LIC Housing Finance Ltd

To the members of LIC Housing Finance Limited

1. We have audited the attached Balance Sheet of LIC Housing Finance Limited (the'Company') as at March 31, 2010, the Profit and Loss Account and also the Cash FlowStatement for the year ended on that date, annexed thereto (in which are incorporated theaccounts of 5 branches, known as back offices audited by other auditors). These financialstatements are the responsibility of the Company's management. Our responsibility is toexpress an opinion on these financial statements based on our audit.

2. The comparative figures in the financial statements for the year ended March 31,2009, were audited by the then auditors of the Company.

3. 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 misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides a reasonable basisfor our opinion.

4. As required by the Companies (Auditor's Report) Order, 2003 (as amended) (the'Order'), issued by the Central Government of India in terms of sub-section (4A) ofSection 227 of the Companies Act, 1956, we enclose in the Annexure a statement on thematters specified in paragraphs 4 and 5 of the said Order.

5. Further to our comments in the Annexure referred to in paragraph 3 above, we reportthat:

(a) We have obtained all the information and explanations, which to the best of ourknowledge 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 theCompany so far as appears from our examination of those books and proper returns adequatefor the purposes of our audit have been received from the branches not visited by us. Thebranch auditors' reports have been forwarded to us and have been appropriately dealt with;

(c) The Balance Sheet, Profit and Loss Account and Cash Flow Statement dealt with bythis report are in agreement with the books of account and with the audited returns fromthe branches;

(d) In our opinion, the Balance Sheet, Profit and Loss Account and Cash Flow Statementdealt with by this report comply with the accounting standards referred to in sub-section(3C) of Section 211 of the Companies Act, 1956, in so far as they apply to the HousingFinance Company;

(e) On the basis of the written representations received from the directors, as onMarch 31, 2010, and taken on record by the Board of Directors, we report that none of thedirectors is disqualified as on March 31, 2010 from being appointed as a director in termsof 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 explanationsgiven to us, the said accounts read with the significant accounting policies and notesthereon, give the information required by the Companies Act, 1956, in the manner sorequired, and give a true and fair view in conformity with the accounting principlesgenerally accepted in India:

(i) in the case of the Balance sheet, of the state of affairs of the Company as atMarch 31, 2010;

(ii) in the case of the Profit and Loss account, of the profit for the year ended onthat date; and

(iii) in the case of the Cash-flow statement, of the cash-flows for the year ended onthat date.

Annexure to the Auditors' Report referred to in paragraph 4 of our Report of even dateto the Members of LIC Housing Finance Limited on the accounts for the year endedMarch 31, 2010.

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

(b) The fixed assets have been physically verified by the management during the year.In our opinion, the frequency of verification is reasonable. According to the informationand explanations given to us, no material discrepancies were noticed on such verification.

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

(ii) As the Company does not have inventory, the Clauses (ii)

(a) to (ii)(c) of Para 4 of the Order are not applicable to the Company.

(iii) (a) According to the information and explanations given to us, the Company hasnot granted any loans, secured or unsecured, to companies, firms or other parties coveredin the register maintained under Section 301 of the Companies Act, 1956. Accordingly,sub-clause (b), (c) and (d) are not applicable.

(b) According to the information and explanations given to us, the Company has nottaken any loans, secured or unsecured from companies, firms or other parties covered inthe register maintained under section 301 of the Companies Act, 1956. Accordingly,sub-clause (f) and (g) are not applicable.

(iv) In our opinion and according to the information and explanations given to us,there is an adequate interna! control system commensurate with the size of the Company andthe nature of its business with regard to purchase of fixed assets and for sale ofservices. The nature of the Company's business is such that it does not involve purchaseand sale of goods. During the course of our audit, we have not observed any majorweaknesses in the aforesaid internal control system.

(v) According to the information and explanations given to us, there have been nocontracts or arrangements referred to in section 301 of the Companies Act, 1956 during theyear to be entered in the register required to be maintained under that section.Accordingly, sub-clause (b) is not applicable.

(vi) In our opinion and according to the information and explanations given to us, theCompany has complied with the provisions of Sections 58A and 58AA of the Companies Act,1956, to the extent applicable to the Housing Finance Company and the Housing FinanceCompanies (NHB) Directions, 2001 with regard to the deposits accepted from the public. Weare informed that no Order has been passed by the Company Law Board or the Reserve Bank ofIndia or any Court or any other Tribunal.

(vii) In our opinion, the internal audit functions carried out during the year by theCompany's internal audit department and by a firm of Chartered Accountants appointed bythe management have been commensurate with the size of the Company and nature of itsbusiness.

(viii) As the Company is not a manufacturing concern, the clause (viii) of Para 4 ofthe Order regarding maintenance of cost records under clause (d) of sub-section (1) ofsection 209 of the Companies Act, 1956 is not applicable to the Company,

(a) In our opinion and according to the information and explanations given to us, theCompany has generally been regular in depositing undisputed statutory dues, includingprovident fund, investor education and protection fund, employees' state insurance, incometax, wealth tax, service tax, custom duty, cess and any other material statutory dueswhere applicable, with the appropriate authorities during the year.

(b) According to the information and explanations given to us, no undisputed amountspayable in respect of provident fund, investor education and protection fund, employees'state insurance, income-tax, wealth-tax, service tax, sales-tax, customs duty, exciseduty, cess and other undisputed statutory dues were outstanding, at the year end, for aperiod of more than six months from the date they became payable.

(c) According to the information and explanations given to us and based on the recordsof the Company examined by us, the following are the particulars of disputed dues onaccount of income tax, wealth-tax, service tax, custom duty and cess which have not beendeposited by the Company as at March 31, 2010:

(x) The Company does not have accumulated losses at the end of the financial year andhas not incurred cash losses in the financial year under report and in the immediatelypreceding financial year.

(xi) In our opinion, and according to the information and explanations given to us, theCompany has not defaulted in the repayment of dues to financial institutions, banks anddebenture holders.

(xii) The Company has maintained adequate documents and records for the loans andadvances granted by it on the basis of security by way of residential houses andproperties and other securities. The Company has not granted loans and advances by way ofpledge of shares and debentures during the year.

(xiii) In our opinion, the Company is not a chit fund or a nidhi / mutual benefit fund/ society. Therefore, the provisions of clause (xiii) of para 4 of the Order are notapplicable to the Company.

(xiv) In our opinion and according to the information and explanations given to us, theCompany has not dealt/traded in shares, debentures and investments other than mutual fund.The Company has maintained proper records of the transactions and contracts in respect ofinvestments in mutual funds and timely entries have been made therein. All the investmentshave been held by the Company in its own name.

(xv) According to the information and explanations given to us, the Company has notgiven any guarantee for the loans taken by others from banks or financial institutionsduring the year.

(xvi) In our opinion and according to the information and explanations given to us,term loans availed by the Company were, prima facie, applied by the Company during theyear for the purposes for which the loans were obtained, other than temporary deploymentpending application.

(xvii) According to the information and explanations given to us and on the basis ofreview of Asset Liability Management report prepared for submission to the Board ofDirectors of the Company, giving utilisation of funds on overall basis, we report thatfunds raised on short term basis have, prima facie, not been used during the year for longterm investment.

(xviii) The Company has not made any preferential allotment of shares to parties orcompanies covered in the register maintained under section 301 of the Companies Act, 1956during the year.

(xix) According to the information and explanations given to us and the recordsexamined by us, in respect of debentures issued by the Company during the period coveredby our report, security / charge have been created on two of the immovable properties ofthe Company and are further supplemented by a negative lien on all other assets of thecompany.

(xx) The Company has not raised any money by public issue during the year. However theCompany has raised money by way of 'Qualified Institutional Placement' (QIP) on a privateplacement basis.

(xxi) During the course of our examination of the books of account carried out inaccordance with the generally accepted auditing standards in India and as per theinformation 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 havebeen instances of misappropriation of funds by way of sanction and disbursal ofnon-tenable loans or use of deception to obtain housing loans by some of the customersinvolving an aggregate amount of Rs.31,866,997/-. However, as informed to us, suchinstances are inherent in the nature of business of the Company and adequate provision inrespect thereof has been made in the accounts for the year.

Auditors' Report to the Board of Director of LIC Housing Finance Limited on thecompliance of Directors / Regulations of National Housing Bank for the year ended 31stMarch, 2010 under the Housing Finance Companies (NHB), Directions, 2001.

To,

The Board of Directors,

LIC Housing Finance Limited

As required by Chapter IV of the Housing Finance Companies (NHB) Directions, 2001 ('theDirections') we give below, a statement on the matters specified in paragraphs 30 and 31of the said Directions, to the extent applicable to LIC Housing Finance Limited (theCompany).

1. The Company had applied for registration as required under Section 29A of theNational Housing Bank Act, 1987 and has been granted a certificate of registration dated31^st July 2001.

2. The Company has complied with the liquidity requirements as specified under Section29B of the National Housing Bank Act, 1987 and has kept the securities with the designatedbank

3. The Company has complied with Section 29C of the National Housing Bank Act, 1987.

4. The Company has complied with the provisions of the Directions, except for thefollowing:

Non-compliance of circular issued by National Housing Bank videNHB(ND)/DRS/Pol-No.06/2004-05 dated 31^st January, 2005 clarifying that eventhough the branches of the housing finance company only collect and forward the depositapplications to their Head Office where the details / accounts are maintained oncentralized computer data base and that the Head Office issues the deposit receipts andmakes payments in respect of matured, prematurely closed deposits and sanctions loansagainst deposits, the Company should send the authenticated particulars of public depositsto the respective branches, updating the information on quarterly basis i.e. as on 31^stMarch, 30^th June, 30^th September and 31^st December, everyyear, so that the intimation reaches the branches before 10^th of succeedingquarter, irrespective of the fact that the branches do not open deposit accounts. Duringthe year, the Company has sent the aforesaid particulars to its branches for the quartersended on 30^th June, 2009 and 31st March, 2010 on 15th July, 2009 and 6^thMay, 2010 respectively.

5. The capital adequacy ratio as disclosed in the return submitted to the NationalHousing Bank has been correctly determined and such ratio is in compliance with theminimum capital to risk weighted asset ratio as prescribed by the National Housing Bank inthese Directions.

6. a. Public deposits accepted by the Company are within admissible limits.

b. Total borrowings of the Company i.e. deposits inclusive of public deposits togetherwith the amounts referred to in sub-clauses (iii) to (vii) of sub-section (bb) of Section45I of the Reserve Bank of India Act, 1934 and loans or other assistance from the NationalHousing Bank are within the limit prescribed in the Directions.

c. There are no deposits in excess of the admissible limits.

d. The credit rating for deposits i.e. FAAA/Stable, reaffirmed by the credit ratingagency viz., CRISIL on 4^th March, 2010 is in force. There are no limits ofpublic deposit specified by the rating agency.

e. The Company has not defaulted in paying to its depositors the interest after suchinterest became due. There are no principal amounts of deposits, which have become dueduring the year.

f. During the year, the Company has not opened / closed any branch / office foracceptance of public deposits.