IDFC Ltd Management Discussions.

MACRO-ECONOMIC ENVIRONMENT

The Indian economy emerged as one of the fastest growing economies of the world in 2017 and is most likely to maintain this position in 2018. India has been witnessing significant shifts on the structural front – including the implementation of GST and efforts from both the RBI and government to correct the "twin balance sheet" problem. Forecast of a good monsoon augurs well for agricultural growth and rural demand and there are also signs of strengthening industrial activity. A rise in global crude oil prices and a rebalancing in global capital flows are potential vulnerabilities but are unlikely to derail the progress.

India’s macro-economics is currently set within a phase where global economic activity has continued to expand despite emerging geo-political tensions. Economic activity in major emerging market economies has largely remained resilient while oil prices have increased. Financial markets have remained volatile and have been mainly driven by monetary policy expectations and geo-political developments. Despite these challenges, India’s GDP registered a growth of 6.7% in FY18.

INDIA’S GROWTH-INFLATION DYNAMICS

A downward growth trajectory that had emerged starting from Q1FY17 was aggravated by the demonetization exercise of November 2016. Introduction of GST in July 2017, a landmark structural reform, is expected to have positive impact on the economy with its share of near-term teething problems.

Although for FY18 as a whole, GDP growth was at 6.7% compared to 7.1% in full year FY17, GDP growth momentum improved through the various quarters of FY18 – from 5.6% in Q1FY18 to 7.7% in Q4FY18.

Headline retail (CPI) inflation had ended in FY17 at 3.9% and dropped to a low of 1.5% by June 2017 – mostly on a base effect from food prices. However, headline CPI peaked at 5.2% in December 2017 after vegetable prices showed a sharp pickup. By March 2018, headline CPI inflation dropped to 4.3%.

MONETARY POLICY AND DEBT RESOLUTION FRAMEWORK

The monetary policy stance was changed to "neutral" from

"accommodative" in February 2017 and this was retained through FY18 with just one cut in the repo rate by 25 bps in the August 2017 meeting, bringing the repo rate down to 6%. With the repo rate cut, MCLRs declined across tenors till around February 2018, but tended to show some reversal in March 2018. RBI also tightened the bad debt resolution framework in mid-February by withdrawing all existing schemes of debt resolution and replacing them with a single stricter code. The new code requires banks to implement a resolution plan for large borrower accounts within 180 days, failing which loans will have to be referred under the Insolvency and Bankruptcy Code ("IBC"). IBC was introduced to ensure time-bound settlement of insolvency and enable faster turnaround of business and is expected to bring about fundamental changes in creditor rights with long term implications for banking in India.

IDFC LIMITED

IDFC Limited ("IDFC") is a financial conglomerate and is registered with Reserve Bank of India as an NBFC. Its main subsidiary is IDFC Bank. Besides banking, it also has investments in various financial services businesses such as Asset Management (both public markets and private markets), Institutional Broking & Research, and Infrastructure Debt Fund. All these businesses are carried out through independent subsidiaries. IDFC holds all these investments under IDFC Financial Holding Company Limited (NOFHC). IDFC and IDFC Bank are two listed entities of IDFC Group ("Group") and the rest of the businesses are conducted through unlisted subsidiaries.

IDFC’s mission is to create long-term value for all our stakeholders by being a dynamic and customer centric organization providing banking and other financial services through our subsidiaries.

IDFC aims to be the most respectable financial services provider that reaches out to millions of people pan India through its various subsidiaries. We aspire to live up to the expectations of our customers, our people, our investors and society at large.

OVERVIEW OF THE GROUP COMPANIES

IDFC BANK

VISION & STRATEGY

The vision of IDFC Bank is to transform itself into a mass retail bank in 5 years through organic growth and acquisitions. Organically, the progress of IDFC Bank in terms of network and customers; diversification of assets; growth in CASA (Current Accounts and Savings Accounts) and core deposits; growth in fees and non-funded trade products and finally ring-fencing and managing stressed assets has been impressive in the short period since the launch of the bank in October 2015.

BUSINESS OVERVIEW

During the year, the wholesale banking business successfully navigated a challenging business environment, and has leveraged expertise and corporate relationships to deliver healthy growth. This has enabled the Bank to successfully transition from an infrastructure player to a preferred bank in the Emerging Large Corporate space.

In its second year of operations, IDFC Bank continued to expand its retail network, digital payment channels and product suite across customer segments, gaining significant momentum in terms of market coverage and customer acquisition. The Bank is building a ‘click and mortar’ ecosystem that enables customers to conduct their banking business flexibly, interacting directly with people at physical outlets and / or digitally. IDFC Bank has also adopted a granular perspective of

MANA

customer segments and geographies. This has enabled it to find growth in segments that have been hitherto underserved. Through innovation, the Bank has also brought down the cost-to-serve customers, making outreach to the underserved, a profitable proposition.

IDFC Bank made profits of R 859 crore in FY18 and proposed a dividend of 75 paisa per share.

NETWORK

The network of IDFC Bank as on March 31, 2018, comprises 150 branches, 387 Corporate Business Correspondent (BC) branches, 85 ATMs and 17,474 ‘customer access points’. Of the 150 branches, 50 branches are in the top 35 cities in India. The remaining 100 semi-urban and rural branches are across Madhya Pradesh, Karnataka, Andhra Pradesh, Gujarat, Rajasthan, Tamil Nadu, Tripura and Meghalaya. In the two-and-half years since its launch, IDFC Bank now has a presence in all the top cities in the country and a semi-urban and rural distribution footprint in 8 key states.

CUSTOMERS

IDFC Bank now has 2.7 million customers. Of these, about 400,000 are urban customers and the remaining 2.3 million customers are semi-urban and rural. IDFC Bank has now been consistently acquiring over 1 lac customers a month and with the recent branch expansion covering the top cities in the last 6 months, IDFC Bank should continue to sustain this momentum of acquiring new customers.

FUNDED CREDIT

Although the gross corporate and retail assets of IDFC Bank were broadly unchanged over the last one year witnessing a 1% yearly growth from R 70,249 crore as on March 31, 2017 to R 70,932 crore as on March 31, 2018, the change in underlying composition of these assets was consistent with the strategic direction of aggressively growing retail assets and non-infra corporate banking within the wholesale bank. In fact, retail assets of IDFC Bank tripled from R 2,599 crore as on March 31, 2017 to R 7,966 crore as on March 31, 2018. The addition of close to R 2,000 crore of retail assets in the last quarter indicates the build-up of a very strong momentum in the retail book of IDFC Bank. Likewise, the non-infra corporate banking assets within the wholesale bank grew 38% annually from R 18,949 crore as on March 31, 2017 to R 26,059 crore as on March 31, 2018 with growth of the Emerging Large Corporate segment being the strategic focus.

CASA AND CORE DEPOSITS

The CASA franchise of IDFC Bank has grown strongly. It increased 2.7x from R 2,094 crore as on March 31, 2017 to R 5,710 crore as on March 31, 2018. Strong relationships of IDFC Bank with the government translated in the government business contributing R 2,763 crore to the CASA franchise. The CASA to deposits ratio of IDFC Bank is now close to 12%, which is by no means insignificant for a bank that is just about two-and-half years old.

The core deposits of IDFC Bank (CASA and retail term deposits) almost doubled from R 4,906 crore as on March 31, 2017 to R 10,053 crore as on March 31, 2018. The core deposits now contribute about 10% to the deposits and borrowings of IDFC Bank.

FEES AND COMMISSIONS

IDFC Bank has created a strong non-fund based franchise amongst its customers which has significantly strengthened the contribution of fees and commissions to its financials. Fees and commissions grew by 37% annually from R 360 crore in FY17 to R 494 crore in FY18. In particular, recurring fees from trade and cash management grew by 88% from R 65 crore in FY17 to R 122 crore in FY18. The underlying non-funded trade outstanding book of IDFC Bank grew by 50% from R 18,605 crore as on

March 31, 2017 to R 27,905 crore as on March 31, 2018.

ENRICHED PRODUCT SUITE

Over the past two and a half years, IDFC Bank has built a complete retail suite of savings accounts and time deposits, customised to the needs of individuals, small and medium businesses and professionals.

IDFC Bank continued to delight customers with a wide array of self-assist tools that enable digital prepayment, part payment and closure of loans. With this, IDFC Bank is one of the few in the country to meet all loan service requirements on the mobile and / or via net banking.

During the year, the Bank strengthened its Wealth Management offering. It also launched its NRI Banking services to complete its liability product suite. The Bank offers a simple and unique digital account opening facility for NRIs based in 70 countries. To deepen financial inclusion, IDFC Bank has placed a special emphasis on taking its services to segments such as marginal farmers, micro enterprises and self-employed customers. To serve these segments, the Bank has designed products across the spectrum of savings, assets and payments. In deep rural locations, the Bank is promoting financial literacy and enabling customers to co-relate banking to life’s goals and growth. Consistent engagement with customers has helped the bank incorporate their feedback, and design improved and customized products.

In line with the Government’s agenda of promoting digital modes of payments, IDFC Bank introduced a number of services. IDFC Bank was amongst the first banks to onboard one of the largest electricity billers on NPCI promoted Bharat Bill Payment System (BBPS).

STRESSED ASSETS

The legacy stressed assets book of IDFC Bank has remained stable over the last 10 quarters. The recent RBI inspection validates its prudent provisioning norms. The provision coverage ratio against stressed assets book (excluding security receipts) is now over 75%. In fiscal 18, due to lack of progress on gas supply for gas based power plants, IDFC Bank made additional provisions of about R 300 crore to reach a coverage of 90% for these assets, which is prudent and adequate from an economic loss perspective. Despite this, the capital adequacy of IDFC Bank is extremely healthy at 18%.

MERGER OF CAPITAL FIRST INTO IDFC BANK

Capital First will add an additional

~3 million customers to the already large and rapidly growing customer base of IDFC Bank and complement it with customer segments and products that IDFC Bank does not cover. Key advantages are lower cost of funds for Capital First in a bank construct; ability to cross-sell banking asset products to customers of Capital First; expansion of distribution network; and greater CASA mobilization. This will translate into a stronger combined entity delivering on profitability metrics of RoA and RoE in a much shorter time frame.

IDFC AMC

IDFC Asset Management Company Limited ("IDFC AMC") is the 11th largest mutual fund house in the country. Our Average Assets Under Management ("AAUM") for the quarter ended March 2018 increased 15% YoY to R 69,919 crore from R 60,636 crore for the quarter ended March 2017.

FY18 saw IDFC AMC roll out significant initiatives to align its offerings with the demands of an evolving investor segment. These included an expansion of its product suite, launch of new funds and repositioning of some of the existing funds. Among the funds repositioned was the IDFC Focused Equity Fund (earlier IDFC Imperial Equity Fund); its investment strategy entailed selecting a focused portfolio of up to 30 stocks across market caps. Other repositioned funds included IDFC Equity Fund (positioned in the Large-cap space), Banking Debt Fund (repositioned as IDFC Banking & PSU Debt Fund), IDFC Dynamic Equity Fund (now actively managed with tighter PE bands) and Asset Allocations Funds.

Funds continued to steadily build AUM with IDFC Classic Equity, growing over three times to cross R 2,000 crore in AUM. IDFC Balanced Fund, IDFC Infrastructure fund and IDFC Tax Advantage Fund each crossed R 1,000 crore in AUM during FY18. We also launched two close-ended equity fund offerings, which are tailored to client requirements. Among the Fixed Income offerings, IDFC Corporate Bond Fund witnessed steady increase in AUM crossing R 10,000 crore during the year. IDFC Credit Opportunities Fund, launched in February 2017, crossed R 1,000 crore in AUM in less than one year of its launch. In the second half of the year, IDFC AMC launched a series of timely Fixed Maturity Plans, helping investors capitalize on rising rate environment. Recognizing its fixed income platform, the Asset magazine featured IDFC AMC as one of the Top 5 Investment Houses in India under Asian Local Currency Bonds for 2017.

Taking forward its innovation and diversification agenda, we launched two key offerings for sophisticated institutional and high net worth investors. We launched the IDFC Neo Equity portfolio and India’s first Artificial Intelligence powered Portfolio Management Services ("PMS"). We also set up Liquid Alternatives division and launched India Equity Hedge – Conservative fund, a hedge fund deploying market neutral strategy and one of the very few in the industry.

Separately, we launched ‘Passport’, a partner recognition program, to step up engagement with our partners. We also introduced a ‘Virtual’ relationship manager to help reach out to a wider customer base. FY18 also saw a thrust on digitisation to improve customer experience. IDFC AMC introduced multiple initiatives on its website to facilitate ease of transaction, like One Time Password (OTP) based log-in for transacting and accessing portfolio and purchases through the easy-to-use chatbot interface on its website called ‘Ask Bugs’ – an industry first. The chat interface resolves queries as well as enables customers to transact.

During the year, the AMC continued its unique investor awareness initiatives, and launched ‘Return of One Idiot’, a short movie made by the acclaimed director Amole Gupte and a sequel to the highly acclaimed ‘One Idiot’ movie. The movie highlights the importance of retirement planning. Along with theatre screenings for channel partners and investors, the movie was released online and registered over two million views on YouTube within days of its launch.

IDFC AMC reported profits of R 54 crore in FY18.

IDFC SECURITIES

IDFC Securities Limited is engaged in the business of Institutional Broking and Research. In FY18, Indian capital markets witnessed steady gains in Volume - 23% in cash and 35% in derivatives segment. FIIs net inflow decreased to

~US$3.4bn (down by 59%) during the year, but the markets were supported by a huge inflow of US$17.9bn from DIIs (up by ~294%). On the regulatory front, introduction of MIFID (Markets In Financial Instruments Directive) rules has put pressure on margins. IDFC Securities delivered stellar performance during the year with derivatives volumes increasing ~57% and investment banking revenue increasing ~453% YoY in FY18. Furthermore, our efforts across research, sales and trading were well recognized by clients and backed by accolades from leading surveys such as AsiaMoney and Institutional Investor.

IDFC INFRASTRUCTURE FINANCE LIMITED (formerly IDFC Infrastructure Debt Fund Limited)

IDFC Infrastructure Finance Limited ("IDFC IFL") is engaged in the business of refinancing operating infrastructure projects that have completed at least one year of satisfactory commercial operations.

The Company ended the fiscal year with a loan book of R 4,220 crore – registering a robust growth of 57% over that in FY 2017. In FY18, the Company disbursed R 1,826 crore across 19 assets.

The loan portfolio continues to be well-diversified across 49 assets with exposures across Public Private Partnership ("PPP") projects including roads, power transmission as well as non-PPP projects including renewable power, hospitals, education, captive power, airport cargo terminal and ITSEZs. The asset quality remains healthy with nil Non-Performing Assets (NPAs).

Profit After Tax (PAT) grew by 22.2% to R 86.5 crore from R 70.8 crore in FY 2017 and the business delivered a healthy average Return on Equity (RoE) of 12.4% and average Return on Assets (RoA) of 2.5%. The capitalization of IDFC Infrastructure Limited is comfortable with a Capital Adequacy Ratio of 22.1% as of March 31, 2018. The total outstanding borrowing, at the end of March 31, 2018 was R 3,596 crore.

The Company is well poised for growth and over the next few years the business is expected to gain further momentum. There have been sustained efforts by the Government to address the various issues faced by the infrastructure sector. With improvement in private sector investments in the country, a larger pool of operational projects will be available for refinancing. Against this macro context, the Company plans to steadily increase its loan book and maintain a balanced and diversified portfolio across both PPP and non-PPP infrastructure projects.

IDFC ALTERNATIVES

IDFC Alternatives Limited has entered into a definitive agreement with Global Infrastructure Partners India for the sale of its infrastructure asset management business. All necessary regulatory approvals for the sale have been received. IDFC Alternatives will continue to manage Private Equity and Real Estate funds and the aforementioned sale to Global Infrastructure Partners India will not have any impact on its Private Equity and Real Estate verticals. IDFC Limited is evaluating divestiture of the Private Equity and Real Estate platforms but no definitive agreement has been signed yet. During the year, the Private Equity vertical continued exits from PE Fund II & III. Fund III achieved its largest exit of R 1,410 crore with Sembcorp Green Infra at a healthy multiple of 3.2x. This exit marks a full cycle for a platform investment which IDFC Alternatives has built from grounds up since 2008. With this exit, the Fund has achieved a realized Multiple on Investment Capital ("MOIC") of 1.8x. The Fund Manager also exited the balance investments in PE Fund II. Private Equity Fund IV continued its focus on deploying capital and made its second investment in ASG Hospitals, a leading eye-care chain started by AIIMS alumni. With this investment, the Fund has made two investments and deployed R 155 crore. The Fund Manager is in active discussion with investors and is targeting to close fund raising for PE Fund IV during FY19.

During the year, the Real Estate vertical focused on deploying capital and asset management. IDFC SCORE Fund committed R 330 crore across residential projects in Hyderabad, Chennai and Bangalore. The Fund also started making distributions and has distributed nearly R 47 crore during the year. IDFC Real Estate Yield Fund (REYF) also made aggregate distribution of R 140 crore. With this, the Fund has distributed R 625 crore since inception, resulting in Distribution to paid-in capital (DPI) of 0.8x.

IDFC Parampara Early Stage Opportunities Fund, an early stage VC fund in partnership with Parampara, achieved a final close of the fund at

R 80 crore. The Fund also successfully made its first exit, at a multiple of 3.2x, one of the very few early stage cash exits in the Indian venture space.

IDFC FOUNDATION

Corporate Social Responsibility ("CSR") has been core to the Group’s philosophy. The Group has woven social development activities seamlessly into the fabric of its business to benefit local communities. IDFC Foundation, a subsidiary of IDFC, has been leading the Group’s CSR agenda and the Group fulfills its CSR mandate through IDFC Foundation.

The Foundation focuses on four broad areas of activity: a. livelihood enhancement through financial inclusion; b. rural development through dairy farming; c. education for children and youth from lower income families; and d. support for research institutions, in particular, IDFC Institute.

LIVELIHOOD ENHANCEMENT THROUGH FINANCIAL INCLUSION

IDFC Foundation, through its financial inclusion initiative, has been complementing government efforts to universalize access to social entitlements. The Foundation, with the help of IDFC Bank, has deployed interoperable financial inclusion devices in underserved and backward areas across 24 states and 3 Union Territories. Using these devices, community members in over 30,000 villages have been accessing various banking services like withdrawals, deposits and remittances within minutes and without stepping out of their villages.

In addition to providing large scale access to financial services, the initiative has also resulted in the creation of over 9,000 social entrepreneurship opportunities across the country in the form of Mitras. The Mitras earn a crucial income by providing services to the community members through the financial inclusion devices.

In line with the Master Circular on Deendayal Antyodaya Yojana - National Rural Livelihoods Mission issued by the Reserve Bank of India, IDFC Foundation has been supporting the State Rural Livelihood Missions of Bihar, Jharkhand, Maharashtra and Chhattisgarh in improving access to banking services for the poor.

In addition, IDFC Foundation in partnership with National Institute of Securities Markets (promoted by SEBI) has conducted a number of financial literacy programs. The participants gained not only better knowledge of personal finance but also skills to manage their resources. These include awareness about the need to save, ways to access formal credit, protect wealth and prepare for financial exigencies.

SHWETDHARA - CATTLE CARE PROGRAM

The ‘Shwetdhara-Cattle Care program’, initiated by the Foundation, has been focusing on increasing the income of small and marginal farmers in the states of Madhya Pradesh and Karnataka. As part of the program, the Foundation established Dairy Vikas Kendras in rural and underserved areas.

The Dairy Vikas Kendras acted as an important source of information for the farmers in nearby villages. The Foundation also deployed a trained para-vet in each of the centres. The para-vets provided the farmers a range of dairy related services including artificial insemination, pregnancy diagnosis, infertility treatment, deworming, deticking, etc. at their doorstep.

The Shwetdhara program has contributed immensely in strengthening the veterinary infrastructure in project areas. More than half a million treatments and around 40,000 artificial insemination services have also been done till date.

EDUCATION INITIATIVES FOR

CHILDREN AND YOUTH FROM LOWER SOCIO-ECONOMIC STRATA:

The IDFC Foundation has helped thousands of children and young people in Rajasthan, Madhya Pradesh and Maharashtra gain good quality education. In Alwar district of Rajasthan, the Foundation worked with teachers and School Management Committees of 60 Government primary schools to improve learning outcomes and leadership skills of students. Through the ‘Night School Transformation Program’, the Foundation has been supporting 10 night schools located in Mumbai suburbs. The Foundation also adopted 18 Government Schools in Hoshangabad district (Madhya Pradesh) to promote ‘digital literacy’ among students.

IDFC INSTITUTE

IDFC Institute is an independent, not-for-profit, think / do tank, focusing primarily on two broad areas of research / action: a) job creation in the context of India’s transition from farm to non-farm, rural to urban and informal to formal economic activity; and b) improving the delivery of essential services (such as infrastructure). The Institute produces evidence-based, actionable research and diagnostic tools that can contribute towards bringing about meaningful change. All of the Institute’s work is in the public domain and freely accessible through the website www.idfcinstitute.org.

This year, as part of its research program on urbanization, IDFC Institute released key findings from ‘Safety Trends and Reporting of Crime’ (SATARC), a 4-city, 21,000 households, crime victimisation survey that measures the gap between the true extent of crime and official crime records. The Ministry of Home Affairs’ Bureau of Police Research & Development (BPR&D) will now roll out a similar survey covering 100+ police districts across the country. IDFC Institute has been invited to join the Executive Committee on Crime Victimisation Survey ("CVS") to provide inputs on the launch of the first pan India CVS. In August 2017, the IDFC Institute–NITI Aayog "Ease of Doing

Business: An Enterprise Survey of Indian States" report was launched by Nirmala Sitharaman and Ravi Shankar Prasad. The Survey covered 3,200 manufacturing firms and assessed the business regulatory environment for manufacturing at the state level. In December 2017, Finance Minister Arun Jaitley launched IDFC Institute’s first book, "Aadhaar: A Biometric History of India’s 12-Digit Revolution" by Visiting Senior Fellow, Shankkar Aiyar.

RISK MANAGEMENT

IDFC Limited is a holding company for its various businesses. The Group has a robust risk management practice in place to pro-actively identify and manage various types of risks, namely, credit, market and operational risks.

CREDIT RISK MANAGEMENT

IDFC Limited is the holding company with no direct lending operations. The lending business is carried out by two subsidiaries viz., IDFC Bank Limited and IDFC Infrastructure Finance Limited. These entities have Credit Risk Policy and Delegation of Authority approved by their respective Boards. The lending business is done with adherence to these Board approved documents.

MARKET RISK MANAGEMENT

IDFC Limited is the holding company with no direct businesses that has no significant market risk. Market risk governance frameworks exist in subsidiaries exposed to market risk. The Group has set up robust market risk management process, which sets out the broad guidelines for managing market risk that the Group is exposed to. Management of market risk encompasses risk identification, measurement, setting up of limits, monitoring and control. The market risk management process at the Group level ensures that the products that are exposed to market risk are within the risk appetite laid down by the Board of respective subsidiaries. The Board of respective subsidiaries approved risk appetite is monitored and reported as per the guidelines laid down from time to time.

OPERATIONAL RISK MANAGEMENT

A strong Operational Risk framework and governance structure is in place in subsidiary companies as detailed below.

IDFC Bank Limited, the largest subsidiary in the Group, has put in place Board approved governance and organizational structure that specifies roles and responsibilities of Business and Shared Service Units, Operational Risk Management Department and other stakeholders towards operational risk management. Operational Risk Management Department engages with the First Line of Defense (Business & Operating Units) on a continuous basis to identify and mitigate operational risks to minimize their impact.

For non-bank entities viz. IDFC Alternatives, IDFC Securities, IDFC AMC, IDFC Infrastructure Finance and IDFC Foundation, the Group Operational Risk Committee ("GORC") is responsible for providing oversight over the adequacy of Operational Risk Management function. GORC is a management-level Committee of Senior Executives representing Group Companies. The GORC meets every quarter to discuss key operational risk issues and report summary of key findings and issues to the Risk Management Committee of IDFC Limited. Each of these companies in turn have respective ‘Business Operational Risk Committees’ ("BORC") comprising of Senior Management personnel to govern operational risks with support from dedicated Business Operational Risk Managers.

INTERNAL CONTROLS AND THEIR ADEQUACY

The Company has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition and that the transactions are authorised, recorded and reported correctly. Such internal controls are supplemented by an extensive programme of internal audits, review by management and documented policies, guidelines and procedures. These are designed to ensure that financial and other records are reliable for preparing financial information and other reports and for maintaining regular accountability of the Company’s assets. The internal auditors present their report on a quarterly basis to the Audit Committee of the Board.

HUMAN RESOURCES

People agenda of the Group in FY18 was guided by three themes -talent development, employee engagement and digitisation.

NURTURING TALENT

In a fast-moving and fiercely competitive business environment, employees are required to constantly adapt to changing customer expectations. Learning, therefore, plays a critical role in developing employee capability and empowering them so that they can effectively contribute to the organisations objectives.

The Group continued to invest in its people in a significant way in FY18. Talent development initiatives included extensive training programs, learning events and mentoring. These provided an enabling environment in which employees could perform to their potential and navigate in a challenging business environment.

The Group’s new leadership programs encouraged innovation and collaboration across businesses, functions and geographies. The Group closed the year with more than one lakh learning hours, including offline and online training programs.

Customised training programs such as Certified To Operate, Role-based Induction and Agile focused on project management. To equip frontline managers, who play a critical role in motivating their teams, the Group rolled out dedicated programs of Param and Manager of Now for them.

CREATING AN ENGAGING WORKPLACE

As an employee-first organisation, engagement continued to be a valuable theme for the human resource function during the year. Several engagement initiatives were implemented structurally within the organization to make employees more collaborative and enable them to lead better work lives. Employees also engaged in volunteering initiatives during the year, the prime among them being blood donation on World Donor Day and teaching at night schools run by Masoom (an NGO supported by the IDFC Foundation).

During the year, IDFC Bank, a subsidiary of IDFC Limited, was recognized by Linkedln for talent, as it featured in the LinkedIn Top Companies 2017: Where India wants to work now, reinforcing IDFC as a strong employer brand in the talent industry.

In an effort to encourage a diverse and an inclusive work environment, IDFC introduced an additional child care leave for women employees which can be used in the first two years of maternity.

DIGITISING BENEFITS

IDFC introduced innovative digital solutions at Group level that not only drove efficiencies at an organizational level, but also enhanced convenience for employees, empowering them to manage their benefits on-the-go. One of the solutions was the IDFC Benefits Card in partnership with Zeta. The end-to-end digital solution integrates the full suite of allowances and reimbursements offered by IDFC into one preloaded card.

TECHNOLOGY

IDFC’s technology framework underpins its focus on digital banking that has led innovations in product, channel, reach, cost of acquisition, and most importantly, service. These elements come together to enhance customer engagement and experience. IDFC continuously improves on technology solutions at Group level such as interoperable Micro-ATMs, mobile banking app, net banking, digitized branches and the 24x7 Banker-on-Call -all of which enable seamless user experience and agility.

CORPORATE GOVERNANCE REPORT

PHILOSOPHY ON

CORPORATE GOVERNANCE

Being a professionally run enterprise with no single promoter or promoter group, effective board oversight and sound Corporate Governance practices are fundamental to the quest of IDFC Limited ("IDFC" or "the Company") in delivering long-term value to all its stakeholders. Good Corporate Governance is intrinsic to the management of IDFC.

The Company believes that sound Corporate Governance is critical for enhancing and retaining investor trust. Therefore, it always seeks to ensure that its performance goals are met with integrity. By adopting such a framework as it does, IDFC is renowned for exemplary governance standards since inception and continues to lay a strong emphasis on appropriate and timely disclosures and transparency in its business dealings.

Corporate Governance is a continuous process at IDFC. It is about commitment to values and ethical business conduct. Systems, policies and frameworks are regularly upgraded to meet the challenges of rapid growth in a dynamic external business environment.

BOARD OF DIRECTORS

The Board of Directors oversee the management functions to ensure that they are effective and enhance value for all the stakeholders. The Board’s mandate inter alia is to have an oversight of the Company’s strategic direction, to review corporate performance, assess the adequacy of risk management and mitigation measures, to authorise and monitor strategic investments, to ensure regulatory compliance as well as high standards of governance and safeguard interests of all stakeholders.

COMPOSITION OF THE BOARD

The Board comprises of a majority of Independent Directors ("IDs"). It has an appropriate combination of Executive and Non-Executive Directors ("NEDs"), including IDs. As on March 31, 2018, IDFC’s Board consisted of 9 Directors, comprising of (i) Five IDs, including an Independent Non–Executive Chairman; (ii) A Managing Director & Chief Executive Officer ("MD & CEO"); (iii) Two Nominee Directors representing the Government of India ("GoI") and (iv) One Nominee Director representing an institution which has invested in the Company. The composition of the Board represents an optimal mix of professionalism, knowledge and experience across various fields viz. banking, global finance, accounting and economics which enables the Board to discharge its responsibilities and provide effective leadership to the business. None of the Directors of your Company are inter-se related to each other. The composition of the Board is in conformity with Regulation 17 of SEBI (Listing Obligations and Disclosure Requirements), Regulations ("SEBI LODR Regulations"), read with Section 149(4) of the Companies Act, 2013 ("Act") with the Company having Independent

Non-Executive Chairman and more than one third of the Board comprising of IDs.

Table 1 gives details of the composition of the Board of Directors for FY18 including their Directorships and Memberships / Chairpersonships of committees in other companies, alongwith details of the attendance at Board meetings and the Annual General Meeting ("AGM"), respectively.

The number of Directorships, Committee Memberships /

Chairpersonships of all Directors is within respective limits prescribed under the Act and SEBI LODR Regulations.

BOARD MEETINGS

The Board meets at least once a quarter to review the quarterly results and other items on the agenda and also on the occasion of the AGM. Additional meetings are held whenever necessary. The agenda and the explanatory notes are circulated in advance to the Directors. Members of the Board are also free to recommend inclusion of any matter in the agenda for discussion. Since the Board of IDFC includes Directors from various parts of the world, it may not be possible for each of them to be physically present at all the meetings, hence the Company makes use of video conferencing facility and other audio-visual means, whenever necessary, to enable larger participation of Directors in the meetings. Members of the Senior Management are invited to attend the Board Meetings to make presentations and provide additional inputs to the items under discussion. The Minutes of Board

Meetings of subsidiary companies of IDFC are periodically tabled at the Company’s Board Meetings. A statement of all significant transactions and arrangements entered into by the subsidiary companies is also placed before the Board. All the recommendations made by the Audit Committee during the year were accepted by the Board.

During FY18, the Board met 8 (Eight) times and the intervening period between two Board Meetings was well within the limit prescribed. The requisite quorum was present during all the meetings of the Board of Directors. The annual calendar of meetings is broadly determined at the beginning of each year. The Board Meetings were held on April 28, 2017; June 24, 2017; July 8, 2017, July 27, 2017; October 30, 2017; January 12, 2018, January 29, 2018 and March 28, 2018. Leave of absence was granted to the concerned Directors who had expressed their inability to attend the respective meetings.

INFORMATION PROVIDED TO THE BOARD

The Board agenda is prepared by the Company Secretary of the Company in consultation with the Chairman and MD & CEO of the Company. Meetings are governed by a structured agenda. The Board agenda and notes thereof are backed by comprehensive background information to enable the Board to take informed decisions and are sent to the Directors well in advance pursuant to the provisions of the Secretarial Standard - I and other applicable provisions of the Act and Rules made thereunder to enable them to peruse and comprehend the matters to be dealt with or seek further information / clarifications on the matter listed therein. The Board also passes resolutions by circulation on need basis, which are noted and confirmed in the subsequent Board Meeting.

The Board is presented with the information on various important matters of operations and business, annual operating plans, budgets, presentations, financial results of the Company and its subsidiaries, minutes of the Audit and other Committees of the Board, appointment / cessation and remuneration of Senior Management and KMP, various policies adopted at IDFC and Group level, details of joint ventures or collaboration, if any, information on subsidiaries, sale of investment and assets which are material in nature and not in ordinary course of business, foreign exposure, compliances of all the laws applicable to IDFC and non-compliance, if any and steps taken to rectify instances of non-compliances and other matters which are required to be placed before the Board.

With a view to leverage technology and reduce paper consumption, the Company has adopted a web-based application for transmitting Board / Committee Agenda. The Directors of the Company receive the Agenda in electronic form through this application, which can be accessed through iPads or Browsers. The application meets high standards of security and integrity that is required for storage and transmission of Board / Committee Agenda in electronic form.

COMMITTEES OF THE BOARD

The Board Committees play a crucial role in the governance structure of the Company and help in delegating particular matters that require greater and more focused attention. The Board Committees are set up as per the provisions of the Act and / or SEBI LODR Regulations or as per the requirement of the Company. However, every Committee is under the formal approval of the Board to carry out clearly defined roles which are considered to be performed by Members of the Board. The Board supervises the execution of its responsibilities by the Committees and is responsible for their action. The Chairperson of the respective Committee informs the Board about the summary of the discussions held in the Committee Meetings. The minutes of the meetings of these Committees are placed before the Board for its review. The Committees ensure that any feedback or observations made by them during the course of meetings form part of the Action Taken Report for their review at the next meeting. All Committees comprises of requisite number of IDs as prescribed by the Act or SEBI LODR Regulation or any other regulatory authority. The Board Committees also request special invitees to join the meetings of the Committees, wherever appropriate. The Company Secretary officiates as the Secretary to all the Committee Meetings. The composition of various committees of the Board is in line with the applicable regulations and is hosted on the website of the Company: www.idfc.com.

The Board has established the following statutory and non-statutory Committees.

A. Audit Committee

B. Nomination & Remuneration Committee C. Risk Management Committee

D. Stakeholders Relationship Committee E. Corporate Social Responsibility Committee F. Investment Committee G. IT Strategy Committee Composition and Attendance of Directors at Committee Meeting(s) for FY18 are given in Table 2. Attendance is presented as number of meeting(s) attended (including meetings attended through electronic mode) out of the number of meeting(s) held during FY18.

During the year, The Board constituted a Sub-Committee for Corporate Restructuring as Joint Working Group to explore transaction and hold explanatory discussions with Shriram Group and to recommend to the Board of Directors the best possible option relating to the Corporate Restructuring. Few Meetings of this Committee were held during the year.

A. AUDIT COMMITTEE

The Audit Committee comprises of three Members, all of whom are IDs. The Committee is chaired by Mr. Gautam Kaji and has Mr. Vinod Rai and Ms. Marianne kland as its Members with any two Members forming the quorum. The Committee met four times during FY18. The time gap between two consecutive meetings was less than one hundred and twenty days. The dates of the Meetings were April 28, 2017;

NAME & CATEGORY OF THE DIRECTOR NO OF BOARD MEETINGS HELD AND ATTENDED IN FY18 WHETHER ATTENDED LAST AGM ON JULY 28, 2017 NO OF DIRECTORSHIP OF PUBLIC COMPANIES (INCLUDING IDFC) 1 MEMBERSHIP, INCLUDING CHAIRMANSHIP OF COMMITTEES (INCLUDING IDFC) 2
Independent Directors
Mr. Vinod Rai (Independent Non-Executive Chairman) 8/8 Yes 4 2 (including 1 chairmanship)
Mr. Gautam Kaji3 8/8 Yes 2 2 (both as chairman)
Mr. S S Kohli 8/8 Yes 10 8 (including 4 chairmanship)
Mr. Donald Peck3 7/8 Yes 2 1
Ms. Marianne kland 8/8 Yes 2 1
Government Nominee Directors
Mr. Manish Kumar4 5/8 No 1 -
Mr. Soumyajit Ghosh 5/8 No 1 -
Nominee of Domestic and Foreign Institutional Shareholders
Mr. Chintamani Bhagat 7/8 No 1 -
Managing Director & Chief Executive Officer
Mr. Sunil Kakar5 5/5 Yes 8 7
Mr. Vikram Limaye6 3/3 No NA NA

1 Excluding Private Limited Companies, Foreign Companies, Section 8 Companies and Alternate Directorships.

2 Includes only Audit Committee and Stakeholders’ Relationship Committee.

3 Will cease to be Independent Directors on the completion of ensuing AGM.

4 Ceased to be Nominee Director w.e.f. June 11, 2018.

5 Appointed w.e.f. July 16, 2017.

6 Resigned w.e.f. July 15, 2017.

July 27, 2017; October 30, 2017 and January 29, 2018.

The Chief Financial Officer, the representatives of the Statutory Auditors and the Internal Auditors are generally invited to the Audit Committee Meetings. The Company Secretary of IDFC is the Secretary to the Audit Committee. The Minutes of the Audit Committee Meetings are circulated to the Members of the Board regularly and are taken note of. All Members of the Audit Committee are financially literate and have accounting and related financial management expertise.

The role of the Audit Committee includes the following:

a. Oversight of the Company’s financial reporting process and ensuring correct, adequate and credible disclosure of financial information.

b. Recommending to the Board, the appointment, remuneration and terms of appointment if required, of the Statutory Auditors & the Internal Auditors and the fixation of audit fees.

c. Reviewing, with the Management, the annual financial statements and Auditors Report before submission to the Board for approval, with special emphasis on accounting policies and practices, compliance with accounting standards and other legal requirements concerning financial statements

d. Review performance and financials of subsidiary companies, including Investments made by them.

e. Review and monitor the auditor’s independence and performance, and effectiveness of audit process.

f. Reviewing the adequacy of internal audit carried out in the Company and wherever required, to review the scope, coverage and frequency of the internal audit and amend the same as per requirements.

g. The Audit Committee is also appraised on information with regard to related party transactions by being presented and having its views taken on. A statement in summary form of transactions with related parties in the ordinary course of business and carried out at arms length basis.

h. Scrutiny of inter-corporate loans and investments.

i. Valuation of undertakings or assets of the company, wherever it is necessary

j. Details of materially significant individual transactions with related parties which are not in the normal course of business.

k. Details of materially significant individual transactions with related parties or others, which are not on an arms length basis along with Management’s justification for the same, if any.

l. Approval of appointment of Chief Financial Officer after assessing the qualifications, experience and background, etc. of the candidate.

m. Evaluation of internal financial controls and risk management systems.

n. Monitoring the end use of funds raised through public offers and related matters.

o. Any other terms of reference as may be included from time to time in the Act, SEBI LODR Regulations, including any amendments / re-enactments thereof from time to time.

B. NOMINATION & REMUNERATION COMMITTEE

As of March 31, 2018, the Nomination & Remuneration Committee ("NRC") comprised of Mr. Donald Peck as the Chairman, Mr. Vinod Rai and Mr. Gautam Kaji as its Members, all of whom are IDs. The quorum of the meeting is any two Members. The Committee met six times during the year on April 28, 2017; June 24, 2017; October 30, 2017; January 12, 2018; January 29, 2018 and March 28, 2018.

The role of NRC includes the following:

a. Formulation of the criteria for determining qualifications, positive attributes and independence of a Director and recommend to the Board a policy, relating to the remuneration of the Directors, Key Managerial Personnel and other employees.

b. Scrutinizing the nominations of the Directors with reference to their qualifications and experience, for identifying ‘Fit and Proper’ persons, assessing competency of the persons and reviewing compensation.

c. Formulation of criteria for evaluation of performance of every Director and the Board as a whole.

d. Devising a policy on Board diversity.

e. Identifying persons who are qualified to become Directors and who may be appointed in senior management in accordance with the criteria laid down and recommend to the Board their appointment and removal & shall carry out evaluation of every Director’s performance.

f. Administering the Employee Stock Option Plan of the Company and determining eligibility of employees for stock options.

g. Any other terms of reference as may be included from time to time in the Act, SEBI LODR Regulations, including any amendments / re-enactments thereof from time to time.

REMUNERATION POLICY

IDFC pays remuneration to the Executive Director ("ED") by way of salary, perquisites including retirement benefits (fixed component) and a variable component based on the recommendation of the NRC and approval of the Board and the Shareholders of the Company. The Company has a Board approved Remuneration policy in place which is hosted on the website of the Company www.idfc.com. The remuneration paid to ED is determined keeping in view the industry benchmark and the performance of the Company vis--vis industry performance.

The NEDs are paid remuneration by way of commission and sitting fees. Commission is paid as per the limits approved by the Shareholders of the Company at the 16th AGM held on July 29, 2013. The Commission is distributed on the basis of attendance and contribution made at the Board and Committee Meetings as well as Chairpersonship of the Committees.

The criteria for payment of commission to NEDs are given in Table 3. IDFC will pay a sum not exceeding R 85 Lacs as commission to its NEDs for FY18. The said amount will be paid to the Directors, subject to deduction of tax, after the ensuing AGM. The Company has not granted any stock options to NEDs / IDs. As on March 31, 2018, none of the NEDs held any shares of the Company.

Table 4 gives details of remuneration paid to the Directors during FY18. The Company did not advance loans to any of its Directors during FY18. None of the Directors is entitled to severance fee and none of the NEDs held any stock options as at March 31, 2018. As per the current term of employment, the notice period of Mr. Sunil Kakar, MD & CEO is 3 months. None of the employees of the Company is related to any of the Directors of the Company.

C. RISK MANAGEMENT COMMITTEE

As on March 31, 2018, the Risk Management Committee ("RMC") comprises of five Members, with Ms. Marianne kland as the Chairperson, Mr. Vinod Rai, Mr. Gautam Kaji, Mr. S S Kohli and Mr. Sunil Kakar as its Members, with any three Members forming the quorum. Mr. Kakar was inducted as a Member of the RMC w.e.f. July 16, 2017 in view of the resignation of Mr. Vikram Limaye as the MD & CEO of the Company and as a Member of the RMC Committee. The Committee met three times during the year on April 28, 2017; October 30, 2017 and January 29, 2018. IDFC has in place mechanism to inform the Board about its risk assessment and risk mitigation procedures with periodical reviews to ensure that the Management controls risk through a Board-approved properly defined framework. This is done through its Board-level RMC and it monitors and reviews risk management of the Company on a regular basis. The RMC reviews and monitors mainly three types of risks across the organisation: credit risk, market risk and operational risk and takes note of the Legal & Regulatory updates for all the Non-Bank Entities. This is done under the overall framework of the Enterprise Risk Management System. The Chairperson of the Committee reports the

NAME OF THE MEMBER AUDIT COMMITTEE NOMINATION & REMUNERATION COMMITTEE RISK MANAGEMENT COMMITTEE STAKEHOLDER’S RELATIONSHIP COMMITTEE CORPORATE SOCIAL RESPONSIBILITY COMMITTEE
Mr. Vinod Rai 4/4 6/6 3/3 C 4/4 -
Mr. Gautam Kaji C 4/4 6/6 3/3 - -
Mr. S S Kohli - 3/3 4/4 1/1
Mr. Donald Peck - C 5/6 - - 1/1
Ms. Marianne kland 4/4 C 3/3 - -
Mr. Chintamani Bhagat - - - - -
Mr. Sunil Kakar1 2/2 3/3 C 0/0
Mr. Vikram Limaye2 - - 1/1 1/1 C 1/1

figures marked with "C" represent Chairperson of the Committee

1 Appointed as a Member/ Chairman of the Committee w.e.f July 16, 2017.

2 Tendered his resignation as MD & CEO of the Company w.e.f. July 15, 2017. findings / observations of the Committee to the Board.

D. STAKEHOLDERS’ RELATIONSHIP COMMITTEE

As on March 31, 2018, the Stakeholders Relationship Committee ("SRC") consists of three Directors - Mr. Vinod Rai as the Chairman, Mr. S S Kohli and Mr. Sunil Kakar as its Members, with any two Members forming the quorum. Mr. Kakar was inducted as a Member of the SRC w.e.f. July 16, 2017 in view of the resignation of Mr. Vikram Limaye as the MD & CEO of the Company and as a Member of the SRC Committee. The Committee met four times during the year on April 28, 2017; July 27, 2017; October 30, 2017 and January 29, 2018.

The Committee is empowered to handle Shareholders’ and other investors’ complaints and grievances. The SRC considers and resolves the grievances of the equity Shareholders of the Company, including complaints related to transfer of equity shares, non-receipt of annual report, non-receipt of declared dividends, etc. Additionally, it is responsible to perform any other function as stipulated by the Act, Reserve Bank of India, SEBI, Stock Exchanges and any other regulatory authority or under any applicable laws, as amended from time to time.

Additionally, Allotment and Share Transfer Committee ("ASTC") comprising of Mr. Vinod Rai, Mr. Sunil Kakar and Mr. Amol Ranade looks into share allotment, transfer, transmission, name deletion, transposition, rematerialisation and related applications received from Shareholders, with a view to accelerate the transfer procedures. Mr. Amol Ranade was inducted as a Member of the ASTC w.e.f. February 1, 2018 in view of the resignation of Mr. Ketan Kulkarni and Mr. Bipin Gemani as the Members of the ASTC. The quorum for any meeting of this Committee is two Members.

Mr. Amol Ranade, the Company Secretary is designated as the Compliance Officer in terms of the SEBI LODR Regulations whose designated e-mail address for investor complaints is amol.ranade@idfc.com. All complaints received during the year have been redressed to the satisfaction of the Shareholders and none of them were pending as at the end of FY18.

Details of queries and grievances received and attended by the Company during FY18 are given in Table 5.

E. CORPORATE SOCIAL RESPONSIBILITY COMMITTEE

As on March 31, 2018, the Corporate Social Responsibility ("CSR") Committee consists of three Directors, Mr. Sunil Kakar as the Chairman, Mr. S S Kohli and Mr. Donald Peck as its Members. Mr. Kakar was inducted as a Member of the CSR Committee w.e.f. July 16, 2017, in view of the resignation of Mr. Vikram Limaye as the MD & CEO of the Company and as the Chairman of the CSR Committee. The quorum of the meeting is two Members.

During the year one meeting was held on April 28, 2017.

The purpose of the Committee is to formulate and monitor the CSR policy of the Company which shall indicate the activities to be undertaken by the Company as specified in Schedule VII and recommend the amount of expenditure to be incurred on these activities. A copy of the said CSR policy is placed on the website of the Company: www.idfc.com. Details of the CSR contribution made by IDFC during the year are given as Annexure 5 to the Board’s Report.

F. INVESTMENT COMMITTEE

As on March 31, 2018, the Investment Committee ("IC") consists of four Members, namely Mr. Vinod Rai as the Chairman and Mr. S S Kohli, Mr. Donald Peck & Mr. Sunil Kakar as its Members. Mr. Kakar was inducted as a Member of the IC w.e.f. July 16, 2017 in view of the resignation of Mr. Vikram Limaye as the MD & CEO of the Company and as a Member of the IC. Post demerger, IDFC is registered with the RBI as an NBFC - Investment Company. The broad mandate of IC is to take an informed decision about the proposed investments in equity, preference, convertible securities and VCF Units to be made by IDFC, having regard to factors like long-term value creation and / or business growth / diversification benefits.

G. IT STRATEGY COMMITTEE

As per the provisions of RBI master direction RBI/DNBS/2016-17/53 DNBS.PPD.No.04/66.15.001/2016-17 dated