahindra Mutual Fund Kotak Mahindra Securities Limited Kotak Mahindra Investments Limited 2.06 Kotak Mahindra Old Mutual Life Insurance Limited 3.00 Goldman Sachs (Mauritius) LLC Others # 0.10 Receivable Total Payable Kotak Mahindra Bank Limited Kotak Mahindra Capital Company Limited Kotak Mahindra Investments Limited Kotak Mahindra Prime Limited Kotak Mahindra International Limited D Kannan Narayan S A Shivaji Dam Others , OTHER RECEIPTS AND PAYMENTS Fee Income Kotak Mahindra Bank Limited ^ Kotak Mahindra Capital Company Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra International Limited Kotak Mahindra Investments Limited Kotak Mahindra Securities Limited D Kannan Narayan S A Shivaji Dam Kotak Commodity Services Limited Others # Fee Income Total ^ Kotak Securities Limited 182

184 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) Venture in respect of which the Reporting Enterprise is an Associate Key Management Personnel Relatives of Key Management Personnel Enterprises over which Key Management Personnel/ Relatives thereof are having Significant Influence Current Previous Current Previous Current Previous Current Previous Current Previous , , , , , , , , , , , ^ Total Kotak Securities Limited 183

185 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) Nature of Transactions Name of the Related Party Holding Company/ Controlling Entity ** Fellow Subsidiary Companies Current Previous Current Previous Personnel Expenses Kotak Mahindra Bank Limited Personnel Expenses Total Expense Reimbursement to other Companies Kotak Mahindra Bank Limited 2, , Kotak Mahindra Capital Company Limited Kotak Mahindra International Limited Expense Reimbursement by other Companies Total 2, , Expense Reimbursement by other Companies Kotak Mahindra Capital Company Limited Kotak Mahindra Securities Limited Kotak Mahindra Bank Limited Kotak Forex Brokerage Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Old Mutual Life Insurance Limited Kotak Commodity Services Limited Kotak Mahindra Mutual Fund 9.07 Expense Reimbursement by other Companies Total Other Expenses Kotak Mahindra Bank Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Capital Company Limited Kotak Mahindra Investments Limited 0.55 Kotak Mahindra Old Mutual Life Insurance Limited Kotak Mahindra Prime Limited Others Other Expenses Total Other Income Kotak Mahindra Bank Limited Kotak Mahindra Old Mutual Life Insurance Limited Kotak Mahindra Asset Management Company Limited Other Income Total Sale of Fixed Asset Kotak Mahindra Bank Limited Kotak Mahindra Capital Company Limited Others 1.67 Sale of Fixed Asset Total Purchase of Fixed Asset Kotak Mahindra Bank Limited 1.73 Purchase of Fixed Asset Total 1.73 Remuneration to Key Management Personnel * Alroy Lobo D Kannan Falguni Nayar Narayan S A Shivaji Dam Remuneration to Key Management Personnel * Total Director Sitting Fees Shivaji Dam Director Sitting Fees Total Kotak Securities Limited 184

186 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) Venture in respect of which the Reporting Enterprise is an Associate Key Management Personnel Relatives of Key Management Personnel Enterprises over which Key Management Personnel/ Relatives thereof are having Significant Influence Current Previous Current Previous Current Previous Current Previous Current Previous , , , , , Total Kotak Securities Limited 185

187 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) Nature of Transactions Name of the Related Party Holding Company/ Controlling Entity ** Fellow Subsidiary Companies OTHER OUTSTANDINGS Current Previous Current Previous Receivable Kotak Mahindra Bank Limited Kotak Mahindra Capital Company Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Investments Limited 0.31 Kotak Mahindra Securities Limited Kotak Mahindra Old Mutual Life Insurance Limited Kotak Commodity Services Limited Others Receivable Total Payable Kotak Mahindra Bank Limited Kotak Mahindra Capital Company Limited Kotak Mahindra International Limited Kotak Mahindra Old Mutual Life Insurance Limited 3.90 Kotak Mahindra Asset Management Company Limited Alroy Lobo Narayan S A Shivaji Dam D Kannan Aero Agencies Private Limited Payable Total ** Guarantees given on behalf of Company- Rs. 1,500 Lacs (Previous Rs. 1,500 Lacs) * Excludes provision for gratuity, since this is based on actuarial valuation done on an overall company basis # Includes transactions/income in respect of Kotak Mahindra Venture Capital Fund sponsored by fellow subsidiary Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private Equity Trustee Limited) ^ Amount less than Rs. 500 Kotak Securities Limited 186

188 Schedules forming Part of the Balance Sheet and Profit and Loss Account (Contd.) Venture in respect of which the Reporting Enterprise is an Associate Key Management Personnel Relatives of Key Management Personnel Enterprises over which Key Management Personnel/ Relatives thereof are having Significant Influence Current Previous Current Previous Current Previous Current Previous Current Previous Total , Kotak Securities Limited 187

189 Schedules forming Part of the Balance Sheet and Profit and Loss Account (Contd.) 26. Balance Sheet Abstract and Company s General Business Profile: Registration Number : U MH 1994 PLC State Code : 11 Balance Sheet Date : 31/03/2007 Capital raised during the period Amount in Rs. 000 Public Issue : Nil Rights Issue : Nil Bonus Issue : Nil Private Placement : Nil Position of Mobilization and Deployment of Funds Amount in Rs. 000 Total Liabilities : 13,797,238 Total Assets : 21,305,243 Source of Funds Paid-up Capital : 16,000 Reserves and Surplus : 7,492,005 Secured Loans : 302,301 Unsecured Loans : 5,770,194 Application of Funds Amount in Rs. 000 Net Fixed Assets : 420,970 Investments : 3,406,225 Deferred Tax (net) 98,927 Net Current Assets : 9,654,378 Miscellaneous Expenditure : Accumulated Losses : Nil Performance of Company Amount in Rs. 000 Turnover / Other Income : 8,339,326 Total Expenditure : 4,688,112 Profit before Tax : 3,651,214 Profit after Tax : 2,557,142 Earnings per share (in Rs.) : 1, Dividend Rate (%) : 0% Generic Names of Three Principal Products/Services of Company Item Code No. : N.A. Product Description : Broking, Depository Services, Proprietary Trading, Portfolio Management Services, Mobilisation of Deposits and Marketing of Public Issues. 27. During the year, the Strategic Alliance Agreement between Goldman Sachs Mauritius LLC (which held 25% of equity shares of the Company), Kotak Mahindra Bank Limited, Uday S. Kotak and others was terminated. Goldman Sachs Mauritius LLC sold its holding in the Company to Kotak Mahindra Capital Company Limited. Furthermore, the Company purchased 990,015 shares of Kotak Mahindra Capital Company Limited (representing 25% of the equity shares of the Company) during the year at a consideration of Rs. 21,000 Lacs. 28. Figures for the previous year have been regrouped wherever necessary to conform to current year s classifications. The Schedules referred to above and the attached notes form an integral part of the financial statements. Signatures to Schedules 1 to 20 forming part of the financial statements and to the above notes. For and on behalf of the Board of Directors K. H. VACHHA Sandeep Chordia Uday S. Kotak Partner Company Secretary Chairman Membership No. F30798 For and behalf of PRICE WATERHOUSE Narayan S. A. Alroy Lobo Chartered Accountants Managing Director Managing Director Institutional Equities Mumbai, Dated: 2nd May, 2007 Kotak Securities Limited 188

190 Board of Director : Mr. Uday Kotak, Mr. Shivaji Dam, Mr. Dipak Gupta, Mr. Hasan Askari, Mr. James Harry Sutcliffe, Mr. A. Venkatasubramanian (Alternate to James Sutcliffe), Mr. Vineet Nayyar, Ms. Pallavi Shroff, Mr. M. G. Diwan, Mr. S. S. Thakur and Mr. Gaurang Shah Directors Report Your Directors take pleasure in presenting their Seventh Report on the business and operations of your Company together with the Audited Financial Statements for the year ended 31st March, FINANCIAL RESULTS Your Company continues to demonstrate a consistent, value-based growth in a fast growing industry. The Total Received Premium income for the year grew to Rs crores as against Rs crores in the corresponding period last year (2006). Of this, the first year premium income including single premium was Rs crores (2005 Rs crores). The Policyholders Account shows a surplus of Rs crores for the year ended 31st March, 2007 (2006 Surplus 1.18 crores). The Shareholders Account shows a deficit of Rs crores (2006 Rs crores). During the year, the deficit in the Policyholders Account in respect of past year amounting to Rs crores was funded by transfers from Shareholders Account. Your Directors have declared an addition to the Policyholders Accumulation Account for the year ended 31st March, 2007 to give a return of 7% ( %) to participating policyholders. The amount set aside for this purpose is Rs crores (2006 Rs crores). During the year, the Shareholders have transferred Rs crores including Rs crores for funding the deficit of past period (2006 Rs crores) to fund the deficit in the Non-Par Policyholders Account. This transfer from the Shareholders Account to the Policyholders Account during the current year was to basically finance the expenses over-runs. The company has transferred Rs crores from the Policyholders Account to Shareholders Account. 2. DIVIDEND Since your Company is in the initial stages of its business and there is an overall deficit for the year under review, the Directors do not recommend any dividend for the year. 3. CAPITAL During the year under review, the Authorised Share Capital of your Company has increased from Rs. 260 crores to Rs. 350 crores. While the Paid-up Share Capital of your Company has increased from Rs crores to Rs crores. This reiterates the shareholders commitment towards investment in facilitating sustainable growth of your Company. 4. LICENCE The Insurance Regulatory and Development Authority has renewed your Company s licence to carry on the business of life insurance and annuity for the year BUSINESS AND DISTRIBUTION CHANNELS During the year, your Company has written 165,203 policies ( ,750 policies) of adjusted first year premium (single premium weighted at 1/10th) of Rs. 572 crores (2006 Rs. 367 crores), representing a sum assured (excluding riders) of Rs. 20,163 crores (2006 Rs. 8,631 crores). a. Tied Agency Your Company believes that insurance is a long-term relationship it is building with a client, his family, his business and his employees. With this in mind, we continue to invest heavily in maintaining a well-recruited, professionally-trained, and wellmonitored life advisor force that is capable of providing the appropriate advice and recommend customised solutions to consumers. During the year, in line with its aggressive growth strategy, your Company doubled the life advisor force from 12,523 (2006) to 24,484 (31st March, 2007). Your Company continued to maintain stringent standards for the life advisors we partner with, requiring a depth of expertise and highly ethical behaviour. To meet this objective, your Company invested heavily on training. Till 31st March, 2007, your Company has 70 trainers in its 32 Insurance Regulatory and Development Authority (IRDA) certified training centres. Your Company also continues to leverage from a vast network of IRDA certified private training institutes, spread across the country. Your Company is proud to mention that 1 life advisor qualified for Top of the Table Honours; 14 life advisors qualified for Court of the Table Honours and 142 life advisors qualified for the prestigious Million Dollar Round Table. Your company is also proud to mention that 138 Life Advisors have completed the rigorous 51 Club Rounds, a benchmark performance measure set by Old Mutual in South Africa that rewards consistent performance. Further, the Kontact and Konclave programme aimed at rewarding and recognising top-performers is now the most coveted life advisors conventions. b. Alternate Channels Your Company has concentrated on building up the Alternate Channels of distribution aimed at bringing new efficiencies into the distribution framework through Bancassurance, Corporate Agents, Brokers and Referral Arrangements. It is expected that the alternate distribution channels will generate a larger and substantially cost effective business. Further, your Company continued to leverage its strong relationships with Kotak Mahindra Bank Limited, which played a pivotal part of the Alternate business. With the rapid expansion of Kotak Mahindra Bank, your Company derived benefits of extended distribution Kotak Mahindra Old Mutual Life Insurance Limited 189

191 for its products. Kotak Securities and other companies of Kotak group are also expected to contribute significantly to the growth. As on 31st March, 2007, your Company had 230 corporate agents and 130 empanelled brokers. In addition, the Company also had referral bancassurance tie-ups with 29 co-operative banks during the year under review. c. Group Insurance Group Business has performed exceedingly well in the year. Insurance to groups in the form of term insurance, Credit Insurance, Gratuity Schemes and Superannuation Schemes is sold through your Company s own employee force. Your Company managed to leverage the relationship within the Kotak Group which helped in generating significant business in this segment. At the end of the year under review, 245 policies were on the books. Your Company generated a premium income of Rs crores (2006 Rs crores) from its group insurance business. 6. BRANCH NETWORK To fuel its continuing growth, your Company expanded its distribution footprint and has grown both location and branch network by adding 29 new branches during the year under consideration. From 45 branches in 31 cities (March 2006), your Company now has a footprint of 74 branches in 49 important cities catering primarily to the middle class and affluent population. During the expansion, the Company focussed aggressively on second tier cities offering favourable business potential and the opportunity to reach out to rural areas. 7. BRAND During the year, your Company introduced its new Brand Promise together with the new brand campaign Zindagi Se Ek Kadam Aagey. This was born out of the realisation that as we continue to increase our penetration and presence in the markets, there is a need to further strengthen our communication platform with universal appeal and widen the reach across consumer need segments. Your Company continues to have a high brand recall among consumers. AC Nielsen ORG MARG s September 2006 survey in top 8 towns placed your Company amongst the top 6 life insurance companies in the industry. Going forward, your company wants to further cement its position by consolidating its brand building initiatives in the current year. 8. PRODUCTS During the year, your Company relentlessly pursued the customer need approach in line with its philosophy that the ever changing needs of today s customers require continuous innovation and development of newer products. During the year, your Company bolstered its product portfolio by introducing Headstart Child Plans which comes with an innovative feature the Dynamic Floor Fund (DFF), offering embedded investment advice in one single fund. The fund strives for long term capital growth while providing capital protection in cases of volatile market behaviour. The product has two variants, Headstart Future Protect and Headstart Assure Wealth. During the year, the Company also launched Sukhi Jeevan a reversionary bonus insurance-cum-investment endowment plan, aimed at providing simple, hassle-free and affordable insurance to semi-urban and rural customers, especially those who have had none or very little access to organised financial services. 9. RURAL AND SOCIAL Sectors As per the Insurance Regulatory and Development Authority (Obligations of Insurers to Rural and Social Sectors) Regulations, 2002, 18% of the total policies written in the financial year came from the rural sector. The obligation to the social sector was 25,000 lives for the financial year under review. During the year 30,677 policies (Previous year 17,106) were written in the rural sector representing 18.57% (Previous year 17.70%) of the total policies and 71,299 lives (Previous year 32,939 lives) were covered in the social sector. 10. INDUSTRY SCENARIO Insurance industry continues to grow at a phenomenal pace. High economic growth and changing demographics will ensure industry s continuing growth path in near future. It is expected that the private sector will steadily improve their performance in the marketplace in the current fiscal. 11. HUMAN RESOURCES Your Company believes that employees offer the cutting edge to a progressive organisation. The endeavour has always been to create the right environment that would nurture talent and assure superior performance of our personnel. With a view to automate operational activities, speed up delivery, make access to the human capital information easy and reduce the requirement of paperwork, the first phase of Oracle s Human Resources Management System (HRMS) has been implemented. With the objective of building a positive, productive work place, your Company also commissioned the Gallup Survey during the year. The survey was aimed at assessing the engagement levels amongst employees and provide intervention areas for improvement at two levels at the workgroup level and at the organisational level. Gallup administered the survey across the entire employee base through the web route. 12. INFORMATION TECHNOLOGY Your Company is investing heavily on IT for making front-end and customer services more effective and efficient. The focus has been to Kotak Mahindra Old Mutual Life Insurance Limited 190

192 use technology to support the distribution on efficiency, management information and customer service. A new inbound call centre with 10 seats has been set up, which should help us improve our access and response time to the ever increasing customers. To further beef up the effectiveness of delivering service to the customers, your company is considering implementation of Customer Relationship Management (CRM) software. The above initiatives would help the Company to have a synergistic approach along-with other group companies to better respond to the market challenges and tap opportunities. 13. COMPLIANCE AND INTERNAL CONTROL 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 instilled through independent audits across locations. Internal Auditors periodically report to the Audit Committee their findings on the adherence to processes and general compliance. The Company has an Anti-Money Laundering (AML) policy in place and is setting up system and procedures for effectively implementing the AML programme. 14. INVESTMENTS Your Company manages its investments within the overall framework laid out by the Investment Committee. The Company has implemented systems to help analysis of investment portfolio, which acts as an enabler to the front-end Investment team in asset allocation and stock selection. Further, the Company has well staffed Investment team which constantly monitors investment performance and analysis. 15. CORPORATE GOVERNANCE 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. Your Company is committed towards corporate governance and complies with most provisions of the Listing Agreement of the Stock Exchanges with regard to corporate governance, although the same are not applicable. 16. BOARD OF DIRECTORS AND COMMITTEES Your Company has ten Directors on its Board and one Alternate Director. Nine of such directors are non-executive directors out of which four are independent directors. The Chairman of the Board holds a non-executive position. Mr. M. G. Diwan, Mr. Shivaji Dam and Mr. Dipak Gupta are liable to retire by rotation at the ensuing Annual General Meeting of the Company. Mr. M. G. Diwan, who is retiring at the ensuing Annual General Meeting, has not sought re-appointment. The Board wishes to place on record, the contribution of Mr. M. G. Diwan in the growth of the Company. Mr. Shivaji Dam and Mr. Dipak Gupta, who are retiring by rotation are eligible for re-appointment. The members of the Board of Directors, along-with their positions in respective Committees of the Board are: Member of the Board of Directors Audit Committee Investment Committee Banking Committee Remuneration Committee Uday Kotak Chairman Chairman Hasan Askari Vice-Chairman Chairman Member Member Gaurang Shah Managing Director Invitee Member Member Member Shivaji Dam Director Member Chairman James H. Sutcliffe Director A. Venkatasubramanian Alternate Director to James H. Sutcliffe Invitee Member Dipak Gupta Director Member Chairman Pallavi Shroff Independent Director S. S. Thakur Independent Director Member Vineet Nayyar Independent Director M. G. Diwan Independent Director Member During the year under review, meetings of the Board of Directors and the Committees of the Board were held on the following dates: Board Meeting Audit Committee Meeting Investment Committee Meeting May 05,2006 May 4, 2006 May 04, 2006 May 25,2006 August 10, 2006 August 10, 2006 August 11, 2006 November 03, 2006 November 03, 2006 September 23,2006 February 27, 2007 February 27, 2007 November 03,2006 January 30, 2007 February 27,2007 March 30, AUDITORS M/s. BSR & Co., Chartered Accountants and M/s. M. P. Chitale & Co., Chartered Accountants, the Joint Auditors of your Company, hold office until the conclusion of the ensuing Annual General Meeting of the Company. 18. 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, 2002, the Management Report forms a part of the financial statements. 19. 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 is enclosed herewith. Kotak Mahindra Old Mutual Life Insurance Limited 191

193 During the year ended 31st March, 2007, expenditure in foreign exchange amounted to Rs crores. 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. 20. DIRECTORS RESPONSIBILITY STATEMENT Based on representations from the Management, your 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 31st March, 2007, followed the applicable accounting standards along-with proper explanations relating to material departures, if any; 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. 21. ACKNOWLEDGEMENTS The Directors thank the Insurance Regulatory and Development Authority for its continuous support. The Directors are 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 a notable one. 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 your Company as at 31st March, 2007, of the surplus in the Revenue Account and the loss in the Profit and Loss Account of your Company for the financial year ended 31st March, 2007; c. The Directors have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate Mumbai 4th May, 2007 For and on behalf of the Board of Directors Uday Kotak Chairman Kotak Mahindra Old Mutual Life Insurance Limited 192

194 Management Report for the year ended March 31, 2007 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, Kotak Mahindra Prime Limited transferred 17,230,988 fully paid-up Equity Shares of Rs. 10 each and renounced 4,748,733 fully paid-up Equity Shares of Rs. 10 each to Kotak Mahindra Capital Company Ltd. 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 Loans, Investments, Agents balances, Outstanding Premiums, Interest, Dividends and Rents outstanding, Interest, Dividends and Rents accruing but not due, Amounts due from other persons or bodies carrying on insurance business, Sundry Debtors, Bills Receivable 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 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, 2007, 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, A significant number of the claims are settled within twenty one days from the date of receipt of all relevant papers and clarifications, over the last five years. Where clarifications/documents are pending, follow up activities are undertaken. 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, 2007, 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. Kotak Mahindra Old Mutual Life Insurance Limited 193

195 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 under Revenue Account and of the loss in the Profit and Loss Account for the year ended March 31, 2007; 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 in which the Director/s is/are interested Kotak Mahindra Bank Ltd. Name of Director/s Interested as Uday Kotak, Shivaji Dam, Dipak Gupta Director 156,171 Kotak Securities Ltd. Uday Kotak Director 23,818 Kotak Mahindra Asset Management Company Ltd. Uday Kotak Director 21,394 Aero Agencies Ltd. Uday Kotak Relative of a Director 8,132 The Great Eastern Shipping Co. Vineet Nayyar Director 5,000 Old Mutual Life Assurance Co. (South Africa) Ltd. James Harry Sutcliffe Director 2,196 Akshay D. Pandit M. G. Diwan Partner 1,228 Kotak Mahindra Prime Ltd. Uday Kotak, Shivaji Dam, Dipak Gupta Director 857 Central Depository Services (I) Ltd. SS Thakur Director 35 Amarchand & Mangaldas Pallavi Shroff Partner 20 Kamat Hotels (I) Ltd. SS Thakur Director 10 For Kotak Mahindra Old Mutual Life Insurance Limited Uday Kotak Gaurang Shah Chairman Managing Director Mumbai 4th May, 2007 Expenses paid in the financial year (Rs. 000) Kotak Mahindra Old Mutual Life Insurance Limited 194

196 Auditors Report To the Members of Kotak Mahindra Old Mutual Life Insurance Limited We have audited the attached Balance Sheet of Kotak Mahindra Old Mutual Life Insurance Limited ( the Company ) as at 31st March, 2007, the related Revenue Account, the Profit and 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 Company s management. Our responsibility is to express an opinion on these financial statements based on our audit. 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 mis-statement. 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. The Balance Sheet, the Revenue Account, the Profit and 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, 1956 to the extent they are not inconsistent with the accounting policies prescribed by the Insurance Regulatory and Development Authority ( IRDA ) ( Authority ). 1. 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 and have found them satisfactory; b. As the Company s accounting system is centralised, no returns for the purposes of our audit are required from the branches of the Company; c. The Balance Sheet, the Revenue Account, the Profit and Loss Account and the Receipts and Payments Account referred to in this report are in agreement with the books of account; d. The actuarial valuation of liabilities for life policies in force is the responsibility of the Company s Appointed Actuary ( the Appointed Actuary ). The actuarial valuation of these liabilities as at 31st March, 2007 has been duly 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 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; e. On the basis of written representations received from the Directors and taken on record by the Board of Directors of the Company, none of the Directors is disqualified as at 31st March, 2007 from being appointed as a Director under Clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956; f. 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; g. 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 Auditor s Report of Insurance Companies) Regulations, 2002 ( the Regulations ) and orders/directions issued by IRDA in this behalf; h. 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 Regulations and orders / directions issued by IRDA in this behalf; i. In our opinion and to the best of our information and according to the explanations given to us, the Balance Sheet, the Revenue Account, the 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 Regulations, the Insurance Act, 1938, the Insurance Regulatory and Development Authority 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 31st March, 2007; ii. iii. iv. of the surplus in so far as it relates to the Revenue Account for the year ended 31st March, 2007; of the loss in so far as it relates to the Profit and Loss Account for the year ended 31st March, 2007; of the Receipts and Payments Account in so far as it relates to the Receipts and the Payments for the year ended 31st March, Kotak Mahindra Old Mutual Life Insurance Limited 195

197 2. Further, we certify to the best of our knowledge and belief that: 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 reviewed the Management Report attached to the financial statements for the year ended 31st March, 2007 and have found no apparent mistake or material inconsistencies with the financial statements; and On the basis of our examination of the 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 IRDA. For BSR & Co. Chartered Accountants For MP Chitale & Co. Chartered Accountants Akeel Master Ashutosh Pednekar Partner Partner Membership No: Membership No: Mumbai Mumbai 4th May, th May, 2007 Kotak Mahindra Old Mutual Life Insurance Limited 196

198 Auditors Certificate 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 Kotak Mahindra Old Mutual Life Insurance Limited ( the Company ) for the year ended 31st March, 2007, we certify that: This certificate is issued to comply with Schedule C of the 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. We have verified the cash balances, to the extent considered necessary, and securities relating to the Company s investments as at 31 March, 2007 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 31st March, 2007, the Company had no reversions and life interests; For BSR & Co. Chartered Accountants For MP Chitale & Co. Chartered Accountants The Company is not the trustee of any trust; and 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. Akeel Master Ashutosh Pednekar Partner Partner Membership No: Membership No: Mumbai Mumbai 4th May, th May, 2007 Kotak Mahindra Old Mutual Life Insurance Limited 197

199 Registration No: 107; Date of Registration: January 10, 2001 Form A-RA Revenue Account for the year ended March 31, 2007 Policyholders' Account (Technical Account) (Amounts in thousands of Indian Rupees) Particulars Schedule ended March 31, 2007 ended March 31, 2006 Premiums earned; net (a) Premium 1 9,715,141 6,218,519 (b) Re-insurance ceded (201,769) (111,533) (c) Re-insurance accepted Income from investments (a) Interest, Dividends and Rent- Net of amortisation (Refer Schedule 16 Note 15(D) ) 615, ,360 (b) Profit on sale/redemption of investments 1,033, ,027 (c) (Loss on sale/redemption of investments) (277,949) (44,633) (d) Transfer/Gain on revaluation/change in fair value (177,602) 741,465 Other Income (a) Contribution from Shareholders Account (Refer Schedule 16 Note 11) 1,179, ,792 (b) Miscellaneous income 6,683 1,446 (c) Profit on sale of fixed assets (Net) Total (A) 11,894,148 7,857,370 Commission 2 802, ,182 Operating Expenses related to Insurance Business 3 2,403,053 1,340,790 Provision for doubtful debts Bad debts written off Provision for tax (Fringe Benefit Tax) 18,850 10,725 Provisions (other than taxation) (a) For diminution in the value of investments (Net) (b) Others Total (B) 3,223,935 1,942,697 Benefits paid (net) 4 1,731, ,665 Interim Bonuses paid Change in valuation of liability in respect of life policies, (a) Gross 1,208,134 1,246,757 (b) Amount ceded in reinsurance (c) Amount accepted in reinsurance Provision for Linked Liabilities 5,080,268 4,221,738 Total (C) 8,020,114 5,888,160 Surplus/(Deficit) (D) = (A) - (B) - (C) 650,098 26,513 Appropriations Transfer to Shareholders' Account 14,323 Transfer to Other Reserve Balance being Funds for Future Appropriations 114,584 14,662 SURPLUS/(DEFICIT) AFTER APPROPRIATION 521,191 11,851 SURPLUS/(DEFICIT) BROUGHT FORWARD (484,844) (496,695) SURPLUS/(DEFICIT) CARRIED FORWARD TO BALANCE SHEET 36,347 (484,844) (a) Interim Bonuses Paid (b) Allocation of Bonus to Policyholders 95,117 54,328 (c) Surplus/(Deficit) shown in the Revenue Account 521,191 11,851 (d) Total Surplus: [(a) + (b) + (c)] 616,308 66,179 The Schedules and accompanying notes are an integral part of this Revenue Account. 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 recognised in this Revenue Account. As per our report of even date attached For and on behalf of the Board of Directors For M. P. Chitale & Co. For BSR & Co. Uday Kotak Hasan Askari Dipak Gupta Chartered Accountants Chartered Accountants Chairman Vice-Chairman Director Ashutosh Pednekar Akeel Master G. Murlidhar Gaurang Shah A. Venkatasubramanian Partner Partner Chief Operating Officer Managing Director Appointed Actuary Membership No: Membership No: & Company Secretary Mumbai Mumbai 4th May, th May, 2007 Kotak Mahindra Old Mutual Life Insurance Limited 198

200 Registration No: 107; Date of Registration: January 10, 2001 Form A-PL Profit and Account for the year ended March 31, 2007 Shareholders' Account (Non-Technical Account) (Amounts in thousands of Indian Rupees) Particulars Schedule ended March 31, 2007 ended March 31, 2006 Amounts transferred from Policyholders Account (Technical Account) 14,323 Income from Investments (a) Interest, Dividends and Rent Net of amortisation (Refer Schedule 16 Note 15(D)) 96,373 65,644 (b) Profit on sale/redemption of investments 16,027 2,484 (c) (Loss on sale/redemption of investments) (40,773) (3,874) Other Income (including fund management fees) Total (A) 85,950 64,254 Expenses other than those directly related to the insurance business 2, Bad debts written off Provisions (other than taxation) (a) For diminution in the value of investments (Net) (b) Provision for doubtful debts (c) Others Contribution to the Policyholders Fund (Refer Schedule 16 Note 11) 1,179, ,792 Total (B) 1,182, ,205 Profit/ (Loss) before tax (1,096,357) (435,951) Provision for taxation Current Earlier (Refer Schedule 16 - Note 16) 8,322 8,270 Profit/(Loss) after tax (1,104,679) (444,221) Appropriations (a) Balance at the beginning of the year (1,554,127) (1,109,906) Add: Effect of first time adoption of Revised AS-15 Employee Benefits (9,271) (1,563,398) (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 (2,668,077) (1,554,127) Earnings Per Share (Basic and Diluted) (in Rs.) (3.97) (1.94) (Refer Schedule 16 Note 22) 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 For M. P. Chitale & Co. For BSR & Co. Uday Kotak Hasan Askari Dipak Gupta Chartered Accountants Chartered Accountants Chairman Vice-Chairman Director Ashutosh Pednekar Akeel Master G. Murlidhar Gaurang Shah A. Venkatasubramanian Partner Partner Chief Operating Officer Managing Director Appointed Actuary Membership No: Membership No: & Company Secretary Mumbai Mumbai 4th May, th May, 2007 Kotak Mahindra Old Mutual Life Insurance Limited 199

201 Registration No: 107; Date of Registration: January 10, 2001 Form A-BS Balance Sheet as at March 31, 2007 (Amounts in thousands of Indian Rupees) Particulars Schedule As at March 31, 2007 As at March 31, 2006 Sources of Funds Shareholders Funds: Share Capital 5 3,303,466 2,443,701 Reserves and Surplus 6 520, ,363 Credit/[Debit] Fair Value Change Account Sub-Total 3,823,829 2,964,064 Borrowings 7 Policyholders Funds: Credit/[Debit] Fair Value Change Account ,463 Policy Liabilities Participating 3,097,235 2,122,799 Non-participating 501, ,444 Annuities Participating 251, ,565 Annuities Unit-Linked Non-Participating Unit-Linked Non-Participating 172,419 92,992 (Refer Schedule 16 Note 4) Insurance Reserves Participating Non-Participating (96,870) Annuities Participating 36,347 11,851 Annuities, Unit-Linked Non-Participating 747 Unit-Linked Non-Participating (400,572) Linked Liabilities 12,025,832 6,767,957 Fair Value Change 619, ,222 Total Provision for Linked Liabilities 12,645,447 7,565,179 Sub-Total 16,705,503 10,045,853 Funds for Future Appropriation:-Linked Liabilities 129,246 14,662 Others 1,009 1,009 Total 20,659,587 13,025,588 Application of Funds Investments Shareholders 8 853, ,985 Policyholders 8A 4,026,888 2,975,227 Assets Held to Cover Linked Liabilities 8B 12,774,710 7,579,841 Loans 9 23,168 7,245 Fixed Assets , ,626 Current Assets Cash and Bank Balances 11 1,248, ,984 Advances and Other Assets , ,225 Sub-Total (A) 1,692, ,209 Current Liabilities 13 1,551, ,943 Provisions 14 70,969 26,729 Sub-Total (B) 1,622, ,672 Net Current Assets (C) = (A B) 70,119 68,537 Miscellaneous Expenditure (To the extent not written off or adjusted) 15 Debit Balance in Profit and Loss Account (Shareholders Account) 2,668,077 1,554,127 Total 20,659,587 13,025,588 The Schedules and accompanying notes are an integral part of this Balance Sheet. (0.46) As per our report of even date attached For and on behalf of the Board of Directors For M. P. Chitale & Co. For BSR & Co. Uday Kotak Hasan Askari Dipak Gupta Chartered Accountants Chartered Accountants Chairman Vice-Chairman Director Ashutosh Pednekar Akeel Master G. Murlidhar Gaurang Shah A. Venkatasubramanian Partner Partner Chief Operating Officer Managing Director Appointed Actuary Membership No: Membership No: & Company Secretary Mumbai Mumbai 4 May, May, 2007 Kotak Mahindra Old Mutual Life Insurance Limited 200

202 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements Schedule 1 Premium (Amounts in thousands of Indian Rupees) Particulars ended March 31, 2007 ended March 31, 2006 First year Premium 5,530,456 3,426,992 Renewal Premium 3,565,750 2,257,911 Single Premium 618, ,616 Total Premium 9,715,141 6,218,519 Notes: (a) All the premium income relates to business in India (b) Refer Schedule 16 - Note 2(a) Schedule 2 Commission (Amounts in thousands of Indian Rupees) Particulars ended March 31, 2007 Commission paid ended March 31, 2006 Direct- First year Premium 703, ,945 Renewal Premium 97,844 69,888 Single Premium 5,057 8,562 Sub-total 806, ,395 Add: Commission on Re-insurance accepted Less: Commission on Re-insurance ceded (4,861) (8,213) Net Commission 802, ,182 Note : Refer Schedule 16 - Note 2(b) Breakup of Gross Commission Particulars ended March 31, 2007 ended March 31, 2006 Agents 431, ,396 Brokers 60,063 8,454 Corporate Agents 311, ,131 Referral 3,736 1,414 Total 806, ,395 Kotak Mahindra Old Mutual Life Insurance Limited 201

203 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements Schedule 3 Operating Expenses Related to Insurance Business (Amounts in thousands of Indian Rupees) Particulars ended March 31, 2007 ended March 31, 2006 Employees remuneration and welfare benefits [Refer Schedule 16 Notes 2(h) and 6] 1,055, ,354 Travel, conveyance and vehicle running expenses 101,656 61,207 Training expenses 43,606 26,490 Rent, Rates and Taxes 101,836 73,244 Repairs 35,861 18,865 Printing and Stationery 38,154 24,535 Communication expenses 79,936 45,148 Legal and Professional charges 65,260 23,855 Medical fees 17,804 12,537 Auditors fees, expenses etc. (a) as auditor 1,950 1,650 (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 expenses) Advertisement and publicity 468, ,287 Interest and Bank charges 9,623 5,038 Depreciation 102, ,484 Information Technology expenses 51,526 33,254 Electricity charges 30,404 21,847 Recruitment expenses 39,633 22,906 Brokerage 5, Stamp Duty 28,933 11,884 Membership and Subscription Fees 523 1,066 Preliminary and Share issue Expenses 8,132 7,749 Service Tax on Premium 16,651 19,436 Service Tax Expense 88,240 41,829 Other expenses 10,837 4,356 Total 2,403,053 1,340,790 Note: Refer Schedule 16 Note 2(c) Kotak Mahindra Old Mutual Life Insurance Limited 202

204 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements Schedule 4 Benefits Paid (Net) (Amounts in thousands of Indian Rupees) Particulars ended March 31, 2007 ended March 31, 2006 Insurance Claims (a) Claims by Death 159,216 55,955 (b) Claims by Maturity (c) Annuities/Pension payment (d) Others (Refer note (c) below) 1,623, ,618 (Amount ceded in reinsurance) (a) Claims by Death (50,744) (12,908) (b) Claims by Maturity (c) Annuities/Pension payment (d) Others (Refer note (c) below) Amount accepted in reinsurance (a) Claims by Death (b) Claims by Maturity (c) Annuities/Pension payment (d) Others Total 1,731, ,665 Notes: (a) The Company 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 (d) Refer Schedule 16 Note 2(e). Kotak Mahindra Old Mutual Life Insurance Limited 203

205 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements Schedule 5 Share Capital (Amounts in thousands of Indian Rupees) Particulars As at March 31, 2007 As at March 31, 2006 Authorized Capital 350,000,000 ( ,000,000) Equity Shares of Rs. 10 each 3,500,000 2,600,000 Issued Capital 330,346,620 ( ,583,546) Equity Shares of Rs. 10 each 3,303,466 2,445,835 Subscribed Capital 330,346,620 ( ,583,546) Equity Shares of Rs. 10 each 3,303,466 2,445,835 Called-up Capital 330,346,620 ( ,583,546) Equity Shares of Rs. 10 each 3,303,466 2,445,835 Less: Calls unpaid Add: Shares forfeited (Amount originally paid up) Less: Par Value of Equity Shares bought back Less: Preliminary Expenses (1,427) Less: Expenses on issue of shares (707) Total 3,303,466 2,443,701 Notes: (a) Of the above, 168,476,784 ( ,737,610) Equity Shares of Rs. 10 each fully paid-up are held by Kotak Mahindra Bank Limited, the holding company and its nominees, 54,000,000 ( ,254,216) and 21,979,721 (2006 Nil) fully paid-up Equity Shares of Rs. 10 each are held by Kotak Mahindra Prime Limited and Kotak Mahindra Capital Company Limited respectively, which are subsidiaries of Kotak Mahindra Bank Limited. (b) During the year, the Company has issued 85,763,074 ( ,822,903) Equity Shares of Rs 10 each fully paid-up at par, by way of rights to its existing shareholders. (c ) During the year, Kotak Mahindra Prime Limited transferred 17,230,988 fully paid-up Equity Shares of Rs. 10 each and renounced 4,748,733 fully paid-up Equity Shares of Rs. 10 each to Kotak Mahindra Capital Company Ltd. Schedule 5A Pattern of Shareholding (As certified by the Management) Particulars As at March 31, 2007 As at March 31, 2006 Number of Shares % Holding Number of Shares % Holding Shareholders Promoter Group Indian 244,456,505 74% 180,991,826 74% Foreign 85,890,115 26% 63,591,720 26% Others Total 330,346, % 244,583, % Schedule 6 Reserves and Surplus (Amounts in thousands of Indian Rupees) Particulars As at March 31, 2007 As at March 31, 2006 Capital Reserve Capital Redemption Reserve Securities Premium 520, ,363 Revaluation Reserve General Reserves Less: Debit balance in Profit and Loss Account Less: Amount utilized for Buy-back Catastrophe Reserve Other Reserve Balance of profit in Profit and Loss Account Total 520, ,363 Kotak Mahindra Old Mutual Life Insurance Limited 204

206 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements Schedule 7 Borrowings (Amounts in thousands of Indian Rupees) Particulars As at March 31, 2007 As at March 31, 2006 Debentures/Bonds Banks Financial Institutions Others Total Schedule 8 Investments Shareholders' (Amounts in thousands of Indian Rupees) Particulars As at March 31, 2007 LONG TERM INVESTMENTS As at March 31, 2006 Government securities and Government guaranteed bonds including Treasury Bills 469,588 66,312 Other Approved Securities Other Investments (a) Shares (aa) Equity (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/Bonds (e) Other Securities (includes Fixed Deposits) 20,295 (f) Subsidiaries Investment Properties Real Estate Investments in infrastructure and social sector (Refer Note (d) below) 134,568 22,075 Other than Approved Investments Total 625,167 88,445 SHORT TERM INVESTMENTS Government securities and Government guaranteed bonds including Treasury Bills 98, ,421 Other Approved Securities Other Investments (a) Shares (aa) Equity (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/Bonds 6, ,077 (e) Other Securities (includes Fixed Deposits) 53,700 88,922 (f) Subsidiaries (g) Investment Properties Real Estate Investments in Infrastructure and Social Sector [Refer Note (d) below] 70,384 79,120 Other than Approved Investments Total 228, ,540 Grand Total 853, ,985 Notes: (a) All the above investments are quoted as at March 31, 2007, except fixed deposits under "Other securities". (b) The aggregate market value of quoted investments as at March 31, 2007 is Rs. 777,474 (2006 Rs. 571,078). The aggregate Book value of unquoted investments as at March 31, 2007 is Rs. 73,518 (2006 Rs. 84,706). (c) Aggregate historical cost of equity shares as at March 31, 2007 is Rs. Nil (2006 Rs. Nil). (d) The Company has not made any investments in the Social Sector, as securities of acceptable grade were not available. (e) Refer Schedule 16 Notes 2(d). Kotak Mahindra Old Mutual Life Insurance Limited 205

207 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements Schedule 8A Investments Policyholders' (Amounts in thousands of Indian Rupees) Particulars As at March 31, 2007 As at March 31, 2006 LONG TERM INVESTMENTS Government securities and Government guaranteed bonds including Treasury Bills 2,158,047 1,388,597 Other Approved Securities Other Investments (a) Shares (aa) Equity 851, ,085 (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/Bonds 62,238 47,603 (e) Other Securities (includes Fixed Deposits) 57,700 (f) Subsidiaries (g) Investment Properties Real Estate Investments in Infrastructure and Social Sector 508, ,598 Other than Approved Investments 89,741 Total 3,727,890 2,394,883 SHORT TERM INVESTMENTS Government securities and Government guaranteed bonds including Treasury Bills 69, ,330 Other Approved Securities Other Investments (a) Shares (aa) Equity (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/Bonds 73,814 9,966 (e) Other Securities (includes Fixed Deposits) 75, ,360 (f) Subsidiaries (g) Investment Properties Real Estate Investments in Infrastructure and Social Sector 79, ,688 Other than Approved Investments Total 298, ,344 Grand Total 4,026,888 2,975,227 Notes: (a) All the above investments except fixed deposits under "Other securities" are quoted as at March 31, (b) The aggregate market value of total quoted investments as at March 31, 2007 is Rs. 3,785,050 (2006 Rs. 2,776,835). The aggregate book value of unquoted investments as at March 31, 2007 is Rs. 133,611 (2006 Rs. 158,457). The aggregate market value for quoted investments without equity shares as at March 31, 2007 is Rs. 2,843,713 (2006 2,170,750). (c) Aggregate historical cost of equity shares as at March 31, 2007 is Rs. 940,816 ( ,621). (d) The Company has not made any investments in the Social Sector, as securities of acceptable grade were not available. (e) Refer Schedule 16 Notes 2(d). Kotak Mahindra Old Mutual Life Insurance Limited 206

208 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements Schedule 8B Investments Unit Linked (Amounts in thousands of Indian Rupees) Particulars As at March 31, 2007 LONG TERM INVESTMENTS As at March 31, 2006 Government securities and Government guaranteed bonds including Treasury Bills 740,578 1,272,466 Other Approved Securities Other Investments (a) Shares (aa) Equity 5,667,506 3,219,563 (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/ Bonds 1,384, ,243 (e) Other Securities (includes Fixed Deposits) 222,104 (f) Subsidiaries (g) Investment Properties Real Estate Investments in Infrastructure and Social Sector 353, ,378 Other than Approved Investments 758,023 Total 9,126,262 5,503,650 SHORT TERM INVESTMENTS Government securities and Government guaranteed bonds including Treasury Bills 172,302 Other Approved Securities Other Investments (a) Shares (aa) Equity (bb) Preference (b) Mutual Funds (c) Derivative Instruments (d) Debentures/Bonds 1,985, ,438 (e) Other Securities (includes Fixed Deposits) 1,856,544 1,148,034 (f) Subsidiaries (g) Investment Properties Real Estate Investments in Infrastructure and Social Sector 193,645 Other than Approved Investments Net Current Assets (Refer Schedule 16 Note 23) (193,334) (26,228) Total 3,648,448 2,076,191 Grand Total 12,774,710 7,579,841 Notes: (a) All the above investments except fixed deposits under "Other securities" and "Net Current Assets" are quoted as at March 31, (b) Aggregate historical cost of quoted investments as at March 31, 2007 is Rs. 10,451,948 (2006 Rs. 6,204,307). The aggregate historical cost of unquoted investments as at March 31, 2007 is Rs. 1,703,147 (2006 Rs. 578,311). (c) The Company has not made any investments in the Social Sector, as securities of acceptable grade were not available. (d) Refer Schedule 16 Notes 2(d). Kotak Mahindra Old Mutual Life Insurance Limited 207

209 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements Schedule 9 Loans (Amounts in thousands of Indian Rupees) Particulars As at March 31, 2007 As at March 31, 2006 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 12,446 4,425 (d) Others Unsecured 10,722 2,820 Total 23,168 7,245 BORROWER-WISE CLASSIFICATION (a) Central and State Governments (b) Banks and Financial Institutions (c) Subsidiaries (d) Companies (e) Loans against policies 12,446 4,425 (f) Others Employees 10,722 2,820 Total 23,168 7,245 PERFORMANCE-WISE CLASSIFICATION (a) Loans classified as standard (aa) In India 23,168 7,245 (bb) Outside India (b) Non-standard loans less provisions (aa) In India (bb) Outside India Total 23,168 7,245 MATURITY-WISE CLASSIFICATION (a) Short term (b) Long Term 23,168 7,245 Total 23,168 7,245 Note:- Refer Schedule 16 - Note 2(f) Kotak Mahindra Old Mutual Life Insurance Limited 208

210 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements Schedule 10 Fixed Assets (Amounts in thousands of Indian Rupees) Particulars Cost/Gross Block Depreciation Net Block As on April 1, 2006 Addition On Sale/ Adjustment As on March 31, 2007 As on April 1, 2006 For the year On Sale/ Adjustment As on March 31, 2007 As on March 31, 2007 As on March 31, 2006 Goodwill Intangibles Software * 180,053 23, , ,592 42, ,428 49,436 68,461 Land-Freehold Leasehold property Buildings Furniture and fittings ** 142,570 40, ,491 77,863 26, ,429 79,062 64,707 Information technology equipment 117,720 54, ,762 96,434 20, ,795 54,967 21,286 Vehicles 17,424 7,619 4,399 20,644 6,348 3,779 2,880 7,247 13,397 11,076 Office equipment 47,517 10,544 58,061 31,044 9,119 40,163 17,898 16,473 Total 505, ,937 4, , , ,661 2, , , ,003 Capital Work-in-progress 28,030 1,623 Grand Total 242, ,626 Previous 454,895 54,886 4, , , ,484 3, , ,626 * Includes licenses ** Includes leasehold improvements Note: Refer Schedule 16 Notes 2(g) and 2(j) Schedule 11 Cash and Bank Balances (Amounts in thousands of Indian Rupees) Particulars As at March 31, 2007 As at March 31, 2006 Cash (including cheques on hand, drafts and stamps) 382, ,412 Bank Balances (a) Deposit Accounts (aa) Short-term (due within 12 months of the date of Balance Sheet) (bb) Others (b) Current accounts 866, ,572 (c) Others Money at Call and Short Notice (a) With Banks (b) With other Institutions Total 1,248, ,984 Balance with non-scheduled banks included above Cash and Bank balance In India 1,248, ,984 Outside India Total 1,248, ,984 Kotak Mahindra Old Mutual Life Insurance Limited 209

211 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements Schedule 12 Advances and Other Assets (Amounts in thousands of Indian Rupees) Particulars As at March 31, 2007 As at March 31, 2006 ADVANCES Reserve deposits with ceding companies Application money for investments Prepayments 94,365 65,060 Advance to Directors/Officers Advance tax paid and taxes deducted at source 16,474 11,625 Advances to suppliers 11,780 5,552 Advances to employees 5,464 3,914 Total (A) 128,083 86,151 OTHER ASSETS Income accrued on investments 104,248 86,591 Outstanding Premiums 76,999 66,525 Agents Balances Foreign Agencies Balances Due from other entities carrying on insurance business (including reinsurers) Due from subsidiaries/holding company Deposits pursuant to Section 7 of Insurance Act, 1938 [Refer Schedule 16 Note 15(B)] Security and other deposits 129,748 75,800 Service Tax Unutilised Credit 5,000 3,500 Other Receivables 85 24,658 Total (B) 316, ,074 Total (A + B) 444, ,225 Schedule 13 Current Liabilities (Amounts in thousands of Indian Rupees) Particulars As at March 31, 2007 As at March 31, 2006 Agents balances 122,219 90,067 Balance due to other insurance companies (Net) 281, ,318 Deposits held on re-insurance ceded Premium received in advance Unallocated premium (including proposals pending underwriting) 390, ,544 Sundry creditors 268,857 64,410 Due to holding company 5,450 4,511 Claims outstanding 61,052 38,570 Annuities due Accrued expenses 354, ,603 Taxes deducted at source, payable 42,378 36,348 Statutory dues payable 25,948 17,572 Total 1,551, ,943 Kotak Mahindra Old Mutual Life Insurance Limited 210

212 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements Schedule 14 Provisions (Amounts in thousands of Indian Rupees) Particulars As at March 31, 2007 As at March 31, 2006 For taxation 21,742 8,270 For proposed dividend For dividend distribution tax Provision for gratuity 23,563 11,604 Provision for leave encashment 25,664 6,855 Others Total 70,969 26,729 Schedule 15 Miscellaneous Expenditure (To the extent not written off or adjusted) (Amounts in thousands of Indian Rupees) Particulars As at March 31, 2007 As at March 31, 2006 Discount Allowed in issue of shares/debentures Others Total Kotak Mahindra Old Mutual Life Insurance Limited 211

213 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) Schedule 16 : Notes to the financial statements 1. Background Kotak Mahindra Old Mutual Life Insurance Limited ( The Company ) 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 Company 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 regularly and is in force as at March 31, 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 to the extent applicable, the Companies Act, 1956 of India to the extent applicable, and in accordance with the provisions of the Insurance Act, 1938, the Insurance Regulatory and Development Authority Act, 1999 and the regulations framed there under to the extent applicable and the practices prevailing within the insurance industry in India. 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. Any revision to accounting estimates is recognised prospectively in current and future periods. The significant accounting policies adopted by the Company are as follows: (a) (b) (c) Revenue recognition on Insurance policies: Premium is recognised as income when due from policyholders except on unit linked policies, where the premium is recognised when associated units are allotted. In accordance with the terms of insurance policies, uncollected premium on lapsed policies is not recognised as income until revived. Top Up/Lump sum contributions are accounted as a part of single premium. Income from linked policies, which include asset management fees and other charges, if any, are recovered from the linked fund in accordance with the terms and conditions of the policies. 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 reinsurance 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 recognised 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, or (e) total number of policies, or (f) renewal commission, as considered appropriate by the Management. Kotak Mahindra Old Mutual Life Insurance Limited 212

214 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) (d) Investments and Investment Income Investments are made in accordance with the Insurance Act, 1938, the Insurance Regulatory and Development Authority (Investment Regulations), 2000 and IRDA (Investment) (Amendment) Regulations, Investments are recorded at cost on the date of purchase which includes brokerage, transfer charges, transaction taxes as applicable, etc. but excludes preacquisition interest, if any. Interest income is recognized on accrual basis. Dividend income is recognized when the right to receive is established. Accretion of discount and amortisation of premium relating to debt securities is recognised over the holding/maturity period on a straight line basis. Investments maturing within twelve months from the Balance Sheet date and investments made with the specific intention to dispose them off within twelve months from the Balance Sheet date are classified as Short Term Investments. Investments other than Short Term Investments are classified as Long Term Investments. In case of impairment in the value of investment as at the Balance Sheet date which is other than temporary, the amount of loss is recognised as an expense in the Revenue/Profit and Loss Account. Gain/Loss on transfer/sale of securities is the difference between the transfer/sale price and the net amortized cost/book value which is computed on a Weighted average basis as on the date of transfer/sale. Sale Consideration for the purpose of realized gain/loss is net of brokerage and taxes, if any, and excludes interest accrued. Debt Securities Shareholders and non-linked policyholders investments All debt securities are considered as held to maturity for the purpose of valuation and are accordingly recorded at historical 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 on a straight-line basis. Unit-Linked Business All Government securities, except treasury bills, for linked business are valued at prices obtained from Credit Rating Information Service of India Ltd. (CRISIL). Debt Securities other than Government Securities are valued on the basis of CRISIL Bond valuer. Floating rate instruments are valued at cost. The discount on purchase of treasury bills, certificate of deposit, commercial papers, deep discount bonds and zero coupon bonds are amortized over the period to maturity on a straight line basis. Equity Shares Shareholders and non-linked policyholders investments Listed equity shares as at Balance Sheet date are stated at fair value being the lower of last quoted closing price on Bombay Stock Exchange Limited ( BSE ) and the National Stock Exchange Limited ( NSE ). Equity shares awaiting listing are stated at historical cost subject to provision for diminution, if any, in the value of such investment determined separately for each individual investment. 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 Listed equity shares are valued at fair value, being the last quoted closing price on the NSE (In case of securities not listed on NSE, the last quoted closing price on the BSE is used) Equity shares awaiting listing are stated at historical cost subject to provision for diminution, if any, in the value of such investment determined separately for each individual investment. Unrealised gains and losses are recognized in the respective scheme s revenue account. The Company does not own any investment property and hence there is no disclosure on the basis of revaluation of investment property. Transfer of investments Transfer of debt securities from shareholders to policyholders fund is transacted at the lower of net amortised cost or market value. Transfer of securities between unit linked funds is done at market value. Kotak Mahindra Old Mutual Life Insurance Limited 213

215 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) Allocation of investments and income The funds of the shareholders and the policyholders are kept separate and records are maintained accordingly. Investments made out of the shareholders funds are tracked from their inception and the income thereon is also tracked separately. Since the actual funds, investments and income thereon are tracked and reported separately, the allocation of investments and income is not required. (e) (f) (g) Benefits Paid Benefits paid comprise of policy benefit amount, surrenders and specific claims settlement costs where applicable. Surrender and claims by death are accounted when intimated. Survival benefits are accounted when due. Maturity claims are accounted on the date of maturity. Amounts recoverable from reinsurers are accounted for in the same period as the related claim. Loans Loans are stated at historical cost, subject to provision for impairment. Interest on loan, if any is accrued when due. There were no restructuring of loan assets during the year and in the earlier years. Fixed Assets and Depreciation Fixed assets are stated at cost less accumulated depreciation. The Company 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 up to 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 written off in the year of acquisition. The Management estimates the economic useful lives of the various fixed assets as follows: Information technology equipment (including software) Furniture and fittings (including leasehold improvements) Vehicles Office equipment 3 years 6 years 4 years 5 years The Management assesses using external and internal sources, whether there is an indication that an asset may be impaired. Impairment occurs where the carrying value exceeds the present value of future cash flows expected to arise from the continuing use of the asset and its eventual disposal. The impairment loss to be expensed is determined as the excess of the carrying amount over the higher of the asset s net sales price or present value as determined above. (h) Employee Retirement Benefits a. Provident fund is a defined contribution scheme and the contributions as required by the statute to Government Provident Fund are charged to profit and loss account when due. b. Gratuity liability is defined benefit obligation and is wholly unfunded. The Company accounts for liability for future gratuity benefits based on actuarial valuation. c. Superannuation fund is a defined contribution scheme. The Company contributes a sum equivalent to 15% (previous year 0.15%), subject to a maximum of Rs. 1 lakh, of eligible employees salary to a Superannuation Fund administered by the trustees. d. The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognized during the period when the employee renders the service. These benefits include performance incentives and compensated absences on paid annual leave. Kotak Mahindra Old Mutual Life Insurance Limited 214

216 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) e. Actuarial gains/losses are immediately taken to the profit and loss account and are not deferred. The Company has chosen to early adopt revised Accounting Standard 15 (AS 15) Employee Benefits which is mandatory from accounting period beginning on or after December 7, As per transitional provisions of AS 15, the difference in liability (net of tax effect) on account of employee benefits created by the Company has been adjusted against the opening balance in the Profit and Loss Account. (i) (j) (k) Accounting for Operating Leases Operating lease rentals are recognized as an expense over the lease period. 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. Segment reporting Business Segments In accordance with the Insurance Regulatory and Development Authority (Preparation of Financial Statements and Auditor s Report of Insurance Companies) Regulations, 2002 (referred to as Accounting Regulations ) read with Accounting Standard 17 on Segment Reporting issued by the Institute of Chartered Accountants of India, the Company s business in India is classified into Participating business, Non-participating business, Annuities Participating business, Annuities Linked Non-participating business, Unit-Linked Non-participating business and Investment of the Shareholders funds. 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 Participating, Annuities Linked Non-participating business and Unit-Linked business: Refer 2(c) above. Segmental assets and liabilities Segment assets and liabilities include those that are employed by a segment in its operating activity. 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. (l) 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 backed by convincing evidence that such deferred assets can be realised. 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. Provision for Fringe benefit tax is made on the basis of applicable fringe benefit tax on the taxable value of chargeable expenditure of the company as prescribed under the Income Tax Act, Kotak Mahindra Old Mutual Life Insurance Limited 215

217 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) (m) Preliminary and Share Issue expenses Share Issue expenses in relation to increase in share capital are written off when incurred. Preliminary Expenses and Initial Share Issue expenses are amortised over a period of 3 years. Unamortised Preliminary Expenses and Share Issue expenses are adjusted in the schedule of Share Capital as prescribed under the IRDA Regulations. (n) (o) (p) Service tax Service tax liability on risk premium is set-off against available cenvat credits. Unutilised credits, if any, are carried forward under Advances and Other Assets for set-off in subsequent periods. Provisions and Contingencies A provision is created when there is a present obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. Contingent liability is disclosed when there is a possible or present obligation that may but probably will not, require an outflow of resources. When there is a possible or present obligation where the likelihood of outflow of resources is remote, provision or disclosure is not made. Earnings per Share The basic earnings per share is computed by dividing the net profit attributable to the equity shareholders by weighted average number of equity shares outstanding during the reporting year. Number of equity shares used in computing diluted earnings per share comprises the weighted average number of equity shares which would have been issued on the conversion of all dilutive potential equity shares. In computing diluted earnings per share only potential equity shares that are dilutive are considered. 3. Actuarial Method and Assumptions The actuarial liabilities have been calculated in accordance with generally accepted actuarial principles, the requirements of the Insurance Act 1938, IRDA regulations and the prescribed guidance notes of the Actuarial Society of India. The method adopted is as follows: Unit Linked Policies : a unit reserve equal to the value of the units on 31 March, 2007 plus a non-unit reserve calculated on gross premium prospective valuation method. Par policies (accumulation contracts) : the value of the accumulated fund plus a non-unit reserve calculated on gross premium prospective valuation method. Non-par conventional business : gross premium prospective method. The assumptions used in the Gross Premium valuation are based on conservative best estimates together with appropriate margins for adverse deviations from experience. The principal assumptions are interest, inflation, return to policyholders account, lapses, expenses, mortality and morbidity. The base assumptions are: Interest 4.5% to 6.3% p.a. (2006 : 4.3% to 6.3%) Inflation 5.50% Policyholders returns Rates consistent with the earning rates and charges Lapses Future policy lapses have been assumed based on the type of policy and the duration for which the policy has been in force Expenses Best estimates bearing in mind future business plans and pricing assumptions Mortality Based on LIC mortality table adjusted for AIDS Morbidity (for Critical Illness) Based on adjusted CIBT rates (2006 : Reinsurer s rates) Morbidity (other riders) Based on reinsurers rates Reserves for group life business are calculated as the risk premium for the unexpired term with an allowance for expenses and a margin for adverse deviations. Kotak Mahindra Old Mutual Life Insurance Limited 216

218 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 4. Policy Liabilities (Forming part of Policyholders Funds) Particulars Par Non-Par Annuities Annuities Unit Linked Unit Linked Total Par Non-Par Annuities Annuities Unit Linked Unit Linked Total At start of the year 2,122, , , ,992 2,815,055 1,128, , , ,079 1,568,298 Add: Change in valuation against policies in force (Refer Note 3 above) 886,413 97,309 49,886 (19) 79,427 1,113, , ,564 57,129 (134) 72,913 1,192,429 Add: Bonus to policyholders (Refer Note 10 below)* 88,023 7,094 95,117 49,791 4,537 54,328 At end of the year 3,097, , , ,419 4,023,188 2,122, , , ,992 2,815,055 * Forms part of Change in Valuation of Liability in respect of life policies-gross in the Revenue Account Kotak Mahindra Old Mutual Life Insurance Limited 217

219 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 5. Contingent Liabilities Particulars Partly paid-up investments 20,816 10, Underwriting commitments outstanding 3. Claims, other than against policies, not acknowledged as debts by the company 4. Guarantees given by or on behalf of the Company Statutory demands/liabilities in dispute, not provided for (Income Tax) 15, Reinsurance obligation to the extent not provided for in accounts 7. Others Insurance claims in appeal net of provision [Gross value of claims Rs. 21,145 (2006 Rs. 17,054), out of which reinsured Rs. 12,406 (2006 Rs. 12,289)] 7,349 4,765 Total 28,665 31, Computation of Managerial Remuneration (i) Managing Director s remuneration, which is included under Employees remuneration and welfare benefits, is as follows: Particulars a. Salary 8,930 5,989 b. Contribution to provident and other funds c. Employee Share Option Plan (Refer Note 23) 3,837 2,685 d. Value of perquisites Total 13,791 9,451 Note: (a) The Managerial remuneration is in accordance with the requirements of Section 34A of the Insurance Act, 1938 and as approved by IRDA. (b) The remuneration excludes gratuity and leave encashment. Gratuity is accrued based on an actuarial valuation for the Company s overall liability and leave encashment is valued on actual basis. (ii) Sitting fees paid to Independent Directors amounts to Rs. 360 (2006 Rs. 120). 7. Capital Commitments Particulars Estimated amount of contracts remaining to be executed on capital account and not provided for (net of advances) 36,939 16, Risk Retention During the year ended March 31, 2007, the Company wrote policies with sum at risk worth Rs. 235,552 million (2006 Rs. 101,034 million) in total business, reinsured there from Rs. 79,949 million (2006 Rs. 34,565 million) and thereby retained risk of per cent ( per cent). Kotak Mahindra Old Mutual Life Insurance Limited 218

220 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 9. Business, Sector-wise Particulars Policies Premium Income Policies Premium Income Rural Sector per cent per cent per cent 5.43 per cent Urban Sector per cent per cent per cent per cent The Company has issued 4 policies ( policies), covering 71,299 lives ( ,939 lives) and underwritten gross premium of Rs. 73,062 (2006 Rs. 24,861) in the social sector. 10. Accumulated Fund Addition to Participating Policyholders The Board of Directors has at its meeting held on 4th May, 2007, declared the following rates of bonus on participating policies: a) On Accumulation products including retirement products: 4% p.a. cash bonus in addition to the guaranteed rate of 3% costing Rs. 92,472. (2006 Rs. 54,328 to meet an effective 7 per cent return). b) On the Reversionary bonus product: 2% Simple Reversionary bonus, the cost of bonus being: Rs. 2,645 (2006 Nil) In the year under review, a transfer of Rs. 7,760 was made from the participating policyholders account to the shareholders account being the surplus in the participating policyholders accounts subject to the maximum of 1/9th of the bonus declared during the year to the participating policyholders. A transfer of Rs. 6,563 was made from the non-participating policyholders account to the shareholders account which represented the surplus in the non-participating account. 11. Contribution made to the Policyholders Account In the year under review, the shareholders contributed Rs. 1,179,924 ( Rs. 779,352 relating to current year and Rs. 400,572 relating to the earlier years) to the Policyholders Account to meet fully the deficit in all the Policyholders Account. Last year shareholders contributed Rs. 499,792 to fund the deficit in the Policyholders Accounts. 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 the Company. 12. Encumbrances on Assets Apart from fixed deposits worth Rs. 500 (2006 Rs. 500) marked under lien with the postal authorities, there are no encumbrances on the assets of the Company as at the Balance Sheet date. 13. Operating Lease Commitments In accordance with Accounting Standard 19 on Accounting of Leases issued by the Institute of Chartered Accountants of India, details of leasing arrangements entered into by the company are given below. The Company has taken various office and residential premises on operating lease and leave and license agreements. Lease payments are recognized in the Revenue Account under Rent, Rates and Taxes. The future minimum lease payments under non-cancellable operating leases for such premises are as follows: Particulars Not later than one year 38,566 6,387 Later than one year not later than five years 146,617 Later than five years 12,801 The total operating lease rentals charged to Revenue account in the current year is Rs. 93,738 (2006 Rs. 64,158) Kotak Mahindra Old Mutual Life Insurance Limited 219

221 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 14. Ratios (in per cent) Sr. Particulars Participating Non- No. participating Annuities- Participating Annuities Linked Non-par Unit Linked Non- Participating New business premium income growth (28.59) (53.78) (92.92) 4, (6.55) Sr. No. Particulars Net retention ratio Ratio of management expenses Commission ratio Ratio of policyholders liabilities to shareholders funds 1, Growth rate of shareholders funds (18.03) (7.46) 7. Ratio of surplus to policyholders liabilities 0.22 (4.66) 8. Change in net worth (including insurance reserves) (10.02) 9. Profit after tax/total Income (9.06) (5.51) 10. (Total real estate + loans)/(cash + Invested Assets) Total Investments/( Net worth + Insurance reserve) 1, , Total affiliated investments/(capital + Surplus) Investments A. All the investments of the Company are performing investments in accordance with the directions issued by the Insurance Regulatory and Development Authority. B. For the purposes of meeting the requirement of Section 7 of the Insurance Act, 1938, the Company has earmarked securities relating to 12.25% Government of India, 2008, having face value Rs. 50,000 and 11.50% Government of India, 2008, having face value Rs. 50,000, in a constituent SGL Account with its Bankers ( % Government of India, 2006, having face value Rs. 50,000 and 13.85% Government of India, 2006, having face value of Rs. 50,000). These investments are classified under Investments Shareholders (Refer Schedule 8). C. Value of contracts in relation to investments for: Particulars Purchases where deliveries are pending 569, ,058 Sales where payments are due Nil 42,099 D. Particulars Taxation Policyholders amount Shareholders amount Policyholders amount Shareholders amount Interest, Dividends and Rent Gross 667, , ,983 94,110 Less : Premium on investments amortized 51,584 13,469 44,623 28,466 Interest, Dividends and Rent Net of amortisation 615,842 96, ,360 65,644 The Company carries on life insurance business and therefore the provisions of Section 44 read with the First Schedule to 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, The Company lost the appeal at CIT (Appeals) for the Assessment and preferred appeal with the Appellate Tribunal. As a matter of prudence, demand of Rs. 8,270 made by the Department and the related penalty of Rs. 8,322 has been fully provided for in the books of account in the year and respectively and charged to Shareholders profit and Loss Account. Since life insurance is a long gestation period business, as a matter of prudence the Company has not taken any credit for deferred tax on losses incurred. Kotak Mahindra Old Mutual Life Insurance Limited 220

222 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 17. Related Parties Disclosures The disclosures relating to related parties as required by Accounting Standard 18 on Related Parties Disclosures by the Institute of Chartered Accountants of India are as under. A. Related Parties where control exists Nature of relationship Holding Company Related Party Kotak Mahindra Bank Limited B. Related parties where transactions have taken place during the years ended March 31, 2007 and March 31, 2006 (i) Holding Company Kotak Mahindra Bank Limited (ii) Joint Venturer Old Mutual Plc (iii) Enterprise in which joint venturer has significant influence (iv) Fellow Subsidiaries Old Mutual Life Assurance Company (South Africa) Limited Kotak Securities Limited Kotak Mahindra Capital Company Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Prime Limited Kotak Mahindra International Limited (v) Enterprises in which key management personnel have significant influence Aero Agencies Limited OM Kotak Mahindra Superannuation Fund Kotak Commodities Services Limited (vi) 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. Gaurang Shah, Managing Director Kotak Mahindra Old Mutual Life Insurance Limited 221

223 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 17. Related parties disclosures (Continued) C. The following are transactions and closing balances of related parties in the ordinary course of business: Nature of transaction Name of the Company Holding Company Joint Venturer Fellow Subsidiaries Others Holding Company Joint Venturer Fellow Subsidiaries Others Assets/Liabilities Bank Balance Kotak Mahindra Bank Ltd. 487,599 Bank Deposits Kotak Mahindra Bank Ltd. 170,000 Group Insurance Policy Deposits Kotak Mahindra Bank Ltd. 4,282 Kotak Securities Ltd. 500 Kotak Mahindra Prime Ltd. 771 Kotak Commodities Services Limited 11 Debentures Held Kotak Mahindra Prime Ltd. 200,288 Purchase of Fixed Assets Kotak Mahindra Bank Ltd. 675 Kotak Mahindra Asset Management Company Ltd. 249 Issue of Share Capital Kotak Mahindra Bank Ltd. 437, ,889 Kotak Mahindra Capital Company Ltd. 197,252 Old Mutual Plc 222,987 85,340 Outstanding Receivable/(Payables) Aero Agencies Ltd. (152) (27) Kotak Mahindra Asset Management Company Ltd. 245 (1,410) Kotak Mahindra Bank Ltd. (5,450) (4,511) Kotak Mahindra Capital Company Ltd. 13 Kotak Mahindra Prime Ltd. (77) 144 Kotak Securities Ltd. (318) 390 Old Mutual Life Assurance Company (South Africa) Ltd. (4,691) (1,906) Old Mutual Plc Om Kotak Mahindra Superannuation Fund 305 Expenses/Income Brokerage Expenses Kotak Securities Ltd. 9,141 Commission Paid Kotak Mahindra Bank Ltd. 110, ,777 Kotak Securities Ltd. 14,241 3,763 Expenses/Reimbursements for Kotak Mahindra Asset Management Company Ltd. 1, Services given Kotak Mahindra Bank Ltd. 9,270 9,239 Kotak Securities Ltd Old Mutual Life Assurance Company (South Africa) Ltd ,415 Kotak Mahindra Prime Ltd. 144 Old Mutual Plc Expenses/Reimbursements for Aero Agencies Ltd. (a) 8,256 5,574 Services received Kotak Mahindra Asset Management Company Ltd. (b) 20,507 2,471 Kotak Mahindra Bank Ltd. ( c ) 45,646 50,626 Kotak Mahindra Prime Ltd Kotak Securities Ltd Old Mutual Life Assurance Company (South Africa) Ltd. 5,157 2,196 Interest Income Kotak Mahindra Bank Ltd. 16,476 Kotak Mahindra Prime Ltd. 5,256 Premium Income Kotak Mahindra Asset Management Company Ltd. 914 Kotak Mahindra Bank Ltd. 7,946 7,125 Credit Group Cover Kotak Mahindra Bank Ltd. 25,053 Kotak Mahindra Prime Ltd. 10,973 Kotak Securities Ltd. 1,389 Kotak Mahindra Capital Company Ltd. 301 Kotak Commodities Services Limited 47 Superannuation Fund Contribution Om Kotak Mahindra Superannuation Fund 4, Notes : (a) Air Travel expenses (b) Investment Advisory Fees (including Service Tax) (c) Includes Employee Stock Option Plan Rs. 9,246 & Advertisement expenses of Rs. 12,156 D. Refer note (6) above for the details of the managerial remuneration paid to the Managing Directors. E. During the year, Kotak Mahindra Prime Limited transferred 17,230,988 fully paid-up Equity Shares of Rs. 10 each and renounced 4,748,733 fully paid-up Equity Shares of Rs. 10 each to Kotak Mahindra Capital Company Ltd. Kotak Mahindra Old Mutual Life Insurance Limited 222

224 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 18. Segmental balance sheet Particulars Participating business Non-Participating business Annuities - Participating Annuities - Linked-Non-par Unit-Linked Shareholders Total Investments 3,099,024 2,268, , , , , ,136 94, , ,985 4,880,724 3,632,212 Assets held to cover linked liabilities 450,870 20,296 12,323,840 7,559,545 12,774,710 7,579,841 Loans against policies 11,146 3,612 1, ,446 4,425 Reinsurance premium for future period 12,477 14,413 15,194 14, ,193 25,289 62,164 54,943 Outstanding Premium 69,968 59,575 3,020 2,789 4,011 4,161 76,999 66,525 Other Assets 4,404,265 3,009,888 4,404,265 3,009,888 Total Assets 3,192,615 2,346, , , , , ,134 20,569 12,531,169 7,679,672 5,258,101 3,666,873 22,211,308 14,347,834 Proposal Deposits 52,930 8,206 19,694 13,825 2,787 19, , , , ,544 Premium received in advance Balance due to reinsurance companies 39,267 21, ,333 72, ,693 44, , ,318 Policy Liabilities 3,097,235 2,122, , , , , ,419 92,992 4,023,188 2,815,055 Provision for linked liabilities 439,859 20,296 12,205,588 7,544,883 12,645,447 7,565,179 Funds for future appropriation 1, ,698 14, ,246 14,662 Insurance reserve 96,870 (36,347) (11,851) (747) 400,572 (36,347) 484,844 Shareholders Funds (balance) 3, ,160 (150,785) (164,253) 38,067 28,402 (9,951) 46 (360,648) (621,996) 5,258,101 3,666,873 4,777,967 3,103,232 Total Liabilities 3,192,615 2,346, , , , , ,134 20,569 12,531,169 7,679,672 5,258,101 3,666,873 22,211,308 14,347,834 Kotak Mahindra Old Mutual Life Insurance Limited 223

225 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 19. Segment-wise revenue account for the year ended March 31, 2007 Particulars Participating Non- Participating Annuities Participating Annuities Non- Participating Linked Non- Participating Unit Linked Premium Income First Premium 200, ,548 3, ,390 4,643,127 5,530,456 Renewal Premium 1,127,192 81,603 66,492 11,500 2,278,963 3,565,750 Single Premium 2, , , , ,935 (a) Premium Income 1,330, ,187 70, ,849 7,375,400 9,715,141 (b) Reinsurance ceded (22,929) (133,225) (375) (6) (45,234) (201,769) (c) Re-insurance accepted Income from Investments Interest, Dividends and Rent - Gross 174,529 37,726 14,657 4, , ,426 Premium on investments amortized (Net) (39,869) (4,914) (3,527) (10) (3,264) (51,584) (a) Interest, Dividends and Rent - Net 134,660 32,812 11,130 4, , ,842 (b) Profit on sale/redemption of investments 238, ,710 3, ,816 1,033,587 (c) (Loss on sale/redemption of investments) (27,523) (3,935) (3,378) (1,087) (242,026) (277,949) (d) Transfer/Gain on revaluation/change in fair value (3,533) (174,069) (177,602) Other Income (a) Contribution from Shareholders Account 40,251 1,139,673 1,179,924 (Refer Schedule 16 Note 11) (b) Miscellaneous income 4, ,770 6,683 (c) Profit on sale of fixed assets (Net) Total (A) 1,658, ,016 96, ,237 9,261,290 11,894,148 Commission First year premium 56,894 9, , , ,992 Renewal premium 41,758 2, ,652 51,274 97,844 Single premium ,997 5,057 Commission on Re-insurance ceded (773) (1,623) (13) (2,452) (4,861) Net Commission 97,897 10,243 1,034 33, , ,032 Operating Expenses related to Insurance Business 440,503 77,249 8,513 76,563 1,800,226 2,403,054 (Refer Schedule 16 Note 2 c ) Provision for doubtful debts Bad debts written off Provision for tax (Fringe Benefit Tax) 2, ,929 18,850 Total (B) 541,029 88,063 9, ,806 2,474,444 3,223,936 Claims by Death 33,344 95,523 1,500 28, ,216 Annuities/Pension payment Surrender payments & rider benefits 112,642 2,035 3, ,505,142 1,623,240 Amount ceded in reinsurance (10,089) (39,347) (248) (1,060) (50,744) Benefits Paid (Net) 135,897 58,211 4, ,532,931 1,731,712 Interim Bonuses paid Change in valuation of liability in respect of life policies, (a) Gross 974,436 97,309 56,980 (19) 79,428 1,208,134 (b) Amount ceded in reinsurance (c) Amount accepted in reinsurance Provision for linked liabilities 419,563 4,660,705 5,080,268 Total (C) 1,110, ,520 61, ,804 6,273,064 8,020,114 SURPLUS/(DEFICIT) (D) = (A) - (B) - (C) 6, ,433 25, , ,098 APPROPRIATIONS Transfer to Shareholders Account 6,972 6, ,323 Transfer to Other Reserves (to be specified) Transfer to Funds for future appropriation 1, , ,584 SURPLUS/(DEFICIT) AFTER APPROPRIATION 96,870 24,496 (747) 400, ,191 SURPLUS/(DEFICIT) BROUGHT FORWARD (96,870) 11, (400,572) (484,844) SURPLUS/(DEFICIT) CARRIED FORWARD TO BALANCE SHEET 36,347 36,347 (a) Interim Bonuses Paid (b) Allocation of Bonus to Policyholders 88,023 7,094 95,117 (c) Surplus/(Deficit) shown in the Revenue Account 96,870 24,496 (747) 400, ,191 (d) Total Surplus: [(a) + (b) + (c)] 88,023 96,870 31,590 (747) 400, ,308 Total Kotak Mahindra Old Mutual Life Insurance Limited 224

226 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 19. Segment-wise revenue account for the year ended March 31, 2007 Particulars Participating Non- Participating Annuities Participating Annuities Non- Participating Linked Non- Participating Unit Linked Premium Income First Premium 280, ,144 1,152 4,719 3,016,675 3,426,992 Renewal Premium 1,025,082 54,642 69,317 7,635 1,101,235 2,257,911 Single Premium 4,581 25, , , ,616 (a) Premium Income 1,309, ,804 70,737 18,285 4,615,728 6,218,519 (b) Reinsurance ceded (22,888) (52,578) (421) (29) (35,617) (111,533) (c) Re-insurance accepted Income from Investments Interest, Dividends and Rent Gross 107,594 27,461 10, , ,983 Premium on investments amortized (net) (32,901) (7,587) (3,295) (35) (805) (44,623) (a) Interest, Dividends and Rent Net 74,693 19,874 7, , ,360 (b) Profit on sale/redemption of investments 80, ,237 (8) 111, ,027 (c) (Loss on sale/redemption of investments) (3,346) (684) (40,603) (44,633) (d) Transfer/Gain on revaluation/change in fair value 2, , ,465 Other Income (a) Contribution from Shareholders Account 85,784 39,541 1, , ,792 (Refer Schedule 16 Note 11) (b) Miscellaneous income ,164 1,446 (c) Profit on sale of fixed assets (Net) Total (A) 1,525, ,711 85,254 21,585 6,014,551 7,857,370 Commission First year premium 92,493 8, , ,945 Renewal premium 42,442 1,647 1,050 24,749 69,888 Single premium ,432 8,562 Commission on reinsurance ceded (1,795) (1,808) (11) (2) (4,597) (8,213) Net Commission 133,233 8,040 1, , ,182 Operating Expenses related to Insurance Business 347,379 54,413 6,777 1, ,909 1,340,790 Provision for doubtful debts Bad debts written off Provision for tax (Fringe Benefit Tax) 2, ,447 10,725 Total (B) 483,391 62,888 8,277 1,419 1,386,722 1,942,697 Claims by Death 18,795 26,643 2,619 7,898 55,955 Annuities/Pension payment Surrender payments & rider benefits 29,971 14, , ,618 Amount ceded in reinsurance (1,636) (10,747) (90) (435) (12,908) Benefits Paid (Net) 47,130 30,259 3, , ,665 Interim Bonuses paid Change in valuation of liability in respect of life policies, (a) Gross 994, ,564 61,666 (134) 72,913 1,246,757 (b) Amount ceded in reinsurance (c) Amount accepted in reinsurance Provision for linked liabilties 20,300 4,201,438 4,221,738 Total (C) 1,041, ,823 65,126 20,166 4,613,167 5,888,160 SURPLUS/(DEFICIT) (D) = (A) (B) (C) 11,851 14,662 26,513 APPROPRIATIONS Transfer to Shareholders Account Transfer to Other Reserves (to be specified) Transfer to Funds for Future Appropriations 14,662 14,662 SURPLUS/(DEFICIT) AFTER APPROPRIATION 11,851 11,851 SURPLUS/(DEFICIT) BROUGHT FORWARD (96,870) 747 (400,572) (496,695) SURPLUS/(DEFICIT) CARRIED FORWARD TO BALANCE SHEET (96,870) 11, (400,572) (484,844) (a) Interim Bonuses Paid (b) Allocation of Bonus to Policyholders 49,791 4,537 54,328 (c) Surplus/(Deficit) shown in the Revenue Account 11,851 11,851 (d) Total Surplus: [(a) + (b) + (c)] 49,791 16,388 66,179 Total Kotak Mahindra Old Mutual Life Insurance Limited 225

227 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 20. Additional segmental reporting Particulars Participating business Non-Participating business Annuities - Participating Annuities - Linked-Nonparticipating Unit-Linked Non- Participating Shareholders Total Non-cash expenses other than depreciation Liability against life policies 886, ,957 97, ,564 49,886 57,129 (19) (134) 79,428 72,913 1,113,017 1,192,429 Transfer to linked fund 419,563 4,660,705 4,207,076 5,080,268 4,207,076 Transfer to fund for future appropriation 1, ,210 14, ,584 14,662 Bonus to Policyholders 88,023 49,791 7,094 4,537 95,117 54,328 Amortization of premium on investments 39,869 32,870 4,914 7,587 3,527 3, , ,469 28,466 65,053 73,089 Gratuity and leave encashment 2,624 1, ,671 1,357 21,498 2,953 Kotak Mahindra Old Mutual Life Insurance Limited 226

228 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 21. Summary of financial statements Sr. No. Particulars Policyholders Account 1. Gross premium income 9,715,141 6,218,519 4,661,638 1,507, , Net premium income 9,513,372 6,106,986 4,593,793 1,467, , Income from investments (Net of Amortisation) 1,193,878 1,248, ,543 69,678 4, Other income 1,186, , , , Total Income 11,894,148 7,857,370 4,971,235 2,513, , Commission & Brokerage 802, , , ,957 76, Operating expenses related to insurance business including Fringe Benefit Tax 2,421,903 1,351,515 1,113, , , Total Expenses 3,223,935 1,942,697 1,502,306 1,090, , Benefits paid 1,731, ,665 45,560 40,844 2, Increase in actuarial liability 1,208,134 1,246, , , , Surplus/(Deficit) (before appropriation) 650,098 26,513 (271,091) 440,357 (522,565) Shareholders Account 12. Total income under shareholders Account 85,950 64,254 31,077 51, , Profit/(Loss) before tax (1,096,357) (435,951) (186,921) (924,214) 14. Provision for tax 8,322 8, Profit/(Loss) after tax (1,104,679) (444,221) (186,921) (924,214) 16. Profit/(Loss) carried to Balance Sheet (2,668,076) (1,554,127) (1,109,906) (922,985) 1, (A) Policyholders account: (B) Total Funds 4,023,188 2,815,055 1,568, , ,906 Total Investments 4,026,888 2,975,227 1,571, , ,906 Yield on Investments (%) 11.90% 9.28% 6.26% 8.63% 10.05% Shareholders account: Total Funds (including insurance reserve) 1,192, ,093 1,028, ,969 1,170,610 Total Investments 853, , , , ,563 Yield on Investments (%) 5.92% 6.68% 5.35% 7.49% 8.60% 18. Yield on Total Investments 10.34% 8.45% 5.95% 7.85% 8.64% 19. Paid up Equity Capital 3,303,466 2,445,835 2,117,606 1,512,576 1,313, Net Worth (including insurance reserve) 1,192, ,093 1,028, ,969 1,170, Total Assets 17,991,510 11,471,461 5,954,982 2,098,491 1,438, Earnings per share (Rupees) (3.97) (1.94) (0.99) (6.46) Nil 23. Book Value per share (Rupees) Kotak Mahindra Old Mutual Life Insurance Limited 227

229 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 22. Earnings per share Earnings Per Share is calculated by dividing the Profits/(Loss) 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/(Loss) after taxation and before exceptional items (1,104,679) (444,221) Profit/(Loss) after taxation (1,104,679) (444,221) Weighted average number of shares 278,335, ,006,083 Earnings per share before exceptional items (Basic and Diluted) Rs (3.97) Rs. (1.94) Earnings per share (Basic and Diluted) Rs (3.97) Rs. (1.94) Face value per share Rs. 10 Rs Employee share option plans (ESOP) At the Annual General Meetings of the holding company, Kotak Mahindra Bank Limited, the shareholders of the Bank had unanimously passed Special Resolutions on 28th July, 2000, 26th July, 2004 & 26th July, 2005, to grant options to the Eligible Employees of the Bank and its subsidiaries companies. Pursuant to these resolutions, the following three Employees Stock Option Schemes had been formulated and adopted: (a) Kotak Mahindra Equity Option Scheme (b) Kotak Mahindra Equity Option Scheme (c) Kotak Mahindra Equity Option Scheme 2005 In terms of the Securities and Exchange Board of India (Employees 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. During the year, the Company reimbursed Kotak Mahindra Bank Limited Rs. 9,251 (2006 Rs. 6,945) towards ESOP granted to the employees of the Company. These costs are a part of Employees remuneration and welfare benefits in Schedule 3. The expected future ESOP cost for the granted options is Rs. 6,898 (2006 Rs 3,744). 24. Provisions Additional information in respect of other provisions in Schedule 14: Particulars As at April 1, 2006 Additional provision made Incurred and charged Unused amounts reversed As at March 31, ,958 6,958 Nature of obligation Not Applicable Not Applicable Expected timing Not Applicable Not Applicable Assumptions Not Applicable Not Applicable Kotak Mahindra Old Mutual Life Insurance Limited 228

230 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25. Unit Linked Disclosures Norms Unit Linked Disclosures made hereunder are in accordance with the instructions received from the Insurance Regulatory & Development Authority vide circular numbers 054/IRDA/F and A/FEB-07 dated February 20, 2007 and IRDA/F&A/001/Apr-07 dated 16th April, A. Unit Linked Disclosures Revenue Account Revenue Account for the year ended 31st March, 2007 Policyholders Account (Technical Account) Particulars Schedule Non-Unit (1) Linked Life Linked Pension Linked Group Unit (2) Total (3)=(1)+(2) Non-Unit (4) Unit (5) Total (6)=(4)+(5) Non-Unit (7) Unit (8) Total (9)=(7)+(8) Total Unit Linked (10)=(3)+(6)+(9) Premiums earned net (a) Premium 1,439,044 5,566,772 7,005,816 61, , , , ,584 7,863,249 (b) Reinsurance ceded (45,004) (45,004) (6) (6) (230) (230) (45,240) Income from Investments (a) Interest, Dividend & Rent Gross 10, , , ,439 4,501 16,154 16, ,240 (b) Profit on sale/ redemption of investments , ,337 3,247 3,247 26,479 26, ,063 (c) Loss on sale/ redemption of investments (1,266) (235,158) (236,424) (3) (1,084) (1,087) (5,602) (5,602) (243,113) (d) Unrealised gain/(loss) (166,274) (166,274) (3,533) (3,533) (7,795) (7,795) (177,602) Other income: (a) Linked Income UL1 411,193 (411,193) 6,308 (6,308) 4,279 (4,279) (b) Contribution from the Shareholders a/c 1,124,162 1,124,162 40,251 40,251 15,511 15,511 1,179,924 (c) Other Income 1,681 1, ,770 (d) Profit on Sale of Fixed asset Total (A) 2,940,224 5,906,865 8,847, , , ,237 19, , ,201 9,792,527 Commission 659, ,289 33,569 33, ,858 Operating Expenses related to Insurance Business 1,789,949 1,789,949 76,563 76,563 10,278 10,278 1,876,790 Provision for Taxation 14,844 14, ,603 Total (B) 2,464,082 2,464, , ,806 10,362 10,362 2,585,251 Benefits Paid (Net) UL2 16,144 1,491,144 1,507, ,193 25,643 1,533,191 Interim Bonus Paid Change in Valuation Liability 79,428 4,291,626 4,371,054 (19) 419, , , ,079 5,159,677 Total (C) 95,572 5,782,770 5,878,342 (19) 419, , , ,722 6,692,867 SURPLUS/(DEFICIT) (D)=(A)-(B)-(C) 380, , ,665 (2,362) 2, , , ,409 APPROPRIATIONS Insurance reserve at the beginning of the year 391, ,455 (747) (747) 9,117 9, ,825 Transfer to Shareholders a/c Funds available for future appropriations 113, ,210 1,374 1, ,584 Total (D) 391, , ,665 (747) 1, ,117 9, ,409 Kotak Mahindra Old Mutual Life Insurance Limited 229

231 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25A. Unit Linked Disclosures Revenue Account Schedules to Annexure to Revenue Account (UL) forming part of Financial Statements Schedule UL1 Linked Income (recovered from linked funds)* Particulars Life Linked Unit (1) Pension Linked Unit (2) Linked Group Unit (3) Total (4)= (1)+(2)+(3) Fund Administration charge Fund Management charge 141,723 1,078 3, ,954 Policy Administration charge 169,669 4, ,639 Surrender charge** 6, ,149 Switching charge 4 4 Mortality charge 77, ,790 Rider Premium charge 1,504 1,504 Partial withdrawal charge Miscellaneous charge 14, ,740 Total (UL 1) 411,193 6,308 4, ,780 * net of service tax, if any ** Surrender charge includes partial surrender charge 25A. Unit Linked Disclosures Revenue Account Schedule UL2 BENEFITS PAID [NET] Sr. No. Particulars Linked Life Linked Pension Linked Group 1. Insurance Claims Non Unit (1) Unit (2) Linked Life (3)=(1)+(2) Non-Unit (4) Unit (5) Linked Pension (6)=(4)+(5) Non-Unit (7) Unit (8) Linked Group (9)=(7)+(8) Total Unit Linked (10)=(3)+(6)+(9) (a) Claims by Death 16,897 10,873 27, ,079 28,849 (b) Claims by Maturity 36 21,092 21,128 21,128 (c) Annuities/Pension payment (d) Other benefits Surrender 1,480,271 1,480, ,743 3,743 1,484,274 Survival Sub Total (A) 16,897 1,491,144 1,508, ,193 25,950 1,534, Amount Ceded in reinsurance (a) Claims by Death ,060 (b) Claims by Maturity (c) Annuities/Pension payment (d) Other benefits Surrender Survival Sub Total (B) ,060 Total (A)-(B) 16,144 1,491,144 1,507, ,193 25,642 1,533,191 Benefits paid to claimants: In India 16,144 1,491,144 1,507, ,193 25,642 1,533,191 Outside India Total (UL 2) 16,144 1,491,144 1,507, ,193 25,642 1,533,191 Kotak Mahindra Old Mutual Life Insurance Limited 230

232 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25B. Unit Linked Disclosures Fund Balance Sheet Form A BS(UL) Fund Balance Sheet for the Ended 31st March 2007 Particulars Schedule Dynamic Bond Guaranteed Bond Pension Bond Group Bond Guaranteed Money Market Current Previous Current Previous Group Money Market Sources of Funds Policyholders Funds: Policyholders contribution F 1 107, , , ,219 1, ,150 10,669 1,605 2, Revenue Account 27,241 22,750 6,563 3, , Total 134, , , ,486 1, ,491 11,037 2,444 2, Application of Funds Investments F 2 131, , , ,543 1, ,522 10,674 2,443 2, Current Assets F 3 3,414 16,399 4,637 2, , Less: Current Liabilities and Provisions F 4 (54) (4) (8) Net current assets 3,414 16,345 4,637 2, , (8) Total 134, , , ,486 1, ,491 11,037 2,444 2, Net Asset Value (NAV) per Unit: (a) Net Asset as per Balance Sheet (Total Assets less Current Liabilities and Provisions) 134, , , ,486 1, ,491 11,037 2,444 2, (b) Number of Units outstanding 11,744 48,285 14,423 11, ,285 1, (c) NAV per Unit (a)/(b) (Rs.) Current Previous Current Previous Current Previous Current Previous 25B. Unit Linked Disclosures Fund Balance Sheet Form A BS(UL) Fund Balance Sheet for the Ended 31st March 2007 Particulars Dynamic Gilt Guaranteed Gilt Pension Gilt Group Gilt Dynamic Balanced Guaranteed Balanced Schedule Current Previous Current Previous Sources of Funds Policyholders Funds: Policyholders contribution F 1 350, , , ,484 4,458 1,333 11,393 14, , , , ,770 Revenue Account 34,949 32,468 9,526 7, ,599 58, , ,095 Total 385, , , ,379 4,544 1,376 12,032 15, , , , ,865 Application of Funds Investments F 2 374, , , ,596 4,394 1,324 11,671 14, , , , ,281 Current Assets F 3 10,583 19,951 5,963 6, ,365 17,728 13,807 13,538 Less: Current Liabilities and Provisions F 4 Current Previous Current Previous Current Previous Current Previous (17) (6) (1,340) (15,185) (11,274) (11,954) Net current assets 10,583 19,935 5,963 6, ,025 2,544 2,533 1,584 Total 385, , , ,379 4,544 1,376 12,032 15, , , , ,865 Net Asset Value (NAV) per Unit: (a) Net Asset as per Balance Sheet (Total Assets less Current Liabilities and Provisions) 385, , , ,379 4,544 1,376 12,032 15, , , , ,865 (b) Number of Units outstanding 32,958 53,531 17,230 18, ,020 1,361 11,194 13,237 44,665 30,769 (c) NAV per Unit (a)/(b) (Rs.) Kotak Mahindra Old Mutual Life Insurance Limited 231

233 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25B. Unit Linked Disclosures Fund Balance Sheet Form A BS(UL) Fund Balance Sheet for the Ended 31st March 2007 Particulars Pension Balanced Group Balanced Dynamic Growth Guaranteed Growth Aggressive Growth Dynamic Floating Schedule Current Previous Current Previous Sources of Funds Policyholders Funds: Policyholders contribution F 1 437,220 21, , , , ,286 5,575,025 2,096, , , , ,388 Revenue Account 4,087 3,415 44,593 27, ,484 99, , , ,379 83,098 30,232 22,276 Total 441,307 24, , , , ,337 6,386,869 2,690, , , , ,664 Application of Funds Investments F 2 464,017 23, , , , ,546 6,586,875 2,729, , , , ,780 Current Assets F 3 7,273 1,856 5,229 18,613 3,990 21,592 80,959 70, ,118 6,815 6,899 Less: Current Liabilities and Provisions F 4 Current Previous Current Previous Current Previous Current Previous (29,983) (1,249) (46,383) (15,655) (5,570) (24,801) (280,965) (110,010) (8,794) (29,137) (15) Net current assets (22,710) 607 (41,154) 2,958 (1,580) (3,209) (200,006) (39,379) (8,077) (8,019) 6,815 6,884 Total 441,307 24, , , , ,337 6,386,869 2,690, , , , ,664 Net Asset Value (NAV) per Unit: (a) Net Asset as per Balance Sheet (Total Assets less Current Liabilities and Provisions) 441,307 24, , , , ,337 6,386,869 2,690, , , , ,664 (b) Number of Units outstanding 20,605 1,268 15,507 7,237 21,126 18, , ,421 21,205 13,565 17,527 40,533 (c) NAV per Unit (a)/(b) (Rs.) B. Unit Linked Disclosures Fund Balance Sheet Form A BS(UL) Fund Balance Sheet for the Ended 31st March 2007 Particulars Schedule Guaranteed Floating Pension Floating Group Floating Advantage Fund Advantage Multiplier Fund Current Previous Current Previous Advantage Plus Fund Sources of Funds Policyholders Funds: Policyholders contribution F 1 290, ,204 3,150 1,804 83,538 5,786 8,476 10,532 61,817 48,603 1,067, ,976 Revenue Account 12,852 4, , (65) 12 (484) 969 (3,909) 16,155 Total 303, ,055 3,345 1,877 84,959 5,911 8,411 10,544 61,333 49,572 1,063,710 1,003,131 Application of Funds Investments F 2 293, ,468 3,247 1,845 82,280 5,780 8,284 10,393 60,481 52,341 1,045,549 1,040,363 Current Assets F 3 9,337 2, , ,697 18,160 37,130 Less: Current Liabilities and Provisions F 4 (6) (5) (1) (4,466) (74,362) Net current assets 9,337 2, , (2,769) 18,160 (37,232) Total 303, ,055 3,345 1,877 84,959 5,911 8,411 10,544 61,333 49,572 1,063,710 1,003,131 Net Asset Value (NAV) per Unit: (a) Net Asset as per Balance Sheet (Total Assets less Current Liabilities and Provisions) 303, ,055 3,345 1,877 84,959 5,911 8,411 10,544 61,333 49,572 1,063,710 1,003,131 (b) Number of Units outstanding 26,356 15, , ,047 5,802 4, ,133 96,556 (c) NAV per Unit (a)/(b) (Rs.) Current Previous Current Previous Current Previous Current Previous Kotak Mahindra Old Mutual Life Insurance Limited 232

234 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency: In thousands of Indian Rupees unless otherwise stated) 25B. Unit Linked Disclosures Fund Balance Sheet Form A-BS(UL) Fund Balance Sheet for the Ended 31st March, 2007 Particulars Schedule Advantage Multiplier II Fund Current year Previous Advantage Plus II Fund Current year Previous Dynamic Floor Fund Total Current year Previous Current year Previous Sources of Funds Policyholders' Funds: Policyholders contribution F-1 32, , ,271 11,323,068 6,490,007 Revenue Account (89) 567 (3,323) 1,451,642 1,089,835 Total 32, , ,948 12,774,710 7,579,841 Application of Funds Investments F-2 31, , ,071 12,968,044 7,606,069 Current Assets F ,075 2, , ,705 Less: Current Liabilities and Provisions F-4 (384,309) (286,933) Net current assets 502 7,075 2,877 (193,334) (26,228) Total 32, , ,948 12,774,710 7,579,841 Net Asset Value (NAV) per Unit: (a) Net Asset as per Balance Sheet (Total Assets less Current Liabilities and Provisions) 32, , ,948 12,774,710 7,579,841 (b) Number of Units outstanding 3,075 44,506 13, , ,343 (c) NAV per Unit (a)/(b) (Rs.) Kotak Mahindra Old Mutual Life Insurance Limited 233

235 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25C. Unit Linked Disclosures Fund Revenue Account Form A-RA(UL) Fund Revenue Account for the year ended 31st March, 2007 Particulars Schedule Dynamic Bond Guaranteed Bond Pension Bond Group Bond Current year Previous Current year Previous Current year Previous Current year Previous Guaranteed Money Market Current year Previous Group Money Market Current year Previous Dynamic Gilt Current year Previous Interest income 14,662 41,390 10,619 5, , ,469 55,229 Dividend income (6) Profit on sale of investment Profit on inter fund transfer/ sale of investment Loss on sale of investment (355) (2,508) (801) (350) (4) (2) (522) (40) (9,093) (5,312) Loss on inter fund transfer/ sale of investment (11,691) (1,491) (3,055) (61) (19) (594) (12,717) (1,759) Miscellaneous Income Unrealised Gain/loss 9,287 (9,730) 1,058 (1,518) 2 (7) (457) (175) 1,786 (13,819) Total (A) 12,296 27,661 9,157 3, , ,529 34,339 Fund management expenses Fund administration expenses 2,159 6,239 1, ,306 6,624 Other charges F-5 5,646 4, , ,742 Total (B) 7,805 6,239 5, , ,048 6,624 Net Income for the year (A-B) 4,491 21,422 3,296 3, , ,481 27,715 Add: Fund revenue account at the beginning of the year 22,750 1,328 3, ,468 4,753 Fund revenue account at the end of the year 27,241 22,750 6,563 3, , ,949 32,468 Kotak Mahindra Old Mutual Life Insurance Limited 234

236 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25C. Unit Linked Disclosures Fund Revenue Account Form A-RA(UL) Fund Revenue Account for the year ended 31st March, 2007 Particulars Schedule Guaranteed Gilt Pension Gilt Group Gilt Dynamic Balanced Current year Previous Current year Previous Current year Previous Current year Previous Guaranteed Balanced Current year Previous Pension Balanced Group Balanced Current year Previous Current year Previous Interest income 18,039 13, , ,932 6,413 29,055 13,263 3, ,813 3,046 Dividend income 1,992 1,155 4,696 2, , Profit on sale of investment ,087 66,069 3,064 21,060 Profit on inter fund transfer/ sale of investment ,074 13, ,021 Loss on sale of investment (4,517) (1,280) (34) (7) (199) (57) (3,257) 4,338 (9,143) 7,882 (706) 331 (3,221) 1,775 Loss on inter fund transfer/ sale of investment (3,080) (78) (22) (227) (3) (2,531) 431 (5,677) (439) (296) (24) (824) (534) Miscellaneous Income Unrealised Gain/loss (1,136) (3,684) (43) (19) (49) (166) (26,640) 44,693 (35,997) 85,911 (3,494) 2,569 (7,294) 21,638 Total (A) 9,820 8, ,657 57,030 62, ,775 2,752 3,328 23,221 26,454 Fund management expenses Fund administration expenses 1,954 1, ,235 2,106 9,134 4,171 1, , Other charges F-5 6, ,758 21,910 1,058 3,623 Total (B) 8,189 1, ,993 2,106 31,044 4,171 2, , Net Income for the year (A-B) 1,631 6, ,664 54,924 31, , ,204 17,291 25,464 Add: Fund revenue account at the beginning of the year 7,895 1, ,935 4, ,095 7,491 3, ,302 1,838 Fund revenue account at the end of the year 9,526 7, ,599 58, , ,095 4,087 3,415 44,593 27,302 Kotak Mahindra Old Mutual Life Insurance Limited 235

237 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25C. Unit Linked Disclosures Fund Revenue Account Form A-RA(UL) Fund Revenue Account for the year ended 31st March, 2007 Particulars Schedule Dynamic Growth Guaranteed Growth Aggressive Growth Dynamic Floating Guaranteed Floating Pension Floating Group Floating Current year Previous Current year Previous Current year Previous Current year Previous Current year Previous Current year Previous Current year Previous Interest income 9,448 5, ,771 38, ,157 31,172 17,190 6, , Dividend income 5,577 1,870 33,861 11,569 4,418 1,978 Profit on sale of investment 75, ,212 62, Profit on inter fund transfer/ sale of investment 15,033 14,582 3, Loss on sale of investment (8,161) 8,803 (52,115) 56,300 (8,605) 4,134 (40) (3,220) (40) (680) (11) (1) (17) Loss on inter fund transfer/ sale of investment (2,154) 37 (16,013) 447 (229) 4,574 (167) (422) (189) (86) (3) 1 (14) 2 Miscellaneous Income Unrealised Gain/loss (22,294) 76,534 (65,023) 449,984 (27,516) 73,511 (1) (6) (5) 4 3 (3) 5 (5) Total (A) 72,855 93, , ,831 35,289 84,962 18,212 27,524 17,325 5, , Fund management expenses Fund administration expenses 7,934 3,194 59,789 19,896 5,457 2,286 2,836 5,552 2,579 1, Other charges F-5 16, ,261 10,551 7,420 6, Total (B) 24,422 3, ,050 19,896 16,008 2,286 10,256 5,552 9,324 1, Net Income for the year (A-B) 48,433 89, , ,935 19,281 82,676 7,956 21,972 8,001 4, , Add: Fund revenue account at the beginning of the year 99,051 9, ,619 56,684 83, , , Fund revenue account at the end of the year 147,484 99, , , ,379 83,098 30,232 22,276 12,852 4, , Kotak Mahindra Old Mutual Life Insurance Limited 236

238 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25C. Unit Linked Disclosures Fund Revenue Account Form A-RA(UL) Fund Revenue Account for the year ended 31st March, 2007 Particulars Schedule Advantage Fund Advantage Multiplier Fund Current year Previous Current year Previous Advantage Plus Fund Current year Previous Advantage Multiplier II Fund Current year Previous Advantage Plus II Fund Current year Previous Dynamic Floor Fund Current year Previous Current year Total Previous Interest income , ,969 2, ,152 1, , ,083 Dividend income , ,633 19,492 Profit on sale of investment 362 2,549 49, , ,482 Profit on inter fund transfer/ sale of investment , , ,514 Loss on sale of investment (661) (3,503) (7) (62,408) (33) (251) (3,950) (464) (172,051) 70,039 Loss on inter fund transfer/ sale of investment (64) (295) 9 (6,725) (15) (142) (2,418) (644) (69,790) 589 Miscellaneous Income Unrealised Gain/loss ,610 14,845 (69) (584) (1,920) (177,600) 741,463 Total (A) ,808 1,041 43,591 17, ,024 (1,053) 783,592 1,058,666 Fund management expenses Fund administration expenses , ,157 1, , ,957 56,893 Other charges F ,665 32, ,592 1, ,830 Total (B) , ,655 1, ,457 2, ,787 56,893 Net Income for the year (A-B) (77) 12 (1,453) 969 (20,064) 16,155 (89) 567 (3,323) 361,805 1,001,773 Add: Fund revenue account at the beginning of the year ,155 1,089,836 88,063 Fund revenue account at the end of the year (65) 12 (484) 969 (3,909) 16,155 (89) 567 (3,323) 1,451,642 1,089,836 Kotak Mahindra Old Mutual Life Insurance Limited 237

239 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25D. Unit Linked Disclosures Schedules to Fund Revenue & Fund Balance Sheet Schedules to Fund Balance Sheet Schedule: F-1 Policyholders Contribution Particulars Dynamic Bond Guaranteed Bond Pension Bond Group Bond Guaranteed Money market Group Money market Dynamic Gilt Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Opening balance 503, , ,219 68, ,669 7,878 2,264 3, , ,667 Add: Additions during the year* 31,496 13,691 83,088 53,871 2, ,816 2,791 37,386 Less: Deductions during the year* 427,645 45,355 1,183 18, ,153 76,701 Closing balance 107, , , ,219 1, ,150 10,669 1,605 2, , ,966 Particulars Guaranteed Gilt Pension Gilt Group Gilt Dynamic Balanced Guaranteed Balanced Pension Balanced Group Balanced Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Opening balance 201, ,034 1, ,987 6, , , , ,098 21,186 5, ,969 47,857 Add: Additions during the year* 83,019 45,450 3, ,832 8,090 79,476 98, , , ,914 15, ,452 67,112 Less: Deductions during the year* 91, , , ,040 16,880 22,661 Closing balance 192, ,484 4,458 1,333 11,393 14, , , , , ,220 21, , ,969 * Additions represents units creation and deductions represent unit cancellations Kotak Mahindra Old Mutual Life Insurance Limited 238

240 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) Schedules to Fund Balance Sheet Schedule: F-1 Policyholders Contribution (Contd.) Particulars Dynamic Growth Guaranteed Growth Aggressive Growth Dynamic Floating Guaranteed Floating Pension Floating Group Floating Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Opening balance 325, ,375 2,096, , ,252 90, , , ,204 88,357 1,804 1,378 5,786 2,246 Add: Additions during the year* 215, ,911 3,800,358 1,280, ,616 97,941 14, ,454 71,847 1, ,552 3,540 Less: Deductions during the year* 137, ,728 81, ,661 6,069 36, ,800 Closing balance 403, ,286 5,575,025 2,096, , , , , , ,204 3,150 1,804 83,538 5,786 Particulars Advantage Fund Advantage Multiplier Fund Advantage Plus Fund Advantage Multiplier II Fund Advantage Plus II Fund Dynamic Floor Fund Total Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Opening balance 10,532 48, ,976 6,490,009 3,281,140 Add: Additions during the year* ,532 13,937 48,603 83, ,976 33, , ,705 6,865,250 3,292,517 Less: Deductions during the year* 2, ,780 1, ,434 2,032,189 83,650 Closing balance 8,476 10,532 61,817 48,603 1,067, ,976 32, , ,271 11,323,068 6,490,007 * Additions represents units creation and deductions represent unit cancellations Kotak Mahindra Old Mutual Life Insurance Limited 239

241 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25D. Unit Linked Disclosures Schedules to Fund Revenue & Fund Balance Sheet Schedules to Fund Revenue Account Schedule: F-2 Investments Particulars Dynamic Bond Guaranteed Bond Pension Bond Group Bond Guaranteed Money market Current Previous Current Previous Current Group Money market Approved Investments Government Bonds 123,041 26, ,803 Corporate Bonds 90, ,286 99,239 43, ,531 1,496 Infrastructure Bonds 18, ,322 35,387 31, ,652 4,972 Equity Money Market 22,784 77,613 27,253 21, ,111 1,403 2,443 2, Mutual Funds Total 131, , , ,543 1, ,294 10,674 2,443 2, Other Investments Corporate Bonds 228 Infrastructure Bonds Equity Money Market Mutual Funds Total 228 Grand Total 131, , , ,543 1, ,522 10,674 2,443 2, % of Approved Investments to Total % % % % % % 99.78% % % % % % % of Other Investments to Total 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.22% 0.00% 0.00% 0.00% 0.00% 0.00% Previous Current Previous Current Previous Current Previous Schedule: F-2 Investments (Contd.) Particulars Dynamic Gilt Guaranteed Gilt Pension Gilt Group Gilt Dynamic Balanced Guaranteed Balanced Current Previous Current Previous Current Approved Investments Government Bonds 310, , , ,342 3,762 1,116 9,766 12,920 27,799 98,924 Corporate Bonds 53,217 25, , ,667 Infrastructure Bonds 15,679 Equity 130, , , ,150 Money Market 64,041 76,074 33,569 31, ,905 1,943 45,197 41, , ,540 Mutual Funds Total 374, , , ,596 4,394 1,324 11,671 14, , , , ,281 Other Investments Corporate Bonds 17,722 Infrastructure Bonds Equity 15,518 45,630 Money Market Mutual Funds Total 15,518 63,352 Grand Total 374, , , ,596 4,394 1,324 11,671 14, , , , ,281 % of Approved Investments to Total % % % % % % % % 93.66% % 93.29% % % of Other Investments to Total 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 6.34% 0.00% 6.71% 0.00% Previous Current Previous Current Previous Current Previous Kotak Mahindra Old Mutual Life Insurance Limited 240

242 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25D. Unit Linked Disclosures Schedules to Fund Revenue & Fund Balance Sheet Schedules to Fund Revenue Account Schedule: F-2 Investments (Contd.) Particulars Pension Balanced Group Balanced Dynamic Growth Guaranteed Growth Aggressive Growth Dynamic Floating Current Previous Current Previous Current Approved Investments Government Bonds 4,659 13,913 49, , , Corporate Bonds 126,671 2, ,209 9, ,031 34,662 1,359, ,413 2, , ,361 Infrastructure Bonds 42,221 1,190 3,797 9,832 4,088 37,299 16,495 34,004 81,143 Equity 176,209 11, ,520 79, , ,984 3,402,526 1,680, , ,365 Money Market 72,670 4,142 63,181 25, ,092 1,096, ,097 29,013 9,836 31,801 63,423 Mutual Funds Total 417,771 23, , , , ,546 6,139,071 2,729, , , , ,780 Other Investments Corporate Bonds 14,633 1,882 50,266 Infrastructure Bonds Equity 31,613 20,918 46, ,538 45,730 Money Market Mutual Funds Total 46,246 22,800 46, ,804 45,730 Grand Total 464,017 23, , , , ,546 6,586,875 2,729, , , , ,780 % of Approved Investments to Total 90.03% % 94.01% % 91.66% % 93.20% % 90.66% % % % % of Other Investments to Total 9.97% 0.00% 5.99% 0.00% 8.34% 0.00% 6.80% 0.00% 9.34% 0.00% 0.00% 0.00% Previous Current Previous Current Previous Current Previous Schedule: F-2 Investments (Contd.) Particulars Guaranteed Floating Current Previous Current Pension Floating Previous Current Group Floating Previous Advantage Fund Current Previous Advantage Multiplier Fund Current Previous Advantage Plus Fund Approved Investments Government Bonds 10,937 16, ,063 49,010 Corporate Bonds 205,234 99,232 2,334 1,048 53,642 3,544 3,136 6,770 20,381 7, , ,630 Infrastructure Bonds 26,397 17, , ,323 5,647 14,151 80, ,024 Equity 2,650 20,736 22, , ,785 Money Market 51,236 28, , ,459 1,237 11,254 7, , ,914 Mutual Funds Total 293, ,468 3,247 1,845 82,280 5,780 7,982 10,393 58,018 52,341 1,002,784 1,040,363 Other Investments Corporate Bonds Infrastructure Bonds Equity 303 2,462 42,765 Money Market Mutual Funds Total 303 2,462 42,765 Grand Total 293, ,468 3,247 1,845 82,280 5,780 8,284 10,393 60,481 52,341 1,045,549 1,040,363 % of Approved Investments to Total % % % % % % 96.35% % 95.93% % 95.91% % % of Other Investments to Total 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 3.65% 0.00% 4.07% 0.00% 4.09% 0.00% Current Previous Kotak Mahindra Old Mutual Life Insurance Limited 241

243 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25D. Unit Linked Disclosures Schedules to Fund Revenue & Fund Balance Sheet Schedules to Fund Revenue Account Schedule: F-2 Investments (Contd.) Particulars Advantage Multiplier II Fund Advantage Plus II Fund Dynamic Floor Fund Total Current Previous Current Previous Current Previous Current Previous Approved Investments Government Bonds 740,578 1,444,768 Corporate Bonds 11, ,144 61,337 3,370,078 1,195,783 Infrastructure Bonds 2,255 31, , ,921 Equity 11, ,246 45,020 5,667,506 3,219,563 Money Market 5,899 85,888 24,967 2,078,648 1,148,034 Mutual Funds Total 30, , ,064 12,210,023 7,606,069 Other Investments Corporate Bonds 94 84,825 Infrastructure Bonds Equity 1,263 18,465 4, ,196 Money Market Mutual Funds Total 1,263 18,465 5, ,021 Grand Total 31, , ,071 12,968,044 7,606,069 % of Approved Investments to Total 96.04% 95.99% 96.35% 94.15% % % of Other Investments to Total 3.96% 4.01% 3.65% 5.85% 0.00% Schedule: F-3 Current Assets Particulars Dynamic Bond Guaranteed Bond Pension Bond Group Bond Guaranteed Money market Group Money market Dynamic Gilt Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Current Previous Accrued Interest 3,414 16,399 4,637 2, , ,583 18,951 Cash & Bank Balance ,000 Dividend Receivable Receivable for Sale of Investments Unit Collection A/c # Other Current Assets (for Investments) Total 3,414 16,399 4,637 2, , ,583 19,951 # Represents interfund receivables or payables, if any. Kotak Mahindra Old Mutual Life Insurance Limited 242

244 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25D. Unit Linked Disclosures Schedules to Fund Revenue & Fund Balance Sheet Schedules to Fund Revenue Account Schedule: F-3 Current Assets (Contd.) Particulars Guaranteed Gilt Pension Gilt Group Gilt Dynamic Balanced Guaranteed Balanced Current Previous Current Previous Current Previous Current Previous Current Previous Pension Balanced Group Balanced Accrued Interest 5,963 6, ,286 2,443 13,593 8,142 7, ,256 1,648 Cash & Bank Balance ,209 (7) 5,256 (1) 1,605 (103) 16,931 Dividend Receivable Receivable for Sale of Investments Unit Collection A/c # Other Current Assets (for Investments) Total 5,963 6, ,365 17,728 13,807 13,538 7,273 1,856 5,229 18,613 Schedule: F-3 Current Assets (Contd.) Current Previous Current Previous Particulars Dynamic Growth Guaranteed Growth Aggressive Growth Dynamic Floating Guaranteed Floating Pension Floating Group Floating Current Previous Current Previous Current Previous Accrued Interest 3,720 2,267 74,229 20, ,698 6,863 9,337 2, , Cash & Bank Balance 2 19,191 4,838 48, , Dividend Receivable , Receivable for Sale of Investments Unit Collection A/c # Other Current Assets (for Investments) Total 3,990 21,592 80,959 70, ,118 6,815 6,899 9,337 2, , Schedule: F-3 Current Assets (Contd.) Current Previous Current Previous Current Previous Current Previous Particulars Advantage Fund Advantage Multiplier Fund Current Previous Current Previous Advantage Plus Fund Current Previous Advantage Multiplier II Fund Current Previous Advantage Plus II Fund Current Previous Dynamic Floor Fund Total Accrued Interest ,937 19, ,975 2, , ,149 Cash & Bank Balance , , ,171 Dividend Receivable ,196 1,386 Receivable for Sale of Investments Unit Collection A/c # Other Current Assets (for Investments) Total ,697 18,160 37, ,075 2, , ,705 Current Previous Current Previous # Represents interfund receivables or payables, if any. Kotak Mahindra Old Mutual Life Insurance Limited 243

245 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25D. Unit Linked Disclosures Schedules to Fund Revenue & Fund Balance Sheet Schedules to Fund Revenue Account Schedule: F-4 Current Liabilities Particulars Dynamic Bond Guaranteed Bond Pension Bond Group Bond Guaranteed Money market Current Previous Current Previous Current Previous Current Previous Current Previous Group Money market Current Previous Dynamic Gilt Payable for Purchase of Investments Other Current Liabilities (54) (4) (8) (17) Unit Payable a/c Total (54) (4) (8) (17) Current Previous Schedule: F-4 Current Liabilities (Contd.) Particulars Guaranteed Gilt Pension Gilt Group Gilt Dynamic Balanced Guaranteed Balanced Pension Balanced Group Balanced Current Previous Current Previous Current Previous Payable for Purchase of Investments (1,340) (15,175) (11,274) (11,932) (29,983) (1,248) (46,383) (15,650) Other Current Liabilities (6) (10) (22) (1) (5) Unit Payable a/c Total (6) (1,340) (15,185) (11,274) (11,954) (29,983) (1,249) (46,383) (15,655) Current Previous Current Previous Current Previous Current Previous Schedule: F-4 Current Liabilities (Contd.) Particulars Dynamic Growth Guaranteed Growth Aggressive Growth Dynamic Floating Guaranteed Floating Pension Floating Group Floating Current Previous Current Previous Current Previous Payable for Purchase of Investments (5,570) (24,783) (280,965) (109,893) (8,794) (29,125) Other Current Liabilities (18) (117) (12) (15) (6) (5) Unit Payable a/c Total (5,570) (24,801) (280,965) (110,010) (8,794) (29,137) (15) (6) (5) Current Previous Current Previous Current Previous Current Previous Schedule: F-4 Current Liabilities (Contd.) Particulars Advantage Fund Advantage Multiplier Fund Current Previous Current Previous Advantage Plus Fund Current Previous Advantage Multiplier II Fund Current Previous Advantage Plus II Fund Current Previous Dynamic Floor Fund Total Payable for Purchase of Investments (4,462) (74,270) (384,309) (286,536) Other Current Liabilities (1) (4) (92) (397) Unit Payable a/c Total (1) (4,466) (74,362) (384,309) (286,933) Current Previous Current Previous Kotak Mahindra Old Mutual Life Insurance Limited 244

246 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25D. Unit Linked Disclosures Schedules to Fund Revenue & Fund Balance Sheet Schedules to Fund Revenue Account Break Up of Other Expenses Under ULIP Schedule: F-5 Other Expenses * Particulars Dynamic Bond Guaranteed Bond Pension Bond Group Bond Guaranteed Money market Current Previous Current Previous Current Previous Current Previous Current Previous Group Money market Current Previous Dynamic Gilt Policy Administration 3,555 2, ,652 Surrender Switching Mortality 1,630 1, ,968 Rider Premium Partial withdrawal Miscellaneous Total 5,646 4, , ,742 Current Previous Schedule: F-5 Other Expenses *(Contd.) Particulars Guaranteed Gilt Pension Gilt Group Gilt Dynamic Balanced Guaranteed Balanced Current Previous Current Previous Current Previous Current Previous Current Previous Pension Balanced Group Balanced Policy Administration 3, ,885 13, ,315 Surrender Switching Mortality charge@ 1, ,240 6, Rider Premium Partial withdrawal Miscellaneous , Total 6, ,758 21,910 1,058 3,623 Current Previous Current Previous * Any expense which is 1% of the total expenses incurred should be disclosed as a separate line All the expenses have been apportioned on the basis of average daily size of the fund. Kotak Mahindra Old Mutual Life Insurance Limited 245

247 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25D. Unit Linked Disclosures Schedules to Fund Revenue & Fund Balance Sheet Schedules to Fund Revenue Account Break Up of Other Expenses Under ULIP Schedule: F-5 Other Expenses *(Contd.) Particulars Dynamic Growth Guaranteed Growth Aggressive Growth Dynamic Floating Guaranteed Floating Pension Floating Group Floating Current Previous Current Previous Current Previous Policy Administration 10,382 78,240 6,643 4,672 4, Surrender 375 2, Switching 2 Mortality 4,760 35,877 3,046 2,142 1, Rider Premium Partial withdrawal Miscellaneous 879 6, Total 16, ,261 10,551 7,420 6, Current Previous Current Previous Current Previous Current Previous Schedule: F-5 Other Expenses *(Contd.) Particulars Advantage Fund Advantage Multiplier Fund Advantage Plus Fund Advantage Multiplier II Fund Advantage Plus II Fund Dynamic Floor Fund Total Current Previous Current Previous Current Previous Policy Administration 179 1,048 20, ,780 1, ,640 Surrender ,150 Switching 2 Mortality , , ,792 Rider Premium ,504 Partial withdrawal Miscellaneous , ,742 Total 284 1,665 32, ,592 1, ,830 Current Previous Current Previous Current Previous Current Previous * Any expense which is 1% of the total expenses incurred should be disclosed as a separate line All the expenses have been apportioned on the basis of average daily size of the fund. Kotak Mahindra Old Mutual Life Insurance Limited 246

248 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Fund Performance of Unit Linked funds as on (Absolute Growth %) Fund Names of *Returns Inception Inception Dynamic Bond % 4.41% NA 14.91% Guaranteed Bond % 4.42% NA 15.45% Pension Bond % 4.36% NA 14.96% Group Bond % 4.46% NA 14.70% Guaranteed Money market % 6.28% 6.32% 26.87% Group Money market % 6.10% 6.32% 26.47% Dynamic Gilt % 4.72% 4.16% 16.86% Guaranteed Gilt % 4.69% 4.16% 17.31% Pension Gilt % 4.72% 4.16% 17.13% Group Gilt % 4.71% 4.16% 17.97% Dynamic Balanced % 38.17% 9.76% % Guaranteed Balanced % 35.45% 9.76% % Pension Balanced % 35.28% 9.76% % Group Balanced % 37.04% 9.76% % Dynamic Growth % 46.93% 12.02% % Guaranteed Growth % 45.39% 12.02% % Aggressive Growth % 71.27% NA % Dynamic Floating % 4.98% NA 14.80% Guaranteed Floating % 5.03% NA 15.02% Pension Floating % 5.08% NA 14.96% Group Floating % 5.14% NA 15.54% Advantage Fund % NA NA 2.63% Advantage Multiplier Fund % NA NA 5.70% Advantage Plus Fund % NA NA 5.18% Advantage Multiplier II Fund NA NA NA 5.39% Advantage Plus II Fund NA NA NA 5.13% Dynamic Floor Fund NA NA NA 0.06% Note: NA represents non-existence of the fund at the beginning of the year * All are absolute returns Kotak Mahindra Old Mutual Life Insurance Limited 247

249 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Disclosures for Ulip Business (A) Investment Management Activities outsourced Investment Advisory Services with Kotak Mahindra Asset Management Company Limited Custody of Equity & Debt securities with Deutsche Bank Fee paid for various activities charged to Policyholders Account Investment Advisory fees paid to Kotak Mahindra Asset Management Company Limited Rs. 16,837 Custody fees Rs. 3,555 Basis of payment of fees Investment Advisory fees Rs. 1,500 p.m. i.e. Rs. 18,000 p.a. (Out of this amount Rs. 1,163 has been allocated to shareholders based on the Average assets held by them during the year.) Custody fees For the Period April 2006 to October % for Custody of Debt securities 0.05% for Custody of Equity securities Custody fees For the Period November 2006 to March % for Custody of Debt securities 0.040% for Custody of Equity securities (B) There are no Unclaimed redemption of Units During the year (C) None of the Assets of the fund has been considered as doubtful and hence no provision for Doubtful debt has been made during the year. Kotak Mahindra Old Mutual Life Insurance Limited 248

250 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Statement Showing Receipts and Payments made to Related Parties Fund Names Related Parties Kotak Securities Brokerage Paid Kotak Mahindra Prime Ltd. Interest Income Kotak Mahindra Bank Ltd. Interest Income Dynamic Bond Guaranteed Bond Pension Bond 4 1 Group Bond Guaranteed Money market Group Money market Dynamic Gilt 992 Guaranteed Gilt 366 Pension Gilt 4 Group Gilt 20 Dynamic Balanced Guaranteed Balanced ,041 Pension Balanced Group Balanced Dynamic Growth Guaranteed Growth 3,510 1,863 5,682 Aggressive Growth Dynamic Floating 516 Guaranteed Floating 406 Pension Floating 4 Group Floating 40 Advantage Fund Advantage Multiplier Fund Advantage Plus Fund 1, ,159 Advantage Multiplier II Fund Advantage Plus II Fund Dynamic Floor Fund Grand Total 7,222 4,787 13,918 Kotak Mahindra Old Mutual Life Insurance Limited 249

251 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Statement Showing Company wise Details of Investments held in Promoter Group Fund name Promoter Group Kotak Mahindra Bank Ltd. FD Kotak Mahindra Prime Ltd. NCD Amount Percentage Amount Percentage Dynamic Bond 0.00% 16, % Guaranteed Bond 1, % 15, % Pension Bond % % Group Bond 1, % 6, % Guaranteed Money market 0.00% 0.00% Group Money market 0.00% 0.00% Dynamic Gilt 0.00% 0.00% Guaranteed Gilt 4, % 0.00% Pension Gilt % 0.00% Group Gilt % 0.00% Dynamic Balanced 0.00% 2, % Guaranteed Balanced 10, % 6, % Pension Balanced 4, % % Group Balanced 8, % 28, % Dynamic Growth 0.00% 0.00% Guaranteed Growth 70, % 41, % Aggressive Growth 4, % 0.00% Dynamic Floating 5, % 0.00% Guaranteed Floating 6, % 0.00% Pension Floating % 0.00% Group Floating 1, % 0.00% Advantage Fund % % Advantage Multiplier Fund 1, % 4, % Advantage Plus Fund 29, % 48, % Advantage Multiplier II Fund % 1, % Advantage Plus II Fund 12, % 23, % Dynamic Floor Fund 3, % 3, % Grand Total* 167, % 200, % * This amount represents total exposure to promoter group as a percentage of total fund size Kotak Mahindra Old Mutual Life Insurance Limited 250

252 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Dynamic Bond % of Total Funds Banks Public Sector 11.25% Canara Bank , % 7.70% NABARD % 7.90% NABARD 09-Aug , % 8% SBBJ , % 8.15% SBBJ , % 8.25% IDBI % 8.25% Indian Overseas Bank FD 22-Sept % 9% SBBJ % 9.35% PNB , % 9.50% FD SBI , % CD Canara Bank % Banks Public Sector Total 17, % Finance Housing Large 8.40% HDFC % 8.55% LIC Hsg Fin , % HDFC Zero Coupon Bond 12, % Finance Housing Large Total 22, % Finance Investment/Others 11.19% Kotak Prime NCD , % 8.65% CitiFinancial Consumer Finance 05-Aug , % 8.90% CitiFinancial Consumer Finance , % L&T Finance Ltd. 2, % Finance Investment/Others Total 43, % Finance Term-Leading Institutions 9.90% PFC , % Finance Term-Leading Institutions Total 18, % Others Finance Leasing 4, % Banks Private Sector 10, % Finance Large 3, % Finance Medium 8, % Finance Housing Medium 3, % Net Current Assets 3, % Grand Total 134, % Kotak Mahindra Old Mutual Life Insurance Limited 251

253 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Guaranteed Bond % of Total Funds Banks Public Sector 11.25% Canara Bank , % 7.70% NABARD % 7.90% NABARD 09-Aug , % 8% SBBJ , % 8.25% IDBI % 8.25% Indian Overseas Bank FD 22-Sept , % 8.25% SBBJ 13-Sept % 8.50% Exim Bank Bonds % 9% SBBJ % 9.35% PNB , % 9.50% FD SBI % CD Canara Bank % Banks Public Sector Total 19, % Finance Housing Large 8.40% HDFC , % 8.55% LIC Hsg Fin , % HDFC Zero Coupon Bond 12, % Finance Housing Large Total 24, % Finance Investment/Others 11.19% Kotak Prime NCD , % 7.05% CitiFinancial Consumer Ltd. Nov 5, % 8.65% CitiFinancial Consumer Finance 05-Aug , % 8.90% CitiFinancial Consumer Finance , % Citicorp Finance India Ltd. 4, % L&T Finance Ltd. 1, % Finance Investment/Others Total 47, % Finance Term-Leading Institutions 9.90% PFC , % Finance Term Leading Institutions Total 18, % Power Generation & Supply 8.73% PGC , % Power Generation & Supply Total 17, % Others Banks Private Sector 12, % Finance Housing Medium 3, % Finance Leasing 4, % Finance Large 3, % Finance Medium 6, % Refineries 5, % Net Current Assets 4, % Grand Total 166, % Kotak Mahindra Old Mutual Life Insurance Limited 252

254 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Pension Bond % of Total Funds Finance Housing Large 8.40% HDFC % 8.55% LIC Hsg Fin % HDFC Zero Coupon Bond % Finance Housing Large Total % Finance Investment/Others 11.19% Kotak Prime NCD % 7.05% CitiFinancial Consumer Ltd. Nov 5, % 8.65% CitiFinancial Consumer Finance 05-Aug % 8.90% Citi Financial Consumer Finance % Citicorp Finance India Ltd % Finance Investment/Others Total % Finance Term-Leading Institutions 8.55% PFC % 9.90% PFC % Finance Term-Leading Institutions Total % Others Banks Private Sector % Banks Public Sector % Finance Medium % Finance Leasing % Petrochemicals % Net Current Assets % Grand Total 1, % Kotak Mahindra Old Mutual Life Insurance Limited 253

255 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Group Bond % of Total Funds Banks Public Sector 11.25% Canara Bank , % 7.70% NABARD % 8% SBBJ % 8.15% SBBJ , % 8.25% Indian Overseas Bank FD 22-Sept , % 8.25% SBBJ 13-Sept % 8.50% Exim Bank Bonds , % 9.35% PNB , % 9.50% FD SBI , % CD Canara Bank , % Banks Public Sector Total 15, % Finance Housing Large 10.25% HDFC , % 8.40% HDFC , % 8.55% LIC Hsg Fin , % 9.25% HDFC Ltd Tier II Bond % HDFC Zero Coupon Bond 11, % Finance Housing Large Total 25, % Finance Investment/Others 11.19% Kotak Prime NCD , % 7.97% Kotak Prime 06-Sept , % 8.65% CitiFinancial Consumer Finance 05-Aug , % 8.75% Citicorp Finance 12-Sept % 8.90% Citi Financial Consumer Finance , % Finance Investment/Others Total 24, % Finance Term-Leading Institutions 9.90% PFC , % Finance Term-Leading Institutions Total 13, % Others Finance Large % Finance Medium 7, % Finance Housing Medium % Finance Leasing 4, % Banks Private Sector 6, % Power Generation & Supply 5, % Refineries % Net Current Assets 2, % Grand Total 106, % Kotak Mahindra Old Mutual Life Insurance Limited 254

256 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Guaranteed Money % of Total Funds Market Banks Private Sector 9.40% ICICI 28th December, % 9.60% ICICI 31st December, , % Banks Private Sector Total 1, % Banks Public Sector CD Canara Bank 28th February, , % Banks Public Sector Total 1, % Others Net Current Assets % Grand Total 2, % Industry Group Money % of Total Funds Market Banks Private Sector 9.40% ICICI 28th December, % 9.60% ICICI 31st December, % Banks Private Sector Total % Banks Public Sector CD Canara Bank 28th February, % Banks Public Sector Total % Others Net Current Assets 0.04% Grand Total % Kotak Mahindra Old Mutual Life Insurance Limited 255

257 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Dynamic Gilt % of Total Funds Government of India Bonds 310, % Banks Private Sector 31, % Banks Public Sector 32, % Net Current Assets 10, % Grand Total 385, % Industry Guaranteed Gilt % of Total Funds Government of India Bonds 162, % Banks Private Sector 15, % Banks Public Sector 17, % Net Current Assets 5, % Grand Total 202, % Industry Pension Gilt % of Total Funds Government of India Bonds 3, % Banks Private Sector % Banks Public Sector % Net Current Assets % Grand Total 4, % Industry Group Gilt % of Total Funds Government of India Bonds 9, % Banks Private Sector % Banks Public Sector 1, % Net Current Assets % Grand Total 12, % Kotak Mahindra Old Mutual Life Insurance Limited 256

258 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Guaranteed Balanced % of Total Funds Banks Private Sector 10.30% UTI Bank , % 10.50% UTI Bank FD , % 7.90% ICICI % 8% HDFC , % 8.15% ICICI , % 8.25% HDFC % 8.25% HDFC , % 8.30% ICICI % 9.60% ICICI 31st December, % HDFC Bank Ltd. 2, % ICICI Bank Ltd. 8, % UTI Bank FD , % Banks Private Sector Total 32, % Banks Public Sector 11.25% Canara Bank , % 7.90% NABARD 09-Aug % 8% SBBJ % 8.15% SBBJ , % 8.25% Indian Overseas Bank FD 22-Sept , % 8.25% SBBJ 13-Sept % 9% SBBJ , % 9.35% PNB % 9.35% PNB , % 9.50% FD SBI , % Andhra Bank 1, % CD Canara Bank , % EXIM CP , % Exim CP 12-July , % Indian Bank % Punjab National Bank 1, % State Bank of India 4, % Banks Public Sector Total 38, % Others Aluminium % Automobiles Tractors 3, % Auto Ancillaries Engine Parts % Auto Parts & Equipment % Automobiles LCVs/HCVs 2, % Industry Guaranteed Balanced % of Total Funds Automobiles Passenger Cars 2, % Automobiles Scooters & 3-Wheelers 1, % Cement Major North India 2, % Cigarettes 5, % Computers Software Large 20, % Construction Civil/Turnkey Large 2, % Construction Factories/Offices/Commercial 1, % Diversified Mega 4, % Electric Equipment General Large 3, % Electrical Equipment 2, % Electronics Others 1, % Engineering Heavy General Large % Engineering Turnkey services 6, % Entertainment Electronic Media 1, % Finance Housing Large 13, % Finance Housing Medium 2, % Finance Investment/Others 18, % Finance Large 8, % Finance Medium 2, % Finance Leasing 4, % Finance Small % Heavy Electrical Equipment % Hotels Large 1, % IT Consulting & Other Services 2, % Media & Entertainment 1, % Metal Copper/Copper Alloy Products 1, % Oil Exploration/Allied services 4, % Paints/Varnishes 2, % Personal Care Indian Large 1, % Personal Care Multinational 4, % Pesticides/Agrochemicals 1, % Petrochemicals % Pharmaceuticals Indian Bulk Drugs 4, % Refineries 12, % Steel 2, % Steel Large % Steel Sponge Iron 2, % Telecommunications Service Provider 11, % Transport Road 2, % Net Current Assets 1, % Grand Total 245, % Kotak Mahindra Old Mutual Life Insurance Limited 257

259 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Guaranteed Balanced % of Total Funds Banks Private Sector 10.30% UTI Bank , % 10.50% UTI Bank FD , % 7.90% ICICI , % 8% HDFC , % 8% KMBL , % 8% Kotak Bank , % 8.15% ICICI , % 8.25% HDFC , % 8.25% HDFC , % 8.25% HDFC % 8.30% ICICI , % 9.40% ICICI 28th December, , % 9.60% ICICI 31st December, , % HDFC Bank Ltd. 8, % ICICI Bank Ltd. 24, % UTI Bank FD , % Banks Private Sector Total 117, % Banks Public Sector 11.25% Canara Bank , % 7.70% NABARD , % 8% SBBJ , % 8.15% SBBJ , % 8.25% Indian Overseas Bank FD 22-Sept , % 8.25% SBBJ 13-Sept % 9% SBBJ , % 9.35% PNB , % 9.35% PNB , % 9.50% FD SBI , % Andhra Bank 4, % CD Canara Bank , % EXIM CP , % Exim CP 05-July , % Exim CP 12-July , % Indian Bank 1, % Punjab National Bank 5, % State Bank of India 12, % Banks Public Sector Total 190, % Others Aluminium 2, % Automobiles Tractors 8, % Auto Ancillaries Engine Parts 3, % Industry Guaranteed Balanced % of Total Funds Auto Parts & Equipment 1, % Automobiles LCVs/HCVs 7, % Automobiles Passenger Cars 8, % Automobiles Scooters & 3-Wheelers 7, % Cement Major North India 6, % Cigarettes 15, % Computers Software Large 61, % Construction Civil/Turnkey Large 7, % Construction Factories/Offices/Commercial 3, % Diversified Mega 11, % Electric Equipment General Large 14, % Electrical Equipment 7, % Electronics Others 4, % Engineering Heavy General Large 4, % Engineering Turnkey services 20, % Entertainment Electronic Media 3, % Finance Housing Large 46, % Finance Housing Medium 16, % Finance Investment/Others 67, % Finance Large 13, % Finance Medium 31, % Finance Leasing 15, % Finance Small 53, % Heavy Electrical Equipment 2, % Hotels Large 5, % IT Consulting & Other Services 8, % Media & Entertainment 4, % Metal Copper/Copper Alloy Products 4, % Oil Exploration/Allied services 13, % Paints/Varnishes 4, % Personal Care Indian Large 4, % Personal Care Multinational 16, % Pesticides/Agrochemicals 4, % Petrochemicals 7, % Pharmaceuticals Indian Bulk Drugs 12, % Refineries 49, % Steel 7, % Steel Large 2, % Steel Sponge Iron 6, % Telecommunications Service Provider 35, % Transport Road 4, % Net Current Assets 2, % Grand Total 946, % Kotak Mahindra Old Mutual Life Insurance Limited 258

260 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Pension Balanced % of Total Funds Banks Public Sector 11.25% Canara Bank % 7.70% NABARD , % 7.90% NABARD 09-Aug , % 8% SBBJ , % 8.15% SBBJ % 8.25% IDBI , % 8.25% Indian Overseas Bank FD 22-Sept , % 8.25% SBBJ 13-Sept , % 8.50% Exim Bank Bonds , % 9% SBBJ , % 9.35% PNB , % 9.35% PNB , % 9.50% FD SBI , % Andhra Bank 1, % CD Canara Bank , % EXIM CP , % Exim CP 05-July , % Indian Bank % Punjab National Bank 1, % State Bank of India 4, % Banks Public Sector Total 87, % Finance Housing Large 10.25% HDFC , % 8.40% HDFC , % 9.25% HDFC Ltd Tier II Bond 14, % Housing Development Finance Corp. Ltd. 4, % LIC Housing Finance , % Finance Housing Large Total 48, % Others Aluminium % Automobiles Tractors 4, % Auto Ancillaries Engine Parts 4, % Auto Parts & Equipment % Automobiles LCVs/HCVs 2, % Automobiles Passenger Cars 3, % Automobiles Scooters & 3-Wheelers 2, % Banks Private Sector 43, % Cement Major North India 2, % Industry Pension Balanced % of Total Funds Cigarettes 5, % Computers Software Large 25, % Construction Civil/Turnkey Large 1, % Construction Factories/Offices/Commercial 5, % Diversified Mega 5, % Electric Equipment General Large 8, % Electrical Equipment 7, % Electronics-Others 1, % Engineering Heavy General Large % Engineering Turnkey services 7, % Entertainment Electronic Media 3, % Finance Housing Medium 1, % Finance Investment/Others 35, % Finance Large 14, % Finance Medium 10, % Finance Term Leading Institutions 10, % Finance Leasing 6, % Finance Small 2, % Heavy Electrical Equipment 1, % Hotels Large 1, % IT Consulting & Other Services 4, % Media & Entertainment 1, % Metal Copper/Copper Alloy Products 1, % Oil Exploration/Allied services 4, % Paints/Varnishes 5, % Personal Care Indian Large 1, % Personal Care Multinational 5, % Pesticides/Agrochemicals 4, % Petrochemicals 9, % Pharmaceuticals Indian Bulk Drugs 4, % Power Generation & Supply 13, % Refineries 17, % Steel 2, % Steel Large 2, % Steel Sponge Iron 2, % Telecommunications Service Provider 22, % Transport Road 3, % Net Current Assets (22,710) 5.15% Grand Total 441, % Kotak Mahindra Old Mutual Life Insurance Limited 259

261 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Group Balanced Fund % of Total Funds Banks Private Sector 10.30% UTI Bank , % 10.50% UTI Bank FD , % 7.90% ICICI , % 8% HDFC , % 8% KMBL % 8% Kotak Bank , % 8.15% ICICI , % 8.25% HDFC , % 9.60% ICICI 31st December, % HDFC Bank Ltd. 4, % ICICI Bank Ltd. 11, % UTI Bank FD , % Banks Private Sector Total 48, % Banks Public Sector 11.25% Canara Bank % 7.70% NABARD , % 7.90% NABARD 09-Aug , % 8% SBBJ , % 8.15% SBBJ , % 8.25% Indian Overseas Bank FD 22-Sept , % 8.25% SBBJ 13-Sept % 9% SBBJ % 9.35% PNB % 9.35% PNB , % 9.50% FD SBI , % Andhra Bank 1, % CD Canara Bank , % EXIM CP , % Exim CP 12-July , % Indian Bank % Punjab National Bank 1, % State Bank of India 5, % Banks Public Sector Total 61, % Finance Investment/Others 7.05% CitiFinancial Consumer Ltd., Nov 5, , % 7.97% Kotak Prime 06-Sept , % 8.65% CitiFinancial Consumer Finance 05-Aug , % 8.75% Citicorp Finance 12-Sept , % Citicorp Finance India Ltd. 2, % Infrastructure Development Finance Company Ltd. 1, % L&T Finance Ltd % Finance Investment/Others Total 42, % Others Aluminium % Industry Group Balanced Fund % of Total Funds Automobiles Tractors 3, % Auto Ancillaries Engine Parts % Auto Parts & Equipment % Automobiles LCVs/HCVs 3, % Automobiles Passenger Cars 2, % Automobiles Scooters & 3-Wheelers 3, % Cement Major North India 2, % Cigarettes 6, % Computers Software Large 27, % Construction Civil/Turnkey Large 2, % Construction Factories/Offices/Commercial 1, % Diversified Mega 4, % Electric Equipment General Large 7, % Electrical Equipment 2, % Electronics Others 2, % Engineering Heavy General Large 1, % Engineering Turnkey services 8, % Entertainment Electronic Media % Finance Housing Large 22, % Finance Housing Medium % Finance Large 8, % Finance Medium 11, % Finance Term Leading Institutions 3, % Finance Leasing 15, % Finance Small 5, % Heavy Electrical Equipment 1, % Hotels Large 1, % IT Consulting & Other Services 5, % Media & Entertainment 1, % Metal Copper/Copper Alloy Products 1, % Oil Exploration/Allied services 5, % Paints/Varnishes 1, % Personal Care Indian Large 1, % Personal Care-Multinational 6, % Pesticides/Agrochemicals 1, % Petrochemicals % Pharmaceuticals-Indian-Bulk Drugs 4, % Refineries 15, % Steel 2, % Steel Large 4, % Steel Sponge Iron 2, % Telecommunications Service Provider 16, % Transport Road 1, % Net Current Assets (41,154) 12.13% Grand Total 339, % Kotak Mahindra Old Mutual Life Insurance Limited 260

262 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Dynamic Growth % of Total Funds Computers Software Large HCL Technologies Ltd. 5, % Infosys Technologies Ltd. 25, % Satyam Ltd. 13, % Tata Consultancy Services 16, % Computers Software Large Total 61, % Others Aluminium 3, % Automobiles Tractors 9, % Auto Ancillaries Engine Parts 2, % Auto Parts & Equipment 1, % Automobiles LCVs/HCVs 6, % Automobiles Passenger Cars 8, % Automobiles Scooters & 3-Wheelers 6, % Banks Private Sector 34, % Banks Public Sector 46, % Cement Major North India 6, % Cigarettes 16, % Construction Civil/Turnkey Large 8, % Construction Factories/Offices/Commercial 3, % Diversified Mega 10, % Electric Equipment General Large 11, % Electrical Equipment 7, % Electronics Others 4, % Engineering Heavy General Large 4, % Engineering Turnkey services 20, % Industry Dynamic Growth % of Total Funds Entertainment Electronic Media 3, % Finance Housing Large 49, % Finance Investment/Others 22, % Finance Large 10, % Finance Medium 9, % Finance Small 13, % Heavy Electrical Equipment 3, % Hotels Large 4, % IT Consulting & Other Services 8, % Media & Entertainment 4, % Metal Copper/Copper Alloy Products 4, % Oil Exploration/Allied services 14, % Paints/Varnishes 6, % Personal Care Indian Large 4, % Personal Care Multinational 13, % Pesticides/Agrochemicals 4, % Pharmaceuticals Indian Bulk Drugs 11, % Refineries 35, % Steel 6, % Steel Large 2, % Steel Sponge Iron 5, % Telecommunications Service Provider 35, % Transport Road 4, % Net Current Assets (1,580) 0.29% Grand Total 550, % Kotak Mahindra Old Mutual Life Insurance Limited 261

263 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Continued) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Guaranteed Growth % of Total Funds Banks - Private Sector 10.30% UTI Bank , % 10.50% UTI Bank FD , % 7.90% ICICI , % 8% HDFC , % 8% KMBL , % 8% Kotak Bank , % 8.15% ICICI , % 8.25% HDFC , % 8.25% HDFC , % 8.25% HDFC , % 8.30% ICICI , % 9.40% ICICI 28th December, , % 9.60% ICICI 31st December, , % HDFC Bank Ltd. 74, % ICICI Bank Ltd. 229, % UTI Bank FD , % Banks - Private Sector Total 835, % Banks - Public Sector 11.25% Canara Bank , % 11.50% Exim 21-Feb , % 11.50% IDBI 14-March , % 12% NABARD 05-January , % 6.2% Exim Bank , % 7.70% NABARD , % 7.90% NABARD 09-Aug , % 8% SBBJ , % 8.15% SBBJ , % 8.25% IDBI , % 8.25% Indian Overseas Bank FD 22-Sept , % 8.25% SBBJ 13-Sept , % 8.50% Exim Bank Bonds , % 8.95% PNB 18-April , % 9% SBBJ , % 9.35% PNB , % 9.35% PNB , % 9.50% FD SBI , % Andhra Bank 35, % CD Canara Bank , % EXIM CP , % Exim CP 05-July , % Exim CP 12-July , % Indian Bank 11, % Punjab National Bank 44, % State Bank of India 117, % Banks - Public Sector Total 1,341, % Others Aluminium 17, % Automobiles-Tractors 84, % Industry Guaranteed Growth % of Total Funds Auto Ancillaries-Engine Parts 14, % Auto Parts & Equipment 16, % Automobiles-LCVs/HCVs 57, % Automobiles-Passenger Cars 73, % Automobiles-Scooters & 3-Wheelers 52, % Cement-Major-North India 53, % Cigarettes 136, % Computers-Software-Large 530, % Construction-Civil/Turnkey-Large 62, % Construction-Factories/Offices/Commercial 21, % Diversified-Mega 97, % Electric Equipment-General-Large 119, % Electrical Equipment 64, % Electronics-Others 34, % Engineering-Heavy-General-Large 38, % Engineering-Turnkey services 178, % Entertainment- Electronic Media 26, % Finance - Housing - Large 345, % Finance - Housing - Medium 41, % Finance - Investment/Others 316, % Finance - Large 18, % Finance - Medium 44, % Finance - Term-Leading Institutions 42, % Finance Leasing 32, % Finance-Small 156, % Heavy Electrical Equipment 28, % Hotels-Large 40, % IT Consulting & Other Services 79, % Media & Entertainment 36, % Metal-Copper/Copper Alloy Products 36, % Oil Exploration/Allied services 117, % Paints/Varnishes 39, % Personal Care-Indian-Large 33, % Personal Care-Multinational 116, % Pesticides/Agrochemicals 32, % Petrochemicals 31, % Pharmaceuticals-Indian-Bulk Drugs 112, % Power Generation & Supply 15, % Refineries 330, % Steel 58, % Steel-Large 29, % Steel-Sponge Iron 52, % Telecommunications-Service Provider 310, % Transport Road 38, % Government of India Bonds 189, % Net Current Assets (200,006) % Grand Total 6,386, % Kotak Mahindra Old Mutual Life Insurance Limited 262

264 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Continued) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Aggressive Growth Fund % of Total Funds Computers-Software-Large HCL Technologies Ltd. 5, % Infosys Technologies Ltd. 30, % Satyam Ltd. 13, % Tata Consultancy Services 17, % Total Computers-Software-Large 66, % Others Aluminium 2, % Automobiles-Tractors 8, % Auto Ancillaries-Engine Parts 2, % Auto Parts & Equipment 1, % Automobiles-LCVs/HCVs 6, % Automobiles-Passenger Cars 7, % Automobiles-Scooters & 3-Wheelers 6, % Banks - Private Sector 46, % Banks - Public Sector 38, % Cement-Major-North India 6, % Cigarettes 15, % Construction-Civil/Turnkey-Large 7, % Construction-Factories/Offices/Commercial 3, % Diversified-Mega 10, % Electric Equipment-General-Large 13, % Electrical Equipment 15, % Electronics-Others 4, % Industry Aggressive Growth Fund % of Total Funds Engineering-Heavy-General-Large 3, % Engineering-Turnkey services 19, % Entertainment- Electronic Media 3, % Finance - Housing - Large 12, % Finance - Investment/Others 2, % Heavy Electrical Equipment 9, % Hotels-Large 4, % IT Consulting & Other Services 8, % Media & Entertainment 4, % Metal-Copper/Copper Alloy Products 4, % Oil Exploration/Allied services 13, % Paints/Varnishes 5, % Personal Care-Indian-Large 4, % Personal Care-Multinational 16, % Pesticides/Agrochemicals 4, % Pharmaceuticals-Indian-Bulk Drugs 11, % Refineries 38, % Steel 7, % Steel-Large 2, % Steel-Sponge Iron 7, % Telecommunications-Service Provider 36, % Transport Road 5, % Net Current Assets (8,077) % Grand Total 481, % Kotak Mahindra Old Mutual Life Insurance Limited 263

265 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Continued) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Dynamic Floating Rate Banks Public Sector % of Total Funds 11.25% Canara Bank , % 8% SBBJ , % 9.35% PNB , % 9.35% PNB % 9.50% FD SBI % IDBI Floater 2007 (1 yr Gsec +.45) 18, % IDBI Floater 2009 (5 yr Gsec ) 10, % Banks Public Sector Total 43, % Finance Investment/Others Citicorp Consumer Finance Floater (MIBOR+283) 17, % IDFC Floater , % M & M Finance (Mibor bps) 14, % Finance Investment/Others Total 65, % Finance Large Sundaram Finance Limited Floater (MIBOR+130) 27, % Finance Large Total 27, % Finance Small G E Capital Daily MIBOR bps 26, % Finance Small Total 26, % Others Banks Private Sector 16, % Finance Housing Large 14, % Net Current Assets 6, % Grand Total 201, % Kotak Mahindra Old Mutual Life Insurance Limited 264

266 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Continued) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Guaranteed Floating Rate % of Total Funds Banks Public Sector 11.25% Canara Bank , % 8% SBBJ , % 8.15% SBBJ , % 8.25% Indian Overseas Bank FD 22-Sept , % 8.25% SBBJ 13-Sept , % 9% SBBJ % 9.35% PNB , % 9.35% PNB % 9.50% FD SBI , % CD Canara Bank , % IDBI Floater 2007 (1 yr Gsec +.45) 25, % IDBI Floater 2009 (5 yr Gsec ) 33, % Banks - Public Sector Total 87, % Finance - Investment/Others Citicorp Consumer Finance Floater (MIBOR+283) 24, % IDFC Floater , % M & M Finance (Mibor bps) 29, % Finance Investment/Others Total 80, % Finance Large Sundaram Finance Limited Floater (MIBOR+130) 32, % Finance Large Total 32, % Finance-Small G E Capital Daily MIBOR bps 33, % Finance Small Total 33, % Others Banks Private Sector 22, % Finance Housing Large 26, % Government of India Bonds 10, % Net Current Assets 9, % Grand Total 303, % Kotak Mahindra Old Mutual Life Insurance Limited 265

267 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Continued) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Pension Floating Rate % of Total Funds Banks Public Sector 8% SBBJ % 8.15% SBBJ % 8.25% Indian Overseas Bank FD 22-Sept % 9.35% PNB % 9.35% PNB % 9.50% FD SBI % CD Canara Bank % IDBI Floater 2007 (1 yr Gsec +.45) % IDBI Floater 2009 (5 yr Gsec ) % Banks Public Sector Total % Finance Housing Large LIC Housing Finance Ltd. Floater 2010 (IBMK +.55) % Finance Housing Large Total % Finance Investment/Others Citicorp Consumer Finance Floater (MIBOR+283) % IDFC Floater % M & M Finance (Mibor bps) % Finance Investment/Others Total % Finance Large Sundaram Finance Limited Floater (MIBOR+130) % Finance Large Total % Finance Small G E Capital Daily MIBOR bps % Finance-Small Total % Others Banks Private Sector % Net Current Assets % Grand Total 3, % Kotak Mahindra Old Mutual Life Insurance Limited 266

268 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Continued) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Group Floating % of Total Funds Rate Banks Public Sector 11.25% Canara Bank % 8% SBBJ % 8.15% SBBJ , % 8.25% Indian Overseas Bank FD 22-Sept , % 8.25% SBBJ 13-Sept % 9.35% PNB , % 9.50% FD SBI , % CD Canara Bank , % IDBI Floater 2007 (1 yr Gsec +.45) 5, % IDBI Floater 2009 (5 yr Gsec ) 5, % Banks Public Sector Total 18, % Finance Housing - Large LIC Housing Finance Ltd. Floater 2010 (IBMK +.55) 8, % Finance Housing Large Total 8, % Finance Investment/Others Citicorp Consumer Finance Floater (MIBOR+283) 8, % IDFC Floater , % M & M Finance (Mibor bps) 5, % Finance Investment/Others Total 28, % Finance Small G E Capital Daily MIBOR bps 12, % Finance Small Total 12, % Others Banks Private Sector 7, % Finance Large 7, % Net Current Assets 2, % Grand Total 84, % Kotak Mahindra Old Mutual Life Insurance Limited 267

269 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Advantage Fund Banks Private Sector % of Total Funds 10.30% UTI Bank % 10.50% UTI Bank FD % 8% HDFC % 8.25% HDFC % 9.40% ICICI 28th December % 9.50% Kotak Bank FD % HDFC Bank Ltd % ICICI Bank Ltd % Banks Private Sector Total % Banks Public Sector 11.25% Canara Bank % 8.15% SBBJ % 8.25% IDBI % 8.25% Indian Overseas Bank FD 22-Sept % 8.50% Exim Bank Bonds % 9% SBBJ % 9.35% PNB % 9.35% PNB % 9.50% FD SBI % 9.85% NABARD % Andhra Bank % EXIM CP % Punjab National Bank % State Bank of India % Banks Public Sector Total 1, % Finance Investment/Others 11.19% Kotak Prime NCD % 8.60 IDFC % Infrastructure Development Finance Company Ltd % L&T Finance Ltd % Finance Investment/Others Total % Other Aluminium % Automobiles-Tractors % Auto Ancillaries-Engine Parts % Auto Parts & Equipment % Industry Advantage Fund % of Total Funds Automobiles-LCVs/HCVs % Automobiles Passenger Cars % Automobiles Scooters & 3-Wheelers % Cement Major North India % Cigarettes % Computers Software Large % Construction Civil/Turnkey Large % Construction Factories/Offices/Commercial % Diversified Mega % Electric Equipment General Large % Electrical Equipment % Electronics Others % Engineering Heavy General Large % Engineering Turnkey services % Entertainment Electronic Media % Finance Housing Large % Finance Housing Medium % Finance Large % Finance Term Leading Institutions % Finance Small % Heavy Electrical Equipment % Hotels-Large % IT Consulting & Other Services % Media & Entertainment % Metal-Copper/Copper Alloy Products % Oil Exploration/Allied services % Paints/Varnishes % Personal Care-Indian-Large % Personal Care-Multinational % Pesticides/Agrochemicals % Pharmaceuticals-Indian-Bulk Drugs % Power Generation & Supply % Refineries % Steel % Steel Large % Steel Sponge Iron % Telecommunications Service Provider % Transport Road % Net Current Assets % Grand Total 8, % Kotak Mahindra Old Mutual Life Insurance Limited 268

270 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Advantage Multiplier Fund Banks Private Sector % of Total Funds 10.30% UTI Bank , % 10.50% UTI Bank FD % 8% HDFC % 8.25% HDFC % 9.40% ICICI 28th December , % 9.50% Kotak Bank FD , % HDFC Bank Ltd % ICICI Bank Ltd. 1, % Banks Private Sector Total 7, % Banks Public Sector 11.25% Canara Bank , % 8% SBBJ , % 8.25% IDBI , % 8.25% Indian Overseas Bank FD 22 Sept % 8.50% Exim Bank Bonds % 9% SBBJ % 9.35% PNB % 9.35% PNB % 9.50% FD SBI % 9.85% NABARD , % Andhra Bank % CD Canara Bank % EXIM CP % Punjab National Bank % State Bank of India % Banks Public Sector Total 13, % Finance Investment/Others 11.19% Kotak Prime NCD , % 7.97% Kotak Prime 06-Sept , % 8.60 IDFC % IDFC Floater % Infrastructure Development Finance Company Ltd % L&T Finance Ltd. 2, % Finance Investment/Others Total 8, % Others Aluminium % Automobiles Tractors % Auto Ancillaries Engine Parts % Auto Parts & Equipment % Industry Advantage Multiplier Fund % of Total Funds Automobiles LCVs/HCVs % Automobiles Passenger Cars % Automobiles Scooters & 3-Wheelers % Cement Major North India % Cigarettes % Computers Software Large 3, % Construction Civil/Turnkey Large % Construction Factories/Offices/Commercial % Diversified Mega % Electric Equipment General Large % Electrical Equipment % Electronics Others % Engineering Heavy-General-Large % Engineering Turnkey services 1, % Entertainment Electronic Media % Finance Housing Large 4, % Finance Housing Medium 1, % Finance Large 1, % Finance Term Leading Institutions 3, % Finance Small % Heavy Electrical Equipment % Hotels Large % IT Consulting & Other Services % Media & Entertainment % Metal Copper/Copper Alloy Products % Oil Exploration/Allied services % Paints/Varnishes % Personal Care Indian Large % Personal Care Multinational % Pesticides/Agrochemicals % Petrochemicals % Pharmaceuticals Indian Bulk Drugs % Power Generation & Supply 1, % Refineries 1, % Steel % Steel Large % Steel Sponge Iron % Telecommunications Service Provider 1, % Transport Road % Net Current Assets % Grand Total 61, % Kotak Mahindra Old Mutual Life Insurance Limited 269

271 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Advantage Plus Fund % of Total Funds Banks Private Sector 10.30% UTI Bank , % 10.50% UTI Bank FD , % 8% HDFC , % 8.25% HDFC , % 8.25% HDFC , % 9.40% ICICI 28th December , % 9.50% Kotak Bank FD , % HDFC Bank Ltd. 6, % ICICI Bank Ltd. 23, % Banks Private Sector Total 121, % Banks Public Sector 11.25% Canara Bank , % 8% SBBJ , % 8.25% IDBI , % 8.25% Indian Overseas Bank FD 22 Sept % 8.25% SBBJ 13-Sept , % 8.50% Exim Bank Bonds , % 9.35% PNB , % 9.35% PNB , % 9.50% FD SBI , % 9.85% NABARD , % Andhra Bank 2, % CD Canara Bank , % EXIM CP , % Punjab National Bank 4, % State Bank of India 13, % Banks Public Sector Total 234, % Finance Investment/Others 11.19% Kotak Prime NCD , % 7.97% Kotak Prime 06-Sept , % 8.60 IDFC , % Infrastructure Development Finance Company Ltd. 1, % L&T Finance Ltd. 52, % Finance Investment/Others Total 114, % Others Aluminium 1, % Automobiles Tractors 8, % Auto Ancillaries Engine Parts 1, % Industry Advantage Plus Fund % of Total Funds Auto Parts & Equipment 1, % Automobiles LCVs/HCVs 5, % Automobiles Passenger Cars 5, % Automobiles Scooters & 3 Wheelers 6, % Cement Major North India 5, % Cigarettes 15, % Computers Software Large 53, % Construction Civil/Turnkey Large 6, % Construction Factories/Offices/Commercial 4, % Diversified Mega 10, % Electric Equipment General Large 10, % Electrical Equipment 6, % Electronics Others 2, % Engineering Heavy General Large 3, % Engineering Turnkey services 18, % Entertainment Electronic Media 1, % Finance Housing Large 54, % Finance Housing Medium 17, % Finance Large 21, % Finance Term Leading Institutions 49, % Finance Small 8, % Heavy Electrical Equipment 3, % Hotels Large 6, % IT Consulting & Other Services 7, % Media & Entertainment 3, % Metal Copper/Copper Alloy Products 3, % Oil Exploration/Allied services 12, % Paints/Varnishes 4, % Personal Care Indian Large 3, % Personal Care Multinational 12, % Pesticides/Agrochemicals 3, % Petrochemicals 67, % Pharmaceuticals Indian Bulk Drugs 13, % Power Generation & Supply 19, % Refineries 40, % Steel 4, % Steel Large 2, % Steel Sponge Iron 5, % Telecommunications Service Provider 32, % Transport Road 4, % Net Current Assets 18, % Grand Total 1,063, % Kotak Mahindra Old Mutual Life Insurance Limited 270

272 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Advantage Multiplier II % of Total Funds Banks Private Sector 10.30% UTI Bank % 10.50% UTI Bank FD % 8% HDFC % 8.25% HDFC % 8.25% HDFC % 8.25% HDFC % 9.40% ICICI 28th December % 9.50% Kotak Bank FD % HDFC Bank Ltd % ICICI Bank Ltd % Banks Private Sector Total 3, % Banks Public Sector 11.25% Canara Bank % 8% SBBJ % 8.25% IDBI , % 8.25% Indian Overseas Bank FD 22-Sept % 8.50% Exim Bank Bonds % 9% SBBJ % 9.35% PNB % 9.35% PNB % 9.50% FD SBI % 9.85% NABARD % Andhra Bank % EXIM CP % Exim CP 12-July % Punjab National Bank % State Bank of India % Banks Public Sector Total 7, % Finance Investment/Others 11.19% Kotak Prime NCD , % 8.60 IDFC % Infrastructure Development Finance Company Ltd % L&T Finance Ltd. 1, % Finance Investment/Others Total 3, % Others Aluminium % Automobiles-Tractors % Auto Ancillaries Engine Parts % Industry Advantage Multiplier II % of Total Funds Auto Parts & Equipment % Automobiles LCVs/HCVs % Automobiles Passenger Cars % Automobiles Scooters & 3-Wheelers % Cement Major North India % Cigarettes % Computers Software Large 1, % Construction Civil/Turnkey Large % Construction Factories/Offices/Commercial % Diversified Mega % Electric Equipment General Large % Electrical Equipment % Electronics Others % Engineering Heavy General Large % Engineering Turnkey services % Entertainment Electronic Media % Finance Housing Large 1, % Finance Housing Medium % Finance Large 1, % Finance Term Leading Institutions 1, % Heavy Electrical Equipment % Hotels Large % IT Consulting & Other Services % Media & Entertainment % Metal Copper/Copper Alloy Products % Oil Exploration/Allied services % Paints/Varnishes % Personal Care Indian Large % Personal Care Multinational % Pesticides/Agrochemicals % Petrochemicals 1, % Pharmaceuticals Indian Bulk Drugs % Power Generation & Supply % Refineries 1, % Steel % Steel Large % Steel Sponge Iron % Telecommunications Service Provider 1, % Transport Road % Net Current Assets % Grand Total 32, % Kotak Mahindra Old Mutual Life Insurance Limited 271

273 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Advantage Plus Fund II % of Total Funds Banks Private Sector 10.30% UTI Bank , % 10.50% UTI Bank FD , % 8% HDFC , % 8.25% HDFC % 8.25% HDFC % 8.25% HDFC % 9.40% ICICI 28th December , % 9.50% Kotak Bank FD , % HDFC Bank Ltd. 2, % ICICI Bank Ltd. 10, % Banks Private Sector Total 59, % Banks Public Sector 11.25% Canara Bank , % 8% SBBJ , % 8.15% SBBJ , % 8.25% IDBI , % 8.25% Indian Overseas Bank FD 22-Sept % 8.25% SBBJ 13-Sept , % 8.50% Exim Bank Bonds , % 9% SBBJ , % 9.35% PNB , % 9.35% PNB , % 9.50% FD SBI , % 9.85% NABARD , % Andhra Bank % CD Canara Bank , % EXIM CP , % Exim CP 05-July , % Exim CP 12-July , % IDBI Floater 2007 (1 yr. Gsec +.45) % Punjab National Bank 1, % State Bank of India 5, % Banks Public Sector Total 107, % Finance Investment/Others 11.19% Kotak Prime NCD , % 7.97% Kotak Prime 06-Sept , % 8.60 IDFC , % Infrastructure Development Finance Company Ltd % L&T Finance Ltd. 21, % Finance Investment/Others Total 50, % Others Aluminium % Automobiles Tractors 2, % Industry Advantage Plus Fund II % of Total Funds Auto Ancillaries Engine Parts % Auto Parts & Equipment % Automobiles LCVs/HCVs 2, % Automobiles Passenger Cars 2, % Automobiles Scooters & 3-Wheelers 1, % Cement Major North India 2, % Cigarettes 6, % Computers Software Large 22, % Construction Civil/Turnkey Large 2, % Construction Factories/Offices/Commercial 1, % Diversified Mega 4, % Electric Equipment General Large 6, % Electrical Equipment 2, % Electronics Others % Engineering Heavy General Large 1, % Engineering Turnkey services 8, % Entertainment Electronic Media % Finance Housing Large 15, % Finance Housing Medium 7, % Finance Large 16, % Finance Term Leading Institutions 18, % Finance Small 21, % Heavy Electrical Equipment 1, % Hotels Large 2, % IT Consulting & Other Services 3, % Media & Entertainment 1, % Metal Copper/Copper Alloy Products 1, % Oil Exploration/Allied services 4, % Paints/Varnishes 2, % Personal Care Indian Large 1, % Personal Care Multinational 5, % Pesticides/Agrochemicals 2, % Petrochemicals 9, % Pharmaceuticals Indian Bulk Drugs 5, % Power Generation & Supply 7, % Refineries 21, % Steel 2, % Steel Large % Steel Sponge Iron 2, % Telecommunications Service Provider 14, % Transport Road 1, % Net Current Assets 7, % Grand Total 467, % Kotak Mahindra Old Mutual Life Insurance Limited 272

274 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Industry wise disclosure of investments with exposure of 10% and above segregated at scrip level Industry Dynamic Floor Fund % of Total Funds Banks Private Sector 10.30% UTI Bank , % 10.50% UTI Bank FD % 7.90% ICICI % 8% HDFC , % 8% Kotak Bank , % 8.15% ICICI % 8.25% HDFC % 9.50% Kotak Bank FD , % 9.60% ICICI 31st December , % HDFC Bank Ltd % ICICI Bank Ltd. 2, % UTI Bank FD % Banks Private Sector Total 14, % Banks Public Sector 11.25% Canara Bank , % 7.70% NABARD , % 7.90% NABARD 09-Aug % 8% SBBJ , % 8.25% Indian Overseas Bank FD 22-Sept , % 8.25% SBBJ 13-Sept % 8.50% Exim Bank Bonds , % 8.95% PNB 18-April , % 9% SBBJ , % 9.35% PNB , % 9.35% PNB % 9.50% FD SBI , % EXIM CP , % Exim CP 05-July , % Exim CP 12-July % Indian Bank % Punjab National Bank 1, % State Bank of India 1, % Banks Public Sector Total 37, % Other Automobiles Tractors 1, % Automobiles LCVs/HCVs 1, % Industry Dynamic Floor Fund % of Total Funds Automobiles Passenger Cars % Automobiles Scooters & 3-Wheelers % Cement Major North India % Cigarettes 2, % Computers Software Large 7, % Construction Civil/Turnkey Large % Diversified Mega 1, % Electric Equipment General Large 1, % Electrical Equipment % Electronics Others % Engineering Turnkey services 2, % Finance Housing Large 8, % Finance Housing Medium 1, % Finance Investment/Others 8, % Finance Large 13, % Finance Medium 1, % Finance Leasing 3, % Finance Small 3, % Heavy Electrical Equipment % Hotels Large 1, % IT Consulting & Other Services 1, % Media & Entertainment % Metal Copper/Copper Alloy Products % Oil Exploration/Allied services 1, % Paints/Varnishes 1, % Personal Care Multinational 1, % Pesticides/Agrochemicals % Petrochemicals 1, % Pharmaceuticals Indian Bulk Drugs 1, % Power Generation & Supply % Refineries 3, % Steel 1, % Steel Large % Telecommunications Service Provider 4, % Net Current Assets 2, % Grand Total 139, % Kotak Mahindra Old Mutual Life Insurance Limited 273

275 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures NAV Highest, Lowest & Closing at the end of the year Fund Name Highest NAV Lowest NAV Closing NAV Dynamic Bond Guaranteed Bond Pension Bond Group Bond Guaranteed Money market Group Money market Dynamic Gilt Guaranteed Gilt Pension Gilt Group Gilt Dynamic Balanced Guaranteed Balanced Pension Balanced Group Balanced Dynamic Growth Guaranteed Growth Aggressive Growth Dynamic Floating Guaranteed Floating Pension Floating Group Floating Advantage Fund Advantage Multiplier Fund Advantage Plus Fund Advantage Multiplier II Fund Advantage Plus II Fund Dynamic Floor Fund Kotak Mahindra Old Mutual Life Insurance Limited 274

276 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Annualised Expense ratio to average daily assets of the Fund Fund Name Annualised Expense Average Daily Assets of the Funds Annualised Expense Ratio Dynamic Bond 2, , % Guaranteed Bond 1, , % Pension Bond % Group Bond , % Guaranteed Money market 17 2, % Group Money market % Dynamic Gilt 4, , % Guaranteed Gilt 1, , % Pension Gilt 20 2, % Group Gilt , % Dynamic Balanced 3, , % Guaranteed Balanced 9, , % Pension Balanced 1,022 76, % Group Balanced 2, , % Dynamic Growth 7, , % Guaranteed Growth 59,789 3,893, % Aggressive Growth 5, , % Dynamic Floating 2, , % Guaranteed Floating 2, , % Pension Floating 26 2, % Group Floating , % Advantage Fund 272 8, % Advantage Multiplier Fund 1,596 52, % Advantage Plus Fund 31,157 1,018, % Advantage Multiplier II Fund , % Advantage Plus II Fund 6, , % Dynamic Floor Fund , % Kotak Mahindra Old Mutual Life Insurance Limited 275

277 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Gross Income ratio to average daily assets of the Fund Fund Name Annualised Income Average Daily Assets of the Funds Annualised Income Ratio Dynamic Bond 12, , % Guaranteed Bond 9, , % Pension Bond % Group Bond 3,584 58, % Guaranteed Money market 270 2, % Group Money market % Dynamic Gilt 20, , % Guaranteed Gilt 9, , % Pension Gilt 91 2, % Group Gilt , % Dynamic Balanced 29, , % Guaranteed Balanced 62, , % Pension Balanced 2,753 76, % Group Balanced 23, , % Dynamic Growth 72, , % Guaranteed Growth 402,275 3,893, % Aggressive Growth 35, , % Dynamic Floating 18, , % Guaranteed Floating 17, , % Pension Floating 177 2, % Group Floating 1,839 20, % Advantage Fund 479 8, % Advantage Multiplier Fund 1,808 52, % Advantage Plus Fund 43,591 1,018, % Advantage Multiplier II Fund , % Advantage Plus II Fund 15, , % Dynamic Floor Fund (1,054) 58, % Kotak Mahindra Old Mutual Life Insurance Limited 276

278 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements (Contd.) for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 25E. Unit Linked Disclosures Other Disclosures Fundwise Disclosure of Appreciation/(Depreciation) in value of Investment Segregated Classwise Fund Name Corporate Bonds Government Securities Investment Type Equities Government Guaranteed Bonds Dynamic Bond (469) (469) Guaranteed Bond (464) (464) Pension Bond (6) (6) Group Bond (633) (633) Guaranteed Money market Group Money market Dynamic Gilt (6,385) (5,650) (12,035) Guaranteed Gilt (2,512) (2,309) (4,820) Pension Gilt (34) (29) (62) Group Gilt (122) (92) (214) Dynamic Balanced (563) 20,909 20,347 Guaranteed Balanced (2,613) 56,810 54,197 Pension Balanced (1,122) 318 (804) Group Balanced (522) 15,917 15,395 Dynamic Growth (1,544) 62,370 60,825 Guaranteed Growth (13,070) 439, ,165 Aggressive Growth 46,235 46,235 Dynamic Floating Guaranteed Floating Pension Floating Group Floating Advantage Fund (23) Advantage Multiplier Fund (154) 1, Advantage Plus Fund (4,948) 22,403 17,455 Advantage Multiplier II Fund (14) (55) (69) Advantage Plus II Fund (352) (233) (584) Dynamic Floor Fund (363) (1,557) (1,920) Grand Total (26,859) (9,053) 663,606 (8,079) 619,615 Grand Total Kotak Mahindra Old Mutual Life Insurance Limited 277

279 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) 26. Employee benefits The Company has chosen to early adopt revised Accounting Standard 15 (AS 15) Employee Benefits which is mandatory from accounting period beginning on or after December 7, As per transitional provisions of AS 15, the difference in liability on account of employee benefits created by the Company amounting to Rs. 9,271 has been adjusted against opening balance in the Profit & Loss account. [Refer Schedule 16(2)(h)]. (a) Gratuity In accordance with Payment of Gratuity Act, 1972 the Company provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee s salary and the years of employment with the Company subject to maximum of Rs lakhs per employee. The gratuity benefit is provided through unfunded plan and annual contributions are charged to profit and loss account. Under the scheme, the settlement obligation remains with the Company. Reconciliation of opening and closing balance of the present value of the defined benefit obligation for gratuity benefits is given below. As of 31st March, 2007 Change in Defined benefit obligations as at Present value of Defined benefit obligations, 1st April, ,523 Service cost 8,916 Interest cost 1,187 Benefits paid (932) Actuarial (gain)/loss on obligations 868 Present value of Defined benefit obligations as at 31st March, ,562 Reconciliation of present value of the obligation and the fair value of the plan assets Opening Fair Value of Plan assets as at 1st April, 2006 Contributions by the employer for the year 932 Benefits paid (932) Closing Fair Value of Plan assets Net asset/(liability) as at 31st March, 2007 Cost recognised for the period Current service cost 8,916 Interest cost 1,187 Expected return on plan assets Actuarial (gain)/loss 868 Net gratuity cost 10,971 Actuarial assumptions used Discount rate Salary escalation rate 8.20% p.a % p.a. for first 2 years, 10.00% p.a. for next two year & 6.00% p.a. thereafter. The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market. Kotak Mahindra Old Mutual Life Insurance Limited 278

280 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) (b) Superannuation The eligible permanent employees of the Company, who have opted for the scheme, are entitled to receive retirement benefits under the superannuation scheme operated by the Company. Superannuation is a defined contribution plan under which the Company contributes annually a sum equivalent to 15% (Previous 0.15%), subject to a maximum of Rs lakh, of the employee s eligible annual salary to the superannuation fund administered by the trustees, which undertakes to pay the lump sum and annuity payments pursuant to the scheme. (c) (d) Provident fund In accordance with Indian regulations, employees of the Company are entitled to receive benefits under the provident fund, a defined contribution plan, in which, both the employee and the Company contribute monthly at a determined rate. These contributions are made to a recognised provident and administered by a Board of Trustees. The employee contributes 12% of his or her basic salary and the Company contributes an equal amount. The investments of the funds are made according to rules prescribed by the Government of India. Accumulated Compensated Absences The Company provides for accumulated compensated absences as at balance sheet date using full cost method to the extent leave will be utilised and on basic pay to the extent leave will be encashed. 27. Prior year comparatives Prior year amounts have been reclassified wherever necessary to conform to current year s presentation. For and on behalf of the Board of Directors Uday Kotak Hasan Askari Dipak Gupta Chairman Vice-Chairman Director G. Murlidhar Gaurang Shah A. Venkatasubramanian Mumbai Chief Operating Officer Managing Director Appointed Actuary 4 May, 2007 & Company Secretary Kotak Mahindra Old Mutual Life Insurance Limited 279

281 Registration No: 107; Date of Registration: January 10, 2001 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Currency : In thousands of Indian Rupees unless otherwise stated) Statement of receipts and payments as on March 31, 2007 Particulars ended 31 March, 2007 ended 31 March, 2006 Cash Flows from Operating Activities Premium and Deposits from Policyholders 9,857,956 6,324,830 Cash paid to Agents, Suppliers and Employees (2,880,595) (1,780,998) Advances/Loans/Deposits placed (70,466) (5,464) Reinsurance premium (net) (10,131) (56,802) Claims paid (net of reinsurance) (1,762,472) (403,810) Deposits held for regulatory purposes Income-tax paid (4,848) Fringe benefit tax paid (13,850) (10,725) Net cash from/(deployed in) Operating Activities 5,115,595 4,067,031 Cash Flows from Investing Activities Purchase of fixed assets (163,343) (56,441) Interest received on Investments (net of interest expended on purchase of investments) 1,320, ,486 Decrease/(Increase) in investments (net) (6,448,973) (4,754,635) Proceeds on sale of fixed assets 1,810 1,943 Net cash deployed in Investing Activities (5,289,569) (4,345,647) Cash Flows from Financing Activities Proceeds from issue of Share Capital 857, ,229 Expenses on subscription of shares (5,997) (5,614) Net cash from Financing Activities 851, ,615 Net increase in Cash and Cash Equivalents 677,660 43,999 Cash and Cash Equivalents at start of year 570, ,985 Cash and Cash Equivalents at end of year 1,248, ,984 Notes: Cash and cash equivalents at the end of the year includes: Cash (including cheques on hand, drafts and stamps) 382, ,412 Bank Balances (including deposits) 866, ,572 1,248, ,984 (a) (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. 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 For M. P. Chitale & Co. For BSR & Co. Uday Kotak Hasan Askari Dipak Gupta Chartered Accountants Chartered Accountants Chairman Vice-Chairman Director Ashutosh Pednekar Akeel Master G. Murlidhar Gaurang Shah A. Venkatasubramanian Partner Partner Chief Operating Officer Managing Director Appointed Actuary Membership No: Membership No: & Company Secretary Mumbai Mumbai 4 May, May, 2007 Kotak Mahindra Old Mutual Life Insurance Limited 280

282 BOARD OF DIRECTORS: Mr. Uday Kotak (C), Mr. Dipak Gupta, Mr. C. Jayaram, Ms. Shanti Ekambaram, Mr. Jaimin Bhatt, Mr. Chandrashekhar Sathe, Mr. Shivaji Dam, Mr. Pankaj Desai Directors Report To the Members of Kotak Mahindra Prime Limited The Directors present their Eleventh Annual Report together with audited accounts of your Company for the year ended 31st March, FINANCIAL RESULTS 31st March, 2007 Rupees in Lakhs 31st March, 2006 Gross Income Profit before Depreciation and Tax Depreciation Profit before Tax Provision for Tax Profit after Tax Balance of Profit from previous years Amount available for appropriation Appropriations: Special Reserve u/s 45IC of the RBI Act, Surplus carried forward to the Balance Sheet DIVIDEND With a view to conserve your Company s resources, the Directors do not recommend any Dividend (Previous : Nil) 3. DEBENTURES Pursuant to circulars issued by the Securities and Exchange Board of India and the Reserve Bank of India, the Company has listed all debentures issued, having maturity of greater than 364 days on the Bombay Stock Exchange Limited under a Shelf Information Memorandum. The Company has appointed M/s. IDBI Trusteeship Services Limited, 10th Floor, Nariman Bhavan, Nariman Point, Mumbai as Debenture Trustees to the issues. 4. CAPITAL ADEQUACY The Capital to Risk Assets Ratio (CRAR) of your Company as on 31st March, 2007 was at 12%. 5. CREDIT RATING The Company s short-term borrowing program from CRISIL, continued to enjoy the highest rating of P1+. The long-term borrowings are rated by ICRA Limited and continue to be rated LAA. ICRA s assessment of your Company s risk profile strengthens the confidence placed by a large pool of investors in your Company. P1+ indicates very strong degree of safety with regard to timely payment of interest and principal. LAA indicates high degree of safety with regard to timely payment of interest and principal. 6. FINANCE Your Company continued its strategy of diversified funding. The Company introduced new investors and borrowed through flexible instruments like MIBOR/Nifty linked Debentures, Securitisation/Assignment transactions, etc. Your Company also made use of derivative products like interest rate swaps to manage its Asset/Liability GAP and optimize borrowings costs. With the trends in the financial markets signifying increase in interest rate environment, your Company has seen rising interest rates, after a sustained spell of the low interest rate scenario. Your Company with its established treasury philosophies and practices is well geared to meet the challenges of a dynamic interest rate environment. 7. MANAGEMENT DISCUSSION AND ANALYSIS Company Business Your Company is into car finance, engaged in financing of retail customers of passenger cars and multi-utility vehicles and inventory and term funding to car dealers. Your Company finances new and used cars under retail loan, hire purchase and lease contracts. The main streams of income for your Company are retail income, dealer finance income and fee based income. The Company also receives income from loans against securities, securitization/ assignment transactions. Additionally, in the current year, new streams of income have been added such as, retail personal loans, overdraft against securities and other retail lending. The major expenses for your Company are interest expense, business sourcing expense and cost of running operations. During financial year , your Company s retail disbursements were at Rs. 2,070 crores versus Rs. 1,593 crores in the previous year. During the year under review, gross advances crossed the 4,100 crore mark recording an increase of 20% as compared to financial year The financial year witnessed volatile interest and increased interest rates being charged to the car finance customer. The pressure continued on maintaining the margins in the retail car finance business. Your Company continued to focus on control over cost and credit losses, while maintaining its positioning in the car finance market. Your Company also maintained its good relationships across car manufacturers, dealers and channel partners in the country. The Company has entered the debt capital market segment and carried out various securitization transactions during the financial year and the same are structured to suit the varied needs of the customers. The Company has during the financial year also ventured into business of retail personal loans, overdraft against securities and other retail lending. Kotak Mahindra Prime Limited 281

283 As detailed in the Financial Results section above, Gross Income of your Company increased from Rs lakhs during the financial year to Rs lakhs during the financial year Profit before Tax was at Rs lakhs in the financial year versus Rs lakhs in the financial year , an increase of 171%. The credit loss ratio of your Company has been consistently maintained in the range of 0.25 % to 0.35 % over the last three years in the car finance business. There have been certain instances of misappropriation of vehicles or use of deception to obtain vehicle loans by some of the customers involving an aggregate amount of Rs. 212 lakhs, also reported in annexure to auditors report. The said instances are inherent in the nature of business of the Company and adequate provision in respect thereof has been made in the accounts for the year. Industry Scenario The passenger car market in India saw a growth of 21% for financial year as compared to a growth of 6% for Total unit sales of cars and MUV s crossed 13.5 lac units in financial year The car market has grown at a rapid pace due to robust economic growth, launch of new and improved models and stable automotive prices. Prospects Indian economy in the current financial year is expected to maintain the growth momentum. 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. Fee based income is an important initiative of your Company. Dedicated infrastructure is in place to give a further impetus to the growth of fee based income with a twin objective of offering value added services to customers and leveraging the large existing customer database to generate further fee based 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 The 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 and at branches. 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 The 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. Your Company encourages and facilitates long term careers with your Company through carefully designated management development programs and performance management systems. Information Technology Your Company uses the operating system CORE which is owned and managed by Kotak Mahindra Bank Limited and is used for its retail assets division since 2003 and uses ORACLE as its Financial system. The CORE system has the latest technology platform and also has capacity to scale based on business requirements. 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 at reasonable cost. 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. Chandrashekhar Sathe and Ms. Shanti Ekambaram, are liable to retire by rotation at the forthcoming Annual General Meeting and being eligible have offered themselves for re-appointment. 9. EXECUTIVE MANAGEMENT Mr. Sumit Bali is Manager and Chief Executive Officer, and Mr. Sudhakar Shanbhag is Chief Operating Officer of your Company. 10. AUDIT COMMITTEE The Audit Committee consists of Mr. Dipak Gupta, Chairman, Mr. Jaimin Bhatt and Mr. Chandrshekhar Sathe. The Quorum comprises of any two Directors. 11. REMUNERATION COMMITTEE The Remuneration Committee consists of Mr. Dipak Gupta and Mr. C Jayaram and has been formed to approve the remuneration payable to the Whole-time Director/Manager of the Company, as required under the amended Part II in Section II of Schedule XIII of the Companies Act, AUDITORS The Company s auditors Messrs. Deloitte Haskins & Sells, Chartered Accountants, Baroda, retire at the Eleventh Annual General Meeting. Messrs. Deloitte Haskins & Sells, Chartered Accountants, Baroda, have consented to act as Auditors of the Company and are eligible for reappointment. Kotak Mahindra Prime Limited 282

284 13. STATUTORY INFORMATION 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 31st 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. DIRECTORS RESPONSIBILITY STATEMENT Based on representations from the Operational Management, the Directors state, in pursuance of Section 217 (2AA) of the Companies Act, 1956, that: (i) (ii) the Company has, in the preparation of the annual accounts for the year ended 31st March 2007, 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 31st March, 2007 and of the profit of the Company for the financial year ended 31st March, 2007; (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. 14. ACKNOWLEDGEMENT The Director 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. Date: 2nd May, For and on behalf of the Board of Directors Uday Kotak Chairman Kotak Mahindra Prime Limited 283

285 Auditors Report To The Members of Kotak Mahindra Prime Limited 1. We have audited the attached Balance Sheet of Kotak Mahindra Prime Limited as at 31st March, 2007, and also the Profit and Loss Account and 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. (c) (d) 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; 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 of the books and records of the company as we considered appropriate and according to the information and explanations given to us, we give 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 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; (e) (f) On the basis of written representations received from the directors, as on 31st March, 2007 and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2007 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) (ii) Place: Mumbai Date: 2nd May, 2007 in the case of the balance sheet, of the state of affairs of the company as at 31st March, 2007; in the case of the profit and loss account, of the profit for the year ended on that date; and (iii) 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. Salivati Partner Membership Number: Kotak Mahindra Prime Limited 284

286 Annexure to the Auditors Report referred to in paragraph 3 of our Report of even date to the Members of Kotak Mahindra Prime Limited on the accounts for the year ended 31st March, (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. In our opinion, the frequency of verification is reasonable. No material discrepancies were noticed between book records and physical inventory. In our opinion, the company has not disposed off a substantial part of its fixed assets during the year. 2. (a) According to the information and explanations given to us, the company has not granted any loans, secured or unsecured, to Companies 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 receipt 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. (b) (c) (d) According to the information and explanations given to us, the company has taken an unsecured loan from a company covered in the register maintained under section 301 of the Companies Act, At the year-end, the outstanding balance of such loan taken was Rs. Nil and the maximum amount involved during the year was Rs lakhs. In our opinion, the rate of interest and other terms and conditions of such loan taken from the said company covered in the register maintained under section 301 of the Companies Act, 1956 are not, prima facie, prejudicial to the interest of the company. The payments of principal amounts and interest in case of the aforesaid loan are as per stipulations. 3. 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 purchase of fixed assets and for the sale of goods and services. The company does not purchase inventory nor does it sell any goods (other than repossessed automobile assets) in the ordinary course of business. 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 weaknesses in the aforesaid internal control system. 4. (a) In our opinion and according to the information and explanations given to us, the particulars of contracts or arrangements 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 made in pursuance of contracts or arrangements entered in the register maintained under section 301 of the Companies Act, 1956 and exceeding the value of Rs. 500,000 or more in respect of any party during the year have been made at prices which are reasonable having regard to prevailing market prices at the relevant time. 5. According to the information and explanations given to us, 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, service tax, cess and other material statutory dues as applicable, have been regularly deposited by the company during the year with the appropriate authorities. (b) (c) According to the information and explanations given to us and the records of the company examined by us, there are no undisputed amounts in respect of sales tax, income tax, wealth-tax, service tax and cess that were in arrears as at 31st March, 2007 for a period of more than six months from the date they became payable. According to the information and explanations given to us and the records of the company examined by us, there are no dues in respect of sales tax, income tax, wealth-tax, service tax and cess which have not been deposited on account of any dispute as at 31st March, The company has no accumulated losses as at 31st March, 2007 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. In our opinion, the Company has maintained adequate documents and records where it has granted loans and advances on the basis of security by way of pledge of shares 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 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, Kotak Mahindra Prime Limited 285

287 12. 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. 13. In our opinion and according to the information and explanations given to us, 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 short term basis have, prima facie, not been used during the year for long term investment. 15. According to the information and explanations given to us, the Company has not made any preferential allotment of shares to a company covered in the register maintained under Section 301 of the Companies Act, The Company has issued only unsecured debentures and hence the question of creation of security/charges 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 the 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. Place: Mumbai Date: 2nd May, 2007 For Deloitte Haskins & Sells Chartered Accountants R. Salivati Partner Membership Number: Kotak Mahindra Prime Limited 286

288 Balance Sheet as at 31st March, 2007 As at As at 31st March, st March, 2006 Schedule Rupees in Lakhs Rupees in Lakhs Rupees in Lakhs Rupees in Lakhs SOURCES OF FUNDS Shareholders Funds Share Capital Reserves and Surplus , , , , Loan Funds Unsecured Loans 3 359, , Deferred Tax 4 Deferred tax liability 1, Less: Deferred tax asset Total 415, , APPLICATION OF FUNDS Fixed Assets 5 (including Capital work in progress) Gross Block Less: Depreciation Net Block Capital Work in Progress 1, , Investments 6 9, , Deferred Tax 4 Deferred tax asset 2, Less: Deferred tax liability 1, , Current Assets, Loans and Advances 7 Cash and Bank Balances 9, , Receivables under Financing Activity 409, , Other Loans and Advances 7, , , , Less: Current Liabilities and Provisions Liabilities 8 22, , Provisions 9 1, , , Net Current Assets 403, , Total 415, , 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 Deloitte Haskins & Sells Chartered Accountants Dipak Gupta Jaimin Bhatt Director Director R. Salivati Harish Shah Partner Company Secretary Membership No Mumbai Dated: May 2, 2007 Kotak Mahindra Prime Limited 287

289 Profit And Loss Account for the year ended 31st March, 2007 ended ended 31st March, st March, 2006 Schedule Rupees in lakhs Rupees in lakhs INCOME Income from Operations 10 42, , Other Income 11 1, Total 44, , EXPENDITURE Payments to Employees 12 1, , Interest and Finance charges 13 24, , Administrative and other expenses 14 7, , Provisions/Write offs for Non Performing/Other Assets 15 1, , Depreciation Total 35, , Net Profit before tax 8, , Provision for taxation Current Tax 3, , Deferred Tax (1,255.16) (568.87) Fringe Benefit tax Taxation adjustment of previous years Net Profit after tax 5, , Profit brought forward from previous year 4, , , , Appropriations Special Reserve u/s 45 IC of the RBI Act, , Surplus carried to Balance Sheet 9, , Total 10, , Earnings per share [Refer Note No. II (I) of Schedule 16] Basic and 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 Deloitte Haskins & Sells Chartered Accountants Dipak Gupta Jaimin Bhatt Director Director R. Salivati Harish Shah Partner Company Secretary Membership No Mumbai Dated: May 2, 2007 Kotak Mahindra Prime Limited 288

290 Cash Flow Statement for the year ended 31st March, Rupees in lakhs Rupees in lakhs Rupees in lakhs Rupees in lakhs Cash flows from operating activities Net profit before taxation and extraordinary items 8, , Add/(Less) : Adjustment for Depreciation Loss/(Profit) on sale of investments (9.94) Profit on sale of assets (15.96) (0.35) Dividend Income on long term investment (0.40) Provision for gratuity and leave encashment (27.52) Provision for doubtful debts, receivables and advances Provision for standard assets Provision for diminution in value of properties (39.55) Operating profit before working capital changes 9, , Increase in Receivables under Financing Activity (67,184.79) (83,460.56) (Increase)/Decrease in Loans and Advances (1,031.09) 2, Increase in Current Liabilities 9, Cash used in operations (49,238.07) (77,683.17) Income Tax/Frimge Benefit Tax paid (net of refunds) (3,851.72) (1,307.37) Net cash used in operating activities A (53,089.79) (78,990.54) Cash flows from investing activities Purchase of Fixed assets (1,591.67) (57.84) Sale of Fixed assets Dividend Income on long term investment 0.40 Purchase of Investments (774,478.33) (408,362.27) Sale of Investments 780, , Net cash (used in)/from investing activities B 4, (15,842.27) Cash flows from financing activities Increase in deep discount debentures 2, , Increase in Unsecured Non convertible debentures 85, , (Decrease)/Increase in Short Term Borrowings (17,136.11) 20, Decrease in other Loans and Advances (18,387.66) (16,033.47) Issue of Shares/Premium on shares and debentures Net cash from financing activities C 52, , Net increase in cash and cash equivalents A+B+C 4, , Cash and cash equivalents at the beginning of the year 5, , Cash and cash equivalents at the end of the year 9, , Notes: 1. Cash and cash equivalents include: Cash on Hand Bank balances Current Account 8, , Bank balances Fixed Deposits (Refer Note No. 3) 1, Total cash and cash equivalents 9, , 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 Rs lakhs (Previous year Rs lakhs) lodged with government departments, Rs. 1, lakhs (Previous year Rs.400 lakhs) with a bank as credit collateral and Rs lakhs (Previous year Rs. 30 lakhs) as liquidity facility on assignment of receivables. 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. For and on behalf of the Board of Directors For Deloitte Haskins & Sells Chartered Accountants Dipak Gupta Jaimin Bhatt Director Director R. Salivati Harish Shah Partner Company Secretary Membership No Mumbai Dated: May 2, 2007 Kotak Mahindra Prime Limited 289

291 Schedules forming part of the Balance Sheet (Contd.) Schedule 1 31st March, st March, 2006 Rupees in lakhs Rupees in lakhs Share Capital Authorised 3,500,000 (Previous year 3,500,000) Equity Shares of Rs. 10/- each ,000 (Previous year 500,000) Preference Shares of Rs. 10/- each Issued and Subscribed 3,007,000 (Previous year 3,007,000) equity shares of Rs.10/- each fully paid up Total Note : Of the above : (i) 1,782,600 shares are held by Kotak Mahindra Bank Limited, the holding company along with its nominees. (ii) 1,188,400 (Previous year Nil) shares are held by Kotak Securities Limited, a subsidiary of the holding company. (iii) 36,000 (Previous year 36,000) shares are held by Kotak Mahindra Asset Management Company Limited, a subsidiary of the holding company. (iv) 1,971,000 shares are allotted as fully paid up pursuant to conversion of fully convertible debentures. Schedule 2 31st March, st March, 2006 Rupees in lakhs Rupees in lakhs Rupees in lakhs Reserves and Surplus Securities Premium Account As per last Balance Sheet 43, , Add : Amount received during the year (net of tax) , , Special Reserve u/s 45 IC of the RBI Act, 1934 As per last Balance Sheet 1, , Add :Transferred from Profit and Loss Account 1, , , Reserve for Doubtful debts As per last Balance Sheet Less: Transferred to provision for doubtful receivables (Refer Note No. II(Q) of Schedule 16) General Reserve As per last Balance Sheet Less: Gratuity liability 9.94 (net of deferred tax Rs lakhs) Less: Compensated absences liability (net of deferred tax Rs lakhs) (Refer Note No. II(P) of Schedule 16) Surplus in Profit and Loss Account 9, , Total 55, , Kotak Mahindra Prime Limited 290

292 Schedules forming part of the Balance Sheet (Contd.) Schedule 3 31st March, st March, 2006 Notes Rupees in lakhs Rupees in lakhs Rupees in lakhs Unsecured Loans Unsecured Non-Convertible Debentures 1 250, , Deep Discount Debentures 2 16, , Less : Discount not written off 1, , , Debenture Application Money - pending allotment 9, , (subsequently allotted on ) Short Term Loans : From Banks 3 13, , From Others - Inter Corporate Deposits 1, Commercial Paper 30, , Less : Discount not written off (Maximum amount outstanding during 29, , the year Rs. 34,900 lakhs, Previous year Rs. 33,500 lakhs) Other Loans and Advances: From Banks 3 42, , From Others 3-2, Hire Purchase/Loan/Lease deposits , (Including matured and unclaimed Rs lakhs Previous year Rs lakhs) Total 359, , Notes: 1) 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 lakhs and further covered by a negative lien to the extent of Rs. 170,250 lakhs (Previous year Rs. 129,700 lakhs) 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 31st March, st March, 2006 Put / Call Option Redemption Rupees in lakhs Rupees in lakhs Date Date 250 debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 4, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 3, debentures of Rs. 1,000,000 each 5, debentures of Rs. 1,000,000 each 3, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each Kotak Mahindra Prime Limited 291

293 Schedules forming part of the Balance Sheet (Contd.) As at As at Earliest Description 31st March, st March, 2006 Put / Call Option Redemption Rupees in lakhs Rupees in lakhs Date Date 50 debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 3, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 5, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 5, debentures of Rs. 1,000,000 each 5, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 5, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 5, , debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 5, , debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each 1, , debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 3, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 3, , debentures of Rs. 1,000,000 each 3, debentures of Rs. 1,000,000 each 4, Kotak Mahindra Prime Limited 292

294 Schedules forming part of the Balance Sheet (Contd.) As at As at Earliest Description 31st March, st March, 2006 Put / Call Option Redemption Rupees in lakhs Rupees in lakhs Date Date 250 debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 1, , debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each 1, , debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each 1, , debentures of Rs. 1,000,000 each 1, , debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each 3, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 1, , debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 3, debentures of Rs. 1,000,000 each 1, , debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 4, debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 1, , debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, , debentures of Rs. 1,000,000 each 1, , debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 5, , debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each 3, Kotak Mahindra Prime Limited 293

295 Schedules forming part of the Balance Sheet (Contd.) As at As at Earliest Description 31st March, st March, 2006 Put / Call Option Redemption Rupees in lakhs Rupees in lakhs Date Date 500 debentures of Rs. 1,000,000 each 5, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 3, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 4, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 3, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 3, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 4, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each 2, , debentures of Rs. 1,000,000 each 5, debentures of Rs. 1,000,000 each 4, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 1, debentures of Rs. 1,000,000 each 4, debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each Kotak Mahindra Prime Limited 294

296 Schedules forming part of the Balance Sheet (Contd.) As at As at Earliest Description 31st March, st March, 2006 Put / Call Option Redemption Rupees in lakhs Rupees in lakhs Date Date 2 debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 2,500,000 each debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, debentures of Rs. 1,000,000 each 2, , , Kotak Mahindra Prime Limited 295

297 Schedules forming part of the Balance Sheet (Contd.) 2) The details of Deep Discount Debentures are as under: As at As at Earliest Description 31st March, st March, 2006 Put/Call Option Redemption Rupees in lakhs Rupees in lakhs Date Date Unsecured, Reedemable Non Convertible Debenture of face value of Rs. 250,000,000 issued at Rs. 231,528,500 2, face value of Rs. 100,000,000 issued at Rs. 92,694, face value of Rs. 200,000,000 issued at Rs. 183,267,200 1, face value of Rs. 250,000,000 issued at Rs. 229,122,750 2, face value of Rs. 250,000,000 issued at Rs. 229,328,750 2, face value of Rs. 150,000,000 issued at Rs. 135,456,750 1, , face value of Rs. 50,000,000 issued at Rs. 45,143, face value of Rs. 250,000,000 issued at Rs. 222,998,250 2, face value of Rs. 100,000,000 issued at Rs. 83,187, face value of Rs. 900,000,000 issued at Rs. 748,683,000 7, face value of Rs. 150,000,000 issued at Rs. 116,494,200 1, , , ) 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. 31st March, st March, 2006 Rupees in lakhs Rupees in lakhs Rupees in lakhs Schedule 4 Deferred Tax Liabilities Brokerage 1, , , , Assets Depreciation on fixed assets 1, Provision for doubtful debts,advances and receivables under auto finance Provision for gratuity Provision for unencashed leave Provision for interest on debentures Expenses allowable for tax purposes when paid , Total (1,034.65) Schedule 5 - Fixed Asset Rupees in lakhs Description Gross Block Depreciation Net Block As at Additions Deductions As at As at For the year Deductions As at As at As at Buildings Office Equipment Computers Furniture & Fixtures Vehicles Leasehold Improvements Total Previous year Capital Work in progress 1, , , Previous year Kotak Mahindra Prime Limited 296

298 Schedules forming part of the Balance Sheet (Contd.) Schedule 6 Face Value Quantity Rupees in lakhs Rupees 31st March, st March, st March, st March, 2006 Investments Long term Investments (at cost) (Non trade, unquoted) In equity shares - fully paid Kotak Mahindra Old Mutual Life Insurance Limited (company under the same management) 10 54,000,000 56,254,216 5, , In units of Venture Capital Fund - partly paid Kotak India Real Estate Fund 100,000 1,500 1,500 1, (Non trade, quoted, fully paid) Investments in equity shares Bajaj Auto Limited 10 1, Gujarat Ambuja Cement Limited 2 31, Info Edge (India) Limited 10 13, Jain Irrigation Systems Limited 10 10, Nagarjuna Construction Co. Limited 2 18, New Delhi Television Limited 4 14, Wire & Wireless (India) Limited 1 50, Current Investments (Non trade,unquoted,fully paid) Investments in units of Mutual fund (at net asset value declared by the mutual fund) Kotak Liquid Institutional Premium 10 7,635,247 27,833, , Daily Dividend DSP Merrill Lynch Liquidity Fund ,348 1, Institutional - Daily Dividend HDFC Cash Management Fund 10 8,708, Savings Plan - Daily Dividend Pru ICICI Institutional Liquid Plan 10 5,762, Super Institutional - Daily Dividend HSBC Cash Fund 10 14,503,334 1, Institutional Plus - Daily Dividend Birla Cash Plus 10 9,047, Institutional Premium - Daily Dividend Templeton Treasury Management , Super Institutional - Daily Dividend Reliance Liquidity Fund 10 14,908,398 1, Institutional - Daily Dividend (Non trade, quoted, fully paid) Investments in equity shares (at lower of cost or market value) Mahindra & Mahindra Financial Services Limited 10 33, Total 9, , Notes : 1) For Shares/Units purchased and sold during the year refer Note No. II (H) of Schedule 16 31st March, st March, 2006 Rupees in lakhs Rupees in lakhs 2) Aggregate value of unquoted investments At cost/net asset value 8, , ) Aggregate value of quoted investments At cost Market Value Kotak Mahindra Prime Limited 297

299 Schedules forming part of the Balance Sheet (Contd.) Schedule 7 Current Assets, Loans and Advances (a) (b) (c) 31st March, st March, 2006 Rupees in lakhs Rupees in lakhs Rupees in lakhs Cash and Bank Balances Cash on hand Bank balances (with scheduled banks) (i) Current accounts 8, , (ii) Fixed deposits (lodged with government department Rs Lakhs 1, (Previous year Rs Lakhs) and with a bank as credit collateral Rs. 1, Lakhs (Previous year Rs. 400 Lakhs) and as liquidity facility Rs Lakhs (Previous year Rs. 30 Lakhs) on assignment of receivables 9, , Receivables under Financing Activity Secured considered good Hire Purchase Vehicles Loans Vehicles 328, , Lease Vehicles 3, , Loans against Securities 29, , Corporate Loans 20, Other Loans 9, , Installments and Other dues from Borrowers (*) 1, Secured considered doubtful Loans Vehicles Other Loans Installments and Other dues from Borrowers Unsecured considered good Personal Loans 17, , Installments and Other dues from Borrowers Unsecured considered doubtful Personal Loans Installments and other dues from Borrowers , , Less: Provision for doubtful receivables 1, , , Other Loans and Advances Unsecured Advances recoverable in cash or in kind or for value to be received Unsecured Considered Good 7, , Unsecured Considered Doubtful , , Less : Provision for doubtful advances , , Advance payment of taxes and tax deducted at source (net of provision for taxation of Rs. 7, lakhs Previous year Rs. 3, lakhs) Security deposit for premises , , Total 426, , Kotak Mahindra Prime Limited 298

300 Schedules forming part of the Balance Sheet (Contd.) Schedule 7 Current Assets, Loans and Advances (Contd.) Notes: (i) (ii) Secured means exposures secured by hypothecation of vehicles, and/or, pledge of securities and/or, equitqble mortgage of property and/or, undertaking to create a security. The above receivables of vehicles and installment dues from borrowers includes Rs Lakhs (Previous year Rs Lakhs) being receivables and installment on vehicles repossessed, necessary provision for which is made. (iii) (*) includes Rs Lakh (Previous year Rs Lakhs) being debt earmarked in favour of the assignee as credit collateral on assignment of receivables. (iv) Refer Schedule 9 for Provision for standard assets. (v) Details of Gross Investment, unearned finance income and present value of rentals under Hire Purchase and Lease: 31st March, st March, 2006 Rupees Rupees Gross Investment (a) not later than 1 year 2, , (b) between 1 and 5 years 1, , , , Unearned Finance Income (a) not later than 1 year (b) between 1 and 5 years Present value of rentals (a) not later than 1 year 1, , (b) between 1 and 5 years 1, , , , (vi) Also refer Note No. II (L) of Schedule 16 (vii) Unsecured - Considered Good Other Loans and advances include: Rupees in lakhs Rupees in lakhs Rupees in lakhs Rupees in lakhs Maximum Outstanding Maximum Outstanding Outstanding Outstanding Due from companies under the same management Ford Credit Kotak Mahindra Limited (till ) Kotak Mahindra Asset Management Company Limited Kotak Mahindra Old Mutual Life Insurance Limited Kotak Forex Brokerage Limited Kotak Mahindra Securities Limited Kotak Securities Limited 1, Kotak Mahindra Capital Co Limited Kotak Mahindra Investments Limited Kotak Mahindra Prime Limited 299

301 Schedules forming part of the Balance Sheet (Contd.) Schedule 8 31st March, st March, 2006 Rupees in lakhs Rupees in lakhs Liabilities Sundry creditors: Other than small scale industrial undertakings 11, , Interest accrued but not due on loans 8, , Advances received against hire purchase/loan/lease agreements Book overdraft with banks 2, , Other liabilities Total 22, , Schedule 9 31st March, st March, 2006 Rupees in lakhs Rupees in lakhs Provisions Provision for gratuity (Refer Note No. II (P) of Schedule 16) Provision for compensated absences (Refer Note No. II (P) of Schedule 16) Provision for Mark to Market on derivatives 7.73 Provision for standard assets (Refer Note No. II (Q) of Schedule 16) Total 1, Kotak Mahindra Prime Limited 300

302 Schedules forming part of the Profit and Loss Account Schedule 10 ended ended 31st March, st March, 2006 Rupees in lakhs Rupees in lakhs Rupees in lakhs Income from Operations Lease rentals 3, , Less : Capital Recovery 3, , Income from Hire Purchase/Loans etc. (Tax deducted at source Rs Lakhs, Previous year Rs Lakhs) 31, , Interest from Wholesale Trade Advances (Tax deducted at source Rs Lakhs, Previous year Rs Lakhs) 4, , Income from fee based activities (Tax deducted at source Rs Lakhs, Previous year Rs Lakhs) Interest from Loans against securities (Tax deducted at source Rs Lakhs, Previous year Rs Lakhs) 3, Income from securitisation of receivables 2, (Tax deducted at source Rs Lakhs, Previous year Rs. Nil) Income from assignment of receivables Income from Corporate Loans (Tax deducted at source Rs Lakhs, Previous year Rs. Nil) Total 42, , Schedule 11 Other Income (Loss)/Profit on sale of current investments (Net) (5.54) 9.94 Dividend on current investments (Loss)/Profit on sale of long term investments (Net) (15.47) Dividend on long term investments 0.40 Profit on sale of derivatives Interest (Gross) : On deposits/advances etc. (Tax deducted at source Rs Lakhs, Previous year Rs Lakh) Profit on sale of fixed assets (Net) Gain on Foreign Exchange Transactions (Net) 4.91 Other Miscellaneous Income (Net) (Tax deducted at source Rs Lakhs, Previous year Rs Lakhs) (Refer Note No. II (M)(b)(ii) of Schedule 16) Total 1, Schedule 12 Payments to Employees Salaries, Allowances and Bonus 1, , Contribution to Employees Provident Fund Provision for Gratuity Staff Welfare expenses Recovery of expenses (Refer Note No. II (O) of Schedule 16) (8.08) (51.14) Total 1, , Schedule 13 Interest and Finance Charges (a) Interest On Debentures 16, , Term borrowings 7, , Others (b) Bank and other finance charges (c) Premium on Forward Exchange Contract (d) Interest Rate Swap receipts (net) (302.16) (163.43) Total 24, , Kotak Mahindra Prime Limited 301

303 Schedules forming part of the Balance Sheet (Contd.) Schedule 14 ended ended 31st March, st March, 2006 Rupees in lakhs Rupees in lakhs Rupees in lakhs Administrative and Other Expenses Travelling and Conveyance Professional fees 1, Auditors Remuneration Audit Fees Others : Certification Work Tax audit fees Out of pocket expenses Service tax on above services Service tax input credit (0.54) (3.23) Brokerage and Commission 4, , Software Expenses Office Expenses Electricity Expenses Common Establishment Expenses - Reimbursements Commission to a Non-Wholetime Director Telephone,Telex and Postage Data Processing and Communication Expenses Rent and licence fees for premises (Refer Note No. II (M)(a)(ii) of Schedule 16) Royalty 2, Advertisement Expenses Maintenance Expenses Insurance Expenses Printing and Stationery Rates and Taxes Business Promotion expenses Wealth Tax 0.01 Miscellaneous Expenses Recovery of expenses (62.32) (Refer Note No. II (O) of Schedule 16) Total 7, , Schedule 15 Provisions/Write Offs For Non Performing/Other Assets Loss on sale of repossessed vehicles/termination of contracts (Net) Provision for doubtful receivables under financing activity Provision for standard assets Provision for diminution in value of properties (39.55) Loss on sale of properties Provision for Mark to Market on derivatives 7.73 Write offs recovered (104.48) (100.55) Total 1, , Kotak Mahindra Prime Limited 302

304 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 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, the guidelines issued by the Reserve Bank of India for Non-Banking Financial Companies and the relevant provisions of the Companies Act, 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 (i) (ii) 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. The volume-based incentives and brokerage are accounted as and when the said volumes are achieved. Income also includes gains made on termination of contracts. 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. (iii) Gain on account of securitisation of assets is recognised, based on the difference between the book value of the securitised asset and consideration received. The same is amortised over the life of the securities issued in accordance with the guidelines issued by the Reserve Bank of India. (iv) In respect of non performing assets acquired from other banks/nbfcs/financial Institutions/Companies, collections in excess of the consideration paid for acquisition at each asset level is treated as income. (v) Interest income is recognised on accrual basis except in case of non-performing assets. Overdue interest is recognised as income on realisation. (vi) Fees and commission income are recognised when due. (vii) Dividend income is accounted on an accrual basis when the Company s right to receive the dividend is established. C. FIXED ASSETS (i) (ii) All the fixed assets have been stated at cost inclusive of incidental expenses less accumulated depreciation. 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 Office Equipment Furniture and Fixtures Vehicles Buildings Leasehold Improvements 3 years 5 years 6 years 4 years 58 years Over the period of lease subject to a maximum of 6 years (iii) Depreciation on assets whose cost does not exceed Rs. 5,000/- is fully provided in the year of purchase. Kotak Mahindra Prime Limited 303

305 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (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 in equity shares are valued at cost or market/fair value whichever is lower, while units of mutual fund are valued at Net Asset Value declared by the mutual fund. E. EMPLOYEE BENEFITS (i) Provident fund is a defined contribution plan and the contributions as required by the statute to Government Provident Fund are charged to profit and loss account when due. (ii) Gratuity liability is defined benefit obligation and is wholly unfunded. The Company accounts for liability for future gratuity benefits based on actuarial valuation. (iii) Actuarial gains/losses are immediately taken to the profit and loss account and are not deferred. (iv) The undiscounted amount of short term employee benefits expected to be paid in exchange for the services rendered by employee is recognized during the period when the employee renders the service. These benefits include performance incentives and compensative absences on paid annual leave F. FOREIGN CURRENCY TRANSACTIONS Transactions in foreign currency 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 entered to hedge the foreign currency risk 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. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantially enacted before the balance sheet date. Changes in deferred tax assets/liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of change. I. BORROWING COST Borrowing costs are recognised as an expense in the period in which they are incurred. J. DERIVATIVE TRANSACTIONS The derivative transactions comprising of Interest rate swaps, equity index/stock futures and Options are considered off balance sheet items. Interest rate swaps (i) 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 rate swap is accounted on an accrual basis. Accrued interest is adjusted against the interest cost of the underlying liability. Equity Index/Stock Futures and Options (i) Gains are recognised only on settlement/expiry of the derivative instruments (ii) All open positions are marked to market and the unrealized loss is netted off on a scrip wise basis. Mark to market gains, if any, are not recognized. (iii) Debit/Credit balance on open positions are shown as current assets/current liabilities, as the case may be. Kotak Mahindra Prime Limited 304

306 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) K. ADVANCES Amounts paid for acquiring non performing assets from other banks/nbfcs/financial Institutions/Companies are considered as advances. In accordance with RBI guidelines, such assets are treated as standard for a period of 90 days from the date of purchase. Thereafter actual collections received on such non performing assets are compared with cash flows estimated while purchasing the asset to ascertain default. If the default is in excess of 90 days, then the assets are classified into sub-standard, doubtful and loss as required by the guidelines on purchase/sale of non performing assets issued by the Reserve Bank of India. L. PROVISION/CONTINGENT LIABILITIES AND CONTINGENT ASSETS Provisions involving substantial degree of estimation in measurement are recognised when there is a present obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent liabilities are not recognised but are disclosed in the notes. Contingent assets are neither recognised nor disclosed in the financial statements. M. SEGMENTAL ACCOUNTING The following accounting policies have been followed for segment reporting: (i) Segment Revenue includes Contract Receipts and other income directly identifiable with/allocable to the segment. (ii) Expenses that are directly identifiable with/allocable to segments are considered for determining the Segment Results. The expenses which relate to the Company as a whole and not allocable to segments are included under Unallocable expenses. (iii) Segment assets and liabilities include those directly identifiable with the respective segments. Unallocable corporate assets and liabilities represent the assets and liabilities that relate to the Company as a whole and not allocable to any segment. Unallocated assets mainly comprise Advance payment of taxes and tax deducted at source (net of provision for taxation). Unallocable liabilities include Deferred tax, Provision for retirement benefits and Other liabilities. N. OPERATING LEASE Assets acquired on leases, where a significant portion of the risks and rewards incidental to ownership is retained by the lessors, are classified as operating lease. Lease rentals are charged to the Profit and Loss Account on accrual basis. II. Notes to the Accounts A. Contingent Liabilities (i) Payments made by company for release of repossessed vehicles amounting to Rs lakhs (Previous year Rs lakhs) not acknowledged as debts against which bank guarantees of Rs lakhs have been furnished (Previous year Rs lakhs). (ii) The Company has received a demand of Rs lakhs (including interest of Rs lakhs), Rs lakhs (including interest of Rs lakhs), Rs lakhs (including interest of Rs lakhs) and Rs lakhs (including interest of Rs lakhs) on completion of income tax assessment for the assessment year , , and respectively. The said amounts are disputed and the company has preferred an appeal against the same. The amounts for the respective years has been paid to the credit of the central government. (iii) Uncalled liability on partly paid Units Rs lakhs (Previous year Rs. 1,350 lakhs) (iv) Credit collateral of Rs lakhs (Previous year Rs. 400 lakhs) in respect of assignment of receivables to which the assignee has a recourse. B. Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 1, lakhs (Previous year Rs. NIL). C. In terms of a Joint Venture agreement entered into by the company with Kotak Mahindra Bank Limited and Old Mutual Financial Services (UK) Plc, the company has acquired a 16.35% (Previous year 23%) ownership interest in Kotak Mahindra Old Mutual Life Insurance Limited (incorporated in India) which falls under the category of Jointly Controlled Entity as per Accounting Standard 27 Financial Reporting of Interests in Joint Ventures issued by the Institute of Chartered Accountants of India. Aggregate amounts of assets, liabilities, income and expenses related to the interest in the jointly controlled entities based on the accounts for the year ended 31st March, 2007 (subject to audit) Rupees in lakhs Rupees in lakhs Assets 31, , Liabilities 30, , Income 17, , Expenses 18, , Kotak Mahindra Prime Limited 305

307 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) D. Managerial remuneration under Section 198 of the Companies Act, 1956 to a Manager for the year (Previous year for the period 4th October, 2005 to 31st March, 2006) Rupees in lakhs Rupees in lakhs Salary Contribution to Provident Fund Employee Stock Option Plan (Refer note N below) Perquisites in cash or in kind Total 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. Computation of net profits as per Section 349 read with Section 309 (5) and Section 198 of the Companies Act, Rupees in lakhs Profit before taxation as per Profit and Loss account 8, Add: Managerial remuneration (including sitting fees 0.50 lakh) Provision for doubtful debts/standard assets Net Profit for Section 198 of Companies Act, , Calculation of Commission to non-whole time 1% of net profit as above in terms of Special Resolution of the Members dated April 30, Determined and limited by the Board to Figures for the previous year have not been given as there was no Commission payable for the previous year E. Arising from commercial and technical considerations, the Company has revised the estimated useful life of buildings from 30 years to 58 years with effect from 1st April, In accordance with Accounting Standard (AS) 6 Depreciation Accounting the unamortised depreciable amount of the premises is charged to revenue over the revised remaining useful life. However, the minimum depreciation as prescribed by the Companies Act, 1956 is provided in respect of premises wherein the effective depreciation rate after the change in estimated useful life is less than the prescribed minimum rate. Consequently the depreciation charge to the profit and loss account for the current year is lower by Rs lakh with corresponding increase in profit for the year. F. Disclosure regarding Derivative Transactions: The Company has outstanding Interest Rate Swap covering the underlying liability aggregating to Rs. 35,500 lakhs (Previous year Rs. 33,525 lakhs) acquired for hedging purpose. The Company does not have any foreign currency exposure. Open interest in equity stock/index futures and options: Equity Stock/Index Futures Expiration Date No of contracts Open long (short) position (number of shares) As at 31st March, 2007 S & P CNX Nifty 26 April, ,648 82,400 S & P CNX Nifty 31 May, ,500 ONGC Limited 26 April, (12,600) As at 31st March, 2006 NIL NIL NIL NIL The initial margin of Rs lakhs (Previous year Rs. NIL) on the above positions in the form of Cash/Deposits has been placed with the Trading Member. The company enters into index futures and options for the purpose of hedging and into stock futures for the purpose of trading. Kotak Mahindra Prime Limited 306

308 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) G. Details of non performing financial assets purchased: Rupees in crores Rupees in crores No. of accounts purchased during the year 2 1 Aggregate Outstanding H. Investments: The company has purchased and sold during the year the following investments: Quantity Rupees in lakhs Quantity Rupees in lakhs Mutual Fund Kotak Liquid Institutional Premium Daily Dividend 4,497,442, , ,709,992, , Reliance Liquidity Fund Daily Dividend 131,526,402 13, DSP Merrill Lynch Liquidity Fund Daily Dividend 4,160,374 41, ,144,272 21, HDFC Cash Management Fund Savings Plan Daily Dividend 6,593, ,377,475 6, Pru ICICI Institutional Liquid Plan Super Institutional Daily Dividend 350,855,051 35, ,638,448 6, HSBC Cash Fund Institutional Plus Daily Dividend 91,676,388 9, ,790,848 12, Birla Cash Plus Plan Institutional Premium Daily Dividend 520,150,317 52, ,861,449 9, Templeton Treasury Management Super Institutional Daily Dividend 2,061,867 20, ,626 4, Principal Cash Management Fund Institutional Premium Daily Dividend 241,177,979 24, Tata Liquid Super High Interest Fund Daily Dividend 385,968 4, Equity Shares Autoline Industries Limited Bharti Airtel Limited 7, ICICI Bank Limited 8, Reliance Communications Limited 16, Sobha Developers Limited 4, Tanla Solutions Limited 20, Wire and Wireless (India) Limited 30, Mahindra & Mahindra Financial Services Limited 25, Preference Shares Marico Limited 180,000,000 18,000 Kotak Mahindra Prime Limited 307

309 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) I. 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) 573,404, ,783,058 Basic/Weighted average number of Equity Shares outstanding during the year (B) 3,007,000 2,976,918 Diluted number of Equity Shares outstanding during the year 3,007,000 2,976,918 Nominal value of Equity Shares (Rs.) Basic and Diluted Earnings per share (Rs.) (A)/(B) J. Expenditure in foreign currency on salaries, communication and conference Rs lakh (Previous year Rs lakhs). K. The Company has not received any intimation from suppliers regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amounts unpaid as at the year end together with interest paid/payable as required under the said Act have not been given. L. 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 lakhs (Previous Rs lakhs) M. The company has taken various premises under operating lease and has sub let some of them. (a) Where the Company is a lessee: (i) (ii) 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 9 years under leave and licence agreement and are renewable by mutual consent on mutually agreeable terms. Lease payments recognised in the statement of Profit and Loss Account under Rent and licence fees for Premises in Schedule-14 Rs lakhs (Previous year Rs lakhs). (iii) The future minimum lease payments under non-cancellable operating lease not later than one year : Rs lakhs (Previous year Rs lakhs) later than one year and not later than five years: Rs lakhs (Previous year Rs lakhs). (b) Where the Company is a sub-lessor: (i) (ii) The company has sublet some of the premises under operating lease. These are generally cancellable and are renewable by mutual consent on mutually agreeable terms. The sub-lease income recognised in the profit and loss account under Other Miscellaneous Income in Schedule-11 is Rs lakhs (Previous year Rs lakhs). N. At the Annual General Meetings of the holding company, Kotak Mahindra Bank Limited, ( the Bank ), the shareholders of the Bank had unanimously passed Special Resolutions on 28th July, 2000, 26th July, 2004, and 26th July, 2005, to grant options to the Eligible Employees of the Bank and its subsidiary companies. Pursuant to these resolutions, the following three Employee Stock Option Scheme ( Scheme ) had been formulated and adopted: (i) Kotak Mahindra Equity Option Scheme (ii) Kotak Mahindra Equity Option Scheme (iii) Kotak Mahindra Equity Option Scheme 2005 Consequent to the above, the Bank has granted stock options to employees of the Company. In accordance with the SEBI Guidelines and the guidance note on Accounting for Employee Share based payments issued by the ICAI, the excess, if any, of the market price of the share preceding 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. The Company has reimbursed the Bank Rs lakhs (Previous year Rs lakhs) during the year on account of such costs and the same is forming part of Employee costs and included under the head Salaries, allowances and bonus under Schedule 12. Kotak Mahindra Prime Limited 308

310 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) O. Recovery of expenses in Schedule 12 and 14 are amounts recovered from associate companies 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. P. Employee Benefits: The Company has early adopted the Revised Accounting Standard 15 during the current financial year covering the recognition and measurement principles laid down therein. In view of the first time adoption, disclosures in respect of previous years have not been given. Reconciliation of opening and closing balance of the present value of the defined benefit obligation for gratuity benefits is given below: Rupees in lakhs Change in Unfunded benefit obligations Present value of unfunded benefit obligations, 1st April Service cost Interest cost 6.04 Benefits paid (26.02) Actuarial (gain)/loss on obligations Present value of unfunded benefit obligations as at 31st March, Cost recognised for the period Current service cost Interest cost 6.04 Expected return on plan assets Actuarial (gain)/loss Net gratuity cost Actuarial assumptions used Discount rate 8.20% p.a. Salary escalation rate 15% p.a. for first 2 year 10% p.a. for first 2 years & 6% p.a. thereafter The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market. Gratuity: In accordance with Payment of Gratuity Act, the Company provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee s salary and the years of employment with the Company subject to maximum of Rs lakhs. The gratuity benefit is provided through unfunded plan and annual contributions are charged to profit and loss account. Under the scheme, the settlement obligation remains with the Company. Provident fund: In accordance with Indian regulations, employees of the Company are entitled to receive benefits under the provident fund, a defined contribution plan, in which, both the employee and the Company contribute monthly at a determined rate. These contributions are made to a recognised provident and administered by a Board of Trustees. The employee contributes 12% of his or her basic salary and the Company contributes an equal amount. The investments of the funds are made according to rules prescribed by the Government of India. Accumulated Compensated Absences: The Company provides for accumulated compensated absences as at balance sheet using full cost method to the extent leave will be utilised. The leave encashment on separation is paid on basic salary. As per the transitional provision of Accounting Standard 15 Revised, the difference in the liability on account of employee benefits created by the Company amounting to Rs lakhs (net of tax effect) has been included in Schedule 2 ( Reserves and Surplus ). Kotak Mahindra Prime Limited 309

311 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) Q. Provision for receivables created in addition to that required under Prudential norms prescribed by the Reserve Bank of India for Non Banking Financial Companies, which had been shown under Reserve and Surplus (Schedule 2) have been regrouped during the previous year and shown under Provision for standard assets (Schedule 9), since the additional provision made on the basis of past experience, management s judgement of realisability of the debts and other related factors, is no longer considered as the amount exceeding the debts stated to be considered doubtful or bad. R. Assets De-recognised: Assets De-recognised Rupees in lakhs Rupees in lakhs on Securitisation 114, , on Assignment of Receivables bilaterally with Banks 9, , S. Segmental Reporting: In accordance with Accounting Standard 17 on Segment reporting issued by the Institute of Chartered Accountants of India, the Company has identified three business segments i.e. Vehicle Financing, Other lending activities and Treasury and Investments as primary segments and one Geographical Segment i.e. India as secondary segment. Vehicle Financing includes Retail and Wholesale trade finance.other Lending activities include financing against securities, securitisation and other loans/services. Treasury and Investment activities include proprietary trading in securities. Segments have been identified and reported taking into account the nature of product and services, the differing risks and returns and the internal financial reporting system Vehicle Financing Rupees in lakhs Other Lending activities Rupees in lakhs Treasury and Investment activities Rupees in lakhs Total Rupees in lakhs Vehicle Financing Rupees in lakhs Other Lending activities Rupees in lakhs Treasury and Investment activities Rupees in lakhs Total Rupees in lakhs Segment Revenue Income from external customers 36, , , , , Income from inter segment - Total Revenue 36, , , , , Segment Result 6, , (104.07) 8, , , Add: Unallocated income - Less: Unallocated expenses - Less: Income tax (including deferred tax) 2, , Net Profit 5, , Other Information Carrying amount of segment assets 364, , , , , , , , Unallocated corporate assets 1, Total Assets 364, , , , , , , , Carrying amount of segment liabilities 348, , , , , , Unallocated corporate liabilities Total Liabilities 348, , , , Cost to acquire fixed assets 1, , Depreciation/Amortisation Non cash expenses other than depreciation , Kotak Mahindra Prime Limited 310

312 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) T. Related Party Disclosures: Parties where control exists: Holding Company Other related parties: Fellow Subsidiaries Enterprises having significant influence over the company Key Management Personnel Joint Venture Others: Enterprises over which Director/relatives/ Key Management Personnel have significant influence Mutual Fund/Venture Capital Fund managed by fellow subsidiary Kotak Mahindra Bank Limited holds 59.28% of the share capital Mr. Uday S. Kotak along with relatives and entities controlled by him hold 51.46% of the equity share capital of Kotak Mahindra Bank Limited Kotak Mahindra Capital Company Limited Kotak Securities Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Investments Limited Kotak Mahindra Old Mutual Life Insurance Limited Kotak Forex Brokerage Limited Ford Credit International Inc., USA held 40% of the share capital (till 4th October, 2005) Mr. Uday Kotak, Non Executive Chairman Mr. Sumit Bali, CEO and Manager Mr. Vyomesh Kapasi, COO till 18th April, 2006 Mr. Sudhakar Shanbhag, CFO till 3rd May, 2006 and as COO with effect from 4th May, 2006 Kotak Mahindra Old Mutual Life Insurance Limited Joint Venture with Kotak Mahindra Bank Limited and Old Mutual Financial Services (UK) plc Aero Agencies Limited Mr. Uday Kotak Ford Credit Kotak Mahindra Limited Mr. Sudhakar Shanbhag, Sr. Vice President Finance & Systems till 3rd October, 2005 Kotak Mahindra Mutual Fund Managed by fellow subsidiary Kotak Mahindra Asset Management Company Limited Kotak Real Estate Fund Managed by fellow subsidiary Kotak Mahindra Investments Limited Kotak Mahindra Prime Limited 311

313 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) The following transactions were carried out with related parties in the ordinary course of business:- Nature of transaction Holding Company Fellow Subsidiaries Key Management Personnel Enterprises over which Director/ Relatives/Key Management Personnel have significant influence Mutual Fund/Venture Capital Fund managed by Fellow Subsidiary Shares issued (3.60) (3.60) Kotak Mahindra Asset Management Co. Limited (3.60) (3.60) Premium received on issue of shares (593.55) (593.55) Kotak Mahindra Asset Management Co. Limited (593.55) (593.55) Non Convertible Debentures issued 2, , Kotak Mahindra Old Mutual Life Insurance Ltd. 2, , Interest payable on debenture issued Kotak Mahindra Old Mutual Life Insurance Ltd Outstandings Payables (92.93) (92.93) Interest Rate Swaps (Off Balance Sheet) 35, , (33,025.00) (33,025.00) Contracts for Interest Rate Swaps 21, , (Off Balance Sheet) (15,525.00) (15,525.00) Purchase of units of Kotak Real Estate Fund (150.00) (150.00) Purchases of units of Kotak Mahindra Mutual Fund 550, , (334,757.13) (334,757.13) Sales of units of Kotak Mahindra Mutual Fund 553, , (331,353.59) (331,353.59) Dividend on units of Kotak Mahindra Mutual Fund (96.80) (96.80) Purchase of equity shares (of Kotak Mahindra Old Mutual Life Insurance Ltd.) 1, , (5,625.42) (5,625.42) Kotak Mahindra Old Mutual Life Insurance Ltd. 1, , Sale of equity shares (of Kotak Mahindra Old Mutual Life Insurance Ltd.) 1, , Total Kotak Mahindra Prime Limited 312

314 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) Nature of transaction Holding Company Fellow Subsidiaries Key Management Personnel Enterprises over which Director/ Relatives/Key Management Personnel have significant influence Mutual Fund/Venture Capital Fund managed by Fellow Subsidiary Kotak Mahindra Capital Company Limited 1, , Purchase of optionally convertible debentures (225.00) (225.00) Kotak Forex Brokerage Limited (225.00) (225.00) Redemption of optionally convertible debentures Kotak Forex Brokerage Limited Inter Corporate Deposit placed Kotak Mahindra Securities Limited Inter Corporate Deposit redeemed Kotak Mahindra Securities Limited Amount Financed (286.56) (286.56) Kotak Securities Limited (170.89) (170.89) Kotak Mahindra Capital Company Limited (115.68) (115.68) Receivables under Auto Finance (441.08) (441.08) Kotak Securities Limited (281.15) (281.15) Kotak Mahindra Capital Company Limited (159.93) (159.93) Term Deposits placed 1, , (430.00) (430.00) Kotak Securities Limited Interest receivable on Term deposits (net of Tds) (1.48) (1.48) Kotak Securities Limited Deposits (0.10) (5.00) (5.10) Kotak Mahindra Old Mutual Life Insurance Ltd (5.00) (5.00) Total Kotak Mahindra Prime Limited 313

315 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) Nature of transaction Holding Company Fellow Subsidiaries Key Management Personnel Enterprises over which Director/ Relatives/Key Management Personnel have significant influence Mutual Fund/Venture Capital Fund managed by Fellow Subsidiary Premium receivable on Interest Rate Swaps (165.45) (165.45) Bank Balance in Current/OD Account 2, , (978.67) (978.67) Outstandings Receivables (150.11) (0.01) (150.12) Kotak Mahindra Asset Management Co. Limited (0.01) (0.01) Kotak Mahindra Old Mutual Life Insurance Ltd Kotak Securities Limited Interest received on Inter Corporate Deposits Kotak Mahindra Securities Limited Interest on debenture (0.94) (0.94) Kotak Forex Brokerage Limited (0.94) (0.94) Interest received on Term Deposits (1.90) (1.90) Kotak Securities Limited Income from vehicle financing (25.50) (25.50) Kotak Securities Limited (16.13) (16.13) Kotak Mahindra Capital Company Limited (9.37) (9.37) Fee based income (net of service tax) (148.40) (148.40) Premium received on Interest Rate Swaps (163.43) (163.43) License fees received (4.74) (0.14) (20.10) (24.99) Kotak Mahindra Asset Management Co. Limited (0.14) (0.14) Kotak Mahindra Old Mutual Life Insurance Ltd Total Kotak Mahindra Prime Limited 314

316 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) Nature of transaction Holding Company Fellow Subsidiaries Key Management Personnel Enterprises over which Director/ Relatives/Key Management Personnel have significant influence Mutual Fund/Venture Capital Fund managed by Fellow Subsidiary Ford Credit Kotak Mahindra Limited (20.10) (20.10) Common Establishment Expenses Recovered (4.80) (108.66) (113.46) Kotak Mahindra Investments Limited Ford Credit Kotak Mahindra Limited (108.66) (108.66) Miscellaneous income (0.19) (0.19) Kotak Mahindra Asset Management Co. Limited (0.19) (0.19) Bank charges Interest on CC (10.64) (10.64) Issuing and Paying Agency Charges (1.25) (1.25) Brokerage paid (0.10) (0.10) Kotak Securities Limited (0.10) (0.10) Transaction charges paid Kotak Securities Limited Interest on debentures paid Kotak Mahindra Old Mutual Life Insurance Ltd Core Communication Expenses Common Establishment Expenses Reimbursed (90.14) (90.14) Kotak Mahindra Investments Limited Royalty paid (net of service tax) (2,351.30) (2,351.30) Fee based expense (net of service tax) (7.18) (7.18) License fees paid (72.70) (72.70) Demat charges paid (0.13) (0.01) (0.14) Total Kotak Mahindra Prime Limited 315

317 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) Nature of transaction Holding Company Fellow Subsidiaries Key Management Personnel Enterprises over which Director/ Relatives/Key Management Personnel have significant influence Mutual Fund/Venture Capital Fund managed by Fellow Subsidiary Kotak Securities Limited (0.01) (0.01) Fee for private placement of debentures (net of service tax) (0.90) (0.90) Kotak Mahindra Capital Company Limited (0.90) (0.90) Cost of travel tickets purchased (15.03) (15.03) Aero Agencies Limited (15.03) (15.03) Expense reimbursement by other company (1.97) (5.23) (20.39) (27.59) Kotak Mahindra Asset Management Co. Limited (0.15) (0.15) Kotak Mahindra Old Mutual Life Insurance Ltd Kotak Mahindra Investments Limited (5.08) (5.08) Ford Credit Kotak Mahindra Limited (20.39) (20.39) Expense reimbursement to other company (271.63) (2.63) (7.78) (282.04) Kotak Mahindra Investments Limited (2.63) (2.63) Ford Credit Kotak Mahindra Limited (7.78) (7.78) Reimbursement to Other Company Purchase of Assets Reimbursement by Other Company Purchase of Assets Remuneration to key management personnel* (53.87) (53.87) Sumit Bali (13.38) (13.38) Vyomesh Kapasi (13.01) (13.01) Sudhakar Shanbhag (27.48) (27.48) * Excludes provision for gratuity, since it is based on actuarial valuation done on an overall basis. Figures in bracket indicates previous year figures Total Kotak Mahindra Prime Limited 316

318 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) U. Schedule to the Balance Sheet of a non-deposit taking non-banking financial company (as required in terms of paragraph 13 of Non-Banking Financial (Non-Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007). (Amount in Rs. Lakhs) Particulars Amount Outstanding Amount Overdue Liabilities Side: (1) Loans and advances availed by the NBFCs inclusive of interest accrued thereon but not paid: (a) Debentures: Secured NIL NIL Unsecured 264,416 NIL (other than falling within the meaning of public deposits *) (b) Deferred Credits NIL NIL (c) Terms Loans 55,110 NIL (d) Inter-corporate loans and borrowing NIL NIL (e) Commercial Paper 29,693 NIL (f) Other Loans Debenture Application Money 9,400 NIL Security Deposits from customers 710 NIL * Please see Note 1 below Assets Side : Amount Outstanding (2) Break-up of Loans and Advances including bills receivables [other than those included in (4) below: (a) Secured NIL (b) Unsecured (includes advance payment of taxes, net of tax provision of Rs. 420 lakhs 7,726 (3) Break-up of Leased Assets and stock on hire and other assets counting towards AFC activities (net of provision) (i) Leased Assets including lease rentals under sundry debtors: (a) Financial Lease 3,112 (b) Operating Lease NIL (ii) Stock on hire including hire charges under sundry debtors: (a) Assets on hire 17 (b) Repossessed Assets NIL (iii) Other loans counting towards AFC activities: (a) Loans where assets have been repossessed 74 (b) Loans other than (a) above 406,092 (4) 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 NIL 2. Unquoted: (i) Shares: (a) Equity NIL (b) Preference NIL (ii) Debentures and Bonds NIL (iii) Units of mutual funds 2,425 (iv) Government Securities NIL (v) Others NIL Kotak Mahindra Prime Limited 317

319 Schedules forming part of the Financial Statements for the year ended 31st March, 2007 (Contd.) Long Term Investments: 1. Quoted: (i) Shares: (a) Equity 366 (b) Preference NIL (ii) Debentures and Bonds NIL (iii) Units of mutual funds NIL (iv) Government Securities NIL (v) Others NIL 2. Unquoted: (i) Shares: (a) Equity 5,400 (b) Preference NIL (ii) Debentures and Bonds NIL (iii) Units of mutual funds NIL (iv) Government Securities NIL (v) Others - Units of Kotak India Real Estate Fund 1,125 (5) Borrower group-wise classification of assets financed as in (2) and (3) above. 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 (c) Other related parties NIL NIL NIL 2. Other than Related Parties 409,295 6, ,118 Total 409,295 7, ,021 (6) 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 Market Value/Break up or fair value or NAV Book Value (Net of Provisions) 1. Related Parties ** (a) Subsidiaries NIL NIL (b) Companies in the same group 5,400 5,400 (c) Other related parties NIL NIL 2. Other than related Parties 3,8768 3,916 Total 9,276 9,316 ** As per Accounting Standard of ICAI (Please see Note 3) (7) Other information: Particulars Amount (i) Gross Non-Performing Assets (a) Related parties NIL (b) Other than related parties 9,430 (ii) Net Non-Performing Assets (a) Related parties NIL (b) Other than related parties 7,926 (iii) Assets acquired in satisfaction of debt NIL Notes: (a) As defined in Paragraph 2(1)(xii) of the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, (b) Provisioning norms shall be applicable as prescribed in the Non-Banking Financial (Non-deposit accepting or holding) Companies Prudential Norms (Reserve Bank) Directions, (c) 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 (4) above. V. The previous year s figures have been reworked, regrouped, rearranged and reclassified wherever necessary. Accordingly, amounts and other disclosures for the preceding year are included as an integral part of the current year financial statements and are to be read in relation to the amounts and other disclosures relating to the current year. Kotak Mahindra Prime Limited 318

320 Balance Sheet Abstract and Company s General Business Profile as per Part IV, Schedule VI of the Companies Act, I. Registration details Registration No State code 1 1 II. III. Balance Sheet Date Date Month 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 Secured Loans Deferred Tax Liability Application of Funds Net Fixed Assets Reserves and surplus Unsecured Loans N I L N I L Investments Net Current assets Miscellaneous Expenditure N I L Accumulated Losses Deferred Tax Asset N I L IV. Performance of Company (Amount in Rs. in Thousands) Turnover Profit before Tax Total Expenditure 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. (ITC Code) N A Product Description V E H I C L E F I N A N C E S E C U R I T I E S F I N A N C E For and on behalf of the Board of Directors Mumbai Dated: May 2, 2007 Dipak Gupta Director Harish Shah Company Secretary Jaimin Bhatt Director Kotak Mahindra Prime Limited 319

321 BOARD OF DIRECTORS: Mr. Uday Kotak (C), Mr. R. C. Khanna, Mr. Bipin R. Shah, Mr. Sukant Kelkar, Mr. Narayan S. A., Mr. C. Jayaram Directors Report To the Members of Kotak Mahindra Asset Management Company Limited The Directors present their Thirteenth Annual Report together with the audited accounts of your Company for the year ended March 31, FINANCIAL RESULTS Rs. in Lakhs Gross income Profit before Tax Provision for Tax (377.01) (276.56) Profit after Tax Profit/ (Loss) brought forward from previous year Less: Adjustment on account of AS-15 (Net) Premium on Buy Back of Equity Shares Appropriations Interim Dividend paid Corporate Dividend Tax Transfer to general reserve Transfer to Capital Redemption Reserve Profit Carried to Balance Sheet The Gross income of your company has increased by 38% along with an increase of 65% in the Average AUM during the year. The overall expenditure of the company has increased by 39% largely due to increase in administrative and employee cost. The net impact of the above has resulted in the increase in the Profit after tax in the current year by 34%. Buyback of shares During the financial year under review the company made a buy back of 42,00,000 equity shares at the price of Rs. 13 per share, being 17.50% of the share capital of the Company in terms of Section 77A of the Companies Act, The paid up share capital of the Company stands reduced to 1,98,00,000 equity shares of Rs. 10/- each fully paid up. 2. DIVIDEND your directors do not recommend any dividend. 3. HIGHLIGHTS OF PERFORMANCE The total Assets Under Management ( AUM ) of the Fund as on March 31, 2007 were Rs. 12,125 Crores, as compared to Rs. 10,409 Crores as of March 31, 2006, a growth of 16.48%. The number of folios as on March 31, 2007 was more than 5.36 lakhs as compared to over 4.0 lakhs as of March 31, During the year under review, the mainstream debt schemes of the Fund continued their commendable performance. Lipper Fund Awards India 2007 adjudged Kotak Bond Regular Plan-Growth as Best Fund over Five years in the Bond Indian Rupee General Category. Kotak Mutual Fund also received the Best Fund group over three year in the Bond category from Lipper Fund Awards India Debt schemes of Kotak Mahindra Mutual Fund also won two awards at the ICRA Mutual Fund Awards The Kotak Flexi Debt Fund was ranked ICRA - MFR 1 and awarded the Gold Award for Best Performance in the category of Open Ended Debt - Short Term for one-year period ending December 31, The Kotak Bond Short Term Plan was ranked ICRA - MFR 1 and awarded the Gold Award for Best Performance in the category of Open Ended Debt - Short Term for three-year period ending December 31, The debt schemes managed by Kotak Mahindra Mutual Funds have received over 13 Performance awards over the past seven years from CNBC, CRISIL, OUTLOOK MONEY, ICRA online and Lipper Fund Awards. Kotak Mutual Fund was also adjudged the Best Mutual Fund and received NDTV Profit Business Leadership Award in the Mutual Fund category. The performance of the diversified equity schemes (Kotak 30, Kotak Midcap, Kotak Opportunities) remained satisfactory. During the year under review, Kotak 30, Kotak Opportunities, Kotak Midcap, Kotak Tax Saver, Kotak Global India declared dividends to their unitholders. 4. NEW SCHEMES LAUNCHED DURING The year saw the launch of several new schemes and facilities, increased distribution reach and market expansion. Schemes Scheme Type Collections (Rs. in crores) Kotak Flexi FOF Series I and II Fund of Funds 687 Kotak Dynamic Asset Allocation Scheme Kotak Twin Advantage Series 2 and 3 Kotak Wealth Builder Series 1 Kotak Emerging Equity Scheme Kotak FMP Series (Cumulative)* Close ended Balanced Scheme 673 Close ended debt scheme 410 Close ended debt scheme 283 Close ended Equity scheme 251 Fixed Maturity Plans 7401 Total 9705 * 27 Fixed Maturity Plans were launched during the year. Kotak Mahindra Asset Management Company Limited 320

322 GEOGRAPHICAL EXPANSION: In order to reach out to more and widely dispersed investors, we increased our presence from 47 to 57 locations across 17 states, and empanelled more than 3480 new agents/distributors during the last financial year. 5. MANAGEMENT DISCUSSION AND ANALYSIS Industry structure, developments and segment wise performance Market related developments Interest rates were on the upward move through the financial year The RBI has affected progressive hikes in the benchmark rates as well as the reserve requirements. This impacted both debt and equity markets alike. 10 years bond yields which opened the year at 7.55%, closed at around 8% on March 31, Likewise equity markets failed to deliver performance akin to last year with the Sensex posting around 11% returns for the year ended March 31, Rising Interest rates may act as a dampener to the overall sentiment, but it is likely to be temporary in nature and the long term bull market signs still remain intact. Fundamentals still continue to favour a strong earnings momentum. 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. An independent firm of Chartered Accountants carries out continuous internal audit of operations of the mutual fund, regulatory compliance and adequacy of internal controls. An Audit Committee oversees the Internal Audit carried out by an independent Internal Audit team. Material developments in Human Resources/Industrial Relations front, including number of people employed. At the start of the year, your Company had 140 employees on board. While your Company had some attrition, and some fresh intake, the overall headcount has reached 176 persons by the end of the year. 6. DIRECTORS During the year, eight meetings of the board of directors were convened to review the affairs of the Company, mutual fund schemes, operations and to consider launch of new schemes. Mr. Sukant Kelkar retires by rotation at the ensuing Annual General Meeting and being eligible, offers himself for re-appointment. 7. AUDITORS your Company appointed M/s. Deloitte Haskins & Sells, Chartered Accountants, Mumbai, as Statutory Auditors in the last Annual General Meeting. However, as M/s. Deloitte Haskins & Sells, Chartered Accountants, Mumbai expressed their inability to continue as Statutory Auditors, Your Company in the EGM held on November 22, 2006, appointed M/s. Deloitte Haskins & Sells, Chartered Accountants, Baroda, as Statutory Auditors. your Company s Auditors, M/s. Deloitte Haskins & Sells, Chartered Accountants, Baroda, 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. Certain statements in this report 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. 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. Your Company s foreign exchange income during the year under review were Rs. 3,54,36,849 (Previous year Rs. 18,781,937), while the outgo was Rs. 6,87,733 (Previous year Rs. 5,69,983). 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. 9. 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) Your Company has, in the preparation of the annual accounts for the year ended 31st March 2007, 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 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 31st March 2007 and of Profit and Loss of your Company for the financial year ended 31st March 2007; (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. Kotak Mahindra Asset Management Company Limited 321

323 10. 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. B. R. Shah and Mr. Sukant Kelkar. Mr. R. C. Khanna, independent Director on the Board, is the Chairman of the Audit Committee. The committee met seven times during the year to review accounts, operations and internal controls. 11. 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. Place : Mumbai Dated : 27th April, 2007 For and on behalf of the Board of Directors Uday Kotak Chairman Kotak Mahindra Asset Management Company Limited 322

324 Auditors Report The Members of Kotak Mahindra Asset Management Company Limited, 1. We have audited the attached Balance Sheet of Kotak Mahindra Asset Management Company Limited as at 31st March, 2007 and also the Profit and Loss Account and 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 from 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. 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) 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; (c) (d) (e) (f) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of accounts; 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 31st March, 2007, and taken on record by the Board of Directors, we report that none of the directors is disqualified as on 31st March, 2007 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 notes thereon, give the information required by the Companies Act, 1956 in the manner so required and present a true and fair view in conformity with the accounting principles generally accepted in India: (i) (ii) In the case of the Balance Sheet, of the State of affairs of the Company as at 31st March, 2007; In the case of the Profit and Loss Account, of the Profit for the year ended on that date; and (iii) In the case of cash flow statement, of the cash flows for the year ended on that date. For Deloitte Haskins & Sells Chartered Accountants (b) 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; R. Salivati Place : Mumbai partner Dated : 27th April, 2007 Membership No Kotak Mahindra Asset Management Company Limited 323

325 Annexure to the Auditors Report to the Members 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), (xiii) and (xiv) of Paragraph 4 of the Order are not applicable to the Company for the year. (i) (ii) In respect of its fixed assets: (a) (b) (c) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets. Fixed assets were physically verified 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. The Company has not disposed off substantial part of its fixed assets during the year. 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, reporting requirements under sub-clauses (b), (c), (d), (f) and (g) of clause (iii) of paragraph 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 systems commensurate with the size of the Company and the nature of its business with regard to purchase of fixed assets and sale of services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in the aforesaid internal control systems. There is no purchase of inventory and sale of goods. (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 the 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. 5,00,000 or more: (vi) In our opinion, the internal audit system is 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) (b) (c) 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, Service Tax, Custom Duty, Excise Duty, cess and any other material statutory dues as applicable with the appropriate authorities during the year. According to the information and explanations given to us, no undisputed amounts payable in respect of income tax, wealth tax, sales tax, service tax, customs duty, excise duty and cess were in arrears, as at 31st March, 2007 for a period of more than six months from the date they became payable. According to the information and explanation given to us, there are no dues of sale tax, income tax, customs duty, wealth tax, excise duty and cess which have not been deposited on account of any dispute. (viii) The company has no accumulated losses as at 31st March, 2007 and has not incurred any cash loss during the financial year ended on that date and in the immediately preceding financial year. (ix) In our opinion and according to the information and explanations given to us, the company did not have any dues to a financial institution or bank or debenture holders. Consequently, the provisions of clause 4(xi) of the order are not applicable for the year. (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. Consequently, the provisions of clause 4(xii) of the order are not applicable for the year. (xi) 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. Consequently, the provisions of clause 4(xv) of the order are not applicable for the year. (v) (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. The Company has not accepted any deposits from the public during the year. (xii) To the best of our knowledge and belief and according to the information and explanations given to us, there have been no term loans availed during the year. Consequently, the provisions of clause 4(xvi) of the order are not applicable. (xiii) 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. Kotak Mahindra Asset Management Company Limited 324

326 (xiv) The Company has not made any preferential allotment of shares during the year. Consequently, the provisions of clause 4(xviii) of the order are not applicable. (xv) The company has not issued any debentures during the year. Consequently, the provisions of clause 4(xix) of the order are not applicable. (xvi) The Company has not raised any money by public issues during the year. Consequently, the provisions of clause 4(xx) of the order are not applicable. (xvii) 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. Salivati Place : Mumbai partner Dated : 27th April, 2007 Membership No Kotak Mahindra Asset Management Company Limited 325

327 Balance Sheet as at 31st March, 2007 Schedule As at 31st March, 2007 Rupees As at 31st March, 2006 Rupees Sources of Funds Shareholders Funds Share capital 1 198,000, ,000,000 Reserves and Surplus 2 72,389,050 22,654,996 Total 270,389, ,654,996 Application of Funds Fixed Assets 3 Gross Block 75,810,132 62,067,980 Less: Depreciation 45,330,544 33,145,915 Net Block 30,479,588 28,922,065 Investments 4 280,915, ,536,375 Deferred Tax Asset 7,833,089 2,401,872 Current Assets, Loans and Advances Sundry debtors 5 32,577,211 35,057,017 Cash and bank balances 6 8,382,065 3,212,975 Other Current Assets Interest accrued on Investments 6,970, ,945 Loans and advances 7 48,909,711 43,631,499 96,839,902 82,609,436 Less: Current Liabilities and Provisions 8 (a) Liabilities 130,537,942 77,422,385 (b) Provisions 15,140,666 4,392, ,678,608 81,814,752 Net Current Assets (48,838,706) 794,684 Total 270,389, ,654,996 Significant Accounting Policies and Notes to the Accounts 13 As per our attached report of even date For Deloitte Haskins and Sells Chartered Accountants R. Salivati Partner Mumbai Dated: 27th April, 2007 For and on behalf of the Board of Directors Narayan S. A. Director Hariharan R. Manager Bipin R. Shah Director V. R. Narasimhan Company Secretary Kotak Mahindra Asset Management Company Limited 326

328 Profit and Loss Account for the year ended 31st March, 2007 As per our attached report of even date For Deloitte Haskins and Sells Chartered Accountants R. Salivati Partner Mumbai Dated: 27th April, 2007 Schedule For and on behalf of the Board of Directors Narayan S. A. Director Hariharan R. Manager April 2006 to March 2007 Rupees Bipin R. Shah Director April 2005 to March 2006 Rupees Income Management fees (Gross) 455,380, ,632,601 (TDS Rs. 28,632,737, Previous Rs. 21,862,360) Portfolio Advisory Services (Gross) 71,692,040 25,714,451 (TDS Rs. 2,283,908.28, Previous Rs. 430,181) Income from Investments 9 15,303,704 7,596,237 Other income 10 1,879,108 6,126,183 Total 544,255, ,069,472 Expenditure Employee costs ,109, ,528,805 Administrative and Other expenses ,901, ,196,588 Depreciation 16,253,034 13,043,982 Total 438,263, ,769,375 Profit before tax 105,991,642 78,300,097 Excess provision for Taxation of earlier years written back 989 Provision for taxation Current Tax (including Wealth Tax provision Rs. 100,000 Previous Rs. 55,000) (35,710,000) (25,586,000) Deferred Tax 2,408,620 1,481,116 Fringe Benefit Tax (4,400,000) (3,550,484) Profit after tax 68,291,251 50,644,729 Profit/(Loss) brought forward from previous year 18,854,993 18,532,467 Less: Transitional Adjustment on account of Revised AS-15 (Refer Note II (F) of Schedule 13) Accumulated Leave Balances (8,520,301) Gratuity (459,490) Deferred Tax Asset thereon 3,022,597 (5,957,194) Premium on Buy Back of Equity Shares (Refer Note II (M) of Schedule 13) (12,600,000) 68,589,050 69,177,196 Appropriations Interim Dividend paid 40,800,000 Corporate Dividend Tax There on 5,722,200 Transfer to General Reserve 3,800,000 Transfer to Capital Redemption Reserve 42,000,000 Profit carried to Balance Sheet 26,589,050 18,854,996 Basic and Diluted earnings per share of Face value of Rs. 10 each (in Rs.) (Refer Note II (G) of Schedule 13) Significant Accounting Policies and Notes to the Accounts 13 V. R. Narasimhan Company Secretary Kotak Mahindra Asset Management Company Limited 327

329 Schedules forming part of the Balance Sheet Schedule 1 : Share Capital As at 31st March, 2007 Rupees As at 31st March, 2006 Rupees Authorised 2,50,00,000 equity shares of Rs. 10/- each 250,000, ,000,000 Issued, subscribed and paid-up 19,800,000 (Previous 2,40,00,000) equity shares of Rs. 10/- each, fully paid-up 198,000, ,000,000 (Refer Note II (M) of Schedule 13) All the above shares are held by Kotak Mahindra Bank Ltd., the holding company and its nominees. Schedule 2 : Reserves and Surplus Capital Redemption Reserve Opening Balance Transfer from Profit & Loss Account 42,000,000 Closing Balance 42,000,000 General Reserve Opening Balance 3,800,000 Transfer from Profit & Loss Account 3,800,000 Closing Balance 3,800,000 3,800,000 Balance in Profit and Loss Account 26,589,050 18,854,996 72,389,050 22,654,996 Schedule 3 : Fixed Assets Description Gross Block Depreciation Net Block As on Additions Deductions As on As on For the year Deductions As on As on Rupees As on A. Intangible Assets Software 7,647,696 2,495,944 10,143,640 4,275, ,533 4,517,147 5,626,493 3,372,082 B. Tangible Assets Leasehold Improvement 13,359,518 1,809, ,256 14,617,152 4,113,675 5,771, ,947 9,525,276 5,091,876 9,245,843 Computers 20,933,315 5,582,289 1,424,719 25,090,885 16,137,854 5,894,497 1,390,212 20,642,139 4,448,746 4,795,461 Office Equipments 8,843, ,504 78,953 9,355,342 4,191,222 1,329,411 25,264 5,495,369 3,859,973 4,652,569 Furniture & Fixtures 1,677, ,761 1,873,633 1,201, ,110 1,451, , ,233 Vehicles 9,605,788 9,355,836 4,232,144 14,729,480 3,225,911 2,765,935 2,292,982 3,698,864 11,030,616 6,379,877 Total 62,067,980 20,030,224 6,288,072 75,810,132 33,145,915 16,253,034 4,068,405 45,330,544 30,479,588 Previous year 43,508,541 24,125,910 5,566,471 62,067,980 22,724,722 13,043,982 2,622,789 33,145,915 28,922,065 Kotak Mahindra Asset Management Company Limited 328

330 Schedules forming part of the Balance Sheet (Contd.) Schedule 4 : Investments (Non-trade, unquoted, fully paid): As at 31st March, 2007 Rupees As at 31st March, 2006 Rupees Long Term Investments (at cost) In Equity Shares of Other Companies 36,000 (Previous 36,000) Equity shares of face value of Rs. 10/- each, of Kotak Mahindra Prime Ltd. * 59,715,000 59,715,000 Debentures / Bonds of Other Companies 950,000 (Previous 950,000), 8.5% Fully Convertible Debentures of Face Value of Rs. 100/- each, of Kotak Mahindra Investments Ltd. * 95,000,000 95,000,000 * Also Companies under the same management Current Investments (at lower of cost or net realisable value) Investment in Units of Mutual Fund 10,320, Units (Previous 6,200, ) units of Kotak Mahindra Liquid Scheme Institutional Premium Plan, Daily Dividend Option of Rs. 10/- each 126,200,079 75,821,375 Total 280,915, ,536,375 Note: In addition to the above, following investments were purchased as well as sold during the year: Particulars Investment in Units of Mutual Fund 40,728, (Previous 39,746, ) units of Kotak Mahindra Liquid Scheme - Institutional Premium Plan, Daily Dividend Option of Rs. 10/- each 498,028, ,022,521 Schedule 5 : Sundry Debtors (Unsecured, considered good) Debts outstanding for less than six months 32,577,211 35,057,017 Total 32,577,211 35,057,017 Note:- Due from Companies under the same management Kotak Mahindra Old Mutual Life Insurance Limited Outstanding 1,409,679 Maximum Outstanding 10,221,488 1,409,679 Kotak Securities Ltd. Outstanding 6,155,752 Maximum Outstanding 6,155,752 Kotak Mahindra (International) Limited Outstanding 5,902,048 Maximum Outstanding 5,902,048 5,902,048 Kotak Mahindra (UK) Limited Outstanding 2,107,640 Maximum Outstanding 11,848,586 Schedule 6 : Cash and Bank Balances Balances with scheduled banks in current accounts 8,382,065 3,212,975 Total 8,382,065 3,212,975 Kotak Mahindra Asset Management Company Limited 329

331 Schedules forming part of the Balance Sheet (Contd.) Schedule 7 : Loans and Advances (Unsecured, considered good) As at 31st March, 2007 Rupees As at 31st March, 2006 Rupees Loans to employees 479, ,647 Inter-corporate Deposits Advance payment of taxes and Tax deducted at source (Net of provision for taxation of Rs. 71,523,625, (Previous Rs. 9,171,982) 5,000,000 25,128,102 23,333,283 Advances recoverable in cash or in kind or for value to be received 15,332,728 7,326,583 Other Deposits 7,969,460 7,702,986 Note: Total 48,909,711 43,631,499 Due from Companies under the same management Kotak Mahindra Old Mutual Life Insurance Limited Outstanding 156,598 Maximum Outstanding 156, ,303 Kotak Mahindra Trustee Company Limited Outstanding Maximum Outstanding 1,548,021 1,474,287 Kotak Mahindra Investments Limited Outstanding 5,487,672 Maximum Outstanding 5,172, ,390,548 Schedule 8 : Current Liabilities and Provisions Current liabilities Sundry creditors (Other than Small Scale Industries) 125,663,150 67,199,544 Other liabilities 4,874,792 10,222,841 Total 130,537,942 77,422,385 Provisions Gratuity 4,877,877 4,335,170 Accumulated Leave Balances 10,160,592 Wealth Tax 102,197 57, ,140,666 4,392,367 Total 145,678,608 81,814,752 Kotak Mahindra Asset Management Company Limited 330

332 Schedules forming part of the Profit and Loss Account Period ended 31st March, 2007 Rupees Period ended 31st March, 2006 Rupees Schedule 9 : Income from Investments Interest on Long term Investments (Gross) :- 8,075, ,716 (TDS Rs. 1,812,030, Previous Rs. Nil) Dividend from Current Investments 7,228,704 6,822,521 Total 15,303,704 7,596,237 Schedule 10 : Other Income Interest on Deposits (Gross):- 124,316 5,335,068 (TDS Rs. 27,897, Previous Rs. 1,197,189) Interest on loans to staff 42,632 38,794 Interest on income-tax refunds 796,559 Profit on sale of fixed assets (net) 259, ,296 Miscellaneous income 655, ,025 Total 1,879,108 6,126,183 Schedule 11 : Employee Costs Salaries and allowances (Refer Note II (I) of Schedule 13) 218,972, ,167,156 Contribution to provident and other funds 7,350,262 4,900,597 Staff welfare 2,283,297 2,095, ,606, ,162,788 Less: Recovery of common establishment expenses 4,496,556 2,633,983 Total 224,109, ,528,805 Schedule 12 : Administrative and Other Expenses Rent, rates and taxes 20,293,065 20,354,543 Insurance 1,831, ,562 Legal and professional fees 8,421,150 6,733,099 Reimbursement of common administrative cost 4,703,398 3,211,512 Travel and conveyance 19,858,085 16,037,690 Communication expenses 12,399,660 17,137,431 Business promotion and distribution costs 95,667,256 63,165,214 Printing and stationery 4,479,618 9,141,736 Membership subscription 6,704,700 4,874,034 Electricity 3,495,279 3,347,740 Computer and software related expenses 4,244,769 3,352,015 Directors sitting fees 532, ,500 Repairs and maintenance 1,877, ,171 Recruitment Expenses 764,865 2,117,848 Audit fees 500, ,000 Tax audit fees 150, ,000 In any other manner Certification 450,000 Service tax on above services 134,640 66,300 Service tax input credit (134,640) (66,300) 1,100, ,000 Office upkeep expenses 5,913,843 4,872,233 Miscellaneous expenses 6,083,582 4,739, ,370, ,695,935 Less: Recovery of common administrative expenses 469, ,347 Total 197,901, ,196,588 Kotak Mahindra Asset Management Company Limited 331

333 Schedules Forming Part of the Balance Sheet and the Profit and Loss Account Schedule : 13 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. Use of Estimates The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including current liabilities) as of the date of the financial statements, the reported income and expenses during the reporting period and disclosure of contingent liabilities. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. C. 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, where applicable, and investments made by the Company in the respective scheme), and are in conformity with the limits specified under SEBI (Mutual Funds) Regulations, Portfolio Advisory Service income is recognized on accrual basis as per the terms of the contract. 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. D. 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 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%. E. INTANGIBLE ASSETS Intangible Assets (Software) is amortised over a period of three years, on a Straight Line Method. F. 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. G. EMPLOYEE BENEFITS (a) (b) Provident fund is a defined contribution scheme and the contributions as required by the statute to Government Provident Fund are charged to profit and loss account when due. Actuarial gains/losses are immediately taken to the profit and loss account and are not deferred. Kotak Mahindra Asset Management Company Limited 332

334 Schedules Forming Part of the Balance Sheet and the Profit and Loss Account (Contd.) (c) (d) (e) Gratuity liability is defined benefit obligation and is wholly unfunded. The Company accounts for liability for future gratuity benefits based on actuarial valuation subject to maximum of Rs lakhs. Superannuation fund is a defined contribution scheme. The Company contributes a sum equivalent to 15%, subject to a maximum of Rs lakhs, of eligible employees salary to Superannuation Fund administered by trustee and managed by a life insurance company. The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognized during the period when the employee renders the service. These benefits include performance incentives and compensative absences on paid annual leave. 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 using tax rates and laws that are enacted or substantively enacted as on the balance sheet date, 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 years. I. OPERATING LEASE Leases, where the lessor retains substantially all the risks and benefits of ownership over the lease term, are classified as Operating Leases. Operating Lease rentals are recognized as an expense over the lease period. J. 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. K. 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. L. SCHEME EXPENSES Expenses of schemes of Kotak Mahindra Mutual Fund in excess of the stipulated rates are required to be borne by the company, in accordance with the requirements of SEBI (Mutual Fund) Regulations, 1996, and as such, are charged to the Profit and Loss account. M. TREATMENT OF CONTINGENT LIABILITIES Provision involving substantial degree of estimation in measurement are recognized when there is a present obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent Liabilities are not recognized but are disclosed in the notes. Contingent assets are neither recognized nor disclosed in the financial statements. II. NOTES TO THE ACCOUNTS A. Contingent Liability During the previous year the Company has received a demand of Rs. 2,985,377 and Rs. 922,075 on account of Income tax for the assessment year and The said amount is disputed and the Company has preferred an appeal against the same and the same is not provided for. The assessing officer has adjusted refund due for assessment year against demand of assessment year of Rs. 2,985,377. An amount of Rs. 922,075 has been paid to the credit of the central government towards demand of assessment year The above referred demand amounts are shown as a part of Advance payment of taxes and Tax deducted at source under Schedule 7 - Loans and Advances. B. Estimated amount of contracts remaining to be executed on capital account and not provided for Rs. 932,370 (Previous year Rs. 1,322,553). Kotak Mahindra Asset Management Company Limited 333

335 Schedules Forming Part of the Balance Sheet and the Profit and Loss Account (Contd.) C. Managerial remuneration under Section 198 of the Companies Act 1956 to the Manager for the year: Rs Rs. Salaries & Allowances 1,575,298 1,338,458 Contribution to provident and other funds * 216,980 45,600 Perquisites in cash or in kind 30,741 49,329 Total 1,823,019 1,433,387 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. However, the gratuity paid during the year to a manager who resigned w.e.f , is included 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: Expenditure in Foreign Currency on traveling Rs. 687,733 (Previous year Rs. 569,983). Earnings in Foreign Currency Portfolio Advisory Fees Rs. 35,400,414 (Previous year Rs. 18,756,076 ). Exchange Gain Rs. 36,435 (Previous year Rs. 25,861). E. The year-end foreign currency exposures which have not been hedged by a derivative instrument or otherwise. Amounts receivable in foreign currency on account of export of service Rs. $ 2,107,640 48, (5,936,894) (132,899.00) F. Employee Benefits The Company has chosen to early adopt revised Accounting Standard 15 (AS 15) Employee Benefits which is mandatory from accounting period beginning on or after December 7, As per the transitional provision of AS 15, the difference in the liability on account of employee benefits created by the Company amounting to Rs. 5,957,194 (net of deferred tax effect of Rs. 3,022,597) has been adjusted against the profit brought forward. Previous years figures have not been disclosed as this is the first year of implementation of this accounting standard and comparable data is not available. Reconciliation of opening and closing balance of the present value of the defined benefit obligation for gratuity benefits is given below. As of 31st March, 2007 Rs. Change in Unfunded benefit obligations Present value of unfunded benefit obligations, 1st April ,794,660 Service cost 1,142,077 Interest cost 341,939 Actuarial (gain)/loss on obligations 2,000,361 Benefits paid (3,401,160) Present value of unfunded benefit obligations as at 31st March, ,877,877 Reconciliation of present value of the obligation and the fair value of the plan assets Rs. Fair value of plan assets as at 31st March, 2007 Present value of benefit obligations as at 31st March, ,877,877 Net asset/(liability) as at 31st March, ,877,877 Cost recognised for the period Current service cost 1,142,077 Interest cost 341,939 Expected return on plan assets Actuarial (gain)/loss 2,000,361 Net gratuity cost 3,484,377 Kotak Mahindra Asset Management Company Limited 334

336 Schedules Forming Part of the Balance Sheet and the Profit and Loss Account (Contd.) Actuarial assumptions used Discount rate 8.20% p.a. Expected rate of return on Plan Assets 0% Salary escalation rate 15% p.a. for first 2 years, 10% p.a. for next 2 years & 6% p.a. thereafter The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market. G. 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.) (b) Net profit available to Equity Shareholders (Rs.) 68,291,249 50,644,729 (c) Weighted average number of shares outstanding 23,470,685 24,000,000 (d) Basic and Diluted EPS (Rs.) = (b)/(c) (annualised) H. Operating Leases: The company has taken office and residential premises under operating lease or leave and license agreements. These are generally cancelable in nature and range between 11 months to 55 months. These leave and license agreements are generally renewable or cancelable at the option of the Company. The lease payments (net of recoveries) recognised in the profit and loss account is Rs. 8,729,347 (Previous Rs. 7,986,008). The future minimum lease payments under non-cancelable operating lease not later than one year Rs. Nil (Previous Rs. 6,337,500). I. At the Annual General Meetings of the holding company, Kotak Mahindra Bank Limited, the shareholders of the Bank had unanimously passed Special Resolutions on 28th July, 2000, 26th July, 2004 & 26th July, 2005, to grant options to the Eligible Employees of the Bank & its subsidiary companies. Pursuant to these resolutions, the following three Employees Stock Option Schemes had been formulated and adopted: (a) Kotak Mahindra Equity Option Scheme (b) Kotak Mahindra Equity Option Scheme (c) Kotak Mahindra Equity Option Scheme 2005 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. 11,229,722 (Previous Rs. 4,433,239) on account of such costs and the same is forming part of Employee costs under Schedule 11. J. Deferred Income taxes Components of net deferred tax balances are as follows: 31st March, 2007 Rs. 31st March, 2006 Rs. Deferred Tax Liabilities Interest Accrued but not due on Debentures (240,630) (238,294) (240,630) (238,294) Deferred Tax Assets Provisions 5,111,576 1,459,219 Depreciation on Fixed Assets 2,962,143 1,180,947 Net Deferred Tax Asset 7,833,089 2,640,166 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. Kotak Mahindra Asset Management Company Limited 335

337 Schedules Forming Part of the Balance Sheet and the Profit and Loss Account (Contd.) K. Segmental Reporting The segmental reporting disclosure as required by Accounting Standard (AS) 17 on Segment Reporting, issued by the Institute of Chartered Accountants of India has not been made. The Company s operations predominantly relate to providing investment management services to the schemes floated by Kotak Mahindra Mutual Fund and to other subsidiaries of Kotak Mahindra Bank Ltd. The risks and rewards relating to both these services are similar and hence there is no reportable business / geographic segment. L. Related Party Disclosures Parties where control exist: Holding Company Other related parties: Fellow Subsidiaries Key Management Personnel Others: Enterprises over which Key Management Personnel/relatives have significant influence Mutual Fund managed by the company Kotak Mahindra Bank Limited holds 100% of the share capital Uday S. Kotak along with relatives and entities controlled by him holds 51.46% of the equity share capital of Kotak Mahindra Bank Limited Kotak Mahindra Trustee Company Limited Kotak Mahindra Prime Limited Kotak Securities Limited Kotak Mahindra Capital Company Limited Kotak Mahindra Investments Limited Kotak Mahindra Old Mutual Life Insurance Limited Kotak Mahindra (International) Limited Kotak Mahindra (UK) Limited Mr. Uday S Kotak, Chairman Mr. Sandesh Kirkire, Chief Executive Officer Mr. Hariharan R, Manager Mr.Sukesh Khandelwal, Manager * Aero Agencies Limited Mr. Uday S Kotak Kotak Mahindra Mutual Fund * Resigned w.e.f Kotak Mahindra Asset Management Company Limited 336

338 Schedules Forming Part of the Balance Sheet and the Profit and Loss Account (Contd.) The following transactions were carried out with related parties in the ordinary course of business : Nature of Transaction Holding Company Fellow Subsidiaries Finance: Inter Corporate Deposits given - Kotak Mahindra Investments Ltd. (220,000,000.00) Kotak Securites Ltd. Maturity of Inter - Corporate Deposits given - Kotak Mahindra Investments Ltd. 5,000, (335,000,000.00) Kotak Securites Ltd. Interest on Inter-Corporate Deposits (accrual) - Kotak Mahindra Investments Ltd. 124, (5,335,068.00) Kotak Securites Ltd. Key Management Personnel Enterprises over which Director/ relatives/key Management Personnel have significant influence Kotak Mahindra Mutual Fund Outstandings: Inter Corporate Deposits given - Kotak Mahindra Investments Ltd. (5,000,000.00) Interest Receivable - Kotak Mahindra Investments Ltd. (487,672.00) Balance in Current Account 7,735, (1,835,205.00) Investments: Purchases/Subsriptions 498,028, (154,715,000.00) (486,022,520.58) Sales 447,650, (513,450,000.00) Dividend 7,228, (6,822,520.58) Interest on Debentures Kotak Mahindra Investments Ltd. 8,075, (707,945.00) Interest Receivable on Debentures Kotak Mahindra Investments Ltd. 8,782, (707,945.00) Balance as on end Kotak Mahindra Prime Limited:Equity Shares 59,715, (59,715,000.00) Kotak Mahindra Investments Ltd.:Debentures 95,000, (95,000,000.00) Kotak Mahindra Investments Ltd. : ICD (5,000,000.00) Kotak Mahindra Asset Management Company Limited 337

339 Schedules Forming Part of the Balance Sheet and the Profit and Loss Account (Contd.) Nature of Transaction Holding Company Fellow Subsidiaries Key Management Personnel Enterprises over which Director/ relatives/key Management Personnel have significant influence Kotak Mahindra Mutual Fund Investment in Units 126,200, (75,821,375.00) Fixed Assets: Purchase of Fixed assets Kotak Mahindra Old Mutual Life Insurance Limited (248,764.00) Kotak Securites Ltd. (232,625.00) Sale of Fixed Assets - 143, (713,825.00) Kotak Mahindra Capital Company Ltd. (210,261.00) Other Receipts and Payments: Recovery of common establishment expenses - Kotak Mahindra Trustee Company Ltd. 4,496, (2,633,983.00) Recovery of common administrative expenses - Kotak Mahindra Trustee Company Ltd. 282, (299,430.00) Miscellaneous Income - Kotak Mahindra Trustee Company Ltd. 73, (71,604.00) Reimbursement of Common administrative cost - 4,703, (3,211,511.00) Other Expenses/Reimbursement of other expenses - 23,881, (25,848,222.00) Kotak Securites Ltd. (181,351.00) Kotak Mahindra Capital Company Ltd. 671, (666,049.00) Kotak Mahindra Old Mutual Life Insurance Limited 571, (1,317,411.67) Kotak Mahindra Prime Limited 42, (47,642.00) Management Fees Income 455,380, (353,632,601.00) Payments to Mutual Fund 18,850, (7,757,763.24) Reciepts from Mutual Fund 2,782, (42,508,995.99) License Fees Paid - 8,989, (9,956,094.00) Kotak Securites Ltd. 715, (666,687.00) Kotak Mahindra Asset Management Company Limited 338

340 Schedules Forming Part of the Balance Sheet and the Profit and Loss Account (Contd.) Nature of Transaction Holding Company Fellow Subsidiaries Key Management Personnel Enterprises over which Director/ relatives/key Management Personnel have significant influence Kotak Mahindra Mutual Fund Kotak Mahindra Capital Company Ltd. 1,107, (1,056,624.00) Kotak Mahindra Old Mutual Life Insurance Limited 415, (272,666.00) Kotak Mahindra Prime Limited 18, (14,424.00) Aero Agencies Cost of travel tickets purchased (Net of Discount ) 5,525, (7,974,223.50) Remuneration to Key Management Personnel Sandesh Kirkire * 10,489, (8,559,369.00) Sukesh Khandelwal ** 538, (1,433,387.00) Hariharan R * 1,284, Fee based expense Kotak Securites Limited 201, (214,878.00) License Fees Received 732, (550,824.00) Advisory Fees Kotak Mahindra International Limited 4,133, (18,756,076.66) Kotak Mahindra (UK) Limited 31,266, Kotak Securites Limited 18,000, (5,000,000.00) Kotak Mahindra Old Mutual Life Insurance Limited 18,291, (1,958,374.00) Miscellaneous Receipts 345, (205,188.66) Kotak Mahindra Old Mutual Life Insurance Limited (312,976.00) Kotak Securites Limited 15, (676,381.00) Kotak Mahindra Trustee Company Ltd. 22, Miscellaneous Payments - 55,330, (502,685.30) Kotak Mahindra Old Mutual Life Insurance Limited 913, (200,000.00) Kotak Securites Limited 188, (367,135.00) Outstandings Receivables 24,313, (27,745,290.12) Kotak Mahindra Asset Management Company Limited 339

341 Schedules Forming Part of the Balance Sheet and the Profit and Loss Account (Contd.) Nature of Transaction Holding Company Fellow Subsidiaries Key Management Personnel Enterprises over which Director/ relatives/key Management Personnel have significant influence Kotak Mahindra International Limited (5,902,047.94) Kotak Mahindra (UK) Limited 2,107, Kotak Securites Ltd. 6,155, Kotak Mahindra Old Mutual Life Insurance Limited (1,566,277.43) Outstandings - Payables 3,722, (4,453,008.00) Kotak Securites Ltd. (186,817.00) Kotak Mahindra Capital Company Ltd. (308,419.00) Kotak Mahindra Prime Limited 3, (932.00) Kotak Mahindra Old Mutual Life Insurance Limited 244, Aero Agencies Private Limited 176, (33,464.00) Kotak Mahindra Mutual Fund (*) Excludes provision of gratuity, since it is based on actuarial valuation done on an overall basis. (**) The gratuity paid during the year is included in the remuneration shown above as the manager resigned w.e.f Figures in bracket indicate previous years figures. M. The shareholders at the Extraordinary General Meeting held on 10th January 2007 authorised the buy back of 4,200,000 equity shares under section 77A of the Companies Act, 1956, at a price of Rs. 13 per share. The Company has utilised the surplus in the Profit & Loss account for this purpose. Further a sum of Rs. 42,000,000 has been transferred to Capital Redemption Reserve in terms of the said section. N. The Company has not received any intimation from its vendors regarding their status under Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosures, if any, required under the said Act have not been made. O. Comparative financial information (ie the amounts and other disclosures for the preceding year presented above), is included as an integral part of the current year s financial statements, and is to be read in relation to the amounts and other disclosures relating to the current year. Figures of the previous year have been regrouped/ reclassified wherever necessary to correspond to the figures of the current year. P. Figures have been rounded off to the nearest rupee. For Deloitte Haskins and Sells Chartered Accountants R. Salivati Partner Mumbai Dated: 27th April, 2007 For and on behalf of the Board of Directors Narayan S. A. Director Hariharan R. Manager Bipin R. Shah Director V. R. Narasimhan Company Secretary Kotak Mahindra Asset Management Company Limited 340

342 Balance Sheet Abstract and Company s General Business Profile as per Part IV, Schedule VI of the Companies Act, I. Registration details Registration Number State Code 1 1 Balance Sheet Date Date Month II. III. 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 Secured Loans Unsecured Loans N I L N I L Application of Funds Net Fixed Assets Investments Deferred Tax Asset Net Current Assets Miscellaneous Expenditure Accumulated losses N I L N I L IV. Performance of Company (Amount in Rs. Thousands) Turnover 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 A S S E T M A N A G E M E N T For and on behalf of the Board of Directors Narayan S. A. Director Hariharan R. Manager Bipin R. Shah Director V. R. Narasimhan Company Secretary Kotak Mahindra Asset Management Company Limited 341

343 Cash Flow Statement for the year ended 31st March 2007 As per our attached report of even date For Deloitte Haskins and Sells Chartered Accountants Rupees For and on behalf of the Board of Directors Rupees A) Cash Flow from Operating Activities Net Profit before taxation and extraordinary items 105,991,642 78,300,097 Add / (Less) Adjustments for: Depreciation 16,253,034 13,043,982 Provision for gratuity and Leave Encashment 1,723,508 1,073,009 Interest / Dividend (15,428,020) (12,931,305) Profit / Loss on sale of assets (259,741) (278,296) Operating Profit Before Working Capital Changes 108,280,423 79,207,487 (Increase) / Decrease in loans and advances (3,278,898) 115,294,626 (Increase) / Decrease in Sundry Debtors 2,479,806 (22,282,389) Increase / (Decrease) in Provisions 45,000 (5,956) Increase / (Decrease) in Current liabilities 58,837,756 29,953,951 58,083, ,960,232 Cash Generated from Operations 166,364, ,167,719 Financial Expenses Payment of Taxes (Net of refund) (36,753,213) (24,212,138) Fringe Benefit Tax (5,150,617) (3,550,484) Net Cash Flow from Operating Activities (A) 124,460, ,405,097 B) CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed assets (owned) (18,273,951) (23,340,845) Advance paid towards Capital Purchase (1,960,770) (1,756,273) Sale of Fixed assets (owned) 2,479,408 3,221,978 Purchase of Investments (498,028,704) (640,737,521) Sale of Investments 447,650, ,370,000 Interest received 1,936,346 5,846,858 Dividend received 7,228,704 6,822,521 Net Cash Flow from Investment Activities (B) (58,968,967) (134,573,282) C) Cash Flow From Financing Activities Dividend / Dividend Tax paid (5,722,200) (40,800,000) Buy Back of Equity Shares (42,000,000) Premium on Buy back of Equity Shares (12,600,000) Net Cash Flow from Financing Activities (C) (60,322,200) (40,800,000) Net Increase/(Decrease) in Cash & Cash Equivalents (A + B + C) 5,169,090 (968,185) Cash & Cash Equivalents at the Beginning of the 3,212,975 4,181,160 Cash & Cash Equivalents at the End of the 8,382,065 3,212,975 Note: 1. Cash and cash equivalent include : Cash on hand Bank Balances 8,382,065 3,212,975 Total cash and cash equivalents 8,382,065 3,212, The Cash Flow Statement has been prepared under the Indirect Method as set out in the Accounting Standard-3 on Cash Flow Statement issued by the Institute of Chartered Accountants of India. 3. The corresponding amounts of previous year have been re-grouped, wherever necessary. R. Salivati Partner Mumbai Dated: 27th April, 2007 Narayan S. A. Director Hariharan R. Manager Bipin R. Shah Director V. R. Narasimhan Company Secretary Kotak Mahindra Asset Management Company Limited 342

344 Board of Directors: Mr. Amit K. Desai (C), Mr. Girish C. Sharedalal, Mr. Anirudha Barwe, Mr. Tushar A. Mavani, Mr. Chandrashekhar Sathe Director s Report To the Members of Kotak Mahindra Trustee Company Limited The Directors present their Twelfth Annual Report together with the audited accounts of your Company for the year ended March 31, FINANCIAL RESULTS (Rs. In Lakhs) Gross Income Profit before Tax Provision for Tax (210.17) (120.01) Profit after Tax Profit brought forward from previous year Profit carried to Balance Sheet The Management fee income of your company has increased by 65% along with an increase of 65% in the Average AUM during the year. The overall expenditure of the company has increased by 64% largely due to increase in compliance/administrative cost. The net impact of the above has resulted in the increase in the Profit after tax in the current year by 81%. 2. DIVIDEND Your Directors do not recommend any dividend. 3. HIGHLIGHTS OF PERFORMANCE During the year under review, the mainstream debt schemes of the Fund continued their commendable performance. Lipper Fund Awards India 2007 adjudged Kotak Bond Regular Plan-Growth as Best Fund over Five years in the Bond Indian Rupee General Category. Kotak Mutual Fund also received the Best Fund group over three year in the Bond category from Lipper Fund Awards India Debt schemes of Kotak Mahindra Mutual Fund also won two awards at the ICRA Mutual Fund Awards The Kotak Flexi Debt Fund was ranked ICRA - MFR 1 and awarded the Gold Award for Best Performance in the category of Open Ended Debt - Short Term for one-year period ending December 31, The Kotak Bond Short Term Plan was ranked ICRA - MFR 1 and awarded the Gold Award for Best Performance in the category of Open Ended Debt - Short Term for three-year period ending December 31, The debt schemes managed by Kotak Mahindra Mutual Funds have received over 13 Performance awards over the past seven years from CNBC, CRISIL, OUTLOOK MONEY, ICRA online and Lipper Fund Awards. Kotak Mutual Fund was also adjudged the Best Mutual Fund and received NDTV Profit Business Leadership Award in the Mutual Fund category. The performance of the diversified equity schemes (Kotak 30, Kotak Midcap, Kotak Opportunities) remained satisfactory. During the year under review, Kotak 30, Kotak Opportunities, Kotak Midcap, Kotak Tax Saver, Kotak Global India declared dividends to their unitholders. The total Assets Under Management ( AUM ) of the Fund as on March 31, 2007 were Rs. 12,125 crores, as compared to Rs. 10,409 crores as of March 31, 2006, a growth of 16.48%. The number of folios as on March 31, 2007 was more than 5.36 lakhs as compared to over 4.0 lakhs as of March 31, NEW SCHEMES LAUNCHED DURING The year saw the launch of several new schemes, increased distribution reach and market expansion. Schemes Scheme Type Collections (Rs. in crores) Kotak Flexi FOF Series I and II Fund of Funds 687 Kotak Dynamic Asset Allocation Scheme Close ended Balanced Scheme 673 Kotak Twin Advantage - Series 2 and 3 Close ended debt scheme 410 Kotak Wealth Builder Series 1 Close ended debt scheme 283 Kotak Emerging Equity Scheme Close ended Equity scheme 251 Kotak FMP Series (Cumulative)* Fixed Maturity Plans 7401 Total 9705 * 27 Fixed Maturity Plans were launched during the year. GEOGRAPHICAL EXPANSION: In order to reach out to more and widely dispersed investors, we increased our presence from 47 to 57 locations across 17 states, and empanelled more than 3480 new agents/distributors during the last financial year. 5. MANAGEMENT DISCUSSION AND ANALYSIS Industry structure, developments and segment wise performance Market related developments The total Assets Under Management (AUM) for the Mutual Fund Industry as on 31st March, 2007 stood at Rs 3,26,388 crores (Rs. 2,31,862 crores as on 31st March, 2006), which is a 41% growth over the last year. Total Equity AUM as on 31st March, 2007, was Rs. 1,32,707 crores as against Rs. 1,06,949 as on 31st March, 2006, a growth of 24%. The year saw over 30 New Fund Offers (NFO s) in the openended Equity growth schemes segment which contributed significantly in the Equity AUM growth in industry. This year also witnessed new kind of product structures with capital protection oriented schemes being offered by fund houses. The year also saw launch of two Gold ETF Schemes. Interest rates were on the upward move through the financial year The RBI has affected progressive hikes in the benchmark rates as well as the reserve requirements. This impacted both debt and equity markets alike. Kotak Mahindra Trustee Company Limited 343

345 Director s Report (Contd) 10 yr bond yields which opened the year at 7.55%, closed at around 8% on 31st March, Likewise equity markets failed to deliver performance akin to last year with the Sensex posting around 11% returns for the year ended 31st March, Rising Interest rates may act as a dampener to the overall sentiment, but it is likely to be temporary in nature and the long-term bull market signs still remain intact. Fundamentals still continue to favour a strong earnings momentum. Internal control systems and their adequacy Before the launch of any new scheme, the Trustee reviews the adequacy of internal controls, audit and systems through checks carried out by professionals specialising in the mutual fund sphere. An independent firm of Chartered Accountants carries out continuous internal audit of operations of mutual fund, regulatory compliance and adequacy of internal controls. An Audit Committee oversees the Internal Audit carried out by an Independent Internal Audit team. 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 services of KMAMCL. 6. DIRECTORS During the year, nine meetings of the board of directors were convened to review the affairs of the existing schemes, state of compliance with regulations and to consider launch of new schemes. Mr. Tushar Mavani retires by rotation at the Annual General Meeting and being eligible, offers himself for re-appointment. 7. AUDITORS Your Company s Auditors, Messrs Price Waterhouse, Chartered Accountants, Mumbai, retire at the Annual General Meeting and are eligible for re-appointment. 8. 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. 9. DIRECTORS RESPONSIBILITY STATEMENT Based on representations from the Management of KMAMCL who is entrusted with maintenance of the books of account of your Company, in pursuance of Section 217 (2AA) of the Companies Act, 1956, we state that: (i) Your Company has, in the preparation of the annual accounts for the year ended 31st March 2007, 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 profit and fair view of the state of affairs of your Company as at 31st March 2007 and of the Profit and loss of your Company for the financial year ended 31st March, 2007; (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. 10. AUDIT COMMITTEE Pursuant to SEBI circular MFD/CIR/010/024/2000 dated January 17, 2000, your Company has constituted an Audit Committee of the Board consisting of Mr. Girish Sharedalal, Mr. Amit Desai, Mr. Anirudha Barwe and Mr. Tushar Mavani. Mr. Girish Sharedalal, Independent Director on the Board, is the Chairman of the Audit Committee. The committee met five times during the year to review accounts, operations and compliance relating to schemes. 11. 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. Place : Mumbai Date : 27th April, For and on behalf of the Board of Directors Girish Sharedalal Anirudha Barwe Director Director Kotak Mahindra Trustee Company Limited 344

346 Auditor s 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 March 31, 2007, 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 have 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 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, given 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 March 31, 2007; (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 the 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 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 March 31, 2007, and taken on record by the Board of Directors of the Company, none of the Directors of the Company is disqualified as on March 31, 2007 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, as amended by the Companies (Auditor s Report) (Amendment) Order, 2004, issued by the Central Government of India in terms of subsection (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 not granted any loans, secured or unsecured, to companies, firms or other parties covered in the register maintained under Section 301 of the Act. (b) The Company has not taken any loans, secured or unsecured, 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 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 in respect of sale of services. 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 been informed of any instance of major weaknesses in the internal control system. (iii) In our opinion and according to the information and explanations given to us, there were no transactions during the year that need to be entered into the register in pursuance of Section 301 of the Act. (iv) The Company has not accepted any deposits from the public under the provision 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) (a) 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, in our opinion the Company is generally regular in depositing undisputed statutory dues in respect of investor education and protection fund, income-tax, sales-tax, wealth tax, service tax, customs duty, excise duty, cess and other material statutory dues as applicable with the appropriate authorities in India. As informed by the Management, the provisions of the Employees Provident Fund and Miscellaneous Provisions Act, 1952 of India and the Employees State Insurance (General) Regulations, 1950 of India are not applicable to the Company during the year. (b) According to the information and explanations given to us, as at March 31, 2007, there are no dues which have not been deposited on account of any dispute in respect of income-tax, sales tax, wealth tax, service tax, customs duty, excise duty and cess. Kotak Mahindra Trustee Company Limited 345

347 Auditors Report (Contd.) (vii) The Company has neither accumulated losses as at March 31, 2007 nor has it incurred any cash loss either during the financial year ended on that date or in the immediately preceding financial year. (viii) The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities. (ix) The Company is dealing in securities for which proper records have been maintained of the transactions 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. (x) 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. (xi) 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 practices 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 such case by the Management. (xii) The other clauses of the Companies (Auditor s Report) Order 2003, as amended by the Companies (Auditor s Report) (Amendment) Order, 2004 issued by the Central Government of India, are not applicable to the Company during the year. Place: Mumbai Date : 27th April, 2007 Vivek Prasad Partner Membership No. F For and on behalf of PRICE WATERHOUSE Chartered Accountants Kotak Mahindra Trustee Company Limited 346

348 Balance Sheet as at March 31, 2007 March 31, 2007 March 31, 2006 Schedule Rupees Rupees Sources of Funds Shareholders Funds: Capital 1 500, ,700 Reserves and Surplus 2 122,214,451 75,786, ,715,151 76,287,207 Deferred Tax Liability (Net) (Refer Schedule 7 - Note 3) 126, ,400 Total 122,841,801 76,411,607 Application of Funds Investments 3 113,920,288 72,587,290 Current Assets, Loans and Advances Trusteeship Remuneration Receivable 6,069,145 4,161,617 Cash and Bank Balances 4 197, ,392 Interest Accrued on Debentures 3,668, ,603 Loans and Advances 5 297, ,943 10,233,684 4,766,555 Less: Current Liabilities And Provisions Liabilities 6 1,312, ,238 1,312, ,238 Net Current Assets 8,921,513 3,824,317 Total 122,841,801 76,411,607 Notes to the financial statements 7 This is the Balance Sheet referred to in our report of even date Vivek Prasad Partner Membership No. F For and on behalf of the Board of Directors For and on behalf of Price Waterhouse Girish Sharedalal Anirudha Barwe Chartered Accountants Director Director Mumbai. Date: 27th April, 2007 Kotak Mahindra Trustee Company Limited 347

349 Profit and Loss Account for the Ended March 31, 2007 Income April 1, 2006 to April 1, 2005 to March 31, 2007 March 31, 2006 Schedule Rupees Rupees Trusteeship fees - Gross (Tax deducted at source Rs. 4,037,870 (Previous year Rs. 2,397,418)) 64,176,187 38,779,091 Dividend on units of mutual fund 2,339,710 1,098,456 Interest on debentures - Gross (Tax deducted at source Rs. 953,700 (Previous year Rs. Nil)) 4,250, ,603 Profit on sale of current investments 2,776,288 1,156,976 Total 73,542,185 41,407,126 Expenditure Compliance and administrative 4,569,690 2,705,587 Directors sitting fees 552, ,000 Legal and professional 427, ,282 Rent, rate and taxes 282, ,897 Auditors remuneration (Refer Schedule 7 - Note 5) 127, ,320 Insurance 77,484 54,705 Miscellaneous 60,404 9,884 Total 6,096,991 3,732,675 Profit Before Tax 67,445,194 37,674,451 Provision For Taxation Current tax 21,015,000 11,876,900 Deferred tax 2, ,400 Profit After Tax 46,427,944 25,673,151 Profit and loss account balance brought forward from previous year 75,603,507 49,930,356 Profit and loss account balance carried forward to the Balance Sheet 122,031,451 75,603,507 Earnings per share - Basic and Diluted Face Value of Rs. 10 each (Refer Schedule 7 - Note 9) Notes to the financial statements 7 This is the Profit and Loss Account referred to in our report of even date Vivek Prasad Partner Membership No. F For and on behalf of the Board of Directors For and on behalf of Price Waterhouse Girish Sharedalal Anirudha Barwe Chartered Accountants Director Director Mumbai. Date: 27th April, 2007 Kotak Mahindra Trustee Company Limited 348

350 Schedules Forming Part of The Balance Sheet March 31, 2007 March 31, 2006 Rupees Rupees Schedule 1: 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 122,031,451 75,603, ,214,451 75,786,507 Schedule 3: Investments Long Term Investments: (Non Trade) (At Cost) Unquoted, fully paid up 500,000 (Previous year - 500,000) debentures of Rs. 100 each of Kotak Mahindra Investments Ltd 50,000,000 50,000,000 (rate of interest 8.5% per annum) Current Investments: (At Cost or Market Value whichever is lower) Unquoted, fully paid up Nil (Previous - 2,151, ) units of Rs. 10 each of Kotak Mahindra Floating Rate Scheme - Growth Option 22,329,962 2,599, (Previous - Nil) units of Rs. 10 each of Kotak Mahindra Flexi Debt Scheme - Dividend Option 26,170,179 3,521, (Previous year - Nil) units of Rs. 10 each of Kotak FMP 3 M Series - 11 Dividend option 35,212, , (Previous - 21, ) units of Rs. 10 each of Kotak Mahindra Liquid Scheme Institutional Plan - Daily Dividend Option 2,538, , ,920,288 72,587,290 Aggregate value of unquoted investments - At book value 113,920,288 72,587,290 Schedule 4: Cash and Bank Balances Balances with scheduled banks in current account 197, , , ,392 Schedule 5 : Loans and Advances (Unsecured, considered good) Advances recoverable in cash or in kind or for value to be received 90,287 93,028 Advance payment of tax and tax deducted at source (Net of provision for taxation of Rs. 41,943,821 (Previous Rs. 20,928,821)) 207,522 23, , ,943 Schedule 6 : Current Liabilites Sundry creditors* (other than small scale industrial undertakings) 1,312, ,238 1,312, ,238 There are no amounts due and outstanding to be credited to Investor Education and Protection Fund * Includes Rs. 250,000 (Previous year Rs. 250,000) received from Kotak Mahindra Bank Limited towards corpus of Kotak Mahindra Mutual Fund Kotak Mahindra Trustee Company Limited 349

351 Schedules Forming Part of the Balance Sheet and the Profit and Loss Account Schedule 7 : Notes to the Financial Statements 1. Significant Accounting Policies (a) (b) (c) (d) The financial statements are prepared under the 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. 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 investment in mutual funds, the net asset value of units is considered as market/fair value. Revenue is recognised when no significant uncertainty as to measurability or collectability exists. 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 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 Liabilities: Taxation matters in respect of which appeal is pending Rs. 132,394 (Previous : Nil) 3. Components of deferred tax balances March 31, 2007 March 31, 2006 Rupees Rupees Deferred tax liability Interest accrued and not due on debentures (126,650) (125,400) Deferred tax asset Unabsorbed capital loss 1,000 Net deferred tax liability (126,650) (124,400) In assessing the realisibility 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 realised. Based on the level of historical taxable income and projections for future taxable income over the period in which deferred tax assets are deductible, Management is of the view that it is more likely than not that the Company will realise the benefits of these deductible differences. 4. The following Investments have been purchased and sold during the year: Purchase Sale Units of Rs. 10 each of Kotak Mahindra Floating Rate Scheme - Growth Option 2,151, Units of Rs. 10 each of Kotak Mahindra Flexi Debt Scheme - Dividend Option 2,599, Units of Rs. 10 each of Kotak FMP 3M series 11 Scheme - Dividend Option 3,521, Units of Rs. 10 each of Kotak Mahindra Liquid Scheme Institutional Plan - Daily Dividend Option 5,003, ,817, Auditors remuneration: March 31, 2007 March 31, 2006 Rupees Rupees Audit fees 100, ,000 Other services 25,000 25,000 Out of pocket expenses 2, , , 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 March 31, 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 March 31, 2007 and the Profit and Loss Account for the year ended March 31, 2007 pertain to one business segment. Kotak Mahindra Trustee Company Limited 350

352 Schedules Forming Part of the Balance Sheet and the Profit and Loss Account Schedule 7 : Notes to the Financial Statements (Contd.) 8. Related Parties Disclosures: (I) Relationships (During the year) (II) A. Related Parties where control exists: Nature of relationship Holding Company Related Party Kotak Mahindra Bank Limited (Holds 100% of the equity share capital) Uday S. Kotak along with relatives and companies controlled by him holds 51.46% of the equity share capital of Kotak Mahindra Bank Limited B. Other Related Parties: (i) Fellow Subsidiaries: Kotak Mahindra Asset Management Company Limited (KMAMC) Kotak Mahindra Investments Limited (KMIL) (ii) Mutual Fund managed by Fellow Subsidiary Kotak Mahindra Mutual Fund (KMMF), managed by Kotak Mahindra Asset Management Company Limited The following transactions were carried out with related parties in the ordinary course of business Nature of Transactions Holding Company Fellow Subsidiary Mutual Fund Managed Company by Fellow Subsidiary (KMMF) Rupees Rupees Rupees Finance Outstanding Bank Balance 143,351 (104,280) ( ) ( ) Investments Purchase/Subscription of Units 122,570,960 ( ) ( ) (38,913,456) Sale/Redemption of Units 84,014,250 ( ) ( ) (65,706,570) Dividend received from investment in Units 2,339,710 ( ) ( ) (1,098,456) Purchase/Subscription of Debentures (KMIL) ( ) (50,000,000) ( ) Interest on Debentures (KMIL) 4,250,000 ( ) (372,603) ( ) Income Trusteeship Fees 64,176,187 ( ) ( ) (38,779,091) Other Receipts and Payments Reimbursement of Expenses (KMAMC) 4,851,858 ( ) (3,005,017) ( ) Outstandings Receivables 6,069,145 ( ) ( ) (4,161,617) Payables 250,000 (250,000) ( ) ( ) Interest accrued on Debentures (KMIL) 3,668,903 ( ) (372,603) ( ) Figures in brackets relate to the previous year. 9. Earnings Per Share: March 31, 2007 March 31, 2006 Profit after tax (Rupees) (A) 46,427,944 25,673,151 Weighted average number of equity shares (B) 50,070 50,070 Earnings per Share - basic and diluted (Rupees) (A/B) Nominal Value of Equity Share (Rupees) Kotak Mahindra Trustee Company Limited 351

353 Schedule 7: Notes to the Financial Statements (Contd.) 10. BALANCE SHEET ABSTRACT AND COMPANY S GENERAL BUSINESS PROFILE I. Registration Details Registration Number State code 1 1 II. Balance Sheet Date Date Month Capital raised during the year (Amount in Rs. Thousands) Public Issue Rights Issue N I L N I L III. IV. 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 Secured Loans Unsecured Loans N I L N I L Deferred Tax Liability Application of Funds Net Fixed Assets Investments N I L Net Current Assets Miscellaneous Expenditure N I L 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 N A (ITC Code) Product Description T R U S T E E F O R M U T U A L F U N D S 11. Previous year s figures have been reclassified, wherever necessary, to confirm with current year s classification Signatures to schedules 1 to 7 forming an integral part of the financial statements For and on behalf of the Board of Directors Vivek Prasad Partner Membership No. F For and on behalf of Price Waterhouse Girish Sharedalal Anirudha Barwe Chartered Accountants Director Director Mumbai. Date: 27th April, 2007 Kotak Mahindra Trustee Company Limited 352

354 Cash Flow Statement for the year ended March 31, 2007 CASH FLOW FROM OPERATING ACTIVITIES Rupees Rupees Rupees Rupees Profit before taxation 67,445,194 37,674,451 Adjustments for: Dividend income (2,339,710) (1,098,456) Interest on debentures (4,250,000) (372,603) Profit on sale of current investments (2,776,288) (1,156,976) OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 58,079,196 35,046,416 (Increase) / Decrease in trusteeship remuneration receivable (1,907,528) (1,222,368) (Increase) / Decrease in loans and advances 2,741 40,464 Increase / (Decrease) in current liabilities 369,933 (189,270) (1,534,854) (1,371,174) CASH GENERATED FROM OPERATIONS 56,544,342 33,675,242 Payment of taxes (net of refunds) (20,244,907) (11,797,418) NET CASH FROM OPERATING ACTIVITIES (A) 36,299,435 21,877,824 CASH FLOW FROM INVESTING ACTIVITIES (Purchase) / Sale of Investments(net) (38,556,710) (23,206,886) Dividend received 2,339,710 1,098,456 NET CASH FROM / (USED) IN INVESTMENT ACTIVITIES (B) (36,217,000) (22,108,430) CASH FLOW FROM FINANCING ACTIVITIES (C) NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS (A + B + C) 82,435 (230,606) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 115, ,998 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 197, ,392 (82,435) 230,606 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. This is the Cash Flow Statement referred to in our report of even date For and on behalf of the Board of Directors Vivek Prasad Partner Membership No. F For and on behalf of Price Waterhouse Girish Sharedalal Anirudha Barwe Chartered Accountants Director Director Mumbai. Date: 27th April, 2007 Kotak Mahindra Trustee Company Limited 353

355 BOARD OF DIRECTORS : MR. DIPAK GUPTA (C), MR. C. JAYARAM, MS.SHANTI EKAMBARAM, MR.JAIMIN BHATT, MR.K.V.S. MANIAN, MR. R. SUNDARRAMAN Directors Report The Directors present their Nineteenth Annual Report together with the audited accounts of the Company for the year ended 31st March I. FINANCIAL HIGHLIGHTS II. (Rs. in lakhs) For the year ended 31st March 2007 (Rs. in lakhs) For the year ended 31st March 2006 Gross Income Profit before tax Provision for tax Profit after tax Net Profit after tax carried to Balance Sheet THE BUSINESS OF THE COMPANY Your Company is engaged in holding long term strategic investments, 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 minimal 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. Your Company last year had purchased NPA portfolios from the companies in various sectors and also ventured into advisory services of distress companies. This activity had generated steady stream on fee based income for your company. Your Company is the sponsor and the Investment Manager of Kotak Mahindra Realty Fund (KMRF) and its scheme Kotak India Real Estate Fund I (KIREF-I). KMRF is registered with Securities and Exchange Board of India as a venture capital fund with a corpus over Rs. 450 Crore. V. MANAGER Mr. Sachin Samant had been appointed as the Manager of the Company for a period of two years i.e. up to 1st July VI. COMMITTEES AUDIT COMMITTEE The Audit Committee consists of Mr. Dipak Gupta, Ms. Shanti Ekambaram and Mr. Jaimin Bhatt, with any two members forming the quorum. ALCO COMMITTEE ALCO consists of (1) Ms. Shanti Ekambaram, (2) Mr. Jaimin Bhatt, (3) Mr. Sachin Samant, and (4) Mr. K. G. Subramanian with any one member each from the first two and the last two members forming the quorum. Members of ALCO meet every month to discuss various issues for the effective management of the assets and liabilities of the Company. VII. 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. VIII. DEBENTURE TRUSTEES UTI Bank Limited and IDBI Trusteeship Services Limited act as the Debenture Trustees for the redeemable non-convertible debentures issued under the Shelf Information Memorandum dated February 12, IX. 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. The Company did not 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. III IV. DIVIDEND With a view to conserve your Company s resources, the Directors do not recommend any Dividend (Previous : Nil) DIRECTORS Mr. Dipak Gupta and Mr. K.V.S. Manian, Directors, retire by rotation at the Nineteenth Annual General Meeting and, being eligible, offer themselves for re-appointment. X. DIRECTORS RESPONSIBILITY STATEMENT The Directors, based on the representations received from the 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; Kotak Mahindra Investments Limited 354

356 ii) iii) 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 31st March 2007 and of the profit of the Company for the financial year ended 31st March 2007; 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. Mumbai, 2nd May, 2007 For and on behalf of the Board of Directors Dipak Gupta Chairman Kotak Mahindra Investments Limited 355

357 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 31st March, 2007 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, as amended thereafter issued by the Central Government of India in terms of subsection (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. (iv) 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; (v) 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 31st March, 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, (vi) 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) (b) (c) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2007; in the case of 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. 4. Further to our comments in the Annexure referred to above, we report that: (i) (ii) 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; (iii) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; Place: Mumbai Date: 2nd May, 2007 For V. C. Shah & Co. Chartered Accountants V. C. Shah Partner Membership No.: Kotak Mahindra Investments Limited 356

358 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 inventory of the Company consists of units of mutual fund. The physical verification of inventory has been conducted at reasonable intervals by the management. (b) In our opinion, the procedure of physical verification of inventory 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 inventory 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), (d), (e), (f) & (g) 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 systems commensurate with the size of the Company and the nature of its business, for purchase of units and fixed assets. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control systems. 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 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, service 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, service 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 in 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 or bank or debenture holders. xii. In our opinion and according to the information and explanations given to us, the company has maintained adequate records in cases of loans and advances granted 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 clause 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. The company has not taken any term loans during the year under report. 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 long term investments. 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 or charge, 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 Place: Mumbai Date: 2nd May, 2007 V. C. Shah Partner Membership No.: Kotak Mahindra Investments Limited 357

359 Balance Sheet as at 31st March, 2007 As at 31st March 2007 Rs. in thousands As at 31st March 2006 Rs. in thousands Schedule Sources of Funds 1. Shareholders Funds (a) Share Capital (1) 30,503 30,503 (b) Reserves and Surplus (2) 1,346,872 1,078, Loan Funds (a) Secured (3) 862,000 71,500 (b) Unsecured (4) 5,445,000 6,310,000 Total 7,684,375 7,490,247 Application of Funds 1. Fixed Assets (a) Gross Block 9,221 8,348 (b) Less: Depreciation 4,681 1,802 (c) Net Block (5) 4,540 6, Investments (6) 387,503 1,496, Current Assets, Loans and Advances (a) Stock-in-trade (7) 1,528, ,030 (b) Cash and Bank Balances (8) 211,845 49,671 (c) Loans and Advances (9) 6,151,645 6,178,472 (d) Interest accrued on Investments 3,155 7,892,025 6,421,328 Less: Current Liabilities and Provisions (a) Current Liabilities (10) 382, ,634 (b) Provisions (11) 268, , , ,486 Net Current Assets 7,240,486 5,986, Deferred Tax Asset (12) 51, Total 7,684,375 7,490,247 Significant Accounting Policies and Notes to the Financial Statements (19) As per our attached report of even date For V. C. Shah & Co. Chartered Accountants For and on behalf of the Board of Directors V. C. Shah Ashutosh Naik Dipak Gupta Jaimin Bhatt Partner Company Secretary Director Director Mumbai Dated: 2nd May, 2007 Kotak Mahindra Investments Limited 358

360 Profit and Loss Account for the ended 31st March, 2007 Schedule For the year ended 31st March 2007 Rs. in thousands For the year ended 31st March 2006 Rs. in thousands Income Interest Income (13) 780, ,554 Income from investments (14) 125,776 51,501 Profit on trading in securities (15) 109,614 39,596 Fee Income 91,580 36,971 Recoveries in excess of cost of NPAs purchased 37,859 16,614 Other Income Total 1,146, ,442 Expenditure Personnel (16) 67,163 36,501 Interest and Finance Charges (17) 648, ,740 Administrative and Operating Expenses (18) 68,816 28,337 Provisions / Write offs (net of recovery) 2, Total 786, ,377 Profit before Depreciation and Tax 359, ,066 Depreciation (2,879) (1,390) Profit before Tax 356, ,676 Provision for Taxation : Current Tax (137,300) (114,200) Deferred Tax 51,630 (164) Fringe Benefit Tax (500) (351) Profit after Tax 270, ,960 Prior Period Income 305 Prior s Tax Adjustments (8,102) (458) 262, ,807 Balance brought forward from previous year 789, ,290 Transitional Adjustments under revised AS-15 Provision for Gratuity (Refer Note No. II (5) of Schedule 19) (280) Provision for Accumulated Compensated Absences (1,089) (Refer Note No. II (5) of Schedule 19) Profit available for appropriation 1,050, ,098 Appropriations Interim Dividend 18,302 Corporate Dividend Tax 2,567 Transfer to General Reserve 27,800 Transfer to Capital Redemption Reserve 100,000 Transfer to Special Reserve under section 45IC of Reserve Bank of India, Act ,000 55,600 Surplus carried to Balance Sheet 996, ,829 1,050, ,098 Earnings per share - (Refer Note No. II (11) of Schedule 19) Basic & Diluted Significant Accounting Policies and Notes to the Accounts (19) As per our attached report of even date For V. C. Shah & Co. Chartered Accountants For and on behalf of the Board of Directors V. C. Shah Ashutosh Naik Dipak Gupta Jaimin Bhatt Partner Company Secretary Director Director Mumbai Dated: 2nd May, 2007 Kotak Mahindra Investments Limited 359

361 Cash Flow Statement for the year ended 31st March, 2007 Particulars Amount Rupees in thousands Amount Rupees Amount Rupees in thousands in thousands Amount Rupees in thousands Cash Flow From Operating Activities Net Profit before taxation and extraordinary items 356, ,676 Adjustments for : Depreciation 2,879 1,390 (Profit) / Loss on Long Term Investments (119,893) (27,115) (Profit) / Loss on Current Investments (2,878) (20,974) Interest on Long Term Investments (3,005) (3,412) Prior Period Income 305 Provisions / Write offs 2, Operating Profit Before Working Capital Changes 236, ,669 (Increase) / Decrease in Stock in trade (1,338,505) 1,044,167 (Increase) / Decrease in Loans and Advances 73,854 (650,077) (Increase) / Decrease in Interest accrued on Investments 3,155 1,891 (Increase) / Decrease in Miscellaneous Expenditure 7,199 Increase / (Decrease) in Current Liabilites 173, ,100 Increase / (Decrease) in Provision for Gratuity and Leave encashment 5, Cash generated from / (used in) Operations (846,036) 852,091 (Income Taxes paid) / Refund Received (162,658) (82,850) Net Cash generated from / (used in) Operating Activities (A) (1,008,694) 769,240 Cash Flow from Investing Activities Interest on Long term Investment 3,005 3,412 Purchase of Investment (295,912) (1,285,808) Sale of Investment 1,527, ,076 Purchase of Fixed Assets (875) (6,244) Net Cash (used in) / from Investing Activities (B) 1,234,041 (1,182,564) Cash Flow from Financing Activities Redemption of Preference Shares (100,000) Increase / (Decrease) in Secured Loan 790,500 (7,500) Received Securities Premium (Net) 11,328 Increase / (Decrease) in Unsecured Loan (865,000) 345,000 Interim Dividend paid (20,868) Net Cash from Financing Activities (C) (63,172) 216,632 Net Increase / (Decrease) in Cash & Cash equivalents (A + B + C) 162,174 (196,693) Cash & Cash equivalents at the beginning of the year 49, ,364 Cash & Cash equivalents at the end of the year 211,845 49,671 Notes: 1. Cash and cash equivalents include : ( D ) 162,174 (196,693) Cash on hand Bank Balances 71,845 49,671 Fixed Deposits 140,000 Total cash and cash equivalents 211,845 49, 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 previous year s figures have been re-grouped, wherever necessary in order to conform to this year s presentation. As per our attached report of even date For and on behalf of the Board of Directors For V. C. Shah & Co. Chartered Accountants V. C. Shah Ashutosh Naik Dipak Gupta Jaimin Bhatt Partner Company Secretary Director Director Mumbai Dated: 2nd May, 2007 Kotak Mahindra Investments Limited 360

362 Schedules forming part of the Balance Sheet as at 31st March, 2007 Schedule 1 - Share Capital 31st March 2007 Rs. in thousands 31st March 2006 Rs. in thousands As at 31st March 2007 Rs. in thousands As at 31st March 2006 Rs. in thousands Authorised 58,000,000 Equity Shares of Rs. 10/- each 580, ,000 1,200 Non Cumulative Redeemable Preference Shares of Rs. 1,00,000/- each 120, ,000 Total 700, ,000 Issued, Subscribed and Paid up 3,050,280 Equity Shares of Rs. 10/- each fully paid up 30,503 30,503 All the above shares are held by Kotak Mahindra Bank Ltd, the holding company, and its nominees Total 30,503 30,503 Schedule 2 - Reserves And Surplus General Reserve As per last Balance Sheet 43,110 15,310 Add: Transferred from Profit and Loss Account 27,800 43,110 43,110 Special Reserve Under Section 45 IC of the Reserve Bank of India Act, 1934 As per last Balance Sheet 144,920 89,320 Add: Transferred from Profit and Loss Account 54,000 55, , ,920 Capital Redemption Reserve As per last Balance Sheet 100, Add: Additions during the year 100, , ,385 Securities Premium Account As per last Balance Sheet Add: Received during the year on issue of debentures (net of taxes) 20,445 1,430 Less: Expenses on issue of debentures adjusted 9,117 1,430 Less: Tax effect on receipts and expenses 3,813 7,515 Profit and Loss Account Balance in Profit and Loss Account 996, ,829 Total 1,346,872 1,078,244 Schedule 3 - Secured Loans 772 (P.Y. 143 ) Secured Redeemable Non Convertible Debentures 862,000 71,500 fully paid, privately placed Secured by way of charge on specified receivables of the company, in favour of the Trustees and are redeemable at par Total 862,000 71,500 Kotak Mahindra Investments Limited 361

363 Schedules forming part of the Balance Sheet as at 31st March, 2007 (Contd.) The details of debentures are as under: Description Amount Rs. in thousands Amount Rs. in thousands (P.Y.) Redemption Date 4 Debentures of Rs. 5,00,000 each Sep-07 4 Debentures of Rs. 5,00,000 each Oct-07 4 Debentures of Rs. 5,00,000 each Oct-07 5 Debentures of Rs. 5,00,000 each Oct-07 4 Debentures of Rs. 5,00,000 each Oct-07 4 Debentures of Rs. 5,00,000 each Oct Debentures of Rs. 5,00,000 each Oct-07 4 Debentures of Rs. 5,00,000 each Nov-07 2 Debentures of Rs. 5,00,000 each Nov-07 4 Debentures of Rs. 5,00,000 each Nov-07 6 Debentures of Rs. 5,00,000 each Nov Debentures of Rs. 5,00,000 each Nov-07 4 Debentures of Rs. 5,00,000 each Nov-07 6 Debentures of Rs. 5,00,000 each Nov Debentures of Rs. 5,00,000 each May Debentures of Rs. 5,00,000 each May-08 2 Debentures of Rs. 5,00,000 each May-08 4 Debentures of Rs. 5,00,000 each May-08 8 Debentures of Rs. 5,00,000 each May Debentures of Rs. 5,00,000 each May Debentures of Rs. 5,00,000 each May Debentures of Rs. 5,00,000 each Jun Debentures of Rs. 5,00,000 each Jun Debentures of Rs. 5,00,000 each Jun Debentures of Rs. 5,00,000 each Jun-08 3 Debentures of Rs. 5,00,000 each Jun Debentures of Rs. 5,00,000 each Jun-08 2 Debentures of Rs. 5,00,000 each Jun-08 9 Debentures of Rs. 5,00,000 each Jun-08 4 Debentures of Rs. 5,00,000 each Jul-08 4 Debentures of Rs. 5,00,000 each Jul Debentures of Rs. 5,00,000 each Jul-08 4 Debentures of Rs. 5,00,000 each Jul-08 6 Debentures of Rs. 5,00,000 each Aug-08 6 Debentures of Rs. 5,00,000 each Aug-08 4 Debentures of Rs. 5,00,000 each Aug-08 4 Debentures of Rs. 5,00,000 each Aug-08 4 Debentures of Rs. 5,00,000 each Aug-08 5 Debentures of Rs. 5,00,000 each Aug-08 2 Debentures of Rs. 5,00,000 each Aug-08 8 Debentures of Rs. 5,00,000 each Aug-08 4 Debentures of Rs. 5,00,000 each Aug-08 2 Debentures of Rs. 5,00,000 each Aug Debentures of Rs. 5,00,000 each Aug-08 Kotak Mahindra Investments Limited 362

364 Schedules forming part of the Balance Sheet as at 31st March, 2007 (Contd.) Description Amount Rs. in thousands Amount Rs. in thousands (P.Y.) Redemption Date 10 Debentures of Rs. 5,00,000 each Aug-08 4 Debentures of Rs. 5,00,000 each Jan-09 2 Debentures of Rs. 5,00,000 each Jan-09 4 Debentures of Rs. 5,00,000 each Jan-09 2 Debentures of Rs. 5,00,000 each Jan-09 2 Debentures of Rs. 5,00,000 each Jan-09 6 Debentures of Rs. 5,00,000 each Jan-09 6 Debentures of Rs. 5,00,000 each Jan Debentures of Rs. 25,00,000 each Jul Debentures of Rs. 25,00,000 each Aug-09 2 Debentures of Rs. 5,00,000 each Oct-09 4 Debentures of Rs. 5,00,000 each Oct-09 2 Debentures of Rs. 5,00,000 each Oct-09 4 Debentures of Rs. 5,00,000 each Oct-09 2 Debentures of Rs. 5,00,000 each Oct-09 2 Debentures of Rs. 5,00,000 each Aug-06 4 Debentures of Rs. 5,00,000 each Aug-06 4 Debentures of Rs. 5,00,000 each Aug-06 2 Debentures of Rs. 5,00,000 each Aug-06 2 Debentures of Rs. 5,00,000 each Aug-06 4 Debentures of Rs. 5,00,000 each Sep-06 9 Debentures of Rs. 5,00,000 each Sep-06 4 Debentures of Rs. 5,00,000 each Sep Debentures of Rs. 5,00,000 each Sep-06 3 Debentures of Rs. 5,00,000 each Sep-06 2 Debentures of Rs. 5,00,000 each Sep-06 2 Debentures of Rs. 5,00,000 each Sep-06 8 Debentures of Rs. 5,00,000 each Sep-06 2 Debentures of Rs. 5,00,000 each Sep-06 4 Debentures of Rs. 5,00,000 each Dec-06 2 Debentures of Rs. 5,00,000 each Dec-06 6 Debentures of Rs. 5,00,000 each Dec Debentures of Rs. 5,00,000 each Dec-06 2 Debentures of Rs. 5,00,000 each Dec-06 4 Debentures of Rs. 5,00,000 each Dec-06 4 Debentures of Rs. 5,00,000 each Dec-06 6 Debentures of Rs. 5,00,000 each Jan-07 2 Debentures of Rs. 5,00,000 each Jan-07 2 Debentures of Rs. 5,00,000 each Jan-07 2 Debentures of Rs. 5,00,000 each Jan-07 4 Debentures of Rs. 5,00,000 each Jan-07 2 Debentures of Rs. 5,00,000 each Jan-07 2 Debentures of Rs. 5,00,000 each Jan Debentures of Rs. 5,00,000 each Jan-07 Total 862,000 71,500 Kotak Mahindra Investments Limited 363

365 Schedules forming part of the Balance Sheet as at 31st March, 2007 (Contd.) Schedule 4 - Unsecured Loans As at 31st March 2007 Rs. in thousands As at 31st March 2006 Rs. in thousands Short Term Loans from others Unsecured Redeemable Non Convertible Debentures fully paid, privately placed (**) 5,300,000 5,960,000 Inter Corporate Deposits 205,000 Other Loans 1,450,000 (P.Y. 1,450,000) Unsecured Fully Convertible Debentures of Rs. 100/- each, 145, ,000 fully paid (Redeemable at par on or before, 28th February 2011, at the exercise of put or call option exercisable after 3 years from the date of allotment, being 28th February, If option to redeem is not exercised, the debentures shall be convertible in to equity shares of Rs. 10/- each on the maturity date, being 28th February 2011, at book value as per audited financials on 30th September, 2010.) Total 5,445,000 6,310,000 (**) The debentures are redeemable at par. There is a pari passu mortgage and charge in favour of the Trustees on the Company s immovable property costing Rs. 10,25,656. The details of unsecured debentures are as under: Description Amount Rs. in thousands Amount Rs. in thousands (P.Y.) 5,300 (P.Y. 5,960) Debentures of Rs. 10 lakh each 5,300,000 5,960,000 Total 5,300,000 5,960,000 Schedule 5 - Fixed Assets Description Gross Block Depreciation Net Block As at Additions during the year Deductions As at Upto For the period Upto As at (Rs. in thousands) As at Premises* 1,026 1, Office Equipment , Furniture and Fixtures Leasehold Improvements ** 2,428 2, ,514 2,428 1,514 Computers 1, , ,026 Vehicles 2, , ,035 2,307 Total 8, ,221 1,802 2,879 4,681 4,540 6,546 Previous 2,104 6,244 8, ,390 1,802 6,546 1,692 * Refer Note No. II (2) of Schedule 19 ** Refer Note No. II (3) of Schedule 19 Kotak Mahindra Investments Limited 364

366 Schedules forming part of the Balance Sheet as at 31st March, 2007 (Contd.) Rs. in thousands Face Value Rs. As at Quantity As at Amount (Rs.) As at Quantity As at Amount (Rs.) Schedule 6 - Investments (Non Trade) (I) LONG TERM: (At cost ) A. Quoted fully paid up Equity shares in: 3i Infotech Ltd ,000 5,695 Bharati Airtel Ltd 10 7,900 6,261 Centurion Bank of Punjab Ltd Corporation Bank Ltd Dewan Housing Finance Ltd DSP Merill Lynch Ltd Geojit Financial Services Ltd Global Broadcast News Ltd ,000 24,947 Great Offshore Limited 10 7,450 3,152 Gujarat Ambuja Cements Ltd. 2 45,000 6,276 HDFC Bank Ltd. 10 5,205 4, HDFC Ltd ICICI Bank Ltd ,205 32, IDBI Ltd IDEA Cellular Ltd ,000 13,979 India Infoline Ltd Indiabulls Financial Services Ltd JM Financial Ltd Larsen & Toubro Ltd. 2 11,500 18,669 LIC Housing Finance Ltd N K Industries Ltd ,800 2,334 Network 18 Ltd. 5 29,115 6,621 ONGC Ltd ,450 9,590 Reliance Capital Ltd. 10 7,505 5, Reliance Industries Ltd 10 10,900 14,918 State Bank of India Ltd. 10 8,100 7,930 SUN TV Ltd. 10 7,150 10,211 Sundaram Finance Ltd ,170 8, ,760 TV Eighteen Ltd. 5 16,143 1, ,501 UTI Bank Ltd Sub-total (A) 182,376 36,289 Kotak Mahindra Investments Limited 365

367 Schedules forming part of the Balance Sheet as at 31st March, 2007 (Contd.) B. Unquoted fully paid up Equity shares in: Face Value Rs. As at Quantity Rs. in thousands As at Amount (Rs.) As at Quantity As at Amount (Rs.) Business Standard Ltd ,891, ,382 14,891, ,382 Kotak Mahindra Prime Limited 10 1,188,400 1,209,827 Friday Content Solutions Limited 10 12,275 25,405 12,275 25,405 Amitabh Bachchan Corporation Ltd ,000 26, ,000 26,000 TAIB Capital Corporation Ltd ,000 1, ,000 1,554 Snowcem Paints Pvt. Ltd ,438 9,400 Less: Provision for Diminution (120,963) (120,963) Sub-total (B) 177,779 1,378,206 C. Debentures / Bonds 5.25% Rural Electrification Corporation Bonds 65,280 Sub-total (C) 65,280 D. Others Pass Through Certificates Corporate Loan Securitisation India Growth Fund - Class A Units , ,838 (Refer Note. II 1(b) of Schedule 19) Sub-total (D) 27,348 16,868 Total Long Term Investments (A +B+C) 387,503 1,496,643 Aggregate of Quoted Investments at cost 182,376 36,289 at market value 199,114 58,412 Aggregate of Unquoted Investments at cost 205,127 1,460,354 As at 31st March 2007 Quantity As at 31st March 2006 Quantity As at 31st March 2007 Rs. in thousands As at 31st March 2006 Rs. in thousands Schedule 7 - Stock-in-trade (At cost or market value, whichever is lower) Unquoted and fully paid up units in Kotak Mahindra Mutual Fund: Kotak Liquid (Institutional Premium) - Daily Dividend 125,001,801 15,540,403 1,528, ,030 Total 1,528, ,030 Kotak Mahindra Investments Limited 366

368 Schedules forming part of the Balance Sheet as at 31st March, 2007 (Contd.) As at 31st March 2007 Rs. in thousands As at 31st March 2006 Rs. in thousands Schedule 8 - Cash and Bank Balances Balances with Scheduled Banks in current accounts 71,845 49,671 in Fixed Deposit account 140,000 Total 211,845 49,671 Schedule 9 - Loans and Advances Advances recoverable in cash or in kind or for value to be received Secured, considered good 5,575,697 5,923,374 Secured, considered doubtful Less: Provisions for doubtful advances (188) (752) Unsecured, considered good 202,845 53,526 Unsecured, considered doubtful 1, Less: Provisions for doubtful advances (1,066) (752) Advance Taxes paid and tax deducted at source 245, ,451 Initial Margin - Equity / Index Derivative Instrument 86,518 5,122 Deposit for Mark to Market Margin - Equity / Index Derivative Instrument 40,750 Total 6,151,645 6,178,472 Schedule 10 - Current Liabilities Sundry Creditors 12,541 4,442 (Other than Small Scale Industrial undertakings) Interest accrued but not due 325, ,512 Other Liabilities 26,234 18,680 Book Overdraft 18,221 Total 382, ,634 Schedule 11 - Provisions Provision for Gratuity (Refer Note No. II (5) of Schedule 19) 1, Provision for Accumulated Compensated Absences (Refer Note No. II (5) of Schedule 19) 5,672 Provision for Taxation 261, ,275 Total 268, ,852 Schedule 12 - Deferred Tax Asset Deferred tax asset as at 1st April, 2006 (P.Y. 1st April, 2005) For the year 51,630 (164) Total 51, Kotak Mahindra Investments Limited 367

369 Schedules forming part of the Profit and Loss Account for the Ended 31st March, 2007 For the year ended 31st March 2007 Rs. in thousands For the year ended 31st March 2006 Rs. in thousands Schedule 13 - Interest Income Interest on Deposits and Loans (TDS Rs. 3,73,86,837-; P.Y. Rs. 2,20,42,554/-) 778, ,365 Interest - others (TDS Rs. 5,46,457/- ; P.Y. Rs. 49,061) 2, Total 780, ,554 Schedule 14 - Income from Investments Interest on Long Term Investments (TDS Rs. NIL; P.Y. Rs. NIL) 3,005 3,412 Profit on sale of Current Investments 2,878 20,974 Profit on Long Term Investments 119,893 27,115 Total 125,776 51,501 Schedule 15 - Profit on Trading In Securities Profit on trading in Options / Futures 66,304 19,835 Dividend on units of mutual funds 41,277 19,761 Dividend on Equity Shares / Investments 2,033 Total 109,614 39,596 Schedule 16 - Personnel Salaries, Allowances and Bonus 63,905 35,045 Contribution to Provident and Other Funds 2,227 1,027 Staff Welfare 1, Total 67,163 36,501 Schedule 17 - Interest and Finance Charges Interest on Debentures and Fixed period loans 648, ,359 Securities Issue expenses 5,357 Interest Others 118 Bank Charges Total 648, ,740 Schedule 18 - Administrative and Operating Expenses Travelling and Conveyance 8,301 2,845 Legal and Professional Charges 8,910 2,293 Arranger s Fees and Brokerage 7,083 3 Business Promotion Expenses 6,574 1,158 Rent Expense 7,824 3,254 Common Establishment Expenses - Reimbursements 20,089 15,022 Office expenses 5,223 2,905 Printing and Stationery 1, Auditor s Remuneration: Audit fees Tax Audit Fees In other capacity Commission to Non-wholetime Directors 2,400 Rates, Taxes and Fees Insurance Expenses 4 11 Miscellaneous Expenses Total 68,816 28,337 Kotak Mahindra Investments Limited 368

370 Schedules forming part of the Balance Sheet and Profit and Loss Account SCHEDULE 19 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. d. In respect of non performing assets purchased, collection in excess of consideration paid at each asset level or portfolio level is treated as income. C. FIXED ASSETS a. Fixed assets are 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, except in respect of premises, at rates higher than those prescribed under Schedule XIV to the Companies Act, 1956, based on the management s estimates of the useful lives of all assets as follows: Asset Type Useful life in years Premises 58* Leasehold Improvements Over the period of lease subject to a maximum of 6 years Office Equipment 5 Computers 3 Furniture and Fixtures 6 Vehicles 4 Items costing less than Rs. 5,000 are fully depreciated in the year of purchase. * Arising from commercial and technical considerations, the Company has revised the estimated useful life of premises from 30 years to 58 years with effect from 1st April In accordance with the Accounting Standard (AS) 6 Depreciation Accounting, the unamortized depreciable amount of the premises is charged to revenue over the revised remaining useful life. 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 The Income Tax expense comprise of Current tax, Deferred tax and Fringe Benefit tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income tax Act. Deferred tax adjustments comprises of changes in the deferred tax assets and liabilities. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences being Kotak Mahindra Investments Limited 369

371 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 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 judgment that realisation is more likely than not. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantially enacted before the balance sheet date. Changes in deferred tax assets/liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of the change. H. EMPLOYEE BENFITS a. Provident fund is a defined contribution scheme and the contributions as required by the statute to Government Provident Fund are charged to profit and loss account when due. b. Gratuity liability is defined benefit obligation and is wholly unfunded. The Company accounts for liability for future gratuity benefits based on actuarial valuation. c. Actuarial gains/losses are immediately taken to the profit and loss account and are not deferred. d. The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognized during the period when the employee renders the service. These benefits include performance incentives and compensated absences on paid annual leave. I. EQUITY INDEX/STOCK FUTURES: a. Initial Margin - Equity/Index Derivative Instrument representing the initial margin paid and /or additional margin paid over and above the initial margin, for entering into contracts for equity index/stock futures, which are released on final settlement/squaring up of the underlying contracts, are disclosed under Loans and Advances. b. Deposit for Mark to Market Margin - Equity/Index Derivative Instrument representing the deposit paid in respect of mark to market margin is disclosed under Loans and Advances. c. Equity Index/ Stock Futures are marked to market on a daily basis and the resultant unrealized loss is recognised in the profit and loss account. On final settlement or squaring up of contracts for equity index/ stock futures, the realised profit or loss after adjusting the unrealized loss already accounted, if any is recognised in the profit and loss account and shown as Profit/(Loss) on trading in Options/Futures. J. 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 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. K. SEGMENTAL ACCOUNTING In accordance with Accounting Standard 17 on Segment Reporting issued by the Institute of Chartered Accountants of India, the Company has determined the following segments with principal activities as under: Segment Lending Treasury and Investments Asset Management Principal Activity Financing against securities, Purchasing of Non-performing assets Borrowings, Derivatives and Investments Investment management activity related to Real Estate Funds. Since the business operations of the Company are concentrated in India, the Company is considered to operate only in the domestic segment. Kotak Mahindra Investments Limited 370

372 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) L. PROVISIONS, CONTINGENT LIABILITIES & CONTINGENT ASSETS Provisions involving substantial degree of estimation in measurement are recognised when there is present obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent liabilities are not recognised but disclosed in the notes. Contingent assets are neither recognised nor disclosed in financial statements. II. Notes To Accounts 1. CONTINGENT LIABILITIES: a. Claims made against the company not acknowledged as debts Rs. 5,00,000 (P.Y. Rs. 5,00,000). b. Uncalled liability on capital commitment in respect of units of India Growth Fund Class A Units Rs. 2,62,50,000/- (P.Y. Rs. 3,67,50,000/-). c. Taxation matters in respect of which appeals are pending, Rs. 61,84,547 (P.Y. Rs. NIL) 2. Consequent to the change in estimated useful life of premises, the depreciation charged for the current year was lesser by Rs. 17,088. The effective charge to profit and loss account after the change in estimated useful life is however higher than the minimum rate of depreciation as prescribed by the Companies Act, Leasehold improvements having written down value of Rs. 5,98,829 as on 31st March 2007, have been fully depreciated during the year. Consequently, the depreciation charge for the year is higher by Rs. 5,98,829 and correspondingly the profit for the year is lower by the said amount. 4. Open Interest in Equity Stock/Index Futures & Options: Equity Stock /Index Futures Expiration Date No. of Contracts Open Long (Short) Position (Number of Shares) As at 31st March 2007 S & P CNX Nifty 26-Apr ,48,500 S & P CNX Nifty 31-May ,850 As at 31st March 2006 S & P CNX Nifty 27-Apr ,900 The Company enters into index futures and option for the purpose of hedging. 5. Employee Benefit The company has adopted the revised AS 15 during the current financial year covering the recognition and measurement principles laid down therein. In view of the first time adoption, disclosures in respect of previous years have not been given. Reconciliation of opening and closing balance of the present value of the defined benefit obligation for gratuity benefits is given below. As at 31st March, 2007 Rs. in thousands Change in Unfunded benefit obligations Present value of unfunded benefit obligations, 1st April Current Service cost 16 Interest cost 61 Benefits paid Actuarial (gain)/loss on obligations 13 Liability acquired on employee transfer 575 Present value of unfunded benefit obligations as at 31st March, ,522 Kotak Mahindra Investments Limited 371

373 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Rs. in thousands Reconciliation of present value of the obligation and the fair value of the plan assets Fair value of plan assets as at 31st March, 2007 Present value of unfunded benefit obligations as at 31st March, ,522 Net asset/ (liability) as at 31st March, 2007 (1,522) Cost recognised for the period Current service cost 16 Interest cost 61 Expected return on plan assets Actuarial (gain)/loss 13 Net gratuity cost 90 Actuarial assumptions used Discount rate Salary escalation rate 8.20% p.a 15.0% p.a. for the first 2 years 10.0% p.a.for the next 2 years & 6% p.a. thereafter The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market. Gratuity In accordance with Payment of Gratuity Act, the Company provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee s salary and the years of employment with the Company subject to maximum of Rs lakhs. The gratuity benefit is provided through unfunded plan and annual contributions are charged to profit and loss account. Under the scheme, the settlement obligation remains with the Company. Provident fund In accordance with Indian regulations, employees of the Company are entitled to receive benefits under the provident fund, a defined contribution plan, in which, both the employee and the Company contribute monthly at a determined rate. These contributions are made to a recognised provident and administered by a Board of Trustees. The employee contributes 12% of his or her basic salary and the Company contributes an equal amount. The investments of the funds are made according to rules prescribed by the Government of India. Accumulated Compensated Absences The Company provides for accumulated compensated absences as at balance sheet using full cost method to the extent leave will be utilised and on basic pay to the extent leave will be encashed. As per the transitional provision of revised AS 15, the difference in the liability on account of employee benefits created by the Company amounting to Rs. 13,69,043 (net of tax effect) have been adjusted against the accumulated balance in profit and loss account. Kotak Mahindra Investments Limited 372

374 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 6. Components of net deferred tax asset as at 31st March 2007: Deferred Tax Assets As at 31st March 2007 Amount Rs. in thousands As at 31st March 2006 Amount Rs. in thousands Amalgamation Expenditure allowed over 5 years NIL 54 Depreciation Others Expenses allowable on payment basis 1, Interest provided on Debentures to be allowable on crystalisation of liability 49,604 NIL Provision for doubtful advances 175 NIL Total Deferred Tax Assets 51, Deferred Tax Liabilities NIL NIL Net Deferred Tax Asset/(Liability) 51, (a) Quantitative information in respect of trading in units of mutual funds: Description 31st March, st March, 2006 Quantity Amount Rs. in thousands Quantity Amount Rs. in thousands Kotak Liquid (Institutional Premium) Daily Dividend Opening Stock 1,55,40,403 1,90,030 10,09,31,216 12,34,197 Add: Purchases 10,65,20,66,856 13,02,54,539 4,43,21,77,642 5,41,97,111 Less: Sales 10,54,26,05,458 12,89,16,034 4,51,75,68,455 5,52,41,279 Closing Stock 12,50,01,801 15,28,535 1,55,40,403 1,90,030 (b) Quantitative information in respect of trading in equity shares: Description 31st March st March 2006 Quantity Amount Rs. in thousands Quantity Amount Rs. in thousands Opening Stock NIL NIL NIL NIL Add : Purchases NIL NIL Less : Sales NIL NIL Closing Stock NIL NIL NIL NIL 8. Managerial remuneration under section 198 of the Companies Act, 1956 to the Manager for the year: 31st March 2007 Rs. in thousands 31st March 2006 Rs. in thousands Salaries and Allowances 5,030 4,492 Contribution to Provident and Other Funds Employee s Stock Option Plan (Refer Note No.10) Total 5,873 4,768 Provision for Gratuity benefits which is based on actuarial valuation and Accumulated Compensated Absences, done on an overall basis for the Company is excluded in the remuneration shown above. Kotak Mahindra Investments Limited 373

375 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 9. Computation of net profit as per section 349 read with section 309 (4) and section 198 of the Companies Act, Rs. in thousands Rs. in thousands Profit before taxation as per Profit & Loss Account 356, ,676 Add: Depreciation as per financial statement 2,879 1,390 Managerial remuneration 5,873 4,768 Commission to Non-Wholetime Directors 2,400 - Provision for Doubtful Debts 1, Provision for Doubtful Debts no longer required (799) - Less: ,633 Depreciation under Section 350 of the Companies Act, ,390 Profit on sale of long Term Investments 119,893 27,115 Net Profit for Section 198 of Companies Act, ,128 Calculation of Commission to non-whole time of net profit as above in terms of Special Resolution passed at the Extra Ordinary General Meeting of the Members held on 30th April ,446 3,711 Determined and Limited by the Board of Directors to 2,400 NIL 10. During the year, the Company has paid Rs.33,02,638/- (P.Y. Rs.10,45,915/-) 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. 11. Earnings Per Share (EPS) the numerators and denominators used to calculate Basic and Diluted Earnings Per Share: Particulars 31st March 2007 Rs. in thousands 31st March 2006 Rs. in thousands Profit attributable to the Equity Shareholders (A) 2,70,583 2,77,960 Add: Interest net of tax on fully convertible Debentures (B) **- **- Diluted Profit attributable to the Equity Shareholders (A) + (B) = (C) 2,70,583 2,77,960 Basic/Weighted average number of equity shares outstanding during the year (D) 30,50,280 30,50,280 Add: Conversion of fully convertible debentures into shares **- **- Diluted number of Equity Shares outstanding during the year (E) 30,50,280 30,50,280 Nominal value of Equity Shares (Rs.) Basic & Diluted Earnings per share (Rs.) (A)/(D) ** The convertible debentures issued during the previous year are convertible on 28th February 2011 at the book value as at 30th September As the conversion, if made, would be at book value prevailing as on that date, the potential equity shares shall not have a dilutive effect and hence have been ignored for the purpose of calculation of diluted earnings per share. 12. (i) The Company has taken office premises and residential premises under operating leases or leave and licence agreements. The same are cancelable and range between 11 months to 60 months and are renewable by mutual consent on mutually agreeable terms. (ii) Lease payments recognized in Profit and Loss Account under the head Rent Expenses Rs. 50,66,931 (P.Y. 14,68,108/-). 13. The Company has not received any intimation from suppliers regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amounts unpaid as at the year end together with interest paid/payable as required under the said Act have not been given. 14. Segment Reporting: In accordance with Accounting Standard 17 on Segment Reporting issued by the institute of Chartered Accountants of India, the Company has determined business segments as outlined in para K of Significant Accounting Policies. Summary of the segments of the Company are: Kotak Mahindra Investments Limited 374

376 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Amount Rs. in thousands Amount Rs. in thousands Segment Revenue Lending 816, ,753 Treasury 237,726 70,676 Venture Fund Management 91,768 37,014 Total 1,146, ,442 Segment Results Lending 373, ,270 Treasury (21,198) 9,769 Venture Fund Management 9,949 3,521 Total 362, ,559 Less: Unallocable expenditure (5,654) (883) Total profit before tax 356, ,676 Segment Assets Lending 5,601,643 5,960,810 Treasury 2,406,359 1,769,709 Venture Fund Management 28,393 4,428 Total 8,036,395 7,734,947 Less: Inter-segment Assets 498, ,322 Total 7,537,554 7,011,625 Segment Liabilities Lending 8,799 6,438 Treasury 6,653,364 6,567,012 Venture Fund Management 19,226 11,800 Total 6,681,388 6,585,250 Less: Inter-segment Liabilities 498, ,322 Total 6,182,548 5,861,928 Unallocated Assets net of liabilities 22,373 (41,850) Capital Expenditure Lending Treasury Venture Fund Management 86 5,311 Total 873 6,244 Depreciation Lending 1, Treasury 3 Venture Fund Management 1, Total 2,879 1, Related Party Disclosures: A. RELATED PARTIES WHERE CONTROL EXISTS: Nature of relationship Related Party Holding Company Kotak Mahindra Bank Limited (KMBL) (Holds 100% of the equity share capital) Mr. Uday S. Kotak along with relatives and companies controlled by him holds 51.46% (P.Y %) of the equity share capital of KMBL Kotak Mahindra Investments Limited 375

377 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) B. OTHER RELATED PARTIES: (i) Fellow Subsidiaries: Kotak Securities Limited Kotak Mahindra Prime Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Trustee Company Limited Kotak Forex Brokerage Limited Kotak Mahindra Securities Limited (ii) Key Management personnel: Sachin Samant, Manager Shanti Ekambaram, Director Jaimin Bhatt, Director (iii) Enterprises over which directors/ key management personnel /relatives of key management personnel have significant influence: Business Standard Limited Ford Credit Kotak Mahindra Limited (till 4th October, 2005) (iv) Mutual Fund/Other Fund managed by Fellow Subsidiary/Holding Company Kotak Mahindra Mutual Fund managed by Kotak Mahindra Asset Management Company Ltd. India Growth Fund managed by Holding Company, Kotak Mahindra Bank Limited (v) Venture Capital Fund managed by the Company Kotak Mahindra Realty Fund The following transactions were carried out with related parties in the ordinary course of business: Nature of Transaction Holding Company Fellow Subsidiaries Key Management Personnel # Enterprises over which Directors have significant influence Mutual Fund/Other Fund managed by Fellow Subsidiary/ Holding Company Kotak Mahindra Realty Fund Total SHARE CAPITAL Redemption of preference shares (100,000) (100,000) FINANCE Inter Corporate Deposits taken (300,000) (300,000) Kotak Mahindra Securities Limited (80,000) (80,000) Kotak Mahindra Asset Management Company Limited (220,000) (220,000) Inter Corporate Deposits repaid 5,000 5,000 (415,000) (415,000) Kotak Mahindra Investments Limited 376

378 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Nature of Transaction Holding Company Fellow Subsidiaries Key Management Personnel # Enterprises over which Directors have significant influence Mutual Fund/Other Fund managed by Fellow Subsidiary/ Holding Company Kotak Mahindra Realty Fund Total Kotak Mahindra Asset Management Company Limited 5,000 5,000 (335,000) (335,000) Kotak Mahindra Securities Limited (80,000) (80,000) Interest paid on ICDs (5,633) (5,633) Kotak Mahindra Asset Management Company Limited (5,335) (5,335) Kotak Mahindra Securities Limited (298) (298) Debentures issued (145,000) (1,530) (146,530) Kotak Mahindra Asset Management Company Limited (95,000) (95,000) Kotak Mahindra Trustee Company Limited (50,000) (50,000) Shanti Ekambaram (1,530) (1,530) Jaimin Bhatt ( ) ( ) Debentures redeemed 1,530 1,530 (245,000) ( ) (245,000) Shanti Ekambaram 1,530 1,530 ( ) ( ) Interest paid on Debentures 12,325 (58) 12,267 (5,264) (1,081) (459) (6,804) Kotak Mahindra Asset Management Company Limited 8,075 8,075 (708) (708) Kotak Mahindra Trustee Company Limited 4,250 4,250 (373) (373) Kotak Mahindra Investments Limited 377

379 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Nature of Transaction Holding Company Fellow Subsidiaries Key Management Personnel # Enterprises over which Directors have significant influence Mutual Fund/Other Fund managed by Fellow Subsidiary/ Holding Company Kotak Mahindra Realty Fund Total Shanti Ekambaram (127) (127) (459) (459) Jaimin Bhatt ( ) ( ) Inter Corporate Deposits placed (1,000) (1,000) Kotak Forex Brokerage Limited (1,000) (1,000) Inter Corporate Deposits received back (1,000) (1,000) Kotak Forex Brokerage Limited (1,000) (1,000) Interest received on ICDs (1) (1) Kotak Forex Brokerage Limited (1) (1) Term Deposits placed 140, ,000 ( ) ( ) Term Deposits withdrawn (190,000) (190,000) Interest received on Term Deposits (187) (187) OUTSTANDINGS Inter Corporate Deposits taken (5,000) (5,000) Kotak Mahindra Asset Management Company Limited (5,000) (5,000) Interest payable on ICDs taken (488) (488) Kotak Mahindra Asset Management Company Limited (488) (488) Kotak Mahindra Investments Limited 378

380 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Nature of Transaction Holding Company Fellow Subsidiaries Key Management Personnel # Enterprises over which Directors have significant influence Mutual Fund/Other Fund managed by Fellow Subsidiary/ Holding Company Kotak Mahindra Realty Fund Total Debentures 145, ,563 (145,000) (1,530) (146,530) Kotak Mahindra Asset Management Company Limited 95,000 95,000 (95,000) ( ) Kotak Mahindra Trustee Company Limited 50,000 50,000 (50,000) ( ) Shanti Ekambaram (1,530) (1,530) Jaimin Bhatt ( ) ( ) Interest payable on Debentures 10, ,466 (838) (459) (1,297) Kotak Mahindra Asset Management Company Limited 6,812 6,812 (549) (549) Kotak Mahindra Trustee Company Limited 3,585 3,585 (289) (289) Shanti Ekambaram (459) (459) Jaimin Bhatt ( ) ( ) Book Overdraft in current account 18,221 18,221 ( ) ( ) Term Deposits placed 140, ,000 ( ) ( ) Interest receivable on Term Deposits placed ( ) ( ) Balance in Current Account (43,052) (43,052) Demat Deposit Receivable 2 2 (20) (20) INVESTMENTS Purchases 271,229 10, ,729 (1,246,013) (16,838) (1,262,852) Kotak Mahindra Investments Limited 379

381 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Nature of Transaction Holding Company Fellow Subsidiaries Key Management Personnel # Enterprises over which Directors have significant influence Mutual Fund/Other Fund managed by Fellow Subsidiary/ Holding Company Kotak Mahindra Realty Fund Total Kotak Mahindra Prime Limited (1,209,827) (1,209,827) Kotak Securities Limited 271, ,229 (36,186) (36,186) India Growth Fund 10,500 10,500 (16,838) (16,838) Sales 1,497,350 1,497,350 (47,792) (50,940) (98,732) Kotak Securities Limited 242, ,399 (47,792) (47,792) Kotak Mahindra Prime Limited 1,254,950 1,254,950 ( ) ( ) Ford Credit Kotak Mahindra Limited (50,940) (50,940) Investments Gross 236,382 27, ,720 (1,209,827) (236,382) (16,838) (1,463,048) Kotak Mahindra Prime Limited (1,209,827) (1,209,827) Business Standard Limited 236, ,382 (236,382) (236,382) India Growth Fund 27,338 27,338 (16,838) (16,838) Diminution in Investments 69,558 69,558 (69,558) (69,558) Business Standard Limited 69,558 69,558 (69,558) (69,558) STOCK-IN TRADE (SECURITIES) MUTUAL FUND UNITS Kotak Mahindra Mutual Fund: Purchases 130,254, ,254,539 (54,197,111) (54,197,111) Sales 128,916, ,916,034 (55,241,279) (55,241,279) Dividend received 41,277 41,277 (19,761) (19,761) Kotak Mahindra Investments Limited 380

382 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Nature of Transaction Holding Company Fellow Subsidiaries Key Management Personnel # Enterprises over which Directors have significant influence Mutual Fund/Other Fund managed by Fellow Subsidiary/ Holding Company Kotak Mahindra Realty Fund Total Closing Stock 1,528,535 1,528,535 (190,030) (190,030) OTHER SECURITIES Kotak Securities Limited Purchases 6,319,970 6,319,970 (591,389) (591,389) Kotak Securities Limited 6,319,970 6,319,970 (591,389) (591,389) Sales 5,660,516 5,660,516 (606,467) (606,467) Kotak Securities Limited 5,660,516 5,660,516 (606,467) (606,467) Outstanding Receivable 11,876 11,876 (24,588) (24,588) Kotak Securities Limited 11,876 11,876 (24,588) (24,588) Interest on Deposit 2,164 2,164 ( ) ( ) Kotak Securities Limited 2,164 2,164 ( ) ( ) Interest on deposit receivable ( ) ( ) Kotak Securities Limited ( ) ( ) OTHER RECEIPTS & PAYMENTS Fees received 91,500 91,500 (36,971) (36,971) Expense reimbursement to other company 8, ,492 (15,791) ( ) (15,791) Kotak Mahindra Prime Limited ( ) ( ) Expense reimbursement from other company 3, ,797 ( ) ( ) ( ) Kotak Mahindra Prime Limited ( ) ( ) Kotak Mahindra Investments Limited 381

383 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Nature of Transaction Holding Company Fellow Subsidiaries Key Management Personnel # Enterprises over which Directors have significant influence Mutual Fund/Other Fund managed by Fellow Subsidiary/ Holding Company Kotak Mahindra Realty Fund Total Dividend paid (18,302) (18,302) Licence Fees paid 2,213 2,213 (1,729) (1,729) Demat Charges paid ( ) (60) (1,190) (1,250) Kotak Securities Limited (1,190) (1,190) Bank Charges (12) (12) Brokerage paid 12,739 12,739 (1,272) (1,272) Kotak Securities Limited 12,739 12,739 (1,272) (1,272) Professional Fees (300) (300) Kotak Securities Limited (300) (300) Outstanding Payables 2, ,926 (3,040) (30) (3,070) Kotak Securities Limited (30) (30) Remuneration * 5,873 5,873 (4,768) (4,768) Sachin Samant 5,873 5,873 (4,768) (4,768) * Excludes provision for gratuity and accumulated compensated absence. # Commission to non-executive directors amounting to Rs.2 4,00,000 (P.Y. Rs. NIL) has not been included above since the same is on an estimated basis. Figures in bracket indicates previous year figures. Kotak Mahindra Investments Limited 382

384 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 16. Schedule in terms of paragraph 9BB of Non Banking Financial Companies Prudential Norms (Reserve Bank) Directions, Particulars Liabilities Side 1. Loans and advances availed by the NBFCs inclusive of interest accrued thereon but not paid: Amount Outstanding Rs. in thousands Amount Overdue Rs. in thousands (a) Debentures: Secured 10,09,770 NIL Unsecured 56,22,864 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 NIL NIL (e) Commercial Paper NIL NIL (f) Public Deposits * NIL NIL (g) Other Loans (specify nature) NIL NIL * Please see Note a) 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 unsecured debentures: NIL NIL (c) Other public deposits NIL NIL Assets Side * Please see Note a) below 3. Break-up of Loans and Advances including bills receivables (other than those included in (4) below: (a) Secured 55,75,697 (b) Unsecured 5,75, Break-up of Leased Assets and stock on hire and hypothecation loans counting towards EL/HP activities (i) (ii) (iii) Leased Assets including lease rentals under sundry debtors (a) Financial Lease NIL (b) Operating Lease NIL Stock on hire including hire charges under sundry debtors (a) Assets on hire NIL (b) Repossessed Assets NIL 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 (ii) Debentures and Bonds NIL (iii) Units of Mutual Funds NIL NIL Kotak Mahindra Investments Limited 383

385 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) Particulars Amount Outstanding Rs. in thousands Amount Overdue Rs. in thousands (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 18,23,76 (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 177,779 (b) Preference NIL (ii) Debentures and Bonds NIL (iii) Units of Mutual Funds NIL (iv) Government Securities NIL (v) Others - Pass Through Certificates & Units of Venture Capital Fund 27,348 (6) Borrower group-wise classification of all leased assets, stock-on-hire and loans and advances: Please see Note b) below Category Amount Net of provisions Secured Unsecured Total 1. Related Parties ** (a) Subsidiaries NIL NIL NIL (b) Companies in the same group NIL NIL NIL (c) Other related parties NIL Other Than Related Parties 55,75,697 2,02,413 57,78,110 Total 55,75,697 2,02,845 57,78,543 Kotak Mahindra Investments Limited 384

386 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) (7) Investor group-wise classification of all investments (current and long term) in the shares and securities (both quoted and unquoted): Please see Note (c) below Category Amount Net of provisions 1. Related Parties ** Market Value/Break up or fair value or NAV Rs. in thousands Book Value (Net of Provisions) Rs. in thousands (a) Subsidiaries NIL NIL (b) Companies in the same group NIL NIL (c) Other related parties 1,94,163 1,94, Other than related Parties 2,10,078 1,93,340 Total 4,04,241 3,87,503 ** As per Accounting Standard of ICAI (Please see Note 3) (8) Other information: Particulars (i) (ii) Gross Non-Performing Assets Amount (a) Related parties NIL (b) Other than related parties 9,062 Net Non-Performing Assets (a) Related parties NIL (b) Other than related parties 7,945 (iii) Assets acquired in satisfaction of debt NIL Notes: a) As defined in Paragraph 2(1) (xii) of the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, b) 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). c) 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. 17. Previous year s figures have been regrouped/reclassified wherever necessary to conform to figures of the current period. As per our attached report of even date For V. C. Shah & Co. Chartered Accountants For and on behalf of the Board of Directors V. C. Shah Ashutosh Naik Dipak Gupta Jaimin Bhatt Partner Company Secretary Director Director Membership No Mumbai Dated: 2nd May, 2007 Kotak Mahindra Investments Limited 385

387 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 (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 Rs. in thousands) 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 Losses Deferred Tax N I L (d) Performance of Company (Amount in Rs.in 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/Servicesof 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 For and on behalf of the Board of Directors Mumbai Dated: 2nd May, 2007 Ashutosh Naik Dipak Gupta Jaimin Bhatt Company Secretary Director Director Kotak Mahindra Investments Limited 386

388 BOARD OF DIRECTORS: Kishore Sunil Banymandhub, Ashraf Ramtoola, Ravi Lochan Pola, Shyam Kumar, CLAUDE AK SHING, Gijo Joseph, Ashish Nanda, Louis Didier Merle Director s Report To the shareholders of Kotak Mahindra (International) Limited The Directors present their report and the audited financial statements of Kotak Mahindra (International) Limited (the Company ) for the year ended 31 March, Principal activity The Company s principal activity is to carry on business in financial services, more specifically investment in securities and investment management. Results and dividend The Company s profit for the financial year ended 31 March, 2007 amounted to Rs. 130,096,295 ( of Rs. 90,106,316). The Directors do not recommend the payment of any dividend for the year under review. Change in Share Capital During the year, the Company issued 2,081,650 shares at USD 1 each to Kotak Mahindra Bank Limited. As at March 31, 2007, the revised share capital of the Company stood at Rs. 161,597,644 (2006 : Rs. 67,174,000). Statement of Directors responsibility in respect of financial statements Company law requires the Directors to prepare financial statements for each financial year which present fairly the financial position, financial performance and cash flows of the company. In preparing those financial statements, the Directors are required to: select suitable accounting policies and then applied them consistently; make judgements and estimates that are reasonable and prudent; state whether International Financial Reporting Standards have been followed, subject to any material departure disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The Directors confirm that they have complied with the above requirements in preparing the financial statements. The Directors are responsible for keeping proper accounting records, which disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Change in Controller During the year Goldman Sachs sold its holding in one of the corporate controllers of the Company to Kotak Securities Limited, Indian broking affiliate of the Company. Thereafter, the Company became a first level subsidiary of Kotak Mahindra Bank Limited consequent to a further fresh issue of shares. Kotak Mahindra Bank directly holds 51% of the paid up share capital of the Company. Auditors The auditors, KPMG, have indicated their willingness to continue in office. By Order of the Board International Management (Mauritius) Ltd. Company Secretary Date: 4th May, Kotak Mahindra (International) Limited 387

389 Auditors Report To the Members of Kotak Mahindra (International) Limited The financial statements of Kotak Mahindra (International) Limited as at 31st March 2007, being a company registered in the Mauritius, are audited by KPMG, Public Accountants, Mauritius, and we have been furnished with their audit report dated 24th 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 Companies Act, We give our report hereunder: 1. We have audited the attached Balance Sheet of Kotak Mahindra (International) Limited as at 31st March, 2007, 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, 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: (iii) 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; (iv) 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, 1956; (v) On the basis of written representations received from the directors, we report that none of the directors is disqualified as on 31st March, 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956; (vi) In our opinion, on the basis of information and explanations 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; (a) (b) (c) in the case of the Balance Sheet of the state of affairs of the company as at 31st March 2007; 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. (i) (ii) 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; For V. C. Shah & Co. Chartered Accountants A. N. Shah Place : Mumbai Partner Date : 4th May, 2007 Membership No.: Kotak Mahindra (International) Limited 388

390 Annexure to the Auditors Report Referred to in paragraph 3 of the Auditors Report of even date to the members of Kotak Mahindra (International) Limited on the financial statements for the year ended 31st March (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets; (b) (c) 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; The company has not disposed off substantial part of fixed assets during the year. 2. (a) The Company has granted unsecured loan to a fellow subsidiary company. At the year end outstanding balance of loan granted to said company was Rs. 42,88,820/- which is also the maximum amount involved during the year. (b) The rate of interest and other terms and conditions of such loans are, in our opinion, prima facie not prejudicial to the interest of the Company. 3. In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business, for purchase of fixed assets and for services. There are no purchase of inventory and sale of goods. 4. As informed to us, the Company does not have an internal audit system. 5. The company has maintained proper records of its transaction 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. 6. Based on the audit procedures performed and information and explanations given to us by the management, we report that no fraud on or by the Company has been noticed or reported during the year. 7. The Company is a foreign company rendering services. In our opinion clauses (ii), (v), (vi), (viii), (ix), (x), (xi), (xii), (xiii), (xv), (xvi), (xvii), (xviii), (xix), (xx) of the order are not applicable to the company for the year ended under report. (c) (d) The company is regular in repaying the principal amounts as stipulated and has also been regular in the payment of interest as stipulated to the Company. The Company has not taken any loans, secured or unsecured from fellow subsidiary and hence sub clause (e), (f), and (g) are not applicable For V. C. Shah & Co. Chartered Accountants A. N. Shah Place : Mumbai Partner Date : 4th May, 2007 Membership No.: Kotak Mahindra (International) Limited 389

391 Balance Sheet as at 31st March, 2007 Schedule As at 31st March 2007 Rupees As at 31st March 2006 Rupees Sources of Funds Shareholders Funds: Share Capital 1 161,597,644 67,174,000 Reserves and Surplus 2 320,851, ,711,314 Total 482,448, ,885,314 Application of Funds Fixed Assets: Gross Block 3 2,700,006 2,467,841 Less : Depreciation 1,483,509 1,052,110 net Block 1,216,497 1,415,731 Investments 4 63,154,571 48,862,583 Current Assets, Loans and Advances: Sundry Debtors 5 90,448,781 57,763,606 Cash and Bank Balances 6 303,047, ,887,932 Loans and Advances 7 51,234,091 43,476, ,730, ,127,710 Less: Current Liabilities and Provisions: Liabilities 8 21,474,441 34,122,121 Provisions 9 5,178,056 4,398,590 26,652,497 38,520,711 Net Current Assets 418,077, ,606,999 Total 482,448, ,885,314 Significant Accounting Policies and Notes to Financial Statements 14 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 S. Shyam Kumar Ravi Lochan Pola Partner Director Director Mumbai, 4th May, 2007 Kotak Mahindra (International) Limited 390

392 Profit and Loss Account for the year ended 31st March, 2007 Schedule For the year ended 31st March 2007 For the year ended 31st March 2006 Rupees Rupees Income Income from Services 133,459, ,592,637 Profit/(Loss) on Sale of Investments (Net) 42,192,214 15,377,804 Other Income 10 13,478,273 3,424,169 Total Income 189,129, ,394,609 Expenditure Personnel 11 16,752,916 29,417,349 Interest and Other Financial Charges 12 14,144,907 8,382,931 Other Expenses 13 24,517,044 43,345,779 Total Expenditure 55,414,867 81,146,059 Profit before depreciation and Taxation 133,715,025 94,248,551 Depreciation 474, ,443 Profit before Taxation 133,240,396 93,421,108 Provision for Taxation 3,144,101 3,314,792 Profit after Taxation 130,096,295 90,106,316 Add: Balance brought forward from Previous 174,726,214 84,619,898 Profit Carried to Balance Sheet 304,822, ,726,214 Significant Accounting Policies and Notes to Financial Statements 14 Schedules referred to above form an integral part of the Profit and Loss Account 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 S. Shyam Kumar Ravi Lochan Pola Partner Director Director Mumbai, 4th May, 2007 Kotak Mahindra (International) Limited 391

393 Cash Flow Statement for the Ended 31st March, Rupees Rupees Net Profit before taxation 133,240,396 93,421,108 Adjustments for: Depreciation 474, ,443 Interest (1,924,608) (553,972) Change in Translation Reserve (13,956,388) 8,507,998 (Profit)/loss on sale of Investments (42,192,214) (15,377,804) Operating Profit before Working Capital Changes 75,641,815 86,824,774 Adjustments for: (Increase)/Decrease in loans and advances (7,757,919) 65,648,141 (Increase)/Decrease in Sundry Debtors (32,685,176) (23,673,212) Increase/(Decrease) in current liabilities (12,647,679) 25,306,189 Increase/(Decrease) in Provisions 1,095,217 (1,085,239) Cash (Used in)/generated from Operations 23,646, ,020,654 Direct taxes paid (3,459,853) (1,610,613) Net Cash Flow from Operating Activities (A) 20,186, ,410,041 Cash Flow from Investing Activities (Purchase)/Sale of investments (net) 27,900,226 98,872,752 Purchase of fixed assets (677,196) (1,832,416) Sale of fixed assets 401,801 1,191,059 Interest 1,924, ,972 Net Cash Flow (Used in)/from Investing Activities (B) 29,549,439 98,785,367 Cash Flow from Financing Activities Proceeds/(repayment) of term borrowings (164,827,689) Issue of Share Capital 94,423,644 Net Cash Flow (Used in)/from Financing Activities (C) 94,423,644 (164,827,689) Net Increase/(Decrease) in Cash and Cash Equivalents (A + B + C) 144,159,488 85,367,720 Cash and Cash Equivalents at the Beginning of the 158,887,932 73,520,213 Cash and Cash Equivalents at the End of the 303,047, ,887, ,159,488 85,367, 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. 2 Figures in brackets indicate cash outflow. 3. The previous year s figures have been re-grouped, 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 For V. C. Shah and Co. Chartered Accountants For and on behalf of the Board of Directors A. N. Shah S. Shyam Kumar Ravi Lochan Pola Partner Director Director Mumbai, 4th May, 2007 Kotak Mahindra (International) Limited 392

394 Schedules forming part of the Balance Sheet As at 31st March 2007 (Rupees) As at 31st March 2006 (Rupees) Schedule 1 Share Capital Authorised 4,081,650 ordinary shares of US $1 each Issued,Subscribed and Paid-up 4,081,650 (Previous 2,000,000) ordinary shares of US $1 each fully paid up 161,597,644 67,174,000 Note: During the year 2,081,650 shares of $1 each were issued at par as fully paid up to Kotak Mahindra Bank Limited Of the above 2,081,650 shares of $1 each are held by the holding company, Kotak Mahindra Bank Limited. (Previous year 2,000,000 shares of $1 each were held by the holding company Kotak Mahindra Capital Company Limited) Total 161,597,644 67,174,000 Schedule 2 Reserves and Surplus Profit and Loss Account 304,822, ,726,214 Translation Reserve 16,028,712 29,985,100 Total 320,851, ,711,314 Schedule 3 Fixed Assets (at cost) Rupees Description Gross Block Depreciation Net Block As at 1st April, 2006 Additions Deduction As at 31st March, 2007 As at 1st April, 2006 For the year Withdrawn As at 31st March, 2007 as at 31st March, 2007 As at 31st March, 2006 Assets Office Equipments and Furniture 1,532,243 6, ,031 1,094, , ,798 43, , ,377 1,123,986 Vehicles 428, , ,271 26, ,222 45,196 72,147 Computers 507, ,206 1,177, , , , , ,598 Total 2,467, , ,031 2,700,006 1,052, ,629 43,230 1,483,509 1,216,497 1,415,731 Previous 4,105,587 1,832,416 3,470,162 2,467,841 2,503, ,443 2,279,103 1,052,110 1,415,731 1,601,818 Note: Fixed asset includes translation reserve of Rs. 103,257 (Previous year Rs. 104,984) Depreciation for the year includes translation reserve of Rs. 6,499 (Previous year Rs. 6,288) As at 31st March 2007 As at 31st March 2006 (Rupees) (Rupees) Schedule 4 Investments Long Term Unquoted (at cost) 4,70,000 equity shares of Sterling Pound 1 each fully paid up of Kotak Mahindra (UK) limited 26,287,576 26,287, Management shares of USD 1 each in Global Investment Oppurtunities Fund Limited 4,818 4,818 1 Equity share (Previous year 1) each fully paid up of Kotak Mahindra Inc Current Investments WM India Fund Limited 12,536,819 Kotak Infinity Fund 14,548,163 Seaf Management LLC 300,902 Quoted (Refer note 7 of schedule 15) 22,013,069 10,033,326 63,154,571 48,862,583 Kotak Mahindra (International) Limited 393

395 Schedules Forming Part of the Balance Sheet (Contd.) As at 31st March 2007 As at 31st March 2006 (Rupees) (Rupees) Schedule 5 Sundry Debtors (Unsecured) Considered good Over six months - - Others 90,448,781 57,763,606 Total 90,448,781 57,763,606 Schedule 6 Cash and Bank Balances Cash on hand 84,037 27,929 Bank balances with unscheduled Banks 302,963, ,860,003 (Refer note 9 of schedule 15) Total 303,047, ,887,932 Schedule 7 Loans and advances (Unsecured, considered good unless otherwise stated) Loans and Advances to Subsidiary Company 4,288,384 23,953,339 Margin held towards futures and options trading 8,083, ,364 Advances recoverable in cash or in kind or for value to be received 38,862,702 19,315,469 Total 51,234,091 43,476,172 Schedule 8 Liabilities Sundry creditors 3,119,718 23,989,359 Other liabilities 18,354,724 10,132,762 Total 21,474,441 34,122,121 Schedule 9 Provisions Provision for gratuity 1,632, ,792 Provision for tax 3,546,047 3,861,798 Total 5,178,056 4,398,590 Kotak Mahindra (International) Limited 394

396 Schedules Forming Part of the Profit and Loss Account (Contd.) For the year ended 31st March 2007 For the year ended 31st March 2006 (Rupees) (Rupees) Schedule 10 Other Income Dividend 618,293 2,870,197 Interest 1,924, ,972 Foreign Exchange gain 10,935,372 Total 13,478,273 3,424,169 Schedule 11 Personnel Salaries and other allowances 15,160,267 25,176,445 Gratuity 1,148, ,652 Other related costs 443,744 3,357,252 Total 16,752,916 29,417,349 Schedule 12 Interest and other Financial Charges Interest on: Bank overdraft 6,048,039 5,444,249 Other interest/bank charges 8,096,867 2,938,682 Total 14,144,907 8,382,931 Schedule 13 Establishment and other Expenses Travelling 3,413,509 5,013,402 Foreign Auditors remuneration 1,165, ,920 Legal and consultancy charges 8,373,672 11,729,551 Rent 1,876,861 1,300,266 Communication expenses 1,570,418 3,692,035 Directors Remuneration 5,836,414 1,875,839 Other expenses 2,280,739 18,753,766 Total 24,517,044 43,345,779 Kotak Mahindra (International) Limited 395

397 Schedule 14 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) 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 recognized 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 procedure of the group. (v) 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 20% /3% Motor Vehicles 33 1/3% Computers 33.1/3% (vi) 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 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. Kotak Mahindra (International) Limited 396

398 Schedule 14 Significant Accounting Policies and Notes to the Accounts (Contd.) (vii) Retirement benefits Provision for employees end of service benefits 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 Law. (viii) 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. 2. Notes to the accounts: 1. During the year ended March 31, 2007, the Company increased the authorized shares from 2,000,000 to 4,081,650 and issued 2,081,650 shares of its common stock to the parent. Prior to the issuance, the Company was majority owned subsidiary of Kotak Mahindra Capital Company ( KMCC ). As a result of this issuance, as of March 31, 2007, the parent owns 51% of the Company and KMCC owns 49% of the Company. 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 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. 3. Contingent Liability: Guarantee to third parties given by the Company s bankers outstanding at the year end amounted to Rs. 305,130,000/- (Previous year Rs. 312,270,000). No loss is expected on this guarantee at the balance sheet date. 4. The Company has an overdraft facility of Rs. 1,002,570,000/- (Previous year Rs. 713,760,000) that is secured by guarantee of Kotak Mahindra Capital Company Limited., a fellow subsidiary company. Interest is payable on the amounts drawn at Libor plus 1.0% 5. 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. The subsidiary is subject to UK corporation tax at 30% 6. 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. 7. List of Quoted Investments: Scrip name Quantity Quantity Book Value as at Book Value as at Equity Stock ITC Ltd. 1, ,317 Solar Explosive Limited 39,958 7,583,463 Jayprakash Hydro Power Ltd. 350,000 9,861,583 Manglore Refinery and Petrochemicals Limited 44,500 1,488,086 Total 394,500 41,108 11,349,669 7,773,780 ADR/GDR Stock ITC Ltd. GDR 5,600 EIH Ltd. GDR 4,000 2,026,454 Grasim Industries Ltd. GDR 25 34,746 Hindalco Industries Ltd. GDR 1,500 1,98,346 Reliance Energy Limited 7,297 10,663,392 Total 7,297 11,125 10,663,392 2,259,546 Grand Total 401,797 52,233 22,013,061 10,033,326 Short positions on Investments ITC Ltd. 5,600 1,334,475 Total 5,600 1,334,475 Kotak Mahindra (International) Limited 397

399 Schedule 14 Significant Accounting Policies and Notes to the Accounts (Contd.) 8. Details of Bank Balances: As on 31st March, 2007 As on 31st March, 2006 Scheduled Banks 41,710, ,594,569 Others: Standard Chartered Bank Dubai 2,452, ,545 HSBC Bank 258,800,798 3,161,889 Total 261,253,014 3,265,434 Total 302,963, ,860, 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 10. Related Party Transactions: Related parties Nature of relationship Nature of transactions 31st March, st March, ,990 Volume of transaction for the period ended Debit/(credit) Balance as at 31-Mar Mar Mar Mar-06 Rupees Rupees Rupees Rupees. Kotak Mahindra (UK) Ltd.. Subsidiary Facilitation charges 11,096,626 3,173,120 Conversion Charges 7,351,732 Advisory fees 30,751,155 Referral fees (62,952,345) Performance fees 91,408,432 Subordinated loan 4,288,384 3,878,840 Current account (12,530,432) 70,224,667 (12,530,432) Global IOFL Fund managed Advisory income (15,863,900) 85,536,699 25,932,821 Placement fee (1,761,636) 310, ,942 Performance fees (3,343,431) Kotak Securities Limited Broker/investment advisory services Referral fees 1,353, ,812 Margin deposit 2,350,068 Kotak Mahindra Inc. Group company Loan receivable 20,074,500 Advisory fees (27,815,455) 21,369,213 (1,916,042) (2,301,341) Kotak Mahindra AMC Co. Ltd.. Group company Advisory Fees 4,181,810 16,809,546 (3,262,075) Kotak Mahindra Bank Ultimate holding PCM Services 457, ,349 41,120,539 (266) Limited company Referal Fees (11,063,925) Current year Previous year Rs. Rs. Directors remuneration included in personnel expenses 5,836,414 1,875,839 All related parties transactions entered during the year are priced on commercial terms and conditions. 11. Previous year figures have been regrouped and reclassified wherever necessary. 12. Immediate and ultimate holding companies Kotak Mahindra Capital Company Limited and Kotak Mahindra Bank Limited, companies incorporated in India, are the company s shareholders. Kotak Mahindra Bank Limited is the company s ultimate holding company. Signatures to Schedules 1 to 14 Per our report attached For V. C. Shah and Co. Chartered Accountants For and on behalf of the Board of Directors A. N. Shah S. Shyam Kumar Ravi Lochan Pola Partner Director Director Mumbai, 4th May, 2007 Kotak Mahindra (International) Limited 398

400 BOARD OF DIRECTORS: Shyam Kumar, Viswanath Vardarajan, Abhishek Bhalotia, Paul Parambi, C. Jayaram Directors Report The Directors present their annual report and the audited financial statements of the Company for the year ended March 31, Principal Activity and Business Review The Company is a broker dealing primarily in Depository Receipts issued by Indian corporates. The Company also arranges deals in investments in Indian markets. The Company is authorized and regulated by the Financial Services Authority and is a member of the LSE. During the year, the Company received authorization from the Monetary Authority of Singapore under the CMS license to set up a branch in Singapore. The branch commenced operations in March 2007 and would essentially be a marketing office. During the year under review, the Company was appointed as an Investment Manager by several India focused offshore funds. As at the balance sheet date the Company manages/advises funds aggregating to Rs. 6,246 Crores (2006: Rs. 5,045 Crores). The investment management activity is carried out by the Dubai branch which is regulated by the Dubai Financial Services Authority. A significant achievement during the year was the investment management mandate of the Indian Equities Fund Limited, an Australian Stock Exchange listed fund. In order to give greater focus to the asset management business, the Company is strengthening the fund management team in Dubai. It is the intention of the Company to add further members to this team during the course of the coming year. The Company also acted as lead manager to overseas issuance by 2 companies. Change in controller During the year Goldman Sachs sold its holding in one of the corporate controllers of the Company to Kotak Securities Limited, Indian broking affiliate of the Company. Thereafter, the Company became a first level subsidiary of Kotak Mahindra Bank Limited consequent to a further issue of shares. Change in Share Capital The Company issued 489,200 shares at GBP 1 each to Kotak Mahindra Bank Limited. As at March 31, 2007, the revised share capital of the Company stood at Rs. 70,078,422 (2006 : Rs. 26,287,575). Political and Charitable Donations The Company has made no political or charitable donations in the period. (2006 : NIL) Future Outlook Buoyancy in the Indian capital markets led to an increased activity level during the year. The Company has increased staff levels in Dubai and foresees significant increase in fund flows. It is expected that sustained investment activity into the Indian Equity markets will result in a substantial increase in the assets under management and this will provide a significant boost to the revenues of the Company. Results and Dividends The Profit and Loss Account is annexed. The profit on ordinary activities after taxation for the year ended 31st March, 2007 is Rs. 140,616,030 (2006 : Rs. 32,212,001). The Directors do not recommend payment of any dividend. Key Risks The activity profile of the Company is focused on India and hence the Company is significantly exposed to an emerging market economy risk. The services rendered as a Foreign Institutional Investor are dependent on continued registration with the Indian Securities Regulator. The reporting currency of the Company is the US Dollar and the Company is consequently exposed to the currency risk posed by adverse movements is US Dollar vis-à-vis Pound Sterling. Directors and Directors Interests The Directors as at the date of this Report and who served during the period are Mr. Viswanathan Varadarajan, Mr. Paul Verghese Parambi, Mr. S. Shyam Kumar, Mr. Abhishek Bhalotia and Mr. C. Jayaram (appointed 29th August 2006). None of the Directors has, or had during the period, any interest in the shares of the Company. As the Company is a subsidiary of an ultimate parent company incorporated outside of Great Britain, the Directors are not required to notify the Company of interests in shares of that or any other body corporate incorporated outside of Great Britain. Fixed Assets Information on the tangible fixed assets of the Company is given in Note 8 to the financial statements. Directors Declaration The Directors who held office at the date of approval of this Directors Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company s auditors are unaware; and each director has taken all the steps that he ought to have taken as a director to make himself aware of any relevant audit information and to establish that the Company s auditors are aware of that information. The Directors state as an averment of their responsibility that: (i) the Company has, in the preparation of the annual accounts for the year ended 31st March, 2007, followed the applicable accounting standards along with proper explanations relating to material departures, if any; Kotak Mahindra (UK) Limited 399

401 (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 31st March, 2007 and of the profit/loss of the Company for the financial year ended 31st March, (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. Auditors In accordance with Section 384 of the Companies Act 1985, a resolution to reappoint KPMG Audit Plc as auditor of the Company will be proposed at the next Annual General Meeting. By Order of the Board of Directors, S. Shyam Kumar Director and CEO Registered Office : Farringdon Place 20 Farringdon Road London EC1M 3AP Dated: 4th May, 2007 Statements of Directors Responsibilities in Respect of the Directors Report and the Financial Statements The Directors are responsible for preparing the Directors Report and the financial statements in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the Profit or Loss of the Company for that period. In preparing these financial statements, the Directors are required to: select suitable accounting policies and then apply them consistently; make judgments and estimates that are reasonable and prudent; state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business. The Directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that its financial statements comply with the Companies Act, They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities. Under applicable law the Directors are also responsible for preparing a Directors Report that complies with that law. Registered Office : Farringdon Place 20 Farringdon Road London EC1M 3AP Dated: 4th May, 2007 By Order of the Board of Directors, S. Shyam Kumar Director and CEO Kotak Mahindra (UK) Limited 400

402 Auditors Report To The Members of Kotak Mahindra (UK) Limited The financial statements of Kotak Mahindra (UK) Limited as at 31st March 2007, being a company registered in the United Kingdom, are audited by KPMG Audit Plc, Chartered Accountants and Registered Auditor, London, and we have been furnished with their audit report dated 20th April, We are presented with the accounts in Indian Rupees prepared on the basis of aforesaid accounts to comply with requirements of Section 212 of Companies Act, We give our report hereunder: 1. we have audited the attached balance sheet of Kotak Mahindra (UK) Limited, as at 31st March, 2007, and also 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, we enclose in the Annexure a statement on the matters specified in paragraphs 4 and 5 of the said Order. (iii) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; (iv) In our opinion, the Balance Sheet and 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; (v) On the basis of written representations received from the directors, we report that none of the Directors is disqualified as on 31st March, 2007 from being appointed as a Director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956; (vi) In our opinion, on the basis of information and explanations 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; (a) (b) (c) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2007; 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. 4. Further to our comments in the Annexure referred to above, we report that: (i) (ii) 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; Mumbai Dated: 4th May, For V. C. Shah & Co. Chartered Accountants A. N. Shah Partner Membership Number: Kotak Mahindra (UK) Limited 401

403 Annexure to the Auditors Report (Referred to in paragraph 3 of the Auditors Report of even date to the Members of Kotak Mahindra (UK) Limited on the financial statements for the year ended 31st March, 2007) 1. (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets; (b) (c) 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; The Company has not disposed off any fixed assets during the year under report; 2. (a) The Company has not granted any loans, secured or unsecured to fellow subsidiaries and hence sub-clause (a), (b), (c) and (d) are not applicable. 3. In our opinion and according to the information and explanations given to us, there are an adequate internal control system commensurate with the size of the Company and the nature of its business for purchase of fixed assets and for services. There are no purchase of inventory and sale of goods. 4. As informed to us, the Company does not have an internal audit system. 5. 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. 6. The Company is a foreign company rendering services. In our opinion clauses (ii), (v), (vi), (viii), (ix), (x), (xi), (xii), (xiii), (xiv), (xv), (xvi), (xvii), (xviii), (xix), (xx) of the order are not applicable to the Company for the year ended under report. (b) (c) (d) The Company had taken unsecured loans from a fellow subsidiary company. The year end balance of such amount is Rs. 42,88,820/- which is also the maximum amount involved during the year. The rate of interest and other terms and conditions on which these loans have been taken from the said company are not, prima facie, prejudicial to the interest of the Company. The Company is regular in repaying the principal amount as stipulated and there is not overdue amount. Mumbai Dated: 4th May, For V. C. Shah & Co. Chartered Accountants A. N. Shah Partner Membership Number: Kotak Mahindra (UK) Limited 402

404 Balance Sheet as at 31st March, 2007 Schedule 31st March st March 2006 Rupees Rupees Sources of funds Shareholders Funds: Share Capital 1 70,078,422 26,287,575 Reserves and Surplus 2 210,976,902 81,320,172 Unsecured Loans 3 4,288,820 3,878,840 Total 285,344, ,486,587 Application of Funds Fixed Assets: Gross Block 4 18,063,693 16,506,341 Less: Depreciation 13,743,937 11,442,560 Net Block 4,319,756 5,063,781 Current Assets, Loans and Advances: Sundry Debtors 5 65,320,158 39,442,117 Cash and Bank Balances 6 462,424, ,533,826 Loans and Advances 7 42,815,879 14,122, ,560, ,098,061 Less: Current Liabilities and Provisions: Liabilities 8 231,045,945 92,031,849 Provisions 9 58,490,349 13,643, ,536, ,675,255 Net Current Assets 281,024, ,422,806 Total 285,344, ,486,587 Significant Accounting Policies and Notes to Financial Statements 13 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 S. Shyam Kumar Abhishek Bhalotia Partner Director Director Mumbai, 4th May, 2007 Kotak Mahindra (UK) Limited 403

405 Profit and Loss Account for the year ended 31st March, 2007 Income Schedule For the year ended 31st March, 2007 Rupees For the year ended 31st March, 2006 Rupees Service Income 505,148, ,384,653 Interest 3,035,675 1,108,809 Other Income 9,460,189 64,120,105 Total Income 517,644, ,613,567 Expenditure Personnel ,191, ,047,704 Interest and Other Financial Charges , ,426 Establishment and Other Expenses ,628, ,759,364 Total Expenditure 314,066, ,186,495 Profit/(Loss) before Depreciation and Taxation 203,577,505 47,427,072 Depreciation 2,301,377 1,323,648 Profit/(Loss) Before Taxation 201,276,128 46,103,424 Provision for Taxation Current Tax 60,660,098 13,891,423 Profit/(Loss) After Taxation 140,616,030 32,212,001 Add: Balance brought forward from Previous 76,001,613 43,789,612 Profit carried to Balance Sheet 216,617,643 76,001,613 Significant Accounting Policies and Notes to Financial Statements 13 Schedules referred to above form an integral part of the Profit and Loss Account 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 S. Shyam Kumar Abhishek Bhalotia Partner Director Director Mumbai, 4th May, 2007 Kotak Mahindra (UK) Limited 404

406 Cash Flow Statement for the Ended 31st March, Rupees Rupees Net Profit before taxation 201,276,128 46,103,424 Adjustments for: Interest (3,035,675) (1,108,809) Translation Reserve (10,959,300) 1,691,560 Depreciation 2,301,377 1,323,648 Operating Profit Before Working Capital Changes 189,582,530 48,009,822 Adjustments for: (Increase)/Decrease in loans and advances (11,324,317) (5,208,096) (Increase)/Decrease in Sundry Debtors (25,878,042) (17,928,302) Increase/(Decrease) in current liabilities 139,014,096 77,130,462 Cash (Used in)/generated from Operations 291,394, ,003,886 Direct Taxes Paid (33,182,598) (19,059,306) Net Cash Flow from Operating Activities (A) 258,211,668 82,944,581 Cash Flow from Investing Activities Purchase of Fixed Assets (1,557,352) (5,226,926) Interest 3,035,675 1,108,809 Net Cash Flow (Used in)/from Investing Activities (B) 1,478,324 (4,118,117) Cash Flow from Financing Activities Proceeds/(Repayment) of Term Borrowings 409,981 (256,629) Issue Of Equity Shares 43,790,847 Net Cash Flow (Used in)/from Financing Activities (C) 44,200,827 (256,629) Net Increase/(Decrease) in Cash and Cash Equivalents (A + B + C) 303,890,819 78,569,835 Cash and Cash Equivalents at the beginning of the year 158,533,826 79,963,991 Cash and Cash Equivalents at the end of the 462,424, ,533, ,890,819 78,569, 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. 2. Figures in brackets indicate cash outflow. 3. The previous year s figures have been re-grouped, 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. 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 S. Shyam Kumar Abhishek Bhalotia Partner Director Director Mumbai, 4th May, 2007 Kotak Mahindra (UK) Limited 405

407 Schedules forming part of the Balance Sheet 31st March st March 2006 (Rupees) (Rupees) Schedule 1 Share Capital Authorised 1,000,000 Ordinary shares of Sterling Pound 1 each Issued and Subscribed and fully paid up 959,200 (Previous year 470,000) Equity shares of Sterling Pound 1 each fully paid up 70,078,422 26,287,575 (Of the above 489,200 shares are held by Kotak Mahindra Bank Limited, the holding company) (Previous year 470,000 equity shares were held by Kotak Mahindra International Limited, the holding company) Note: During the year 489,200 shares of Sterling Pound 1 each were issued at par as to Kotak Mahindra Bank Limited Total 70,078,422 26,287,575 Schedule 2 Reserves and Surplus Profit and Loss Account 216,617,643 76,001,613 Translation Reserve (5,640,741) 5,318,559 Total 210,976,902 81,320,172 Schedule 3 Unsecured Loans Loan from Others (Refer note 6, Schedule 13) 4,288,820 3,878,840 Total 4,288,820 3,878,840 Schedule 4 Fixed Assets (At Cost) Rupees Description Gross Block Depreciation Net Block As at 1st April, 2006 Additions Deduction As at 31st March, 2007 As at 1st April, 2006 For the year Withdrawn As at 31st March, 2007 As at 31st March, 2007 As at 31st March, 2006 Assets Office Equipments 4,537,775 4,537,775 3,314, ,884 3,595, ,796 1,223,680 Fixtures and fittings 2,663, ,613 2,935,025 2,537, ,526 2,683, , ,350 Computers 6,145,463 1,285,739 7,431,202 4,661, ,015 5,585,848 1,845,354 1,483,630 Motor Vehicle 930, , , , ,209 60, ,882 Leasehold improvements 2,229,563 2,229, , ,988 1,009,312 1,220,251 1,861,239 Total 16,506,341 1,557,352 18,063,693 11,442,560 2,301,377 13,743,937 4,319,756 5,063,781 Previous 11,279,415 5,226,926 16,506,341 10,118,912 1,323,648 11,442,560 5,063,781 1,160,503 Note: Fixed asset includes translation reserve of Rs. 1,523,006 (Previous year Rs. 1,448,961) Depreciation for the year includes translation reserve of Rs. 236,504 (Previous year Rs ) Schedule 5 Sundry Debtors (Unsecured) Considered good Over six months Others 65,320,158 39,442,117 Total 65,320,158 39,442,117 Kotak Mahindra (UK) Limited 406

408 Schedules forming part of the Balance Sheet (Contd.) 31st March st March 2006 (Rupees) (Rupees) Schedule 6 Cash and Bank Balances Cash on hand Bank balances abroad 462,424, ,533,826 Total 462,424, ,533,826 Schedule 7 Loans and advances 17,498,202 6,173,885 (Unsecured, considered good unless otherwise stated) Advances recoverable in cash or in kind or for value to be received Advance Tax paid 25,317,677 7,948,233 Total 42,815,879 14,122,118 Schedule 8 Liabilities Sundry creditors 148,054,656 29,329,723 Other liabilities 82,991,289 62,702,126 Total 231,045,945 92,031,849 Schedule 9 Provisions Provision for Taxation 58,490,349 13,643,406 Total 58,490,349 13,643,406 Schedules Forming Part of the Profit and Loss Account For the year ended 31st March 2007 For the year ended 31st March 2006 (Rupees) (Rupees) Schedule 10 Personnel Salaries and Allowances 160,931, ,976,504 Social Security Costs 11,259,780 10,071,200 Total 172,191, ,047,704 Schedule 11 Interest and Other Financial Charges Interest Expenses 246, ,609 Bank Charges 181,817 Total 246, ,426 Schedule 12 Establishment and Other Expenses Travelling Expenses 18,908,137 16,059,177 Foreign Auditors Remuneration 4,693,963 2,364,792 Directors Remuneration 51,391,445 49,695,619 Legal And Professional Expenses 24,973,857 32,593,270 Communication Expenses 19,058,408 6,735,262 Rent 11,089,762 6,726,811 Donation 20,304 Foreign Exchange Loss 3,172,604 Lease Rentals 363,437 Other Expenses 8,340,128 6,200,692 Total 141,628, ,759,364 Kotak Mahindra (UK) Limited 407

409 Schedules forming part of the Balance Sheet and Profit and Loss Account Schedule 13 Significant Accounting Policies and Notes to the Accounts 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 period. All assets and liabilities are translated at the closing rate as on the Balance Sheet date. The exchange difference arising out of the period-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 period end are transferred to Translation Reserve Account and the said account is being treated as Reserve and Surplus. (iii) Revenue Recognition Turnover represents commission, fees and other revenue is invoiced and recognised on an accrual basis. Interest income is recognised in the income statement as accrued. (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) 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. (vi) 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% Other Equipment 20% Motor Vehicles 33 1/3% (vii) Operating Leases Costs in respect of operating leases are charged on a straight line basis over the lease term. 2. Notes to the Accounts: 1. During the year ended March 31, 2007, the Company increased the paid up shares from 470,000 to 959,200 and issued 489,200 shares to Kotak Mahindra Bank Limited (KMBL). Prior to the issuance, the company was wholly owned subsidiary of Kotak Mahindra Capital Company Limited ( KMCC ). As a result of this issuance, as of March 31, 2007, KMBL owns 51% of the company and KMCC owns 49% of the Company. During the year the Company has become the first level subsidiary of Kotak Mahindra Bank Limited consequent to the further fresh issue of shares. 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. Kotak Mahindra (UK) Limited 408

410 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 3. Leases: The total annual commitments of the Company under non-cancelable operating leases are as under: 31st March 2007 (Rs.) Land and Buildings Other Operating Leases 31st March, 2006 (Rs.) 31st March 2007 (Rs.) 31st March, 2006 (Rs.) Operating leases which expire Within One year 6,602,280 5,353, ,270 Between One to Five years 4,773,270 14,765, , Details of Bank Balances * As on 31st March, 2007 As on 31st March, 2006 Scheduled Banks 14,834,521 2,139,604 Others Morgan Guaranty Trust Company of New York Euroclear Operations Centre, Belgium 60,407,707 Standard Chartered Bank, London 90,918,544 Barclays Bank Plc HSBC, Dubai 1,828, ,715 HSBC London 822,654 4,185,256 HSBC Singapore 36,479,220 Euroclear Bank, Brussels 136,871,052 Standard Chartered Bank, London 51,902, ,904, ,394,222 Total 462,424, ,533,826 * Includes client money deposits aggregating Rs. 24,577,294 (Previous year Rs. 25,383,090) earmarked in a separate bank account held in the name of the Company. 5. Deferred tax assets in respect of accelerated capital allowances aggregating Rs. Nil (Previous year Rs. 174,648) 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. 6. Unsecured loan from Others represents a long term subordinated loan of 4,288,820 (Previous 3,878,840) from fellow subsidiary company, Kotak Mahindra (International) Limited. The loan is unsecured and interest free and constitutes regulatory capital as approved by the Regulatory Authority The Financial Service Authority. It is repayable upon giving or receiving two years notice to or from the fellow subsidiary company. No such notice had been given or received as at 31st March, The Company has taken advantage of the exemptions in International Financial Reporting Standard No. 8 Related Party transactions, not to disclose transactions with Kotak Mahindra Bank Limited and other group companies as it is a subsidiary of Kotak Mahindra Bank Limited (see note 10 below) 8. The following amounts are due from directors as at 31st March, 2007: Mr. S. Shyam Kumar Rs. 32,080 (Previous Rs. Nil) Mr. Paul Parambi Rs. Nil (Previous Rs. 101,986) Mr. Viswanathan Varadarajan Rs. Nil (Previous Rs. 1,904) Maximum balance due from Mr. S. Shyam Kumar during the year is Rs. 146, For the purpose of comparison, figures for the previous year have been given, which have been regrouped/reclassified wherever necessary. 10. The Company s immediate parent company is Kotak Mahindra Bank Limited which is a banking Company incorporated in India. Signatures to Schedules 1 to 13 Per our report attached For and on behalf of the Board of Directors For V. C. Shah and Co. Chartered Accountants A. N. Shah S. Shyam Kumar Abhishek Bhalotia Partner Director Director Mumbai, 4th May, 2007 Kotak Mahindra (UK) Limited 409

411 Board of Directors: C. JAYARAM, PAUL PARAMBI, RAVI LOCHAN POLA, VISWANATH VARADARAJAN, 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 31st March, OPERATIONS The company is a broker-dealer registered with the NASD. 2. FINANCIAL RESULTS AND DIVIDEND The Company s profit for the financial year ended 31st March, 2007 amounted to Rs. 79,356,717 (Rs. 10,942,859). 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: (c) (d) reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31st March, 2007 and of the profit/loss of the Company for the financial year ended 31st March, 2007; 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. (a) (b) the Company has, in the preparation of the annual accounts for the year ended 31st March, 2007, 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 judgement and estimates that are Mumbai, 4th May, 2007 For and on behalf of the Board of Directors Shyam Kumar Ravi Lochan Pola Director Director Kotak Mahindra Inc. 410

412 Auditors Report To the Members of Kotak Mahindra, Inc. The financial statements of Kotak Mahindra, Inc. as at 31st March, 2007, 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 24th April, We are presented with the accounts in Indian Rupees prepared on the basis of aforesaid accounts to comply with requirements of Section 212 of Companies Act, We give our report hereunder: 1. We have audited the attached Balance Sheet of Kotak Mahindra Inc. as at 31st March, 2007, 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, 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) 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; (ii) 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; (iii) The Balance Sheet, Profit and Loss account and Cash Flow Statement dealt with by this report are in agreement with the books of account; (iv) 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, 1956; (v) On the basis of written representations received from the directors, we report that none of the directors is disqualified as on 31st March, 2007 from being appointed as a director in terms of Clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956; (vi) In our opinion, on the basis of information and explanations 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. (a) in the case of the Balance Sheet of the state of affairs of the Company as at 31st March, 2007; (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 the Cash Flow Statement, of the cash flows for the year ended on the date. Place : Mumbai Date : 4th May, 2007 For V. C. Shah & Co. Chartered Accountants A. N. Shah Partner Membership No.: Kotak Mahindra Inc. 411

413 Annexure to Auditors Report Annexure referred to in paragraph 3 of the Auditors Report of even date to the members of Kotak Mahindra, Inc. on the financial statements for the year ended 31st March, (1) (a) The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets; (b) (c) 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; The Company has not disposed off any fixed assets during the year under report. (2) (a) The Company has not granted any loans, secured or unsecured to fellow subsidiaries and hence sub-clause (a), (b), (c) and (d) are not applicable. (3) In our opinion and according to the information and explanations given to us, there are adequate internal control systems commensurate with the size of the Company and the nature of its business, for purchase of fixed assets and for services. There are no purchase of inventory and sale of goods. (4) As informed to us, the Company does not have an internal audit system. (5) According to information and explanations given to us, no fraud on or by the Company has been noticed or reported during the year under report. (6) The Company is a foreign company rendering services. In our opinion Clauses (ii), (v), (vi), (viii), (ix), (x), (xi), (xii), (xiii), (xiv), (xv), (xvi), (xvii), (xviii), (xix), (xx) of the order are not applicable to the company for the year ended under report. (b) The Company had taken unsecured loans from a fellow subsidiary company. The year end balance of such amount is Nil. The maximum amount involved during the year is Rs. 20,074,500. For V. C. Shah & Co. Chartered Accountants (c) (d) The rate of interest and other terms and conditions on which these loans have been taken from the said company are not, prima facie, prejudicial to the interest of the Company; The Company is regular in repaying the principal amount as stipulated and there is no overdue amount. Place : Mumbai Date : 4th May, 2007 A. N. Shah Partner Membership No.: Kotak Mahindra Inc. 412

414 Balance Sheet as at 31st March, 2007 Sources of Funds Schedule 31st March, 2007 Rupees 31st March, 2006 Rupees Shareholders Funds : Share Capital 1 698, ,775 Reserves and Surplus 2 108,549,293 35,578,186 Loan Funds : Unsecured Loans 3 20,074,500 Total 109,247,938 55,996,461 Application of Funds Fixed Assets : 4 Gross Block 2,745,757 2,076,236 Less : Depreciation 1,511,890 1,191,833 Net Block 1,233, ,403 Investments 5 6,539 6,563 Deferred Tax Asset 579,930 Current Assets, Loans and Advances : Sundry Debtors 6 39,264,233 14,908,836 Cash and Bank Balances 7 128,584,400 59,384,311 Loans and Advances 8 1,993,015 4,800, ,841,648 79,094,010 Less : Current Liabilities and Provisions : Liabilities & Provisions 9 61,834,115 27,313,454 Net Current Assets 108,007,533 51,780,556 Profit and Loss Account 2,745,009 Total 109,247,938 55,996,461 Significant Accounting Policies and Notes to Financial Statements 14 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 S. Shyam Kumar Ravi Lochan Pola Partner Director Director Mumbai Dated: 4th May, 2007 Kotak Mahindra Inc. 413

415 Profit and Loss Account for the year ended 31st March, 2007 Schedule For the year ended 31st March, 2007 Rupees For the year ended 31st March, 2006 Rupees Income Income from Services ,171, ,267,315 Other Income 11 2,071, ,283 Total Income 242,242, ,476,598 Expenditure Personnel 12 77,704,153 61,378,277 Establishment and Other Expenses 13 32,110,672 31,241,777 Total Expenditure 109,814,826 92,620,054 Profit before Depreciation and Taxation 132,427,578 10,856,544 Depreciation 320, ,831 Profit/(Loss) before Taxation 132,107,520 10,435,713 Provision for Taxation Current Tax Prior Period Taxes Deferred Tax (52,750,803) (72,785) 579,931 Profit/(Loss) after Taxation 79,356,717 10,942,859 Add: Balance brought forward from Previous (2,745,009) (13,687,868) Profit/(Loss) Carried to Balance Sheet 76,611,708 (2,745,009) Significant Accounting Policies and Notes to Financial Statements 14 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 S. Shyam Kumar Ravi Lochan Pola Partner Director Director Mumbai Dated: 4th May, 2007 Kotak Mahindra Inc. 414

416 Cash Flow Statement for the year ended 31st March, Rupees Rupees Net Profit before taxation 132,107,520 10,435,713 Adjustments for: Interest (2,071,071) (209,283) Translation Reserve (3,640,601) 481,481 Depreciation 320, ,831 Operating Profit before Working Capital Changes 126,715,906 11,128,742 Adjustments for: (Increase)/Decrease in loans and advances (22,746) 18,175,731 (Increase)/Decrease in Sundry Debtors (24,355,397) (11,053,280) Increase/(Decrease) in current liabilities 11,455,666 26,845,329 Cash (used in)/generated from Operations 113,793,430 45,096,523 Direct taxes paid (26,275,285) (2,903,379) Net Cash Flow from Operating Activities (A) 87,518,145 42,193,144 Cash Flow from Investing Activities Purchase of Long Term investments 24 Purchase of fixed assets (669,521) (416,866) Purchase of investments Interest 2,071, ,283 Net Cash Flow (used in)/from Investing Activities (B) 1,401,575 (207,584) Cash Flow from Financing Activities Proceeds/(repayment) of term borrowings (20,074,500) 387,000 Issue of Equtiy Shares 354,870 Net Cash Flow (used in)/from Financing Activities (C) (19,719,630) 387,000 Net Increase/(Decrease) in Cash and Cash Equivalents (A + B + C) 69,200,089 42,372,560 Cash and Cash Equivalents at the beginning of the year 59,384,311 17,011,750 Cash and Cash Equivalents at the end of the year 128,584,400 59,384,311 69,200,089 42,372, 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. 2. Figures in brackets indicate cash outflow. 3. The previous year s figures have been re-grouped, 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 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 S. Shyam Kumar Ravi Lochan Pola Partner Director Director Mumbai Dated: 4th May, 2007 Kotak Mahindra Inc. 415

417 Schedules forming part of the Balance Sheet 31st March, 2007 Rupees 31st March, 2006 Rupees Schedule 1 Share Capital Authorised 2,000,000 Common stock, US$ 0.01 each (Previous year 10,00,000 Common stock of US$ 0.01 each) Issued, Subscribed and Paid-up 698, ,775 1,530,621 (Previous year 750,001 common stock of US $ 0.01 each fully paid up) (Of the above 780,620 common stocks are held by Kotak Mahindra Bank Limited, the holding company) (Previous year 750,000 equity shares were held by Kotak Mahindra Capital Company Limited, the holding company) Note: During the year 780,620 shares of US $ 0.01 each were issued at par to Kotak Mahindra Bank Limited 698, ,775 Schedule 2 Reserves and Surplus Share Premium Account As per last Balance Sheet 34,033,725 34,033,725 Additions during the year 34,033,725 34,033,725 Profit and Loss account 76,611,708 Translation Reserve (2,096,140) 1,544,461 Total 108,549,293 35,578,186 Schedule 3 Unsecured Loans Loan Others (Refer Note 3, Schedule 14) 20,074,500 Total 20,074,500 Schedule 4 Fixed Assets (At Cost) Rupees DESCRIPTION GROSS BLOCK DEPRECIATION NET BLOCK As at Additions Deduction As at As at For Withdrawn As at As at As at 1st April, 31st March, 1st April, the year 31st March, 31st March, 31st March, ASSETS Office Equipment 336, , , ,339 77, , , ,914 Furniture 621, , ,588 57, , , ,022 Computers 1,118, ,489 1,669, , , , , ,467 Total 2,076, ,521 2,745,757 1,191, ,057 1,511,890 1,233, ,403 Previous 1,659, ,866 2,076, , ,831 1,191, , ,368 Note: Fixed asset includes translation reserve of Rs. 94,534 (Previous year Rs. 60,319) Depreciation for the year includes translation reserve of Rs. 9,064 [Previous year Rs. (360)] Kotak Mahindra Inc. 416

418 Schedules forming part of the Balance Sheet (Contd.) 31st March, 2007 Rupees 31st March, 2006 Rupees Schedule 5 Investments Long Term 300 Warrrants of National Association of Security Dealers (Face Value 50 Cents) 6,539 6,563 Total 6,539 6,563 Schedule 6 Sundry Debtors (Unsecured) Considered good Over six months Others 39,264,233 14,908,836 Total 39,264,233 14,908,836 Schedule 7 Cash And Bank Balances Bank balances with Bank of New York (other than scheduled bank) 128,584,400 59,384,311 Total 128,584,400 59,384,311 Schedule 8 Loans And Advances (Unsecured, considered good unless otherwise stated) Advances recoverable in cash or in kind or for value to be received 1,993,015 1,970,269 Advance Taxes paid 2,830,594 Total 1,993,015 4,800,863 Schedule 9 Liabilities Other liabilities 38,769,120 27,313,454 Provision for Tax 23,064,995 Total 61,834,115 27,313,454 Kotak Mahindra Inc. 417

419 Schedules forming part of the Profit and Loss Account For the year ended 31st March, 2007 Rupees For the year ended 31st March, 2006 Rupees Schedule 10 Income from Services Commission & Fees 240,171, ,267,316 Total 240,171, ,267,315 Schedule 11 Other Income Interest 2,071, ,283 Total 2,071, ,283 Schedule 12 Personnel Salaries and other allowances 69,437,368 59,322,304 Contribution to statutory dues 8,266,786 2,055,974 Total 77,704,153 61,378,277 Schedule 13 Establishment and Other Expenses Foreign Auditors Remuneration 904, ,000 Legal and Professional 4,500,955 3,313,753 Communication expenses 3,640,002 4,037,264 Insurance 379, ,135 Directors Remuneration 9,044,000 11,567,217 Rent 3,516,298 3,301,113 Travelling and Conveyance 7,152,927 3,985,206 Other Expenses 2,972,655 3,942,090 Total 32,110,672 31,241,777 Kotak Mahindra Inc. 418

420 Schedules forming part of the Balance Sheet and Profit and Loss Account Schedule 14 Significant Accounting Policies and Notes to the Accounts 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 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. (iii) Revenue Recognition Securities transactions and the related revenue and expenses are recorded on a trade date basis. The Company also receives commission for referring clients. Referral fees are based (a) on the month-end NAV of the clients holdings and (b) on the equity brokerage and derivative trades as a percentage of each trade. The percentage of commission is determined based on a pre-determined fee structure agreed by the clients at the time of opening the accounts or as per the amendment. (iv) Fixed Assets Fixed assets are stated net of depreciation. Depreciation has been provided on Straight Line Method over an estimated useful life between three and five years. The rates of depreciation are fixed after considering the management s estimation of the useful life of the asset. (v) 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. Notes to the accounts 1. During the year ended March 31, 2007, the company increased the authorized shares from 1,000,000 to 2,000,000 and issued 780,620 shares of its common stock to the Kotak Mahindra Bank Limited (KMBL). Prior to the issuance, the company was majority owned subsidiary of Kotak Mahindra Capital Company Limited ( KMCC ). As a result of this issuance, as of March 31, 2007, KMBL owns 51% of the company and KMCC owns 49% of the company. 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. 3. As at the end of the year the company has amounts payable of Rs. Nil (Previous Rs. 20,074,500) under three subordinated loans of Rs. Nil (Previous Rs. 4,461,000) each and one subordinated loan of Rs. Nil (Previous Rs. 6,691,500) to Kotak Mahindra (International) Limited, which were pursuant to agreements approved by the National Association of Securities Dealer. The four loans were non interest bearing and were set to mature on September , August , September 30, 2009 and July respectively. The company with NASD approval, fully repaid all four equity subordinated loans in March, The Company has a deferred tax asset of Rs. Nil (Previous period Rs. 579,931/-), The company has utilized the federal and New York state net operating loss carry-forwards, which were to expire beginning Prior year deferred tax asset fully valued at Rs. 579,931/- was also utilized against the provision for income taxes. Kotak Mahindra Inc. 419

421 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) 5. The Company appointed Kotak Mahindra (UK) Limited, an fellow subsidiary, as its clearing agent to execute and process the settlement of its ADR and GDR business. For the period April 1, 2006 through March 31, 2007 there were no commissions earned for transactions that cleared through Kotak Mahindra (UK) Limited (previous period Rs. 57,590/-). There are no amounts due from the said Company at March 31, 2007 related to the ADR and GDR business. The Company received referral fees from four affiliates who managed accounts referred to them by the Company. The Company had referral fees from affiliates of approximately Rs. 183,231,440 for the year ended March 31, Amounts due from three of the affiliates at March 31, 2007 were Rs. 34,608,586/- (Previous Rs. 1,04,98,964). 6. The Company has entered into a non-cancelable operating lease for office facilities, which expires in October, 2007 and is subject to escalations for increase in real estate taxes and other operating costs. In April, 2007, the Company entered into an operating lease for office facilities in New York City, which expires on September 30, 2007 with an automatic six-month renewal. Monthly rent is Rs. 153,748/- plus applicable taxes and other fixed charges. On completion of one year of the lease, the monthly base rent will increase by 6%. Aggregate future minimum rental payments under the lease are as follows: ending March 31, Amount in Rs ,179,500 Office rent expenses amounted to approximately Rs. 3,516,298 for the 12 month period ended March 31, Previous years figures have been regrouped, reclassified wherever necessary to confirm to figures of the current year. Signatures to Schedules 1 to 14 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 S. Shyam Kumar Ravi Lochan Pola Partner Director Director Mumbai Dated: 4th May, 2007 Kotak Mahindra Inc. 420

422 BOARD OF DIRECTORS: Uday Kumar GujadhUr, Didier Merle, Sow Man Ah Yuk Shing, Shyam Kumar, Ravi Lochan Pola, Yuvraj Kumar Juwaheer Directors Report Commentary of the directors to the shareholders of Global Investment Opportunities Fund Limited. The directors present their report and the audited financial statements of Global Investment Opportunities Fund Limited (the company ) for the year ended March 31, Principal objective The principal objective of the company is to seek capital appreciation by investing in portfolio of securities comprising principally of convertible bonds, debt and shares of companies incorporated in India and elsewhere. Results and dividend The results for the year are annexed. The directors do not recommend the payment of a dividend for the year under review. Statement of directors responsibilities in respect of the financial statements Company law requires the directors to prepare financial statements for each financial period which present fairly the financial position, financial performance and cash flows of the company. In preparing those financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and estimates that are reasonable and prudent; state whether International Financial Reporting Standards have been followed, subject to any material departures disclosed and explained in the financial statement; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. The directors confirm that they have complied with the above requirements in preparing the financial statements. The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the company and to enable them to ensure that the financial statements comply with the Companies Act They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Directors interests (a) There are no service contracts in existence between the company and any of its directors, nor are any such contracts proposed. (b) None of the directors has any interests either beneficial or non-beneficial, in the share capital of the company. (c) (d) (e) There are no existing or proposed contracts of service between any of its directors and the company. Uday Kumar Gujadhur and Yuvraj Kumar Juwaheer are directors of Multiconsult Limited. Shyam Kumar is the director of Kotak Mahindra (International) Limited and Kotak Mahindra (UK) Limited. Ravilochan Pola, is a director of Kotak Mahindra Inc. and Kotak Mahindra (International) Limited. Paul Parambi resigned as a Director of GIOFL on the 15th of May, Didier Merle and Sow Man Ah Yuk Shing were appointed as Directors as at the 6th of April, Date : 7th May, 2007 By Order of the Board CORPORATE SECRETARY multiconsult Limited 10, Frère Félix de Valois Street Port Louis Global Investment Opportunities Fund Limited 421

423 Auditors Report To the Members of Global Investment Opportunities Fund Limited The financial statements of Global Investment Opportunities Fund Limited as at 31st March, 2007, being a company registered in the Mauritius, are audited by KPMG, Public Accountants, Mauritius and we have been furnished with their audit report dated 2nd May, We are presented with the accounts in Indian Rupees prepared on the basis of aforesaid accounts to comply with requirements of Section 212 of Companies Act We give our report hereunder: 1. We have audited the attached Balance Sheet of Global Investment Opportunities Fund Limited as at 31st March, 2007 and also 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 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, 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) 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; (ii) 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; (iii) The Balance Sheet and also Profit and Loss account dealt with by this report are in agreement with the books of account; (iv) 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; (v) On the basis of written representations received from the directors, we report that none of the directors is disqualified as on 31st March, 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of section 274 of the Companies Act, 1956; (vi) In our opinion, on the basis of information and explanations 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. (a) (b) Place : Mumbai Date : 7th May, 2007 in the case of the Balance Sheet of the state of affairs of the Company as at 31st March, 2007; and in the case of the Profit and 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.: Global Investment Opportunities Fund Limited 422

424 Annexure to Auditors Report Annexure referred to in paragraph 3 of the Auditors Report of even date to the members of Global Investment Opportunities Fund Limited on the financial statements for the year ended 31st March, (1) 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 for services. There are no purchase of inventory, fixed assets and sale of goods. (2) As informed to us, the Company does not have an internal audit system. (3) According to the information and explanation given to us, proper records have been maintained in respect of the transaction and contracts in shares, securities, debentures and other investments, and timely entries have been made therein. The investments are held by the company in its own name. (4) According to information and explanations given to us, we report that no fraud on or by the Company has been noticed or reported during the year. (5) The Company is a foreign company rendering services. In our opinion clauses (i), (ii), (iii), (v), (vi), (viii), (ix), (x), (xi), (xii), (xiii), (xv), (xvi), (xvii), (xviii), (xix), (xx) of the order are not applicable to the company for the year ended under report. Place : Mumbai Date : 7th May, 2007 For V. C. SHAH & CO. Chartered Accountants A. N. Shah Partner Membership No.: Global Investment Opportunities Fund Limited 423

425 Balance Sheet as at March 31, 2007 March 31, 2007 March, Schedule Management Shares Rupees Consolidated Class Accounts Rupees Total Rupees Management Shares Rupees Consolidated Class Accounts Rupees Total Rupees Sources of Funds Shareholders Funds: Share Capital 1 9, , ,216 4,818 2,634,103 2,638,921 Reserves and Surplus 2 (658) 6,078,406,351 6,078,405,693 (357) 7,489,743,161 7,489,742,804 Total 8,936 6,079,165,973 6,079,174,909 4,461 7,492,377,264 7,492,381,725 Application of Funds Investments 3 5,260,662,681 5,260,662,681 6,777,078,486 6,777,078,486 Current Assets, Loans and Advances: Sundry Debtors 4 83,425,157 83,425, ,842, ,842,690 Cash and Bank Balances 5 8, ,425, ,434,617 4, ,542, ,546,678 Loans and Advances 6 17,593,927 17,593,927 6,375,840 6,375,840 8, ,444, ,453,701 4, ,760, ,765,208 Less: Current Liabilities and Provisions: Liabilities 7 111,941, ,941, ,461, ,461,969 Net Current Assets 8, ,503, ,512,228 4, ,298, ,303,239 Total 8,936 6,079,165,973 6,079,174,909 4,461 7,492,377,264 7,492,381,725 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 V. C. Shah and Co. Chartered Accountants For and on behalf of the Board of Directors A. N. Shah Yuvraj Kumar Juwaheer Ravi Lochan Pola Partner Director Director Mumbai Dated : 7th May, 2007 Global Investment Opportunities Fund Limited 424

426 Profit and Loss Account for the year ended March 31, 2007 Income Management Shares Rupees For the year ended March 31, 2007 For the year ended March 31, 2006 Consolidated Class Accounts Rupees Total Rupees Management Shares Rupees Consolidated Class Accounts Rupees Total Rupees Dividends 106,055, ,055,054 32,519,345 32,519,345 Interest 30,729,161 30,729,161 10,853,677 10,853,677 Service Income 853, ,663 7,270,915 7,270,915 Profit on Sale of Investments(Net) 2,158,163,118 2,158,163, ,885, ,885,170 Exchange gain 17,314,150 17,314,150 Total Income 2,313,115,146 2,313,115, ,529, ,529,107 Expenditure Transaction and Custody Charges 3,700,443 3,700,443 1,867,112 1,867,112 Other Operating Expenses 12,754,437 12,754,437 8,121,253 8,121,253 Foreign Auditors Remuneration 904, , , ,028 Legal fees 1,474,353 1,474,353 2,793,115 2,793,115 Investment Advisory and facilitator fees 245,893, ,893, ,153, ,153,279 Exchange Loss 5,696,316 5,696,316 Total Expenditure 264,727, ,727, ,270, ,270,103 Profit Before Taxation 2,048,387,769 2,048,387, ,259, ,259,004 Provision for Taxation Profit After Taxation 2,048,387,769 2,048,387, ,259, ,259,004 Add: Balance Brought Forward From Previous 883,601, ,601, ,342, ,342,849 Less: Redemption proceeds (1,230,588,230) Balance Carried Forward 1,701,401,393 2,931,989, ,601, ,601,853 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 V. C. Shah and Co. Chartered Accountants For and on behalf of the Board of Directors A. N. Shah Yuvraj Kumar Juwaheer Ravi Lochan Pola Partner Director Director Mumbai Dated : 7th May, 2007 Global Investment Opportunities Fund Limited 425

427 Schedules forming part of the Balance Sheet Management Shares Rupees March 31, 2007 March 31, 2006 Consolidated Class Accounts Rupees Total Rupees Management Shares Rupees Consolidated Class Accounts Rupees Total Rupees Schedule 1 Share Capital Issued, Subscribed and paid up 205 (Previous year 100) Management shares of USD 0.01 each (Of the above 105 shares are held by Kotak Mahindra Bank Limited the holding company). (previous year 100 shares were held by Kotak Mahindra International Limited) 9,594 9,594 4,818 4, ,717 (Previous year 134,676) Class A Participating shares of USD 0.01 each 64,727 64,727 60,518 60,518 7,470 (Previous year 43,472) Class B Participating shares of USD 0.01 each 3,737 3,737 19,851 19, ,475 (Previous year 293,071) Class C Participating shares of USD 0.01 each 131, , , ,348 8,174 (Previous year 8,174) Class D Participating shares of USD 0.01 each 3,657 3,657 3,666 3,666 Nil (Previous year 38,897) Class E Participating shares of USD 0.01 each ,219 18, ,115 (Previous year 584,681) Class F Participating shares of USD 0.01 each 346, , , ,012 Nil (Previous year 3,996,110) Class G Participating shares of USD 0.01 each 1,770,275 1,770, ,818 (Previous year 840,220) Class H Participating shares of USD 0.01 each 40,159 40, , , ,293 (Previous year Nil) Class I Participating shares of USD 0.01 each 169, ,258 (Refer note 3(c), Schedule 8) Total 9, , ,216 4,818 2,634,104 2,638,922 Schedule 2 Reserves and Surplus Share Premium As per last Balance sheet 6,498,316,297 6,498,316,297 1,436,865,072 1,436,865,072 Add: Received during the year 5,038,958,929 5,038,958,929 6,853,415,065 6,853,415,065 Less: Paid on redemption (7,110,020,320) (7,110,020,320) (1,791,963,839) (1,791,963,839) (Refer note 3(c) of Schedule 8) 4,427,254,905 4,427,254,905 6,498,316,298 6,498,316,298 Profit and Loss Account 1,701,401,393 1,701,401, ,601, ,601,853 Translation Reserve (658) (50,249,947) (50,250,605) (357) 107,825, ,824,653 Total (658) 6,078,406,351 6,078,405,693 (357) 7,489,743,161 7,489,742,804 Schedule 3 Investments As per list in note 3(d) of schedule 8 5,260,662,681 5,260,662,681 6,777,078,486 6,777,078,486 Total 5,260,662,681 5,260,662,681 6,777,078,486 6,777,078,486 Global Investment Opportunities Fund Limited 426

428 Schedules forming part of the Balance Sheet (Contd.) Management Shares Rupees March 31, 2007 March 31, 2006 Consolidated Class Accounts Rupees Total Rupees Management Shares Rupees Consolidated Class Accounts Rupees Total Rupees Schedule 4 Sundry Debtors (Unsecured) Considered good Over six months Others 83,425,157 83,425, ,842, ,842,690 Total 83,425,157 83,425, ,842, ,842,690 Schedule 5 Cash and Bank Balances Bank balances 8, ,425, ,434,618 4, ,542, ,546,678 Total 8, ,425, ,434,618 4, ,542, ,546,678 Schedule 6 Loans and Advances (Unsecured, considered good unless otherwise stated) Advances recoverable in cash or in kind or for value to be received 17,593,927 17,593,927 6,375,840 6,375,840 Total 17,593,927 17,593,927 6,375,840 6,375,840 Schedule 7 Liabilities Sundry Creditors 111,941, ,941, ,461, ,461,969 Total 111,941, ,941, ,461, ,461,969 Schedule 8 Significant Accounting Policies and Notes to the Accounts 1. General information Global Investment Opportunities Fund Limited (the company ) was incorporated on 31st January 2001 and is domiciled in Mauritius as a private company limited by shares. 2. Significant 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) Basis of preparation The financial statements have been prepared under the historical cost convention on accrual basis (b) 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 and the said account is being treated as Reserves and Surplus. The Share Capital is carried forward at the rate of exchange prevailing on the transaction date. (c) (d) Revenue recognition Interest income is recognised in the income statement as accrued. Dividend income relating to listed long equity securities are recognized in the income statement on the ex-dividend date. Share capital On issue of participating shares, the difference between the issue price and the nominal value is credited to the share premium account. On redemption, the nominal value is debited to the share capital account and any excess to share premium and retained earnings account. Global Investment Opportunities Fund Limited 427

429 Schedules forming part of the Balance Sheet (Contd.) (e) Investments The company classified its investments in equity securities/futures and options as available for sale. Investments are initially recognised at cost, including transaction costs 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. All investment transactions are recorded on a trade date basis and costs of investments are determined on an average cost basis. 3. Notes to the accounts a. During the year ended 31st March 2007, the Company issued 105 management shares to Kotak Mahindra Bank Limited. As a result of the issuance, the company became a first level subsidiary of Kotak Mahindra Bank Limited. Prior to the issuance, the company was 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, b. The transactions are in local currency, which have been converted into Indian Currency for reporting and the rate applied is as per para 2(b) of the significant accounting policies. c. Share Capital and Share premium Participating shares Class A Class B Class C Class D Class E Class F Class G Class H Class I Total Number of shares At 1 April ,676 43, ,071 8,174 38, ,681 3,996, ,939,301 Issued during the period 107,626 2, , , ,434 24, , ,626 1,615,435 Redeemed during the period (99,585) (38,912) (211,317) 0 (57,130) 0 (4,021,106) (1,056,291) (3,57,333) (5,841,674) At 31 March ,717 7, ,475 8, , , ,293 1,713,062 Share capital Rs Rs Rs Rs Rs Rs Rs Rs Rs Rs At 1 April ,109 20, ,113 3, ,978 1,770, , ,634,104 Issued during the 48,657 1,311 96, ,230 87,908 11, , , ,484 period Redeemed during the period (45,039) (17,591) (95,550) 0 (25,980) 0 (1,781,577) (477,659) (161,571) (2,604,966) At 31 March ,727 3, ,198 3, , , , ,622 Share premium Rs Rs Rs Rs Rs Rs Rs Rs Rs Rs At 1 April ,265, ,356,169 2,720,395,331 45,635, ,740, ,120,780 1,769,055, ,746, ,498,316,297 Issued during the period Redeemed during the period 1,501,825,839 25,988,793 2,727,579, ,190, ,532,038 3,37,761,746 5,038,958,929 (1,390,757,153) (257,587,138) (2,720,705,887) 0 (299,198,072) 0 (1,783,245,510) (495,542,918) (162,983,642) (7,110,020,320) At 31 March ,078,334,396 2,757,824 2,727,269,314 45,635,269 (0) 379,743, ,736, ,778,104 4,427,254,905 Retained Earnings Rs Rs Rs Rs Rs Rs Rs Rs Rs Rs Redemption proceeds taken out of retained earnings account 0 (68,969,906) 0 0 (234,659,151) 0 (926,959,173) 0 0 (1,230,588,230) Net Asset Value per share At 31 March ,851 8,261 13, At 31 March ,256 8,986 1,2546 9,146 9, Management shares At 31 March ,818 Issued during the 4,776 9,594 period Total share capital 9, ,216 Global Investment Opportunities Fund Limited 428

430 Schedules forming part of the Balance Sheet (Contd.) c. Share Capital and Share premium (Contd.) 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) (b) (c) voting rights in any members meeting other than class meetings of holders of class shares. Each Management share shall carry one vote. the right to participate in so much only of the profits and assets of the company as are attributable to the Management shares; and 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 Bank Limited (51%) and Kotak Mahindra International Limited (49%). The par value of management share is USD 1 each. Participating shares The Participating shares consist of class A to I shares and shares: (a) (b) (c) 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; carry a right to class dividend; and 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. The par value of participating share is USD 0.01 each. d. List of Investments Scrip name Quantity As At 31st March, 2007 Rupees As At 31st March, 2007 Quantity As At 31st March, 2006 Rupees As At 31st March, I Infotech Limited 728, ,601, ,300 39,836,058 Aditya Birla Nuvo Limited 91,022 69,939, , ,383,417 Alembic Limited 24,206 1,394, ,952 95,890,283 Alfa Laval India Ltd. 20,069 22,160,729 Allahabad Bank 1,081,270 90,531,633 1,822, ,835,443 Allcargo Global Logistics Limited 114,027 88,854,655 Amar Raja Batteries 122,453 46,946,903 Amtek Auto Limited 351, ,957, , ,779,367 Amtek India Ltd. 345,243 36,300,317 Global Investment Opportunities Fund Limited 429

431 Schedules forming part of the Balance Sheet (Contd.) Scrip name Quantity As At 31st March, 2007 Rupees As At 31st March, 2007 Quantity As At 31st March, 2006 Rupees As At 31st March, 2006 Apollo Hospitals Enterprise Ltd. 44,760 20,792,529 Asian Hotels Ltd. 48,233 28,795,184 Asian Paints 56,149 33,555,721 Automative Axles Ltd. 76,096 39,638,434 Avantel Softech Limited 227,775 27,820,687 Aventis Pharma Limited 2,898 3,883,624 38,584 56,826,860 Bajaj Hindustan Ltd. 90,000 16,376,515 Balmer Lawrie And Co. Ltd. 73,696 40,776,201 Bank of India 355,000 51,965,169 BEML 88,000 98,429,367 40,817 63,303,668 Bharat Bijlee Ltd. 73,065 53,283, , ,433,840 Bharat Electronics Ltd. 80,000 84,074, , ,172,421 Bharat Forge Co. Ltd. 37,900 10,657,570 Bharti Shipyard Ltd. 242,746 82,107,519 Bharti Tele-Ventures Ltd. 56,915 45,128, ,336 55,315,134 BHEL 23,490 51,969,898 Bilcare Ltd. 48,162 23,087,785 Biocon Limited 21,857 9,300,103 Birla Corporation Ltd. 184,753 49,191,350 1,066, ,365,933 Blue Dart Express Ltd. 20,284 11,918,958 Boc Ltd. 71,183 12,166,874 Bses Ltd. 69,700 40,673,199 Cadila Healthcare Limited 256,341 67,869, ,275 94,441,673 Carborundum Universal Ltd. 179,433 26,095, ,024 50,447,006 Ceat Ltd. 495,524 62,049,268 Centurion Bank of Punjab Limited 150,000 5,556,451 Century Textiles 181,000 69,989,510 Chettinad Cements Ltd. 50,802 17,799,208 Cipla Ltd. 5,000 1,132,331 58,906 19,104,300 Container Corporation of India Limited 840 1,454,581 10,031 14,020,280 Crompton Greaves Ltd. 112,249 70,931,278 Dabur India Ltd. 1,136,701 86,648,307 98,000 11,894,083 Dena Bank 847,640 29,123,036 Dishman Pharmaceuticals and Chemicals Limited 3, ,462 Divis Laboratories Limited 800 2,434,492 2,211 2,690,305 Dr. Reddys Laboratories Limited 6,000 4,233,524 Dynamatic Technologies Ltd. 19,749 19,422, , ,941,914 Eid Parry India Ltd. 626, ,952, ,303 47,799,433 Global Investment Opportunities Fund Limited 430

432 Schedules forming part of the Balance Sheet (Contd.) Scrip name Quantity As At 31st March, 2007 Rupees As At 31st March, 2007 Quantity As At 31st March, 2006 Rupees As At 31st March, 2006 Elder Pharmaceuticals Limited 43,300 10,230,049 Elecon Engineering Co. Ltd. 117,244 43,114,217 Emco Ltd. 53,907 29,430,319 Esab India Ltd. 194,745 66,762,818 Everest Kanto Cylinder Limited 458, ,224,083 Fag Bearings India Limited 26,687 11,420,793 Finolex Cables Ltd. 1,144,000 57,322, ,388 56,640,046 Gas Authority Of India Limited 7,300 1,869,023 41,100 11,768,747 Geodesic Information Systems Ltd. 230,000 42,846, ,296 60,711,172 Gitanjali Gems Limited 285,602 61,679,727 Glaxosmithkline Pharmaceuticals Limited 2,500 2,409,194 8,783 6,476,338 Glenmark Pharmaceuticals Ltd. 50,000 15,703, , ,703,624 Godrej Consumer Products Limited 327,715 31,446,580 52,961 34,981,409 Goetze (India) Ltd. 206,182 48,556,279 Grasim Industries Ltd. 18,100 33,902,164 46,050 82,609,274 Great Eastern Shipping Co. Ltd. 381,530 87,057,452 Gujarat Narmada Valley Fertilizer Co. Ltd. 357,174 43,750,511 HCL Technologies Ltd. 9,300 2,792,630 Hdfc Bank Ltd 81,975 52,915,858 Hero Honda Motors Ltd. 1,723 1,351,654 13,750 12,140,769 Hinduja TMT 50,000 30,089,703 Hindustan Construction Co. Ltd. 491,043 73,397,809 Hindustan Lever Ltd. 96,000 18,908,882 Hindustan Motors Ltd. 787,863 28,223,700 1,343,752 48,924,984 Housing Development Finance Corporation Ltd. 33,000 30,248,803 62,170 54,586,310 HOV Services Ltd. 235,897 43,517,708 Ht Media Limited 670,125 71,530,271 20,887 9,652,384 Ici India Ltd. 175,774 55,698, ,374 85,115,864 ICICI Bank Ltd. 112,700 83,552,548 Idea Cellular Ltd. 350,000 31,614,599 IL&FS Investsmart Limited 281,357 57,693,736 India Bulls 70,000 16,272, , ,745,520 India Bulls Real Estate Ltd. 75,000 11,305,740 India Infoline 299,318 88,409,079 Indian Hotels Co. Ltd. 710,000 74,423,906 54,316 51,018,286 Indian Oil Corporation 94,597 45,906,696 Indian Overseas Bank 215,335 25,047,441 Indoco Remedies Limited 252,547 81,958, ,469 81,252,492 Global Investment Opportunities Fund Limited 431

433 Schedules forming part of the Balance Sheet (Contd.) Scrip name Quantity As At 31st March, 2007 Rupees As At 31st March, 2007 Quantity As At 31st March, 2006 Rupees As At 31st March, 2006 Ind-Swift Laboratories Ltd. 46,122 8,771,867 Infosys Technologies Ltd. 67,000 93,050,157 49, ,844,398 Infotech Enterprises Ltd 22,785 12,468,546 IPCA Laboratories Ltd. 32,504 13,460,243 ISMT Limited 867,512 79,035,520 ITC Ltd. 450,500 56,103, ,095 72,478,417 IVRCL Infrastructures and Projects Ltd. 296,880 74,792,933 Jaiprakash Associates Ltd. 201,572 77,991, , ,335,464 Jindal Saw Limited 321, ,554, ,332 75,063,796 Jindal Steel and Power Ltd. 13,183 27,515,864 JK Cements Ltd. 505,000 93,879,486 Jsw Steel Limited 205,000 72,709, ,762 44,355,668 Jubilant Organosys Ltd. 10,000 2,450,859 Jupiter Biosciences Limited 62,101 9,791,796 Kalpataru Power Transmission Ltd. 79,000 50,255,991 32,455 36,418,026 Kesoram Industries Ltd. 118,681 39,999,178 Kirloskar Brothers Limited 108,315 15,290,489 Kirloskar Oil Engines Ltd. 139,755 35,209,913 45,000 11,339,520 Kotak Fund of Funds Mutual Growth Option 3,263,311 46,026,895 3,285,721 47,427,393 Kpit Cummins Infosystems Limited 18,300 2,486, ,027 97,312,283 Larsen And Toubro Ltd. 56,000 79,072,816 51,284 63,871,179 Lupin Limited 129,372 60,699,680 15,691 12,024,003 Madras Cements Ltd. 35,020 58,943,852 Mahindra And Mahindra Ltd. 90,000 57,805,600 83,700 45,625,878 Maruti Udyog Limited 37,100 26,097,811 74,900 50,044,660 Matrix Labs 3,935,426 33,200 5,877,072 Mawana Sugar Ltd. 72,017 8,499,183 Mcleod Russel India Limited 1,603, ,948,890 Motherson Sumi Systems Ltd. 288,677 23,315, ,996 63,439,328 Motor Industries Co. Ltd. 9,694 24,241,944 Nahar Capital and Financial Services Limited 184,819 23,838,273 Nahar Spinning Mills Ltd. 180,352 27,279,121 Natco Pharma Limited 14,803 1,899,602 93,803 12,356,630 National Aluminium Company Limited 43,000 11,771,782 National Thermal Power Corporation Limited 140,670 17,681,366 88,000 12,071,769 Navin Fluorine International Ltd. 129,313 39,351, , ,136,770 Nestle India Limited 10,269 10,913,521 Nicholas Piramal India Ltd. 5, ,520 Global Investment Opportunities Fund Limited 432

434 Schedules forming part of the Balance Sheet (Contd.) Scrip name Quantity As At 31st March, 2007 Rupees As At 31st March, 2007 Quantity As At 31st March, 2006 Rupees As At 31st March, 2006 NIIT Technologies Ltd. 61,200 12,179,181 Novartis India Ltd. 7,076 4,048,070 33,081 19,110,630 Oil and Natural Gas Corpn. Ltd. 127,420 98,819,001 92,275 96,600,140 Orchid Chemicals and Pharmaceuticals Ltd. 42,335 11,262,190 Panacea Biotec Ltd. 9,492 2,254,659 30,834 7,263,252 Pantaloon Retail (India) Ltd. 65,200 19,572, , ,886,696 Patel Engineering Ltd. 316, ,700,629 Pfizer Ltd. 4,000 3,002,620 14,459 11,295,323 Pidlite Industries Ltd. 117,288 10,918,653 Power Finance Corporation Limited 176,338 18,448,964 Prajay Engineers Syndicate Ltd. 198,720 44,448,299 Pratibha Industries Limited 681, ,117,454 Proctor and Gamble India Ltd. 67,872 53,267,040 Ranbaxy Laboratories Ltd. 124,236 48,753, ,067 55,229,693 Raymond Ltd. 141,863 58,646, ,933 88,537,028 Reliance Capital Limited 57,630 34,388, , ,077,164 Reliance Communication Limited 174,500 58,559,530 Reliance Industries Ltd. 117, ,907, ,300 86,694,281 Royal Orchid Hotels Ltd. 322,932 60,123,409 Rpg Life Sciences Limited 42,912 7,336,043 Satyam Computer Services Ltd. 110,000 27,346,863 76,606 31,423,004 Shree Cements Ltd. 27,270 29,128,250 Siemens Ltd. 22,433 34,981,431 Sobha Developers 4,233 4,551,953 Solar Explosive Limited 37,607 7,137,330 Srei International Finance Ltd. 686,611 37,248,395 Steel Authority Of India Ltd. 617,700 42,105,167 Sterlite Industries (India) Ltd. 66,948 32,118,980 26,032 21,189,027 Subex Azure Ltd. 57,133 33,098,660 Sun Pharmaceuticals Industries Ltd 33,363 32,159,477 20,713 11,204,470 Su-Raj Diamonds (India) Ltd. 145,010 10,292,817 Tamil Nadu Newsprint and Papers Ltd. 314,020 35,251,689 Tanla Solutions Ltd. 72,823 24,695,214 Global Investment Opportunities Fund Limited 433

435 Schedules forming part of the Balance Sheet (Contd.) e. Taxation Scrip name Quantity As At 31st March, 2007 Rupees As At 31st March, 2007 Quantity As At 31st March, 2006 Rupees As At 31st March, 2006 Tata Consultancy Services Limited 71,050 62,117,184 39,550 60,198,074 Tata Iron and Steel Co. Ltd. 5,600 2,496,865 Tata Motors Limited 70,400 42,974,242 Tata Tea Ltd. 13,500 11,858,551 Tech Mahindra Ltd. 60,750 60,328,951 Texmaco Limited 122,716 81,148,337 The Andhra Sugars Ltd. 257,365 55,442,450 The Federal Bank Ltd. 209,036 38,330,597 The Jammu and Kashmir Bank Ltd. 100,653 50,936,006 Thermax Ltd. 247,155 60,136,867 Tube Investments of India Ltd. 1,207, ,355,660 TVS Motor Company Limited 8, ,005 United Spirits Ltd. 21,200 15,147,592 Unichem Laboratories Ltd. 10,000 2,374, , ,492,406 United Breweries Holdings Limited 180,550 48,671,744 United Phosphorous Ltd. 243,000 53,336, ,844 69,399,571 UTI Bank Ltd. 185,341 83,635,191 UTV Software Ltd. 140,000 24,511, , ,251,322 Wanbury Limited 69,746 11,068,944 Wipro Ltd. 5,954 3,442,123 22,500 11,896,658 Wockhardt Limited 22,500 11,081,503 Wyeth Lederle Ltd. 5,800 3,676,403 17,734 11,647,934 Zee Entertainment Enterprises Ltd. 182,268 46,201,445 Zenotech Laboratories Limited 39,453 4,821,588 26,370,158 5,259,555,503 29,320,566 6,777,078,486 Derivative financial instruments 1,107,178 Total 5,260,662,681 6,777,078,486 Aggregate value of Quoted Investments At Book Value 5,260,662,681 6,729,651,093 At Market Value 6,152,671,187 8,485,835,879 Aggregate value of Unquoted Investments 47,427,393 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 31st March, 2006 as the company has no chargeable income. At 31st March, 2007, the company had accumulated tax losses of Rs. 226,194,307 (Previous year Rs. 9,488,190). No deferred tax asset has been recognised in respect of tax losses under the company s accounting policy for recognising deferred tax assets. Global Investment Opportunities Fund Limited 434

436 Schedules forming part of the Balance Sheet (Contd.) f. Related party transactions During the year ended 31st March, 2007, the company s transactions with related party are as follows: Related Parties Kotak Mahindra International Limited Kotak Mahindra (UK) Limited Nature of Relationship Fellow subsidiary Fellow subsidiary (all figures in Rs.) Nature of Transactions Volume of transaction for the period ended Debit/Credit balance at 31st March, st March, st March, st March, 2006 Investment Advisory fees 15,863,900 85,536,699 (26,351,885) Investment 155,602,110 11,318,710 Advisory fees Investment Facilitator fees 74,427,734 68,616,580 3,743,002 Kotak Securities acts as the Company s broker and brokerage fees are included as investment facilitator fees. All related party transactions entered during the year by the Company are priced on commercial terms and conditions. g. Current year figures have been regrouped and reclassified wherever necessary. Signatures to Schedules 1 to 8 Per our report attached For V. C. Shah and Co. Chartered Accountants For and on behalf of the Board of Directors A. N. Shah Yuvraj Kumar Juwaheer Ravi Lochan Pola Partner Director Director Mumbai Dated : 7th May, 2007 Global Investment Opportunities Fund Limited 435

437 Board of Directors: Ms. Falguni Nayar, Mr. Jaimin Bhatt, Ms. Shanti Ekambaram, Mr. Chandrashekhar Sathe Directors Report The Directors have pleasure in presenting their Thirteenth Annual Report together with the audited accounts of the Company for the year ended 31st March, FINANCIAL RESULTS AND OPERATIONS In view of the buoyancy prevalent in the secondary market throughout last year, the industry has been able to improve its performance over the previous year. During the year, your Company provided trading services to its clients. The company earned an income of Rs. 27,248,054 (Previous Rs. 329,536,471) resulting in a net profit before tax of Rs. 6,018,683 (Previous Rs. 313,837,588). 2. DIVIDEND With a view to conserve resources, the Directors do not recommend any Dividend. 3. DEMERGER During the year a petition was filed before the Hon ble High Court of Judicature at Bombay pursuant to Sections 391 to 394 of the Companies Act, 1956 in respect of a Scheme of Arrangement between Kotak Mahindra Securities Limited (KMSL), Kotak Mahindra Capital Company Limited (KMCC) and their respective shareholders and creditors for demerger of undertaking comprising of the Trading and Clearing operations and strategic investments of KMSL to KMCC. The Hon ble Bombay High Court granted its approval to the same vide Order dated 15th February, This scheme as of date is pending approval of the Securities and Exchange Board. Prior to the demerger your Company was a Trading and Clearing Member of the Cash, Future & Options and Wholesale Debt Market segment of the National Stock Exchange of India Limited. The demerger is being done with a view to consolidate all capital market related activities into KMCC, which has a substantially higher net worth than KMSL. 4. DIRECTORS Mr. Jaimin Bhatt, Director of the Company, retires at the forthcoming Annual General Meeting and, being eligible, offer himself for reappointment. 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) the Company has, in the preparation of the annual accounts for the year ended 31st March, 2007, 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 31st March, 2007 and of the profit of the Company for the financial year ended 31st March, 2007; (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. 7. 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 and other Government and Regulatory agencies. Your Directors acknowledge and wish to place their appreciation of employees for their commendable efforts, teamwork and professionalism. 5. AUDITORS The Company s Auditors, Messrs Price Waterhouse, Chartered Accountants, Mumbai, retire at the Annual General Meeting and are eligible for reappointment. 6. STATUTORY INFORMATION During the year under review, the Company has not accepted any deposits from the public. Mumbai, 2nd May, 2007 For and on behalf of the Board of Directors Falguni Nayar Chandrashekhar Sathe Director Director Kotak Mahindra Securities Limited 436

438 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 31st March, 2007, 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 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 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. We draw attention to Note 10 on Schedule 15 regarding the approval of the Scheme of Arrangement (the Scheme ) to demerge the trading and clearing operations of the Company which has not been given effect to in these financial statements as the said Scheme is pending approval from the regulatory authorities. 4. 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) (b) (c) in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2007; 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. 5. 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. 6. 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. 7. The Balance Sheet and the Profit and Loss Account dealt with by this report are in agreement with the books of account. 8. 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. 9. On the basis of written representations received from the Directors of the Company, as on 31st March, 2007, and taken on record by the Board of Directors of the Company, none of the Directors of the Company is disqualified as on 31st March, 2007 from being appointed as a Director in terms of clause (g) of sub-section (1) of Section 274 of the Act; 10. As required by the Companies (Auditor s Report) Order, 2003 as amended by the Companies (Auditor s Report) (Amendment) Order, 2004 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) (c) The fixed assets of the Company 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. There have been no disposal of fixed assets by the Company during the year. (ii) (a) The Company has not granted any loans, secured or unsecured, to companies, firms, or other parties covered in the register maintained under Section 301 of the Act. (b) The Company has not taken any loans, secured or unsecured, from companies, firms, or other parties covered in the register maintained under Section 301 of the Act. (iii) 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 in respect of purchase of fixed assets and sale of services. 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 system. (iv) According to the information and explanations given to us, there have been no contracts or arrangements referred to in Section 301 of the Act during the year to be entered in the register required to be maintained under that Section. Accordingly, commenting on transactions made in pursuance of such contracts or arrangements does not arise. Kotak Mahindra Securities Limited 437

439 (v) 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. (ix) According to the books of account and records of the Company, there has been no default in respect of dues to any financial institution or bank or debenture holders during the year. (vi) In our opinion, the Company has an internal audit system commensurate with its size and nature of its business. (vii) (a) Name of Statute (b) The Income Tax Act, 1961 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, in our opinion the Company is generally regular in depositing undisputed statutory dues in respect of provident fund in the provident fund account of its holding company/fellow subsidiary (Refer Schedule 15 Note 5), investor education and protection fund, employees state insurance, income-tax, sales-tax, wealth tax, service tax, custom duty, excise duty, cess and other material statutory dues as applicable with the appropriate authorities in India. According to the information and explanations given to us as at 31st March, 2007 there are no disputed dues in respect of sales tax, income-tax, customs duty, wealth tax, service tax, excise duty and cess except as follows: Nature of dues Rectification application filed under section 154 for short credit of tax deducted at source Amount (Rs.) Assessment Forum where dispute is pending 61, Assistant Commissioner of Income Tax (viii) The Company has neither accumulated losses as at 31st March, 2007 nor has it incurred any cash loss either during the financial year ended on that date or in the immediately preceding financial year. (x) 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. (xi) 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. (xii) 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. (xiii) 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. (xiv) The other clauses of the Companies (Auditor s Report) Order, 2003 as amended by the Companies (Auditor s Report) (Amendment) Order, 2004 issued by the Central Government of India are not applicable to the Company for the current year. Place : Mumbai Date : 2nd May, 2007 For and on behalf of Price Waterhouse Chartered Accountants Vivek Prasad Partner Membership No. F Kotak Mahindra Securities Limited 438

440 Balance Sheet as at 31st March, 2007 This is the Balance Sheet referred to in our report of even date Schedule 31st March, 2007 Rupees 31st March, 2006 Rupees Sources of Funds Shareholders Funds Capital 1 45,920,000 22,500,700 Reserves and Surplus 2 340,562, ,191,946 Unsecured Loans 3 25,000,000 Deferred Tax Liability (Refer Note 3 on Schedule 15) Deferred Tax Liability 193, ,771 Total 411,675, ,047,417 Application of Funds Fixed Assets 4 Gross Block 3,538,139 3,163,538 Less: Depreciation 2,536,221 1,401,541 Net Block 1,001,918 1,761,997 Investments 5 315,331, ,025,812 Deferred Tax (Refer Note 3 on Schedule 15) Deferred Tax Asset 18,134 14,646 Current Assets, Loans and Advances Sundry Debtors 6 649, ,792 Cash and Bank Balances 7 62,500,214 57,888,931 Other Current Assets 8 11,951, ,465 Loans and Advances 9 26,693,151 26,696, ,794,160 85,738,919 Less: Current Liabilities and Provisions Liabilities 10 6,417,111 7,450,444 Provisions 11 53,358 43,513 6,470,469 7,493,957 Net Current Assets 95,323,691 78,244,962 Total 411,675, ,047,417 Notes to the Financial Statements 15 Schedules referred to above form an integral part of the Balance Sheet For and on behalf of Price Waterhouse Chartered Accountants For and on behalf of the Board of Directors Vivek Prasad Uthra Parameswaran Falguni Nayar Jaimin Bhatt Partner Company Secretary Director Director Membership No. F Mumbai Dated: 2nd May, 2007 Kotak Mahindra Securities Limited 439

441 Profit and Loss Account for the year ended 31st March, 2007 Schedule Rupees 31st March, 2007 Rupees 31st March, 2006 Rupees Income Brokerage and clearing fees 7,896,895 32,114,179 Profit on sale of long term investments (Net) 209,424,689 Profit on sale of current investments (Net) 16,421 Interest on : Fixed deposits Gross (Tax deducted at source Rs. 1,249,003 previous year Rs. 19,013,965) 5,513,461 83,443,018 Long term investments 11,499,400 94,516 Income tax refund 284,751 Inter corporate deposit 17,012, ,097 Dividend on long term investments 324,182 Dividend on current investments 2,014,116 3,245,679 Other income 22,121 Total 27,248, ,536,471 Expenditure Personnel 12 2,852, ,907 Interest and other financial charges 13 4,053, ,007 Administrative and operating expenses 14 13,188,455 13,482,977 Depreciation 1,134,680 1,036,992 Total 21,229,371 15,698,883 Profit Before Taxation* 6,018, ,837,588 Taxation Current tax 2,700,000 34,200,000 Provision for tax of earlier years (58,051) Deferred tax (126,451) 2,573,549 35,715 Profit after Taxation 3,445, ,659,924 Balance brought forward from previous year 331,691,946 52,032,022 Less : Provision for gratuity (Net) (Refer Note 6 (i) on Schedule 15) (7,824) Provision for leave encashment (Net)(Refer Note 6 (i) on Schedule 15) (67,176) Balance carried to balance sheet 335,062, ,691,946 Earnings per share on equity shares of Rs. 10 each Basic and Diluted (Refer Note 9 on Schedule 15) * Includes Loss from Discontinuing Operations Rs. 5,480,717 (Previous year: Profit Rs. 313,743,042) and related tax expense thereon Rs. Nil (Previous year Rs. 34,187,964) (Refer Note 10 on Schedule 15) Notes to the Financial Statements 15 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 Price Waterhouse Chartered Accountants For and on behalf of the Board of Directors Vivek Prasad Uthra Parameswaran Falguni Nayar Jaimin Bhatt Partner Company Secretary Director Director Membership No. F Mumbai Dated: 2nd May, 2007 Kotak Mahindra Securities Limited 440

442 Cash Flow Statement for the year ended 31st March, Rupees Rupees Cash Flow from Operating Activities Net Profit before taxation 6,018, ,837,588 Adjustments for: Depreciation 1,134,680 1,036,992 Profit on sale of long term Investments (net) (209,424,689) Profit on sale of current Investments (net) (16,421) Dividend on current Investments (2,014,116) (3,245,679) Dividend on long term Investments (324,182) Interest on long term investments (11,499,400) (94,516) Interest on intercorporate deposit (891,097) Interest on Income tax refund (284,751) Interest on intercorporate deposit borrowed 3,419,452 Operating Profit before Working Capital Changes (3,264,883) 100,917,427 Adjustments for: (Increase)/Decrease in loans and advances 14, ,258,355 (Increase)/Decrease in sundry debtors (57,933) 145,306,422 (Increase)/Decrease in other current assets (11,389,605) 8,871,505 Increase/(Decrease) in current liabilities (989,046) (3,226,017,371) Increase/(Decrease) in provision for gratuity and leave encashment (103,605) 18,051 Cash (used in)/generated from Operations (15,790,639) (2,025,645,611) Direct taxes paid (net of refunds and Interest thereon) (2,710,853) (34,908,138) Net Cash Flow from Operating Activities (A) (18,501,492) (2,060,553,749) Cash Flow from Investing Activities Purchase of fixed assets (374,601) (74,000) Purchase of investments (279,505,883) (1,053,426,650) Sale of investments 244,200,000 1,017,704,548 Interest/dividend received on Investments 13,837,698 3,340,195 Net Cash Flow (used in)/from Investing Activities (B) (21,842,786) (32,455,907) Cash Flow from Financing Activities Issue of share capital 23,419,300 Interest received on intercorporate deposits 891,097 Interest paid on intercorporate deposits (3,419,452) Intercorporate deposits borrowed 25,000,000 Net Cash Flow from Financing Activities (C) 44,999, ,097 Net Increase/(Decrease) in Cash and Cash Equivalents (A + B + C) 4,655,570 (2,092,118,559) Cash and Cash Equivalents at the beginning of the year 57,844,644* 2,149,963,203 Cash and Cash Equivalents at the end of the year 62,500,214 57,844,644* 4,655,570 (2,092,118,559) * Net of temporary book overdraft Rs. 44,287 Notes: 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. This is the Cash Flow Statement 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 Vivek Prasad Uthra Parameswaran Falguni Nayar Jaimin Bhatt Partner Company Secretary Director Director Membership No. F Mumbai Dated: 2nd May, 2007 Kotak Mahindra Securities Limited 441

443 Schedules forming part of the Balance Sheet 31st March, 2007 Rupees 31st March, 2006 Rupees Schedule 1 Capital Authorised 5,000,000 (Previous 2,500,000) equity shares of Rs. 10 each 50,000,000 25,000,000 Nil (Previous 250) preference shares of Rs. 100,000 each 25,000,000 Total 50,000,000 50,000,000 The authorised share capital of the Company has been reclassified to 5,000,000 equity shares of Rs. 10 each by cancellation of 250 preference shares of Rs. 100,000 each and concurrent creation of 2,500,000 equity shares of Rs. 10 each at the extra ordinary general meeting of the Company held on August 10, 2006 Issued and Subscribed 4,592,000 (Previous year 2,250,070) equity shares of Rs. 10 each fully paid up 45,920,000 22,500,700 Total 45,920,000 22,500,700 Notes 1. Of the above 2,341,930 equity shares of Rs. 10 each are held by the holding company, Kotak Mahindra Bank Limited (Previous : 2,250,700 equity shares of Rs. 10 each were held by the holding company, Kotak Mahindra Capital Company Limited) 2. During the year 2,341,930 equity shares of Rs. 10 each were issued for cash at par as fully paid up to Kotak Mahindra Bank Limited at the extra ordinary general meeting of the Company held on August 10, Consequently, Kotak Mahindra Bank Limited has become the holding company since that date. Schedule 2 Reserves and Surplus Capital Redemption Reserve 5,500,000 5,500,000 Profit and Loss Account 335,062, ,691, ,562, ,191,946 Schedule 3 Unsecured Loans (Repayable within one year) Intercorporate deposit 25,000,000 25,000,000 Schedule 4 Fixed Assets (At Cost) Description Gross Block Depreciation/Amortisation Net Block As at 1st April, 2006 Additions Deductions As at 31st March, 2007 As at 1st April, 2006 For the year Deductions As at 31st March, 2007 As at 31st March, 2007 Rupees As at 31st March, 2006 Software 710, , , , , , , ,184 Computers 2,453, ,800 2,578,168 1,082, ,516 1,928, ,097 1,370,813 Total 3,163, ,601 3,538,139 1,401,541 1,134,680 2,536,221 1,001,918 1,761,997 Previous 3,089,538 74,000 3,163, ,549 1,036,992 1,401,541 1,761,997 Kotak Mahindra Securities Limited 442

444 Schedules forming part of the Balance Sheet (Contd.) Face value Rupees 31st March, 2007 Quantity 31st March, 2006 Quantity 31st March, 2007 Rupees 31st March, 2006 Rupees Schedule 5 Investments 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 In Bonds of Housing Bank (Unquoted, Fully Paid up) 5.50% National Housing Bank Capital Bonds ,000 20,908 20, ,080, ,080,000 In Units of Venture Capital Funds (Unquoted, Partly Paid Up) Kotak India Real Estate Fund 1 100,000 1,000 75,000,000 India Growth Fund 1,000 50,000 25,302,466 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 Institutional ,530 5,441,877 1,547,229 66,543,812 Premium Daily Dividend Units purchased during the year: Kotak Mahindra Liquid Scheme Institutional Premium Daily Dividend: 14,655,050 units Units sold during the year: Kotak Mahindra Liquid Scheme Institutional Premium Daily Dividend: 19,970,397 units Total 315,331, ,025,812 Aggregate Value of Unquoted Investments : At Book value 315,331, ,025,812 31st March, 2007 Rupees 31st March, 2006 Rupees Schedule 6 Sundry Debtors (Unsecured) Considered good Over six months Others [includes Rs. 649,725 (previous year Rs. 430,481) due from fellow subsidary 649, ,792 (previous year : holding company)] Total 649, ,792 Schedule 7 Cash and Bank Balances Cash on hand 36 4,036 Balances with scheduled banks on - current account 931, ,895 Fixed deposit account (Refer note 4 on Schedule 15) 61,568,198 57,000,000 Total 62,500,214 57,888,931 Kotak Mahindra Securities Limited 443

445 Schedules forming part of the Balance Sheet (Contd.) 31st March, 2007 Rupees 31st March, 2006 Rupees Schedule 8 Other Current Assets Interest accrued on fixed deposits 451, ,949 long term investments 11,499,400 94,516 Total 11,951, ,465 Schedule 9 Loans And Advances (Unsecured, considered good) Advances recoverable in cash or in kind or for value to be received 744, ,485 Deposits with National Stock Exchange of India Limited 21,000,000 21,000,000 Deposits with National Securities Clearing Corporation Limited 4,000,000 4,050,000 Other Deposits 330, ,000 Advance payment of income taxes (net of provision for tax: Rs. 59,850,000) (previous year Rs. 57,150,000) 619, ,246 Total 26,693,151 26,696,731 Schedule 10 Liabilities Temporary book overdraft 44,287 Sundry creditors (Other than small scale industrial undertaking)* 4,310,074 7,369,137 Interest accrued but not due 39,045 Other liabilities 2,067,992 37,020 * There are no amounts due and outstanding to be credited to investor education and protection fund. Total 6,417,111 7,450,444 Schedule 11 Provisions Gratuity 16,098 43,513 Leave encashment 37,260 Total 53,358 43,513 Kotak Mahindra Securities Limited 444

446 Schedules forming part of the Profit and Loss Account 31st March, 2007 Rupees 31st March, 2006 Rupees Schedule 12 Personnel Salaries, allowances and bonus 2,728, ,426 Gratuity and leave encashment 64,963 18,051 Contribution to provident and other funds 59,895 22,430 2,852, ,907 Schedule 13 Interest and Other Financial Charges Interest on Inter corporate deposits 3,419,452 Overdraft 402,807 Others 1,410 1,003 Guarantee commission 630, ,840 Bank charges 1,884 9,357 4,053, ,007 Schedule 14 Adminstrative and Operating Expenses National Stock Exchange of India Limited charges 1,311,033 1,257,424 Insurance 121,383 32,856 Rates and taxes 1,600 1,600 Professional charges (including Rs. Nil of earlier years and previous year Rs. 20,000) 268, ,210 Stamping 630, ,404 Auditors remuneration Audit fees 250, ,000 Tax audit fees 100, ,000 In other capacity 25,000 25,000 Out of pocket expenses 2,985 2,825 Service charges 9,026,016 9,792,472 Repairs and Maintenance - others 271,559 Membership and subscription 896, ,647 Other expenses 554, ,980 13,188,455 13,482,977 Kotak Mahindra Securities Limited 445

447 Schedule forming part of the Balance Sheet and Profit and Loss Account Schedule 15 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 and clearing fees are recognized net of service tax as on the date of contract. C. Fixed Assets and Depreciation (a) (b) Fixed assets are stated at cost inclusive of incidental expenses less accumulated depreciation. 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: Computers and software: 3 years (c) Fixed assets costing less than Rs. 5,000 are 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 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. 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. F. Employee Benefits (a) Short-Term Employee Benefits: The employees of the Company are entitled to leave encashment as per the leave policy of the Company. The liability in respect of leave encashment is provided on the basis of unavailed accumulated leave balances of employees on the basis of their current salaries. (b) Long-Term Employee Benefits: Defined Contribution Plan The Company contributes to a Defined Contribution plan for post employment benefits namely; Provident Fund; of its holding company/ fellow subsidiary (Refer Note 5 below) and has no further obligation beyond making its contribution. The Company s contribution to the above fund is charged to revenue every year. Defined Benefit Plan Provision for gratuity is determined on the basis of an actuarial valuation at the year end. Actuarial gains and losses comprise experience adjustments and the effects of changes in actuarial assumptions and are recognized immediately in the Profit and Loss Account as income or expense. Kotak Mahindra Securities Limited 446

448 Schedule forming part of the Balance Sheet and Profit and Loss Account (Contd.) 2. (a) Guarantees given by scheduled banks on behalf of the Company in favour of National Securities Clearing Corporation Limited towards base capital cash segment Rs. Nil (Previous Rs. 2,500,000), towards base capital derivatives segment Rs. 2,500,000 (Previous Rs. 2,500,000) and towards additional base capital derivatives segment Rs. 50,000,000 (Previous : Rs. 50,000,000). (b) The Company is contingently liable in respect of calls on 50,000 partly paid units of India Growth Fund aggregating Rs. 25,000,000 and on 1,000 partly paid units of Kotak India Real Estate Fund 1 aggregating Rs. 25,000, Components of deferred tax balances are as follows: Deferred tax liability Depreciation 31st March, 2007 Rupees 31st March, 2006 Rupees (193,358) (354,771) Total (193,358) (354,771) Deferred tax asset Provision for gratuity/leave encashment 18,134 14,646 Total 18,134 14,646 Net Deferred Tax (Liability)/Asset (175,224) (340,125) 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. Fixed deposits with scheduled banks include Rs. 22,500,000 (Previous Rs. 20,000,000) which is under lien with National Securities Clearing Corporation Limited and Rs. 26,261,363 (Previous Rs. 27,500,000) which is under lien with scheduled banks as margin for issuance of bank guarantees. 5. 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/fellow subsidiary. 6. (i) The Accounting Standard 15 (AS 15) (Revised 2005) on Employee Benefits issued by the Institute of Chartered Accountants of India has been early adopted by the Company with effect from April 1, Consequently, the transitional liability on account of gratuity amounting to Rs. 7,824 (net of deferred tax Rs. 4,366) and leave encashment amounting to Rs. 67,176 (net of deferred tax Rs. 34,084) has been debited to the opening balance of the Profit and Loss Account. (ii) The Company has classified the various benefits provided to employees as under:- (a) Defined Contribution Plan Provident Fund During the year, the Company has recognised the following amounts in the Profit and Loss Account Employers Contribution to Provident Fund Rs. 59,895* * Included in Contribution to provident and other funds (Refer Schedule 12) (b) Defined Benefit Plan Contribution to Gratuity Fund In accordance with Accounting Standard 15 (Revised 2005), actuarial valuation was done in respect of the aforesaid defined benefit plan of gratuity based on the following assumptions: Discount rate (per annum) 8.20% Rate of increase in compensation levels 15% p.a. for first 2 years; 10% p.a. for next 2 years and 6% p.a. thereafter Rate of return on plan assets Not applicable Expected average remaining working lives of employees The employees are assumed to retire at the age of 58 years Kotak Mahindra Securities Limited 447

449 Schedule forming part of the Balance Sheet and Profit and Loss Account (Contd.) A. Changes in the Present Value of Obligation Rupees Present value of obligation as at April 1, ,703 Interest cost 4,180 Past service cost Nil Current service cost 9,284 Curtailment cost Nil Settlement cost Nil Benefits paid (67,308) Actuarial (gain)/loss on obligations 14,239 Present value of obligation as at March 31, ,098 B. Amount recognized in the Balance Sheet Present value of obligation as at March 31, ,098 Fair value of plan assets as at March 31, 2007 Nil Liability recognized in the Balance Sheet **16,098 ** Included in Provisions Gratuity (Refer Schedule 11) C. Expenses recognized in the Profit and Loss Account Current service cost 9,284 Past service cost Nil Interest cost 4,180 Net actuarial (gain)/loss recognized during the year 14,239 Total expense recognized in the Profit and Loss Account ***27,703 *** Included in Personnel Gratuity and leave encashment (Refer Schedule 12) 7. Related parties disclosures Relationships (During the year) (a) Related parties where control exists: Nature of relationship Holding Company Related Party Kotak Mahindra Bank Limited (KMBL) (holds 51% of the equity share capital with effect from September 29, 2006) Kotak Mahindra Capital Company Limited (KMCC) (held 100% of the equity share capital until September 28, 2006; holds 49% thereafter) Mr. Uday S. Kotak along with relatives and companies controlled by him holds 51.46% of the equity share capital of KMBL (b) Other Related parties: (i) Fellow Subsidiaries: Kotak Mahindra Capital Company Limited (with effect from September 29, 2006) Kotak Securities Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Prime Limited Kotak Mahindra Investments Limited Kotak Mahindra Securities Limited 448

450 Schedule forming part of the Balance Sheet and Profit and Loss Account (Contd.) (ii) The following transactions were carried out with related parties in the ordinary course of business Nature of Transactions Holding Company Fellow Subsidiary Companies Kotak Mahindra Bank Limited Kotak Mahindra Capital Company Limited Kotak Mahindra Capital Company Limited Kotak Securites Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Prime Limited Kotak Mahindra Investment Limited Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Finance Interest paid 50,342 3,369,110 3,369,110 Inter corporate deposits taken 25,000,000 70,000,000 95,000,000 Inter corporate deposits repaid 70,000,000 70,000,000 Inter corporate deposits given (150,000,000) (80,000,000) (80,000,000) Inter corporate deposits repaid (150,000,000) (80,000,000) (80,000,000) Fixed deposit placed 73,761,363 (6,876,100,000) Fixed deposit withdrawn 69,193,165 (8,989,949,952) Interest received 3,016,253 (83,171,412) (593,014) (298,083) (298,083) Outstanding Bank balance Fixed deposit account 36,568,198 (32,000,000) Current account 342,884 *(503,938) Interest accrued on fixed deposits 383,671 (195,282) Brokerage/Commission Receivable 649,725 (430,481) Investments Purchase/subscription $5,000,000 $70,302,466 #179,203,417 $25,000,000 #204,203,417 #(844,346,650) #(844,346,650) Sale/redemption #244,200,000 #244,200,000 #(807,019,859) #(807,019,859) Share Capital Issued 23,419,300 Other Receipts and Payments Service/other expenses paid/payable 175, , ,000 7,827,959 8,427,959 (48,234) (1,200,000) (8,615,536) (8,615,536) Dividend Received $324,182 #2,014,116 #2,014,116 #(3,245,679) #(3,245,679) Payable 260,175 39,045 3,180,481 3,219,526 (6,400,808) (6,400,808) * Net of temporary book overdraft of Rs. 44,287. # Includes income/transactions in respect of investments in, and purchase from/redemptions to-schemes of Kotak Mahindra Mutual Fund, managed by a fellow subsidiary. $ Includes income/transactions in respect of investments in India Growth Fund and Kotak India Real Estate Fund managed by holding company and fellow subsidiary respectively. Figures in brackets relates to the previous year. Total Kotak Mahindra Securities Limited 449

451 Schedule forming part of the Balance Sheet and Profit and Loss Account (Contd.) 8. Segmental Information The Company acts as a broking and clearing member on the National Stock Exchange of India Limited. As the Company is engaged only in one business segment and there are no geographical segments, the Balance Sheet as at March 31, 2007 and March 31, 2006 and the Profit and Loss Account for the year ended March 31, 2007 and March 31, 2006 pertain to one business segment. 9. Earnings Per Share (EPS) The numerators and denominators used to calculate Basic and Diluted Earnings Per Share: 31st March, st March, 2006 Profit attributable to equity shareholders (Rs.) 3,445, ,659,924 Weighted/Basic number of equity shares outstanding during the year 3,430,972 2,250,070 Earnings per share (basic and diluted) (Rs.) Nominal value of equity shares (Rs.) The Board of Directors and the shareholders of the Company, at their respective meetings held on September 29, 2006 have approved the Scheme of Arrangement (the Scheme ) to demerge the operations of the Company s undertaking in relation to the trading and clearing membership of the National Stock Exchange of India Limited, along with the long-term investments of the Company at book values on a going concern basis ( Demerged Undertaking ) to Kotak Mahindra Capital Company Limited. The Scheme has been approved by the Hon ble High Court of Mumbai on February 15, However the transfer of membership is pending approval by the regulatory authorities. Accordingly, the said Scheme has not been given effect in these financial statements. The amounts attributable to the Demerged Undertaking of the Company are as follows: 31st March, 2007 Rupees 31st March, 2006 Rupees Total Assets 196,929, ,743,966 Total Liabilities 31,470,469 7,493,957 Income 15,748, ,441,955 Expenditure 21,229,371 15,698,883 Net cash flow (used in)/from: (a) operating activities (4,385,755) (2,025,551,095) (b) investing activities (33,342,186) 176,529,577 (c) financing activites 44,999, , 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 31st March, Kotak Mahindra Securities Limited 450

452 Schedule forming part of the Balance Sheet and Profit and Loss Account (Contd.) 12. BALANCE SHEET ABSTRACT AND COMPANY GENERAL BUSINESS PROFILE (a) (b) (c) (d) Registration Details Registration Number State Code 1 1 Balance Sheet Date Date Month Capital raised during the year (Rs. 000s) Public Issue Right Issue N i l N i l Bonus Issue Private Placement 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 Deferred Tax Liability Application of Funds (Rs. 000s) Net Fixed Assets Investments Deferred Tax Asset Net Current Assets Miscellaneous Expenditure Accumulated Losses N i l N i l Performances of the Company (Rs. 000s) Turnover/Income Total Expenditure Profit Before Tax Profit after Tax Earning Per Share (in Rs.) Dividend Rate (%) N i l (e) Generic Names of Three Principal Products/Services of Company Item Code No. N A (ITC Code) Product Description B r o k i n g a n d C l e a r i n g 13. Figures for the previous year have been regrouped wherever necessary to conform to current year s classification. Signatures to Schedules 1 to 15 forms part of the financial statements and to the above notes. For and on behalf of For and on behalf of the Board of Directors Price Waterhouse Chartered Accountants Vivek Prasad Uthra Parameswaran Falguni Nayar Jaimin Bhatt Partner Company Secretary Director Director Membership No. F Mumbai Dated: 2nd May, 2007 Kotak Mahindra Securities Limited 451

453 BOARD OF DIRECTORS : MR. SHAILESH HARIBHAKTI (C), MR. K.M. GHERDA, MR. CHANDRASHEKHAR SATHE Directors Report To the Members of Kotak Mahindra Trusteeship Services Limited (formerly Kotak Mahindra Private-Equity Trustee Limited) The Directors present their Seventh Annual Report together with the audited accounts of the Company for the year ended 31st March, FINANCIAL RESULTS For the year ended 31st March, 2007 Rupees For the year ended 31st March, 2006 Rupees Gross Income 32,36,847 23,49,405 Profit before Tax 30,45,467 21,48,967 Provision for Tax 10,10,000 7,25,672 Net Profit after Tax carried to Balance Sheet 20,35,467 14,23, DIVIDEND The Directors do not recommend any dividend for this financial year. 3. OPERATIONS During the year, pursuant to the approval of shareholders, the main objects of the Memorandum of Association of the Company were amended so as to enable the Company to undertake new business of providing estate planning services whereby the Company would offer advisory, drafting and execution, corporate trusteeship, executorships and safe custody services to clients as permitted by law for the time being in force in this regard. In view of the said new business, the name of the Company was changed from Kotak Mahindra Private Trustee Company Limited to Kotak Mahindra Trusteeship Services Limited. Kotak Mahindra Venture Capital Fund The Company is the Trustee of Kotak Mahindra Venture Capital Fund (KMVCF or the Fund). KMVCF was formed on April 7, 2000 and has been registered with the Securities and Exchange Board of India (SEBI), as a venture capital fund. Kotak Mahindra Bank is the investment manager of KMVCF. KMVCF has received contributions aggregating Rs. 25 crore. It has made an aggregate of five portfolio investments amounting to Rs. 24 crore. Till March 31, 2007, the Fund has completely exited from four of its portfolio investments. The Fund had a life of seven years, which (under the powers set out in the trust deed) was extended by the Trustee by one year to enable the Fund to complete the divestment of its last portfolio investment and wind down the Fund. Kotak SEAF India Fund Kotak Mahindra Bank Limited, along with SEAF Management LLC (through its 100% subsidiary in India) is a sponsor of a domestic venture capital fund, Kotak SEAF India Fund, which was set up as a Trust and registered with SEBI as a Venture Capital Fund. The Company is the Trustee of Kotak SEAF India Fund. India Growth Fund (IGF) was set up as a unit scheme of Kotak SEAF India Fund with investors from select institutional and high net worth investors, from both India and abroad, on a private placement basis. IGF had its final closing in September 2005 with aggregate capital commitments of Rs. 707 crores. The Fund continues to be in an active investment mode and as at March 31, 2007, had made aggregate investments of Rs. 332 crores in 10 companies. These investments were in high growth sectors of home retail, logistics, home textiles, airline, light engineering, life sciences and software technology. Kotak Mahindra Realty Fund Kotak Mahindra Realty Fund (KMRF) has been organized as a trust and registered as a venture capital fund with SEBI. Kotak Mahindra Investments Limited is the Settlor and Investment Manager for KMRF. The Company has been appointed by the Settlor to act as the Trustee of KMRF and its various schemes. KMRF is an umbrella Trust and the Trustees have power to form various schemes. The primary objective of KMRF is to invest in and provide finance to real estate sector and allied activities in India with an intention to generate superior risk adjusted returns. Kotak India Real Estate Fund 1 has been set up as a unit scheme of KMRF to accept investments from select institutional, corporate and high networth Investors on a private placement basis. This scheme had its final closing with committed contributions of Rs. 458 crores from the investors and KIREF 1 has committed 90% of its AUM in 8 investment opportunities. These investments span across IT Park Development, Enterprise Level Investment in Mid-segment hotel development & operating company, Residential Golf Course Community, Enterprise Level Investment in Real Estate Development & Construction Company, Warehousing. 4. DIRECTORS During the year Mr. M. R. Punja resigned as a Director of the Company. The Directors place on record their appreciation of the valuable services rendered by Mr. Punja during his tenure as a Director. Mr. M. Shailesh Haribhakti retires by rotation at the Annual General Meeting and, being eligible, offers himself for re-appointment. 5. AUDITORS The Company s auditors, Messrs. C. C. Chokshi & Co., Chartered Accountants, Mumbai, hold the office till the conclusion of the ensuing Annual General Meeting. The Company has received a Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) 452

454 communication from them stating that they do not offer themselves for re-appointment as statutory auditors of the Company. Accordingly, it is proposed to appoint Messrs. Deloitte Haskins & Sells, Chartered Accountants as the Statutory Auditors of the Company to hold office from the ensuing Annual General Meeting till the conclusion of the next Annual General Meeting. The approval of the shareholders is being sought at the ensuing Annual General Meeting of the Company. 6. 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 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 the Company is not a manufacturing company. 7. 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: b. 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 Company as at 31st March, 2007 and of the profit of the Company for the financial year ended 31st March, 2007; c. 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 Company and for preventing and detecting fraud and other irregularities; and d. the annual accounts have been prepared on a going concern basis. For and on behalf of the Board of Directors a. the Company has, in the preparation of the annual accounts for the year ended 31st March, 2007, followed the applicable accounting standards along with proper explanations relating to material departures, if any; Mumbai, 27th April, 2007 Shailesh Haribhakti Chairman Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) 453

455 Auditors Report REPORT OF THE AUDITORS TO THE MEMBERS OF KOTAK MAHINDRA TRUSTEESHIP SERVICES LIMITED. 1. We have audited the attached Balance Sheet of Kotak Mahindra Trusteeship Services Limited (formerly known as Kotak Mahindra Private Equity Trustee Limited) as at March 31, 2007, 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) 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 appears from our examination of the books; c) The Balance Sheet, Profit and Loss account and Cash Flow Statement dealt with by this report are in agreement with the books of account; d) 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; e) On the basis of written representations received from the directors as on March 31, 2007 and taken on record by the Board of Directors, none of the directors is disqualified as on March 31, 2007 from being appointed as a director in terms of Clause (g) of sub-section (1) of Section 274 of the Companies Act, 1956; f) 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 March 31, 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 C. C. CHOKSHI & CO. Chartered Accountants R. LAXMINARAYAN Mumbai: Partner Dated: 27th April, Membership No: Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) 454

456 Annexure to the Auditors Report Referred to in paragraph 3 of our report of even date on the accounts for the year ended March 31, 2007 of Kotak Mahindra Trusteeship Services Limited (formerly known as Kotak Mahindra Private Equity Trustee Limited). (i) (ii) (iii) (iv) (v) (vi) (vii) The nature of the Company s activities during the year has been such that Clauses (ii), (viii), (xiii) and (xiv) of paragraph 4 of the order are not applicable to the Company for the year. The Company did not have any fixed assets during the year. Hence, the requirements of sub-clauses (a), (b) and (c) of clause (i) of paragraph 4 of the Order are not applicable to the Company for the year. According to the information and explanations given to us, the Company has not granted or 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, sub-clauses (b), (c), (d), (f) and (g) of Clause (iii) of paragraph 4 of the Order are not applicable to the Company for the year. The Company did not purchase any inventory or fixed assets or sell any goods during the year. However with regard to sale of services, based on information and explanations given to us and in our opinion, there are adequate internal control systems commensurate with the size of the Company and the nature of its business. During the course of our audit, we have not observed any continuing failure to correct weakness in the aforesaid internal control system. To the best of our knowledge and belief and according to the information and explanations given to us, there are no transactions that need to be entered into the register maintained under Section 301. Hence, the requirements of sub-clause (b) of Clause (v) of paragraph 4 of the Order are not applicable to the Company for the year. The Company has not accepted any deposits from the public during the year. The Company s paid-up capital and reserves did not exceed Rs. 50 lakhs as at the commencement of the year and the average annual turnover of the Company for the preceding three financial years is not more than Rs. 5 crores. Hence, the requirement of having an internal audit system does not arise. (viii) According to the information and explanations given to us in respect of Statutory and others 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, Service tax Custom Duty, Excise Duty, Cess and any other statutory dues applicable to it with the appropriate authorities during the year. (ix) (x) (xi) (xii) (b) (c) No undisputed amounts payable in respect of Income Tax, Wealth Tax and Service Tax were outstanding as at March 31, 2007 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. There are no dues of Income Tax, Wealth Tax, Service tax and Cess which have not been deposited on account of any dispute. We have been informed that the provisions of Sales Tax, Custom Tax and Excise Duty are not applicable to the company for the year. The company has no accumulated losses as at 31st March, 2007 and has not incurred any cash loss during the financial year ended on that date and in the immediately preceding financial year. To the best of our knowledge and belief and according to the information and explanations given to us, the Company has not availed of any loans from financial institutions or banks and has not issued debentures. 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. According to the information and explanations given to us, the Company has not given any guarantees for loans taken by others from banks or financial institutions. (xiii) 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 have been raised on short-term basis and hence the reporting requirement under Clause (xvii) of paragraph 4 of the order is not applicable to the company. (xiv) The Company has not made any preferential allotment of shares during the year. (xv) The company has not issued any debentures during the year. (xvi) The Company has not raised any money by public issues during the year. (xvii) 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 C. C. CHOKSHI & CO. Chartered Accountants R. LAXMINARAYAN Mumbai: Partner Dated: 27th April, Membership No: Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) 455

457 Balance Sheet as at 31st March, 2007 I. Sources of Funds Schedule As at 31st March, 2007 Rupees As at 31st March, 2006 Rupees Shareholders Funds Share Capital 1 500, ,000 Reserves & Surplus 2 3,673,757 1,638,290 Total 4,173,757 2,138,290 II. Application of Funds Investments 3 4,101,232 2,087,555 Current Assets, Loans and Advances Cash and Bank Balances 4 102,731 87,853 Loans and Advances 5 53,974 45, , ,385 Less : Current Liabilities and Provisions Current Liabilities 6 84,180 82,650 84, ,650 Net Current Assets 72,525 50,735 Total 4,173,757 2,138,290 Significant Accounting Policies and Notes on Accounts 7 As per our attached report of even date For and on behalf of the Board of Directors For C. C. CHOKSHI & Co. Chartered Accountants R. Laxminarayan Shailesh Haribhakti K. M. Gherda Partner Chairman Director Mumbai Dated: 27th April, 2007 Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) 456

458 Profit and Loss Account for the ended 31st March, 2007 Income Schedule For the year ended 31st March, 2007 Rupees For the year ended 31st March, 2006 Rupees Trusteeship Fees 3,175,520 2,304,600 (TDS Rs. 199,261/-; Previous Rs. 142,366/-) Interest on Income Tax Refund 645 Other Income 7,650 Profit on Sale of Current Investments 53,677 44,160 Total 3,236,847 2,349,405 Expenditure Auditors Remuneration Audit Fees 75,000 75,000 Service Tax on Above Services 9,180 7,650 Service Tax Input Credit (9,180) 75,000 82,650 Directors Sitting Fees 105, ,500 Stamp Duty and Filing Fees 2,200 1,800 Printing & Stationary Expenses 2,588 2,020 Miscellaneous Expenses 6,592 1,468 Total 191, ,438 Profit Before Tax 3,045,467 2,148,967 Short Provision For Taxation of Earlier s Provided 1,672 Provision For Tax - Current Tax 1,010, ,000 Profit After Tax 2,035,467 1,423,295 Add: Surplus Brought Forward from Previous 1,638, ,995 Surplus Carried to Balance Sheet 3,673,757 1,638,290 Basic and Diluted Earnings per Share (Refer note B (vi) of schedule 7) Significant Accounting Policies and Notes on Accounts 7 As per our attached report of even date For and on behalf of the Board of Directors For C. C. CHOKSHI & Co. Chartered Accountants R. Laxminarayan Shailesh Haribhakti K. M. Gherda Partner Chairman Director Mumbai Dated: 27th April, 2007 Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) 457

459 Cash Flow Statement for the year ended 31st March, 2007 Particulars Rupees CASH FLOW FROM OPERATING ACTIVITIES Rupees Net Profit After Taxes 2,035,467 1,423,295 Adjustment for : (Profit)/loss on Sale of Investment (53,677) (44,160) Income Tax Expense 1,010, ,060 Operating Profit Before Working Capital Changes 2,991,790 2,104,195 Adjustments for : (Decrease)/Increase in Current Liabilities 1,530 (65,619) (Increase) in Loans & Advances (9,180) (12,345) Cash Used In Operation 2,984,140 2,026,231 Income Taxes Paid ( Net of Refund) (1,009,262) (729,991) Net Cash Used in Operating Activities (A) 1,974,878 1,296,240 CASH FLOW FROM INVESTING ACTIVITIES Purchase of Investment (3,040,000) (2,065,000) Sale of Investment 1,080, ,000 Net Cash Flow from Investment Activities (B) (1,960,000) (1,267,000) Net Cash Flow from Financing Activities (C) NIL NIL Net Increase/(Decrease) in Cash & Cash Equivalents (A + B + C) 14,878 29,240 Cash & Cash Equivalents at the Beginning of the 87,853 58,613 Cash & Cash Equivalents at the End of the 102,731 87,853 Notes : 1. Cash and cash equivalent include : Cash on hand 100 Bank balances 102,731 87,753 Total cash and cash equivalents 102,731 87, The Cash Flow statement has been prepared under the Indirect Method as set out in the Accounting Standard - 3 on Cash Flow Statement issued by the Institute of Chartered Accountants of India. 3. The corresponding amounts of previous year have been re-grouped, wherever necessary. As per our attached report of even date For and on behalf of the Board of Directors For C. C. CHOKSHI & Co. Chartered Accountants R. Laxminarayan Shailesh Haribhakti K. M. Gherda Partner Chairman Director Mumbai Dated: 27th April, 2007 Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) 458

460 Schedules forming part of the Balance Sheet as at 31st March, 2007 As at 31st March, 2007 Rupees As at 31st March, 2006 Rupees Schedule 1 Share Capital Authorised 50,000 Equity Shares of Rs 10/- each 500, ,000 Issued and Subscribed 50,000 Equity Shares of Rs 10/- each, fully paid up 500, ,000 (All the above shares are held by Kotak Mahindra Bank Limited, the holding company and its nominees) Total 500, ,000 Schedule 2 Reserves and Surplus Balance in profit and loss account 3,673,757 1,638,290 Total 3,673,757 1,638,290 Schedule 3 Investments (Non trade-unquoted) Current Investments (at cost or market / fair value which ever is lower) 294, units (P.Y.157, units) of Kotak Mahindra Mutual Fund K-liquid (Growth Plan) of Rs. 10/- each 4,101,232 2,087,555 Total 4,101,232 2,087,555 Schedule 4 Cash and Bank Balances Cash on Hand 100 Balance with scheduled bank In current accounts 102,731 87,753 Total 102,731 87,853 Schedule 5 Loans and Advances (Unsecured, considered good) Refund Receivable 12,345 12,345 Service Tax Input Credit 9,180 Advance Payment of Tax and Tax Deducted at Source 32,449 33,187 (Net of Provision of Taxation of Rs. 17,59,000, Previous Rs. 7,49,000) Total 53,974 45,532 Schedule 6 Current Liabilities Sundry Creditors (other than small scale industries) 84,180 82,650 Total 84,180 82,650 Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) 459

461 Schedules forming part of the Balance Sheet and Profit and Loss Account Schedule 7 Significant Accounting Policies and Notes Forming Part of the Accounts for the Ended 31st March, 2007 A) SIGNIFICANT ACCOUNTING POLICIES i) Basis of Accounting The Company adopts accrual concepts in preparation of accounts. ii) Revenue Recognition Revenue is recognised when no significant uncertainty as to measurability or collectibility exists. iii) 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. iv) 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 originate in one period and are capable of reversal in one or more subsequent periods. v) Contingent Liabilities Provisions involving substantial degree of estimation in measurement are recognized when there is a present obligation as a result of past events and it is probable that there will be an outflow of resources. Contingent Liabilities are not recognized but are disclosed in the notes. Contingent assets are neither recognised nor disclosed in the financial statements. B) NOTES TO ACCOUNTS i) The corresponding amounts of previous year have been re-grouped, wherever necessary. ii) Segment Reporting The segmental reporting disclosure as required by Accounting Standard (AS) - 17 on Segment Reporting, issued by The Institute of Chartered Accountants of India has not been made, since the company has a single reportable business segment of providing services in the capacity of trustee to venture capital funds. iii) iv) The company has not received any intimation from the suppliers regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence, the disclosures relating to amount unpaid as at the end of the year together with interest paid/payable as required under the said Act has not been furnished and provision for interest, if any, on delayed payments, is not ascertainable at this stage. Related Party Disclosure Parties where control exists Holding Company Mutual Fund Managed by Fellow Subsidiary Enterprise where the Company is the trustee Kotak Mahindra Bank Limited holds 100% of the share capital along with its nominees Mr. Uday Kotak along with relatives and companies controlled by him holds 51.46% share capital of Kotak Mahindra Bank Limited Kotak Mahindra Mutual Fund (managed by Kotak Mahindra Asset Management Company Limited) Kotak Mahindra Venture Capital Fund Kotak SEAF India Fund Kotak Mahindra Realty Fund Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) 460

462 Schedules forming part of the Balance Sheet and Profit and Loss Account (Contd.) The following transactions were carried out with related parties in the ordinary course of the business: Nature of Transaction I) Income : Trustee Fees Mutual Fund Managed by Fellow Subsidiary Enterprise where the company is a Trustee Kotak Mahindra Venture Capital Fund 1,75,520 (1,79,600) Kotak SEAF India Fund 15,00,000 (15,00,000) Kotak Mahindra Realty Fund 15,00,000 II) Investments Purchase of Investments 30,40,000 (20,65,000) Sale of Investments 10,80,000 Figures in brackets represent previous year s figures v) During the year the Company has purchased and sold the following investments held as current investments: Current (7,98,000) Previous (6,25,000) Nature of Investment Face Value No. Amount (Rs.) No. Amount (Rs.) Units of Kotak Mahindra Mutual Fund : K-Liquid (regular) Growth fund 10 74, ,026, , , vi) Earnings Per Share (EPS) The numerators and denominators used to calculate Basic and Diluted Earnings Per Share Ref. For the year ended 31st March, 2007 For the year ended 31st March, 2006 Profit attributable to the Equity Shareholders (Rs.) A 2,035,467 1,423,295 Weighted Average number of Equity Shares outstanding during the year B 50,000 50,000 Nominal Value of Equity Share (Rs.) C Basic and Diluted Earnings Per Share (Rs.) D = (A) / (B) Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) 461

463 Balance Sheet Abstract and Company s General Business Profile I Registration details Registration Number State code 1 1 Balance Sheet Date Date Month II 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 III Position of mobilisation and deployment of funds (Amount in Rs. 000) 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 7 3 N I L Accumulated Losses N I L IV Performance of Company (Amount in Rs. 000) Turnover Total Expenditure Profit/Loss before Tax Profit/Loss after Tax Earning per share in Rs. Dividend Rate (%) N I L V Generic Names of three Principal Products/Services of the Company (as per Monetary terms) Item Code No N A (ITC Code) Product Description T R U S T E E F O R V E N T U R E C A P I T A L F U N D S Signatures to Schedules 1 to 7 For and on behalf of the Board of Directors Mumbai Shailesh Haribhakti K. M. Gherda Dated: 27th April, 2007 Chairman Director Kotak Mahindra Trusteeship Services Limited (Formerly known as Kotak Mahindra Private-Equity Trustee Limited) 462

464 Board of Directors: Mr. Uday Kotak (C), Mr. Dipak Gupta, mr. Chandrashekar Sathe Directors Report The Directors to present their Eighth Annual Report together with the audited accounts of the Company for the year ended 31st March, I. FINANCIAL RESULTS AND OPERATIONS During the year under review, the total income of the Company was Rs. 47,06,690/- as compared to Rs. 1,44,80,856/- in the previous year. The Company incurred a loss of Rs. 52,01,217/- during the year II. III. IV. OUTLOOK The foreign exchange markets remained volatile with Rupee significantly appreciating through the year. Coupled with strong foreign currency inflows resultant surge in liquidity and measures taken by RBI Rupee interest rates firmed leading to volatility in forward premiums. These trend are expected to continue during DIVIDEND In view of the losses, no dividend is recommended. ISSUE AND REDEMPTION OF DEBENTURES During the year, the Company redeemed 225, 8.50%, Fully Convertible Redeemable Debentures of Rs. 1,00,000/- each, aggregating to Rs crores issued to Kotak Mahindra Prime Limited. The Company, during the year issued and allotted 175, 8.50%, Fully Convertible Redeemable Debentures of Rs. 1,00,000/- each, aggregating to Rs crores to Kotak Securities Limited. The Company also issued 7,50,000 equity shares of Rs. 10/- each at par aggregating to Rs. 75,00,000/- to Kotak Securities Limited. DIRECTORS Mr. Dipak Gupta retires by rotation and, being eligible, offers himself for re-appointment. AUDITORS The Company s Auditors, Messrs. V. C. Shah & Co., Chartered Accountants, Mumbai, retire at the ensuing Annual General Meeting and are eligible for re-appointment. You are requested to re-appoint them and fix their remuneration. COMPLIANCE CERTIFICATE As required by proviso to Section 383A of the Companies Act, 1956, a copy of the Compliance Certificate is being attached with this Report. STATUTORY INFORMATION The Company did not have any employees failing 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 Report of Board of Directors) Rules, 1988, do not apply since the company is not a manufacturing company. DIRECTORS RESPONSIBILITY STATEMENT In pursuance of Section 217(2A) of the Companies Act, 1956, the Directors, state as an averment of their responsibility, that: (i) the Company has, in the preparation of the annual accounts, followed the applicable accounting standards along with proper explanation 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 31st March, 2007 and of the loss of the Company for the financial year ended 31st March, 2007; (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. Mumbai, 2nd May, 2007 For and on behalf of the Board of Directors Dipak Gupta Chandrashekhar Sathe Director Director Kotak Forex Brokerage Limited 463

465 Compliance Certificate Registration No. of the Company: Nominal Capital: 2,50,00,000/-. To, The Members, Kotak Forex Brokerage Limited, Bakhtawar, 1st Floor, 229, Nariman Point, Mumbai We have examined the registers, records, books and papers of KOTAK FOREX BROKERAGE LIMITED (hereinafter referred to as the Company ) as required to be maintained under the Companies Act, 1956 (hereinafter referred to as the Act ) and the rules made there under and also the provisions contained in the Memorandum and Articles of Association of the Company for the financial year ended on 31st March, In our opinion and to the best of our information and according to the examinations carried out by us and explanations furnished to us by the Company, its officers and agents, we certify that in respect of the aforesaid financial year: 1. The Company has kept and maintained all registers as stated in Annexure A to this certificate, as per the provisions of the Act and the rules made there under and all entries therein have been duly recorded. 2. The Company has duly filed all the forms and returns as stated in Annexure B to this certificate, with the Registrar of Companies, Regional Director, Central Government, Company Law Board or other authorities within the time prescribed under the Act, and the rules made there under. 3. The Company, being a public limited company, has the prescribed minimum paid up capital. 4. The Board of Directors duly met 4 (Four) times respectively on 2nd May 2006, 29th August 2006, 20th December 2006 and 31st March 2007 in respect of which meetings proper notices were given and the proceedings were properly recorded and signed in the Minutes Book maintained for the purpose. There were no circular resolutions passed during the financial year. 5. The Company was not required to close its Register of Members or Debenture holders during the financial year. 6. The annual general meeting for the financial year ended on 31st March, 2006 was held on 19th July, 2006 after giving due notice to the members of the Company and other concerned and the resolutions passed there at were duly recorded in Minutes Book maintained for the purpose. 7. one extra-ordinary general meeting was held during the financial year after giving due notice to the members of the company and other concerned and the resolutions passed there at were duly recorded in Minutes Book maintained for the purpose. 8. The Company has not advanced any loan to its directors and/or persons or firms or companies referred in the Section 295 of the Act. 9. The Company has duly complied with the provision of Section 297 of the Act in respect of contracts specified in that Section. 10. The Company has made necessary entries in the register maintained under Section 301 of the Act. 11. As there were no instances falling within the purview of Section 314 of the Act, the company has not obtained any approvals from the Board of Directors, members or Central Government. 12. The Company has not issued any duplicate share certificates during the financial year. 13. The Company: (i) (ii) has delivered all the certificates on allotment of securities and on lodgement thereof for transfer/transmission or any other purpose in accordance with the provisions of the Act; has not deposited any amount in a separate Bank Account as no dividend was declared during the financial year. (iii) has not posted warrants to any member of the Company as no dividend was declared during the financial year. (iv) was not required to transfer any amount to Investor Education and Protection Fund, since there were no amounts in unpaid dividend account and there was no application money due for refund, matured deposits, matured debentures and the interest accrued thereon which have remained unclaimed or unpaid for a period of seven years. (v) has duly complied with the requirements of Section 217 of the Act. 14. The Board of Directors of the Company is duly constituted. There was no appointment of additional directors, alternate directors and directors to fill casual vacancy during the financial year. 15. The Company has not appointed any Managing Director/Whole-time Director/Manager during the financial year. 16. The Company has not appointed any sole selling agents during the financial year. 17. The Company was not required to obtain any approvals of the Central Government, Company Law Board, Regional Director, Registrar and/or such authorities prescribed under the various provisions of the Act during the financial year. 18. The Directors have disclosed their interest in other firms/companies to the Board of Directors pursuant to the provisions of the Act and the rules made there under. Kotak Forex Brokerage Limited 464

466 19. The Company has issued 8.50% 175 Unsecured Fully Convertible Debentures of Rs. 1,00,000/- each during the financial year and complied with the provisions of the Act. 20. The Company has not bought back any shares during the financial year. 21. The Company has redeemed 8.50% 225 Unsecured Fully Convertible Debentures of Rs. 1,00,000/- each during the financial year after complying with the provisions of the Act. 22. There were no transactions necessitating the company to keep in abeyance rights to dividend, right shares and bonus shares pending registration of transfer of shares. 23. The Company has not invited/accepted or renewed any deposits including any unsecured loans falling within the purview of Section 58A during the financial year. 24. The amounts borrowed by the Company from others during the financial year ending 31st March, 2007 are within the borrowing limits of the Company and that necessary resolutions as per Section 293(1)(d) of the Act have been passed in duly convened extraordinary general meeting held on 18th July, The Company has not made any loans or advances or given guarantees or provided securities to other bodies corporate. 26. The Company has not altered the provisions of the Memorandum with respect to situation of the Company s registered office from one state to another during the year under scrutiny. 27. The Company has not altered the provisions of the Memorandum with respect to the objects of the company during the year under scrutiny. 28. The Company has not altered the provisions of the Memorandum with respect to name of the company during the year under scrutiny. 29. The Company has altered the provisions of the Memorandum with respect to share capital of the Company during the year under scrutiny and complied with the provisions of the Act. 30. The Company has not altered its Articles of Association during the financial year. 31. As per the information and explanations given by officers of the Company, there was no prosecution initiated against or show cause notices received by the Company and no fines or penalties or any other punishment was imposed on the Company during the financial year for offences under the Act. 32. The Company has not received any money as security from its employees during the financial year. 33. As per the information and explanations given by officers of the Company, the Company is not required to make any contribution under the Provident Act. However the Company has voluntarily made contribution to the Provident Fund. Place: Mumbai. Dated: 30th April, Kotak Forex Brokerage Limited 465

467 Annexure A Registers as Maintained by the Company: Statutory Registers: 1. Register of Members u/s Register of Debentureholders u/s Register of Directors u/s Register of Directors Shareholding u/s Minutes Book of meetings of the Board of Directors u/s Minutes Book of General Meetings of the members u/s Books of Accounts u/s Register of Particulars of Contracts in which Directors are interested u/s 301. Other Registers 1. Register of Transfers. Note:- The Company has not maintained the following registers during the year as it was informed that there were no entries/transactions to be recorded therein: 1. Register of Securities bought back u/s 77A. 2. Foreign Register of members or Debentureholders u/s Register of Destruction of Records/Documents. 4. Register of Deposits u/s 58A. 5. Register of Renewed and Duplicate Certificates. 6. Register of Investments or Loans made, Guarantee Given or Security provided u/s 372A. 7. Register of Charges u/s Register of Investments not held in Company s name u/s 49. Annexure B Forms and Returns as filed by the Company with Registrar of Companies, Regional Director, Central Government or other authorities during/for the financial year ending 31st March, Sr. No. Form No/Return Filed under Section For Date of filing Whether filed within prescribed time Yes/No 1. Annual Return with Form 20B 159(1) /09/06 Yes N.A. 2. Balance Sheet with Form 23AC /09/06 Yes N.A. 3. Compliance Certificate with Form A /09/06 Yes N.A. 4. Form No Preferential Issue of 05/04/07 Yes. N.A. Shares & Increase in Share Capital 5. Form No. 5 95/97 Increase in Share 11/04/07 Yes N.A. Capital 6. Form No. 2 75(1) Allotment of shares 28/04/07 Yes N.A. If delay in filing whether requisite additional fee paid Kotak Forex Brokerage Limited 466

468 Auditors Report To, The Members of Kotak Forex Brokerage Limited 1. We have audited the attached Balance Sheet of KOTAK FOREX BROKERAGE LIMITED as at 31st March, 2007 and the Profit and Loss Account and Cash Flow Statement 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 (Auditors Report) Order, 2003 as amended thereafter, issued by the Central Government of India in terms 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) 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; (iii) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with by this report are in agreement with the books of account; (iv) 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; (v) 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 31st March, 2007 from being appointed as a director in terms of clause (g) of sub-section (1) of Section 274 of the Companies Act, (vi) 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) (b) (c) Mumbai, Dated 2nd May, in the case of the Balance Sheet, of the state of affairs of the Company as at 31st March, 2007; in the case of Profit and Loss Account, of the loss 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 V. C. Shah & Co. Chartered Accountants A. N. Shah Partner. Membership No.: Kotak Forex Brokerage Limited 467

469 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 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) The Company, being engaged in foreign exchange broking business, does not have any inventory hence sub-clause (a), (b) and (c) of this clause are not applicable; (iii) (a) The Company has not granted any loans, secured or unsecured, to companies, firms or other parties covered in the register maintained under Section 301 of the Act and hence sub-clauses (b), (c) and (d) of this clause are not applicable; (b) The Company has not taken any loans, secured or unsecured from companies, firms or other parties covered in the register maintained under Section 301 of the Act and hence sub-clauses (f) and (g) of this clause are not applicable; (iv) In our opinion and according to the information and explanations given to us, there is adequate internal control system commensurate with the size of the Company and the nature of its business for purchase of fixed assets and for the services. During the course of our audit, we have not observed any continuing failure to correct major weaknesses in internal control system; (v) (a) The particulars of contracts or arrangements referred to in Section 301 of the Act have been entered in the register required to be maintained under that Section; (b) In our opinion and according to the information and explanations given to us, transactions made in pursuance of such contracts or arrangements have been made at prices which are reasonable having regard to the prevailing market prices at the relevant time; (vi) The Company has not accepted any deposits from the public during the year under report; (vii) The Company does not have an internal audit system; (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 and protection fund, employees state insurance, income tax, sales tax, wealth tax, service tax, custom duty, excise duty, cess and other material statutory dues, if any, applicable to it; (x) (b) According to the information and explanations given to us, there are no dues of income tax, sales tax, wealth tax, service tax, custom duty, excise duty or cess that have not been deposited on account of any dispute; In our opinion, the accumulated losses of the Company at the end of the financial year are more than fifty percent of its net worth. The Company has also incurred cash loss of Rs. 13,23,568 during the year but not in the immediately preceding financial year; (xi) In our opinion and according to the explanations given to us, the Company has not defaulted in repayment of dues to debenture holders. There are no borrowings from a financial institution or a bank; (xii) The Company has not granted any loans and advances on the basis of security by way of pledge of shares, debentures and other securities during the year under report; (xiii) The Company is not a chit fund or a nidhi/mutual benefit fund/ society. Therefore, the provisions of clause 4(xiii) of the Companies (Auditors Report) Order, 2003 are not applicable to the Company; (xiv) The Company is not dealing or trading in shares, securities, debentures or other investments and hence clause 4(xiv) is not applicable; (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) The Company has not taken any term loans during the year under report; (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 long term investment; (xviii) The Company has not made any preferential allotment of shares to parties or companies covered under Section 301 of the Companies Act, 1956; (xix) The Company has issued unsecured debentures during the current year, hence no securities or charge was required to be created by the Company; (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 Mumbai, Dated: 2nd May, A. N. Shah Partner. Membership No.: Kotak Forex Brokerage Limited 468

470 Balance Sheet as at 31st March, 2007 Schedule As at 31st March, 2007 Rupees As at 31st March, 2006 Rupees I. Sources of Funds Shareholder s Funds Share Capital 1 25,000,000 17,500,000 Reserves & Surplus 2 1,900,000 1,900,000 Loan Funds Unsecured 3 17,500,000 22,500,000 Total 44,400,000 41,900,000 II. Application of Funds Fixed Assets 4 Gross Block 58,339,927 58,281,755 Less: Depreciation (43,281,911) (39,429,834) Net Block 15,058,016 18,851,921 Investments 5 2,271,769 1,832,938 Current Assets, Loans & Advances Sundry Debtors 6 844,894 1,012,376 Cash and Bank Balances 7 1,732,492 1,763,187 Loans and Advances 8 4,364,447 3,949,936 6,941,833 6,725,499 Less : Current Liabilities & Provisions Current Liabilities 9 985,873 1,447,985 Provisions , ,000 1,143,588 1,551,985 Net Current Assets 5,798,245 5,173,514 Profit and Loss Account 21,271,970 16,041,627 Total 44,400,000 41,900,000 Significant Accounting Policies and Notes to the Financial Statements 14 As per our report attached. For V. C. Shah & Co. Chartered Accountants For and on behalf of the Board of Directors A. N. Shah Dipak Gupta Chandrashekhar Sathe Partner Director Director Mumbai Dated: 2nd May, 2007 Kotak Forex Brokerage Limited 469

471 Profit and Loss Account for the Ended 31st March, 2007 Schedule For the year ended 31st March, 2007 Rupees For the year ended 31st March, 2006 Rupees Income Income from services 11 4,535,463 3,747,595 Interest and other financial charges (TDS Rs. Nil, P.Y. Rs. Nil) 10,484,972 Interest - others (TDS Rs. 20,779/-; P.Y. Rs. 19,096/-) 100,467 90,548 Profit on sale of current investments 34,790 Dividend on current investments 63,832 88,706 Provision for Doubtful Debts (net) 2,259 19,890 Other Income 4,669 14,355 Total 4,706,690 14,480,856 Expenditure Interest on fixed period loans and debentures 1,900,856 7,215,457 Interest others 131,678 Personnel 12 2,073,389 1,472,621 Other Expenses 13 1,924,335 2,008,214 Total 6,030,258 10,696,292 Profit/(Loss) before Depreciation and Tax (1,323,568) 3,784,565 Depreciation 3,852,076 7,483,778 Profit/(Loss) before Tax (5,175,644) (3,699,214) Provision for Taxation: Current Tax Deferred Tax Fringe Benefit Tax 25,573 31,930 Profit/(Loss) after Tax (5,201,217) (3,731,144) Prior period expenses (96,762) Prior Period Income 31,133 Add : Surplus/(Deficit) brought forward from previous year (16,041,627) (12,244,854) Less : Provision for gratuity for earlier years (Refer Note No. 3 of Schedule 14) (29,126) Balance Carried to Balance Sheet (21,271,970) (16,041,627) Basic and Diluted earnings per share (Refer Note No. II (5) of Schedule 14) (2.94) (2.13) Significant Accounting Policies and Notes to the Financial Statements 14 As per our report attached. For V. C. Shah & Co. Chartered Accountants For and on behalf of the Board of Directors A. N. Shah Dipak Gupta Chandrashekhar Sathe Partner Director Director Mumbai Dated: 2nd May, 2007 Kotak Forex Brokerage Limited 470

472 Cash Flow statement for the year ended 31st March, 2007 Particulars Rupees Rupees Rupees Rupees Cash Flow from Operating Activities Net Profit/(Loss) after Taxes (5,201,217) (3,731,144) Adjustments for : Depreciation 3,852,076 7,483,778 (Profit)/loss on sale of current investments (34,790) Dividend on current investments (63,832) (88,706) Prior Period Expenses (net of income) (65,629) Provision for Fringe Benefit Tax 25,573 31,930 Provision for gratuity (29,126) Operating Profit Before Working Capital Changes (1,416,526) 3,595,439 Adjustments for : Decrease/(Increase) in Sundry Debtors 167,482 (255,934) (Increase)/Decrease in Loans & Advances 143, ,123 Increase/(Decrease) in Current Liabilities (462,111) (720,446) (Decrease)/Increase in Provisions 53,715 22,000 Cash Used in Operations (1,513,967) 3,407,182 (Income Taxes paid)/refund Received (583,555) (1,204,312) Net Cash flow from Operating Activities (A) (2,097,523) 2,202,870 Cash Flow from Investing Activities Purchase of Fixed Assets (58,172) Purchase of Investment (2,488,832) (42,063,707) Sale of Investment 2,050,000 40,265,557 Dividend received on investments 63,832 88,706 Net Cash from Investing Activities (B) (433,172) (1,709,444) Cash Flow from Financing Activities (Decrease)/Increase in Equity Share Capital 7,500,000 (Decrease)/Increase in unsecured loans (5,000,000) (2,500,000) Net Cash used in Financing Activities (C) 2,500,000 (2,500,000) Net Increase/(Decrease) in Cash & Cash Equivalents (A + B + C) (30,695) (2,006,574) Cash & Cash Equivalents at the beginning of the 263,186 2,269,760 Cash & Cash Equivalents at the end of the 232, ,186 (30,695) (2,006,574) Notes : 1. Cash and cash equivalent include: Cash on hand 6,334 1,171 Bank Balances/overdraft 226, ,016 Total cash and cash equivalents 232, , The Cash Flow statement has been prepared under the Indirect Method as set out in the Accounting Standard-3 on Cash Flow Statement issued by the Institute of Chartered Accountants of India. 3. The corresponding amounts of previous year have been re-grouped, wherever necessary. As per our report attached. For V. C. Shah & Co. Chartered Accountants For and on behalf of the Board of Directors A. N. Shah Dipak Gupta Chandrashekhar Sathe Partner Director Director Mumbai Dated: 2nd May, 2007 Kotak Forex Brokerage Limited 471

473 Schedules Forming Part of the Balance Sheet as at 31st March, 2007 As at 31st March, 2007 Rupees As at 31st March, 2006 Rupees Schedule 1 Share Capital Authorised 25,00,000 (P.Y. 17,50,000 ) Equity Shares of Rs. 10 each 25,000,000 17,500,000 25,000,000 17,500,000 Issued, subscribed and paid up 25,00,000 Equity Shares of Rs. 10 each, fully paid up 25,000,000 17,500,000 (of the above, 17,50,000 equity shares are held by Kotak Mahindra Bank Limited, the holding company and its nominees) Total 25,000,000 17,500,000 Schedule 2 Reserves and Surplus Capital Redemption Reserve As per last Balance Sheet 1,900,000 1,900,000 Total 1,900,000 1,900,000 Schedule 3 Unsecured Loans 8.50% 175 (P.Y. 225) Unsecured Fully Convertible Debentures of Rs. 1,00,000/- each fully paid up (Redeemable at par on or before 25th March 2012, at the exercise of put or call option exercisable after 3 years from the date of allotment, being 26th March If option to redeem is not exercised, the debentures shall be convertible into equity shares of Rs. 10/- each on maturity date, i.e. 25th March 2012, at book value as per audited financials on 30th September, 2011.) 17,500, % 225 (P.Y. NIL) Unsecured Fully Convertible Debentures of Rs. 1,00,000/- each fully paid up 22,500,000 (Redeemable at par on or before 14th March 2011, at the exercise of put or call option exercisable after 3 years from the date of allotment, being 14th March If option to redeem is not exercised, the debentures shall be convertible into equity shares of Rs. 10/- each on maturity date, i.e. 14th March 2011, at book value as per audited financials on 30th September, 2010.) Total 17,500,000 22,500,000 Schedule 4 Fixed Assets Description Gross Block Depreciation/Amortisation As at 1st April, 2006 Additions Deductions As at 31st March, 2007 Upto 1st April 2006 For the year Deductions Upto 31st March, 2007 As at 31st March 2007 As at 31st March, 2006 Goodwill 18,840,000 18,840,000 18,840,000 18,840,000 Office Equipment 941,271 7, , ,241 3, ,435 11,836 8,030 Furniture & Fixtures 85,355 85,355 72,298 13,057 85,355 13,058 Computers 115,129 51, , ,129 5, ,954 45,347 Forex Broking Business Rights 38,300,000 38,300,000 19,469,167 3,830,000 23,299,167 15,000,833 18,830,833 Total 58,281,755 58,172 58,339,927 39,429,835 3,852,076 43,281,911 15,058,016 18,851,921 Previous 58,281,755 58,281,755 31,946,057 7,483,777 39,429,833 18,851,921 26,335,698 Kotak Forex Brokerage Limited 472

474 Schedules Forming Part of the Balance Sheet as at 31st March, 2007 (Contd.) Schedule 5 Current Investments (Non Trade, at cost or market value, whichever is lower) Face Value No. of Units 31st March 2007 Amount (Rs.) as on 31st March 2007 No. of units 31st March 2006 Amount (Rs.) as on 31st March 2006 In units (Unquoted and fully paid) : Kotak Mahindra Mutual Fund- K-Liquid Institutional (Daily Dividend) , ,271, , ,832,938 Total 2,271,769 1,832,938 Aggregate of Unquoted Investments at cost 2,271,769 1,832,938 As at 31st March 2007 Rupees As at 31st March 2006 Rupees Schedule 6 Sundry Debtors Unsecured, considered good more than six months others 844, ,894 1,012,376 1,012,376 Unsecured, considered doubtful more than six months 5,996 8,255 others 5,996 8,255 Less : Provision for doubtful debts 5,996 8,255 Total 844,894 1,012,376 As at 31st March 2007 Rupees As at 31st March 2006 Rupees Schedule 7 Cash and Bank Balances Cash balance on hand 6,334 1,171 Balance with scheduled banks - in current accounts 226, ,016 in Fixed Deposit 1,500,000 1,500,000 Total 1,732,492 1,763,187 Schedule 8 Loans and Advances (unsecured, considered good) Advances recoverable in cash or in kind or for value to be received 783, ,730 Advance payment of Taxes and Tax deducted at source 3,581,188 3,023,206 Total 4,364,447 3,949,936 Schedule 9 Current Liabilities Sundry Creditors (other than small scale industrial undertakings) 246, ,046 Interest accrued but not due 40,753 94,315 Other Liabilities 698, ,624 Total 985,873 1,447,985 Schedule 10 Provisions Provision for Gratuity 132, ,000 Provision for FBT 25,573 Total 157, ,000 Kotak Forex Brokerage Limited 473

475 Schedules Forming Part of the Profit and Loss Account as at 31st March, 2007 For the year ended 31st March, 2007 Rupees For the year ended 31st March, 2006 Rupees Schedule 11 Income from Services Brokerage (Gross) 6,571,356 5,197,485 Less: Sub brokerage and discounts 2,035,893 1,449,890 Total 4,535,463 3,747,595 Schedule 12 Personnel Expenses Salaries, Allowances and Bonus 1,897,239 1,346,348 Contribution to Provident Fund and other Funds 93,887 87,777 Staff Welfare 82,263 38,496 Total 2,073,389 1,472,621 Schedule 13 Other Expenses Rent 612, ,360 Electricity Charges 152, ,218 Maintenance expenses 84, ,887 Telephone Expenses 313, ,679 Reuters Screen Rentals 235, ,341 Business Promotion Expenses 126, ,213 Printing and Stationery 6,157 6,611 Professional Charges 33,145 18,155 Filing Fees 3,000 2,500 Auditor s Remuneration: Audit Fees 50,000 40,000 Tax Audit Fees 20,000 15,000 In other capacity 1,102 1,500 Travel and Conveyance 32,421 62,927 Debenture Issue Expenses 148,875 Share Issue Expenses 60,000 Rates and Taxes 1,700 1,700 Bad Debts written off 5,596 59,189 Miscellaneous Expenses 37,484 45,934 Total 1,924,335 2,008,214 Kotak Forex Brokerage Limited 474

476 Schedules Forming Part of the Balance Sheet and Profit and Loss Account SCHEDULE 14 Significant Accounting Policies and Notes forming part of the Financial Statements for the year ended 31st March, 2007 I. SIGNIFICANT ACCOUNTING POLICIES A. ACCOUNTING METHODOLOGY The accounts have been prepared on historical cost basis of accounting in accordance with the generally accepted accounting principles. The Company adopts accrual method of accounting. B. REVENUE RECOGNITION (a) Brokerage is recognized as income on accrual basis. (b) Interest Income including financial charges is recognised on accrual basis. C. FIXED ASSETS (a) Fixed Assets have been stated at cost less accumulated depreciation. (b) Depreciation/Amortization Policy (i) The Company adopts the Straight Line Method of depreciation at rates higher than those prescribed in Schedule XIV to the Companies Act, 1956, based on the management s estimates of useful life of the assets as follows: (ii) Asset Type Useful Life in s Computers 3 Office Equipment 5 Furniture & Fixture 6 Forex Broking Business right acquired is treated as an asset and the value paid to acquire such right is amortised over a period of 10 years from the date of acquisition on prorata basis, as considered appropriate by the management. D. INVESTMENTS Current investments are valued weighted average cost of acquisition or fair/market value, whichever is lower. E. EMPLOYEE BENEFITS (a) Provident fund is a defined contribution scheme and the contributions as required by the statute to Government Provident Fund are charged to profit and loss account when due. (b) Gratuity liability is defined benefit obligation and is wholly unfunded. The Company accounts for liability for future gratuity benefits based on actuarial valuation. (c) Actuarial gains/losses are immediately taken to the profit and loss account and are not deferred. (d) The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employee is recognized during the period when the employee renders the service. These benefits include performance incentives. The company has chosen to early adopt revised Accounting Standard 15 (AS 15) Employee Benefits which is mandatory from accounting period beginning on or after December 7, As per transitional provisions of AS 15, the difference in liability (net of tax effect) on account of employee benefits created by the Company has been included in Schedule 2 ( Reserves and Surplus ). 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 originates in one period and are capable of reversal in one or more subsequent periods. G. 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. h. SEGMENTAL ACCOUNTING In accordance with Accounting Standard 17 on Segment Reporting issued by the Institute of Chartered Accountants of India, the Company has determined one geographical segment, i.e. India and two business segments as under: Segment Principal Activity Forex broking Broking activity in forex market Financing activity Financing against securities 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 materialise after the year end and having effect on the position stated in Balance Sheet as at the year end. Kotak Forex Brokerage Limited 475

477 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) II. NOTES TO ACCOUNTS 1. In terms of Section 117C of the Companies Act, 1956, the Company is required to create a Debenture Redemption Reserve of an adequate amount in respect of debentures issued. However, no Redemption Reserve has been created by the Company and the same would be created in future years, subject to availability of adequate profits. 2. Components of net deferred tax asset/liability as at 31st March, 2007: As at 31st March, 2007 Amount Rs. As at 31st March, 2006 Amount Rs. Deferred Tax Asset Allowance for unabsorbed depreciation 1,837,385 2,273,647 Total 1,837,385 2,273,647 Deferred Tax Liability Depreciation on fixed assets 1,837,385 2,273,647 Total 1,837,385 2,273,647 Net Deferred Tax Asset/Liability NIL NIL The recognition of unabsorbed depreciation as deferred tax asset is duly supported by tax computation statements. 3. Employee Benefit Scheme The company has adopted the revised AS 15 during the current financial year covering the recognition and measurement principles laid down therein. In view of the first time adoption, disclosures in respect of previous periods have not been given. Reconciliation of opening and closing balance of the present value of the defined benefit obligation for gratuity benefits is given below. As of 31st March, 2007 Amount in Rs. Change in Unfunded benefit obligations Present value of unfunded benefit obligations, 1st April, ,126 Current Service cost 35,249 Interest cost 9,868 Benefits paid (24,675) Actuarial (gain)/loss on obligations (21,426) Present value of unfunded benefit obligations as at 31st March, ,142 Reconciliation of present value of the obligation and the fair value of the plan assets Fair value of plan assets as at 31st March, 2007 Present value of unfunded benefit obligations as at 31st March, ,142 Net asset/(liability) as at 31st March, 2007 (132,142) Cost recognised for the period Current service cost 35,249 Interest cost 9,868 Expected return on plan assets Actuarial (gain)/loss (21,426) Net gratuity cost 23,691 Actuarial assumptions used Discount rate Salary escalation rate 8.20% p.a % p.a. for first 2 years 10.0 % p.a. for next 2 years & 6 % p.a. thereafter The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors such as supply and demand in the employment market. Kotak Forex Brokerage Limited 476

478 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) II. NOTES TO ACCOUNTS (Contd). Gratuity: In accordance with Payment of Gratuity Act, the Company provides for gratuity, a defined benefit retirement plan covering all employees. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee s salary and the years of employment with the Company subject to maximum of Rs lakhs. The gratuity benefit is provided through unfunded plan and annual contributions are charged to profit and loss account. Under the scheme, the settlement obligation remains with the Company. Provident fund: In accordance with Indian regulations, employees of the Company are entitled to receive benefits under the provident fund, a defined contribution plan, in which, both the employee and the Company contribute monthly at a determined rate. These contributions are made to a recognised provident and administered by a Board of Trustees. The employee contributes 12% of his or her basic salary and the Company contributes an equal amount. The investments of the funds are made according to rules prescribed by the Government of India. As per the transitional provision of AS 15, the difference in the liability on account of employee benefits created by the Company amounting to Rs. 21,426 (net of tax effect) has been added to the accumulated balance of profit and loss account. 4. Quantitative information in respect of investment in units of mutual funds: Description 31st March, st March, 2006 Quantity Amount Rs. Quantity Amount Rs. K-Liquid (Regular) Growth Opening Stock NIL NIL Add: Purchases NIL 267, ,550,000 Less: Sales NIL 267, ,584,790 Closing Stock NIL NIL K-Liquid Institutional Dividend Scheme Daily Dividend Opening Stock 149, ,832,938 NIL Add: Purchases 203, ,488,832 3,149, ,513,706 Less: Sales 167, ,050,000 2,999, ,680,768 Closing Stock 185, ,271, , ,832, Related Party Disclosures: Parties where control exist : Nature of relationship Holding Company Fellow Subsidiary Other related parties: Fellow Subsidiaries Others: Mutual Fund managed by Fellow Subsidiary Related Party Kotak Mahindra Bank Limited holds 70.00% of the share capital along with its nominees Mr. Uday Kotak along with relatives and enterprise in which he has beneficial interest holds 51.46% of Share capital of Kotak Mahindra Bank Limited. Kotak Securities Limited holds 30.00% of the share capital Kotak Securities Ltd. Kotak Mahindra Capital Company Limited Kotak Mahindra Prime Ltd. Kotak Mahindra Mutual Fund (managed by Kotak Mahindra Asset Management Company Limited) Kotak Forex Brokerage Limited 477

479 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) II. NOTES TO ACCOUNTS (Contd). The following transactions were carried out with the related parties in the ordinary course of business: Amount Rs. Nature of Transaction Holding Company Fellow Subsidiaries Mutual Fund managed by Fellow Subsidiary Shares issued 7,500,000 Debentures issued 17,500,000 (22,500,000) Debentures redeemed 22,500,000 (25,000,000) Liabilities Outstandings payable 47,990 (50,630) Interest accrued but not due 40,753 (94,315) Demat Charges payable 4,074 (4,669) Unsecured Loans Unsecured fully convertible debentures outstanding 17,500,000 (22,500,000) Outstandings Balance in Current accounts 226,158 (262,016) Expenses Rent Paid 612,360 (612,360) Interest on Debentures 1,900,856 (94,315) Other Transactions Expense Reimbursements to companies 346,268 23,310 (267,133) (20,165) Expenses Reimbursements from companies Investments Mutual Fund units Purchases 2,488,832 (42,063,706) Sales 2,050,000 (40,265,559) Figures in bracket indicates previous year figures. 6. Earnings Per Share (EPS) The numerators and denominators used to calculate Basic and Diluted Earnings Per Share For the year ended 31st March, 2007 For the year ended 31st March, 2006 Profit attributable to the Equity Shareholders (Rs.) (A) (5,201,217) (3,731,144) Basic/Weighted average number of equity shares outstanding during the period (B) 1,768,493 1,750,000 Nominal Value of Equity Share (Rs.) (C) Basic and Diluted Earnings Per Share (Rs.) D = (A) / (C) (2.94) (2.13) The Company has issued fully convertible debentures to be converted into equity shares of Rs. 10/- each, if not redeemed, at book value based on the audited accounts as on 30th September The break up value of the equity shares as on the date of issue of debentures being negative, the potential equity shares have an anti-dilutive effect and hence have been ignored for the purpose of calculation of diluted EPS. Kotak Forex Brokerage Limited 478

480 Schedules Forming Part of the Balance Sheet and Profit and Loss Account (Contd.) II. NOTES TO ACCOUNTS (Contd). 7. Segment Reporting In accordance with Accounting Standard 17 on Segment Reporting issued by the Institute of Chartered Accountants of India, the Company has determined business segments as outlined in Note H of Significant Accounting Policies: Segment information: 31st March, st March, Segment Revenue a. Forex broking 4,706,690 3,983,029 b. Financing activity 10,497,827 Total 4,706,690 14,480, Segment Results a. Forex broking (5,044,561) (7,075,899) b. Financing activity (131,083) 3,376,685 Total Profit Before Tax (5,175,644) (3,699,214) 3. Segment Assets a. Forex broking 20,690,430 24,387,151 b. Financing activity Total 20,690,430 24,387, Segment Liabilities a. Forex broking 18,639,514 24,047,316 b. Financing activity 4,074 4,669 Total 18,643,588 24,051, Unallocated Assets net of Liabilities 3,581,188 3,023, Capital expenditure a. Forex broking 58,172 b. Financing activity Total 58, Depreciation a. Forex broking 3,852,076 7,483,778 b. Financing activity Total 3,852,076 7,483, The Company has taken office premise under operating lease It is cancelable and renewable by mutual consent on mutually agreeable terms. Lease payments recognized in Profit and Loss Account under the head Rent Expenses Rs. 6,12,360/- (P. Y. Rs. 6,12,360/-). 9. The Company has not received any intimation from suppliers regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and hence disclosures, if any, relating to amounts unpaid as at the year end together with interest paid/ payable as required under the said Act have not been given. 10. Previous year s figures have been regrouped/reclassified wherever necessary to conform to figures of the current year. As per our report attached. For V. C. Shah & Co. Chartered Accountants For and on behalf of the Board of Directors A. N. Shah Dipak Gupta Chandrashekhar Sathe Partner Director Director Mumbai Dated: 2nd May, 2007 Kotak Forex Brokerage Limited 479

481 Balance Sheet Abstract And Company s General Business Profile Additional information pursuant to Part IV of Schedule V of the Companies Act, 1956 I. Registration details Registration Number State code 1 1 Balance Sheet Date Date Month II. 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 III. Position of mobilisation and deployment of funds (Amount in Rs. 000) Total Liabilities Total Assets Sources of Funds Paid up Capital Reserves and surplus Secured Loans Unsecured Loans N I L Application of Funds Net Fixed Assets Investments Net Current assets Miscellaneous Expenditure N I L Accumulated Losses IV. Performance of Company (Amount in Rs. 000) Turnover Total Expenditure Profit/loss before Tax + - Profit after Tax Prior Period Adjustment Dividend Rate (%) - N I L Earning per share in Rs V. Generic Names of three Principal Products/Services of the Company (as per Monetary terms) Item Code No. (ITC Code) N A Product Description F O R E X B R O K I N G For and on behalf of the Board of Directors Mumbai Dated: 2nd May, 2007 Dipak Gupta Director Chandrashekhar Sathe Director Kotak Forex Brokerage Limited 480

482