Housing Development Finance Corporation Ltd

TO THE MEMBERS OF HOUSING DEVELOPMENT FINANCE CORPORATION LIMITED

1. We have audited the attached Balance Sheet of HOUSING DEVELOPMENT FINANCECORPORATION LIMITED ("the Corporation") as at 31^st March, 2011,the Profit and Loss Account and the Cash Flow Statement of the Corporation for the yearended on that date, both annexed thereto, in which are incorporated the Returns from theDubai Branch audited by other auditors. These financial statements are the responsibilityof the Corporation’s Management. Our responsibility is to express an opinion on thesefinancial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally acceptedin India. Those Standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatements. Anaudit includes examining, on a test basis, evidence supporting the amounts and thedisclosures in the financial statements. An audit also includes assessing the accountingprinciples used and the significant estimates made by the Management, as well asevaluating the overall financial statement presentation. We believe that our auditprovides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 (CARO) issued bythe Central Government in terms of Section 227(4A) of the Companies Act, 1956, we give inthe 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 reportthat:

(i) we have obtained all the information and explanations which to the best of ourknowledge 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 theCorporation so far as it appears from our examination of those books and proper returnsadequate for the purposes of our audit have been received from the Dubai Branch audited byother auditors;

(iii) the reports on the accounts of the Dubai Branch audited by other auditors havebeen forwarded to us and have been dealt with by us in preparing this report;

(iv) the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealtwith by this report are in agreement with the books of account and the audited BranchReturns;

(v) in our opinion, the Balance Sheet, the Profit and Loss Account and the Cash FlowStatement dealt with by this report are in compliance with the Accounting Standardsreferred to in Section 211(3C) of the Companies Act, 1956;

(vi) in our opinion and to the best of our information and according to theexplanations given to us, the said accounts give the information required by the CompaniesAct, 1956 in the manner so required and give a true and fair view in conformity with theaccounting principles generally accepted in India:

(a) in the case of the Balance Sheet, of the state of affairs of the Corporation as at31^st March, 2011;

(b) in the case of the Profit and Loss Account, of the profit of the Corporation forthe year ended on that date and

(c) in the case of the Cash Flow Statement, of the cash flows of the Corporation forthe year ended on that date.

5. On the basis of the written representations received from the Directors as on 31^stMarch, 2011 taken on record by the Board of Directors, we report that none of theDirectors is disqualified as on 31^st March, 2011 from being appointed as adirector in terms of Section 274(1)(g) of the Companies Act, 1956.

Annexure to the Auditors’ Report

(Referred to in paragraph 3 of our report of even date)

(i) Having regard to the nature of the Corporation’s business/activities/results/transactions etc. clauses (ii), (viii), (x) and (xiii) of CARO are not applicable.

(ii) In respect of its fixed assets:

(a) The Corporation has maintained proper records showing full particulars, includingquantitative details and situation of the fixed assets.

(b) Some of the fixed assets were physically verified during the year by the Managementin accordance with a regular programme of verification which, in our opinion, provides forphysical verification of all the fixed assets at reasonable intervals. According to theinformation and explanation given to us, no material discrepancies were noticed on suchverification.

(c) The fixed assets disposed off during the year, in our opinion, do not constitute asubstantial part of the fixed assets of the Corporation and such disposal has, in ouropinion, not affected the going concern status of the Corporation.

(iii) In respect of loans, secured or unsecured, granted by the Corporation tocompanies, firms or other parties covered in the Register under Section 301 of theCompanies Act, 1956, according to the information and explanations given to us:

(a) The Corporation has granted loans to eleven parties. At the year end, theoutstanding balances of such loans granted aggregated Rs 940,67,63,993 (number of parties- eight) and the maximum amount involved during the year was Rs 1299,38,93,070.

(b) The rate of interest and other terms and conditions of such loans are, in ouropinion, prima facie not prejudicial to the interests of the Corporation.

(c) The receipts of principal amounts and interest have been regular/ as perstipulations.

(iv) In respect of loans, secured or unsecured, taken by the Corporation fromcompanies, firms or other parties covered in the Register maintained under Section 301 ofthe Companies Act, 1956, according to the information and explanations given to us:

(a) The Corporation has taken loans from seventy eight parties. At the year-end, theoutstanding balance of such loans taken aggregated Rs 3548,87,62,991 (number of parties–sixty nine) and the maximum amount involved during the year was Rs 4657,52,11,483.

(b) The rate of interest and other terms and conditions of such loans are, in ouropinion, prima facie not prejudicial to the interests of the Corporation.

(c) The payments of principal amounts and interest in respect of such loans areregular/as per stipulations.

(v) In our opinion and according to the information and explanations given to us, thereis an adequate internal control system commensurate with the size of the Corporation andthe nature of its business with regard to purchases of fixed assets and the sale ofservices. During the course of our audit, we have not observed any major weakness in suchinternal control system.

(vi) To the best of our knowledge and belief and according to the information andexplanations given to us, there were no contracts or arrangements [excluding itemsreported under paragraphs (iii) and (iv) above] that needed to be entered in the Registermaintained in pursuance of Section 301 of the Companies Act, 1956.

(vii) In our opinion and according to the information and explanations given to us, theCorporation has complied with the provisions of Sections 58A and 58AA of the CompaniesAct, 1956 and the Housing Finance Companies (NHB) Directions, 2001, with regard to thedeposits accepted from the public. According to the information and explanations given tous, no order has been passed by the Company Law Board or the National Company Law Tribunalor the Reserve Bank of India or any Court or any other Tribunal.

(viii) In our opinion, the internal audit functions carried out during the year byfirms of Chartered Accountants appointed by the Management have been commensurate with thesize of the Corporation and the nature of its business.

(ix) According to the information and explanations given to us in respect of statutorydues:

(a) The Corporation has generally been regular in depositing undisputed dues, includingProvident Fund, Investor Education and Protection Fund, Income-tax, Sales Tax, Wealth Tax,Service Tax, Cess and other material statutory dues applicable to it with the appropriateauthorities.

(b) There were no undisputed amounts payable in respect of Income-tax, Cess and othermaterial statutory dues in arrears as at 31^st March, 2011 for a period of morethan six months from the date they became payable.

(c) Details of dues of Sales-tax, Wealth Tax, Interest on Lease Tax, Stamp Duty andEmployees’ State Insurance which have not been deposited as on 31^st March,2011 on account of disputes are given below:

(x) In our opinion, and according to the information and explanations given to us, theCorporation has not defaulted in the repayment of dues to banks, financial institutionsand debenture holders.

(xi) In our opinion, the Corporation has maintained adequate records where it hasgranted loans and advances on the basis of security by way of pledge of shares, debenturesand other securities.

(xii) Based on our examination of the records and evaluation of the related internalcontrols, the Corporation has maintained proper records of the transactions and contractsin respect of its dealings in shares, securities, debentures and other investments andtimely entries have been made therein. The aforesaid securities have been held by theCorporation in its own name.

(xiii) In our opinion, and according to the information and explanations given to us,the Corporation has not given any guarantees for loans taken by others from banks andfinancial institutions.

(xiv) In our opinion and according to the information and explanations given to us, theterm loans have been applied for the purposes for which they were obtained, other thantemporary deployment pending application.

(xv) According to the information and explanations given to us and on the basis ofmaturity profile of the assets and liabilities with a residual maturity of one year, asgiven in the Asset Liability Management Report, liabilities maturing in the next one yearare not in excess of the assets of similar maturity.

(xvi) The Corporation has made a preferential allotment of shares on exercise ofoptions granted in earlier years under the ESOP Schemes to parties covered in the Registermaintained under Section 301 of the Companies Act, 1956. The prices at which such sharesare allotted are not prima facie prejudicial to the interests of the Corporation.

(xvii) According to the information and explanations given to us, and during the periodcovered by our audit report, the Corporation has issued secured non-convertible debenturesamounting to Rs 13,865 crores. The Corporation has created security in respect of thedebentures issued.

(xviii) During the period covered by our audit report, the Corporation has not raisedany money by public issues.

(xix) To the best of our knowledge and belief and according to the information andexplanations given to us, no fraud by the Corporation and no material fraud on theCorporation was noticed or reported during the year, although there have been fewinstances of loans becoming doubtful of recovery consequent upon fraudulentmisrepresentation by borrowers, the amounts whereof are not material in the context of thesize of the Corporation and the nature of its business and which have been provided for.