Indiabulls Financial Services Ltd Merged Directors Report

INDIABULLS FINANCIAL SERVICES LIMITED ANNUAL REPORT 2011-2012 DIRECTORS REPORT Dear Shareholders, Your Directors have pleasure in presenting the 13th Annual Report together with the audited statement of accounts of the Company for the financial year ended March 31, 2012. Financial Results: The highlights of the financial results of the Company for the financial year ended March 31, 2012. (Amount in Rs.) For the year ended For the year ended March 31, 2012 March 31, 2011 Profit before Depreciation 9,402,771,554 8,002,196,292 Less: Depreciation and amortization expenses 79,102,215 93,452,717 Profit before Tax 9,323,669,339 7,908,743,575 Less: Provision for Tax 2,085,752,961 1,821,833,936 Profit after Tax 7,237,916,378 6,086,909,639 Add brought forward balance 1,636,315,518 1,185,525,465 Amount available for appropriation 8,874,231,896 7,272,435,104 Appropriation: Proposed Final Dividend on Equity Shares 2,182,631,997 1,555,132,650 Interim Dividend paid on Equity Shares 1,867,243,668 1,552,642,450 Dividend for previous year on Equity Shares issued after the year 715,890 1,806,605 end pursuant to ESOPS Allotment Corporate Dividend Tax on: Proposed Final dividend on Equity Shares 354,077,476 252,281,394 Interim Dividend on Equity Shares 302,913,604 257,874,504 Dividend for previous year on Equity Shares issued after the year 116,135 300,055 end pursuant to ESOPS Allotment Transfer to General Reserve 723,800,000 608,700,000 Transfer to Special Reserve (U/s 36(l)(viii) of the Income Tax Act, 700,000,000 190,000,000 1961) Transfer to Reserve Fund (U/s 45-IC of RBI Act, 1 934) 1,447,583,276 1,217,381,928 Balance of Profit Carried Forward 1,295,149,850 1,636,315,518 BUSINESS UPDATE: * Return on Equity (RoE) has grown to 20.35%. The Company intends to further improve RoE by maintaining a steady business growth. * 350% final dividend of Rs.7/- per share of face value of Rs. 2/- has been proposed. With this, the total dividend for FY 2011-12 (including interim dividend of Rs. 6/- already paid) is Rs. 13/- per share of face value of Rs.2/- amounting to 650%, total outflow of Rs. 470.7 Cr. (inclusive of Dividend Distribution Tax). FINANCIAL AND OPERATIONAL HIGHLIGHTS: Asset Growth: * Assets have grown at a quarterly average of approx. Rs. 2,000 Cr. over the course of the last 10 quarters. * Net Interest Income continues to steadily increase on the back of steady asset growth from long-duration mortgages. Asset Composition: * Home loans, which forms the majority of incremental disbursals, are disbursed at an average ticket size of Rs. 23 lacs; average LTV of 64% at origination, for an average term of about 14 years. * Long-term, low-risk mortgage loans contribution remains steady at 71% of the total assets. HOME LOANS: STREAMLINED LOAN FULFILLMENT: * In FY 2012, the companys document management system received the ISO certification (ISO 9001:2008). * The company continues to grow its branch network and now has 180 branches spread across the country. * The company has a well-trained, in-house Direct Sales Team of over 1,400 people to promptly attend to prospective customers. IMPROVING LIABILITY PROFILE: * In keeping with its stated strategy, the company continues to maintain healthy levels of liquidity with cash and bank balances and current investments adding up to Rs. 5,975.62 Cr. at the end of FY 11-12 * Funds raised through bonds have grown to Rs. 6,167 Cr. in Mar 2012, up from Rs. 3,903 Cr. in Mar 2011. * The company has further reduced its reliance on short-term money to 10% of total borrowings, well within its target limit of 15% DIVERSIFIED BORROWING PROGRAM: * Amongst its lenders, the company now counts 67 strong relationships: 23 PSU banks, 15 Private and Foreign banks and 29 other Mutual Funds, Provident Funds, Pension Funds and Insurance Companies. IMPROVING COST-INCOME RATIO: * The company continues to witness improving operational efficiency, with the cost to income ratio further declining to below 19%. * Going forward the company expects the Cost/ Income ratio to improve further. STABLE ASSET QUALITY: * Low Gross and Net NPA levels as low-risk mortgage portfolio increases the asset base, while contributing very low incremental delinquencies. * The total provision pool, including floating and standard asset provisions, stood at Rs. 329.83 Cr. as on March 31, 2012, compared to Rs.219.74 Cr. on March 31, 2011. INCOME SOURCES: * Interest Income contributes significantly to the total income. Its contribution has increased on account of sustained asset book growth due to long-term mortgage loans. * Fee Income continues to be a significant income stream for the company. * Improving recoveries from written off assets and misc. income, has led to Other Income maintaining its contribution to the total income. Sale of Loans: During the year, the Company, under the assignment agreement route sold individual loans to different Banks/Fls. As at 31st March, 2012, total loans outstanding in respect of loans sold stood at Rs.2,175.21 Crores. The Company Continue to service the loans sold under these transactions and is entitled to the residual interest on the loan sold. The residual interest on the individual loans sold is 3.85% per annum. The residual income on the loans sold is being recognized over the life of the underlying loans and not on an upfront basis. Issues through which loans have been sold have been rated by external agencies and carry a rating indicating a high degree of safety. Loan Book: As at March 31, 2012, the company is having the Assets under Management (AUM) of Rs. 27,521.23 Crores as against Rs. 19,824.86 Crores in the previous year and the loan book stood at Rs 25,346.03 Crores as against Rs.19,430.67 crores in the previous year. Subordinated Debt: During the year, the Company raised Rs. 211.30 Crores through the issue of long-term Unsecured Redeemable Non-Convertible Subordinated Debentures. The Subordinated Debt was assigned a AA+ rating from both, CARE and Brickwork Ratings. As at March 31, 2012, the Companys outstanding subordinated debt stood at Rs. 211.30 crores. The debt is subordinated to present and future senior indebtedness of the Company and has been assigned the rating by CARE and Brickworks Ratings. Based on the balance term to maturity, as at March 31, 2012, Rs. 211.30 Crores of the book value of subordinated debt is considered as Tier II under the guidelines issued by the Reserve Bank of India (RBI) and National Housing Bank (NHB) for the purpose of capital adequacy computation. Non Convertible Debentures (NCD): During the year, the Company issued NCD amounting to Rs. 3,079.00 crores on a private placement basis. The Corporations NCD issue have been listed on the Wholesale Debt Market segment of the NSE and have been assigned a AA+ rating from both CARE and Brickwork Ratings. As at March 31, 2012, NCD outstanding stood at Rs. 6,166.50 Crores. Loans from Banks: During the year, the Company raised term loans amounting to Rs. 5,350.00 Crores from commercial banks. The Company further raised Rs. 75.00 crores from the banking sector as FCNR(B) loans. The Companys long-term bank loan facilities continue to enjoy a rating of AA+, signifying high degree of safety for timely servicing of debt obligations and its short-term bank loan facilities continue to enjoy a rating of Al + signifying highest degree of safety for timely servicing of debt obligations. Non Performing Loans: Gross non-performing loans as at March 31, 2012 amounted to Rs. 218.78 crores. This is equivalent to 0.79% of the portfolio (as against 1.03% in the previous year). This is the 8th consecutive quarter end at which the percentage of non-performing loans have been lower than the corresponding quarter in the previous year. Regulatory Guidelines/Amendments: The Company has complied with RBI directions regarding Accounting Standards Prudential norms for asset classification, income recognition, provisioning, capital adequacy and credit rating. During the year, National Housing Bank (NHB) has scrapped and abolished the pre-payment penalty on per-closure of home loans, in a situation where the housing loan is on floating interest rate basis and is per-closed through any source and where the housing loan is on fixed interest rate basis and is per-closed through own source. Risk Management Framework: The Company has risk management framework, which provides for the mechanism for risk assessment and mitigation. The Risk Management Committee of the Company comprising members of its senior management reviewed the risk associated with the business of the Company, its root causes, efficacy of the measures taken to mitigate the same, four times during the year. The Company also has a robust mechanism to ensure an ongoing review of systems, policies, processes and procedures to adopt changes. Codes and Standards: The Fair Practices Code (FPC) framed by Reserve Bank of India (RBI) seeks to promote good and fair practices by setting minimum standards in dealing with customers while doing lending business. RBI during the year issued the revised guidelines on FPC. The Board reviewed and approved the suitable amendments in existing FPC and put in place a mechanism to monitor and review adherence to the modified FPC. Marketing and Distribution: Focused marketing activities were conducted covering both Above the Line (ATL) & Below the line (BTL) campaigns such as Print Ads. Hoardings, FM Jingles, TV Ads (ATL) & Below the line activities covering festive specific campaign at regional level, hosting of service desk at corporate / builders end etc. Customer awareness programs are hosted with Money Life foundation wherein conclaves being conducted to educate the end user about the Mortgage Market. Regular mailers are sent named as Know Your Loan to our existing customers. This letter talks about various attributes such as ROI trend, Prepayment clause, Balance transfers, Market conditions etc. To keep the customer educated all the times, bulk SMS & e-mailers are sent on real time basis. Cross Selling and Distribution of Financial Products and Services: State of the Art Customer Care set up is helping continuous facilitation to the customers by resolving their queries and taking care of any further loan requirements. Survey calling is also helping in continuous process improvement & creating customer referral as the outcome. In the last financial year more than 20 offices got opened which has increased our presence through 180 branches spread across more than 60 cities. All our offices are located in the main commercial hubs of a city which is resulting in ease to locate the office and increasing customer walk ins at the branch. Training and Human Resource Management: We have hired 120 management graduates in the last year & recently hiring has been done for more than 115 Chartered Accountants & Management graduates from esteemed college located PAN India. This talent pool is creating platform for delivering better & skilled services to our esteemed customers. Trainings for more than 1400 employees were conducted in the last financial year covering various aspects such as Sales excellence, Customer Service, Team Building, Credit Risk, System and process, Train the Trainer, etc. We have a state of art facility spread over 25,000 sq. ft. at our corporate office at Parel, Mumbai, wherein the periodic trainings sessions have been organized by the Training Dept. INDIAN MORTGAGE MARKET: Mortgages % of GDP: * Lower mortgage penetration compared to Asian peers implies huge opportunity for growth. * Mortgage/GDP ratio is expected to improve to 12% by FY 15. HOME LOAN PORTFOLIO GROWTH: * Home loan industry to grow at 15.7% CAGR from FY 12 to FY 16 on a large base of more than Rs.6,00,000 Crores. * Indian Home Loans market is characterized by low Average LTVs of 65-70% and predominantly first-time home loan borrowers, implying significant borrower equity and end-use towards self-occupied residential property. * The expected growth in the home loan Industry gives opportunity for the Company to sustain current growth in its mortgage business. FACTORS DRIVING MORTGAGE DEMAND: * Tax incentives have lowered the effective interest rates of mortgages for a home loan of Rs.20 Lacs, tenor of 15 years and interest rate of 10.75%p.a, the effective rate post tax incentives is 6.75% p.a. * Increase in the disposable income in tandem with the property prices have kept the affordability at 5 times the annual income. * Increasing urbanization and demographic evolutions will result in 40% of Indian population residing in cities by 2030, up from current rate of 31 % as per the report published by the McKinsey Global Institute * Current urban housing shortage is 26.53 million units as per the report published by the Ministry of Housing and Urban Poverty Alleviation DIVIDEND: In keeping with the Companys policy to reward its shareholders, the Board of Directors of the Company has recommended a final dividend of Rs. 7/- per share on the face value of Rs. 2/- per share i.e. 350%, for the financial year 2011-2012. This is in addition to the interim dividend @ Rs. 6/- per share (300%), declared on October 21, 2011. Thereby total dividend paid/ recommended for the said financial year is Rs. 13/- per share. (650%). The final dividend, if approved at the ensuing Annual General Meeting, would be paid to those members whose names appear in the Companys Register of Members as on the book closure date, appearing in the notice convening the Annual General Meeting which forms a part of the Annual Report and to all those members whose names appear as beneficial owners in the records of the Depositories i.e. National Securities Depository Limited and Central Depository Services (India) Limited, as on the said date. SIGNIFICANT DEVELOPMENT DURING THE YEAR: Reverse Merger with Housing Finance Company: * The Board has decided to restructure the business of Indiabulls Financial Services Limited (IBFSL) by way of its reverse merger with its wholly owned subsidiary, Indiabulls Housing Finance Limited (IHFL), a Housing Finance Company (HFC) registered with NHB. * Majority of the existing and incremental business of IBFSL relates to housing finance and all other companies with similar asset profile and business are already licensed as HFCs. * Amalgamation with IHFL will consolidate the capital available to the merged HFC entity, enabling it to steadily grow its mortgage loans business. * Consequent to the Scheme becoming effective, upon sanction by Honble High Court of Delhi and other regulatory and stockholder approvals, the shareholders of IBFSL will get 1 (one) equity share of Rs. 21- each of IHFL for every 1 (one) equity share of Rs. II- each held by them in IBFSL. The appointed date of the Amalgamation is April 1, 2012. Launch of Indiabulls Mutual Fund: Indiabulls Mutual Fund, sponsored by your Company went live on 24th October, 2011 and garnered more than Rs. 1,100 crores in its first scheme called Indiabulls Liquid Fund. It has built strong AUM base of around Rs.2300 Cr. in the span of 6 months, and achieved March end Average AUM ranking of 31 out of total 44 AMCs. By the end of March 2012, it had launched Liquid fund, Ultra Short Term Fund, Blue chip Equity Fund and 2 FMPs, and is planning to launch 5-6 new schemes during the financial year 2012-13. Launch of IB Home finder: IB Home finder an on-line property search portal, presently with a showcase of over 1 600 Projects, was launched by the Company in December 2011 to facilitate its customer to locate and identify property as per their requirement. It provides various property options, among which most of them are per-approved projects of Indiabulls HFC and provide choice of houses and home finance under one roof. It also provides platform for the Developers in showcasing their Projects. IB home finder has currently tied up with over 550 Developers across India with presence in more than 7 cities covering major metro towns - Delhi NCR, Jaipur, Mumbai, Hyderabad, Bengaluru, Pune and Chennai. Indiabulls CSR Initiative - Drug Access Program for cancer patients in partnership with Novartis: As part of our deep commitment to social causes, Indiabulls has taken up this noble project named Novartis Oncology Access (NOA) in partnership with Novartis (manufacturer of drugs) & Max foundation (NGO). We as the financial partner are helping them assess actual income of patient & family & based on assessed income; recommend the drugs donation slab as per approved guidelines & SOP. NOA program: The NOA program is a drug access program to help patients, for the treatment of Ph+ chronic myeloid leukemia (CML) in chronic phase, accelerated phase and the blast crisis, who cannot afford to pay for the entire treatment cost. This program is run by Novartis along with its partner Physicians, who enroll patients under this program after diagnosis. The MAX Foundation, an independent NGO, assists patients throughout the program in completing formalities & procurement of medicines. The Company, as a NOA partner performs the task of local credit evaluation agency which works as an independent and unbiased body for the financial analysis and assessment of the patient and his family members earning capacity to ascertain their affordability of the medical expenses on such critical disease, as per standard operating procedure (SOP) prescribed by Novartis based on the WHO guidelines for drug donation programs. Based on the family composite Income a suitable donation decision is given. Contactability: Indiabulls has designated a dedicated Help-Line Number: 022 30491720 that will receive patient calls during office hours (9:00 a.m. to 6.00 p.m.) for it to handle in-bound calls in response only to queries regarding the submission of requirements for the NOA. For any medical or clinical queries, the Company refer patients to their treating physician. EMPLOYEES STOCK OPTIONS: The disclosures required to be made in the Directors Report in respect of the stock options granted under various employee stock option schemes i.e. (i) IBFSL-ICSL Employees Stock Option Plan -2006 (ii) IBFSL-ICSL Employees Stock Option Plan 11-2006 and (iii) Employees Stock Option Plan - 2008 in force in the Company, in terms of the format prescribed under SEBI (Employee Stock Option Scheme and Stock Purchase Scheme) Guidelines, 1999, are set out in the Annexure forming a part of this report. The Company had also launched ESOP Schemes titled as IBFSL ESOP -2010 and IBFSL ESOP 2011. However, no option has yet been granted under these schemes. During the current financial year, up to the date of this report, the Company has allotted an aggregate 48,846 (Forty Eight Thousand Eight Hundred and Forty Six) Equity shares of face value Rs. II- each under IBFSL-ICSL Employees Stock Option Plan -2006, on May 02, 2012, as a result of which the equity capital of the Company stands increased from Rs.62,36,09,142/- divided into 31,18,04,571 Equity shares of face value Rs. II- each to Rs. 62,37,06,834/-divided into 31,18,53,41 7 Equity shares of face value Rs. 71- each. PUBLIC DEPOSITS: The Company has not accepted any deposits from the public during the year under review. SUBSIDIARIES: The statement pursuant to Section 212(l)(e) of the Companies Act, 1956 relating to subsidiary companies forms a part of the financial statements. In terms of the circular no.2/2011 dated February 8, 2011 issued by the Ministry of Corporate Affairs for granting general permission for not attaching certain prescribed documents including annual accounts of the Subsidiaries to the Balance Sheet of the Holding Company, as required to be attached in terms of Section 212 of the Companies Act, 1956, and accordingly as approved by the Board of Directors in its meeting held on April 27, 2012, copies of the Balance Sheet, Statement of Profit and Loss, Reports of the Board of Directors and Auditors of the subsidiaries of the Company as of March 31, 201 2 have not been attached with the Balance Sheet of the Company. These documents will be made available upon request by any Member of the Company interested in obtaining the same. The annual accounts of the subsidiary companies are also kept for inspection by any shareholders in the head office of the holding company and of the subsidiary companies concerned. Further, in terms of the said circular, information required to be disclosed in respect of each of the subsidiary company, has been disclosed, in the notes to accounts of the Consolidated Balance Sheet forming part of the Annual Report. Further, pursuant to Accounting Standard AS-21 and Accounting Standard AS-23, as notified by the Companies (Accounting Standard) Rules, 2006, as amended, Consolidated Financial Statement presented by the Company includes financial information of its subsidiaries and associate. DIRECTORS: In accordance with the provisions of Section 255 and 256 of the Companies Act, 1956 and the Article 129 of the Articles of Association of the Company, Mr. Prem Prakash Mirdha, (DIN: 01352748) and Mr. Aishwarya Katoch, (DIN: 00557488) retire by rotation at the ensuing Annual General Meeting of the Company and being eligible offer themselves for re-appointment. Brief resume of the Directors seeking reappointment, nature of their expertise in specific functional areas and names of companies in which they hold directorships and memberships/ chairmanships of Board Committees, as stipulated under Clause 49 of Listing Agreement with the Stock Exchanges in India, are provided in the Report on Corporate Governance forming part of the Annual Report. LISTING WITH STOCK EXCHANGES: The equity shares of the Company continue to remain listed with the BSE Limited (BSE) and the National Stock Exchange of India Limited (NSE). The listing fees payable to both the exchanges for the financial year 2012-2013 have been paid. The Global Depository Receipts issued by the Company continue to be listed on the Luxembourg Stock Exchange. MANAGEMENT DISCUSSION AND ANALYSIS REPORT: Managements Discussion and Analysis Report for the year under review, as stipulated under clause 49 of the Listing Agreement with the Stock Exchanges in India, is presented in a separate section forming part of the Annual Report. CORPORATE GOVERNANCE REPORT: Pursuant to clause 49 of the Listing Agreements with the Stock Exchanges, a detailed report on Corporate Governance is included in the Annual Report. A Practicing Company Secretarys Certificate certifying the Companys compliance with the requirements of Corporate Governance stipulated under clause 49 of the Listing Agreement is attached with the Corporate Governance Report. AUDITORS & AUDITORS REPORT: M/s Deloitte Haskins & Sells, Chartered Accountants (Regn. No. 117366W), Auditors of the Company will retire at the conclusion of the ensuing Annual General Meeting and being eligible offer themselves for reappointment. The Company has received a certificate from the Auditors to the effect that their reappointment, if made would be in accordance with Section 224(1 B) of the Companies Act, 1956. The Board recommends their re-appointment. The Notes to the Accounts referred to in the Auditors Report are self- explanatory and therefore do not call for any further explanation. INFORMATION PURSUANT TO SECTION 217 OF THE COMPANIES ACT, 1956: The information required to be disclosed under Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 with respect to conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo, is given in the Annexure and forms a part of this Report. In terms of the provisions of Section 21 7 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended, the names and other particulars of the employees in receipt of remuneration equal to or in excess of the limits stipulated under the said section, are required to be set out in a statement annexed to the Directors Report. However, having regard to the provisions of Section 21 9(l)(b)(iv) of the said Act, the Annual Report excluding the aforesaid information is being sent to all the Members of the Company and others entitled thereto. Any member who is interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company. DIRECTORS RESPONSIBILITY STATEMENT: As required under Section 217 (2AA) of the Companies Act, 1956 your Directors confirm that: 1. In the preparation of the annual accounts, the applicable accounting standards have been followed and that there are no material departures from the same; 2. The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 st March, 201 2 and the profit of the Company for the year ended on that date; 3. The Directors have taken proper and sufficient care for maintaining of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and 4. The Directors have prepared the Annual Accounts of the Company on a going concern basis. ACKNOWLEDGMENT: Your Directors wish to express their gratitude for the continuous assistance and support received from the investors, clients, bankers, regulatory and government authorities, during the year. Your Directors also wish to place on record their deep sense of appreciation for the contributions made and committed services rendered by the employees of the Company at various levels, to the growth & success of the Company. For and on behalf of the Board of Directors Date : May 11, 2012 Sameer Gehlaut Place: New Delhi Chairman ANNEXURE FORMING PART OF THE DIRECTORS REPORT: Information pursuant to Section 217(l)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, in respect of conservation of energy, technology absorption and foreign exchange earnings & outgo. A. Conservation of Energy: The Company uses energy for its equipment such as electric equipment, computers, lighting and utilities in the work premises. As an ongoing process the following measures are undertaken to conserve energy: a) Implementation of viable energy saving proposals. b) Installation of automatic power controllers to save maximum charges and energy. c) Training front end operational personnel on opportunities of energy conservation. d) Awareness and training sessions for maintenance personnel, conducted by experts. B. TECHNOLOGY ABSORPTION: The Company believes that technological obsolescence is a practical realty and therefore: Constantly endeavor to carry out continuous research and innovations with the basic objective of providing maximum benefits to the clients and other end users by working proactively. The basic idea is to carry out applied research in the areas that are closely related to realization of the business objectives of the Company and seek to encash available business opportunities C. FOREIGN EXCHANGE EARNINGS AND OUTGO: While there were no earnings in foreign exchange during the year under review, the foreign exchange outgo on account of various heads is depicted in the table given below: a. Expenditure in Foreign Currency: For the year For the ended year ended Particulars March 31, March 31, 2012 (Rs.) 2011 (Rs.) Professional 35,890,612 32,921,412 Expenses GDRs listing/ 976,829 690,615 Issue related expense Traveling 6,029,459 10,421,014 Expense Interest 37,980,62 7,443,678 Advertisement/ 11,108,375 - Corporate Sponsorship Expenses b. Remittances during the year in foreign currency on account of dividends: Final Dividend (Year End March 31, 2011) Number of Shareholders: 2 (Previous Year 3) Equity Shares held on which dividend is remitted: - 12,776,920 Equity Shares (Previous Year 18,752,135) Amount Remitted- Rs. 63,884,600 (Previous Year Rs. 93,760,675) Interim Dividend (Year End March 31, 2012) Number of Shareholders: 2 (Previous Year 3) Equity Shares held on which dividend is remitted: - 12,776,920 Equity Shares (Previous Year 12,828,020) Amount Remitted- Rs. 76,661,520 (Previous Year Rs. 64,140,100 for the Year end March 31,2011) Note: The Company does not have information as to the extent to which remittances if any, in foreign currencies on account of dividends have been made by non- resident shareholders. c. Remittances during the year in foreign currency on account of redemption of Preference Share Capital: Amount Remitted- Rs. Nil (Previous Year Rs. Nil) Information pursuant to Section 217(1 )(e) of the Companies Act, 1956 read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988, in respect of conservation of energy, technology absorption and foreign exchange earnings and outgo. IBFSL-ICSL Employees Stock Option Plan - 2006 -As on March 31, 2012: Particulars a. Options Granted 1,440,000 b. Exercise price 1,045,000 options at Rs. 41.67 per Option 395,000 options at Rs. 95.95 per Option c. Options vested 71 3,700 options at Rs. 41.67 per Option 79,000 options at Rs. 95.95 per Option d. Options exercised 481,636 options at Rs. 41.67 per Option 79,000 options at Rs. 95.95 per Option e. The total number of Shares arising as a result of exercise 481,636 options at Rs. 41.67 per Option of option 79,000 options at Rs. 95.95 per Option f. Options lapsed 192,808 g. Variation in terms of options Not Applicable h. Money realized by exercise of options Rs. 27,649,822.12 i. Total number of options in force 370,556 options at Rs. 41.67 per Option 316,000 options at Rs. 95.95 per Option j. Employee wise details of options granted to; i. Senior Management personnel Mr. Gagan Banga - 3,95,000 ii. Any other employee who received a grant in any one year of option amounting to 5% or more of option granted during that year. iii. Identified employees who were granted option, during any one year, equal to or exceeding 1% of the issued capital. k. Diluted Earnings Per Share (EPS) pursuant to issue of Rs. 23.07 shares on exercise of option calculated in accordance with [Accounting Standard (AS) 20 Earnings Per Share] I. Where the Company has calculated the Refer Note 3 of Notes to Accounts forming employee compensation part of the Financial Statements. cost using the intrinsic value of the stock options, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of the options, shall be disclosed. The impact of this difference on profits and on EPS of the Company shall also be disclosed. m. Weighted-average exercise prices and weighted- Rs. 56.56 average fair values of options shall be disclosed separately for options whose exercise price either equals or exceeds or is less than the market price of the stock, n. A description of the method and significant assumptions Refer Note 3 of Notes to Accounts forming used during the year part of the Financial Statements. to estimate the fair values of options, including the following weighted-average information: i. Risk free interest rate ii. Expected life iii. Expected volatility iv. Expected dividends, and v. The price of the underlying share in market at the time of option grant. IBFSL - ICSL Employees Stock Option Plan II - 2006 - As on March 31, 2012: Particulars a. Options Granted 720,000 b. Exercise price Rs. 100 c. Options vested 205,417 options at Rs. 1 00 per Option 43,800 options at Rs. 100 per Option d. Options exercised 11 8,343 options at Rs. 1 00 per Option 43,800 options at Rs. 100 per Option e. The total number of Shares arising as a result of exercise of 118,343 options at Rs 100 per Option option 43,800 options at Rs 100 per Option f. Options lapsed 218,389 g. Variation in terms of options Not applicable h. Money realized by exercise of options Rs. 16,214,300 i. Total number of options in force 339,468 options at Rs 1 00 per Option j. Employee wise details of options granted to; i. Senior Management personnel Mr. Gagan Banga - 299,160 ii. Any other employee who received a grant in any one year of option amounting to 5% or more of option granted during that year. iii. Identified employees who were granted option, during any one year, equal to or exceeding 1% of the issued capital. k. Diluted Earnings Per Share (EPS) pursuant to issue of shares on Rs. 23.07 exercise of option calculated in accordance with [Accounting Standard (AS) 20 Earnings Per Share] I. Where the Company has calculated the employee compensation Refer Note 3 of Notes to Accounts cost using the intrinsic forming part of the Financial Statements value of the stock options, the difference between the employee compensation cost so computed and the, employee compensation cost that shall have been recognized if it had used the fair value of the options, shall be disclosed. The impact of this difference on profits and on EPS of the Company shall also be disclosed. m. Weighted-average exercise prices and weighted-average Rs. 100.00 fair values of options shall be disclosed separately for options whose exercise price either equals or exceeds or is less than the market price of the stock. n. A description of the method and significant assumptions used Refer Note 3 of Notes to Accounts during the year to forming part of the Financial estimate the fair values Statements. of options, including the following weighted -average information: i. Risk free interest rate ii. Expected life iii. Expected volatility iv. Expected dividends, and v. The price of the underlying share in market at the time of option grant Employees Stock Option-2008-As on March 31, 2012: Particulars a. Options Granted 7,500,000 b. Exercise price 6,702,250 options at Rs. 95.95 per option 367,350 options at Rs. 1 25.90 per option 230,400 options at Rs. 1 58.50 per option 200,000 options at Rs. 153.65 per option c. Options vested 2,158,860 options at Rs. 95.95 per option 26,820 options at Rs. 1 25.90 per option 20,000 options at Rs. 1 53.65 per option 23,040 options at Rs. 1 58.50 per option d. Options exercised 1,485,176 options at Rs. 95.95 per option 945 options at Rs. 125.90 per option 9,332 options at Rs. 153.65 per option 19,000 options at Rs. 1 58.50 per option e. The total number of Shares arising as a result of exercise 1,485,176 options at Rs. 95.95 per option of option 945 options at Rs. 125.90 per option 9,332 options at Rs. 153.65 per option 19,000 options at Rs. 158.50 per option f. Options lapsed 1,527,281 options at Rs. 95.95 per option 248,250 options at Rs. 125.90 per option g. Variation in terms of options Not Applicable h. Money realized by exercise of options Rs. 147,066,974.50 i. Total number of options in force 3,689,793 options at Rs. 95.95 per option 118,155 options at Rs. 125.90 per option 190,668 options at Rs. 153.65 per option 211,400 options at Rs. 158.50 per option j. Employee wise details of options granted to; i. Senior Management personnel Mr. Gagan Banga - 786,000 ii. Any other employee who received a grant in any one year of option amounting to 5% or more of option granted during that year. iii. Identified employees who were granted option, during any one year, equal to or exceeding 1% of the issued capital. k. Diluted Earnings Per Share (EPS) pursuant to issue Rs. 23.07 of shares on exercise of option calculated in accordance with [Accounting Standard (AS) 20 Earnings Per Share] I. Where the Company has calculated the employee Refer Note 3 of Notes to Accounts forming compensation cost using part of the Financial Statements, the intrinsic value of the stock options, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognized if it had used the fair value of the options, shall be disclosed. The impact of this difference on profits and on EPS of the Company shall also be disclosed. m. Weighted-average exercise prices and weighted average Rs. 100.88 fair values of options shall be disclosed separately for options whose exercise price either equals or exceeds or is less than the market price of the stock. n. A description of the method and significant assump tions Refer Note 3 of Note to Accounts forming used during the part of the Financial Statements, year to estimate the fair values of options, including the following weighted-average information: Refer Note 3 of Notes to Accounts forming part of the Financial Statements. i. Risk free interest rate ii. Expected life iii. Expected volatility iv. Expected dividends, and v. The price of the underlying share in market at the time of option grant MANAGEMENT DISCUSSION AND ANALYSIS: For the purpose of the Management Discussion and Analysis, Indiabulls Financial Services Limited (IBFSL) is defined as the consolidated entity consisting of the standalone parent; the wholly-owned subsidiary Indiabulls Housing Finance Limited(IHFL)and other subsidiaries. The terms the company and Indiabulls also refer to the consolidated entity. HFC and NBFC refers to Housing Finance Company and Non Banking Finance Company respectively. Economic Scenario: For the Indian economy, FY 2012 was a year of recovery interrupted. The sovereign debt crisis in the Euro zone intensified, political turmoil in Middle East injected widespread uncertainty, crude oil prices rose, an earthquake struck Japan and the overall gloom refused to lift. The global crisis has affected our country. Indias Gross Domestic Product (GDP) is estimated to grow by 6.9 per cent in 2011-12, after having grown at the rate of 8.4 per cent in each of the two preceding years. Though India has been able to limit the adverse impact of this slowdown on our economy, this years performance has been disappointing. But it is also a fact that in any cross-country comparison, India still remains among the front runners in economic growth. For the better part of the past two years, India had to battle near double- digit headline inflation. The monetary and fiscal policy response during this period was geared towards taming domestic inflationary pressures. A tight monetary policy impacted investment and consumption growth. The fiscal policy had to absorb expanded outlays on subsidies and duty reductions to limit the pass-through of higher fuel prices to consumers. As a result growth moderated and the fiscal balance deteriorated. However, with agriculture and services continuing to perform well, Indias slowdown can be attributed almost entirely to weak industrial growth. Numerous indicators suggest that the economy is now turning around. There are signs of recovery in coal, fertilizers, cement and electricity sectors. These are core sectors that have an impact on the entire economy. Indian manufacturing appears to be on the cusp of a revival. Industry overview: The home loan industry is expected to grow at a compounded annual growth rate of 15.7% from FY-12 to FY-16 on a large base of over Rs. 6 lacs crores. The expected growth in the low risk home loan industry gives opportunity for Indiabulls to sustain current growth in its mortgage finance business. HFCs continue to play a critical role in making home loans accessible to a wider set of Indias population with their keen understanding of customer needs, HFCs remain focused on product innovation and customization alongwith investments in Legal and Technical appraisal skill sets -factors that help them gain an edge over banks while maintaining their niche positioning. The recent trends of strong growth and improving asset quality and profitability are likely to continue strengthening the credit risk profiles of HFCs over the medium term. Business Review: Indiabulls Financial Services Limited(IBFSL)is one of Indias largest lending operations with total consolidated loan assets on a managed basis of Rs. 275,212 million as at March 31, 2012. Indiabulls lending business, is primarily focused on mortgage loans with specific emphasis on Home Loans to the salaried segment, through its HFC wholly owned subsidiary IHFL. The company also provides other loans like Loan against Residential Properties for home improvement and to small businesses, Commercial Vehicle Loans, and Corporate Loans for housing projects. Indiabulls has a presence in 180 locations in India, spread across 18 states and union territories. Over the past several years, Indiabulls has expanded its branch network, focusing on geographical areas that are of greater relevance to the products it offers. The company generates its revenues through the following activities: Financing activities: Indiabulls is primarily a mortgage loan provides with focus on Home Loans to the salaried segment through IHFL. The company also provides other loans like Loans against Residential Properties for home improvement and to small businesses, Commercial Vehicle Loans, and Corporate Loans for housing projects. The customers repay the loans through regular payment which also include interest on the loan amount outstanding. The financing activity generates revenues from these interest payments made by our borrowers. Fee-based activities: Such activities involve selling life insurance policies, pension plans and other financial products by Indiabulls in its capacity as corporate agent for insurance companies and syndication of loans. Fee based activities generate revenues from fees-and commissions paid on each such policy or product sold by Indiabulls. Processing fees are also charged as a percentage of the disbursed amount. Indiabulls recorded a total income of Rs. 38,464.20 million for the fiscal year ended March 31, 2012 vs. Rs. 25,099.56 million for the prior fiscal year. The profitability of the Company increased to Rs. 10,064.63 million for the fiscal year March 31, 2012 as against Rs. 7,509.23 million for the prior fiscal year. Business Strengths: The Company believes that its success in becoming one of Indias leading financial services companies has been driven by the following: Stable and Long-term Liability Mix: The Company has seen a continuing improvement in its liability profile and this has been a major area of success for the Company in FY 2011-12. As of March 31, 2012, 66% of the Companys borrowings come from bank loans. During the year, the Company raised 5-yr. and 10-yr. term loans from the banks/ Financial Institutions. A further 24% of the borrowings are in the form of Bonds. Dependence on short-term debt has substantially reduced and now constitutes only 1 0% of the total borrowings. An Asset Base of High-Quality Secured Assets: With strong focus on mortgage loans, the Company has been able to build a book of long-term, low-risk secured assets. As a consequence the company has witnessed a steady growth in its asset base at a quarterly average of appx. Rs. 2,000 crores over the course of last 10 quarters. The NPAs have also continuously declined with Gross NPA at 0.79% and Net NPA at 0.33% as of March 31 st, 201 2. This is the 8th consecutive quarter end at which the percentage of NPAs have been lower than the corresponding quarter in the previous year. Improved Credit Rating: IBFSLs long term facilities have been assigned the rating of AA+ by CARE, signifying high degree of safety regarding timely servicing of debt obligations. The Companys short term facilities have been assigned the rating of Al + by CRISIL, considered to have very strong degree of safety regarding timely payment of financial obligations - such instruments carry lowest credit risk. The rating factors in strong business growth of the Company with focus on the relatively safer asset class of mortgage loans, improvement in maturity profile of its liabilities with lower dependence on short term borrowings and improvement in profitability. ISO 9001:2008 Certification: In recognition of maintenance of quality Document Management Process, the Company was awarded ISO 9001:2008 certification by OSS Certification Services, a JAS-ANZ (Joint Accreditation System of Australia and New Zealand) accredited certification body. Experienced Senior Management Team: Indiabulls management team has a very successful track record and many years of experience in the Financial Services domain. The team, many of whose members have been with the Company for over 5 years, have several years of lending experience with some of the countrys largest banks and financial institutions. The senior management team started most of the Companys core functions and have steered them through the challenges the Company has faced over the years. Apart from their core roles, each of the senior management team members contribute to setting the overall direction of the Company and keep the same in mind when running their individual teams. The team has a continuous and strong focus on improving the risk profile of the Company. The management promotes a results-oriented culture that rewards employees on the basis of merit. Focused Distribution Network: The financial year 2011-12, saw the Company tailoring its branch network to be in closer alignment with its business strategy. In keeping with the focus on Home Loans, the company opened many well-appointed, accessible branches with an aim to nurture long-term customer relationships. Indiabulls today has a presence in 180 locations in India, spread across 18 states and union territories. The company has a well trained, in house Direct Sales team of over 1,400 people to promptly attend to prospective customers. Strong Brand Recognition: IBFSL is one of Indias leading companies and has strong brand recognition within India, which helps attract new, potential clients. The Company has established a network of easily-accessible branches across 180 locations throughout India, and the wide presence of these branches further enhances its brand recognition with prospective clients. Business Strategy: Indiabulls lending business aims to continue to grow as a leading Home Loans provided and build a stable, secure and sustainable business that is focused on maximizing growth opportunities within the financial services industry. It is our intention to adopt a cautious approach while maintaining high growth rates and profitability in all our business segments. The Company focuses on operational excellence, prudent credit policies, adequate fraud control, and a rigorous collection mechanism. Indiabulls is one of Indias Leading Home Loan Provides: A growing populating and a rapidly expanding economy have led to a sustained demand for home ownership. This demand is further driven by changes in demographic profile including increase in the rate of household formation due to structural shift from joint family system to nuclear family, rapid urbanization and rise in disposable income levels due to decrease in marginal tax rates and increase in total income levels of the Indian middle class. IBFSLs dependence on diversified and long term liabilities and reduced cost of funding makes it competitive on offering home loans to customers. Within the Home Loans segment, the Company is particularly focused on offering loans at competitive rates to the salaried segment, especially loan amounts of up to Rs. 25 Lacs. With the objective of growing the home loan business, we have in place a direct selling team of more than 1400 people. We are leveraging IBFSLs existing extensive branch network & opening new locations strategically so that we are closer to our customers. Indiabulls has been one of the most widely recognized success stories of Indian economy in the past decade. Expanding our home loans business successfully and profitably not only helps in meeting the genuine demand from millions of aspiring home owners but also allows us to positively contribute to the Indian growth story. Continue to Grow our Client Base and Maintain a High-quality Loan Portfolio: The Company is focused on long term low risk secured lending, such as mortgage-backed loans and commercial vehicle financing. As the Company continues to grow its client base, it shall maintain its focus on secured lending to lower risk segments in order to maintain a high-quality loan portfolio and minimize client delinquencies and defaults. Continue to Pursue a Stable Liability Mix: Because IBFSL is a non-deposit taking NBFC, it relies on short, mid and long-term funding from banks, NBFCs and bonds and Commercial Paper market. The Company has sufficient funds to meet the short-term funding needs. The Company continues to identify various alternative sources of funding to maintain a low cost of funds. Maintain Strict Risk Management Policies for our Loan Portfolio: The Company is focused on building a large loan portfolio with minimum delinquency risk. Therefore, it will continue to maintain strict risk management standards to reduce delinquency risks and promote a robust recovery process. Perceived Business Risks: The Companys business activities expose it to a variety of risks including liquidity risk and interest rate risk. Identification and management of these risks are essential to its success and financial soundness. Real Estate Industry: With a high economic growth rate, increasing urbanization, growing demand for commercial and residential spaces; the real estate industry witnesses a continually changing landscape. The sector is particularly sensitive to interest rate movements, credit availability and land acquisition, building & construction norms. While the supply side is characterized by long- gestation periods and exposed to execution and financing risks, the demand side is sharply affected by prevailing interest rates and buyers expectation of price movements. The Companys disbursals are directly linked to credit off take that funds new real estate purchases and as such is exposed to the factors laid out above. Human Resources: IBFSL firmly believes that its employees are key to driving performance and developing competitive advantage. The emphasis has been on proper recruitment of talent and empowerment while devoting resources for their continuous development. The Companys approach is to unlock the people potential while continuously developing their functional, operational and behavioral competencies. The Company aims to build a team of dedicated employees who work with passion, zeal and a sense of belongingness and play a defining role in significantly accelerating the growth and transformation of the Company. It is in continuation of this process that the Company has in place an Employee Stock Option Schemes which aims at rewarding and nurturing talent so that the Company gets to retain the best talent in the industry. Internal Control Systems: The Company has adequate system of internal controls for business processes, with regard to operations, financial reporting, fraud control, compliance with applicable laws and regulations, etc. Regular internal audits and checks ensure that responsibilities are executed effectively. The Audit Committee of the Board of Directors actively reviews the adequacy and effectiveness of internal control systems and suggests improvement for strengthening the existing control system in view of changing business needs from time to time. Indiabulls CSR Initiative - Drug Access Program for cancer patients in partnership with Novartis: As part of our deep commitment to social causes, Indiabulls has taken up this noble project named Novartis Oncology Access (NOA) in partnership with Novartis (manufacturer of drugs) & Max foundation (NGO). We as the financial partner are helping them assess actual income of patient & family & based on assessed income; recommend the drugs donation slab as per approved guidelines & SOP NOA program: The NOA program is a drug access program to help patients, for the treatment of Ph+ chronic myeloid leukemia (CML) in chronic phase, accelerated phase and the blast crisis, who cannot afford to pay for the entire treatment cost. This program is run by Novartis along with its partner Physicians, who enroll patients under this program after diagnosis. The MAX Foundation, an independent NGO, assists patients throughout the program in completing formalities & procurement of medicines. The Company, as a NOA partner performs the task of local credit evaluation agency which works as an independent and unbiased body for the financial analysis and assessment of the patient and his family members earning capacity to ascertain their affordability of the medical expenses on such critical disease, as per standard operating procedure (SOP) prescribed by Novartis based on the WHO guidelines for drug donation programs. Based on the family composite Income a suitable donation decision is given. Contactability: Indiabulls has designated a dedicated Help-Line Number: 022 30491720 that will receive patient calls during office hours (9:00 a.m. to 6.00 p.m.) for it to handle in-bound calls in response only to queries regarding the submission of requirements for the NOA. For any medical or clinical queries, the Company refer patients to their treating physician. Cautionary Statement: Statements in this Management Discussion and Analysis Report describing the Companys objectives, projections, estimates and expectations may be forward looking statements within the meaning of applicable laws and regulations. Actual results might differ materially from those either expressed or implied. The Company is not under any obligation to publicly amend, modify or revise any forward looking statements on the basis of any subsequent developments, information or events.