MUTHOOT CAPITAL SERVICES LIMITED

DRAFT LETTER OF OFFER February 02, 2011 For the Equity Shareholders of the Company Only MUTHOOT CAPITAL SERVICES LIMITED (The Company was incorporated originally as a Public Limited Company on February 18, 1994 under the name and style of "Muthoot Capital Services Limited" under the provisions of the Companies Act, 1956, in the State of Kerala. The Company has obtained the Certificate of Commencement of Business on March 23, 1994 issued by Registrar of Companies, Kerala.) (For further details, please refer to the section titled "History and Corporate Structure of the Company" on Page 23) Registered Office: 5 th Floor, Muthoot Towers, M.G.Road, Kochi 682 035, Kerala, India. Tel.: 91-484-2351501 Fax: 91-484-2381261 Website: www.muthootcap.com. Contact person: Ms. Elizabeth Wilson, Company Secretary and Compliance Officer, Email: elizabeth.wilson@muthootcap.com FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF THE COMPANY ONLY ISSUE OF 65,00,000 SHARES OF ` 10/- EACH FOR CASH AT A PRICE OF ` 75 (INCLUDING A SHARE PREMIUM OF ` 65 PER EQUITY SHARE AGGREGATING ` 4875 LAKHS ON RIGHTS BASIS TO THE EXISTING ELIGIBLE EQUITY SHAREHOLDERS OF THE COMPANY IN THE RATIO OF ONE (1) EQUITY SHARE FOR EVERY ONE (1) FULLY PAID-UP EQUITY SHARE HELD ON THE RECORD DATE, I.E. [ ]. THE ISSUE PRICE OF EACH EQUITY SHARE IS 7.5 TIMES THE FACE VALUE OF THE EQUITY SHARE. GENERAL RISK Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds in this offer unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in this offering. For taking an investment decision, investors must rely on their own examination of the issuer and the offer including the risks involved. The securities being offered in the issue have not been recommended or approved by Securities and Exchange Board of India (SEBI) nor does SEBI guarantee the accuracy or adequacy of this document. Specific attention of investors shall be invited to the statement of Risk factors given on page number vii of this Draft Letter of Offer. ISSUER S ABSOLUTE RESPONSIBILITY The issuer, having made all reasonable inquiries, accepts responsibility for and confirms that this letter of offer contains all information with regard to the issuer and the issue, which is material in the context of the issue, that the information contained in the letter of offer is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which make this document as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect. LISTING The existing Equity Shares of the Company are listed on Bombay Stock Exchange Limited (BSE). The proposed Rights Shares will also be listed on the BSE. The Company has received in-principle approval from BSE for listing of the Equity Shares arising from this Issue vide letter no [ ] dated [ ]. For the purpose of this Issue, the Designated Stock Exchange shall be the Bombay Stock Exchange Limited. LEAD MANAGER TO THE ISSUE REGISTRAR TO THE ISSUE Integrated Enterprises (India) Limited Karvy Investor Services Limited 2 nd Floor, Regent Chambers, Nariman Point, Mumbai-400021 Tel: 91 22 22825185/22895000 Fax: 91 22 30204040 Website: www.karvy.com E-mail: cmg@karvy.com Contact Person : Ms. Sarita Gupta / Mr. Sumit Singh SEBI Registration No.: INM000008365 Kences Towers, 2 nd Floor, No.1, Ramakrishna Street, Off North Usman Road, T Nagar, Chennai - 600017 Tel: 044-28140801-03, Fax : 044-28142479 E-mail : corpserv@iepindia.com Website: www.iepindia.com Contact Person: Mr. K Balasubramanian SEBI Registration No.: INR000000544 ISSUE OPENS ON ISSUE PROGRAMME LAST DATE FOR REQUEST FOR SPLIT APPLICATION FORMS ISSUE CLOSES ON [ ] [ ] [ ]

TABLE OF CONTENTS SECTION - I. DEFINITIONS AND ABBREVIATIONS i 1. CONVENTIONAL/ GENERAL TERMS. i 2. COMPANY/ISSUE RELATED TERMS i 3. ISSUER AND INDUSTRY RELATED TERMS iii 4. ABBREVIATIONS iv 5. PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA v SECTION II - RISK FACTORS vii SECTION III -INTRODUCTION 1 1. SUMMARY 1 2. GENERAL INFORMATION 6 3. CAPITAL STRUCTURE 9 4. OBJECTS OF THE ISSUE 13 5. STATEMENT OF TAX BENEFITS 17 SECTION IV: ABOUT THE COMPANY 23 1. HISTORY AND CORPORATE STRUCTURE OF THE COMPANY 23 2. MANAGEMENT 26 SECTION V. FINANCIAL INFORMATION 37 1. FINANCIAL STATEMENTS 37 SECTION VI - LEGAL AND OTHER INFORMATION 97 1. GOVERNMENT APPROVALS AND LICENSING ARRANGEMENTS 112 2. MATERIAL DEVELOPMENT 116 3. OTHER REGULATORY AND STATUTORY DISCLOSURES 117 SECTION VII: OFFERING INFORMATION 125 SECTION VIII: STATUTORY AND OTHER INFORMATION 154 1. OPTION TO SUBSCRIBE 154 2. LIST OF MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION 154 SECTION IX. DECLARATION 156

SECTION - I. DEFINITIONS AND ABBREVIATIONS 1. CONVENTIONAL/ GENERAL TERMS. The following list of defined terms is intended for the convenience of the reader only and is not exhaustive. Term Muthoot Capital Services Limited, the Company, MCSL, Issuer Companies Act Articles/ Articles of Association Depositories Act Depository Equity Shareholders Equity Shares Listing Agreement Memorandum / Memorandum of Association Rupees, Rs. and ` SEBI Act SEBI Regulations Takeover Code Description Unless the context otherwise indicates or implies, refers to Muthoot Capital Services Limited, a public limited Company incorporated under the Companies Act, 1956 The Companies Act, 1956, as amended The Articles of Association of Muthoot Capital Services Limited The Depositories Act, 1996 and amendments thereto from time to time A depository registered with SEBI under the SEBI (Depository and Participant) Regulations, 1996, as amended from time to time. Means a holder of Equity Shares of Muthoot Capital Services Limited as on the record date i.e. [ ] Equity Shares of the Company having a face value of `10/- The equity listing agreements signed between the Company and the Stock Exchange Memorandum of Association of Muthoot Capital Services Limited The lawful currency of India The Securities and Exchange Board of India Act, 1992, as amended The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, as amended 2. ISSUE RELATED TERMS Abridged Letter of Offer Allotment Allotment Date Application Supported by Blocked Amount/ ASBA ASBA Investor The Abridged Letter of Offer to be sent to the shareholders of the Company with respect to this Issue in accordance with SEBI (ICDR) Regulations, 2009. Unless the context otherwise requires, the allotment of Equity Shares pursuant to the Issue The date on which Allotment is made, being [ ] The application (whether physical or electronic) used by an Investor to make a bid authorizing the SCSB to block the bid amount in his/her specified bank account maintained by the SCSB. An applicant who; a) holds the shares of the Company in dematerialized form as on the record date and has applied for entitlements and / or additional shares in dematerialized form; b) has not renounced his/her entitlements in full or in part; c) is not a renouncee; Auditors/Statutory Auditors Bankers to the Issue Board/Board of Directors or Director(s) CAF d) is applying through a bank account maintained with SCSBs. The Statutory Auditors, M/s. K. Venkatachalam Aiyer & Co., Chartered Accountants, Kochi [ ] Board of Directors of Muthoot Capital Services Limited unless otherwise specified. Composite Application Form i

Chairman Controlling Branches Corporate Consultants Designated Stock Exchange Depositories Draft Letter of Offer/DLoF Eligible Equity Shareholder(s) Issue Issue Closing Date Issue Opening Date Issue Price Investor(s) Lead Manager / Lead Merchant Banker Legal Advisor Letter of Offer Managing Director Promoters Promoter Group Mr. Thomas John Muthoot Such branches of the SCSBs which coordinate applications under the Issue by the ASBA Investors with the Registrar to the Issue and the Stock Exchanges and a list of which is available at http:// www.sebi.gov.in M/s. SVJS & Associates, Company Secretaries, Kochi For purpose of this Rights Issue, the Designated Stock Exchange is the Bombay Stock Exchange Limited NSDL and CDSL Draft Letter of Offer dated February 3, 2011 filed with SEBI A holder(s) of Equity Shares as on the Record Date Issue of 65,00,000 Equity Shares of `10/- each for cash at a price of `75 per share (including a premium of `65 per share) on rights basis to the existing Equity Shareholders of the Company in the ratio of 1 Equity Share for every 1 Equity Share held on the Record Date being [ ], 2010 aggregating to `4875 Lakhs. [ ] [ ] `75 Per Equity Share The holder(s) of Equity Shares of the Company as on the Record Date, i.e. [ ], 2010 and renouncees, who are eligible to apply for and receive their Rights Entitlement, subject to applicable laws. Karvy Investor Services Limited M/s. Menon & Pai, Advocates, Kochi Letter of Offer dated [ ] as filed with the Designated Stock Exchange after incorporating SEBI comments on the Draft Letter of Offer Mr. Thomas George Muthoot Mr. Thomas John Muthoot, Mr. Thomas George Muthoot and Mr. Thomas Muthoot. Muthoot Capital Services Limited has following Group Companies: 1) Muthoot Fincorp Limited 2) Muthoot Hotels and Infrastructure Ventures Private Limited 3) Muthoot Hotels Private Limited 4) Muthoot Agri Projects and Hospitalities Private Limited 5) LM Realtors Private Limited 6) The Right Ambient Resorts Private Limited 7) Muthoot Infrastructure Limited 8) Muthoot Pappachan Medicare Private Limited 9) Palakkad Infrastructure Private Limited 10) Muthoot Buildtech (India) Private Limited 11) Muthoot Properties (India) Private Limited 12) Muthoot Agri Development and Hospitalities Private Limited 13) Muthoot Housing Financing Company Limited 14) Muthoot Kuries Private Limited 15) Muthoot Land And Estates Private Limited 16) MPG Sports Academy Private Limited 17) Muthoot APT Ceramics Limited 18) Muthoot Equities Limited 19) Muthoot Exim Private Limited 20) Muthoot Motors Private Limited 21) El Toro Agri Projects and Hospitalities Private Limited 22) Calypso Agri Development and Hospitalities Private Limited 23) Fox Bush Agri Development and Hospitalities Private Limited 24) Linden Agri Ventures and Hospitalities Private Limited 25) Pine Pink Agri Ventures and Hospitalities Private Limited 26) Fireworks Agri Development and Hospitalities Private Limited ii

Record Date Registrars to the Issue or Registrars Renouncee(s) Rights Entitlement Rights Equity Shares Rights Issue Stock Exchange 27) Musk Agri Ventures and Hospitalities Private Limited 28) Cinnamon Agri Development and Hospitalities Private Limited 29) Buttercup Agri Projects and Hospitalities Private Limited 30) Double Tails Agri Development and Hospitalities Private Limited 31) Alaska Agri Projects and Hospitalities Private Limited 32) Goblin Agri Projects and Hospitalities Private limited 33) Jungle Cat Agri Development and Hospitalities Private Limited 34) Flame Agri Projects and Hospitalities Private Limited 35) Mariposa Agri Ventures and Hospitalities Private Limited 36) Mandarin Agri Ventures and Hospitalities Private Limited 37) Muthoot Holdings Private Limited 38) Muthoot Agri Ventures and Hospitalities Private Limited 39) Bamboo Agri Projects and Hospitalities Private Limited [ ] Integrated Enterprises (India) Limited The persons who have acquired Rights Entitlements from Equity Shareholders The number of Equity Shares that a shareholder is entitled to, on the basis of the ratio decided, in proportion to his/her shareholding in the Company as on the Record Date The Equity Shares of face value ` 10 each of the Company offered and to be issued and allotted pursuant to the Issue The issue of Equity Shares on rights basis based on terms of this Draft Letter of Offer Shall refer to the Bombay Stock Exchange Limited, Cochin Stock Exchange Limited and Coimbatore Stock Exchange Limited 3. ISSUER AND INDUSTRY RELATED TERMS Term ANBC AUM Capital Adequacy ratio DRR GDP KYC Mutual Fund / MF NBFC NPA SHG YTM Description Adjusted Net Bank Credit Asset Under Management A measure of a bank's capital as a percentage of a bank's risk weighted credit exposures. Also known as "Capital to Risk Weighted Assets Ratio (CRAR)." Debenture Redemption Reserve Gross Domestic Product Know your customer A mutual fund registered with SEBI under the SEBI (Mutual Funds) Regulations, 1996 Non Banking Financial Company Non Performing Asset Self Help Group Yield to maturity iii

4. ABBREVIATIONS Term ACIT AGM Addl, CIT AO AY BSE CAGR CDSL DP EBIDTA EPS FDI FEMA FI FII FIPB FY Description Assistant Commissioner of Income Tax Annual General Meeting Additional Commissioner of Income Tax Assessing Officer Assessment Year Bombay Stock Exchange Limited Compounded Annual Growth Rate Central Depository Services (India) Limited Depository Participant Earnings before interest, depreciation, amortization and tax Earnings per share Foreign Direct Investment Foreign Exchange Management Act, 1999 and amendments thereto from time to time Financial Institution Foreign Institutional Investors registered with SEBI under applicable laws Foreign Investment Promotion Board The twelve months ended March 31 of a particular year, unless otherwise stated Hindu Undivided Family Institute of Chartered Accountants of India The generally accepted accounting principles in India Insurance Regulatory and Development Authority Internal Rate of Return Income Tax Act, 1961 and amendments thereto from time to time Income Tax Appellate Tribunal Not Applicable Net Asset Value HUF ICAI Indian GAAP IRDA IRR I.T. Act ITAT N.A. NAV NR Non Resident as defined under FEMA, 1999 NRE Non Resident External as defined under FEMA, 1999 NRI Non Resident Indian as defined under FEMA, 1999 NRO Non Resident Ordinary as defined under FEMA, 1999 NSDL OCB(s) PAN PAT P/E Ratio Pvt. QIBs RBI ROC RoNW RTGS SCRR SCSBs SEBI USD w.e.f. w.r.t. WOS National Securities Depository Limited. Overseas Corporate Body (ies) Permanent Account Number Profit after tax Price/ Earnings Ratio Private Qualified Institutional Buyers (as defined in SEBI Regulations) Reserve Bank of India Registrar of Companies, Company Law Bhawan, BMC Road Thrikkakara, Kochi 682021 Return on Net Worth Real Time Gross Settlement Securities Contracts (Regulations) Rules, 1957 as amended from time to time. Self Certified Syndicate Banks The Securities and Exchange Board of India constituted under the SEBI Act, 1992 United States Dollar With effect from With respect to Wholly Owned Subsidiary iv

PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA Financial Data Unless stated otherwise, in this DLoF and unless the context otherwise requires all the references to one gender also refers to another gender. The financial data in this DLoF contains financial statements of the Company on a standalone basis. Unless indicated otherwise, the financial data in this DLoF is derived from the financial statements as of and for the years ended March 31, 2006, 2007, 2008, 2009, 2010 and for the six months ended September 30, 2010 prepared in accordance with Indian GAAP and the Act, restated in accordance with applicable SEBI (ICDR) Regulations, 2009, as stated in the report of the Statutory Auditors, M/s K. Venkatachalam Aiyer & Co., Chartered Accountants, included in this DLoF. Unless indicated otherwise, the operational data in this DLoF is presented on a consolidated basis. In accordance with SEBI s requirements, we have also presented in this DLoF standalone financial statements of the Company as of and for the years ended March 31, 2006, 2007, 2008, 2009, 2010 and for the six months ended September 30, 2010, prepared in accordance with Indian GAAP and the Companies Act and restated in accordance with applicable SEBI (ICDR) Regulations, 2009. The Company s fiscal year commences on April 01 and ends on March 31. The references to the fiscal year are for the twelve-month period ended March 31, 2006, 2007, 2008, 2009 and 2010. Currency of Presentation All references to India contained in this DLoF are to the Republic of India, all references to the Rupees or Rs. or ` are to Indian Rupees, the official currency of the Republic of India. Unless stated otherwise, throughout this DLoF, all figures have been expressed in Lakhs. In this DLoF, any discrepancies in any table between the total and the sums of the amounts listed are due to rounding-off, and unless otherwise specified, all financial numbers in parenthesis represent negative figures. The Company has included statements in this DLoF which contain words or phrases such as will, aim, is likely to result, believe, expect, will continue, anticipate, estimate, intend, plan, contemplate, seek to, future, objective, goal, project, should, will pursue and similar expressions or variations of such expressions, that are forward-looking statements. All forward looking statements are subject to risks, uncertainties and assumptions about the Company that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements. Important factors that could cause actual results to differ materially from the Company s expectations include but are not limited to: General economic and business conditions in the markets in which the Company operates and in the local, regional, national and international economies; Changes in laws and regulations relating to the sectors/areas in which the Company operates; Increased competition in the sectors/areas in which the Company operates; The Company s ability to successfully implement its growth strategy and expansion plans, and to successfully launch and implement various projects and business plans for which funds are being raised through this Issue; The Company s ability to meet its capital expenditure requirements; Fluctuations in operating costs; The Company s ability to attract and retain qualified personnel; Changes in political and social conditions in India or in countries that the Company may enter, the monetary and interest rate policies of India and other countries, inflation, deflation, unanticipated turbulence in interest rates, equity prices or other rates or prices; The performance of the financial markets in India and globally; and Any adverse outcome in the legal proceedings in which the Company is involved. For a further discussion of factors that could cause the Company s actual results to differ, see the section titled Risk Factors beginning on page vii, of this DLoF. By their nature, certain market risk disclosures are only v

estimates and could be materially different from what actually occurs in the future. As a result, actual future gains or losses could materially differ from those that have been estimated. Neither the Company nor the Lead Manager nor any of the respective affiliates have any obligation to update or otherwise revise any statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events, even if the underlying assumptions do not come to fruition. In accordance with SEBI requirement, the Company and the Lead Manager will ensure that investors in India are informed of material developments until the time of the grant of listing and trading permission by the Stock Exchange. vi

SECTION II - RISK FACTORS An investment in Equity Shares involves a high degree of risk. The investors should carefully consider all the information in this DLoF, including the risk and uncertainties described below, before making an investment in the Company s Equity Shares. If any of the following risks actually occur, the Company s business, results of operations and financial condition could suffer, the trading price of its Equity Shares could decline, and the investors may lose all or part of their investment. The financial and other implications of material impact of risks concerned, wherever quantifiable, have been disclosed in the risk factors mentioned below. However, there are a few risk factors where the impact is not quantifiable and hence the same has not been disclosed in such risk factors. Unless otherwise stated in the relevant risk factors set forth below, the Company is not in a position to specify or quantify the financial or other implication of any risks mentioned herein. INTERNAL RISK FACTORS 1. The Company is involved in various legal proceedings both as plaintiffs and defendants in which they may not prevail and which could have an adverse impact on them. MCSL and its Directors are party to various legal proceedings incidental to their business and operations. These legal proceedings are pending at different levels of adjudication before various courts and tribunals. These proceedings if decided against the Company, it could have a material adverse impact on the management of the Company. For further details please refer to Section titled Legal and Other Information on page 97 of this DLoF. 2. If the Company is unable to obtain required approvals and licenses in a timely manner, the business and operations may be adversely affected. The Company may, from time to time, require certain approvals, licenses, registrations and permissions for operating the business for which it may be required to make applications in the future. If the Company fails to obtain any of these approvals or licenses, or renewals thereof, in a timely manner, or at all, the business could be adversely affected. 3. Non Compliance with RBI regulations could adversely affect the Company s operations and profitability The Company is a Non Banking Financial Company governed by RBI regulations. It is required to meet disclosure norms, exposure limits, maintain ratios like capital adequacy ratio, liquidity ratio, etc on a continuous basis. The RBI has the authority to change these norms/criteria as and when required. Inability to meet the prescribed norms/criteria, can adversely affect the operations and profitability of the Company. 4. The Company has indebtedness, which, in the event of inadequate accruals may pose constraints in servicing its debt. As on March 31, 2010 the total borrowings, both secured and unsecured, stood at `7,950. 42 Lakhs against the Company s net worth of `2,136.92 Lakhs. This includes, secured loans of `5,761.92 Lakhs (72.47% of the total loans) and unsecured loans of `2,188.50 Lakhs (27.53% of the total loans).as on September 30, 2010 the total borrowings, both secured and unsecured, stood at `10, 273.83 Lakhs against the Company s networth of `2,603.30 Lakhs. This includes, secured loans of `6,001.05 Lakhs (58.41% of the total loans) and unsecured loans of `4,272.78 Lakhs (41.59% of the total loans). The Company s ability to meet its debt service obligations and to repay its outstanding borrowings will depend primarily upon the cash flow generated by the business. There can be no assurance that the Company will generate sufficient cash enabling it to service its existing or proposed borrowings, comply with covenants or fund other liquidity needs. Adverse developments or a reduced perception of the Company s creditworthiness in credit markets could increase the debt service costs and the overall cost of funds. If the Company fails to meet its debt service obligations or financial covenants required under the financing documents, its lenders could, if so stated in the financial documents, declare the Company in default under the terms of its borrowings, accelerate the maturity of its obligations, enforce the security interest, and take possession of its assets. vii

There can be no assurance that, in the event of any such acceleration, the Company will have sufficient resources to repay these borrowings. For further details, please refer to Section titled Financial Information on page 37 this DLoF. 5. Inability to foreclose on collateral in the event of a default may result in failure to recover the expected value of the collateral. Additionally, the value of the collateral on loans may decrease, or the Company may experience delays in enforcing collateral when borrowers default on their obligations. The value of the collateral on the loans disbursed by the Company may decline due to adverse market conditions. In case of security interest being a movable assets, it may be difficult to foreclose on collateral in the event of a default. Additionally, delays in bankruptcy and foreclosure proceedings, defects in title, documentation of collateral, the necessity of obtaining regulatory approvals for the enforcement of rights in such collateral, fraudulent transfers and destruction of underlying assets may affect the value of the collateral and the ability to foreclose. Failure to recover the expected value of collateral could expose the Company to losses and, in turn, adversely affect the business and financial performance. 6. The Company does not currently own the trade mark to the Muthoot Capital Services Limited logo. Inability to use the logo, arising out of any dispute may adversely affect the goodwill, reputation and results of operations of the Company. The Directors of MCSL are in the process of getting the logo registered with the Registrar of trademarks in India under Class 36. In the interim period any disputes related to the logo may adversely affect the business, reputation, goodwill, financial condition and results of operations of the Company. All the Group Companies use the Muthoot Pappachan name and logo. If the actions of the Promoters or Group Companies damage or affect the Muthoot Pappachan reputation, this will in turn affect the business, results of operations and financial condition of the Company. 7. Conflicts of interest may arise out of common business objects shared by the Company and certain Group Companies The Promoters of the Company have interests in other companies and entities that compete with MCSL, including Group Companies that are involved in businesses that are similar to those of MCSL within the NBFC sector. There is no undertaking made by the Promoters or Group Companies to not compete. In addition, there is no undertaking by the Promoters, Group Companies or such similar entities to conduct or direct any opportunities in the NBFC services sector only to MCSL. One of the Group Companies, Muthoot Fincorp Limited is also engaged in the business of advancing gold loans. As a result, conflicts of interest may arise in allocating or addressing business opportunities and strategies amongst the Company and Group Companies in circumstances where MCSL s interests differ from theirs. There can be no assurance that the Promoters or Group Companies will not compete with the existing business or any future business, nor that their interests will not conflict with those of the Company. 8. Deployment of issue proceeds is entirely at the discretion of the Issuer and is not subject to any monitoring by any independent agency. The net proceeds from this Issue are expected to be used as set forth under Objects of the Issue on page 13. The use of the net proceeds is at the Company s sole discretion and is not subject to any monitoring by any independent agency. Accordingly, investors in this Issue have to rely upon the judgment of the management, who will have considerable discretion, with respect to the use of proceeds. 9. Pending Government / Statutory Approvals and Licenses The Company has made applications to regulatory authorities for grant of the following Government / statutory approvals and licenses but the same has not been issued till date: Sr. No. Nature of Registration/License Registration /License No. Issuing Authority Date of Expiry 1. IRDA License 3479155 IRDA July 29, 2010 viii

The Company has applied for the renewal of its IRDA license on May 15, 2010 for a further period of three years. If MCSL fails to obtain the aforesaid license, its ability to carry on business may be affected. Consequently, the Company s turnover and profitability may be adversely affected. 10. The Company, by way of applications to Cochin Stock Exchange Limited and Coimbatore Stock Exchange Limited applied for delisting of its Equity Shares The above referred two stock exchanges considered the Company s request and accordingly granted their approval for delisting of Equity Shares of the Company. MCSL was delisted from Cochin Stock Exchange Limited w.e.f. from August 27, 2005 and same was informed to the Company vide letter Ref No. SE/LIST/262/2005 dated September 14, 2005 Coimbatore Stock Exchange Limited has also confirmed that MCSL shares are delisted as per the records of the Exchange. Note: The documents related to delisting on Cochin Stock Exchange Limited and Coimbatore Stock Exchange Limited have been misplaced by the Company. MCSL was unable to arrange for details related to the delisting date from Coimbatore Stock Exchange Limited 11. Merchant Banking License of the Company has expired and its details are not found on the records of the Company. The Company received Category I merchant banking license with effect from March 16, 1995 by SEBI vide its letter dated March 13, 1995 bearing reference number PMD/SEBI-MB/4147/95. The Company has asked for details of the expiry of its Merchant Banking License from SEBI Vide letter no MCSL/RI/SEBI/181110 dated November 18, 2010, which is still pending. 12. Trading of MCSL securities was suspended on BSE for nonpayment of Listing fee The trading of securities listed on BSE of MCSL was suspended due to non-payment of listing fee during the period February 05, 2001 to September 17, 2004. Any non compliance of Listing Agreement in the future could lead to suspension/ delisting of MCSL share which could in turn impact the liquidity of the shares. 13. The Company may be required to be registered under State legislations that regulate the business of money lending, and the ceiling on interest rate imposed and other provisions contained therein could be made applicable to the Company including imposition of monetary penalties The Kerala Money-lenders Act, 1958 (the Kerala Money-lenders Act ) was enacted by the Government of Kerala to regulate and control the business of money-lenders within the State. The definition of a moneylender under the Kerala Money-lenders Act includes any person/entity that makes advances and accepts deposits in its ordinary course of business. Each money-lender within the State of Kerala is required to obtain a license under the provisions of this legislation. NBFCs in Kerala had filed a writ petition before the Kerala High Court contending that the Kerala Money-lenders Act would be inapplicable to them since they are registered with the RBI and are controlled directly by it. However, the Kerala High Court held that the object of the Kerala Money-lenders Act is to protect the interests of the borrowers and hence NBFCs would be covered by its provisions. Subsequently, the NBFCs, by special leave petition numbered SLP(C) No. 35045 of 2009 dated November 18, 2009 appealed against this decision of the Kerala High Court to the Supreme Court of India and the issue is now pending before that court. If the case is decided against the Company, it could lead to other High Courts applying the decision of the Supreme Court to direct the Company s branches located in other States that have enacted legislations on the same lines as the Kerala Moneylenders Act to register them under such legislations. ix

The registration fee for each branch under the Kerala Money-lenders Act is in the tune of `5,000 and each branch would also be required to maintain a deposit with a specified authority which would act as a security for complying with the provisions of the license. The penalty prescribed for carrying on business without a license is imprisonment for up to three years and a fine of `50,000. In the event of the Supreme Court decision on the issue being against the Company, it could adversely affect income, profitability and results of operations of the Company. 14. A major part of the Company s branch network is concentrated in southern India and any downturn in the economy of South India or any change in consumer preferences therein would adversely affect operations. As of September 30, 2010, out of 29 branches of the Company, 28 are located in southern states like Andhra Pradesh, Karnataka, Tamil Nadu and Kerala. Any disruption, disturbance or breakdown in the economy of these states could adversely affect the result of business and operations of the Company. As on September 30, 2010, 85.26% of gold loan advances are made through branches located in the Southern States like Andhra Pradesh, Karnataka, Tamil Nadu and Kerala. Concentration in the southern states exposes the Company to any adverse geological, ecological, economic and/or political circumstances that may arise in that region as compared to other NBFCs/commercial banks that have diversified national presence. If there is a sustained downturn in the economy of south India or a sustained change in consumer preferences in that region, the financial position of the Company may be adversely affected. 15. Volatility in the market price of gold could affect MCSL s income, profitability and scale of operations. Income from gold loans amounted to 49.23% of the total income for half year ending September 30, 2010. Dependence on this sector for a large portion of income exposes the Company to a number of risks that are closely associated with this sector. The business involves the advancement of loans against the security of gold jewellery. Any fluctuation in the price of gold bears a direct relationship to the value of the security against which funds are advanced. A sudden increase in the price of gold would enhance its value and there would be a comparative increase in the amount of money that the Company would be required to advance against it. Also, since the pledged jewellery is the only security for loans advanced by the Company, any fall in its prices after it has been pledged would render it less valuable than it was at the time of the pledge. Hence, in case of a default in repayment, the Company may be rendered unable to fully recover the advanced amount. Fall in the value of the pledged jewellery may also act as a disincentive for borrowers to recover the gold pledged. Any such fluctuation in the price of gold would adversely affect the income, profitability and results of operations of the Company. 16. The Company is exposed to the threat of theft/burglary on branch/head office premises which may adversely affect reputation and profitability Storage of pledged gold jewellery as part of the business entails the risk of burglary and consequential loss to reputation and profitability of the Company. The short tenure of the loans advanced coupled with emphasis on processing the repayment of loans within very short timelines requires storage of the pledged gold on the office premises at all points in time. Though, in the past no such incidences have occurred in MCSL, the Company is exposed to this risk. The Company is insured against the risk of burglary arising from nature of business, such insurance may not be sufficient. Further, the actual recovery of the insured amount from the insurer entails procedural hurdles and delays and could adversely affect the reputation and profitability of the Company. 17. The Company is subject to the risk of gold loan and cash related misappropriations by their customers/employees. The Company is exposed to many types of operational risks, including the risk of fraud or other misconduct by customers/employees, as well as unauthorized transactions by employees etc. Though employees are recruited carefully by the Company, there has been one case of cash related misappropriations committed by an employee in the past, amounting to `45,000. The Company has filed a case against the employee under section 138 of Negotiable Instruments Act and expects to recover the aforesaid amount. x

The Company is required to report cases of internal fraud to the RBI and the RBI may take appropriate action against the same. MCSL cannot guarantee that such events will not recur in the future. Any such event could adversely affect the reputation, operations, or otherwise have a material adverse effect on the business, financial condition or results of operation of the Company. 18. If the Company is unable to manage the level of NPAs in the loan portfolio, profitability will suffer As at September 30, 2010, net NPAs of the Company were `106.06 Lakhs or 0.85% of Net Advances, compared to `60.70 Lakhs amounting to 0.61% of Net Advances as at March 31, 2010 and `52.56 Lakhs amounting to 0.78% of Net Advances as at March 31, 2009. Provisions for loans and advances amounted to `20.18 Lakhs as at September 30, 2010 compared to `17.59 Lakhs as at March 31, 2010 and `15.18 Lakhs as at March 31, 2009. If the quality of the loan portfolio of the Company deteriorates or if they are unable to implement effective monitoring and collection methods, the financial condition and results of operations may be affected. The Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998 prescribe the provisioning required in respect of the outstanding loan portfolio of the Company. Should the overall credit quality of the loan portfolio deteriorate, the current level of provisions may not be adequate to cover further increases in the amount of NPAs of the Company. If MCSL is required to increase provisioning in the future due to increased loan losses or the introduction of more stringent requirements in respect of loan loss provisioning, this may reduce the profit from operations. Further, should the level of NPAs increase, there is no assurance that the Company will be able to recover the outstanding amounts due under any defaulted loans. 19. The proceeds of the Issue will be utilized by the Company to repay borrowings availed from one of the Promoters of the Company. The Company plans to utilize the issue proceeds for general corporate purposes and it may constitute more than 15% of the issue size. The Company intends to deploy the balance issue proceeds aggregating to ` [ ] towards general corporate purposes, including brand building, meeting exigencies and contingencies in ordinary course of business which may not be foreseen or any other purpose as approved by our Board of Directors from time to time. For further details please refer to the section titled Objects of the Issue on Page 13 of the DLoF. 20. The proceeds of the issue will be utilized by the Company for general corporate purposes. The Company plans to utilize the issue proceeds for general corporate purposes. For further details please refer to the section titled Objects of the Issue on Page 13 of the DLoF. 21. Any change in the current priority sector norms as applicable to bank finance or any fall in interest income may adversely affect income and profitability of the Company. The Company avails various lines of credit and advances from scheduled commercial banks. As per the current policy of the RBI on priority sector lending, 40.00% of the adjusted net bank credit (the ANBC ) or credit equivalent amount of off balance sheet exposure, whichever is higher is required to be advanced by commercial banks to the priority sector. Priority sector lending inter alia comprises of direct/indirect lending to the agricultural sector, the small scale industries sector, micro credit, export credit, etc. Banks could either make advances directly to the aforementioned sectors or could do the same through SHGs, NBFCs etc. Most of MCSL s Gold Loan lending is classified under the Priority Sector lending. The credit facilities availed as indirect lending to the priority sector is at relatively low interest rates. Any change in the RBI s priority sector lending norms could make advances costly and could adversely affect profitability and results of operations of the Company. Alternatively, a fall in interest income due to volatility in market interest rates or increase in the availability of low cost credit in the relevant sectors, even while the interest paid by MCSL on loans remain constant, would lead to a reduction in the net interest income of the Company. 22. The client base of the Company is comprised of individual borrowers who are generally more likely to be affected by declining economic conditions than larger corporate entities. xi

Individual borrowers generally are less financially resilient than larger corporate borrowers, and, as a result, they can be more adversely affected by declining economic conditions. Moreover, unlike several developed economies, a nationwide credit bureau has only recently become operational in India, so there is less financial information available about individuals, and, in turn, it is difficult to carry out precise credit risk analyses on them. Although the Company s risk management controls are believed to be sufficient, it is not certain that they will continue to be sufficient or that additional risk management policies for individual borrowers will not be required. Failure to maintain sufficient credit assessment policies could adversely affect the credit portfolio which could have a material and adverse effect on the results of operations and financial condition of the Company. 23. Appraisal of gold is subjective and inaccurate appraisal of the same by the personnel employed by the Company may adversely affect income and profitability The accurate appraisal of the gold that is pledged as security for loans advanced is vital to the business of the Company. However, appraisal of gold requires skilled manpower and hence the dependence upon the workforce for the same. Evaluating the worth/genuineness of gold is subjective and requires high degrees of expertise and experience. Inaccurate appraisal of gold by the workforce entails the risk of it being overvalued and being accepted as security for a loan that is higher than its actual value, adversely affecting the profitability and reputation of the Company. Non availability of skilled workforce to keep up with the plans of expansion of the Company could also adversely affect its income and profitability. Any fraud/miscalculation in relation to the existing gold inventory that is pledged with the Company, if discovered any time in the future, may adversely affect the results of operations. 24. The Company has appointed individuals as Debenture trustees for the Debentures issued by it As on September 30, 2010, an amount of `1,442.35 Lakhs is outstanding as Principle and ` 133.27 Lakhs as interest accrued but not due on debentures, on the Company s balance sheet. These consist of nine separate series of privately placed secured redeemable bonds issued by the Company. These series of debentures have individuals as Debenture Trustees which doesn t comply with Regulation 7 of Chapter 1 of Securities and Exchange Board of India (Debenture Trustees) Regulations, 1993 as amended. However, as these bonds are privately placed and unlisted, they are outside the domain of SEBI. 25. The Company faces difficulties and incurs additional expenses in operating from rural and semi urban areas, where infrastructural facilities are limited. A significant portion of the operations of the Company are carried out from rural and semi urban areas. However, several difficulties are faced in carrying out such operations in terms of accessing infrastructural facilities like power and transport. In addition, since such branches tend to be located in relatively secluded areas, additional costs are incurred on security related requirements. It cannot be assured that such costs will not increase in the future as the network of the Company is strengthened in the rural and semi urban areas. 26. There are operational risks associated with the business of the Company which may have an adverse impact on performance The Company is exposed to many types of operational risks associated with the business. There are also chances of collusion between an employee and a borrower to defraud the Company. Maintaining cash in the liquid form is essential to the business. However, this also entails the risk of pilferage though the cash cabin at every branch is constantly manned. The Company is also responsible for inventory control of the gold that is pledged for obtaining loans. Given the large volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. There is also the risk that the controls and procedures employed by the Company may prove inadequate or may be circumvented thereby causing delays in detection or errors in information. Although the Company currently maintains and is in the constant process of upgrading the systems of controls to keep operational risk to a minimum, there could be no assurance that it will not suffer loss from operational risk in the future that may be material in amount. 27. The Company may not be able to successfully manage and maintain growth xii

The Company has experienced significant growth in terms of the income from services, the loans portfolio and the number of offices and employees since inception in 1994. The income from operations increased at a Compounded Annual Growth Rate ( CAGR ) of 34.93% from the year ended March 31, 2006 to the period ended September 30, 2010. In this same period, income gold loans increased at a CAGR of 23.39%. Future growth depends on a number of factors, including increased penetration into the market for gold loans, the competition from competitors and future regulatory changes. The Company cannot assure that it will be able to continue to sustain growth at historical rates in the future. The Company is bound by certain financial covenants under the assignment agreements which require it to maintain leverage at a specified level. Inability to do so may adversely affect the ability to depend on this source of funding. The Company s loan portfolio has expanded significantly in the recent past and it cannot be assured that there will not be significant additional NPAs in the loan portfolio in the future on account of new loans made or that the asset quality of the current loan portfolio can be maintained. As the Company continues to grow, they are required to continue to improve their managerial, technical and operational knowledge, the allocation of resources and management information systems. In addition, it may be required to manage relationships with a greater number of customers, third party agents, lenders and other parties. It cannot be assured that the Company will not experience issues such as capital constraints, operational difficulties, and difficulties in expanding existing business and operations and training an increasing number of personnel to manage and operate the expanded business. Any of these issues may result in a failure to implement the expansion plans in a timely manner and there can be no assurance that any expansion plans, if implemented, will be successful. The Company may, in the future, enter into alliances, investments, partnerships or acquisitions in the future and unsuccessful implementation of the same may harm the business. 28. Members of the Promoter Group have significant influence over the operations of the Company, which will enable them to influence the outcome of matters submitted to shareholders for approval. As of September 30, 2010, the Promoters and members of the Promoter Group hold approximately 75% of the share capital. See Capital Structure starting on page no 9 of the DLoF. In addition, the Promoters have provided personal guarantees in connection with certain financing arrangements. The Promoter Group may be in a position to influence decisions relating to the business and the outcome of matters submitted to shareholders for approval. This control could delay, defer or prevent a change in control of the Company, impede a merger, consolidation, takeover or other business combination involving the Company, or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of the Company even if it is in the Company s best interest. In addition, for so long as the Promoter Group continues to exercise significant control over the Company, it may influence the material policies of the Company in a manner that could conflict with the interests of the other shareholders. The Promoter Group may have interests that are adverse to the interests of the other shareholders and may take positions with which the management and the other shareholders of the Company do not agree. 29. Insurance policies provide limited coverage and the Company may not be insured against some business risks. The Company maintains insurance on property and stock in trade in amounts believed to be consistent with industry practices and the insurance policies cover physical loss or damage to the property and stock in trade arising from a number of specified risks including burglary, fire, fraud by employees and other perils. Notwithstanding this insurance coverage, the Company may not be fully insured against some business risks and the occurrence of an accident that causes losses in excess of limits specified under the relevant policy, or losses arising from events not covered by insurance policies, could materially and adversely affect the financial condition and results of operations of the Company. 30. The Company is subject to certain restrictive covenants in the loan agreements, which may restrict the operations and expansion ability and may adversely affect the business. The Company has entered into certain loan agreements in respect of the borrowings, which contain certain restrictive covenants or require MCSL to obtain approval from the lender in certain circumstances for disposing of (including creating any charge on) the specified assets, undertaking any merger or reorganization, taking up new line of business, declaring dividends in certain circumstances, amending the xiii