Muthoot Finance Ltd

TO THE SHAREHOLDERS OF MUTHOOT FINANCE LIMITED

1. We have audited the attached Balance Sheet of Muthoot Finance Limited,Registered and Corporate Office: Muthoot Chambers, Opposite Saritha Theatre Complex, 2ndFloor, Banerji Road, Kochi 682 018, India, (the Company) as at 31st March 2011, and theannexed Profit and Loss Account for the year ended on that date which we have signed underreference to this report. These financial statements are the responsibility of thecompany's management. Our responsibility is to express an opinion on these financialstatements 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 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.

3. As required by the Companies (Auditor's Report) Order, 2003, as amended by theCompanies (Auditor's Report) (Amendment) Order, 2004, (together the 'Order') issued by theCentral Government of India in terms of Section 227 (4A) of the Companies Act, 1956 (the'Act'), and based on the information and explanations given to us, we give in Annexure-I,a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. As required by the Non-Banking Financial Companies Auditor's Report (Reserve Bank)Directions, 2008, we give in Annexure II, a statement on the matters specified in theparagraph 3 and 4 of the said directions.

5. Further to our comments in the Annexures referred to in paragraph 3&4 above, wereport that:

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 accounts as required by law have been kept by thecompany so far as appears from our examination of those books and proper returns adequatefor the purpose of the audit have been received from branches not visited by us.

c. The Balance Sheet and Profit and Loss Account dealt with by this report are inagreement with the books of accounts.

d. In our opinion, the Balance Sheet and Profit and Loss Account deal with by thisreport are in compliance with the Accounting Standards referred to in sub-section (3C) ofSection 211 of the Act, to the extent applicable.

e. On the basis of written representations received from the directors, as on 31stMarch 2011 and taken on record by The Board of Directors, none of the directors isdisqualified as on 31st March 2011 from being appointed as director under Section274(1)(g) of the Act.

f In our opinion and to the best of our information and according to the explanationsgiven to us, the said accounts together with the notes thereon give the informationrequired by the Act, In the manner so required and give a true and fair view in conformitywith 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 31stMarch 2011; and

ii. In the case of the Profit and Loss Account, of the profit of the Company for theyear ended on that date

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

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

(b) Not all the assets have been physically verified by the management during the year,but there is a regular programme of verification, which, in our opinion, is reasonablehaving regard to the size of the company and the nature of its assets. We are informedthat no material discrepancies were noticed on such verification.

(c) No substantial part of fixed assets has been disposed off during the year.

(ii) (a) The Company is a Non-Banking Finance Company and has not dealt with any goodsand the company does not hold any inventory during the period under audit. Accordingly,the provisions of clause 4 (ii) of the Companies (Auditors Report) Order 2003 are notapplicable to the Company.

(iii) (a) The company has not granted secured or unsecured loans to companies, firms orother parties covered in the register maintained u/s 301 of the Companies Act, 1956.Accordingly, the provisions of clause 4(iii) (a), (b), (c) and (d) of the Companies(Auditors Report) Order 2003 are not applicable to the Company.

(e) The company has taken unsecured loans from directors and their relatives and fromcompanies covered in the register maintained u/s 301 of the Companies Act, 1956 themaximum amount of which during the year was Rs. 9,836.07 Lakhs and the year-end balance ofsuch loan is Rs. 8,175.92 Lakhs.

(f) In our opinion, the rate of interest and other terms and conditions on loans takenby the company, secured or unsecured, are not prima facie prejudicial to the interest ofthe company.

(g) In our opinion, the receipt of principal amount and interest are also regular.

(iv) In our opinion and according to the information and explanations given to us,there are adequate internal control procedures commensurate with the size of the companyand the nature of its business, with regard to the purchases of fixed assets and forrendering of services. During the course of our audit, we have not observed any continuingfailure to correct major weaknesses in internal control.

(v) (a) According to the information and explanations given to us, we are of theopinion that the particulars of contracts or arrangements referred to in Section 301 ofthe 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, thetransactions have been made in pursuance of contracts or arrangements entered in theregister maintained u/s 301 of the Companies Act, 1956 and exceeding the Value of Rs. 5.00Lakhs in respects of any party during the year have been made at prices which arereasonable having regard to the prevailing market prices at the relevant time.

(vi) In our opinion and according to the information and explanations given to us, theCompany has not accepted deposits from the public attracting the provisions of Section 58Aand Section 58AA of the Companies Act, 1956 and the Companies (Acceptance of Deposits)Rules, 1976 with regard to the deposits accepted from the public.

(vii) In our opinion, the company has an internal audit system commensurate with thesize and nature of its business.

(viii) According to the Information and explanations given to us. in respect of theCompany. Central Government has not prescribed the maintenance of cost records undersection 209(1) (d) of the Companies Act, 1956.

(ix) (a) The Company Is regular in depositing with the appropriate authoritiesundisputed statutory dues including Provident Fund, investor Education Protection Fund,Employees State Insurance, Income Tax. Gales Tax, Wealth Tax, Service Tax, Custom Duty,Excise Duty, Cess and other material statutory dues, applicable to it.

(b) According to the information and explanations given to us, no undisputed statutorydues payable in respect of Provident Fund. Investor Education Protection Fund, EmployeesState Insurance, Income Tax, Sales Tax, Wealth Tax, Service Tax, Custom Duty, Excise Duty,Cess and other material statutory dues which are outstanding for a period of more than sixmonths from the data they became payable.

(c) According to the Information and explanations given to us. there are no dues ofsales tax, Income Tax, Customs Duty. Wealth Tax, Service Tax, Excise duty and Cass whichhave not been deposited on account of any dispute. There are dues of service tax that havenot been deposited with appropriate authorities on account of dispute and the forum wherethe disputes are pending is given below:

* Amount is net of payments made and without considering interest for the overdueperiod, if any, as may be levied if demand raised is upheld

(x) The company does not have any accumulated loss as at 31st March 2011 and it has notincurred cash losses during the financial year covered by our audit and the immediatelypreceding financial year.

(xi) According to the records of the company examined by us and the information andexplanations given to us, the company has not defaulted during the period in repayment ofdues to financial institution, bank or debenture holders.

(xii) The Company has granted loans and advances on the basis of security by way ofpledge of shares, debentures and other securities and in such cases, in our opinion,adequate documents are maintained.

(xiii) The Company is not a Chit Fund or a Nidhi/Mutual Benefit Fund/Society andaccordingly the provisions of Clause 4 (xiii) of the Companies (Auditors Report) Order2003 are not applicable to the Company.

(xiv) According to the information and explanations given to us, the company is notdealing in or trading in shares, securities, debentures and other investments.Accordingly, the provisions of clause 4(xiv) of the Companies (Auditors Report) Order 2003are not applicable to the Company.

(xv) According to the information and explanations given to us, the Company has notgiven guarantees for loans taken by others from banks or financial institutions.Accordingly, the provisions of clause 4(xv) of the Companies (Auditors Report) Order 2003are not applicable to the Company.

(xvi) According to the information and explanations given to us. the term loans wereapplied for the purpose for which the loans were obtained

(xvii) According to the information and explanations given to us and on an overallexamination of the Balance Sheet of the Company, we report that no funds raised onshort-term basis have been used for long-term investment.

(xviii) According to the information and explanations given to us, the price at whichthe company has made preferential allotment of shares to parties and companies covered inthe register maintained under section 301 of the Act is not prejudicial to the interest ofthe company.

(xix) According to the information and explanations given to us during the year coveredby our audit report, the company has created security in respect of SecuredNon-Convertible Debentures issued.

(xx) According to the information and explanations given to us, the Company has notraised money by public issues. Accordingly, the provisions of clause 4(xx) of theCompanies (Auditors Report) Order 2003 are not applicable to the Company.

(xxi) According to the information and explanations given to us, no material fraud onthe company has been noticed or reported during the course of our audit or no fraud by thecompany has been noticed or reported during the course of our audit. Company has takenappropriate legal actions against the persons perpetrated the fraud and the amounts arewritten off during the year.

Annexure II to the Auditor's Report

(Referred to in paragraph 4 or our report of even date)

Re. Muthoot Finance Limited

As required by the Non-Banking Financial Companies Auditor's Report (Reserve Bank)Directions, 2008, we state that:

(i) The Company is engaged in the business of non -banking financial in situation andhas obtained the Certificate of Registration dated 13th November. 2001 from the ReserveBank of India.

(ii) The Company is entitled to continue to hold the Certificate of Registration interms of its asset / income pattern as on 31st March, 2011.

(iii) The Company is not classified as an Asset Finance Company during the year ended31st March, 2011.

(iv) The Board of Directors has passed a resolution for non-acceptance of any pubicdeposits.

(v) The company has not accepted any public deposits during the year ended 31st March,2011.

(vi) According to the information and explanations given to us, the Company hascomplied with the prudential norms relating to income recognition, accounting standards,asset classification and provisioning for bad and doubtful debts as applicable to it interms of Non-Banking Financial (Non-Deposit) Accepting or Holding) Companies PrudentialNorms (Reserve Bank) Directions, 2007.

(vii) According to the information and explanations given to us, the capital adequacyratio as disclosed in the return submitted to the Bank in form NBS-7, has been correctlyarrived at and such ratio is in compliance with the minimum CRAR prescribed by the ReserveBank of India.

(viii) The Company has furnished to the Reserve Bank of India the annual statement ofcapital funds, risk assets / exposures and risk asset ratio (NBS-7) within the stipulatedperiod.