CONTENTS

O N E F I R M 10

HIGHLIGHTS 02 INFRASTRUCTURE REVIEW 20

CHAIRMAN'S STATEMENT 04 DIRECTORS' REPORT 29

BOARD OF DIRECTORS 08 MANAGEMENT DISCUSSION 36 AND ANALYSIS ACCOUNTS

CONSOLIDATED GROUP 63 CORPORATE GOVERNANCE 52 A C C O U N T S W I T H AUDITORS' REPORT ADDITIONAL SHAREHOLDER 59 INFORMATION S TA N D A L O N E A C C O U N T S 85 WITH AUDITORS' REPORT CEO & CFO CERTIFICATE 62

STATEMENT PURSUANT TO 118 AUDITORS' CERTIFICATE 62 SECTION 212 financial highlights

FIGURES IN RS. CRORE APPROVALS AND DISBURSEMENTS

UNLESS OTHERWISE STATED

13 % 33,562

CONSOLIDATED BALANCE SHEET RS CRORE RS CRORE 9,131 4,912

21 % 27,445 NET ASSET BOOK*

0.17 % 43 6,064 NON PERFORMING ASSETS NET 4,982 %

0.31 80 4,783 NON PERFORMING ASSETS GROSS 4,112 1,793

% 3,506 22 25,539 3,339 GROSS LOAN BOOK 2,918 2,766 2,461 2,180 2,162 2,101 1,986 35 % 2,107 1,865 1,623 CONSOLIDATED OPERATING 1,567 1,476 INCOME APPROVALS DISBURSEMENTSAPPROVALS DISBURSEMENTSAPPROVALS

05-06 06-07 07-08 08-09 09-10 05-06 06-07 07-08 08-09 09-10

ENERGY T R A N S P O R T A T I O N

SHARE OF TOTAL EXPOSURE

38.3 % 2009-2010

E N E R G Y 40.6 %

*Comprising loans and equity participation, net of provisioning and 2008-2009 diminution in value of investments

2 I D F C A N N U A L R E P O R T 09 –10 2009-2010

APPROVALS AND DISBURSEMENTS FIGURES IN RS. CRORE

UNLESS OTHERWISE STATED RS CRORE RS CRORE 21 % 1,117 12,401 30,442 NET INTEREST INCOME

55 % 950 CONSOLIDATED NON INTEREST INCOME 20,309

38 % 1,429 CONSOLIDATED PROFIT BEFORE TAX 13,053 12,962

12,006 42 % 1,062 10,631 4,150

10,317 CONSOLIDATED PROFIT AFTER TAX* 3,670 3,667 3,331 8,085 3,241 7,207 2,885

6,045 3.4 % 15.8 % RETURN ON RETURN ON 10,317 1,670 ASSETS EQUITY 1,301 1,184 DISBURSEMENTSAPPROVALS DISBURSEMENTSAPPROVALS

05-06 06-07 07-08 08-09 09-10 05-06 06-07 07-08 08-09 09-10

40 % 8.12 RUPEES T E L E C O M T O T A L DILUTED EARNINGS PER SHARE

SHARE OF TOTAL EXPOSURE

19.8 % 24.4 % 8.2 % 9.3 %

TRANSPORTATION 23.8 % TELECOM & IT 10.9 % C O M M E R C I A L & OT H E R S 13.7 % INDUSTRIAL 11.0 %

*After minority interest, and including profits from associate companies

FINANCIAL HIGHLIGHTS 3 chairman’s statement

The year 2009-10 has seen IDFC consolidate its position as the country’s leading specialist infrastructure finance company and one of the largest financiers of infrastructure in the country with most of our businesses scaling new heights this year. IDFC has evolved into a composite financial services platform operating a full range of business lines, from project and corporate finance to asset management (mutual funds and alternatives) and investment banking. This will enable us to serve our clients seamlessly as well as to provide our shareholders with steady returns.

4 I D F C A N N U A L R E P O R T 09 –10 The year 2009-10 has seen IDFC consolidate culture that will help us create a better aligned its position as the country’s leading specialist and synergized platform that not only delivers infrastructure finance company and one of growth, but also helps us distinguish IDFC in the largest financiers of infrastructure in the the market. Further, in keeping with our mission country with most of our businesses scaling of nation building, we have carved out the new heights this year. IDFC has evolved into a development agenda of the IDFC Group under the composite financial services platform operating rubric of the IDFC Foundation. a full range of business lines, from project India has high domestic savings but we and corporate finance to asset management still need to develop our financial system to (mutual funds and alternatives) and investment channel these savings into long-term finance banking. This will enable us to serve our such as that required for infrastructure. In this clients seamlessly as well as to provide our context, some initiatives announced recently shareholders with steady returns. should help in raising long-term finance. The Going forward, we believe that this breadth tax-saving scheme for individual investors into of services combined with our domain expertise infrastructure bonds could be a significant in infrastructure gives us the unique ability to source of long-term finance each year. Until capitalize on the opportunities for developing, there is a big enough pool of investors with a financing and implementing infrastructure long-term view, though, the government may projects. We are at an inflection point in the need to step in to meet the need through credit expansion of our country’s infrastructure and enhancement and refinancing facilities. The IDFC is well-positioned to lead the development. Planning Commission’s proposed debt fund IDFC, therefore, aims to atleast treble its would be able to lend for much longer term. footprint over the next three to four years. The year stands out in terms of the progress The Infrastructure Finance Company (IFC) made in infrastructure development which status will allow us to diversify our borrowings has clearly been led by the private sector. and access long-term funds, supporting our Take the case of highways and power. After growth ambitions. It enables us to obtain more the government ironed out problems in the bank financing as well as external commercial framework for private sector participation in borrowing and increase our single party and national highways, the almost moribund highway group exposure. sector witnessed a sharp increase in projects We know that achieving this planned growth put up for bid and awarded. For example, 34 will be no easy task. Therefore, we spent 2009-10 projects were awarded in a span of four months in taking stock and evaluating our organizational and many more were in final stages of bidding. capabilities in terms of the preparedness for this The momentum is continuing as the pipeline growth. We gave special emphasis to nurturing of projects is large. At the same time, many and developing talent, so as to create a strong constraints to project implementation are being team of empowered professionals who can addressed. For example, the single biggest steer our diverse business needs. We undertook cause of project delays, land acquisition, is being a platform-wide initiative to create a common addressed through the establishment of Special culture based on the pillars of knowledge Land Acquisition Units (SLAUs) at the state expertise, teamwork and stewardship. It is this level, focused attention and accountability for

CHAIRMAN’S STATEMENT 5 Gujarat Pipavav Port 6 lakh TEUs per annum and 5 million metric tonnes per annum container yard

We undertook a execution and enhanced partnership between of the ability of utilities to absorb the massive platform-wide the centre and states. Altogether, this has inflow of power that would be generated. initiative to create a resulted in acquisition of double the amount of I urge state governments to pursue land last year as compared to the annual average distribution reforms and drastically reduce common culture based on of the previous three years. losses. The franchisee model, which has the pillars of knowledge There is good news on the power sector as proven positive outcomes, should be seriously expertise, teamwork and well. IDFC has estimated that about 50,000 considered. Despite heartening results stewardship. It is this MW of generation capacity will be added by in Bhiwandi, where this model was first the private sector alone in the next five years. implemented, only two cities – Kanpur and culture that will help us Some of this capacity addition has been spurred Agra - have taken up this model. Even the state create a better aligned by the maturing of the trading platform and of Maharashtra, which has tasted success in and synergized platform positive steps that have been taken to facilitate Bhiwandi, has not yet replicated this model that not only delivers this merchant power by improving the regulatory despite plans to extend it to at least 8-10 areas. framework, particularly for open access for A welcome development is the government’s growth, but also helps us sale of such power across the country. The increasing focus towards Renewable Energy distinguish IDFC in the transmission needs for these plants are also (RE) through the solar mission, which holds the market. being addressed. Some deficiencies continue potential to establish India as the manufacturing to exist in the implementation of open access, hub for solar power and encourage innovation in though I’m hopeful that these will be addressed. technology. If we succeed in developing But capacity addition will not bear fruits cost-effective technology, we will have a unless distribution reforms are taken forward long-term sustainable solution for meeting on a war footing. Some distribution utilities the country’s energy needs, far beyond the have shown improvements in their financial mission’s targets. The regulatory framework is health through concerted efforts to reduce creating a market for renewable energy through transmission and distribution losses. But their Renewable Energy Certificates. Efforts such as number is limited. Most are still bleeding and their this will boost investment in clean energy. dependence on subsidy from state governments The telecom sector continues to be a feather is rising. Yet, states continue to resist tariff in India’s infrastructure cap. After a long wait and rationalization. Even utilities that have improved several postponements in the last two years, the their financial health have been suffering due auction of 3G and Broadband Wireless Access to the steep increase in power purchase costs spectrum is finally taking place. As I write, in the recent past, a consequence of having to the dry-runs for the auction are already being import fuel due to domestic constraints. From a conducted and the final outcome of the auction financier’s perspective, I can tell you that under is eagerly awaited. While broadband will enable such circumstances any lender would be wary inclusive growth by improving connectivity to

6 I D F C A N N U A L R E P O R T 09 –10 rural areas, I am concerned about the telecom government funds. The potential of land as a My appreciation to service providers being able to generate source of financing, by unlocking land value, my colleagues and adequate returns on the hefty bids tendered. I needs to be vigorously explored. This has already all employees at IDFC am also worried about the recent regulatory been tried by some municipalities and there is proposals related to spectrum management and no reason why others can’t use this option. But for their unswerving the licensing framework which indicate a a word of caution-any project leveraging land commitment to their change in the rules of the game midway. needs to have a highly transparent and robust work. It is because of their Ex-post or retroactive changes in the policy and financial structure that uses land judiciously. unrelenting hard work regulatory framework could send wrong signals Our urban infrastructure will be in much better to investors, who look for a level playing field shape if we are successful in structuring such that we have won several as well as certainty and predictability in the projects. awards and recognitions, regulatory regime. These challenges notwithstanding, I am not just within the country The biggest challenge ahead lies in optimistic about the long-term prospects. but internationally. I urbanization and our ability to cope with it. The After all, India’s infrastructure development provision of urban services remains poor. The relies heavily on a vibrant private sector. The assure you that we are situation is very grim in some cities and towns. responsiveness of the central government and well positioned to build There is a huge deficiency in the availability of some of the progressive state governments on these successes in the affordable housing which is often misinterpreted gives me hope that more states will rise to meet coming years. to imply small sized homes in places which offer the country’s infrastructure needs. poor connectivity to work places and shabby Before I conclude, I would like to express my infrastructure. All of this is a matter of concern appreciation to my colleagues and all employees given that the country will see over 40% of its at IDFC for their unswerving commitment to population living in cities and towns by 2030 as their work. It is because of their unrelenting compared to the current level of 28%. hard work that we have won several awards Governance and management of urban and recognitions, not just within the country services is far from satisfactory. Accountability but internationally. I assure you that we are is fragmented between multiple institutions well positioned to build on these successes which don’t always co-ordinate their activities. in the coming years. And I thank you for your Our cities need executive leadership which could continued support. be provided through a directly elected strong mayor with the power as well as accountability to cater to the city’s needs. We also need to find new avenues of financing urban development which currently DEEPAK S PAREKH relies on a limited pool of central and state Chairman

CHAIRMAN’S STATEMENT 7 board of

directors MR. DEEPAK S. PAREKH Chairman

MR. G. C. CHATURVEDI

MR. S. S. KOHLI

MR. ABDUL RAHIM ABU BAKAR

MR. DIMITRIS TSITSIRAGOS

offices

REGISTERED OFFICE OTHER OFFICES KRM Tower, 8th Floor, N E W D E L H I No. 1, Harrington Road, Chetpet, The Capital Court, 2nd Floor, Chennai - 600 031 Olof Palme Marg, TEL +91 44 45644000 Munirka, New Delhi - 110 067 FAX +91 44 28547597 TEL +91 11 43311000 FAX +91 11 26713359 CORPORATE OFFICE Naman Chambers, C-32, G-Block, BENGALURU Bandra-Kurla Complex, No.39, 5th Cross, 8th Main, Bandra (East), Mumbai - 400 051 RMV Extension, TEL +91 22 42222000 Sadashivnagar, Bengaluru - 560 080 FAX +91 22 26540354 TEL +91 80 23613014/15 FAX +91 80 23613016

8 I D F C A N N U A L R E P O R T 09 –10 MR. S. H. KHAN DR. RAJIV B. LALL Managing Director & CEO MR. GAUTAM KAJI MR. VIKRAM LIMAYE MR. DONALD PECK Whole-time Director

MR. SHARDUL SHROFF MR. MICHAEL FERNANDES Alternate to Mr. Abdul Rahim Abu Bakar DR. OMKAR GOSWAMI

corporate information COMPANY SECRETARY SOLICITORS & ADVOCATES Mahendra N. Shah ■■ Amarchand & Mangaldas & Suresh A. Shroff & Co. AUDITORS ■■ Wadia Ghandy & Co. Deloitte Haskins & Sells Chartered Accountants

PRINCIPAL BANKERS DEBENTURE TRUSTEE ■■ State Bank of India IDBI Trusteeship Services Limited ■■ HDFC Bank Limited ■■ Deutsche Bank ■■ Standard Chartered Bank

BOARD OF DIRECTORS 9 ONE FIRM

Integrating IDFC’s Business Platforms

IDFC has emerged as a leading knowledge driven financial services company in India playing a lead role in driving infrastructure development in the country. In recent years IDFC has rapidly expanded its capabilities and added new business segments through both organic growth and acquisitions. This growth places a particular focus on our creativity in aggregating our diverse competencies and strengths into a single integrated firm that is able to deliver superior value to all stakeholders.

MISSION REWARD BRAND

shared mission, reward design common values and reflecting identity and common culture shared destiny brand

Creating a common culture and a sense of Linking rewards with firm performance Strengthening the IDFC brand. Positioning share purpose as One Firm

10 I D F C A N N U A L R E P O R T 09 –10 The ONE FIRM initiative focuses on this effort. It seeks to forge a sense of shared purpose and values that will underpin our common identity and brand. Through this effort IDFC will emerge a more aligned and integrated firm that is able to better leverage its diversity, talent and expertise to deliver an enhanced value proposition to clients, improve shareholder value and realize its mission - “To be the leading knowledge driven financial services firm, creating enduring value, promoting infrastructure and nation building in India and beyond.” Glimpse of some of our successes One dream transformed a nation, one stone builds the foundation, across verticals in the following pages ONE FIRM will drive the growth of India’s infrastructure - IDFC.

ARCHITECTURE EMPLOYEE COMMUNICATION

aligned consistent platform centric organisation employee communication architecture experience

Delivering an enhanced value proposition We all work for One Firm - IDFC Communicate a common & single brand to stakeholders internally to all employees and focus on creating an emotional connect with IDFC

ONE FIRM 11 WIPRO

How IDFC verticals helped a JV raise Rs. 500 crore for a project to provide IT services for Delhi International Airport

IDFC was the sole lender of the project

THE CASE THE CHALLENGE Wipro bid and won a contract to develop an IT system for External finance requirement for the project (including the Terminal 3 of Indira Gandhi International Airport at New cost of hardware, software and implementation) was Delhi. A company called Wipro Airport IT Services Limited Rs. 500 crore. Terminal 3 will cater to all international and was formed as a joint venture between Wipro and Delhi non-low cost carrier domestic flights to and from Delhi. International Airport Pvt. Ltd., where Wipro holds Information technology is a key driver for critical airport 74 per cent stake. The JV then entered into a Master Services operations. Agreement (MSA) to provide airport IT infrastructure and services at Terminal 3.

IDFC CAPITAL IDFC PROJECT FINANCE

Stepped in to leverage its Assisted in transaction strong relationship with the structure and achievement Wipro Group. of financial closure in a short period.

IDFC Capital, with inputs from IDFC Project Finance and IDFC Legal then put together a unique financing structure that met with the expectations of Wipro.

12 I D F C A N N U A L R E P O R T 09 –10 ASHOKA

BUILDCON

Four IDFC verticals tied up with infrastructure company Ashoka Buildcon, to win and finance two highway projects.

THE CASE THE CHALLENGE Ashoka Buildcon Ltd. (ABL) tied up with IDFC to bid for two 1 Raising the equity in a market that had turned over- contiguous national highway projects on NH-6 in Chhattisgarh cautious. At this time it seemed like an uphill task to solicit and Maharashtra. The National Highways Authority of India proposals from equity investors to take equity stakes in the awarded both the projects to the ABL-IDFC consortium. The projects. combined cost of the projects was Rs. 1,115 crore. 2 Structuring and syndicating Rs. 785 crore of debt for the projects was a challenge.

IDFC PROJECT FINANCE I D F C C A P I TA L IDFC PROJECT EQUITY

IDFC Project Finance team Successfully syndicated India Infrastructure appraised the projects and 785 the debt for the projects 232 Fund, managed by structured the debt. IDFC has during the peak of the financial crisis. IDFC Project Equity, offered the also provided part of the debt most competitive terms to ABL and for the projects. committed to invest in both the Assisted ABL in soliciting projects. proposals from equity investors to acquire an equity stake in the projects.

IDFC PRIVATE EQUITY

Invested Rs. 100 crore As a result of this joint effort by IDFC, 100 in ABL and own 15.62% IDFC Capital and IDFC Project Equity, of the Company. ABL was able to commence work on two capital intensive projects right in the middle of global recession. Assisted in diverse areas including fund raising, HR matters and business development.

O N E F I R M 13

*ALL FIGURES IN RS CRORE UNLESS OTHERWISE STATED GUJARAT

PIPAVAV

IDFC, through its verticals has helped Gujarat Pipavav Port Ltd. to complete port infrastructure improvement, which are now comparable with competing ports.

THE CASE THE CHALLENGE Gujarat Pipavav Ports Ltd. (GPPL) operates a multipurpose port 1 Funding requirement In 2005, GPPL needed finance at Pipavav, Gujarat with a container and bulk capacity of to develop and expand the port. IDFC stepped in then and 6 lakh TEUs per annum and 5 million metric tonnes per annum. provided debt worth Rs. 445 crore towards this project. In IDFC has partnered the company since 2005 and has facilitated FY2010, GPPL, in consultation with IDFC, reassessed the the financing of the project both through debt and equity. business plan, the revised project cost estimates, and the funding requirement for the project.

IDFC I D F C C A P I TA L IDFC PRIVATE EQUITY

Underwrote and Coordinated the debt During 2005, played 1,000 successfully arranged syndication exercise with an instrumental role in debt IDFC Limited acting as the lead supporting APM Terminals to take bank amongst 8 banks and finance control of the project from the institutions (FIs) in the lender’s erstwhile promoter. The legal due-diligence, consortium including common loan documentation for the Is the largest financial consortium, was led by IDFC’s legal 200 investor in the company. team. It has invested Rs. 200 crore in the project.

The smooth coordination between IDFC verticals has made GPPL a success story.

14 I D F C A N N U A L R E P O R T 09 –10

*ALL FIGURES IN RS CRORE UNLESS OTHERWISE STATED GREEN INFRA

Green Infra's acquisition of a high quality portfolio of windfarms was possible only because of the seamless partnership between three verticals of IDFC.

THE CASE THE CHALLENGE Green Infra Ltd. (GIL) was set up in 2008 by funds managed One of the key challenge was financing the transaction in the by IDFC Private Equity with an equity commitment of Rs.360 midst of a deteriorating external environment. BPEIPL was crore and the objective of becoming India's leading renewable keen on closing the deal as soon as possible, the tight timeframe energy-focused independent power producer. In May 2009, GIL posed an added challenge. Another key consideration for successfully bid for a 99.4 MW portfolio of wind farms owned BPEIPL was that of a fully funded bid. GIL was a relatively new by BP Energy (India) Private Limited, (BPEIPL) edging out player in this sector and these considerations could have come strong competition from several larger companies for this high up in the way of swift closure. quality portfolio.

I D F C P R I VAT E E Q U I TY IDFC PROJECT FINANCE I D F C C A P I TA L

Partnered GIL and IDFC Private Equity to underwrite the entire Played a vital role in 345 non-recourse long term loan. syndicating the loan to Indian This amount included securitisation of carbon emission receipts Renewable Energy Development receivables of Rs. 25 crore and sub-debt of Rs.15 crore. Agency and Axis Bank.

Supported this landmark transaction by providing full debt financing

Acted swiftly to structure and fully underwrite the entire debt to enable GIL to comply with the bid requirement.

GIL's acquisition of these windfarms was possible in an accelerated timeframe only because of the seamless partnership between IDFC Private Equity, IDFC Project Finance and IDFC Capital. The transaction allowed GIL to establish its leadership in the renewable energy sector while assisting BP to achieve one of its objectives; transitioning the ownership of these windfarms to an environmentally sensitive partner.

O N E F I R M 15

*ALL FIGURES IN RS CRORE UNLESS OTHERWISE STATED PLUS

IDFC Projects and IDFC Capital partnered together to give PLUS Expressways Berhad a head start to acquire a stake in a highway project in Tamil Nadu.

THE CASE THE CHALLENGE IDFC Projects and PLUS Expressways Berhad (PLUS) have been Advise on acquisitions The company also needed help from an working together on road projects in India for over 15 months. Indian company to acquire highway projects and advise them The IP - PLUS JV has submitted RFQs for three projects and are on proposed acquisitions. exploring opportunities to bid jointly for future projects in India.

I D F C P R O J E CT S IDFC CAPITAL

Appraised PLUS about the INVESTMENT BANKING credentials of IDFC Capital TEAM was responsible for the and set up preliminary meetings. detailed evaluation of this highway IDFC Capital then helped PLUS in that consisted of assessing the acquiring a highway project and target’s business plan and financial successfully closed the deal. model, coordinating traffic, legal and accounting due diligence with various agencies, structuring the transaction to mitigate various risks and negotiating the price, transaction structure and key covenants in the transaction documents on behalf of PLUS with the existing shareholders of the project company.

IDFC’s two verticals were able to help make an acquisition and win orders in the infrastructure space.

16 I D F C A N N U A L R E P O R T 09 –10 QUIPPO

Quippo’s passive telecom infrastructure business got a boost thanks to IDFC’s timely financial interventions

THE CASE THE CHALLENGE As early as March 2007, IDFC saw the potential for substantial The initial growth capital funding from IDFC Private Equity growth in the passive telecom infrastructure business, went a long way in helping QTIL become a relevant player underpinned by strong subscriber additions in the world's in the passive telecom infrastructure space. However, fastest growing mobile telecom market. IDFC Private Equity the transformational acquisition of the passive telecom was an early investor in Quippo Telecom Infrastructure infrastructure business of Tata's and the large associated Limited (QTIL), one of India's leading independent tower financing requirement of Rs.2,400 crore was vital to securing operators. the company's future.

I D F C I D F C P R I VAT E E Q U I TY IDFC PROJECT FINANCE

IDFC not only assisted Quippo Equity to support the Lent to fund the initial in partnering with the Tata 128 company’s growth plans. 100 capex of Quippo. Group but also helped it to become India's largest independent passive telecom infrastructure provider Direct Equity stake Lent to support Quippo’s with the highest tenancy levels in 250 in WTTIL to form a 350 acquisition of equity the Indian market. common shareholder stake and subsequent de-merger of block with Quippo. tower assets into WTTIL.

Infused during the 500 Loan to support WTTIL’s 74 rights issues. SHORT TERM growth plans and to meet its high capex 650 requirement. LONG TERM

Invested as preference 250 equity in WTTIL to meet its long term funding plans.

TOTAL 452 1,850

O N E F I R M 17

*ALL FIGURES IN RS CRORE UNLESS OTHERWISE STATED awards & recognitions

IDFC's businesses are today reconginsed as the leading source of knowledge and RD in asia pacific asia money brokers financing expertise in building india's AWARDS 2009 infrastructure. More than anyone else, we 3 poll understand and appreciate the prospects AWARDS 2009 and challenges in infrastructure and are IDFC PROJECT FINANCE committed to implementing innovative As mandated lead arranger for Project IDFC SSKI solutions for a sustainable future. Finance Loans for the period Jan – Dec Poll of Polls Best Local Brokerage 2009 by Project Finance International

infrastructure the private equity infrastructure investor international investor AWARDS 2009 AWARDS 2009 AWARDS 2009

IDFC PRIVATE EQUITY IDFC PRIVATE EQUITY IDFC PRIVATE EQUITY Asian Infrastructure Fund Manager of Best Private Equity Firm in India Asian Infrastructure Deal of Year the Year

lipper fund   AWA R D S 2 0 1 0 I N D I A best performance best performance top amongst the 5 star 10% of the category funds IDFC ASSET MANAGEMENT COMPANY LIMITED IDFC GOVERNMENT IDFC Premier Equity Fund - Plan A, IDFC PREMIER EQUITY FUND SECURITIES -SHORT TERM Growth, Best Fund over 3 years Equity Open ended diversified equity- FUND India defensive (3 year ending Dec 2009) Open ended gilt, 1 year ending Dec 2009

FUND MANAGER business standard BUSINESSWORLD AWARDS 2010 KENNETH ANDRADE fund manager & IDFC PREMIER EQUITY - PLAN A business world Mid cap and small cap equity category smartest fund ■■ Based on 3 years CAGR returns , manager 25.85%, as on Dec 2009 ■■ Average AUM, Rs. 1,145 crore, as on Dec 2009

118 8 I D F C A N N U A L R E P O R T 09 –10 In the last 1 year, IDFC Mutual Fund has received a number of awards and recognitions for their schemes performance from different research and rating agencies

5 STAR FUNDS BY ICRA AWARDS 5 STAR RANKING Funds across debt and equity recognized as five The domestic research agency Value Research star funds by ICRA awards (Feb 2009) - IDFC has given 5 Star rankings to Premier Equity Fund Premier Equity Fund, IDFC Imperial Equity Fund, and Imperial Equity Fund in the quarter ending IDFC Dynamic Bond Fund, IDFC Super Saver June 2009. Income Fund

4 STAR RANKING “BEST PERFORMING FUND HOUSE” BY Government Securities Fund – PF Plan and THE ECONOMIC TIMES Dynamic Bond Fund has been ranked 4 Star. IDFC AMC rated as the “Best Performing Fund House” by the Economic Times (ET) Quarterly Mutual Fund Tracker for Q1 and Q2 of FY 09-10. HIGHEST RANKINGS OF CPR1 & CPR 2 Several IDFC schemes received highest rankings PLATINUM CATEGORY of CPR1 & CPR 2 by rating agency CRISIL IDFC Imperial Equity Fund and IDFC Dynamic (subsidiary of S&P). Bond Fund ranked in the “Platinum Category” which is the highest ranking given to schemes in Q1 and Q2 2009.

Scheme Ranking

Agencies Scheme Name Ranking / Rating IDFC Premier Equity Fund Platinum IDFC Imperial Equity Fund Silver ECONOMIC TIMES IDFC SSIF- MT Gold IDFC Dynamic Bond Gold IDFC Imperial Equity Fund  IDFC Premier Equity Fund  MORNING STAR IDFC Dynamic Bond Fund  IDFC Classic Equity  IDFC Super Saver Income Fund -ST  IDFC Cash Fund  IDFC Imperial Equity Fund  VALUE RESEARCH IDFC Premier Equity Fund  IDFC SSIF- MT  IDFC Premier Equity Fund  ICRA IDFC GSF - ST 

Economic Times Quarterly MF Tracker Ranking (Best Fund House Quarterly)

Quarter Fund House Rank March 09 1 June 09 1 September 09 2 December 09 2

MANAGEMENTAWARDS DISCUSSION & RECOGNITIONS & ANALYSIS 19 infrastructure review

After an extremely challenging year (FY 2008-09) for the global economy which took its toll on the Indian economy, FY 2009-10 has turned out to be a year of recovery for India. The momentum in the infrastructure sector has also picked up.

Order Inflow for Infrastructure 1 Companies FY 2009-10 INFRASTRUCTURE REVIEW Infrastructure Finance Companies (IFCs). To vs FY 2008-091 After an extremely challenging year qualify as an IFC, over 75% of its total assets

IN PERCENT (FY 2008-09) for the global economy which took should comprise infrastructure assets. IFCs its toll on the Indian economy, FY 2009-10 has would benefit from a lower risk weight on turned out to be a year of recovery for India. The their bank borrowings (from a flat 100% to as

25 momentum in the infrastructure sector has also low as 20% for AAA rated borrowers), higher picked up. A good indicator of this is the revival permissible bank borrowing (up to 20% of bank’s of growth in the order book of the leading listed net worth as against 15% for an NBFC), access infrastructure companies, including equipment to external commercial borrowings (upto 50% manufacturers (see Figure 1). of owned funds on an automatic basis) and 0 Alongside the resumption of growth in relaxation in their single party/group exposure infrastructure projects, there was a significant norms on both debt and equity. Altogether this rise in fund raising by infrastructure companies, should enable a highly rated IFC to raise more both equity and debt (see Figure 2). Fund raising funds, of longer tenor and lower cost, and lend for infrastructure through IPOs reached a new more to infrastructure companies. high, 20% higher than the previous record in Two key steps were taken to expand the 2007-08. The power sector accounted for about corporate debt market. First, the bonds were -28 90% of the funds raised via IPO during 2009- imparted more liquidity by allowing repoability 10. The overall subscription figures were high of corporate debt instruments with certain for most issues, reflecting strong demand. In minimum requirements. Second, greater addition, several companies relied on the faster transparency was imparted by making the and cheaper financing mechanism of Qualified reporting and settlement of transactions Institutional Placements (QIPs), raising a total of through an exchange mechanism mandatory. Rs. 7500 crore. On the other hand, private equity Further, to promote greater bank finance to investments in infrastructure have been much infrastructure, RBI announced various measures lower as valuations rose steeply. Commercial in its Annual Monetary Policy Statement in April bank lending to infrastructure rose robustly (see 2010. First, banks’ provisioning requirements

-73 Figure 2). for unsecured sub- standard exposure has

Q1 Q2 Q3 While infrastructure financing has grown been reduced from 20% to 15%. Second, non- substantially, there is little long-term financing SLR bonds issued by companies engaged in available for infrastructure. During the year, infrastructure activities, with minimum residual Source: Company data & IDFC Capital. various steps were taken towards enhancing maturity of 7 years, could be invested as “held the supply, lowering the cost and increasing the to maturity” and therefore not be subject to 1 Includes L&T, Gammon, Hindustan Construction tenor of funds for the infrastructure sector. mark-to-market requirements. This measure is Company, IVRCL, Nagarjuna Construction RBI introduced a special category of Non- aimed at incentivizing banks to invest in long- Company, Madhucon, Simplex Infra, Reliance Infra and BHEL Banking Finance Companies (NBFCs), called term bonds issued by infrastructure companies.

20 I D F C A N N U A L R E P O R T 09 –10 2 Equity & Debt Financing

RS CRORE

10 108757 09 65711 BANK LENDING*

10 24451 09 845 IPOS/FPOS

10 7499 09 QIPS

10 7508 09 18425 PRIVATE EQUITY

Source: Deal Tracker by Grant Thornton, VC Circle, IDFC Capital, India Infrastructure Research

* Variation YoY in the last week of February Note: Does not include debt financing from NBFCs, insurance companies & ECBs.

Further, RBI has facilitated lending to the provider (see Figure 3). During the course of the infrastructure sector by allowing annuities and year, there were new entrants into the sector toll collection rights in case of build operate- such as Uninor, Videocon and STel, taking the transfer (BOT) type projects as tangible security total number of operators to 15 (this excludes for the purpose of secured bank loans. Etisalat which is yet to begin operations). This The government also approved the takeout intensified competition in the sector and led financing norms for India Infrastructure Finance to a series of tariff cuts, largely in the pre- Company Limited (IIFCL) by allowing it to buy paid segment which comprises 95% of total a part of the banks’ loans. This step is aimed subscribers. This, in turn, negatively impacted at freeing up banks’ capital for financing new the operating margins and profitability of the projects and addressing their asset liability service providers. mismatch concern. IIFCL is expected to provide Cutthroat competition in the domestic takeout finance of about Rs. 25,000 crore in the market has led players to diversify into overseas next three years. markets for growth. Bharti Airtel commenced Finally, to channel long-term savings operations in Sri Lanka and also acquired a from retail investors to infrastructure, the 70 percent stake in Warid Telecom, the fourth Union Budget announced personal income largest mobile operator in terms of subscriber tax relief of up to Rs. 20,000 for investment base in Bangladesh. Bharti Airtel was also in in long-term infrastructure bonds issued by talks with MTN for a possible merger for the companies engaged in the infrastructure sector. second time, but the talks failed and instead These bonds would be notified by the Central is in the process of acquiring Zain Telecom’s Government. The Rs. 20,000 tax relief would be African unit (Zain Africa BV) for a total over and above the existing limit of Rs. 1 lakh on enterprise valuation of $ 10.7 billion. Reliance tax savings. Communications (RCOM) too was in talks with MTN, but the merger did not materialize. Going forward, competition will increase TELECOM after the introduction of 3G and mobile number The subscriber base continued to grow portability (MNP). The 3G bidding has been buoyantly, with close to 20 million wireless aggressive due to a limited number of spectrum subscribers being added in a month. As of end- slots. The auction prices do not seem to justify February 2010, the total number of subscribers the revenue generating potential especially was 564 million. Overall teledensity had reached since high revenue postpaid customers 48% on 31st December, 2009, propelled by constitute only 5% of total subscribers and the urban teledensity which shot up to 111%, number of internet subscribers in the country as inexpensive dual SIM handsets triggered is very small (around 15 million). Post 3G, subscribers opting for more than one service bidding for broadband wireless access will take

INFRASTRUCTURE REVIEW 21 place and is expected to be as aggressive. The funds (which are used to subsidize costs) quicker implementation of MNP would result in further in order to facilitate development. tariff reduction, particularly on the postpaid Teledensity 3 side as operators would target this high revenue generating segment. ENERGY IN PERCENT Given such a large number of operators in The power sector continued to be characterized India, ruthless tariff wars and thinning margins, by shortages, with the peak and energy deficit consolidation seems inevitable. However, there of power recorded at over 13% and 10%,

111 are some barriers. An existing operator cannot respectively. Capacity addition in 2009-10 was buy more than 10% stake in another unless 9585 MW, the highest ever. The private sector it is a complete buy out. Although a complete played a major role in this by adding 45% of buy out is permissible, in circles where both the capacity last year. Going ahead, the private the operators exist, the acquirer would have sector is expected to not only meet its target to surrender the spectrum that exceeds their capacity addition but exceed it. The mid-term 89 eligibility based on the subscriber linked criteria appraisal of the 11th Plan indicates that as as suggested by DoT, back to the government. against a target of 15000 MW, the private In addition, just after licenses were awarded sector will be adding close to 20000 MW. to new entrants, in July 2009 DoT set a lock- The GoI modified the mega power policy in period of 3 years (applicable to both new which makes available various fiscal benefits operators as well as existing operators). After to large power projects (for thermal projects Idea acquired Spice in 2008, no other existing above 1000 MW, except in J&K and North- operator has made an acquisition. Eastern States where it is above 700 MW). There has, however, been greater Some provisions of this policy were becoming consolidation and restructuring in the passive difficult to fulfill in view of the changes in the

48 infrastructure space. GTL Infrastructure sector in recent years. For example, many acquired Aircel’s tower business comprising private sector projects could not meet the 17,500 towers and, more recently, Quippo earlier mandatory condition of sale of power

37 acquired 2,535 towers from Tata Teleservices to more than one state for getting mega power Maharashtra (Limited), making it the largest status after distribution utilities (discoms) independent tower company in India with over were mandated to procure long term power 38,000 towers. In the previous financial year from private projects only through tariff-based (FY2008-09), consolidation was in the form competitive procurement (effective from 21 of companies merging part of their existing 2005). This condition has now been removed.

15 towers into a new entity in order to expand Other important changes to the policy include their coverage and reduce time to market, such the lowering of the threshold capacity for as Bharti, Vodafone and Idea merging their hydro power plants located in Sikkim and the RURAL URBAN OVERALL towers into Indus Towers. With an aim to unlock North-Eastern states from 500 MW to 350 shareholder value, some players have demerged MW. This will facilitate hydro based capacity Dec 09 Dec 09 Dec 09 Mar 09 Mar 09 Mar 09 Mar their tower business into another company addition in these states where hydro power which would be listed separately in future projects of 57085 MW have been allotted for Source: TRAI (RCOM demerged Reliance Infratel). implementation but are yet to be taken up for The rural sector has seen poor progress construction. on construction of towers with the exception To realize the full potential of the increase in of the Shared Mobile Infrastructure Scheme generation capacity two important barriers need (Phase-I). Out of the 7436 towers that were bid to be addressed. The first barrier is that of fuel out under the scheme, 6956 have been set up availability. A key reason for the energy deficit (as on 31st December, 2009). Phase-II of the was the lower generation of electricity from scheme which was planned in September, 2008 existing plants due to inadequate availability of for development of another 11,000 towers, has fuel, both gas and coal. The loss of generation not progressed. The disbursal of funds collected on this account is estimated at 20.35 billion under Universal Service Levy (USL) has been units (BU) for gas-based generation considering low. Out of Rs 26,164 crore collected during 90% Plant Load Factor (PLF) and 9.176 BU for FY2002-03 to FY 2008-09, only Rs 7,971 crore coal-based power plants. Of course, fuel can be has been disbursed. With telecom tariffs having imported and power projects are increasingly dropped so significantly, investing in rural importing coal to bridge the gap between their infrastructure has become unviable. Actions requirement and availability of domestic coal. need to be directed towards disbursing the USL But the cost of power will be at least 60% higher

22 I D F C A N N U A L R E P O R T 09 –10 as imported coal (even accounting for higher term, the issue of gas pricing also needs to be heat value) is more expensive. resolved at the earliest. At the gas price of US$ Coal production, either by public sector or 4.2 per Million British Thermal Unit (mmbtu) Commercial Losses without Subsidies for by private sector, has been a matter of concern. as approved by the Empowered Group of 4 Power Distribution Despite the large number of captive coal blocks Ministers (EGoM), gas based power generation Utilities allotted to the private sector over the past 10 is marginally cheaper compared to generation years, only a few coal blocks have commenced based on imported coal (at the current price of RS CRORE production. It is estimated that the captive about US$ 80 per ton). coal blocks allocated for power projects have The second and perhaps more important coal reserves of 27 billion tons, about 25% issue is the financial viability of the distribution

of the total proven coal reserves. To speed up business. Distribution reforms have gone on 68,000* production from captive coal blocks and attract the back burner in most states. The commercial only serious developers, the GoI has proposed losses of discoms have been rising steadily over to introduce a competitive bidding process the past 3-4 years (see Figure 4), and are a major for allocating such blocks in future. This is also threat to attracting private sector investment expected to minimize the cost of production and in generation. No cases of default in payment supply of coal. For this to happen, it is necessary by discoms for power purchase have come to that the criteria for bidding should be linked to light in recent years. But, given the massive the lowest cost of power generated from the inflow of power that would take place pursuant block and not on the highest bid value offered to generation capacity addition in the next few for the block. However, since sufficient data on years, it is questionable whether this situation 40,910

quantity and quality of coal are not available would continue. Therefore, immediate and 38,420* for the blocks to be auctioned, the maximum strong steps need to be taken to transform the proposed production or production sharing distribution business. 33,772 formula may be adopted for auctioning as a The GoI announced a solar mission that 29,331 second best approach. targets solar capacity at 20,000 MW by 2022 28,356

The GoI has also announced the creation of a (see Table A). The mission aims to develop and 24,045 regulator for the coal sector. With an increasing demonstrate a range of solar technologies 21,192 20,790 number of private players participating in across different scales and create a leadership 19,249 the coal mining business, the need for an position in manufacturing of solar power related independent regulator has long been felt components. Since solar power technology is not necessary for creating a level playing field in yet cost effective and is unlikely to find willing the sector. It will also facilitate resolution of buyers at this point of time, the mission creates issues like economic pricing of coal. However, a demand for solar power by fixing a share the functional effectiveness of the regulatory for solar power under the existing Renewable 01-02 02-03 03-04 04-05 05-06 06-07 07-08 08-09 09-10 10-11 authority will critically depend on what kind of Purchase Obligation (RPO) for discoms. This jurisdiction it is given. RPO starts with 0.25% of the total power Source: Power Finance Corporation, Planning In the case of natural gas, the shortage purchase in the first phase of the mission and Commission continued despite an increase of 40% in could go up to 3% by 2022. domestic gas production during the year While the mission subsidizes roof top and due primarily to the commencement of gas small solar power plants through the provision * ESTIMATED production from the D6 block at the Krishna of a generation based incentive (GBI), there is For 2010-11, figures have been taken from press Godavari (KG) basin, promoted by Reliance a cross-subsidy for the ‘utility-scale’ 1000 MW reports quoting Montek Singh Ahluwalia Industries Ltd (RIL). However, availability capacity addition planned in the first phase. This of gas suffers from the lack of clarity on the 1000 MW of solar capacity will be ‘bundled’ with long-term policy for gas allocation. Under equivalent power from the cheaper unallocated the current policy, fuel supply agreements quota of NTPC coal-based stations (power are for a maximum of 5 years. Over the longer not committed to any state and available for

A Targets for Solar Power Capacity Addition under the National Solar Mission Phases Target for Grid Solar Power including Roof Top Target for Off Grid Solar Applications Phase I (2010-13) 1000 – 2000 MW 200 MW Phase II (2013-17) 4000 MW (10,000 MW based on enhanced 1000 MW international finance & technology transfer) Phase III (2017-22) 20,000 MW 2000 MW Source: Jawaharlal Nehru National Solar Mission, GOI

INFRASTRUCTURE REVIEW 23 allocation through GoI’s discretion) and sold to Airport in Mumbai has been upgraded recently. discoms at rates fixed by the Central Electricity Construction work on Terminal 3 at the Indira Rising Share of Non- Regulatory Commission (CERC). NTPC Vidyut Gandhi International Airport in Delhi is nearing Major Ports in Traffic 5 Handling Vyapar Nigam (NVVN) has been appointed as completion and commercial operations are the nodal agency for purchasing this power from likely to begin in July 2010. In Chennai the IN PERCENT solar power developers (SPDs) and selling it to work is mainly on construction of bays, and in the discoms. While this creates a bankable single Kolkata besides the extension of the secondary

09-10 buyer for solar projects, it does not reduce the runway, several additional bays are being overall cost of power for discoms (since they constructed. On the other hand, progress on the were receiving the cheaper unallocated power modernization of 35 non-metro airports, which 32 anyway). Further, since the payment to be made is being undertaken by Airports Authority of to SPDs by NVVN hinges entirely on the payment India (AAI), has been slow. To date, nine of these 68 by discoms, investors may not be comfortable are complete. Work on city-side development lending money to these projects. planned for 24 airports, which was to be done on Other initiatives to promote RE included PPP basis, is yet to begin. fiscal incentives in the budget for FY 2010-11 A major issue has been the significant

08-09 and the creation of a National Clean Energy cost overruns. Due to a substantial increase Fund (NCEF) for funding research and innovative in construction costs, airports such as Delhi projects in clean energy technologies. The NCEF International Airport Ltd (DIAL), Mumbai 27 will be funded by a clean energy cess @ Rs. 50 International Airport Ltd (MIAL), Kolkata and per tonne on domestic and imported coal. Chennai have seen significant cost overruns (in 73 The above policy related initiatives have been excess of about 23% aggregated). DIAL and well supported by the regulatory framework. The MIAL were also hit by lower than expected non- CERC notified tariff regulations for electricity aeronautical revenues. To bridge this financing generated from RE sources. Based on these gap, AAI is raising additional debt, whereas the regulations, it issued a generic tariff for various private operators of DIAL and MIAL are raising MAJOR PORTS NON MAJOR PORTS RE sources for 2009-10 and 2010-11. It also funds through a combination of additional debt Source: Gujarat Maritime Board, Govt. of laid down a framework for trading in Renewable and levy of Airport Development Fee (ADF). Gujarat Energy Certificates (RECs). This mechanism The newly functioning regulatory authority, ‘paper purchase’ of RE would help discoms meet Airports Economic Regulatory Authority (AERA) their RPO without ‘physical purchase’ of RE, which has been set up to determine ADF and overcoming the problem of mismatched demand passenger service fee, tariffs for aeronautical and supply of RE in some states. services, and monitor and set performance standards, is reviewing the levy of ADF by DIAL. The ADF, which has been levied by DIAL since TRANSPORTATION February 2009, has been a contentious issue because the original concession agreement C I V I L AV I AT I O N did not include any ADF. AERA is also reviewing On the back of the strong revival in the Indian the levy of user development fee (UDF) at economy, the domestic air carriers have seen Trivandrum International Airport (TIA) and an improvement in demand reflected in higher increase in aeronautical charges at DIAL capacity utilization levels. Passenger load and MIAL. More broadly, AERA has brought factors (PLFs) for nine major domestic carriers1 out a consultation paper on the approach increased from 64% in January 2009 to 75% in for economic regulation of airports and air January 2010, which contributed to a significant navigation services. improvement in their operating income in the third quarter of FY 2009-10. As a result, some P O R T S of them have turned around on the bottom The growth in the sector was almost entirely led line after several quarters while others have by the private sector. The share of non-major reported lower losses. ports (which are almost all private) in the traffic Capacity expansion and upgradation at handled increased significantly from 27% in four of the top six airports, Mumbai, Delhi, FY2008-09 to 32% in FY2009-10 (see Figure Kolkata, Chennai (which account for over 5). The non-major ports are able to compete half the country’s passenger traffic) is being better for reasons such as deeper draught, 1 Includes Air India, Alliance, Indian Airlines, undertaken to relieve the heavy congestion and better connectivity to the hinterland and better Indigo, Jet Airways, Jetlite, Kingfisher, Paramount accommodate future traffic. The cross runway cargo handling equipment. The private sector is and Spicejet. Source: Directorate General of Civil Aviation system at the Chatrapati Shivaji International also playing a dominant role in containerization

24 I D F C A N N U A L R E P O R T 09 –10 (see Figure 6), which, in turn, has helped increase the ports sector. The draft Major Ports the container penetration at major ports from Regulatory Act, 2009 (MPRA), slated to Increasing Dominance about 45% in FY2002-03 to 52% in FY2009-10. replace Tariff Authority for Major Ports - of Private Sector in This increase indicates progress on potentially TAMP (which primarily regulates tariff for 6 Containerisation at containerisable cargo, but is still low compared major ports), is under public consultation. Major Ports to international levels of about 85%. MPRA, apart from tariff regulation, would All the seven projects awarded to the private also cover other regulatory issues such as IN PERCENT sector in the previous year at the major ports performance standards monitoring and dispute were for mechanization and construction of bulk settlement. Government is also exploring the 09-10 terminals/berths. These projects were awarded possibility of bringing non-major ports under 14 at ports of Kolkata, Vishakhapatnam, Paradip, a similar regulatory framework to inter alia New Mangalore and Mormugao. Most of the address issues such as the need for greater completed projects were also for bulk cargo. transparency in the award of non-major ports 86 These include two mechanisation projects of and standardization of concession agreements. bulk handling facilities at Paradip and Kolkata The common regulatory framework should also port each, and a 3.6 MTPA container terminal enable a level playing field between major and at Kandla. In the non-major ports, Karaikal non-major ports. and Jaigarh Port began operations during the 08-09 year having capacity of 5 MTPA and 10 MTPA, R O A D S respectively in the first phase. Both would handle The election of the new government, the 23 dry bulk cargo. In the coming financial year, appointment of the new minister and a slew Dhamra port is expected to begin commercial of initiatives undertaken to facilitate road operations and is expected to be the deepest development have given a fresh impetus to 77 port of India with a draught of 18 metres. the sector. With more than three-fourths of Two key problems plague the ports sector, the construction under the National Highway particularly the major ports. The first is Development Programme (NHDP) envisaged operational efficiency. Although some of the through PPP (BOT or annuity), the highway PRIVATE SECTOR PUBLIC SECTOR private container terminals at major ports are expansion plan critically hinges on private Source: IDFC Capital delivering world class execution, the overall sector investment. efficiency (including bulk) of major ports has The implementation of the Part 1 of deteriorated. Limited capacity of existing the B.K. Chaturvedi Committee (BKCC) equipment to handle cargo traffic coupled with Report recommendations removed several inadequate road and rail port connectivity has led impediments to the award of highway projects. to poor port evacuation. As a result, the turn round The Committee proposed several changes to time for the major ports has worsened from 3.86 the bidding documents [RFQ and Request for days during April-December 2008 to 4.54 days Proposal (RFP)] and the model concession in April-December 2009. The second problem is agreement (MCA) to incentivize private sector the inability to handle large size vessels due to participation. Key recommendations include inadequate draught. In order to overcome this relaxing the conflict of interest clause by problem, the ports should carry out dredging increasing the common shareholding limit among activities, particularly given the global trend of consortium partners, and allowing developers larger capacity ships that need deeper draught. an early exit after project completion. Further, Recent private sector projects at major ports the Committee recommends that instead of are generating better returns due to upfront terminating the contract if the actual traffic clarity on tariffs provided by the February 2008 exceeds the designated road capacity for three revision of tariff regulations by TAMP. Under consecutive years, the concessionaire should be the revised regulations, tariffs would be set on provided the opportunity to undertake capacity a cost-plus basis, allowing a return of 16% on augmentation. As a result, the pace of projects capital employed, with an annual revision linked offered and awarded has picked up (see to (60% of) the WPI increase. The revised tariffs Table B). To further facilitate quicker do not apply to the projects bid out prior to the development of highways, National Highways 2008 regulations. Projects that were bid out Authority of India (NHAI) has identified 10 prior to these changes continue to generate low mega projects (in the range of 400-700 km) returns as they were aggressively bid with no aggregating to development of about 4,923 km. tariff certainty. While the award of projects has quickened, The government is trying to develop a the implementation of projects needs to be comprehensive regulatory framework for expedited if the government’s target of building

INFRASTRUCTURE REVIEW 25 B Upsurge in Project Award Activity No. of Projects Length (km) Project Cost (Cr.) FY 2008-09: Projects Awarded 8 643 8,591 Pre- BKCC (April - Oct 2009): Projects awarded 10 944 9,606 Post-BKCC (Nov 2009-March 2010): Projects w/winning bids 34 2,532 25,616 Source: IDFC Analysis

7 Share of Railways and Highways in the Freight Traffic in India

100

80

HIGHWAYS 60

40

RAILWAYS 20

1950-51 1978-79 1986-87 2007-08

Source: Ministry of Railways

The election of the over 35,000 km of highways in a 5-year period, important steps are being taken to ease new government, or 20 km per day, is to be achieved. Delays in financing constraints. Two major problems the appointment of the acquiring land, obtaining environment and forest currently constrain highway sector finance. clearances and removing utilities are among First, bank loans to highway projects were new minister and a slew the major impediments to project execution. unsecured, and as a consequence subject to of initiatives undertaken Multiple steps are being taken to address higher provisioning and capital adequacy norms. to facilitate road these issues. High level NHAI officials are being Second, highway projects need substantial development have given stationed at regional offices and are empowered long-term financing as they are typically to resolve the implementation problems. More capital-intensive, long-gestation projects. a fresh impetus to the attention is paid to the regular monitoring of Currently, commercial banks find it difficult road sector. With more projects. States are also collaborating more to lend long-term due to apprehensions about than three-fourths of closely. A majority of the states have signed asset-liability mismatch. the construction under omnibus state support agreements promising To address the first problem, following support for highway development. Further, BKCC recommendations, RBI recently allowed the National Highway many states have appointed very senior annuities and toll collection rights as tangible Development Programme officials as nodal officers to coordinate project security for the purpose of secured bank loans. (NHDP) envisaged implementation with NHAI. To expedite the To address the second problem of lack of through PPP (BOT or land acquisition process 192 Special Land long-term financing, the government recently Acquisition Units (SLAUs) are being created, one approved norms for takeout financing for IIFCL. annuity), the highway for each highway project. Many other procedural Lending institutions will be able to sell part of the expansion plan critically changes have been made to streamline the land loan to IIFCL 3-4 years after the project starts hinges on private sector acquisition process. As a result of these efforts, commercial operations. Moreover, in order to investment. more than double the land (8,191 ha) has been bring in investors with a long-term horizon such acquired this year compared to the annual as pension funds and insurance companies, their average (4,000 ha) of the last three years. investment guidelines need to be relaxed while To gear up for the huge amount of financing being cognizant of their capacity to manage required (estimated at approximately an risk. Accordingly, Part 2 of the BKCC Report additional Rs. 1,50,000 crore for the NHDP), proposes relaxation in the investment guidelines

26 I D F C A N N U A L R E P O R T 09 –10 of insurance companies relating to minimum of 1021 km of new lines and doubling of lines over rating and dividend paying history norms for 700 km of the existing network. infrastructure developers. Of course, in the long While creation of capacity and segregation term, development of corporate bond market of freight and passenger corridors to raise and credit enhancement mechanisms would speeds is integral to regain the lost market strengthen the long-term financing pool. share for freight services, unless IR improves Roads have a large multiplier effect on the operating efficiency of the freight system, As we develop the economy. As we develop a significant it is unlikely to achieve desired results. Wagon a significant highway development program, we need to turn-round (WTR) remained as high as 5.2 days in highway development ensure greater connectivity and accrual of 2007-08. Some other problems also need to be benefits to the rural population. The Bharat addressed. For instance, IR is not able to provide program, we need Nirman Program, through upgradation and new time-tabled freight services, thereby not being to ensure greater construction of rural roads strives to achieve able to attract traffic that requires guaranteed connectivity and accrual just that. While the Program’s progress in the transit times or fixed schedule transit. It has of benefits to the rural four years between 2005 to 2009 had been not been able to provide door-to-door service below par (achieving only two-thirds of the new or transport small volumes. To overcome these population. The Bharat construction target and 87% of the upgradation problems, Vision 2020 proposes providing Nirman Program, target), this past financial year has seen marked special-purpose rolling-stock to suit customer through upgradation and improvement. The upgradation target has needs and using information technology to track new construction of rural been surpassed with more than 31,000 km of cargo (as also to reduce the cost of operations). upgrdation work completed by January 2010 It also emphasises establishing partnerships roads strives to achieve against the annual target of 16,000 km. Two- with major logistics providers and close linkages just that. thirds of the new connectivity annual target has with customers, developing multi-modal already been reached by January 2010. However, logistics parks that could provide aggregation of year-to-date progress on another benchmark, cargo and door-to-door service, and improving habitation connectivity, has been very poor, the carrying capacity of freight wagons. with less than 20% target achievement (2,395 The achievement of this vision rests on an habitations were connected by January 2010 enormous investment programme – Rs. 14 lakh against the target of 13,000). crore or about $300 billion over ten years. Given that the total outlay of IR in the 11th Five Year R A I LW AY S Plan is Rs. 2.5 lakh crore (about $55 billion), The Indian Railways (IR) released its ambitious this means that the outlay of IR in the next two ‘Vision 2020’ in December 2009 which recognizes Five Year Plans needs to almost treble. Of the the need for IR to reinvent itself to pursue growth total investment proposed, just over 60 per in market share as well as revenue. The share of cent of these funds are meant to be generated rail freight transport has reduced radically from internally. The remaining funds are proposed 89% in 1950-51 to 30% in 2007-08 (see Figure to come from the GoI through an Accelerated 7) and IR faces huge competition from roads. Low Rail Development Fund (ARDF). The Vision lays cost airlines are also providing a threat to certain considerable emphasis on PPP for attracting rail passenger segments. The route network of investments to create rail infrastructure. IR has expanded very slowly in the past, with only However, the intent of promoting PPP within 10,000 km of rail network being added over 62 railways as laid down in the Vision is not backed years between 1947 and 2009. by credible action. The Annual Plan for FY 2010- Thus, Vision 2020 aims to undertake a 11 envisages a small contribution from PPP (not complete overhaul of rail infrastructure by exceeding 2.5% of the total outlay). Further, creating 25,000 kms of new lines, having more there is no defined comprehensive policy for double/multiple lines, converting the entire PPP within railways. The existing policies have network (barring the hill and heritage railways) to mushroomed to cater to specific needs as and broad gauge, having quadruple lines on key traffic when they have arisen and many of these appear routes, and segregating passenger and freight skewed in favour of IR on procedural issues services into separate double-line corridors. This as well as financial gains. The lack of capacity will help raise the speed of freight trains from on PPP within IR and the absence of a defined the current 25 kmph to over 100 kmph and the institutional framework for PPP add to these speed of passenger trains from 110 or 130 kmph problems. at present to 160-200 kmph on the segregated The accounting reforms initiated by IR in 2004- routes. In keeping with these objectives, the Rail 05 to move to an accrual based accounting system Budget for FY 2010-11 has proposed the addition is almost complete. The recommendations are

INFRASTRUCTURE REVIEW 27 being scrutinized by the Government Accounting Half of the JNNURM cities are yet to adopt this Standards Advisory Board, the nodal agency for accounting system. As a consequence of the reforms in government accounting. poor performance on several key reforms, only 55% of the allocated central outlay for JNNURM U R B A N for 2009-10 has been utilized. India’s current urban population of Attracting investment into the urban sector The Vision aims approximately 365 million will increase by is one of the JNNURM objectives. However, to undertake a more than 60% in the next 20 years to reach less than one-fifth of the projects approved for complete overhaul of 590 million by the year 2030. This rapid JNNURM funding are PPP. These projects are growth is exerting severe pressure on the concentrated in two sectors, with solid waste rail infrastructure by already very low coverage and quality of basic management accounting for two-thirds of creating 25,000 kms of infrastructure and services. To make matters projects and Bus Rapid Transit System (BRTS) new lines, having more worse, organizationally, no single level of for another quarter. Sectors such as urban double/multiple lines, government takes ownership of cities. A roads, water and sewerage have very little PPP, myriad of agencies (central, state and local) if at all. In fact, last year saw a number of PPP converting the entire operate in the urban sphere. Further, states projects awarded in the water sector outside the network (barring the hill find it difficult to let go their control of cities JNNURM. These projects include Naya Raipur and heritage railways) and therefore, notwithstanding the devolution water supply system (storage, treatment and to broad gauge, having of powers and functions mandated under distribution), integrated bulk water supply 74th Constitutional Amendment Act of 1992, and water management in Bhiwandi (storage, quadruple lines on most of the Urban Local Bodies (ULBs) are treatment and distribution of bulk water), and key traffic routes, and granted very limited powers, functions and water supply project in Meerut (water treatment segregating passenger revenue sources. For example, only a handful of and distribution). Other water supply projects and freight services into states have transferred key sectors like water include iDeCK’s assistance to the Government supply and town planning to the ULBs. These of Madhya Pradesh in configuring pilot PPP separate double-line have contributed to ULBs lack of capacity to projects for water supply and loss reduction in corridors. conceptualize, plan, structure, finance and Bhopal, Indore and Gwalior. implement infrastructure projects. On the regulatory front, the Ministry of To address some of the ULBs finance- Urban Development (MoUD) is working on a and capacity-related concerns, the central Model Concession Agreement (MCA) for water government initiated the Jawaharlal Nehru supply. In solid waste management sector, National Urban Renewal Mission (JNNURM), iDeCK, is developing a framework for facilitating a 7-year reforms-linked funding program in PPP for the Government of Maharashtra. 2005. JNNURM provides project-specific In urban transportation, the Metro Railway financial assistance to the ULBs on condition (Amendment) Act 2009 was passed. The Act, that the states and ULBs undertake key reforms by expanding the geographical coverage of that would help them develop and maintain the Delhi Metro Railway (Operations and infrastructure in the long-term. Even after 5 years Maintenance) Act, 2002, should facilitate into the program, the progress has been far from extension of the Delhi Metro to the National satisfactory, especially on some of the critical Capital Region including Noida and Gurgaon. reforms aimed at enhancing ULB revenues. Additionally, it should facilitate development of On the financing side, the progress on two metro systems in other cities such as Bangalore, key ULB revenue sources, property tax and Mumbai and Chennai by granting these cities’ user fee has been below par. Only 16 JNNURM metro railway authorities the same sweeping cities out of 65 have achieved more than 85 % powers (for example, land acquisition and effective coverage of properties for property project development powers) as enjoyed by the tax. Progress on the property coverage is critical Delhi Metro Rail Corporation. if revenues from property taxes in India, which at The pace of urban infrastructure present about 0.25 percent of GDP, are to rise to development is extremely slow. Each passing international levels of 0.6 percent in developing year widens the infrastructure gap, which the countries and 2 percent in developed countries. fragmented governance system is ill equipped Further, only six cities are able to collect 100% to meet. The need of the hour is to politically of O&M costs incurred in providing water empower ULBs and enhance their organizational supply through user charges. Performance on capacity so that they are able to raise revenues, another key financial reform, accrual based and plan and implement infrastructure projects. double accounting system, too is lackluster.

28 I D F C A N N U A L R E P O R T 09 –10 directors' report

Profit Before Tax (PBT) increased by 36.50% from Rs. 964.92 crore in 2008-09 to Rs. 1,317.14 crore in 2009-10. Profit After Tax (PAT) increased by 37.63 % from Rs. 735.92 crore in 2008-09 to Rs.1,012.84 crore in 2009-10.

DIRECTORS’ REPORT TO THE SHAREHOLDERS Your Directors have pleasure in presenting the Thirteenth Annual Report together with the audited accounts for the year ended March 31, 2010.

Financial Results (Standalone)

FIGURES IN RS. CRORE Particulars FY 2009-10 FY 2008-09 Operating Income 3,569.97 3,313.25 Other Income 27.13 9.45 Total Income 3,597.11 3,322.70 Less: Administrative Expenses* 199.38 128.79 Less: Provision for assets and losses 130.36 149.45 Profit Before Interest and Taxes 3,267.37 3,044.46 Less: Interest and Other Charges 1,950.23 2,079.54 Profit Before Tax 1,317.14 964.92 Less: Provision for Tax ** 304.30 229.00 Profit After Tax 1,012.84 735.92

* Administrative expenses include staff expenses; travelling & conveyance; postage telephone & telex; establishment expenses; other expenses and depreciation. ** Provision for Tax is net of Deferred Tax.

Income from operations increased by 7.75% crore in 2008-09 to Rs.1,012.84 crore in from Rs. 3,313.25 crore in 2008-09 to 2009-10. Rs. 3,569.97 crore in 2009-10. Other income IDFC’s quality of assets continued to be increased by 187.09% from Rs. 9.45 crore in good with Net NPAs at Rs. 42.86 crore as on 2008-09 to Rs. 27.13 crore in 2009-10. IDFC's March 31, 2010. total income, increased by 8.26% from Rs. 3,322.70 crore in 2008-09 to Rs. 3,597.11 crore in 2009-10. DIVIDEND Profit Before Tax (PBT) increased by Your Directors are pleased to recommend a 36.50% from Rs. 964.92 crore in 2008-09 to dividend of Re. 1.50 per share (i.e. 15%) for the Rs. 1,317.14 crore in 2009-10. Profit After Tax year ended March 31, 2010. (PAT) increased by 37.63 % from Rs. 735.92

DIRECTORS’ REPORT 29 Gujarat Pipavav Port Coal vessel dicharge

OPERATIONS REVIEW though it is too early to predict a time frame for The first half of 2009 was characterized by a full-fledged revival of the Economy. contraction in most economies of the world Leveraging the opportunities provided by a as the effect of the global financial crisis of growing economy, the Company continues to see September 2008 began to impact various healthy growth in its lending activities. Gross sectors of the real economy. In the second half approvals increased by 195% from Rs.10,317 of 2009, some small signs of recovery began crore in 2008-09 to Rs.30,442 crore in 2009-10. to manifest. The major economies showed Gross disbursements, increased by 60% from signs of recovery and in particular, the stimulus Rs.8,085 crore in 2008-09 to Rs.12,962 crore in package launched in the USA boosted consumer 2009-10. confidence. Economic indicators also showed As on March 31, 2010, IDFC’s total exposure positive trends in some countries. to infrastructure projects was Rs.43,842 A large domestic market, resilient banking crore of which Energy was the highest (38.3%), system and a policy of gradual liberalization followed by Telecommunication & IT (24.4%) of capital account helped India in the early and Transportation (19.8%). The share of mitigation of the adverse impact of global Commercial and Industrial sector was 8.2%. financial crisis and recession. Though credit While the investment strategy for treasury growth declined reflecting slowdown of the operations continues to ensure adequate Economy in general and the industrial sector levels of liquidity to support core business in particular, investment remained relatively requirements, it has started focusing on buoyant. Increased plan expenditure, reduction optimizing levels of return and functioning as a in direct taxes, sector specific measures for profit centre investing in fixed income assets, textiles, housing, infrastructure, through while maintaining prudent safety norms. Income stimulus packages coupled with regulation and from treasury operations decreased by supervision of financial institutions and markets 41% from Rs. 164 crore in 2008-09 to clearly contributed to soften the impact of Rs. 96 crore in 2009-10. the global financial crisis on Indian Economy. The investment banking and institutional Revisiting the agenda of pending economic brokerage business under the IDFC Securities reforms has renewed the growth momentum, (earlier IDFC-SSKI) platform has improved

30 I D F C A N N U A L R E P O R T 09 –10 during the year and its income increased by 59 % a subsidiary of IDFC Finance Limited) has from Rs. 115 crore in 2008-09 to Rs.183 crore acquired 51% stake in Dheeru Powergen Private in 2009-10. The mutual fund business that was Limited. Dheeru Powergen Private Limited is acquired in 2008-09 has been rechristened in the process of setting up a 1050 MW (3 x IDFC-AMC. 350MW) coal based thermal power plant at The Policy Advisory Group continued to District Korba, State of Chhattisgarh, India. contribute to IDFC’s mandate of leading private IDFC Capital Limited has a wholly owned capital to infrastructure projects, by providing subsidiary called IDFC Capital (Singapore) Pte impetus to rationalisation of policy and Limited. During the year, IDFC Capital Limited regulatory frameworks. has further floated two wholly owned subsidiary IDFC Private equity continues to be companies namely, IDFC Fund of Funds Limited committed to the development of infrastructure and IDFC General Partners Limited. in the country and manages three funds – India A statement of particulars of IDFC’s Development Fund, IDFC Private Equity Fund II subsidiaries is annexed to this report. and IDFC Private Equity Fund III having a total Detailed analysis of the performance of IDFC capital commitment of Rs. 5,992 crore. and its businesses — financing and advisory, During the year, fee income from managing including initiatives in the area of Human third party assets increased substantially by Resources, Information Technology, and Risk 42% from Rs.203 crore in 2008-09 to Rs. 290 Management has been presented in the section crore in 2009-10. on Management Discussion and Analysis of this During the year, IDFC Group has received Annual Report. several awards and recognitions, the details of As approved by the Central Government vide which are given in this Annual Report. letter dated May 18, 2010 under Section 212(8) Detailed analysis of the performance of the of the Companies Act, 1956, copies of Balance Company and its businesses, including initiatives Sheet, Profit and Loss Account, Reports of the in the area of Information Technology, has Board of Directors and Auditors of each of the been presented in the section on Management subsidiary companies have not been attached Discussion and Analysis of this Annual Report. to the accounts of the Company for F.Y. 2009- 10. The Company will make available these documents/details upon request by any member SUBSIDIARY COMPANIES of the Company. These documents/details will IDFC has ten direct wholly owned subsidiary be available on the Company’s website www.idfc. companies- IDFC Private Equity Company com and will also be available for inspection by Limited, IDFC Trustee Company Limited, IDFC any member of the Company at its Registered Project Equity Company Limited, IDFC Finance and Corporate Offices and also at the Limited, IDFC Securities Limited (earlier known Registered Office of the concerned subsidiaries. as IDFC-SSKI Securities Limited), IDFC Capital In accordance with the requirements of Company Limited, IDFC PPP Trusteeship Accounting Standard 21 (Consolidated Company Limited, IDFC Projects Limited, IDFC Financial Statements), Accounting Standard Asset Management Company Limited and IDFC 23 (Accounting for Investment in Associates AMC Trustee Company Limited. In addition in Consolidated Financial Statements) and IDFC Securities Limited has two wholly owned Accounting Standard 27 (Financial Reporting subsidiary companies namely, IDFC Capital of Interests in Joint Ventures notified by the Limited (earlier known as IDFC-SSKI Limited) Companies (Accounting Standards) Rules, 2006, and IDFC - SSKI Stock Broking Limited. the Consolidated Accounts of IDFC and its During the year, IDFC Investment Advisors subsidiaries have been prepared and the same Limited (earlier a direct subsidiary of IDFC) has are annexed to this Report. become a subsidiary of IDFC Asset Management Company Limited. IDFC Asset Management Company Limited along with the Company has JOINT VENTURES further floated IDFC Pension Fund Management IDFC has three joint ventures – Infrastructure Limited, one of the Pension Fund Managers Development Corporation (Karnataka) Limited appointed by the Pension Fund Regulatory and (iDeCK) in the state of Karnataka, Uttaranchal Development Authority (PFRDA) to manage Infrastructure Development Company Limited retirement funds under the New Pension (UDeC) in the state of Uttaranchal; and Delhi Scheme (NPS) open to individuals in the private Integrated Multi Modal Transit System Limited sector. Further, IDFC Projects Limited (earlier (DIMTS) in Delhi. IDFC has also invested in two

DIRECTORS’ REPORT 31 associates - Feedback Ventures Private Limited the amount by which the quoted market price and Athena Power Projects Limited. iDeCK of the underlying share on the date prior to the and UDeC are engaged in advisory and project date of the grant exceeds the exercise price on development work in the area of infrastructure the option. at respective state levels. DIMTS has been set Disclosures as required by Clause 12 of the up as a special purpose vehicle to tackle the SEBI Employees Stock Option Scheme and problem of ineffective public transport delivery Employee Stock Purchase Scheme Guidelines, and provide expert services in the field of urban 1999 are annexed to this Report. transport. Feedback Ventures Private Limited provides consulting, transaction advisory, project development, planning & engineering, CORPORATE GOVERNANCE and project management services to companies, Separate detailed chapters on Corporate governments, financial institutions, and Governance, Additional Shareholder developmental agencies in India and overseas. Information and Management Discussion and Athena Power Projects Limited is a consortium Analysis are attached herewith and form part of between Power Trading Corporation and IDFC to this Report. set up a 1,200MW power plant in Visakhapatnam in Andhra Pradesh. PUBLIC DEPOSITS During F.Y. 2009-10, your Company has not PARTICULARS OF EMPLOYEES accepted any deposits from the public within the IDFC had 192 employees as on March 31, 2010. meaning of the provisions of the Non-Banking Particulars of employees as required to be Financial Companies (Reserve Bank) Directions, furnished pursuant to Section 217(2A) of the 1998. Companies Act, 1956, read with the rules there under, form part of this Report. However, as per the provision of Section 219(1)(b)(iv) of the FOREIGN EXCHANGE Companies Act, 1956, the reports and accounts The particulars regarding foreign exchange are being sent to all the shareholders of the earnings and expenditure are furnished at Item Company excluding the statement of particulars No. 14 & 15 in the Notes to the Accounts. Since of employees. Any shareholder interested in the Company does not own any manufacturing obtaining a copy may write to the Company facility, the other particulars in the Companies Secretary. (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1998 are not applicable. EMPLOYEES STOCK OPTION SCHEME (ESOS) Pursuant to the resolution passed by the LISTING OF SHARES members at the Annual General Meeting held on The Company’s shares are listed on National August 2, 2006, IDFC has introduced Employee Stock Exchange of India Limited (NSE) and Stock Option Scheme 2007 (referred to as Bombay Stock Exchange Limited (BSE). “the Scheme”) to enable the employees of IDFC and its subsidiaries to participate in the future growth and financial success of the Company. DIRECTORS Out of the 21,766,956 options outstanding Ministry of Finance, Government of India at the beginning of the year, 485,356 options nominated Mr. G. C. Chaturvedi, Additional lapsed on account of resignations and 5,336,332 Secretary, Department of Financial Services, options were exercised during the year. as Director on the Board of IDFC in place of Additionally, 603,000 options were granted to Mr. Arun Ramanathan, Ex-Finance Secretary. eligible employees under the Scheme during the Accordingly, Mr. Arun Ramanathan ceased to year. Accordingly 16,548,268 options remain be a Director with effect from July 20, 2009. outstanding as of March 31, 2010. The Board placed on record its appreciation of All options vest in a graded manner and those the invaluable guidance provided by Mr. Arun are to be exercised within a specific period. The Ramanathan to the Company. Company has used the intrinsic value method The Board, at its meeting held on July 20, to account for the compensation cost of stock 2009, appointed Shri G. C. Chaturvedi, as to employees of the Company. Intrinsic value is Director with effect from July 21, 2009 and he

32 I D F C A N N U A L R E P O R T 09 –10 holds office up to the date of the ensuing Annual the state of affairs of the Company at the end General Meeting (AGM). of the financial year and of the profits of the The Board, at its meeting held on July 20, Company for the year; 2009, appointed Mr. Donald Peck as Additional ■■ they have taken proper and sufficient care Director with effect from July 21, 2009 and for the maintenance of adequate accounting he holds office up to the date of the ensuing records in accordance with the provisions of AGM. the Companies Act, 1956, for safeguarding the In accordance with the Articles of assets of the Company and for preventing and Association of the Company and provisions of detecting fraud and other irregularities; and the Companies Act, 1956, Mr. Gautam Kaji, ■■ they have prepared the annual accounts on a Mr. Dimitris Tsitsiragos and Mr. Abdul Rahim Abu going concern basis. Bakar are retiring by rotation and being eligible, offer themselves for re-appointment at the AGM. ACKNOWLEDGEMENTS The Board of Directors recommends IDFC has developed close relationships with appointment/re-appointment of all the above the Ministry of Finance (MoF), Banking Division Directors at the ensuing general meeting. (MoF), Ministry of Surface Transport, National Highways Authority of India, Ministry of Power, Department of Telecommunications, INTERNAL CONTROL SYSTEMS Ministry of Petroleum and other Ministries The Company has in place adequate systems of the Government of India involved with of Internal Control to ensure compliance with infrastructure development; Reserve Bank of policies and procedures. Internal Audits of India, Securities & Exchange Board of India and all the units of the Company are regularly regulatory bodies, TRAI, the Central Electricity carried out to review the internal control Regulatory Commission and State Electricity systems. The Internal Audit Reports along Regulatory Commissions; the Planning with implementation and recommendations Commission; IIT (Kanpur); IIM (Ahmedabad); the contained therein are constantly reviewed by State Governments and all IDFC’s shareholders. the Audit Committee of the Board. The Board of Directors wishes to gratefully acknowledge the assistance and guidance received from all of them. IDFC could make AUDITORS the progress it has in these years due to the Messrs Deloitte Haskins and Sells, Chartered dedication and creativity of its staff at all levels. Accountants, will retire as the statutory The Board of Directors wishes to place on record auditors of the Company at the ensuing AGM. their warm appreciation for these efforts. The Board at its meeting held on April 27, 2010 has proposed their re-appointment as Auditors to audit the accounts of the Company for the FOR AND ON BEHALF OF THE BOARD financial year ending March 31, 2011. Messrs Deloitte Haskins and Sells, the retiring auditors, have confirmed that their DEEPAK S. PAREKH, re-appointment, if made, would be in conformity Chairman with the provisions of Sections 224 and 226 of the Companies Act, 1956, as also indicated their Mumbai, May 21, 2010 willingness to be re-appointed.

DIRECTORS’ RESPONSIBILITY STATEMENT The Directors confirm that ■■ in the preparation of the annual accounts, the applicable accounting standards have been followed; ■■ they have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent, so as to give a true and fair view of

DIRECTORS’ REPORT 33 DISCLOSURE IN THE DIRECTORS’ REPORT AS PER SEBI GUIDELINES: PARTICULARS 2009 - 2010 1 Options outstanding as at the beginning of the year 21,766,956 2 Options granted during the year 603,000 3 Pricing Formula Options may be granted at a price not less than the face value per share. Options have been granted in the range of strike price of Rs.57.60 to 159.60 4 Options Vested 15,000,815 5 Options Exercised during the year 5,336,332 6 Total no. of shares arising as result of exercise of Options 5,336,332 7 Options lapsed * 485,356 8 Variation in terms of Options None 9 Money realised by exerise of Options (Rs.) 205,415,768 10 Total number of options in force 16,548,268 * Lapsed Options includes options cancelled/lapsed 11 Diluted Earnings Per Share pursuant to issue of shares on exercise of option calculated in 7.74 accordance with AS 20 ‘Earnings Per Share’ (Rs.)

12 PRO FORMA ADJUSTED NET INCOME AND EARNINGS PER SHARE

PARTICULARS RUPEES Net Income As Reported 10,128,373,718 Add: Intrinsic Value Compensation Cost 53,382,037 Less: Fair Value Compensation Cost (381,618,467) Adjusted Pro Forma Net Income 9,800,137,288 Earning Per Share: Basic As Reported (Rs.) 7.82 Adjusted Pro Forma (Rs.) 7.56 Earning Per Share: Diluted As Reported (Rs.) 7.74 Adjusted Pro Forma (Rs.) 7.49

13 Weighted average exercise price of Options granted during the year whose (a) Exercise price equals market price 101.09 (b) Exercise price is greater than market price NA (c) Exercise price is less than market price NA

14 Weighted average fair value of Options granted during the year whose (a) Exercise price equals market price 48.69 (b) Exercise price is greater than market price NA (c) Exercise price is less than market price NA

15 Description of method and significant assumptions used to estimate the fair value of options The fair value of the options granted has been estimated using the Black-Scholes option pricing Model. Each tranche of vesting have been considered as a separate grant for the purpose of valuation. The assumptions used in the estimation of the same has been detailed below:

3 4 I D F C A N N U A L R E P O R T 09 –10 VARIABLES WEIGHTED AVERAGE VALUES FOR ALL GRANTS MADE DURING THE YEAR Stock Price (Rs.) 103.36 Volatility 66.30% Riskfree Rate 6.16% Exercise Price (Rs.) 101.09 Time To Maturity (Yrs.) 3.10 Dividend yield 1.05% Weighted Average Value (Rs.) 48.69

Stock Price: Closing price on NSE as on the date of grant has been considered for valuing the grants. Volatility: The historical volatility from the date of listing till the date of grant has been considered to calculate the fair value. Risk-free rate of return: The risk-free interest rate being considered for the calculation is the interest rate applicable for a maturity equal to the expected life of the options based on the zero-coupon yield curve for Government Securities. Exercise Price: Price of each specific grant have been considered. Time to Maturity: Time to Maturity / Expected Life of options is the period for which the Company expects the options to be live. The minimum life of a stock option is the minimum period before which the options cannot be exercised and the maximum life is the period after which the options cannot be exercised. Expected divided yield: Expected dividend yield has been calculated as an average of dividend yields for three financial years preceding the date of the grant.

DIRECTORS’ REPORT 3 5 management discussion & analysis

Since its inception in 1997, Infrastructure Development Finance Company Limited (‘IDFC’ or ‘the Company’) has been a leading catalyst for private sector infrastructure development in India. IDFC focuses on developing and leveraging its knowledge base in the infrastructure space to devise and provide appropriate financing solutions to its diverse customers.

Asset Class Essentially, IDFC’s business model is built on the sustained growth in the highly competitive A Performance strong foundation of its domain knowledge and financial intermediation space. intellectual capital in the field of infrastructure In this respect, 2009-10 was an active year IN PERCENT development. The Company utilises its deep for IDFC. First, it had to work on re-calibrating understanding of risks and opportunities its tactical business positioning given the associated with different projects across the changes in the macroeconomic environment 56 various stages of their project life-cycle. Based after the global financial crisis of 2008-09.

51 on this knowledge, IDFC devises appropriate Second, it initiated a major internal programme products and financing structures that are to integrate various different businesses within 44 critical to successful infrastructure financing. the IDFC group to create a ‘One Company’ 34 In doing so, IDFC constantly strives to identify system and culture across all its entities. and deliver value propositions for all its In essence, having created the base for the

23 stakeholders, while mobilising domestic as ‘one-stop shop for infrastructure financing’, well as global capital and channelling it for the the Company has focused on integrating its development of infrastructure in India. different business activities to embark on the Over the years, IDFC has steadily broadened next stage of growth.

US TREASURIES its business activities to cover a wide spectrum

PRE-LEHMAN TO TROUGH of services in the financial intermediation space. 6 0 COMMODITIES MATURE MARKET EMERGINGEQUITY MARKETUS HIGHEQUITY YIELD EMERGING MARKET BONDS With the basic focus on infrastructure, it has THE EXTERNAL ENVIRONMENT -1 expanded from the primary business activity AND IDFC of pure project financing and government Global financial markets have recovered advisory to asset management (both private and strongly in 2009 since their troughs in the public), loan syndication, corporate advisory, aftermath of the collapse of Lehman Brothers investment banking, institutional brokerage and in middle of 2008. This recovery was spurred project development. by improving economic fundamentals and

TROUGH TO DEC 09 This expansion has been achieved through a sustained policy support. Risk appetite has

-29 mix of organic growth and strategic acquisitions. returned, equity markets have improved, and The Company’s consequential presence in capital markets have re-opened. As a result, -34 different, yet inter-linked, financial services prices across a wide range of assets have

-39 has contributed significantly in positioning rebounded sharply off their historic lows,

-42 IDFC as a ‘complete solutions provider’ in the as the worst fears of investors of a collapse -44 infrastructure finance space in India. in economic and financial activity have not While being driven by the power of knowledge materialised (see Chart A). Consequently, Source: IMF and innovation, the Company realises the systemic risks have continued to subside in the importance of excellence in execution to achieve global financial system.

36 I D F C A N N U A L R E P O R T 09 –10 Despite substantive overall improvement, presented in Chart B, where infrastructure the repair of the financial system is far from growth, as measured by the core infrastructure GDP and complete, and financial stability remains index, reduced to 3% in 2008-09. Infrastructure fragile. There are still pressing challenges. The The sluggishness continued in the beginning B Growth first major challenge is to restore the health of 2009-10 especially leading up to the general of the global banking system, especially credit election. With the election throwing up a stable IN PERCENT provisioning. To do so, it is necessary that the Government, there was renewed confidence de-leveraging processes under way in the global amongst investors in India. Thereafter, we have 9.7 banking systems remain orderly and do not witnessed a steady pick-up in economic and require such large adjustments as to undermine investing activity, especially since the middle 9.0 9.0 the recovery. The process of absorbing the of the second quarter. The estimate from the credit losses is still under way, supported by Central Statistical Organisation (CSO) suggests 8.3 ongoing efforts at raising capital. that GDP growth for 2009-10 will be 7.2%. It At the same time, new risks are emerging as may even touch 7.5%. Whatever the number, it is a result of the extraordinary support provided clear that India has recovered, and is poised to by the government interventions to rescue be back on its 8% plus annual growth trajectory. 7.2

economies. Indeed, unprecedented policy In line with improved economic activity and 6.7 support has come at the cost of a significant confidence in the Indian economy, infrastructure increase of risk to sovereign balance sheets and growth has also improved from 3% in 2008- 6.1 a consequent increase in sovereign debt burdens 09 to 5.4% in 2009-10 (April 2009 to January 5.8 that raise risks for financial stability in the 2010). 5.4 future. Greece is a case in point. Levels of deficit Immediately after the elections, the financing and public debt in the United Kingdom, ministers who assumed charge took some Spain, Italy and Portugal are high, and potentially time in assessing the situation in their various prone to downside risks. ministries. Subsequently, the Government of While bank flows to emerging markets are India has started actively pushing large scale yet to recover, the rebound in portfolio inflows infrastructure development in key sectors. As a has supported a rally in emerging market assets, result, Q4 2009-10 witnessed a quantum jump in 3.0 particularly equities, and to a lesser extent real activity in the infrastructure sector. estate. Concerns have been raised that these Given this macroeconomic backdrop, inflows can lead to asset price bubbles and put IDFC adopted a well-calibrated business pressure on exchange rates. strategy, which evolved during the course There is no doubt that IDFC is well positioned of the year. In the initial part of the year, the GDP to benefit from the renewed risk appetite in Company’s plan was fairly cautious as it gauged INFRASTRUCTURE INDEX the global financial market and the world’s the developments in business environment 05-06 06-07 07-08 08-09 09-10 confidence in emerging countries like India. carefully. The focus was on: Equally, continuing uncertainties in the system Source: CSO, Finance Ministry, meant that the types of global capital available ■■ Conserving capital and maintaining healthy Govt. of India in 2009-10 in terms of investment tenure and capital adequacy norms costs have not been wholly in line with IDFC’s ■■ Focusing on generating more profits out of its business requirements. As a result, during existing businesses 2009-10, IDFC concentrated largely on ■■ Preserving asset quality mobilising and sourcing capital from India. ■■ Aggressively contain costs As far as the real economy was concerned in 2009-10, India displayed resilience and strength Essentially, it meant that in the first part to withstand the global turmoil, but after a fairly of 2009-10, IDFC’s primary objective was to serious scare in 2008-09. squeeze out greater profits while carefully After three continuous years of over calibrating balance sheet growth. It performed 9% growth, shrinking global demand and creditably during this phase. In the first nine associated fall in business confidence had months of 2009-10, the consolidated balance reduced India’s annual GDP growth rate to 6.7% sheet grew by 13%, while Profit After Tax (PAT) in 2008-09. More importantly, the prevailing increased by 42%. economic conditions resulted in a major dip As the year progressed, while the Company in investor confidence. Consequently, private maintained these strategic goals, the market sector investment in infrastructure reduced dynamics changed and there were far greater significantly. This is evident from the data opportunities for infrastructure finance.

MANAGEMENT DISCUSSION & ANALYSIS 37 Although IDFC maintained an eye of caution Companies (NBFCs) was 120%. During the and capital cushions in its balance sheet, the course of the year, Reserve Bank of India (RBI) Highlights of latter part of the year saw the Company being reduced this to 100%, releasing more bank Consolidated 1 Performance much more aggressive in mobilising capital and funds for NBFC financing. Thereafter, RBI linked pushing for growth. Today, IDFC believes that it the risk weights of banks’ exposure to NBFCs NET ASSET-BOOK 1 has built a strong foundation and, if the present to the credit rating assigned to the NBFC by trends in the infrastructure sector were to external credit assessment institutions. This has % 27,445 continue, it is poised for rapid growth. served well for NBFCs like IDFC, which has the 21 UP RS CRORE very best credit ratings. Thereafter, in the last quarter of 2009-10, GROSS LOAN BOOK IDFC'S PERFORMANCE HIGHLIGHTS RBI issued a notification introducing a new The Company’s business performance is category of NBFC – namely, Infrastructure % 25,539 given in Box 1. Finance Companies (IFCs). This is in addition 22 UP RS CRORE There has been a significant increase in to the existing categories of NBFCs, i.e. Asset operating income both from direct lending Finance Companies (AFCs), Loan Companies OPERATING INCOME activities and from the Company’s other (LCs) and Investment Companies (ICs). businesses. The over 21% growth in net interest According to RBI, to be recognised as an IFC, % 2,107 income has been a result of growth in the loan NBFC should deploy a minimum of 75% of total 35 UP RS CRORE book as well as better spreads. With the return assets in infrastructure. In addition, such NBFC of confidence in the Indian stock markets and must have net owned funds of at least Rs.300 NET INTEREST INCOME renewed corporate activity in fund raising and crore (Rs.3 billion), and a minimum credit rating Mergers and Acquisitions (M&A), there has been ‘A’ or equivalent from CRISIL, FITCH, CARE, ICRA % 1,117 a major revival in non-interest income, which or comparable rating by any other accrediting 21 UP RS CRORE increased by 55% in 2009-10. rating agencies. While focusing on growth, IDFC maintained IDFC is well positioned to satisfy all these NON-INTEREST INCOME its focus on the quality of assets. As of criteria, and is ideally suited to become an IFC. The March 31, 2010, IDFC had only 0.17% net re-classification as an IFC has several benefits. % 950 non-performing assets (NPA). It had a capital 55 UP RS CRORE adequacy ratio of 20.51% as of March 31, 2010, ■■ The exposure of a bank to IFCs has been of which 17.36% is Tier I capital. enhanced to 20% of its capital funds. PROFIT BEFORE TAX As reported in last year’s annual report, given ■■ IFCs need to maintain a CAR of 15%, of which liquidity concerns, a particular rating agency at least 10% should comprise Tier I capital. IDFC % 1,429 had taken a harsh stance regarding the capital comfortably meets this requirement today; and 38 UP RS CRORE cushion required to sustain the Company’s will do so in the future. business. Subsequently, there was a ratings ■■ IFCs will be allowed to do more business PROFIT AFTER TAX 2 downgrade. with projects and business groups. Exposure of IDFC and its Board of Directors, however, NBFCs to a single project and a single business % 1,062 had enough confidence in the adequacy of its group are limited to 20% and 35% respectively 42 UP RS CRORE internal accruals to drive growth, and did not of their net owned funds. However, in the case believe in the need to raise capital in an unsure of IFCs, exposure to a single project and a single FULLY DILUTED EPS market to meet the rating agency’s demand for business group have been enhanced to 25% and an exceptionally high capital requirement. The 40% respectively of their net owned funds. % 8.12 Company’s strategy has borne fruit. Growth 40 UP was not hampered in 2009-10 and there was Therefore, the positioning of IDFC as an IFC adequate capital on the balance sheet. This will be a significant development in its effort to fact was further strengthened by ICRA, and generate significant balance sheet growth from FITCH which, in August 2009, reaffirmed the 2010-11. highest credit quality ratings to various debt instruments of the Company. THE BUSINESS PLATFORMS While fundamentally focusing on the business REGULATORY DEVELOPMENTS of infrastructure financing, IDFC’s business During 2009-10, there were some regulatory structure and organisation has grown and developments which positively influenced developed over the years. Today, the businesses 1 Comprising loan and equity participation, net of provisioning and diminution in value of IDFC’s business. can be classified under four broad platforms investments. At the beginning of the year, the risk weight based on the fundamental nature of the 2 Profit after tax after minority interest, including for bank’s exposure to Non-Banking Financial underlying activities. These are: profits from associate companies.

38 I D F C A N N U A L R E P O R T 09 –10 1 Corporate Finance and Investment Bank returns by taking calls in the fixed income This includes the own balance sheet business trading space. of project finance, principal investments and ■■ Investment Banking and Institutional treasury. It also includes the investment banking Brokerage These businesses were earlier business of IDFC Capital and the institutional under the IDFC-SSKI platform. The investment brokerage business of IDFC Securities. banking business has been restructured under IDFC Capital, while the institutional brokerage ■■ Project Finance This is IDFC’s core business business is now undertaken by IDFC Securities. of lending to infrastructure projects. It is With the investment banking business focusing capital intensive and focuses on managing the on advisory fees and the institutional brokerage loan book. While this creates the Company’s business generating transaction based base income stream, it also provides IDFC with brokerage fees, the returns are generally high the bridge to clients to build larger and wider but volatile, given prevailing conditions in the customer engagement. capital market ■■ Principal Investments and Treasury Principal investments comprise two distinct kinds of 2 Public Markets Asset Management This activities. First, there are strategic investments primarily comprises IDFC’s mutual funds that are made by the Company to strengthen business, which is operated through the or develop any of its business platforms. IDFC Asset Management Company Limited Historically, this includes investments for the (IDFC AMC). This business was acquired from acquisitions like IDFC-SSKI (now renamed IDFC Standard Chartered Bank. Here, the Company Securities) and IDFC-AMC. These are long term manages different mutual fund products for in nature and are not meant for direct returns. institutional and retail investors. Income is Second, there are the commercial investments, generated through asset management fees which typically supplement the lending business and the focus is on growing the assets under by infusing equity into projects. These could management by offering suitable products and Contributions include investment in the Company's own channelling private and corporate savings into of almost all private equity and project equity funds as well the debt and equity markets. businesses, as a % of as selected direct investments in projects or companies. These are meant to create 3 Alternative Asset Management This average total assets, value appreciation over a period of time with includes private asset management and pure increased significantly the Company generating actual returns. The project management. These are not capital during FY 2009-10. treasury function is primarily the back-bone intensive and returns are typically in the form for project financing. It focuses on liquidity of fund management fees – which have a fixed management to provide sufficient funds at element and may be supplemented by a ‘carry’. optimal costs. In addition, it also generates

1 Return on Average Total Assets (RoA) tree % of Average Total Assets 2009-10 2008-09 Infrastructure 3.3% 2.6% Treasury 0.3% 0.5% Net Interest Income 3.6% 3.1% Principal Investments 1.1% 0.6% Asset Management 0.9% 0.7% Investment Banking 0.6% 0.4% Infrastructure loan related fees 0.5% 0.4% Non-interest Income 3.0% 2.1% Miscellaneous Income 0.1% 0.1% Operating Income 6.7% 5.3% Operating Expenses 1.8% 1.2% Provisions 0.4% 0.5% Profit Before Tax 4.6% 3.5% Provision for tax, Profit in Associate 1.2% 0.9% Co., Minority Interest etc. Profit After Tax 3.4% 2.6%

MANAGEMENT DISCUSSION & ANALYSIS 39 ■■ Private Asset Management It includes the business were responsible for this enhanced large private equity and project equity funds that contribution. The Net Interest Income from Gross Approvals & Disbursements 09-10 the Company has mobilised in partnership with treasury declined from 0.5% to 0.3% on account C (Rs. crore) other financial institutions. It also includes a fund of the challenging interest rate environment of funds business that operates out of Singapore. that we were in. RS. CRORE ■■ Project Management IDFC has extended Total Net Interest Income increased from its expertise in portfolio management outside 3.1% in 2008-09 to 3.6% in 2009-10. the pure financial domain by starting the Non-Interest Income capturing contributions of IDFC Projects Company in 2008-09. Here, the our fee based businesses and principal investing 13,892 Company is focusing on leveraging its core increased from 2.1% to 3% across the two strength of understanding project risk-return periods. Respective contributions from principal profiles, manage large and complex projects, investing, asset management, investment build partnerships, enhance in-house skills, and banking & institutional broking and loan related develop credibility and hand-hold partners from &other fees increased from 0.6%, 0.7%, 0.4% end to end. and 0.4% in 2008-09 to 1.1%, 0.9%, 0.6% and 0.5% respectively in 2009-10. Operating income 4 Advocacy and Nation Building While increased from 5.3% to 6.7%. The mix of Net focusing on generating returns, IDFC provides Interest Income to Non-Interest Income was leadership in developing cutting-edge about 55:45 reflecting increased momentum in concepts and frameworks in the infrastructure the lending business. It also captures the true space in India. Through the IDFC Foundation, diversification of our business model and how the Company plays a leading role in policy businesses requiring varying intensity of capital formulation and advocacy, institutional feed into the overall operating income. 6,648 capacity building to structure public-private Operating expenses increased from 1.2% in partnerships, providing government transaction 2008-09 to 1.8% in 2009-10 largely accounted

5,542 advisory services and promotion of inclusive for by the increased traction in the market facing

4,999 infrastructure through corporate social businesses; distribution, marketing, branding

4,361 responsibility initiatives. These activities and product spend in our mutual fund business; enhance IDFC’s knowledge base, reinforce it as a and the changing compensation algorithm for

3,365 credible player in the infrastructure sector and the consolidated platform as a whole. Provisions 3,055 fulfill the Company’s wider social goals. were at 0.5% and 0.4% across the two periods. These business platforms are well supported The Profit Before Tax increased from 3.5% by a shared services platform that includes in 2008-09 to 4.6% in 2009-10. Taxes etc., GROSS APPROVALSDISBURSEMENTS 1,542 Information Technology (IT), Human Resource increased from 0.9% to 1.2%. The Profit After Q1 Q2 Q3 Q4 (HR), Compliance, Secretarial Services, Risk Tax, defined as the Return on Assets, increased Management and Accounts. from 2.6% in 2008-09 to 3.4% in 2009-10. This would possibly be amongst the highest in the financial services landscape in India. RETURN ON ASSETS (ROA) We now move on to greater details of the As a financial intermediary, the return Company’s businesses in 2009-10. generated on assets is a fundamental measure of performance for IDFC. While each of the different business platforms has different CORPORATE FINANCE/INVESTMENT capital intensities, the returns they generate BANK on the total balance sheet of the Company This includes project finance, principal are critical in determining IDFC’s efforts at investments, treasury operations, investment shareholder value creation. Table 1 gives the banking and institutional brokerage RoA tree for IDFC in 2009-10. Contributions of almost all businesses, P R O J E CT F I N A N C E as a % of average total assets, increased In project finance, IDFC lends to customers significantly during FY 2009-10. Contribution through different financial instruments like from pure lending activities measured as Net corporate loans, project loans, loans against Interest Income from infrastructure increased shares, subordinated debt, mezzanine finance from 2.6% in 2008-09 to 3.3% in 2009-10. and equity. Increased spreads reflective of the benign In line with the focus on creating a more interest rate environment through most of stable asset base, the share of loans and 2009-10 and increased traction in our lending debentures in IDFC’s total exposure has

40 I D F C A N N U A L R E P O R T 09 –10 increased from 88.7% as on March 31, 2009 As Chart D shows, while its share has to 91.2% as on March 31, 2010, while that of decreased slightly from 40.6% in 2008-09 Share of IDFC's Total equity and preference shares have reduced from to 38.3% in 2009-10, Energy still comprises D Exposure 8.6% as on March 31, 2009 to 6.6% as on March the largest loan book exposure. The share of

31, 2010. Within loans, too, loans against shares Telecom and IT has increased significantly from IN PERCENT have reduced from 6.1% as on March 31, 2009 10.9% in 2008-09 to 24.4% in 2009-10, making to 3.3% as on March 31, 2010. it the second largest sector. This is followed by OTHERS The developments in the infrastructure Transportation, whose share has also dropped 7.1 8.3 lending business are in line with the business from 23.8% in 2008-09 to 19.8% in 2009-10. environment. As Chart C shows, the first three While that of Industrial, Commercial and Tourism I N D U S T R I A L , 10.4 quarters of 2009-10 saw a steady growth in has reduced from 16.4% in 2008-09 to 10.4% 16.4 C O M M E R C I A L & T O U R I S M both gross approvals and gross disbursements. in 2009-10. The share of ‘Others’, which include With greater opportunities in the market, there new plays in steel and cement, has decreased. 24.4 has been a further spurt in gross approvals in Q4 For good reason, with improvements in the 2009-10. In fact, gross approvals doubled from business environment, IDFC has refocused in TELECOM & IT 10.9 Rs. 6,648 crore in Q3 2009-10 to Rs.13,892 financing its core infrastructure segments. crore in Q4, 2009-10. TRANSPORTATION As is expected, when there is a spurt in new ENERGY 23.8 project opportunities, there is initially a flurry India continues to have a huge power supply-

of approvals, while disbursements lag behind. demand deficit, and the Government of India 19.8 This has been true for IDFC as well. However, it is is actively pushing power projects using the important to note that disbursements, too, have Private Public Partnership (PPP) route. Of late, started picking up. Disbursements increased by the government has accelerated its efforts in

64% in Q4 2009-10 over Q3, 2009-10. large scale power projects, which offers larger ENERGY Thus, there has been good growth in the opportunities for financing for companies like 40.6 38.3 project finance business in 2009-10; more IDFC. importantly, the trend in approvals and On the power generation front, while thermal disbursements indicates the presence of a power remains the dominant area, IDFC also significant pipeline of opportunities for IDFC has been pursuing hydro-electric projects. to grow its loan book meaningfully in the next Renewable energy generation is another area financial year. where the Company has been actively partnering players in the wind energy space. ■■ Annual gross approvals, including equity and non-funded assistance, increased by 195% to ■■ As on March 31, 2010, IDFC’s total exposure Rs.30,442 crore (Rs.304 billion) in 2009-10, in the energy sector was Rs.16,800 crore 10 09 while net approvals grew by 326% to Rs.21,228 (Rs.168 billion). crore (Rs.212 billion). ■■ Gross approvals increased by 319% from ■■ Annual gross disbursements, including equity, Rs.2,180 crore (Rs.22 billion) in 2008-09 to rose by 60% to Rs.12,962 crore (Rs.130 billion) Rs.9,131 crore (Rs.91 billion) in 2009-10. in 2009-10, while net disbursements grew ■■ Gross disbursements rose by 120% from from a negative Rs.382 crore [(-) Rs.3.8 billion] Rs.1,865 crore (Rs.19 billion) in 2008-09 to in 2008-09 to Rs.4,939 crore (Rs.49 billion) in Rs.4,112 crore (Rs.41 billion) in 2009-10. 2009-10. ■■ Net interest income from infrastructure Chart E plots the growth in net approvals lending activities increased by 35% from Rs.758 and net disbursements in the energy sector in crore (Rs.7.6 billion) in 2008-09 to Rs.1,021 2009-10 over 2008-09. crore (Rs.10.2 billion) in 2009-10. TRANSPORTATION These activities led to a 22% increase in the In transportation, IDFC works on the financing net loan book from Rs.20,596 crore (Rs.206 of roads, civil aviation, airports, ports, container billion) in 2008-09 to Rs.25,031 crore (Rs.250 terminals, and gas and oil pipelines. Thanks billion) in 2009-10. to the active involvement of the new Minister IDFC’s project finance business concentrates for Surface Transport, the national highways on four infrastructure sectors — Energy; programme got a fillip in the latter part of Transportation; Telecom & IT and Industrial, 2009-10. With a vision that focuses on national Commercial & Tourism. highway development at the rate of 20 kms a day instead of the close to 5 kms being developed

MANAGEMENT DISCUSSION & ANALYSIS 41 per day as of now, a large number of projects are in the pipeline. There is also a paradigm shift Energy away from awarding small packages covering E short road sections to longer stretches, with significantly larger package sizes. Much of this NET APPROVALS & DISBURSEMENTS activity is reflected in the increase in approvals RS CRORE in this sector, while gross disbursements are gradually picking up.

■■ As on March 31, 2010, IDFC’s total exposure 6,267 in the transportation sector was Rs.8,676 crore (Rs.87 billion). ■■ Gross approvals increased by 213% from Rs.1,567 crore (Rs.16 billion) in 2008-09 to Rs.4,912 crore (Rs.49 billion) in 2009-10. ■■ Gross disbursements grew by 21% from Rs.1,476 crore (Rs.15 billion) in 2008-09 to Rs.1,793 crore (Rs.18 billion) in 2009-10.

Chart F plots the growth in net approvals and net disbursements in transportation sector in 2009-10 and 2008-09.

TELECOMMUNICATION AND IT While telecommunication in today’s India is Vemagiri Power Generation Limited fairly mature, comprising some very large 388 MW Gas based Power Plant players who have strong balance sheets, there is opportunity in financing the new entrants 2,130 that were awarded licenses in 2007-08 and are poised for accelerated pan-India growth. IDFC COMMERCIAL, INDUSTRIAL

1,545 has been leveraging this customer base, while INFRASTRUCTURE, TOURISM AND focusing on other opportunities in the telecom OTHERS infrastructure space, especially telecom towers. Given the uncertainties in the real estate sector IDFC managed to secure some large ticket size — primarily commercial real estate — IDFC has deals in this space during 2009-10, which has been cautious in this segment. However, in a NET DISBURSEMENTS NET APPROVALS 280 significantly increased the Company’s exposure calibrated manner, and based on the past record 09 10 09 10 in this sector. In addition, going forward, there of various promoters, the Company continues to are opportunities expected, post the 3G invest in this space. auctions. ■■ As on March 31, 2010, IDFC’s total exposure ■■ As on March 31, 2010, IDFC’s total exposure in the Commercial, Industrial infrastructure in the telecommunication and IT sector was sector, tourism and others was Rs.5,638 crore Rs.10,705 crore (Rs.107 billion). (Rs. 56 billion). ■■ Gross approvals rose by 199% from Rs.4,150 ■■ Gross approvals increased by 78% from crore (Rs.42 billion) in 2008-09 to Rs.12,401 Rs.1,874 crore (Rs.19 billion) in 2008-09 to crore (Rs.124 billion) in 2009-10. Rs.3,336 crore (Rs.33 billion) in 2009-10. ■■ Gross disbursements increased by 27% from ■■ Gross disbursements grew by 89% from Rs.2,885 crore (Rs.29 billion) in 2008-09 to Rs.1,454 crore (Rs.15 billion) in 2008-09 to Rs.3,670 crore (Rs.37 billion) in 2009-10. Rs.2,742 crore (Rs.27 billion) in 2009-10.

Chart G plots the growth in net approvals and Chart H plots the growth in net approvals net disbursements in the Telecommunication and net disbursements in the commercial and and IT sector in 2009-10 and 2008-09. industrial infrastructure sector in 2009-10 as well as 2008-09.

42 I D F C A N N U A L R E P O R T 09 –10 ■■ As on March 31, 2010, total exposure on IDFC’s equity asset book, excluding strategic investments, was Rs.3,153 crore (Rs.32 billion). Transportation ■■ Outstanding disbursements, on the equity F book, increased by 19% from Rs.1,724 crore (Rs.17 billion) on March 31, 2009 to Rs.2,057 NET APPROVALS & DISBURSEMENTS

crore (Rs.21 billion) on March 31, 2010. Of RS CRORE this, Rs.352 crore (Rs. 3.5 billion) was financial equity; Rs.1,082 crore (Rs.11 billion) was infrastructure equity; and Rs.400 crore (Rs.4 billion) was in the form of venture capital. 3,400 ■■ Income from the Company’s principal investments, which includes dividends and capital gains, increased by 81% from Rs.184 crore (Rs.2 billion) in 2008-09 to Rs.333 crore (Rs.3 billion) in 2009-10.

T R E A S U R Y The treasury function is bifurcated into two areas. It principally maintains sufficient liquidity to support the project finance operations. During 2009-10, bulk of the emphasis was on this area. With the loan book growing significantly, maintaining liquidity with reasonable cost of funds was a challenge. Focusing on domestic capital markets, IDFC went into serious fund raising. In doing so, it also managed to lower the cost of funds on the balance sheet. There was also the PRINCIPAL INVESTMENTS challenge posed by the fact that the market 732 Principal investments are directly made from was characterised by near-term money with the Company’s own balance sheet, which form falling interest rates, while IDFC’s assets were part of proprietary investments. There are four mostly in the form of longer term finance. The NET DISBURSEMENTS

types of investments in this portfolio: Company, however, still managed to expand its 33 151 NET APPROVALS balance sheet by maintaining effective duration 0 09 10 09 10 ■■ Strategic investments, where IDFC picks relationships between its assets and liabilities. up stake in entities to further strengthen its As on March 31, 2010, the asset duration business offering or for some strategic purpose was 1.95 years while the liability duration was that is central to the Company’s long term 1.75 years. This bears testimony to the business’ objectives. In 2009-10, no investments were ability to forecast and take appropriate calls in made on this front. the fixed income markets without taking undue ■■ Financial investments, includes investments risks. in National Stock Exchange of India Limited Uncertainties on the length of liquidity and (NSE), Securities Trading Corporation of India a falling interest rate system meant that the Limited (STCI) and Asset Reconstruction proprietary treasury book (where investments Company of India Limited (ARCIL). are made in fixed income securities for returns) ■■ Investment in venture capital units, for funds remained constrained. which are sponsored and managed by IDFC. ■■ Infrastructure investments, which are now ■■ Treasury assets decreased by 11% from generally made as co-investments alongside the Rs.5,672 crore (Rs.57 billion) on March 31, 2009 funds under the Company's management or in to Rs.5,045 crore (Rs.50 billion) on March 31, deals that do not meet the funds minimum size 2010. threshold. ■■ Net interest income from treasury operations Total outstanding disbursements in decreased by 41% from Rs.164 crore (Rs.1.6 principal investments increased by about billion) in 2008-09 to Rs.96 crore (Rs.1 billion) in 20% in 2009-10. 2009-10.

MANAGEMENT DISCUSSION & ANALYSIS 43 INVESTMENT BANKING AND IDFC Investment Advisors targets High Net INSTITUTIONAL BROKERAGE worth Individuals (HNIs) for personal wealth Telecommunication This includes the businesses of IDFC Capital and management. This channel has an AUM of G and IT IDFC Securities, which was earlier under Rs.433 crore. IDFC-SSKI platform. It utilises in-house Total operating income of IDFC AMC and NET APPROVALS & DISBURSEMENTS expertise and brand positioning to provide a IDFC Investment Advisors increased by 89% to RS CRORE gamut of advisory services across different Rs.133 crore (Rs.1.3 billion) in 2009-10. areas like debt syndication, structured finance, corporate debt and equity market advisory. Total income from this platform increased by ALTERNATIVE ASSET MANAGEMENT 8,561 59% from Rs.115 crore (Rs.1.2 billion) in 2008- This includes private equity, project equity, 09 to Rs.183 crore (Rs.1.8 billion) in 2009-10. projects and fund of funds. As of March 31, With an improvement in the business 2010, the total AUM across private equity and environment, there was an increase in project equity business was Rs.9,200 crore (US$ opportunities in the investment banking space. 2 billion at exchange rate of US$1=Rs.44.94). IDFC Capital undertook the first QIP offer in India for 2009-10. Subsequently, it played a P R I VAT E E Q U I TY leading role in similar deals that also included IDFC’s private equity business focuses on debt and PE placements. By March 31, 2010, it generating returns by providing equity-based was ranked No. 2 in terms of number of deals risk capital to early stage as well as fast growing and No.3 in terms of amount raised by private infrastructure companies. This business is sector in equity market during the year 2009-10. undertaken through its wholly-owned subsidiary, As a result, income from investment banking and IDFC Private Equity Company Limited (‘IDFC advisory fees increased by 118% from Rs.51 Private Equity’).

2,481 crore (Rs.0.5 billion) in 2008-09 to Rs.111 crore IDFC Private Equity manages a corpus of (Rs.1.1 billion) in 2009-10. Rs. 5,992 crore through three funds - India On the institutional brokerage front, too, Development Fund (the Fund I), IDFC Private 2,089 there was a growth in the level of activity Equity Fund II (the Fund II) and IDFC Private in 2009-10 compared to 2008-09. While Equity Fund III (the Fund III). opportunities increased, competition was The Fund I, which closed in March 2004 with fierce. As a result, IDFC Securities did lose some capital commitments of Rs.844 crore, has paid market share. However, with greater volumes, back original corpus to the investors. There NET DISBURSEMENTS NET APPROVALS 0 there was an increase in brokerage income. were two full exists from the investments of Institutional brokerage income rose by 13% the Fund I. The Fund II, which closed in June

-1,234 from Rs.64 crore (Rs.0.6 billion) in 2008-09 to 2006 with capital commitments of Rs.1,988 09 10 09 10 Rs.72 crore (Rs.0.7 billion) in 2009-10. crore, has been entirely invested and focuses on portfolio management and exits. The Fund III, which closed in September 2008 with capital PUBLIC MARKETS ASSET commitments of Rs.3,160 crore, focuses on MANAGEMENT portfolio management and new deals. This business is administered through the asset As of March 31, 2010, total assets under management company - IDFC AMC and IDFC IDFC Private Equity’s management were US$ Investment Advisors. The primary business 1.2 billion or Rs.5,364 crore ( Rs.54 million at is IDFC mutual fund, which was acquired in exchange rate of US$1 = Rs.44.94). Given the 2008 from Standard Chartered Bank. Through low levels of activity, operating income was concerted efforts at pushing sales by creating and maintained at Rs.99 crore (Rs.1 billion). nurturing wider and improved channels, offering During the year, IDFC Private Equity won a larger basket of products and targeting a more three awards: (i) the Asian Infrastructure Fund varied customer base, IDFC has grown its mutual Manager of the Year award by Infrastructure fund business. The assets under the Mutual Investor, (ii) the Asian Infrastructure Deal of the Fund’s management increased from Rs.14,362 Year award by Infrastructure Investor and crore (Rs.144 billion) as on March 31, 2009 to (iii) the Indian Private Equity Fund of the Year Rs.25,775 crore (Rs.258 billion) as on March 31, Award by Private Equity International. 2010. With this growth, IDFC Mutual Fund has the tenth largest AUM amongst mutual funds in India. P R O J E CT E Q U I TY Several new products were introduced during the IDFC’s project equity invests in operating assets year, which were well accepted. of mid-size projects. Much of these investments

44 I D F C A N N U A L R E P O R T 09 –10 are in the post-construction and stabilisation technical collaboration. In 2009-10, it stage, with the underlying assets getting successfully bid for setting up a 1,050 MW Commercial & Industrial aggregated and bundled into a holding company coal fired power plant for Dheeru Powergen Infrastructure, Tourism before being sold off at better valuations. These Private Limited (DPPL) at village Dhanras, Tehsil H and others have lower risk-return profiles compared to the Katghora, in the Korba district of Chhattisgarh in pure private equity plays. India. DPPL is a joint venture company between NET APPROVALS & DISBURSEMENTS

IDFC, along with partners, achieved final IDFC Projects Limited and Ranhill Dheeru RS CRORE closure of the India Infrastructure Fund in June Malaysia (RDM), Malaysia. 2009 with total commitments of Rs.3,837 crore (US$ 875 million at exchange rate of IDFC GLOBAL ALTERNATIVE US$1=Rs.44.94). IDFC has invested US$100 Based in Singapore, IDFC Global Alternatives 2,604 million in this Fund. The Fund has called 36.1% of (IDFC-GA) is a global emerging markets private its capital commitments as of March 31, 2010. equity fund-of-funds business. IDFC-GA will In line with market conditions in focus mainly on Asia and is currently in active 2009-10, there were no further efforts in raising fund raising mode. more capital. Instead, the focus was on doing deals. The Fund has committed 45.6% of its total corpus to portfolio companies as of March IDFC FOUNDATION 31, 2010. IDFC’s development agenda, which earlier was Operating income from Project Equity promoted through various parts of the platform, increased by 45% to Rs.64 crore in 2009-10. is now pursued through a dedicated division of the Company, namely, IDFC Foundation. I D F C P R O J E CT S The Foundation’s activities are overseen by a IDFC started the IDFC Projects Company separate Governing Board and comprise four in 2009. This is the Company’s foray into core activities – Policy Advocacy, Capacity becoming an infrastructure developer. In the Building, Government Transaction Advisory project development space, this entity believes Services and Corporate Social Responsibility in developing its businesses based on the (CSR) initiatives. 857 following: P O L I C Y A D V O C A C Y ■■ Leverage core strengths Utilise the internal Since inception, IDFC has played a pivotal strength of better understanding of risk role in advising governments at various levels profiles, bidding strategies, and established in developing policy, legal and regulatory NET DISBURSEMENTS contract and implementation structures. Create frameworks that enable the sustainable growth 256 value through use of appropriate financial and development of various infrastructure 211 NET APPROVALS instruments and structures at various stages of sectors, provide affordable and high quality the projects. Focus on projects which have first services to users and encourage private 09 10 09 10 mover and strategic advantages, and use such investment in infrastructure. While much projects to enter other initiatives. progress has been made in telecommunications, ■■ Develop larger and more complex projects roads, ports and airports, the Foundation Occupy niche areas of large capital intensive now focuses on energy, especially in the projects which are complex in nature but have global context of reduced carbon emission long term stable cash flows. Participate in more commitments, urban development, rail services, number of projects via the bidding route through health care and education. To guide these which most opportunities get generated. initiatives, the Foundation has constituted ■■ Build partnerships Forge successful dedicated advisory boards – Energy Advisory relationships with leading national and Board and Urban Advisory Board comprising international partners and achieve domain prominent and knowledgeable persons in these expertise and technical collaboration. Seek areas. co-developers who have goals, strategies and In the energy sector, the focus continues to values consistent with those of IDFC Projects. be on promoting initiatives to minimize losses ■■ Establish credibility Build a reputation for in energy distribution as well as in enlarging the efficient operations and fair practice. scope of power generation from cleaner and renewable sources of energy, to promote low IDFC Projects has forged successful carbon use. In the urban sector, the focus is on relationships with national and international areas such as sustainable urban planning and organisations for domain expertise and development through creative ways of using

MANAGEMENT DISCUSSION & ANALYSIS 45 Gujarat Pipavav Port Coal yard with wind and water curtain

land to support urban growth, water and waste state governments, urban local bodies and select water management, solid waste management Central government departments, through and public transportation systems. Specific existing institutes of public administration initiatives are already underway to set up a across seven states and three central training centre for low carbon, develop a model PPP institutes. The first phase of this programme programme for rail development, promote is largely funded by KfW Development Bank. guaranteed land title systems and review the The Trust is currently engaged in developing a central government’s Jawaharlal Nehru National syllabus, training material, course outlines and Urban Renewal Mission (JNNURM) programme. programmes for the training of trainers from The policy advisory group is also developing these institutes, which is expected to result in an infrastructure index that would enable improved capacities in preparing and managing comparison of infrastructure services across PPP projects across various infrastructure different states. Together with the Indian sectors. Institute of Management, Ahmedabad and In the meantime, several capacity building Indian Institute of Technology, Kanpur, under the programmes have already been conducted auspices of the 3-i Network, the group prepares across various states, some of which, focusing the India Infrastructure Report every year, which on the urban sector, have been in partnership has emerged as a standard reference document with the Administrative Staff College of India, for infrastructure in the country. Hyderabad. A few programmes have also been conducted overseas, in the neighbouring CAPACITY BUILDING INITIATIVES countries of Nepal and Sri Lanka, on behalf of One of the constraints to the development the United Nations Development Programme of infrastructure through public private (UNDP), Nepal and the Commonwealth partnerships (PPPs) is the lack of capacity in Secretariat. government departments, especially in states and urban local bodies in preparing projects GOVERNMENT TRANSACTION ADVISORY under PPP frameworks. To help address this S E R V I C E S issue, IDFC has set up the India PPP Capacity The Foundation continues to be engaged in Building Trust as a dedicated entity that would providing transaction advisory services to provide capacity building and training to governmental departments and agencies government officials in the area of PPPs. engaged in infrastructure, with a particular The Trust has been appointed by the focus on state highways, urban services, Department of Economic Affairs, Ministry of transport systems, railways, healthcare Finance, Government of India as the executing and education. The objective is to promote agency for implementing a national capacity private sector engagement in areas that would building programme for training officials of substantially benefit from the flow of private

46 I D F C A N N U A L R E P O R T 09 –10 capital and management expertise, resulting in (ii) minimizing the environmental impact and vastly improved standards of service for users. carbon footprint of our operations through For this purpose, IDFC consciously focuses on resource efficiency & conservation. CSR also states hitherto considered “difficult”, but which includes an active volunteering program aimed now demonstrate a propensity to change. This at increasing our employees’ environmental activity clearly reflects the Company’s position and social sensitivities, besides high standards as a pioneer, careful risk taker and thought of corporate governance, maintaining our leader in infrastructure. reputation for ethical and fair business practices A substantial part of this work is and improving transparency in our interactions accomplished through IDFC’s joint ventures with our stakeholders. with a few state governments, namely In FY2010, IDFC became India’s first Infrastructure Development Corporation signatory to the Principles for Responsible (Karnataka) Limited (iDeCK), Uttarakhand Investment (PRI), a global, collaborative, Infrastructure Development Company Limited investor network initiated by the UN in (U-DeC) and Delhi Integrated Multi-Modal 2006, which aims to help investors integrate Transit Systems Limited (DIMTS). While iDeCK consideration of environmental, social, and and U-DeC focus on all areas of infrastructure governance (ESG) issues into their investment across the respective states, DIMTS assists in decision-making and ownership practices, the development and improvement of public and thereby improve long-term returns to transport systems in Delhi. It has been generally beneficiaries. IDFC has joined the PRI under acknowledged that the involvement of these the category “Investment Manager” for its agencies have made a substantial difference private equity, project equity and fund-of-funds to the way PPPs have been used to develop businesses. IDFC continues to be a member infrastructure in these states. of the United Nations Global Compact and a signatory investor and respondent to the Carbon CORPORATE SOCIAL RESPONSIBILITY Disclosure Project. Corporate Social Responsibility (CSR) at IDFC IDFC launched its internal environment policy is focused on making our business practices aimed at minimizing its environmental impact more environmentally and socially responsible. and carbon footprint under the “Go Green” This is effected by (i) assessing and mitigating initiative. It is on course for obtaining US Green the environmental & social impacts of our Business Council’s LEED Gold Certification investments in infrastructure projects, and (Commercial Interiors) for its new office at

2 Abridged Consolidated Profit and Loss Account for IDFC RS. CRORE 2009-10 2008-09 TOTAL OPERATING INCOME 2,107 1,556 of which Infrastructure Income 1,021 758 Treasury 96 164 TOTAL NET INTEREST INCOME 1,117 922 Principal Investments 333 184 Asset Management 290 203 Investment Banking 183 115 Infrastructure loans related fees 144 110 TOTAL NON-INTEREST INCOME 950 613 Other Miscellaneous Income 40 20 TOTAL OPERATING EXPENSES 549 367 PRE-PROVISIONING PROFITS 1,558 1,189 Provisions and Losses 130 153 PBT 1,429 1,036 Tax 367 278 PAT 1,062 758 Associated Company Profits 1 1 Minority Interest & Pre-acquisition Profits 0 9 CONSOLIDATED PAT AFTER MINORITY INTEREST 1.062 750

MANAGEMENT DISCUSSION & ANALYSIS 47 Chennai and (possibly India’s first) certification fronts, which form the backbone of the for an Energy-Efficient Data Centre from TUV initiative. These include cultural integration, Rhineland, Germany. implementation of a more comprehensive risk The Foundation also initiated the Inclusive management framework and creation of an Infrastructure Fund, a small corpus formed out organisation-wide governance structure. of its own funds for funding social enterprises or innovative environmental projects. The Fund CULTURAL INTEGRATION made its first equity investment in Ziqitza On the culture integration front, through Healthcare Ltd., a company that provides widespread employee participation, the emergency response ambulance services Company’s mission and values were discussed. (“Dial 1298” in Mumbai) under an innovative Then these concepts were then communicated business model where better-off patients across the organisation. The entire process (i.e. those admitting to private hospitals) was carried out through intensive employee cross-subsidize poorer patients (i.e. those engagement, especially through workshops. admitting to municipal hospitals). It has also The values system articulated hinges on approved a second investment in a company the acronym – INSPIRE (Integrity, Nurturing that imparts civil construction skills to Humility, Stewardship, Partnership, Initiative, During 2009-10, unemployed rural youth and places them directly Responsibility and Excellence). The Company is the Company with construction companies after training. in the process of: launched an Several other investment opportunities are under consideration in areas such as rural solar ■■ aligning internal frameworks and policies to intensive programme to lighting, municipal solid waste based bio- reflect the values articulated. integrate the different methanation plants, etc. ■■ launching the intranet, which becomes blocks of IDFC’s business. The Foundation signed an MoU with the a virtual space for employees to connect, This initiative, called Hampi World Heritage Area Management collaborate and communicate. Authority and the Gram Panchayat of Anegundi ■■ supporting this initiative through a ‘One Firm’, cuts across Village for grant funding of an innovative rural recognition programme that promotes functional domains like community sanitation upgradation project, employees for setting examples in living the human resource, internal which is expected to serve as a prototype for values. ■■ processes and systems, infrastructure upgradation in the Hampi area. incorporating ’Values Performance’ into the performance management process. risk management and corporate governance. ONE FIRM: INTEGRATING IDFC’S R I S K M A N A G E M E N T BUSINESS PLATFORMS Essentially, a company like IDFC is exposed All these different activities within IDFC are to three categories of risk: market risk, credit interwoven through fairly complex business risk and operational risk. The Company is structures. The Management realised that it implementing an Enterprise Risk Management was essential for the success of IDFC to create (ERM) framework that adopts an integrated a unifying culture and governance system approach to managing all the three types of risks across the different businesses to best leverage across all entities in the IDFC group. each platform. During 2009-10, the Company On the market and credit risks front, IDFC launched an intensive programme to integrate has had a strong risk management framework the different blocks of IDFC’s business. in place. There is focus on loan portfolio This initiative, called ‘One Firm’, cuts across assessment, Asset-Liability Management functional domains like human resource, internal (ALM), and loan pricing. In addition, the Company processes and systems, risk management and has been developing various market risk corporate governance. modules. The goal is to align all sections of the On the credit risk front, there is a organisation internally to generate even better comprehensive portfolio review of all project customer value propositions and returns to assets and equity investments of the Company shareholders. It focused on softer aspects like on a semi-annual basis. Each credit is analysed customer orientation, collaboration across individually and then integrated at the portfolio platforms and efforts to leverage different level. The overall portfolio risk report is regularly capabilities across departments and businesses. presented to a Board Committee comprising of While this initiative is an ongoing process, independent directors. special mention needs to be made of the The Risk Group also closely focuses on ALM. developments during the year on three broad To enhance the effectiveness of the current

48 I D F C A N N U A L R E P O R T 09 –10 Ashoka Buildcon National Highway Project on NH - 6

process of regular monitoring of liquidity to its operations and then work on managing and interest rate risks, IDFC has sourced a some of the top risks in terms of probability of sophisticated software-based ALM system. This occurrence and impact. The exercise included will enable the Company to capture data from identifying risks, classifying them in terms of various disparate platforms, and allow for more probabilities and impact and devising control detailed and comprehensive analysis. measures. The risks were classified first in a 3 x Given the rising volatility of interest rates 3, and subsequently by a 5 by 5 matrix. A system On the culture as well as introduction of new products in the has also been devised to convert these into integration treasury portfolio, IDFC has also increased the department-wise and unit-wise heat maps. front, through level of monitoring of market risk. This involves The risk management system is supported by measuring interest rate risk on a regular basis customised software, which: widespread employee as well as testing newer models for analysis. ■■ allows real-time tracking and monitoring of all participation, the With the regulatory framework for banks and types of risks; Company’s mission and ■■ financial institutions is currently in transition to provides precise information on activities, values were discussed. the Basel II environment, the risk measurement risks and controls to all; and monitoring framework is being accordingly ■■ has the capability to track, understand and These concepts were enhanced. IDFC has initiated efforts to align the manage information across the organisation; communicated across the capital allocation to different asset categories ■■ generates risk heat maps at all levels of the organisation. in line with the Basel II framework. business; In 2009-10 there was a concerted effort ■■ shows the list of open issues at any point of to focus on organisation-wide operations risk time; management framework. While the initiative ■■ enables setting up central repository for all was launched with awareness created at the policy and procedures; Board level and downwards, the implementation ■■ enables standardising of all group policies process was bottoms-up. The purpose was and procedures; to make every department across different ■■ provides trend analysis on risk history to take business segments aware of the risks related proactive measures.

MANAGEMENT DISCUSSION & ANALYSIS 49 In 2009-10 there Especially on the risk management front, billion) in 2009-10; And; PAT increased by 42% was a concerted there are separate active sub-committees. to Rs.1,062 crore (Rs.11 billion) in 2009-10. effort to focus These include the Portfolio Review Committee (for portfolio or credit risk), the Asset Liability on organisation-wide Committee (for market risk) and the Operational INFORMATION TECHNOLOGY (IT) operations risk Risk Committee (for operational risk). The IDFC recognizes the power of technology and management framework. Managing Director or his nominee and a Board continues to augment technology resources to While the initiative was member are part of these committees, in streamline & standardize processes, provide addition to other functional managers. faster response to clients and also effectively launched with awareness 2009-10 was the first year of this initiative. network the different companies, branches created at the Board Going forward it will be developed with a and operations. This year the technology level and downwards, the greater degree of sophistication in gauging the operation were realigned in a manner to provide implementation process probability and impact of risks. IT services in a shared manner across the IDFC group through centralizing the IT operations, was bottoms-up. GOVERNANCE STRUCTURE creating helpdesk operations, outsourcing The entire company is governed by a structure routine activities and through upgrading and that cuts across the different businesses. At integrating all the networks. Considerable the top of this structure are six Board-level effort has also been made to upgrade all the committees – the Executive Committee, hardware, storage and network with a view the Audit Committee, the Compensation to be current on technology and to support Committee, the Investor Grievance Committee, the growth in operations. All key offices of all the Risk Committee and the Nomination companies are connected on an online basis to Committee. The terms of reference, mandate, our network including our overseas office at constitution, quorum and periodicity of Singapore. Alongside this upgrade, steps like meetings of these committees have been network segregation, critical equipment failover re-defined in line with business requirement. & redundancy & endpoint security were initiated These committees are supported by to enhance the network security, availability sub-committees at the unit level and & robustness. The technology team helped responsibilities and reporting structures are the securities electronic trading business to linked across all entities within IDFC. increase the client offering through the low- touch direct market access (DMA) system and now this operation is also geared to provide a FINANCIAL REVIEW no-touch DMA to its clients. The abridged consolidated Profit & Loss An implementation of group wide VoIP (Voice accounts of IDFC for 2008-09 and 2009-10 are over Internet Protocol) based phone system, presented in Table 2. integrated with our data and video network has Highlights of the performance are: helped in bringing people together in a cost- ■■ Total operating income increased by 35%, effective manner. A key activity this year was driven by a 21% increase in net interest income the shifting of almost all offices of IDFC which and a 55% growth in non-interest income included shift of many client-facing and time ■■ Within interest income, there was a sensitive operations including the complex significant growth of 35% in income from dealing room operations. A well orchestrated infrastructure lending, and this growth was on a effort by the IT team ensured a smooth large base. Treasury income reduced by 41% transition into the respective new premises with ■■ Non-interest income increased across all no downtime on all critical operations. platforms – income from principal investments There has been consistent progress in increased by 81%; asset management building newer applications to meet the growing increased by 42%; investment banking need for improved operations and enhanced increased by 59%; and loan related and other information needs. The year saw a push in this fees increased by 30% direction in view of the growth plans and the ■■ The healthy growth in operating income has diverse nature of our acquired businesses. resulted in a 31% increase in pre-provisioning Among many initiatives in the software profits to Rs.1,558 crore (Rs.16 billion) in applications front, Ismart, Treasury & HR 2009-10 software were the key implementations with ■■ With lower provisions, Profit Before Tax (PBT) wideranging impact. In collaboration with the increased by 38% to Rs.1,429 crore (Rs.14 user teams we have stabilized the operations of ‘iSmart’, our core business application. The

50 I D F C A N N U A L R E P O R T 09 –10 Oracle financials software has been upgraded to INTERNAL CONTROLS AND THEIR include all companies in the group so as to enable ADEQUACY consolidation of accounts at the group level. An The Company has a proper and adequate system upgrade of our software supporting the treasury of internal controls to ensure that all assets has been initiated that will ensure seamless are safeguarded and protected against loss pass through transaction from front office to from unauthorised use or disposition, and that backoffice. A Human Resources application on the transactions are authorised, recorded and peoplesoft platform has also been rolled out reported correctly. across the group to provide a ‘consistent user Internal controls are supplemented by experience’ to all employees. Corresponding an extensive programme of internal audits, The goal is to align consolidation & upgradations in the key system review by management and documented all sections of the software and databases have also been carried policies, guidelines and procedures. These organisation internally out during this year to provide stability. controls are designed to ensure that financial IDFC continues its thrust on IT compliance and other records are reliable for preparing to generate even by enlarging the scope of various security financial information and other reports, and better customer value measures to all companies in the group as for maintaining regular accountability of the propositions and returns well as to the key partners to our businesses. Company’s assets. to shareholders. After a three year initial cycle, the company was recertified as an ISO 27001 compliant company through a comprehensive audit of our CAUTIONARY STATEMENT IT operations in September this year. This year Statements in this Management Discussion and the IT operation of our mutual fund business Analysis describing the Company’s objectives, was also certified to be ISO 27001 compliant. projections, estimates and expectations may be To enhance the hygiene of our systems IDFC ‘forward looking statements’ within the meaning continued with the practice of subjecting of applicable laws and regulations. Actual its IT operations across all companies to a results might differ substantially or materially comprehensive IT audit by a reputed external from those expressed or implied. Important firm and this audit was completed in March developments that could affect the Company’s 2010. IDFC continues to keep information operations include unavailability of finance at security focus also by improving the awareness competitive rates — global or domestic or both, levels across the group through its various reduction in number of viable infrastructure initiatives like e-learning, lectures, etc. projects, significant changes in political and IDFC has also initiated various steps towards economic environment in India or key markets Green-IT including deploying energy efficient abroad, tax laws, litigation, exchange rate equipment, monitoring energy consumption fluctuations, interest and other costs. at a granular level and disposing e-waste only through Government authorized recycler organization.

MANAGEMENT DISCUSSION & ANALYSIS 51 corporate governance

IDFC is a professionally run company with no single promoter or promoter group. Board oversight and sound corporate governance practices are inherent to the Company’s pursuit of relentlessly delivering value to all its stakeholders.

COMPANY’S PHILOSOPHY ON adopted practices mandated in the new DIRECTORS’ ATTENDANCE RECORD CORPORATE GOVERNANCE Clause 49, but also incorporated some of the AND DIRECTORSHIP HELD IDFC is a professionally run company with no non-mandatory recommendations. As mandated by the Clause 49, none of the single promoter or promoter group. Board This chapter, along with the chapters on Directors are members of more than ten Board oversight and sound corporate governance Management Discussion and Analysis and level committees nor are they Chairman of practices are inherent to the Company’s Additional Shareholders Information, reports more than five committees in which they are pursuit of relentlessly delivering value to IDFC’s compliance with the prevalent members. all its stakeholders. Clause 49. Being a finance company, IDFC has to INFORMATION SUPPLIED TO THE BOARD regularly pursue businesses that maximises The Board has complete access to all returns while effectively managing the BOARD OF DIRECTORS information with the Company. Inter alia, the inherent risks. Decision-making and execution following information is regularly provided to in this environment is driven by its governance COMPOSITION OF THE BOARD the Board as a part of the agenda papers well in structures, ethics and value systems, and As on March 31, 2010, the Company’s Board advance of the Board meetings or is tabled in “best in class” processes. Consequently, comprises twelve Directors, including five the course of the Board meeting. IDFC lays a lot of emphasis on appropriate independent Directors, two nominees of and timely disclosures and transparency in institutions which have invested in or lent to ■■ Annual operating plans & budgets and any business dealings. With internal business the Company, two Government Nominated update thereof growth and rapidly changing external business Directors and two whole-time Directors. The ■■ Capital budgets and any updates thereof environment, IDFC continuously focuses Chairman of the Board is a non-promoter, ■■ Quarterly results for the Company and on upgrading its governance practices non-executive Director. The composition of operating divisions and business and systems to effectively meet the new the Board is in conformity with Clause 49 of segments challenges facing the Company. As the the listing agreement, which stipulates that ■■ Minutes of the meetings of the Audit Company grows, it continues to focus on 50 per cent of the Board should comprise Committee and other Committees of the raising the standards of corporate governance non-executive Directors, and if the Chairman is Board and adopting global “best in class” systems and non-executive and not a promoter, one-third of ■■ Minutes of the Board meetings of the procedures. the Board should be independent. subsidiary companies In India, corporate governance standards ■■ Information on recruitment and for listed companies are regulated by the NUMBER OF BOARD MEETINGS remuneration of senior officers just Securities and Exchange Board of India (SEBI) The Board of Directors met four times during below the level of Board, including the through Clause 49 of the listing agreement the year on April 28, 2009, July 20, 2009, appointment or removal of Chief Financial with the Stock Exchanges. As a company, November 7, 2009 and January 26, 2010. The Officer and Company Secretary which believes in implementing corporate gap between any two meetings was less than ■■ Materially important show cause, demand, governance practices that go beyond just four months. prosecution notices and penalty notices meeting the letter of law, IDFC has not only

52 I D F C A N N U A L R E P O R T 09 –10 1 Composition of the Board of Directors Name of Director Position No. of No. of meetings Whether No. of outside No. of No. of meetings held attended in attended Directorships of Committee Chairmanships in 2009-10 2009-10 last AGM public companies Memberships # of Committees#

Mr. Deepak Parekh Non-Executive Chair man 4 4 Yes 12* 7 5 Dr. Rajiv Lall Managing Director & CEO 4 4 Yes 12 6 NIL Mr. Vikram Limaye Whole-time Director 4 4 Yes 13 5 4 Mr. A Ramanathan** Nominee – Non-Executive 1 -- No - - - Mr. G. C. Chaturvedi*** Nominee – Non-Executive 3 1 No 1 NIL NIL Mr. S.S. Kohli Nominee – Non-Executive 4 4 Yes 4 NIL NIL

Mr. Abdul Rahim Abu Nominee – Non-Executive 4 4+ Yes NIL NIL NIL Bakar Mr. Dimitris Tsitsiragos Nominee – Non-Executive 4 3 Yes NIL NIL NIL Mr. Donald Peck Independent Director 4 4 Yes 2 NIL NIL Mr. S.H.Khan Independent Director 4 4 Yes 7 10 5 Mr. Shardul Shroff Independent Director 4 3 No 6 NIL NIL Mr. Gautam Kaji Independent Director 4 4 Yes 1 NIL NIL Dr. Omkar Goswami Independent Director 4 3 No 9 9 2 * Excluding the directorship mentioned above, Mr. Deepak Parekh is an alternate director in 4 companies. ** Ceased to be a Director w.e.f. July 20, 2009. *** Appointed as Additional Director in place of Mr. Arun Ramananthan w.e.f. July 21, 2009. # Only Audit Committee and Shareholder’s Grievance Committee. + Two meetings were attended by Mr. Michael Fernandes, Alternate Director to Mr. Abu Bakar

■■ Any material default in financial obligations arrangements entered into by the unlisted c) Chairman of the Audit Committee to and by the Company, or substantial subsidiary companies are also placed before Rs.2,00,000/- per annum non-payment for services rendered by the the Board. d) Members of the Audit Committee Company Rs.1,00,000/- per annum ■■ Details of any joint venture or collaboration REMUNERATION PAID TO DIRECTORS e) Chairman of Other Committees agreement The Compensation Committee of the Company Rs.1,00,000/- per annum ■■ Transactions that involve substantial recommends to the Board the compensation f) Members of Other Committees payment towards goodwill, brand equity or payable to whole-time Directors and senior Rs.50,000/- per annum intellectual property managerial personnel. The compensation of g) Variable remuneration ■■ Significant development in human resources the whole-time directors is also approved by Rs.3,00,000/- per annum / employee relations front. the shareholders, and separately disclosed in ■■ Sale of material nature of investments, the financial statements. The variable remuneration is paid to the subsidiaries, assets, which is not in the Section 309 of the Companies Act, 1956 directors depending on their attendance at the normal course of business provides that a director who is neither in the Board meetings either in person or through ■■ Quarterly details of foreign exchange whole-time employment of the Company nor a teleconference. exposures and the steps taken by managing director may be paid remuneration The non-executive Directors are also paid management to limit the risks of adverse by way of commission, if the Company, by sitting fee for attending the Board meetings as exchange rate movement, if material special resolution, authorises such payment. well as Committee meetings. ■■ Non-compliance of any regulatory, Members of the Company at the 11th Annual statutory nature or listing requirements and General Meeting held on July 18, 2008, C O D E O F C O N D U CT shareholders service such as non-payment approved payment of remuneration by way IDFC’s Board of Directors has laid down of dividend, delay in share transfer, etc of commission to non-executive directors, a code of conduct for all Board members at a sum not exceeding 1% of the net profits. and designated senior management of the The Board periodically reviews compliance IDFC would be paying a sum of Rs. 9,150,000 Company. The code of conduct is available on reports of all laws applicable to the Company, as commission to its non-executive directors the website of the Company: prepared by the Company as well as steps for FY 2009-10. The aggregate amount was www.idfc.com. All Board members and taken by the Company to rectify instances arrived as per following criteria: designated senior management personnel of non-compliances. In addition to the have affirmed compliance with the Code of above, pursuant to the revised Clause 49, a) Fixed remuneration Conduct. A declaration signed by the Chief the minutes of the Board meetings of your Rs.7,00,000/- per annum Executive Officer (CEO) to this effect is Company’s unlisted subsidiary companies and b) Chairman of the Board enclosed at the end of this report. a statement of all significant transactions and Rs.7,00,000/- per annum

CORPORATE GOVERNANCE 53 R I S K M A N A G E M E N T composition of these committees, including ■■ Recommending to the Board, the IDFC follows well-established and detailed the number of meetings held during 2009-10 appointment, re-appointment and, if risk assessment and minimisation procedures. and the related attendance, are provided required, the replacement or removal of the The Company especially focuses on below: statutory auditor and the fixation of audit improving sensitivity to assessment of risks fees and improving methods of computation of A A U D I T C O M M I TT E E ■■ Approval of payment to statutory auditors risk weights and capital charges. The risk As on March 31, 2010, the Audit Committee for any other services rendered by the assessment and mitigation procedures comprises four members, all of whom are statutory auditors are reviewed by the Board periodically. independent Directors. The Audit Committee ■■ Reviewing, with the management, the annual The Company has a comprehensive risk met five times during the year under review; financial statements before submission management framework. on April 28, 2009, July 20, 2009, October 23, to the Board for approval, with particular Additionally, IDFC has a dedicated 2009, November 6, 2009 and January 25, reference to: Board-level committee that monitors risk 2010. The time gap between any two meetings ■■ Matters required to be included in the management in the Company. This committee was less than four months. The details of the Directors' Responsibility Statement to named the Credit Policy Committee comprises Audit Committee are given in Table 3. be included in the Board’s report in terms of Mr. Gautam Kaji (Chairman), Mr. Shardul The Chief Financial officer and the of Clause (2AA) of Section 217 of the Shroff, Mr. S. H. Khan and Dr. Rajiv Lall. The representative of the statutory auditors, and Companies Act, 1956 quorum for any meeting of this committee is internal auditors are regularly invited by the ■■ Changes, if any, in accounting policies two. The Committee met on January 25, 2010. Audit Committee to its meetings. and practices and reasons for the same This Committee reviews and monitors mainly Mr. Mahendra Shah, Company Secretary of ■■ Major accounting entries involving three types of risks across the organisation i.e. IDFC, is the secretary to the Committee. estimates based on the exercise of Credit Risk, Market Risk and Operational Risk. All members of the Audit Committee judgement by management Overall framework for monitoring these risks have accounting and financial management ■■ Significant adjustments made in the is called Enterprise Risk Management System. expertise. Mr. S.H. Khan, Chairman of the Audit financial statements arising out of audit Committee, was present at the Company’s findings COMMITTEES OF THE BOARD Annual General Meeting (AGM) held on July 20, ■■ Compliance with listing and other IDFC has constituted Board-level committees 2009 to answer shareholder queries. legal requirements relating to financial to delegate particular matters that require statements greater and more focussed attention in the THE FUNCTIONS OF THE AUDIT ■■ Disclosure of any related party affairs of the Company. These committees COMMITTEE OF THE COMPANY transactions prepare the ground-work for decision-making INCLUDE THE FOLLOWING: ■■ Qualifications in the draft audit report and report to the Board. ■■ Oversight of the Company’s financial ■■ Reviewing, with the management, the All decisions pertaining to the constitution reporting process and the disclosure of its quarterly financial statements before of committees, appointment of members in financial information to ensure that the submission to the Board for approval the different committees and fixing of terms financial statement is correct, sufficient ■■ Reviewing, with the management, of service for committee members is taken by and credible performance of statutory and internal the Board of Directors. Details on the role and 2 Details of remuneration paid to Directors for 2009-10 Name of the Director Sitting Salary and Contribution to Provident Performance Linked Commission & Total Fees Perquisites and Other Funds Incentive others Mr. Deepak Parekh 540,000 – – – 2,000,000 2,540,000 Dr. Rajiv Lall – 12,588,484 1,346,953 2,821,875 – 16,757,312 Mr. Vikram Limaye – 13,580,379 1,482,402 1,968,750 – 17,031,531 Mr. Donald Peck 260,000 – – – 298,214 558,214 Mr. S.H.Khan 420,000 – – – 1,400,000 1,820,000 Mr. Shardul Shroff 180,000 – – – 935,714 1,115,714 Mr. Gautam Kaji 200,000 – – – 1,107,143 1,307,143 Dr. Omkar Goswami 320,000 – – – 1,350,000 1,670,000 Mr. S.S. Kohli – – – – – – Mr. Arun Ramanathan – – – – – – Mr. G. C. Chaturvedi – – – – – – Mr. Abdul Rahim Abu Bakar – – – – 871,429 871,429 Mr. Dimitris Tsitsiragos – – – – – –

During 2009-10, the Company did not advance loans to any of its Directors. None of the Directors are entitled to severance fee. The notice period for the Managing Director and CEO, Dr. Rajiv Lall and Whole-time Director, Mr. Vikram Limaye, is 3 months. None of the employees of the Company are related to any of the Directors.

54 I D F C A N N U A L R E P O R T 09 –10 3 Attendance record of IDFC’s Audit Committee Name of the Member Position Status No. of Meetings held No. of Meetings Attended Mr. S.H.Khan Independent Director Chairman 5 5 Mr. Shardul Shroff Independent Director Member 5 3 Dr. Omkar Goswami Independent Director Member 5 4 Mr. Gautam Kaji Independent Director Member 5 4

auditors, adequacy of the internal control experience and expertise, when considered WITH REGARD TO RELATED systems necessary. PARTY TRANSACTIONS BY BEING ■■ Reviewing the adequacy of internal audit PRESENTED: function, if any, including the structure of THE COMPANY HAS SYSTEMS AND ■■ A statement in summary form of the internal audit department, staffing PROCEDURES IN PLACE TO ENSURE transactions with related parties in the and seniority of the official heading the THAT THE AUDIT COMMITTEE ordinary course of business department, reporting structure coverage MANDATORILY REVIEWS: ■■ Details of material individual transactions and frequency of internal audit ■■ Management discussion and analysis of with related parties which are not in the ■■ Discussion with internal auditors any financial condition and results of operations normal course of business significant findings and follow up there on ■■ Statement of significant related party ■■ Details of material individual transactions ■■ Reviewing the findings of any internal transactions (as defined by the Audit with related parties or others, which are investigations by the internal auditors into Committee), submitted by management not on an arm’s length basis along with matters where there is suspected fraud or ■■ Management letters / letters of internal management’s justification for the same. irregularity or a failure of internal control control weaknesses issued by the statutory systems of a material nature and reporting auditors B COMPENSATION COMMITTEE the matter to the Board ■■ Internal audit reports relating to internal As of March 31, 2010, IDFC’s Compensation ■■ Discussion with statutory auditors before control weaknesses Committee comprises of five Directors. The the audit commences, about the nature ■■ The appointment, removal and terms of Compensation Committee met on April 28, and scope of audit as well as post-audit remuneration of the internal auditor 2009, January 25, 2010 and March 23, 2010. discussion to ascertain any area of concern ■■ Whenever applicable, the uses/applications Table 4 gives the details. ■■ To look into the reasons for substantial of funds raised through public issues, The Compensation Committee of the defaults in the payment to the depositors, rights issues, preferential issues by major Company recommends to the Board the debenture holders, shareholders (in case category (capital expenditure, sales and compensation terms of whole-time Directors of non-payment of declared dividends) and marketing, working capital, etc.), as part of and senior managerial personnel. The minutes creditors the quarterly declaration of financial results of the Compensation Committee meetings are ■■ Carrying out any other function as is ■■ If applicable, on an annual basis, statement reviewed by the Board. mentioned in the terms of reference of the certified by the statutory auditors, detailing Audit Committee. the use of funds raised through public C NOMINATION COMMITTEE issues, rights issues, preferential issues As of March 31, 2010, the Nomination THE AUDIT COMMITTEE IS for purposes other than those stated in the Committee comprises of four Directors. EMPOWERED, PURSUANT TO ITS offer document/prospectus/notice. The Committee met on April 28, 2009 and TERMS OF REFERENCE, TO: In addition, the Audit Committee of March 23, 2010. Table 5 gives the details. ■■ Investigate any activity within its terms of the Company also reviews the financial The Committee assists Board in the reference and to seek any information it statements, in particular, the investments appointment of new Board members, and other requires from any employee made by the unlisted subsidiary company. related matters like succession planning etc. ■■ Obtain legal or other independent professional advice and to secure the THE AUDIT COMMITTEE IS ALSO attendance of outsiders with relevant APPRISED ON INFORMATION

4 Attendance details of IDFC’s Compensation Committee Name of the Member Position Status No. of Meetings held No. of Meetings Attended Mr. Omkar Goswami Independent Director Chairman 3 3 Mr. S.S.Kohli Nominee Director Member 3 3 Mr. S. H. Khan Independent Director Member 3 2 Mr. Shardul Shroff Independent Director Member 3 3 Mr. Donald Peck* Independent Director Member 3 2 * Mr. Peck attended one meeting through teleconference.

CORPORATE GOVERNANCE 55 5 Attendance details of IDFC’s Nomination Committee Name of the Member Position Status No. of Meetings held No. of Meetings Attended Mr. Deepak Parekh Non-Executive Chairman Chairman 2 2 Mr. Gautam Kaji Independent Director Member 2 2 Mr. Donald Peck Independent Director Member 2 1 Dr. Omkar Goswami Independent Director Member 2 1

6 Attendance Details of IDFC’s Shareholders/Investor Grievance Name of the Member Position Status No. of Meetings held No. of Meetings Attended Mr. S.H.Khan Independent Director Chairman 4 4 Dr. Omkar Goswami Independent Director Member 4 3 Dr. Rajiv Lall Managing Director & CEO Member 4 4

7 Nature of complaints received and attended to during 2009-10 Nature of Complaint Pending as on Received during Answered during Pending as on April 1, 2009 the year the year March 31, 2010

1. Transfer / Transmission / Duplicate Nil NIL NIL NIL 2. Non-receipt of Dividend Nil 265 265 NIL 3. Dematerialisation /Rematerialisation of shares Nil NIL NIL NIL 4. Complaints received from: - Securities and Exchange Board of India Nil 5 5 NIL - Stock Exchanges Nil 2 2 NIL - Registrar of Companies/ Department of Company Affairs Nil NIL NIL NIL 5. Legal NIL 1 1 NIL 6. Non-receipt of Refund order Nil 13 13 NIL 7. Non-receipt of Electronic Credits Nil 8 8 NIL 8. Non-receipt of Annual Reports Nil 14 14 NIL

D INVESTORS’ GRIEVANCE COMMITTEE As on March 31, 2010, none of the Rules, 2006, in preparation of its financial As of March 31, 2010, the Investors’ Grievance non-executive Directors held any shares or statements. Committee consists of three Directors, two of convertible instruments of the Company. whom are independent. The Committee met DETAILS OF NON-COMPLIANCE BY THE four times during the year under review; on April C O M P A N Y 28, 2009, July 20, 2009, November 7, 2009 and MANAGEMENT IDFC has complied with all the requirements of January 25, 2010. Table 6 gives the details. regulatory authorities. No penalties/strictures Mr. Mahendra Shah, Company Secretary of MANAGEMENT DISCUSSION were imposed on the Company by stock IDFC, is the Compliance Officer. A N D A N A LY S I S exchanges or SEBI or any statutory authority Details of queries and grievances received The Annual Report has a detailed separate on any matter related to capital market during and attended by the Company during 2009-10 section on the Management Discussion and the last three years. are given in Table 7. Analysis. CODE FOR PREVENTION OF INSIDER SUBSIDIARY COMPANIES D I S C L O S U R E S TRADING PRACTICES Clause 49 defines a “material non-listed Transactions with related parties entered into In compliance with the SEBI regulation on Indian subsidiary” as an unlisted subsidiary, by the Company in the normal course of business prevention of insider trading, the Company has incorporated in India, whose turnover or net were placed before the Audit Committee. instituted a comprehensive code of conduct worth (i.e. paid up capital and free reserves) Details of related party transactions are for its management and staff. The code lays exceeds 20% of the consolidated turnover included in the Notes to the Accounts. down guidelines, which advises them on or net worth respectively, of the listed procedures to be followed and disclosures to holding company and its subsidiaries in the DISCLOSURE OF ACCOUNTING TREATMENT be made, while dealing in shares of company, immediately preceding accounting year. IN PREPARATION OF FINANCIAL and cautioning them of the consequences of Under this definition, the Company does not ST AT E M E N T S violations. have a ‘material non-listed Indian subsidiary’. The Company has complied with applicable Shares and convertible instruments held by Accounting Standards notified by the the non-executive Directors. Companies (Accounting Standards)

56 I D F C A N N U A L R E P O R T 09 –10 8 Annual / Extra-Ordinary General Meetings Financial Year Category Location of the meeting Date 2006-07 AGM Narada Gana Sabha Hall, Chennai June 28, 2007 2007-08 AGM Rani Seethai Hall, 603, Anna Salai, Chennai July 18, 2008 2008-09 AGM Tapovan Hall , Chetpet, Chennai 600031 July 20, 2009

ANTI MONEY LAUNDERING AND KNOW Directors w.e.f. July 21, 2009 and they will releases and presentation to analysts made by YOUR CUSTOMER POLICY hold the office of Director till the date of the Company. In keeping with specific requirements for the ensuing Annual General Meeting. The Also, pursuant to the requirement of Clause NBFCs, the Company has also formulated Company has received notices from some of 51 of the Listing Agreement (which has been an Anti Money Laundering and Know Your the members of the Company under Section deleted w.e.f. April 1, 2010), IDFC has filed its Customer Policy. 257 of the Companies Act, 1956 proposing the financial results upto December, 2009 under candidatures of Mr. G.C. Chaturvedi and the EDIFAR system. CEO/ CFO CERTIFICATION Mr. Donald Peck as the Directors. The quarterly, half-yearly and annual The CEO and CFO certification of the financial The brief resumes of the Directors getting results of the Company’s performance are statements for the year is enclosed at the end appointed/ re-appointed are given in the published in leading newspapers like the of the report. Notice of the Annual General Meeting. Economic Times and Business Standard.

RE-APPOINTMENT/APPOINTMENT OF GENERAL BODY MEETINGS D I R E CT O R S SHAREHOLDERS Table 8 gives the details of the last three Eight Directors are liable to retire by rotation. General Meetings. Of the retiring Directors, at least one-third MEANS OF COMMUNICATION WITH The following Special Resolutions were retires every year and if eligible, qualify for S H A R E H O L D E R S taken up in the last three AGMs, and were re-appointment. Mr. Gautam Kaji , Mr. Dimitris All important information relating to the passed with requisite majority. Tsitsiragos and Mr. Abdul Rahim Abu Bakar are Company and its performance, including retiring by rotation and being eligible, offer financial results and shareholding pattern AGM HELD ON JUNE 28, 2007: themselves for re-appointment in the Annual are posted on the web-site www.idfc.com. 1. Appointment of Auditors General meeting. Mr. G.C. Chaturvedi and The web-site also displays all official press 2. Increase in borrowing limits Mr. Donald Peck were appointed as Additional 3. Increase in FII Limits

9 Compliance report Particulars Clause of Listing Agreement Compliance status I. Board of Directors 49 I Compliant (A)Composition of Board 49(IA) Compliant (B)Non-executive Directors Compensation & Disclosures 49 (IB) Compliant (C)Other provisions as to Board and Committees 49 (IC) Compliant (D)Code of Conduct 49 (ID) Compliant II. Audit Committee 49 (II) Compliant (A)Qualified & Independent Audit Committee 49 (IIA) Compliant (B)Meeting of Audit Committee 49 (IIB) Compliant (C)Powers of Audit Committee 49 (IIC) Compliant (D)Role of Audit Committee 49 (IID) Compliant (E)Review of Information by Audit Committee 49 (IIE) Compliant III. Subsidiary Companies 49 (III) Compliant IV. Disclosures 49 (IV) Compliant (A)Basis of related party transactions 49 (IV A) Compliant (B)Board Disclosures 49 (IV B) Compliant (C)Proceeds from public, rights, preference issues etc 49 (IV C) Compliant (D)Remuneration of Directors 49 (IV D) Compliant (E)Management 49 (IV E) Compliant (F)Shareholders 49 (IV F) Compliant V.CEO/CFO Certification 49 (V) Compliant VI. Report on Corporate Governance 49 (VI) Compliant VII. Compliance 49 (VII) Compliant

CORPORATE GOVERNANCE 57 4. Amendment to the Memorandum of ADOPTION OF NON-MANDATORY Association R E Q U I R E M E N T S 5. Infusion of Capital Although it is not mandatory, the Board of IDFC has constituted a Compensation Committee. AGM HELD ON JULY 18, 2008: Details of the Committee have been provided 1. Appointment of Auditors under the Section ‘Compensation Committee’. 2. Payment of Commission to Non-executive The Company has also adopted Whistle Blower Directors Policy. In addition it is important to note that 3. Increase in limit for issuance of shares under the Company’s financial statements are free ESOS from 2% to 5% from any qualifications by the Auditors of the 4. Alteration in the Articles of Association of Company. the Company The Board of Directors of the Company, at 5. Infusion of Capital its meeting held on April 27, 2010 noted the voluntary guidelines issued by the Ministry AGM HELD ON JULY 20, 2009: of Corporate Affairs (MCA) on Corporate 1. Appointment of Auditors Governance to be voluntarily adopted by 2. Grant of Stock of Options in excess of 1% the listed public companies in addition to the in one year under Employee Stock Option mandatory requirements prescribed under Scheme of the Company. Clause 49 of the Listing Agreement relating to Corporate Governance. Whilst, the Company is P O ST A L B A L L O T in compliance with the mandatory provisions No resolution was passed by postal ballot of the said Clause, the Board felt that the during the year under review. Company could adopt the relevant provisions of the said guidelines at an appropriate time.

COMPLIANCE

MANDATORY REQUIREMENTS The Company is fully compliant with the applicable mandatory requirements of the revised Clause 49.

58 I D F C A N N U A L R E P O R T 09 –10 additional shareholder information

ANNUAL GENERAL MEETING For the year ended March 31, 2010, results ■■ Second week of November 2010: Half yearly Date: June 28, 2010 were announced on: ■■ Second week of February 2011: Third Time: 2.30 p.m. ■■ July 20, 2009: First quarter quarter Venue: Tapovan Hall, Chinmaya Heritage ■■ October 23, 2009: Half yearly ■■ Second week of May 2011: Fourth quarter Centre, No. 2, 13th Avenue, Harrington Road, ■■ January 26, 2010: Third quarter and annual. Chetpet, Chennai - 600 031 ■■ April 27, 2010: Fourth quarter and annual.

For the year ending March 31, 2011, results BOOK CLOSURE FINANCIAL CALENDAR will be announced by The dates of book closure are from June 21, Financial year: April 1 to March 31 ■■ Second week of August 2010 : First quarter 2010 to June 28, 2010 (both days inclusive).

IDFC’s Stock Exchange codes 1 DIVIDEND PAYMENT Name of the Stock Exchange Stock Code A final dividend of Re.1.50 per equity share National Stock Exchange of India Limited, Mumbai IDFC EQ will be paid from June 29, 2010, subject to Bombay Stock Exchange Limited, Mumbai 532659 approval by the shareholders at the Annual ISIN No. INE043D01016 General Meeting. 2 High, lows and volumes of Company’s shares for 2009-10 at BSE and NSE BSE NSE UNCLAIMED SHARES LYING IN THE High Low Volume High Low Volume ESCROW ACCOUNT Mar-10 167 158 17,354,539 168 157 79,432,949 The Company made an Initial Public offering Feb-10 164.25 141.75 17,252,715 164.35 141.6 78,717,771 comprising of an offer to sell equity shares Jan-10 167.2 144.8 20,666,690 167.2 144.6 86,718,313 held by the then existing shareholders and Dec-09 174.9 147 28,327,137 174.85 147.15 100,464,833 fresh issue of capital during July-August, Nov-09 179.7 139.8 35,397,661 179 139.7 153,253,019 2005 of 403,600,000 equity shares. As of Oct-09 162.5 144.75 58,229,081 163 144.3 205,847,162 March 31, 2010, out of the aforesaid equity Sep-09 150.4 129.5 45,085,678 150.45 129.5 162,645,640 shares, 32,099 equity shares in respect of Aug-09 143.45 126.85 47,138,809 143.5 126.55 158,509,591 112 members have been lying in the Escrow Jul-09 149.95 115 101,742,284 149.95 114.55 336,468,513 Account for want of correct demat account Jun-09 147.65 117.75 97,718,150 147.65 117.6 299,189,423 details of members. Efforts are on to contact May-09 142.8 78.5 119,652,525 143 78.5 348,510,067 members to obtain correct details so that the Apr-09 85 53.6 81,837,290 80.85 53.6 228,545,940 equity shares can be credited in their demat Note: High and low are in Rupees per traded share accounts. Volumes is the total monthly volume of trade in number of IDFC’s shares

ADDITIONAL SHAREHOLDER INFORMATION 59 In light of SEBI's notification No. SEBI/ Shareholding pattern by size CFD/DIL/LA/2009/24/04 on April 24, 2009, 3 the Company is in the process of opening a Number of shares No. of shareholders % of shareholders Total shares % of shares separate account so that the aferesaid shares Upto 5000 275,711 87.09 % 42,376,044 3.88 % may be credited in the said account. The voting 5001-10000 25,811 8.15 % 18,295,094 1.74 % rights in respect of the said shares will be 10001-20000 8,041 2.54 % 11,921,223 1.24 % frozen till the time rightful owners claim such 20001-30000 2,452 0.77 % 6,276,516 0.66 % shares. 30001-40000 1,035 0.33 % 3,719,368 0.37 % 40001-50000 806 0.25 % 3,826,055 0.41 % 50001-100000 1,275 0.40 % 9,345,171 0.97 % LISTING 100001 and above 1,462 0.46 % 1,204,852,922 90.73 % At present, the equity shares of the Company Total 316,593 100 % 1,300,612,393 100 % are listed on Bombay Stock Exchange Limited (BSE) and National Stock Exchange of India Limited (NSE). The annual listing fees for the financial year 2010-11 to NSE and BSE have A IDFC’s Share Performance on BSE versus BSE Sensex been paid.

STOCK MARKET DATA 250 Table 2, Chart A and Chart B give details IDFC 200 B S E SENSEX DISTRIBUTION OF SHAREHOLDING 150 Table 3 and 4 lists the distribution of the 100 shareholding of the equity shares of the Company by size and by ownership class as on 50 March 31, 2010.

Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sept 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 DEMATERIALISATION OF SHARES As on March 31, 2010, over 99.9% shares Note: IDFC share prices at the BSE and the BSE Sensex have been indexed to 100 as on the first working day of 2009-10 of the Company were held in dematerialised form.

DETAILS OF PUBLIC FUNDING IDFC’s Share Performance on NSE versus Nifty OBTAINED IN THE LAST THREE B YEARS The Company made fresh issue of capital by way of Qualified Institutional Placement under 250 the applicable SEBI guidelines during July 2007. IDFC 200 NSE NIFTY 150 SHARE TRANSFER SYSTEM IDFC has appointed Karvy Computershare 100 Private Limited (Karvy) as its Registrar and Transfer Agent. All share transfers and related 50 operations are conducted by Karvy, which is registered with the SEBI as a Category

1 Registrar. The Company has constituted Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sept 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 an Investors’ Grievances Committee for redressing shareholders’ and investors' Note: IDFC share prices at the NSE and the NSE Nifty have been indexed to 100 as on the first working day of 2009-10 complaints.

60 I D F C A N N U A L R E P O R T 09 –10 4 Shareholding pattern by ownership March 31, 2010 March 31, 2009

NO. OF EQUITY SHARES (FACE SHARES HELD NO. OF EQUITY (FACE VALUE SHARES HELD VALUE OF RS. 10/- EACH) (PERCENTAGE) RS. 10/- EACH) (PERCENTAGE)

A. PROMOTERS HOLDING PROMOTERS Indian Promoters 0 0.00% 0 0.00% Foreign Promoters 0 0.00% 0 0.00% Persons acting in concert 0 0.00% 0 0.00% B. NON-PROMOTERS HOLDING a) President of India 261,400,000 20.10% 261,400,000 20.18% b) Banks, Financial Institutions, Insurance Companies 213,646,350 16.43% 194,967,758 15.05% (Central / State Government Institutions / Non-Government, Institutions)

c) Foreign Institutional Investors (FIIs) 577,536,022 44.40% 407,341,731 31.45% d) Foreign Direct Investment (FDI) 12,950,000 1.00% 104,285,432 8.05% e) Mutual Funds 71,999,642 5.54% 99,538,053 7.69% f) Private Corporate Bodies 38,244,753 2.94% 55,442,058 4.28% g) Indian Public 115,020,414 8.84% 147,038,380 11.35% h) NRIs/ OCBs/ Foreign Nationals 3,966,398 0.30% 6,080,626 0.47% i) Any other CIearing Member 903,685 0.07% 12,657,507 0.98% Trusts 409,592 0.03% 494,799 0.04% H U F 4,535,537 0.35% 6,029,717 0.47% Grand Total 1,300,612,393 100% 1,295,276,061 100%

INVESTOR CORRESPONDENCE SHOULD BE A D D R E S S E D T O : 1 . REGISTRAR AND TRANSFER AGENT. (UNIT : IDFC) Karvy Computershare Pvt. ltd. Plot No. 17 to 24, Vittal Rao Nagar, Madhapur Hyderabad - 500 081 Tel: +91-40-23420815 to 824

2 . THE COMPANY SECRETARY INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LIMITED Naman Chambers, C-32, G - Block, Bandra-Kurla Complex, Bandra (East) Mumbai - 400 051 Tel: +91-22-42222016 E-mail: [email protected]

REGISTERED OFFICE ADDRESS: KRM Tower, 8th Floor, No. 1, Harrington Road, Chetpet, Chennai - 600 031 Tel: +91-44-45644000

ADDITIONAL SHAREHOLDER INFORMATION 61 CERTIFICATION BY B. There are, to the best of our knowledge and 3. Instances of significant fraud of which CHIEF EXECUTIVE OFFICER AND belief, no transactions entered into by IDFC we have become aware and the involvement CHIEF FINANCIAL OFFICER OF during the year which are fraudulent, illegal or therein, if any, of the management or an THE COMPANY violative of the Company’s Code of Conduct. employee having a significant role in the We, Rajiv B. Lall, Managing Director & C. We are responsible for establishing and Company’s internal control system. Chief Executive Officer and L.K. Narayan, maintaining internal controls for financial E. We affirm that we have not denied any Chief Financial Officer, of Infrastructure reporting in IDFC and we have evaluated the personnel access to the Audit Committee of Development Finance Company Limited (the effectiveness of the internal control systems the Company (in respect of matters involving Company), hereby certify to the Board that: of the Company pertaining to financial alleged misconduct, if any). reporting. We have disclosed to the Auditors F. We further declare that all Board members A. We have reviewed financial statements and and the Audit Committee, deficiencies in the and senior management have affirmed the cash flow statement for the year and that design or operation of such internal controls, compliance with the code of conduct for the to the best of our knowledge and belief: if any, of which we are aware and the steps we current year. 1. These statements do not contain any have taken or propose to take to rectify these materially untrue statement or omit any deficiencies. material fact or contain statements that D. We have indicated to the Auditors and the RAJIV B. LALL might be misleading; Audit committee: Managing Director & Chief Executive Officer 2. These statements together present 1. Significant changes in internal control a true and fair view of the Company’s over financial reporting during the year; L.K. NARAYAN affairs and are in compliance with existing 2. Significant changes in accounting Chief Financial Officer accounting standards, applicable laws and policies during the year and the same have regulations. been disclosed in the notes to the financial M u m b a i statements; and April 27, 2010

AUDITORS' CERTIFICATE given to us, we certify that the Company TO THE MEMBERS OF has complied with the conditions of INFRASTRUCTURE DEVELOPMENT corporate governance as stipulated in the FINANCE COMPANY LIMITED abovementioned Listing Agreement. We have examined the compliance of We further state that such compliance conditions of corporate governance by is neither an assurance as to the future INFRASTRUCTURE DEVELOPMENT viability of the Company nor the efficiency or FINANCE COMPANY LIMITED effectiveness with which the Management has (“the Company”) for the year ended on conducted the affairs of the Company. 31st March, 2010, as stipulated in clause 49 of the Listing Agreement of the said Company with the stock exchanges. FOR DELOITTE HASKINS & SELLS The compliance of conditions of corporate Chartered Accountants governance is the responsibility of the (Registration No. 117366W) Management. Our examination was limited to procedures and implementation thereof, NALIN M. SHAH adopted by the Company for ensuring Partner the compliance of the conditions of the Membership No. 15860 corporate governance. It is neither an audit nor an expression of opinion on the financial statements of the Company. M u m b a i In our opinion and to the best of our 14th May, 2010 information and according to the explanations

62 I D F C A N N U A L R E P O R T 09 –10 AUDITORS’ REPORT

TO THE BOARD OF DIRECTORS OF INFRASTRUCTURE 4. The Consolidated Financial Statements include the unaudited DEVELOPMENT FINANCE COMPANY LIMITED financial statements of one joint venture, whose financial statements reflect total assets (net) of Rs. 126,288,730 as at March 31, 2010, 1. We have audited the attached Consolidated Balance Sheet of total revenues (net) of Rs. 179,492,673 and net cash inflows INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LIMITED amounting to Rs. 28,929,369 for the year ended on that date. The (“the Company”), its subsidiaries and jointly controlled entities (the Consolidated Financial Statements also include the Company’s share Company, its subsidiaries and jointly controlled entities constitute of profit amounting to Rs. 1,213,971 based on the unaudited financial “the Group”) as at March 31, 2010, the Consolidated Profit and Loss statements of one associate. Account and the Consolidated Cash Flow Statement of the Group for the year ended on that date, both annexed thereto. The Consolidated 5. We report that the Consolidated Financial Statements have Financial Statements include investments in associates accounted been prepared by the Company in accordance with the requirements on the equity method in accordance with Accounting Standard of Accounting Standard 21 (Consolidated Financial Statements), 23 (Accounting for Investments in Associates in Consolidated Accounting Standard 23 (Accounting for Investment in Associates Financial Statements) and the jointly controlled entities accounted in Consolidated Financial Statements) and Accounting Standard 27 in accordance with Accounting Standard 27 (Financial Reporting (Financial Reporting of Interests in Joint Ventures) as notified under of Interests in Joint Ventures) as notified under the Companies the Companies (Accounting Standards) Rules, 2006. (Accounting Standards) Rules, 2006. These financial statements 6. Based on our audit and on consideration of the separate audit are the responsibility of the Company’s Management and have been reports on the individual financial statements of the Company, the prepared on the basis of the separate financial statements and other subsidiaries, joint ventures and associates, and to the best of our financial information regarding components. Our responsibility is information and according to the explanations given to us, in our to express an opinion on these Consolidated Financial Statements opinion, subject to our comments in paragraph 4 regarding inclusion based on our audit. of unaudited accounts relating to one joint venture and one associate, 2. We conducted our audit in accordance with the auditing the Consolidated Financial Statements give a true and fair view in standards generally accepted in India. Those Standards require that conformity with the accounting principles generally accepted in India: we plan and perform the audit to obtain reasonable assurance about (i) in the case of the Consolidated Balance Sheet, of the state whether the financial statements are free of material misstatements. of affairs of the Group as at March 31, 2010; An audit includes examining, on a test basis, evidence supporting (ii) in the case of the Consolidated Profit and Loss Account, of the amounts and the disclosures in the financial statements. An the profit of the Group for the year ended on that date; and audit also includes assessing the accounting principles used and the (iii) in the case of the Consolidated Cash Flow Statement, of the significant estimates made by the Management, as well as evaluating cash flows of the Group for the year ended on that date. the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. 3. We did not audit the financial statements of thirteen subsidiaries and one joint venture, whose financial statements reflect total assets (net) of Rs. 1,868,020,304 as at March 31, 2010, total revenues (net) FOR DELOITTE HASKINS & SELLS of Rs. 2,107,763,768 and net cash inflows amounting to Chartered Accountants Rs. 1,396,383,979 for the year ended on that date as considered in (Registration No. 117366W) the Consolidated Financial Statements. We have also not audited the financial statements of one associate in which the Company’s share NALIN M. SHAH of profit amounts to Rs. 5,841,752. These financial statements have Partner been audited by other auditors whose reports have been furnished Membership No. 15860 to us and our opinion in so far as it relates to the amounts included in respect of these subsidiaries, joint venture and associate is based Mumbai solely on the reports of the other auditors. April 27, 2010

CONSOLIDATED ACCOUNTS 6 3 BALANCE SHEET CONSOLIDATED AS AT MARCH 31, 2010

RUPEES RUPEES RUPEES SCHEDULE ÿ AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 SOURCES OF FUNDS : Shareholders’ Funds Capital 1 13,006,123,930 12,952,760,610 Share Application Money 2,563,997 524,400 Reserves and Surplus 2 57,094,567,294 48,805,557,101 70,103,255,221 61,758,842,111 Loan Funds Unsecured 3 265,438,628,642 235,481,134,291 Minority Interest 63,273,606 281,054,833 Deferred Tax Liability (See Schedule 18 Note 16) 11,123,518 3,817,280 335,616,280,987 297,524,848,515 APPLICATION OF FUNDS : Fixed Assets 4 Gross Block 5,184,174,458 5,111,516,822 Less : Depreciation and Amortisation 907,410,471 612,579,446 4,276,763,987 4,498,937,376 Add: Capital Work-in-Progress 54,620,121 44,417,665 Add: Pre-operative Expenses pending capitalisation 83,706,961 – 4,415,091,069 4,543,355,041 Goodwill on Consolidation 11,694,297,880 10,789,810,452 Investments 5 46,417,477,247 64,999,756,526 Infrastructure Loans 6 250,310,645,435 205,962,446,715 Deferred Tax Asset (See Schedule 18 Note 16) 1,766,206,997 1,425,031,594 Current Assets, Loans and Advances Income accrued on Investments 493,374,390 654,391,953 Interest accrued on Infrastructure Loans 3,598,209,916 2,497,912,608 Sundry Debtors 7 859,124,016 331,561,743 Cash and Bank balances 8 2,714,698,979 8,254,518,537 Loans and Advances 9 25,830,178,738 7,542,182,396 33,495,586,039 19,280,567,237 Less: Current Liabilities and Provisions Current Liabilities 10 10,185,729,828 7,663,547,034 Provisions 11 2,297,293,852 1,812,572,016 12,483,023,680 9,476,119,050 Net Current Assets 21,012,562,359 9,804,448,187 335,616,280,987 297,524,848,515 Notes to the Accounts 18 Schedules 1 to 18 form an integral part of the Accounts

IN TERMS OF OUR REPORT ATTACHED

FOR DELOITTE HASKINS & SELLS FOR AND ON BEHALF OF THE BOARD Chartered Accountants

NALIN M. SHAH DEEPAK S. PAREKH RAJIV B. LALL Partner Chairman Managing Director & CEO

L. K. NARAYAN MAHENDRA N. SHAH Mumbai | April 27, 2010 Chief Financial Officer Company Secretary

6 4 I D F C A N N U A L R E P O R T 09 –10 PROFIT AND LOSS ACCOUNT CONSOLIDATED FOR THE YEAR ENDED MARCH 31, 2010

RUPEES RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO SCHEDULE ÿ MARCH 31, 2010 MARCH 31, 2009 INCOME Operating and Other Income 12 40,601,577,347 36,367,905,816 EXPENDITURE Interest and Other Charges 13 19,534,659,942 20,812,131,849 Staff Expenses 14 3,072,393,701 1,771,896,258 Establishment Expenses 15 405,981,195 328,682,634 Other Expenses 16 1,597,869,916 1,326,464,929 Provisions and Contingencies 17 1,297,711,477 1,531,762,955 Depreciation and Amortisation 405,742,123 238,053,249 26,314,358,354 26,008,991,874 PROFIT BEFORE TAXATION 14,287,218,993 10,358,913,942 Less: Provision for Taxation Current Tax 3,999,628,119 3,206,279,026 Less: Deferred Tax Credit (See Schedule 18 Note 16) 333,869,109 450,541,769 Add: Fringe Benefit Tax – 25,915,918 3,665,759,010 2,781,653,175 PROFIT AFTER TAXATION (before share of profit from Associates and adjustment for Minority Interest) 10,621,459,983 7,577,260,767 Add: Share of Net Profit from Associates (Equity method) 7,055,723 13,361,600 Less: Share of Profit of Minority Interest 1,004,831 42,262,697 Less: Pre acquisition Profit for the year of Subsidiaries (net) 4,594,461 50,103,146 [See Schedule 18 Notes 3(a) & 3(d)] PROFIT AFTER TAXATION 10,622,916,414 7,498,256,524 Add: Balance as per last Balance Sheet 10,885,845,000 8,390,298,194 Add: Opening Adjustment (See Schedule 18 Note 21) 24,083,297 – AVAILABLE FOR APPROPRIATION 21,532,844,711 15,888,554,718 Appropriations: Special Reserve u/s 36(1)(viii) of Income Tax Act, 1961 2,340,989,999 1,450,989,999 (See Schedule 18 Note 20) Special Reserve u/s 45-IC of RBI Act, 1934 2,038,352,575 1,496,342,976 General Reserve 553,323,000 235,598,000 Proposed Dividend (See Schedule 18 Note 5) 1,951,251,394 1,555,432,918 Tax on Dividend (See Schedule 18 Notes 5 & 10) 324,079,474 264,345,825 Balance carried forward 14,324,848,269 10,885,845,000 21,532,844,711 15,888,554,718 Earnings per share (Face Value Rs. 10) (See Schedule 18 Notes 6 & 15) Basic 8.20 5.79 Diluted 8.12 5.78 Notes to the Accounts 18 Schedules 1 to 18 form an integral part of the Accounts

IN TERMS OF OUR REPORT ATTACHED

FOR DELOITTE HASKINS & SELLS FOR AND ON BEHALF OF THE BOARD Chartered Accountants

NALIN M. SHAH DEEPAK S. PAREKH RAJIV B. LALL Partner Chairman Managing Director & CEO

L. K. NARAYAN MAHENDRA N. SHAH Mumbai | April 27, 2010 Chief Financial Officer Company Secretary

CONSOLIDATED ACCOUNTS 6 5 CASH FLOW STATEMENT CONSOLIDATED FOR THE YEAR ENDED MARCH 31, 2010

RUPEES RUPEES RUPEES FOR THE YEAR ENDED FOR THE YEAR ENDED MARCH 31, 2010 MARCH 31, 2009 A. CASH FLOW FROM OPERATING ACTIVITIES Profit before Taxation 14,287,218,993 10,358,913,942 Adjustments for: Depreciation and Amortisation 405,742,123 238,053,249 Provision for Employee Benefits 11,037,564 17,527,759 ESOP compensation cost 53,382,037 123,132,742 Provision for Contingencies 1,026,200,000 1,563,500,000 Provision for Doubtful Loans, Debtors and Restructured Loans 36,022,452 (202,021,031) Provision for Diminution in value of Investments 220,304,355 (60,962,090) Loss on Foreign Currency Revaluation 358,406,574 33,249,308 Amortisation of Premium on Investments 13,147,575 6,981,713 Foreign Currency Translation Reserve (11,433,177) 6,590,905 Profit on sale of Investments (4,286,094,945) (3,179,273,352) Profit on sale of Fixed Assets (118,952,133) (18,532,497) (2,292,237,575) (1,471,753,294) CASH GENERATED FROM OPERATIONS 11,994,981,418 8,887,160,648 Infrastructure Loans disbursed (net of repayments) (44,936,679,433) (7,303,409,887) Changes in: Current Assets, Loans and Advances 1,031,925,253 973,749,359 Current Liabilities 2,008,944,085 (389,184,858) 3,040,869,338 584,564,501 Direct Taxes paid (3,392,985,374) (2,593,652,714) NET CASH USED IN OPERATING ACTIVITIES (33,293,814,051) (425,337,452) B. CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets (including Capital Work-in-Progress & (399,343,699) (948,030,013) Pre-operative Expenses pending capitalisation) Sale of Fixed Assets 240,817,681 35,101,880 Purchase of Investments (1,017,586,449,388) (957,967,863,160) Sale Proceeds of Investments 1,018,713,832,942 951,128,126,828 Goodwill on acquisitions (904,487,428) (7,846,574,262) Capital Reserve on increase of stake in Subsidiary / Joint Venture 1,269 64,378 Opening Adjustment (See Schedule 18 Note 21) 24,083,297 – NET CASH FROM / (USED IN) INVESTING ACTIVITIES 88,454,674 (15,599,174,349) C. CASH FLOW FROM FINANCING ACTIVITIES Proceeds from fresh issue of shares (net of issue expenses) 207,455,365 17,604,074 Proceeds from Borrowings (net of repayments) 29,368,119,263 8,381,686,019 Dividend paid (including dividend tax) (1,852,785,221) (1,886,386,956) Decrease in Minority Interest (218,786,058) (2,387,620) NET CASH FROM FINANCING ACTIVITIES 27,504,003,349 6,510,515,517 Net increase in cash and cash equivalents (A+B+C) (5,701,356,028) (9,513,996,284) Cash and cash equivalents as at the beginning of the year [See Schedule 18 Note 18] 7,684,051,769 17,198,048,053 Cash and cash equivalents as at the end of the year [See Schedule 18 Note 18] 1,982,695,741 7,684,051,769 5,701,356,028 9,513,996,284

IN TERMS OF OUR REPORT ATTACHED

FOR DELOITTE HASKINS & SELLS FOR AND ON BEHALF OF THE BOARD Chartered Accountants

NALIN M. SHAH DEEPAK S. PAREKH RAJIV B. LALL Partner Chairman Managing Director & CEO

L. K. NARAYAN MAHENDRA N. SHAH Mumbai | April 27, 2010 Chief Financial Officer Company Secretary

6 6 I D F C A N N U A L R E P O R T 09 –10 SCHEDULES ANNEXED TO AND FORMING PART OF THE ACCOUNTS

SCHEDULE 1 Capital RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 AUTHORISED: 4,000,000,000 Equity Shares of Rs.10 each 40,000,000,000 40,000,000,000 100,000,000 Preference Shares of Rs.100 each 10,000,000,000 10,000,000,000 50,000,000,000 50,000,000,000 ISSUED, SUBSCRIBED AND PAID-UP: 1,300,612,393 (Previous Year 1,295,276,061) Equity Shares of Rs.10 each, fully paid-up 13,006,123,930 12,952,760,610 13,006,123,930 12,952,760,610

SCHEDULE 2 Reserves and Surplus RUPEES RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 SPECIAL RESERVE U/S 36(1)(viii) OF INCOME TAX ACT,1961 (See Schedule 18 Note 20) Opening Balance 6,805,816,497 5,354,826,498 Add: Transfer from Profit & Loss Account 2,340,989,999 1,450,989,999 9,146,806,496 6,805,816,497 SPECIAL RESERVE U/S 45-IC OF RBI ACT, 1934 Opening Balance 7,372,231,733 5,875,888,757 Add: Transfer from Profit & Loss Account 2,038,352,575 1,496,342,976 9,410,584,308 7,372,231,733 SECURITIES PREMIUM ACCOUNT Opening Balance 22,037,481,915 22,027,261,830 Add: Received during the year 152,052,448 7,308,694 Add: Options exercised during the year 1,397,289 2,911,391 Less: Utilised during the year (See Schedule 18 Note 6) 276,661,227 – 21,914,270,425 22,037,481,915 EMPLOYEES’ STOCK OPTIONS OUTSTANDING (See Schedule 18 Note 4) Opening Balance 151,663,094 31,441,743 Add: Net charge for the year 53,382,037 123,132,742 Less: Options exercised during the year 1,397,289 2,911,391 203,647,842 151,663,094 CAPITAL RESERVE ON CONSOLIDATION Opening Balance 12,541,434 12,477,056 Add: Acquisition / Increase in holding in Subsidiary / Joint Venture 1,269 64,378 12,542,703 12,541,434 FOREIGN CURRENCY TRANSLATION RESERVE [See Schedule 18 Note 2(I)(viii)] Opening Balance 6,590,905 – Add/(Less): Foreign Exchange translation in relation to non-integral (11,433,177) 6,590,905 foreign operations (4,842,272) 6,590,905 GENERAL RESERVE Opening Balance 1,533,386,523 1,297,788,523 Add: Transfer from Profit & Loss Account 553,323,000 235,598,000 2,086,709,523 1,533,386,523 PROFIT AND LOSS ACCOUNT 14,324,848,269 10,885,845,000 57,094,567,294 48,805,557,101

CONSOLIDATED ACCOUNTS 6 7 SCHEDULE 3 Loan Funds (Unsecured) RUPEES RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 LONG TERM SUBORDINATED DEBT FROM GOVERNMENT OF INDIA 6,500,000,000 6,500,000,000 LOAN FROM GOVERNMENT OF KARNATAKA 146,072,789 146,072,789 DEBENTURES (NON-CONVERTIBLE) [Refer Note (i)] 162,866,000,000 115,530,000,000 Less: Unexpired discount on zero percent debentures [Refer Note (iii)] 4,092,546,142 1,719,420,008 158,773,453,858 113,810,579,992 DEBENTURES (CONVERTIBLE) 63,772,100 – TERM LOANS [Refer Note (ii)] From Banks 50,455,497,768 61,991,260,953 From Others 11,656,312,500 16,977,812,500 62,111,810,268 78,969,073,453 227,595,109,015 199,425,726,234 SHORT TERM DEBENTURES (NON-CONVERTIBLE) 7,500,000,000 4,400,000,000 Less: Unexpired discount on zero percent debentures [Refer Note (iii)] 187,928,402 – 7,312,071,598 4,400,000,000 COMMERCIAL PAPER 17,500,000,000 15,010,000,000 Less: Unexpired discount on commercial papers [Refer Note (iii)] 268,551,971 883,897,554 17,231,448,029 14,126,102,446 TERM LOANS From Banks 11,300,000,000 17,529,305,611 From Others 2,000,000,000 – 13,300,000,000 17,529,305,611 37,843,519,627 36,055,408,057 265,438,628,642 235,481,134,291

NOTES: (i) Debentures of Rs. 162,866,000,000 (Previous Year Rs. 115,530,000,000 ) are secured by a mortgage on certain immovable properties up to a value of Rs. 1,000,000 and include Rs. 48,580,000,000 (Previous Year Rs. 26,860,000,000) repayable within a year. (ii) Term Loans from Banks include Rs. 13,162,285,085 (Previous Year Rs. 13,693,747,798) and from Others include Rs. 922,874,743 (Previous Year Rs. 2,317,125,000) repayable within a year. (iii) Unexpired discount is net of Rs. 1,631,380,732 (Previous Year Rs. 821,774,134) towards interest accrued but not due.

SCHEDULE 4 Fixed Assets RUPEES DESCRIPTION GROSS BLOCK DEPRECIATION AND AMORTISATION NET BLOCK - -

As at April 1, 2009 Opening Adjust * ment Additions Deletions Translation Exchange Difference As at March 31, 2010 As at April 1, 2009 Opening Adjust * ment Charge for the year Deletions Translation Exchange Difference As at March 31, 2010 As at March 31, 2010 As at March 31, 2009 Tangible Land - Freehold – 15,946,516 34,700,000 – – 50,646,516 – – – – – – 50,646,516 – Buildings Own Use 3,458,736,744 – – 161,937,205 – 3,296,799,539 139,852,690 – 165,801,158 58,080,550 – 247,573,298 3,049,226,241 3,318,884,054 Under Operating Lease 188,120,350 – – – – 188,120,350 81,557,215 – 5,328,157 – – 86,885,372 101,234,978 106,563,135 Leasehold improvements 23,679,963 – 72,485,798 5,815,909 (886,499) 89,463,353 4,607,525 – 23,246,830 1,922,853 (383,560) 25,547,942 63,915,411 19,072,438 Computer Hardware 144,662,937 100,911 37,674,544 17,809,506 (368,159) 164,260,727 93,568,276 – 27,530,075 13,785,185 (147,243) 107,165,923 57,094,804 51,094,661 Furniture, Fittings and Office Equipments Owned 207,001,484 428,607 84,620,286 45,633,403 (464,641) 245,952,333 93,734,669 63,514 29,710,076 36,407,902 (94,148) 87,006,209 158,946,124 113,266,815 Under Operating Lease 3,583,324 – 760,981 – – 4,344,305 872,981 – 175,765 – – 1,048,746 3,295,559 2,710,343 Windmills 1,012,500,000 – – – – 1,012,500,000 150,168,472 – 132,195,423 – – 282,363,895 730,136,105 862,331,528 Vehicles 11,218,859 – 3,822,088 1,519,037 – 13,521,910 6,118,827 – 1,837,757 680,347 – 7,276,237 6,245,673 5,100,032 Intangible Computer Software 60,929,961 – 56,711,960 94,901 (64,795) 117,482,225 42,088,404 – 19,808,562 67,576 594,752 62,424,142 55,058,083 18,841,557 Tenancy Rights 1,083,200 – – – – 1,083,200 10,387 – 108,320 – – 118,707 964,493 1,072,813 Total 5,111,516,822 16,476,034 290,775,657 232,809,961 (1,784,094) 5,184,174,458 612,579,446 63,514 405,742,123 110,944,413 (30,199) 907,410,471 4,276,763,987 4,498,937,376 Previous Year 858,569,651 43,933,905 4,247,084,011 38,070,745 – 5,111,516,822 367,204,664 28,822,894 238,053,249 21,501,361 – 612,579,446 4,498,937,376 * See Schedule 18 Note 21 Note: Buildings include Rs. 1,000 (Previous Year Rs. 1,250) being the cost of shares in co-operative housing societies.

6 8 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 5 Investments RUPEES RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 I. LONG TERM INVESTMENT IN ASSOCIATES: Equity Shares 200,870,985 620,870,985 Less: Goodwill on acquisition of Associates 97,993,681 97,993,681 102,877,304 522,877,304 Add: Adjustment for post-acquisition share of profit and reserves of Associates (Equity method) 87,910,690 71,078,462 190,787,994 593,955,766 OTHER INVESTMENTS: Equity Shares 7,267,468,837 7,568,638,227 Preference Shares 7,622,092,000 5,342,392,150 Venture Capital Units 3,979,378,730 2,983,238,050 Bonds 11,869,854,139 2,982,154,065 Government Securities 256,262,500 – Pass Through Certificates – 429,868,551 Security Receipts 220,031,677 220,787,023 Trust Units 5,000,000 110,000,000 31,220,087,883 19,637,078,066 31,410,875,877 20,231,033,832 II. CURRENT Equity Shares 871,752,699 – Bonds 5,226,798,900 3,830,808,961 Pass Through Certificates 1,102,632,104 1,315,070,607 Certificate of Deposits with Scheduled Banks 3,709,793,000 38,719,210,500 Commercial Papers 1,403,517,500 – Mutual Funds 3,300,954,671 1,279,074,949 Convertible Warrants 46,750 – 15,615,495,624 45,144,165,017 TOTAL (I + II) 47,026,371,501 65,375,198,849 Less : Provision for Diminution in Value of Investments 608,894,254 375,442,323 (See Schedule 18 Note 8) 46,417,477,247 64,999,756,526 NOTES: (1) Aggregate amount of quoted investments Cost 3,142,224,439 3,370,353,507 Market Value 4,144,842,552 3,301,986,340 (2) Aggregate amount of unquoted investments - Cost 43,884,147,062 62,004,845,342

SCHEDULE 6 Infrastructure Loans (See Schedule 18 Note 7) RUPEES RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 LOANS 248,877,968,919 201,359,415,471 DEBENTURES 6,516,784,194 6,942,443,220 PASS THROUGH CERTIFICATES – 1,688,668,991 255,394,753,113 209,990,527,682 Less: Provision for Doubtful Infrastructure Loans 368,707,678 325,580,967 Provision against Restructured Loans 14,200,000 27,500,000 Provision for Contingencies 4,701,200,000 3,675,000,000 250,310,645,435 205,962,446,715 Where of: (i) Considered good 255,026,045,435 209,664,946,715 (ii) Considered doubtful 368,707,678 325,580,967

CONSOLIDATED ACCOUNTS 6 9 SCHEDULE 7 Sundry Debtors (Unsecured) RUPEES RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 CONSIDERED GOOD Over six months 24,988,031 71,603,171 Others 834,135,985 259,958,572 859,124,016 331,561,743 CONSIDERED DOUBTFUL Over six months 45,169,030 37,261,253 Others 229,976 930,495 45,399,006 38,191,748 904,523,022 369,753,491 Less : Provision for Doubtful Debts 45,399,006 38,191,748 859,124,016 331,561,743

SCHEDULE 8 Cash and Bank Balances RUPEES RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 CASH 41,589,851 5,213,794 [Includes Cheques on Hand Rs. 41,382,707 (Previous Year Rs. 4,874,823)]

BALANCE WITH SCHEDULED BANKS Saving Accounts 2,037,388 – Current Accounts 500,888,738 392,623,148 Deposit Accounts 2,132,720,253 7,837,690,558 [Including Bank deposits under lien Rs. 724,379,243 (Previous Year Rs. 564,550,000)] 2,635,646,379 8,230,313,706 WITH NON-SCHEDULED BANKS IN CURRENT ACCOUNTS 37,462,749 18,991,037 2,714,698,979 8,254,518,537

SCHEDULE 9 Loans and Advances (Unsecured) RUPEES RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 CONSIDERED GOOD Interest accrued on Deposits & Loan to Financial Institution and Others 66,818,920 276,356,014 Advances recoverable in cash or in kind or for value to be received 421,689,450 3,128,833,201 Loan to Financial Institution 300,000,000 300,000,000 Inter Corporate Deposits 22,200,000,000 690,000,000 Advance against Investments 454,231,692 126,626,994 Other Deposits 389,874,938 467,298,274 Advance payment of Income Tax (Net of provision) 1,996,570,241 2,548,228,188 Advance payment of Fringe Benefit Tax (Net of provision) 993,497 4,839,725 25,830,178,738 7,542,182,396 CONSIDERED DOUBTFUL Advances recoverable in cash or in kind or for value to be received 8,192,114 9,203,630 25,838,370,852 7,551,386,026 Less: Provision against Doubtful Advances 8,192,114 9,203,630 25,830,178,738 7,542,182,396

7 0 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 10 Current Liabilities RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 Sundry Creditors 2,988,894,351 1,379,214,487 Interest Accrued but not due on Loan Funds (See Schedule 3 Note (iii)) 5,501,554,146 4,909,368,947 Fees / Other Amounts Received in Advance 1,043,574,510 1,250,231,373 Other Liabilities 651,706,821 124,732,227 10,185,729,828 7,663,547,034

SCHEDULE 11 Provisions RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 Proposed Dividend 1,950,990,402 1,554,331,273 Tax on Proposed Dividend 222,065,118 196,178,600 Provision for Employee Benefits (See Schedule 18 Note 11) 66,190,803 55,153,239 Provision for Income Tax (Net of advance payment of tax) 50,732,498 92,942 Provision for Wealth Tax (Net of advance payment of tax) 2,380,377 2,593,577 Provision for Fringe Benefit Tax (Net of advance payment of tax) 4,934,654 4,222,385 2,297,293,852 1,812,572,016

SCHEDULE 12 Operating and Other Income RUPEES RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO MARCH 31, 2010 MARCH 31, 2009 OPERATING INCOME Interest on Infrastructure Loans 25,674,664,424 24,181,290,287 [including exchange gain Rs. 56,879,384 (Previous Year Rs. 266,580,000)] Interest on Deposits and Loan to Financial Institution and Others 693,573,060 1,316,708,638 Interest on Investments 2,548,186,542 2,959,357,973 (See Schedule 18 Note 8) Dividend on Investments 796,570,056 221,200,596 (See Schedule 18 Note 8) Profit on assignment / sale of Loans 26,838,299 24,030,827 Profit on sale of Investments 4,286,094,945 3,179,273,352 (See Schedule 18 Note 8) Brokerage 701,962,708 547,037,552 Fees 5,479,988,724 3,739,771,858 Sale of Power 126,121,060 95,165,402 40,333,999,818 36,263,836,485 OTHER INCOME Interest on Income Tax Refund 130,245,181 67,545,064 Other Interest 1,384,184 7,057,826 Profit on Sale of Fixed Assets (Net) 118,952,133 18,532,497 Miscellaneous Income [See Schedule 18 Note 14(iii)] 16,996,031 10,933,944 [including exchange gain Rs. Nil (Previous Year Rs. 198,711)] 267,577,529 104,069,331 40,601,577,347 36,367,905,816

SCHEDULE 13 Interest and Other Charges RUPEES RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO MARCH 31, 2010 MARCH 31, 2009 INTEREST On Fixed Loans 19,346,754,351 20,479,895,659 On Others 28,257,570 8,867,812 19,375,011,921 20,488,763,471 OTHER CHARGES 159,648,021 323,368,378 [Including exchange loss Rs. 61,320,748 (Previous Year Rs. 525,871,088)] 19,534,659,942 20,812,131,849

CONSOLIDATED ACCOUNTS 7 1 SCHEDULE 14 Staff Expenses RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO MARCH 31, 2010 MARCH 31, 2009 Salaries (See Schedule 18 Note 4) 2,850,369,078 1,588,058,769 Contribution to Provident and Other Funds (See Schedule 18 Note 11) 93,746,026 120,919,916 Staff Welfare Expenses 128,278,597 62,917,573 3,072,393,701 1,771,896,258

SCHEDULE 15 Establishment Expenses RUPEES RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO MARCH 31, 2010 MARCH 31, 2009 Rent [See Schedule 18 Note 14(ii)] 260,867,188 250,931,072 Rates and Taxes 23,901,457 12,639,436 Electricity 38,316,700 17,449,619 Repairs and Maintenance: Buildings 32,960,588 18,314,941 Equipments 22,956,427 16,608,575 Others 21,015,901 4,597,024 76,932,916 39,520,540 Insurance Charges 5,962,934 8,141,967 405,981,195 328,682,634

SCHEDULE 16 Other Expenses RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO MARCH 31, 2010 MARCH 31, 2009 Travelling and Conveyance 193,198,803 134,356,049 Printing and Stationery 32,179,101 37,515,033 Postage, Telephone and Fax 84,887,026 79,165,824 Advertising and Publicity 114,339,078 130,820,779 Professional Fees 483,743,676 725,040,328 [net of exchange gain Rs. 28,532,594 (Previous Year Rs. Nil)] Loss on Foreign Exchange Fluctuation (Net) 180,148 8,765,426 Directors’ Fees 3,984,270 2,980,000 Commission to Directors 5,626,786 12,569,714 Other Operating Expenses 442,376,440 62,435,837 Miscellaneous Expenses [See Schedule 18 Note 14(i)] 211,644,619 113,337,824 Auditors’ Remuneration (See Schedule 18 Note 9) 25,709,969 19,478,115 1,597,869,916 1,326,464,929

SCHEDULE 17 Provisions and Contingencies RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO MARCH 31, 2010 MARCH 31, 2009 Provision for Contingencies 1,026,200,000 1,563,500,000 Provision for Doubtful Loans, Debtors and Restructured Loans 51,207,122 29,225,045 Provision for Diminution in Value of Investments (net) 220,304,355 (60,962,090) 1,297,711,477 1,531,762,955

7 2 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes forming part of the Accounts

1 Significant Accounting Policies A. Accounting Convention These accounts have been prepared in accordance with historical cost convention, applicable Accounting Standards notified by the Companies (Accounting Standards) Rules, 2006 and the relevant provisions of the Companies Act, 1956. B. System of Accounting The Group adopts the accrual concept in the preparation of the accounts. The preparation of financial statements requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the period. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. C. Inflation Assets and liabilities are recorded at historical cost. These costs are not adjusted to reflect the changing value in the purchasing power of money. D. Investments (i) Non Banking Financial Company (NBFC)

The Holding Company, a subsidiary company and a jointly controlled entity are regulated as NBFCs by the Reserve Bank of India (RBI). Accordingly, Investments are classified under two categories i.e. Current and Long Term and are valued in accordance with the RBI guidelines and Accounting Standard 13 on ‘Accounting for Investments’ as notified by the Companies (Accounting Standards) Rules, 2006.

¬¬ ‘Long Term Investments’ are carried at acquisition cost. A provision is made for diminution other than temporary on an individual basis.

¬¬ ‘Current Investments’ are carried at the lower of cost and fair value on an individual basis.

(ii) Other than NBFC

¬¬ ‘Long Term Investments’ are valued at cost except where there is a diminution in value other than temporary in which case the carrying value is reduced to recognise the decline. ‘Current Investments’ are valued at lower of cost and market value. E. Infrastructure Loans and Advances In accordance with the RBI guidelines, all loans and advances are classified under any of four categories i.e. (i) Standard Assets, (ii) Sub-standard Assets, (iii) Doubtful Assets and (iv) Loss Assets. F. Fixed Assets

Fixed assets are stated at cost of acquisition, including any cost attributable for bringing the asset to its working condition, less accumulated depreciation. G. Intangible Assets Intangible Assets comprising of system software are stated at cost of acquisition, including any cost attributable for bringing the asset to its working condition, less accumulated amortisation. Any technology support cost or annual maintenance cost for such software is charged annually to the Profit and Loss Account. Consideration paid by a subsidiary for transfer of Tenancy Rights is capitalised as an Intangible Asset. H. Provisions and Contingencies ¬¬ Adequate provision for diminution is made as per the regulatory guidelines applicable to Non-Performing Advances and the provisioning policy of the Holding Company in respect of Loans, Debentures and Pass Through Certificates in the nature of advances.

¬¬ Provision on restructured advances is arrived at in accordance with the regulatory guidelines. ¬¬ Provision for Contingencies is made as per the provisioning policy of the Holding Company, which includes provision under Section 36(1)(viia) of the Income-tax Act, 1961. I. Depreciation and Amortisation ¬¬ Tangible Assets Depreciation on Fixed Assets, excluding certain electronic items, is provided on the written down value method, at the rates prescribed by Schedule XIV of the Companies Act, 1956. Certain electronic items are depreciated over a period of two years on straight line method based on the Management’s estimate of the useful life of assets. Depreciation on additions during the year is provided on a pro-rata basis. Assets costing less than Rs. 5,000 each are written off in the year of capitalisation. Leasehold improvements are amortised on straight line method over the primary period of the lease, except in case of a subsidiary where leasehold improvements are amortised on straight line method over period of extended lease or five years whichever is shorter.

CONSOLIDATED ACCOUNTS 7 3 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

¬¬ Intangible Assets

Intangible assets consisting of computer software are being amortised over a period of three years on straight line method. Tenancy Rights are amortised over a period of ten years on straight line method. J. Operating Leases Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the Profit and Loss Account on a straight line basis over the lease term. Lease rental income is recognised in accordance with the Accounting Standard 19 on ‘Leases’ as notified by the Companies (Accounting Standards) Rules, 2006. Initial direct costs incurred specifically for operating lease are recognised as expenses in the year in which they are incurred. K. Employee Benefits ¬¬ Defined Contribution Plans The Group’s contribution paid / payable during the year towards Provident Fund and Superannuation Fund is charged to the Profit and Loss Account.

¬¬ Defined Benefit Plan The net present value of the Group’s obligation towards Gratuity to employees is actuarially determined as at the Balance Sheet date based on the projected unit credit method. Actuarial gains and losses are recognised in the Profit and Loss Account.

¬¬ Other Long Term Employee Benefit The Group’s Liability for compensated absences in respect of leave which is of a long term nature is actuarially determined as at the Balance Sheet date based on the projected unit credit method. L. Income-Tax The accounting treatment for income-tax is based on Accounting Standard 22 on ‘Accounting for Taxes on Income’ as notified by the Companies (Accounting Standards) Rules, 2006. The provision made for income-tax in the accounts comprises both, the current tax and deferred tax. The deferred tax assets and liabilities for the year, arising on account of timing differences, are recognised in the Profit and Loss Account and the cumulative effect thereof is reflected in the Balance Sheet.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax asset, other than on carry forward losses and unabsorbed depreciation, is recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax asset can be realised. Deferred tax asset on carry forward losses and unabsorbed depreciation is recognised only to the extent there is virtual certainty supported by convincing evidence that there will be sufficient future taxable income. M. Revenue Recognition (a) Interest and other dues are accounted on accrual basis except in the case of non-performing assets (“NPAs”) where they are recognised upon realisation, as per the income recognition and asset classification norms prescribed by the RBI.

(b) Income on discounted instruments is recognised over the tenure of the instrument on straight line method.

(c) Dividend is accounted on accrual basis when the right to receive is established.

(d) Front end fees on processing of loans are recognised upfront as income.

(e) Brokerage is recognised on trade date basis and is net of statutory payments.

(f) Management Fees are recognised on accrual basis.

(g) Performance Fees relating to Investment Advisory are recognised on an annual basis.

(h) All fees are recognised when reasonable right of recovery is established, revenue can be reliably measured and as and when they become due except commission income on guarantees, which is recognised pro-rata over the period of the guarantee.

(i) Premium on interest rate reduction is accounted on accrual basis over the residual life of the loan.

(j) Profit on securitisation is recognised over the residual life of the loan in terms of the RBI guidelines. Profit on sale of loan assets through direct assignment, without any recourse obligation, is recognised at the time of sale. Net loss arising on account of securitisation and direct assignment of loan assets is recognised at the time of sale.

(k) Revenue from Power Supply is accounted on accrual basis.

(l) Grants are recognised on accrual basis.

7 4 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

N. Foreign Currency Transactions Foreign currency transactions are accounted at the exchange rates prevailing on the dates of the transactions. Foreign currency monetary items outstanding as at the Balance Sheet date are reported using the closing rates of exchange. Gains and losses resulting from the settlement of such transactions and translation of monetary assets and liabilities denominated in foreign currencies are recognised in the Profit and Loss Account. Premium in respect of forward contracts is accounted over the period of the contract. Forward contracts outstanding as at the Balance Sheet date are revalued at the closing rate.

[See also Note 2 (I)(viii)] O. Derivatives ¬¬ Interest Rate Swaps

Interest rate swaps in the nature of hedge are recorded on an accrual basis and these transactions are not marked to market. Any resultant gain or loss on termination of hedge swaps is amortised over the life of swap or underlying asset / liability whichever is shorter.

¬¬ Currency Interest Rate Swaps

Currency interest rate swaps in the nature of hedge are recorded on an accrual basis and these transactions are not marked to market. Any resultant gain or loss on termination of hedge swaps is amortised over the life of swap or underlying asset / liability whichever is shorter. The foreign currency balances on account of principal of cross currency swaps outstanding as at the Balance Sheet date are revalued using the closing rate. P. Employee Stock Option Scheme

The Holding Company has formulated Employee Stock Option Schemes (ESOS) in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Schemes provide for grant of options to employees of the Holding Company and its Subsidiaries to acquire equity shares of the Holding Company that vest in a graded manner and that are to be exercised within a specified period. In accordance with the SEBI Guidelines, the excess, if any, of the closing market price on the day prior to the grant of the options under ESOS over the exercise price is amortised on a straight line basis over the vesting period. 2 Basis of Consolidation I. The Consolidated Financial Statements comprise the individual financial statements of Infrastructure Development Finance Company Limited (‘the Holding Company’), its subsidiaries, jointly controlled entities and associates as on March 31, 2010 and for the period ended on that date. The Consolidated Financial Statements have been prepared on the following basis: i. The financial statements of the Holding Company and its subsidiaries have been consolidated on a line by line basis by adding together the book values of like items of assets, liabilities, income and expenses, after eliminating intra-group balances and intra - group transactions resulting in unrealised profits or losses as per Accounting Standard 21 on ‘Consolidated Financial Statements’ as notified by the Companies (Accounting Standards) Rules, 2006. ii. The financial statements of the jointly controlled entities have been considered on a line by line basis by adding together the book values of like items of assets, liabilities, income and expenses, after eliminating intra-group balances and intra-group transactions resulting in unrealised profits or losses as per Accounting Standard 27 on ‘Financial Reporting of Interests in Joint Ventures’ as notified by the Companies (Accounting Standards) Rules, 2006 using the “proportionate consolidation” method. iii. The Holding Company’s investments in associates are accounted under the equity method and its share of pre-acquisition profits / losses is reflected as Capital Reserve / Goodwill in accordance with Accounting Standard 23 on ‘Accounting for Investments in Associates in Consolidated Financial Statements’ as notified by the Companies (Accounting Standards) Rules, 2006. iv. The financial statements of the subsidiaries, the jointly controlled entities and the associates used in the consolidation are drawn up to the same reporting date as that of the Holding Company, i.e. March 31, 2010. v. The excess of the cost to the Holding Company of its investment in the subsidiaries, the jointly controlled entities and the associates over the Holding Company’s portion of equity is recognised in the financial statements as Goodwill and is tested for impairment on an annual basis. vi. The excess of the Holding Company’s portion of equity of the subsidiaries, the jointly controlled entities and the associates on the acquisition date over its cost of investment is treated as Capital Reserve. vii. Minority interest in the net assets of the subsidiaries consists of the amount of equity attributable to minorities at the date on which investment in a subsidiary is made. Net Profit for the year of the subsidiaries attributable to minorities is identified and adjusted against the Profit After Tax of the Group.

CONSOLIDATED ACCOUNTS 7 5 SCHEDULE 18 Notes Forming Part of the Accounts (Continued) viii. In case of foreign subsidiaries, being non-integral operations, revenue items are consolidated at the average rate prevailing during the year. All assets and liabilities are converted at the rates prevailing at the end of the year. Any exchange difference arising on consolidation is recognised in the Foreign Currency Translation Reserve.

II. (a) The financial statements of the following subsidiaries have been consolidated as per Accounting Standard 21 on ‘Consolidated Financial Statements’ as notified by the Companies (Accounting Standards) Rules, 2006:

CURRENT YEAR PREVIOUS YEAR NAME OF SUBSIDIARY PROPORTION OF PROPORTION OF OWNERSHIP OWNERSHIP INTEREST (%) INTEREST (%) Dheeru Powergen Private Limited 51.00* – (Subsidiary of IDFC Projects Limited) [See Note 3(d)] Emerging Markets Private Equity Fund LP 100.00* – (Subsidiary of IDFC Capital Limited) IDFC AMC Trustee Company Limited 100.00 100.00* IDFC Asset Management Company Limited 100.00 100.00* IDFC Capital Limited 100.00* 80.00* (formerly IDFC - SSKI Limited) (Subsidiary of IDFC Securities Limited) IDFC Capital Company Limited 100.00 100.00 IDFC Capital (Singapore) Pte. Ltd. 100.00* 80.00* (Subsidiary of IDFC Capital Limited) IDFC Finance Limited 100.00 100.00 IDFC Fund of Funds Limited 100.00* – (Subsidiary of IDFC Capital Limited) [See Note 3(c)] IDFC General Partners Limited 100.00* – (Subsidiary of IDFC Capital Limited) [See Note 3(c)] IDFC Investment Advisors Limited 100.00 100.00 (Subsidiary of IDFC Asset Management Company Limited) IDFC Pension Fund Management Company Limited 100.00* – (Subsidiary of IDFC Asset Management Company Limited) [See Note 3(b)] IDFC PPP Trusteeship Company Limited 100.00 100.00 IDFC Private Equity Company Limited 100.00 100.00 IDFC Project Equity Company Limited 100.00 100.00 IDFC Projects Limited 100.00 100.00 IDFC Securities Limited [See Note 3(a)] 100.00* 80.00* (formerly IDFC – SSKI Securities Limited) IDFC - SSKI Stock Broking Limited 100.00* 80.00* (Subsidiary of IDFC Securities Limited) IDFC Trustee Company Limited 100.00 100.00 India Infrastructure Initiative Trust 60.00* – India PPP Capacity Building Trust 100.00* –

All the subsidiaries are incorporated in India, except

IDFC Capital (Singapore) Pte. Ltd., a Company incorporated in Singapore. IDFC General Partners Limited, a Company incorporated in Guernsey. IDFC Fund of Funds Limited, a Company incorporated in Guernsey.

Emerging Markets Private Equity Fund LP, a Limited Partnership registered in Guernsey.

* Consequent to the formation / acquisition of these subsidiaries, the consolidated net worth is lower by Rs. 108,757,596 (Previous Year lower by Rs. 95,097,612) and the consolidated profit after tax is lower byRs. 7,049,026 (Previous Year lower by Rs. 68,798,550).

(b) The financial statements of the following jointly controlled entities have been consolidated as per Accounting Standard 27 on ‘Financial Reporting of Interests in Joint Ventures’ as notified by the Companies (Accounting Standards) Rules, 2006.

7 6 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

CURRENT YEAR PREVIOUS YEAR NAME OF JOINTLY CONTROLLED ENTITY PROPORTION OF PROPORTION OF OWNERSHIP OWNERSHIP INTEREST (%) INTEREST (%) Delhi Integrated Multi-Modal Transit System Limited 50.00 50.00 Infrastructure Development Corporation (Karnataka) Limited 49.50 49.50 Uttarakhand Infrastructure Development Company Limited 50.44* 50.44*

All the jointly controlled entities are incorporated in India.

* By virtue of 1.10% holding by Infrastructure Development Corporation (Karnataka) Limited in Uttarakhand Infrastructure Development Company Limited, the effective proportion of ownership interest in Uttarakhand Infrastructure Development Company Limited is 50.44%.

The following amounts are included in the Financial Statements in respect of the jointly controlled entities referred to in Note (b) above, based on the proportionate consolidation method:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES ASSETS Fixed Assets (Net Block) 22,512,346 22,129,005 Investments 56,333,724 44,654,704 Infrastructure Loans 40,678,116 44,425,266 Deferred Tax Asset 1,608,749 2,973,940 Interest accrued on Infrastructure Loans Nil 316,733 Sundry Debtors 46,908,448 28,660,371 Cash and Bank Balances 598,582,355 525,479,176 Loans and Advances 82,314,538 49,416,104 LIABILITIES Reserves and Surplus 160,488,894 105,280,531 Unsecured Loans 146,072,789 150,746,400 Current Liabilities 377,278,642 334,371,945 Provisions 40,411,792 3,535,787 Deferred Tax Liability 130,419 17,280 INCOME Interest on Infrastructure Loans 4,949,310 4,763,311 Interest on Deposits and Loan to Financial Institution and Others 39,759,595 48,369,567 Dividend on Investments 1,428,960 1,413,589 Profit on sale of Investments 19,167,114 1,047,477 Fees 204,423,009 168,506,873 Profit / (Loss) on sale of Fixed Assets (207,245) 102,649 Other Interest 766,016 131,582 Miscellaneous Income 995,376 1,456,386 EXPENSES Interest Nil 204,273 Staff Expenses 67,068,372 54,870,869 Establishment Expenses 8,068,471 5,773,266 Other Expenses 115,922,649 81,074,990 Provisions and Contingencies (1,424,184) 2,411,699 Depreciation 5,261,234 3,418,101 Provision for Taxation 21,178,499 32,377,925

India PPP Capacity Building Trust has made investment in jointly controlled entities, Buddha Smriti Udhyaan Development Company Limited and Project Development Fund which have not been consolidated as per Accounting Standard 27 on ‘Financial Reporting of Interests in Joint Ventures’ as notified by the Companies (Accounting Standards) Rules, 2006 since the amounts involved in respect of the same are not material.

CONSOLIDATED ACCOUNTS 7 7 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

Infrastructure Development Corporation (Karnataka) Limited had made an investment of 48% in a jointly controlled entity, Rail Infrastructure Development Company (Karnataka) Limited which has not been consolidated as per Accounting Standard 27 on ‘Financial Reporting of Interests in Joint Ventures’ as notified by the Companies (Accounting Standards) Rules, 2006 since the amounts involved in respect of the same are not material.

The Holding Company has investments in the following associates, which are accounted for on the Equity Method in accordance with the Accounting Standard 23 on ‘Accounting for Investments in Associates in Consolidated Financial Statements’ as notified by the Companies (Accounting Standards) Rules, 2006:

CURRENT YEAR PREVIOUS YEAR NAME OF ASSOCIATE PROPORTION OF PROPORTION OF OWNERSHIP OWNERSHIP INTEREST (%) INTEREST (%) Athena Energy Ventures Private Limited NA 28.00 Feedback Ventures Private Limited 24.61 24.61

With effect from July 24, 2009, the Holding Company does not have significant influence over Athena Energy Ventures Private Limited.

3 During the year, (a) the Holding Company has increased its equity interest from 80% to 100% in IDFC Securities Limited. During the previous year, the Holding Company had increased its equity interest from 79.80% to 80%.

(b) the Holding Company, along with its wholly-owned subsidiary, has subscribed 100% equity shares of IDFC Pension Fund Management Company Limited.

(c) IDFC Capital Limited has subscribed 100% of equity shares of IDFC Fund of Funds Limited and IDFC General Partners Limited, companies incorporated in Guernsey under Companies (Guernsey) Law, 2008.

(d) IDFC Projects Limited has acquired 51% of equity shares of Dheeru Powergen Private Limited.

4 During the year, the Holding Company granted to eligible employees 603,000 options (Previous Year 17,073,250) under the Employee Stock Option Schemes. The details of outstanding options are as under:

PARTICULARS CURRENT YEAR PREVIOUS YEAR Options outstanding as at beginning of the year 21,766,956 6,276,139 Add: Options granted during the year 603,000 17,073,250 Less: Options exercised during the year 5,336,332 977,098 Less: Options lapsed during the year 485,356 605,335 Options outstanding as at the end of the year 16,548,268 21,766,956

The net charge towards ESOP Compensation included under Salaries is Rs. 53,382,037 (Previous Year Rs. 123,132,742).

5 In respect of equity shares issued pursuant to Employee Stock Option Scheme, the Holding Company paid dividend of Rs. 260,992 for the year 2008-09 and tax on dividend of Rs. 44,356 as approved by the shareholders at the Annual General Meeting held on July 20, 2009.

6 The Holding Company has utilised Securities Premium Account under Section 78 of the Companies Act, 1956, towards discount on zero percent bonds issued after October 1, 2009. As a result, Profit after taxation for the year is higher by Rs. 276,661,227 (net of tax of Rs. 93,000,000).

7 Infrastructure loans to the extent of Rs. 247,654,753,113 (Previous Year Rs. 207,990,527,682) are secured by: i. Hypothecation of assets and / or ii. Mortgage of property and / or iii. Trust and Retention Account and / or iv. Bank guarantees, company guarantee, sponsor guarantee or personal guarantee and / or v. Assignment of receivables or rights and / or vi. Pledge of shares and / or vii. Negative lien and / or viii. Undertaking to create a security.

7 8 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

8 Interest on Investments, Dividend on Investments and Profit on sale of Investments includeRs. 2,298,776,294 (Previous Year Rs. 2,688,509,051), Rs. 699,262,171 (Previous Year Rs. 79,330,735) and Rs. 1,036,345,464 (Previous Year Rs. 1,444,755,786) respectively, in respect of Current Investments. Provision for diminution in value of Investments include amortised premium of Rs. 13,487,870 (Previous Year Rs. 340,294) on purchase of Long Term Investments.

9 Auditors’ Remuneration:

PARTICULARS CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Audit Fees 12,967,341 8,776,986 Tax Audit Fees 2,547,025 3,189,750 Other Services 8,850,517 6,381,370 Taxation Matters 1,140,000 779,853 Out of Pocket Expenses 118,360 57,911 Service Tax 2,116,580 1,970,258 27,739,823 21,156,128 Less: Service tax set off claimed 2,029,854 1,678,013 25,709,969 19,478,115 10 Tax on proposed dividend for the year 2009-10 is net of dividend distribution tax of Rs. 101,970,000 (Previous Year Rs. 67,980,000) paid by a Subsidiary Company on interim dividend of Rs. 600,000,000 (Previous Year Rs. 400,000,000) under Section 115-O of the Income tax Act, 1961. 11 In accordance with Accounting Standard 15 on ‘Employee Benefits’ as notified by the Companies (Accounting Standards) Rules, 2006, the following disclosures have been made: I. The Group has recognised the following amounts in the Profit and Loss Account towards contribution to defined contribution plans which are included under Contribution to Provident and Other Funds:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Provident Fund 52,651,479 43,414,609 Superannuation Fund 32,624,396 26,666,629

The details of post-retirement benefit plans for gratuity are given below which is certified by the actuary and relied upon by the auditors:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES RUPEES RUPEES FUNDED NON-FUNDED FUNDED NON-FUNDED CHANGE IN THE DEFINED BENEFIT OBLIGATIONS: Liability at the beginning of the year 72,326,809 16,125,943 48,610,585 1,475,176 Current Service Cost 21,118,194 6,301,243 13,255,918 11,217,639 Interest Cost 7,243,285 1,467,028 4,670,762 311,660 Liabilities Extinguished on Settlement 5,426,826 Nil Nil Nil Benefits Paid 3,821,647 2,201,375 5,839,468 1,249,808 Actuarial (Loss) / Gain 5,518,928 542,102 (11,629,012) (4,371,276) Liability at the end of the year 85,920,887 21,150,737 72,326,809 16,125,943 FAIR VALUE OF PLAN ASSETS: Fair Value of Plan Assets at the beginning of the year 66,752,436 Nil 35,179,982 Nil Expected Return on Plan Assets 5,327,126 Nil 3,198,470 Nil Contributions 2,038,460 Nil 41,587,082 Nil Benefits paid 3,821,647 Nil 5,839,468 Nil Actuarial (Loss) / Gain on Plan Assets 12,620,081 Nil (7,373,630) Nil Fair Value of Plan Assets at the end of the year 82,916,456 Nil 66,752,436 Nil Total Actuarial (Loss) / Gain to be recognised 18,139,009 542,102 (19,002,642) (4,371,276) ACTUAL RETURN ON PLAN ASSETS: Expected Return on Plan Assets 5,327,126 Nil 3,198,470 Nil Actuarial (Loss) / Gain on Plan Assets 12,620,081 Nil (7,373,630) Nil Actual Return on Plan Assets 17,947,207 Nil (4,175,160) Nil AMOUNT RECOGNISED IN THE BALANCE SHEET: Liability at the end of the year 85,920,887 21,150,737 72,326,809 16,125,943 (Continued)

CONSOLIDATED ACCOUNTS 7 9 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES RUPEES RUPEES FUNDED NON-FUNDED FUNDED NON-FUNDED Fair Value of Plan Assets at the end of the year 82,916,456 Nil 66,752,436 Nil Amount recognised in the Balance Sheet under “Provision for Employee Benefits” 3,004,431 21,150,737 5,574,373 16,125,943 EXPENSE RECOGNISED IN THE PROFIT AND LOSS ACCOUNT: Current Service Cost 21,118,194 6,301,243 13,255,918 11,217,639 Interest Cost 7,243,285 1,467,028 4,670,762 311,660 Expected Return on Plan Assets 5,327,126 Nil 3,198,470 Nil Net Actuarial (Loss) / Gain to be recognised 18,139,009 542,102 (19,002,642) (4,371,276) Recovery of past service cost Nil 1,885,505 Nil Nil Unfunded obligation on transfer of employees Nil 5,426,826 Nil Nil Expense recognised in the Profit and Loss Account under staff expenses 4,895,344 10,767,490 33,730,852 15,900,575

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES RUPEES RUPEES FUNDED NON FUNDED FUNDED NON FUNDED RECONCILIATION OF THE LIABILITY RECOGNISED IN THE BALANCE SHEET: Opening Net Liability 5,574,373 16,125,943 13,430,603 1,475,176 Expense recognised 4,895,344 10,767,490 33,730,852 15,900,575 Contribution by the Group 2,038,460 Nil 41,587,082 Nil Benefits paid net of recovery of past service cost Nil 315,870 Nil 1,249,808 Liabilities Extinguished on settlement 5,426,826 Nil Nil Nil Unfunded obligation on transfer of employees Nil 5,426,826 Nil Nil Amount recognised in the Balance Sheet under “Provision for Employee Benefits” 3,004,431 21,150,737 5,574,373 16,125,943 Estimated Contribution 23,000,000 1,086,876 13,134,948 323,000

CURRENT YEAR PREVIOUS YEAR MARCH 31, 2008 MARCH 31, 2007 EXPERIENCE ADJUSTMENTS: RUPEES RUPEES RUPEES RUPEES

Defined Benefit Obligation 107,071,624 88,452,752 48,841,884 20,577,193 Plan Assets 82,916,456 66,752,436 34,528,319 18,416,688 Deficit 24,155,168 21,700,316 14,313,565 2,160,505 Experience Adjustments on Plan Liabilities (2,675,139) 22,351,939 8,037,218 (171,688) Experience Adjustments on Plan Assets 13,025,909 (7,391,316) (182,483) (311,306)

CURRENT YEAR PREVIOUS YEAR INVESTMENT PATTERN: (%) (%) Insurer Managed Funds 100.00 100.00 Government Securities 13.95 15.75 Deposit and Money Market Securities 14.90 33.72 Debentures / Bonds 50.89 29.29 Equity Shares 20.26 21.24 PRINCIPAL ASSUMPTIONS: Discount Rate (p.a.) 8.00 – 8.10 7.00 – 8.00 Expected Rate of Return on Assets (p.a.) 8.00 – 10.00 7.00 – 8.00 Salary Escalation (p.a.) 5.00 – 9.00 7.00 – 10.00

The estimate of future salary increase, considered in the actuarial valuation takes account of inflation, seniority, promotion and other relevant factors. 12 The Group is engaged in providing finance and advisory services for infrastructure projects, asset management and investment banking. The Group does not have any reportable geographic segment. Since the revenues, profit or assets of the asset management segment and investment banking segment individually do not exceed 10% of the Group’s revenues, profit or assets, the Group has one reportable segment i.e. Infrastructure Operations in terms of Accounting Standard 17 on ‘Segment Reporting’ as notified by the Companies (Accounting Standards) Rules, 2006.

8 0 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES I. SEGMENT REVENUE (a) Infrastructure Operations 36,292,298,922 33,391,129,164 (b) Others 4,879,211,258 3,335,665,976 (c) Unallocated 130,245,180 67,545,064 Total 41,301,755,360 36,794,340,204 Less: Inter Segment Revenue (700,178,013) (426,434,388) Total Income 40,601,577,347 36,367,905,816

II. SEGMENT RESULTS (a) Infrastructure Operations 12,641,134,175 9,258,036,736 (b) Others 1,646,084,818 1,100,877,206 PROFIT BEFORE TAXATION 14,287,218,993 10,358,913,942 Less: Provision for Taxation 3,665,759,010 2,781,653,175 PROFIT AFTER TAXATION 10,621,459,983 7,577,260,767 (before Share of profit from Associates and adjustment for Minority Interest)

III. SEGMENT ASSETS (a) Infrastructure Operations 327,956,642,395 288,743,258,186 (b) Others 16,378,891,538 14,279,595,394 (c) Unallocated 3,763,770,734 3,978,113,985 Total 348,099,304,667 307,000,967,565

IV. SEGMENT LIABILITIES (a) Infrastructure Operations 275,866,660,330 243,847,389,296 (b) Others 2,060,218,070 1,383,995,496 (c) Unallocated 69,171,046 10,740,662 Total 277,996,049,446 245,242,125,454

V. CAPITAL EMPLOYED (a) Infrastructure Operations 52,089,982,065 44,895,868,889 (b) Others 14,318,673,468 12,895,599,898 (c) Unallocated 3,694,599,688 3,967,373,324 Total 70,103,255,221 61,758,842,111

VI. CAPITAL EXPENDITURE (INCLUDING CAPITAL WORK-IN-PROGRESS) (a) Infrastructure Operations 303,299,274 778,273,292 (b) Others 97,861,834 198,579,615 Total 401,161,108 976,852,907

VII. DEPRECIATION AND AMORTISATION (a) Infrastructure Operations 334,121,460 205,497,321 (b) Others 71,620,663 32,555,928 Total 405,742,123 238,053,249

VIII. SIGNIFICANT NON-CASH EXPENSES OTHER THAN DEPRECIATION AND AMORTISATION (a) Infrastructure Operations 1,728,564,365 1,463,356,772 (b) Others (32,534,548) 26,871,496 Total 1,696,029,817 1,490,228,268

CONSOLIDATED ACCOUNTS 8 1 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

13 As per Accounting Standard 18 on ‘Related Party disclosures’ as notified by the Companies (Accounting Standards) Rules, 2006, the related parties of the Group are as follows:

¬¬ RELATIONSHIPS: I. ASSOCIATES

Athena Energy Ventures Private Limited (upto July 23, 2009) Feedback Ventures Private Limited Gayatri Jhansi Roadways Limited (upto September 18, 2008) Gayatri Lalitpur Roadways Limited (upto September 18, 2008) Jas Toll Road Company Limited (upto September 18, 2008) SMS Shivnath Infrastructure Limited (upto September 18, 2008)

II. KEY MANAGEMENT PERSONNEL [of the Holding Company and companies referred to in Note 2 II (a)]

Dr. Rajiv B. Lall – Managing Director and CEO Mr. Vikram Limaye – Whole-time Director (with effect from September 15, 2008)

The nature and volume of transactions carried out with the above related parties in the ordinary course of business are as follows:

NAME OF RELATED PARTY AND NATURE OF RELATIONSHIP PARTICULARS CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES (a) ASSOCIATES: Athena Energy Ventures Private Limited Miscellaneous Income 39,000 120,000 Debtors Nil 61,305 Feedback Ventures Private Limited Fees paid Nil 1,179,780 Dividend received 3,699,036 Nil Miscellaneous Income 70,000 77,500 Sundry Debtors 109,959 Nil Sundry Creditors Nil 44,557 Gayatri Jhansi Roadways Limited Interest received Nil 18,620,047 Fees received Nil 5,568,768 Gayatri Lalitpur Roadways Limited Interest received Nil 12,708,730 Infrastructure Loans Nil 99,996,430 Fees received Nil 3,031,837 Jas Toll Road Company Limited Dividend received Nil 23,327,754 Interest received Nil 16,825,724 SMS Shivnath Infrastructure Limited Purchase of Equity Shares Nil 61,138,575 (b) KEY MANAGEMENT PERSONNEL: Dr. Rajiv B. Lall Remuneration paid 16,757,312 25,047,641 Mr. Vikram Limaye Remuneration paid 17,031,531 8,144,600 14 In accordance with the Accounting Standard 19 on ‘Leases’ as notified by the Companies (Accounting Standards) Rules, 2006, the following disclosures in respect of Operating Leases are made.

(i) The Group companies have taken vehicles for certain employees under Operating Leases, which expire between June 2010 to November 2013 (Previous Year September 2009 to June 2013). Miscellaneous expenses include gross rental expenses of Rs. 12,753,879 (Previous Year Rs. 14,668,476). The committed lease rentals in the future are:

8 2 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

PARTICULARS CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Not later than one year 6,320,542 8,562,501 Later than one year and not later than five years 6,433,337 7,551,734

(ii) Properties under Operating Leases have been acquired by the Group which expire between October 2016 to September 2018 (Previous Year October 2016). The total minimum lease payments for the current year, in respect thereof, included under Rent amounts to Rs. 70,801,549 (Previous Year Rs. 77,546,420). The future lease payments in respect of the above are as follows:

PARTICULARS CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Not later than one year 68,665,609 53,778,240 Later than one year and not later than five years 320,410,927 257,239,249 Later than five years 167,325,350 200,055,059

(iii) The Holding Company has given one of its office premises under non cancellable operating Lease, which expires on October 31, 2012. Miscellaneous Income includes income from such leases of Rs. 8,160,750 (Previous Year Rs. Nil). The future minimum lease payments are as follows:

PARTICULARS CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Not later than one year 19,585,800 Nil Later than one year and not later than five years 31,010,850 Nil 15 In accordance with the Accounting Standard 20 on ‘Earnings Per Share’ as notified by the Companies (Accounting Standards) Rules, 2006: The Basic Earnings Per Share has been calculated based on the Net Profit After Tax of Rs. 10,622,916,414 (Previous Year Rs. 7,498,256,524) and weighted average number of shares during the year of 1,295,934,260 (Previous Year 1,295,043,809). i. The reconciliation between the Basic and the Diluted Earnings Per Share is as follows:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Basic Earnings Per Share 8.20 5.79 Effect of Outstanding Stock Options (0.08) (0.01) Diluted Earnings Per Share 8.12 5.78 ii. The Basic Earnings Per Share has been computed by dividing the Net Profit After Tax by the weighted average number of equity shares for the respective periods whereas the Diluted Earnings Per Share has been computed by dividing the Net Profit After Tax by the weighted average number of equity shares, after giving dilutive effect of the outstanding Stock Options for the respective years. The relevant details as described above are as follows:

CURRENT YEAR PREVIOUS YEAR Weighted average number of shares for computation of Basic Earnings Per Share 1,295,934,260 1,295,043,809 Dilutive effect of outstanding Stock Options 12,596,753 2,581,411 Weighted average number of shares for computation of Diluted Earnings Per Share 1,308,531,013 1,297,625,220 16 In compliance with the Accounting Standard 22 relating to ‘Accounting for Taxes on Income’ as notified by the Companies (Accounting Standards) Rules, 2006, credit has been taken in the Profit and Loss Account ofRs. 333,869,109 (Previous Year Rs. 450,541,769) towards deferred tax asset (net) on account of timing differences. The major components of deferred tax assets and liabilities arising on account of timing differences are:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Assets Liabilities Assets Liabilities (a) Depreciation (193,693,169) 16,532,898 (127,556,778) 7,628,032 (b) Provisions 1,943,992,555 (4,676,324) 1,536,803,432 (3,810,752) (c) Others 15,907,611 (733,056) 15,784,940 Nil 1,766,206,997 11,123,518 1,425,031,594 3,817,280

CONSOLIDATED ACCOUNTS 8 3 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

17 Contingent liabilities not provided for in respect of :

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES (a) Capital Commitments 6,896,557,752 8,292,400,000 (b) Estimated amount of contracts remaining to be executed on capital account (net of advances) 42,750,088 42,871,796 [including Rs. 1,255,133 (Previous Year Rs. 1,791,581) on account of proportionate share in an associate company and Rs. 661,800 (Previous Year Rs. 319,572) on account of proportionate share in a jointly controlled entity] (c) Claims not acknowledged as debts in respect of Income-tax demands under appeal amount to 723,667,359 428,357,552 [including Rs. 12,193,292 (Previous Year Rs. 2,493,292) on account of proportionate share in jointly controlled entities] (d) Guarantees issued by Holding Company RUPEES IN CRORE RUPEES IN CRORE 1. Financial Guarantees 280.12 298.96 2. Performance Guarantees 40.30 19.50 3. Risk Participation Facility 29.39 72.00 18 Cash and cash equivalents represent:

PARTICULARS CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Cash and Bank Balances (As per Schedule 8) 2,714,698,979 8,254,518,537 Current Accounts held for Unclaimed Dividends 7,623,995 5,916,768 Bank Deposits under lien 724,379,243 564,550,000 Cash and cash equivalents as at the end of the year 1,982,695,741 7,684,051,769 19 The Holding Company has entered into Interest Rate Swaps in the nature of “fixed / floating” or “floating / fixed” for notional principal of Rs. 1,660 crore outstanding as on March 31, 2010 (Previous Year Rs. 1,860 crore) for varying maturities linked to various benchmarks for asset liability management and hedging.

The Holding Company has foreign currency borrowings of USD 48.83 crore (Previous Year USD 51.79 crore), against which the Company has undertaken currency interest rate swaps and forward contracts of USD 38.32 crore (Previous Year USD 40.59 crore) to hedge foreign currency risk. One of the subsidiaries has USD 0.49 crore (Previous Year USD 0.44 crore) of un-hedged foreign currency exposure as on the balance sheet date.

20 Special Reserve has been created in terms of Section 36(1)(viii) of the Income-tax Act, 1961 out of the distributable profits of the Holding Company and a jointly controlled entity.

21 Consequent to the change in the control in some entities, certain opening balances have been considered based on current ownership and accordingly the differences are reflected as ‘Opening Adjustment’.

22 Previous year’s figures have been regrouped / rearranged wherever necessary to conform to the current year’s classification.

FOR AND ON BEHALF OF THE BOARD

DEEPAK S. PAREKH RAJIV B. LALL Chairman Managing Director & CEO

L. K. NARAYAN MAHENDRA N. SHAH Mumbai | April 27, 2010 Chief Financial Officer Company Secretary

8 4 I D F C A N N U A L R E P O R T 09 –10 AUDITORS’ REPORT

TO THE MEMBERS OF INFRASTRUCTURE DEVELOPMENT the transactions of the Company which have come to our FINANCE COMPANY LIMITED notice have been within the powers of the Company;

1. We have audited the attached Balance Sheet of (e) in our opinion, the Balance Sheet, the Profit and Loss INFRASTRUCTURE DEVELOPMENT FINANCE COMPANY LIMITED Account and the Cash Flow Statement dealt with by this (“the Company”) as at March 31, 2010, the Profit and Loss Account report are in compliance with the Accounting Standards and the Cash Flow Statement of the Company for the year ended on referred to in Section 211(3C) of the Companies Act, 1956; that date, both annexed thereto. These financial statements are the (f) in our opinion and to the best of our information and responsibility of the Company’s Management. Our responsibility is to according to the explanations given to us, the said accounts express an opinion on these financial statements based on our audit. give the information required by the Companies Act, 1956 2. We conducted our audit in accordance with the auditing in the manner so required and give a true and fair view standards generally accepted in India. Those Standards require that in conformity with the accounting principles generally we plan and perform the audit to obtain reasonable assurance about accepted in India: whether the financial statements are free of material misstatements. (i) in the case of the Balance Sheet, of the state of affairs An audit includes examining, on a test basis, evidence supporting of the Company as at March 31, 2010; the amounts and the disclosures in the financial statements. An (ii) in the case of the Profit and Loss Account, of the profit audit also includes assessing the accounting principles used and the of the Company for the year ended on that date; and significant estimates made by the Management, as well as evaluating (iii) in the case of the Cash Flow Statement, of the cash the overall financial statement presentation. We believe that our flows of the Company for the year ended on that date. audit provides a reasonable basis for our opinion. 5. On the basis of the written representations received from the 3. As required by the Companies (Auditor’s Report) Order, 2003 Directors as on March 31, 2010 taken on record by the Board of (CARO) issued by the Central Government in terms of Section Directors, none of the Directors is disqualified as on March 31, 2010 227(4A) of the Companies Act, 1956, we enclose in the Annexure a from being appointed as a director in terms of Section 274(1)(g) of statement on the matters specified in paragraphs 4 and 5 of the said the Companies Act, 1956. Order. 4. Further to our comments in the Annexure referred to in paragraph 3 above, we report as follows: (a) we have obtained all the information and explanations which to the best of our knowledge and belief were FOR DELOITTE HASKINS & SELLS necessary for the purposes of our audit; Chartered Accountants (b) in our opinion, proper books of account as required by law (Registration No. 117366W) have been kept by the Company so far as it appears from our examination of those books; NALIN M. SHAH (c) the Balance Sheet, the Profit and Loss Account and the Partner Cash Flow Statement dealt with by this report are in Membership No. 15860 agreement with the books of account;

(d) as required by Article 215(4)(f) of the Articles of Mumbai Association of the Company, we report that in our opinion, April 27, 2010

STANDALONE ACCOUNTS 8 5 ANNEXURE TO THE AUDITORS’ REPORT

(Referred to in paragraph 3 of our report of even date) (vii) The Company has not accepted any deposit from the public within the meaning of Sections 58A & 58AA of the Companies (i) Having regard to the nature of the Company’s business/ Act, 1956. activities/ result/ transactions, etc., clauses (ii), (viii), (x), (xiii) and (xx) of CARO are not applicable. (viii) In our opinion, the internal audit functions carried out during the year by a firm appointed by the Management have been (ii) In respect of its fixed assets: commensurate with the size of the Company and the nature of (a) The Company has maintained proper records showing full its business. particulars, including quantitative details and situation of (ix) According to the information and explanations given to us in the fixed assets. respect of statutory dues: (b) The fixed assets were physically verified during the year by (a) The Company has been regular in depositing undisputed an outside agency in accordance with a regular programme dues, including Provident Fund, Investor Education and of verification which, in our opinion, provides for physical Protection Fund, Employees’ State Insurance, Income-tax, verification of all the fixed assets at reasonable intervals. Sales Tax, Wealth Tax, Service Tax, Cess and other material According to the information and explanations given to us, statutory dues applicable to it with the appropriate no material discrepancies were noticed on such verification. authorities. (c) The fixed assets disposed off during the year, in our opinion, (b) There were no undisputed amounts payable in respect do not constitute a substantial part of the fixed assets of Income-tax, Service Tax, Wealth Tax, Cess and other of the Company and such disposal has, in our opinion, not material statutory dues in arrears as at March 31, 2010 affected the going concern status of the Company. for a period of more than six months from the date they became payable. (iii) In respect of loans, secured or unsecured, granted by the Company to companies, firms or other parties covered in (c) Details of dues of Income-tax which have not been the Register under Section 301 of the Companies Act, 1956, deposited as on March 31, 2010 on account of disputes are according to the information and explanations given to us: given below:

(a) The Company has granted short term loans aggregating STATUTE NATURE FORUM PERIOD TO AMOUNT Rs. 6,569,000,000 to two parties during the year. At OF DUES WHERE WHICH THE INVOLVED the year-end, the outstanding balances of such loans DISPUTE IS AMOUNT (RUPEES) aggregated Rs.Nil and the maximum amount involved PENDING RELATES during the year was Rs. 1,600,000,000. Income Income Tax Commissioner A.Y. 2007-08 388,394,270 (b) The rate of interest and other terms and conditions of such Tax Act, of Income Tax loans are, in our opinion, prima facie not prejudicial to the 1961 (Appeals) interests of the Company. (x) In our opinion and according to the information and (c) The receipts of principal amounts and interest have been explanations given to us, the Company has not defaulted in the regular. repayment of dues to banks, financial institutions and debenture holders. (iv) The Company has not taken any loans, secured or unsecured, from companies, firms or other parties listed in the Register (xi) In our opinion, the Company has maintained adequate records maintained under Section 301 of the Companies Act, 1956. where it has granted loans and advances on the basis of security by way of pledge of shares, debentures and other (v) In our opinion and according to the information and explanations securities. given to us, there is an adequate internal control system commensurate with the size of the Company and the nature of (xii) Based on our examination of the records and evaluation of the its business with regard to purchases of fixed assets and the related internal controls, the Company has maintained proper sale of goods and services. During the course of our audit, we records of the transactions and contracts in respect of its have not observed any major weakness in such internal control dealing in shares securities, debentures and other investments system. and timely entries have been made therein. The aforesaid securities have been held by the Company in its own name, (vi) In respect of contracts or arrangements entered in the Register except to the extent of the exemption granted under Section 49 maintained in pursuance of Section 301 of the Companies Act, of the Companies Act, 1956. 1956, to the best of our knowledge and belief and according to the information and explanations given to us: (xiii) In our opinion and according to the information and explanations given to us, the terms and conditions of the guarantees given by (a) The particulars of contracts or arrangements referred to the Company for loans taken by others from banks and financial in Section 301 that needed to be entered in the Register institutions are not prima facie prejudicial to the interests of the maintained under the said Section have been so entered. Company. (b) Where each of such transactions (excluding loans reported (xiv) In our opinion and according to the information and explanations under paragraph (iii) above) is in excess of Rs. 5 lakhs in given to us, the term loans have been applied for the purposes respect of any party, the transactions have been made at for which they were obtained, other than temporary deployment prices which are prima facie reasonable having regard to pending application. the prevailing market prices wherever applicable, at the relevant time.

8 6 I D F C A N N U A L R E P O R T 09 –10 (xv) According to the information and explanations give to us and (xviii) To the best of our knowledge and according to the information on the basis of the maturity profile of assets and liabilities with and explanations given to us, no fraud by or on the Company a maturity profile of one year, as given in the Asset Liability has been noticed or reported during the year. Management Report, liabilities maturing in the next one year are in excess of the assets of similar maturity by Rs. 6,938.09 crores. FOR DELOITTE HASKINS & SELLS (xvi) According to the information and explanations given to us, Chartered Accountants the Company has made preferential allotment of shares to (Registration No. 117366W) parties covered in the Register maintained under Section 301 of the Companies Act, 1956 at a price which is prima facie not prejudicial to the interests of the Company. NALIN M. SHAH Partner (xvii)According to the information and explanations given to us Membership No. 15860 and the records examined by us, securities/charges have been created in respect of all debentures issued during the year except in respect of debentures aggregating Rs. 100,000,000 Mumbai for which securities/charges have not been created. April 27, 2010

STANDALONE ACCOUNTS 8 7 BALANCE SHEET AS AT MARCH 31, 2010

RUPEES RUPEES RUPEES SCHEDULE ÿ AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 SOURCES OF FUNDS Shareholders’ Funds Capital 1 13,006,123,930 12,952,760,610 Share Application Money 2,563,997 524,400 Reserves and Surplus 2 55,222,447,121 47,338,661,013 68,231,135,048 60,291,946,023 Loan Funds Unsecured 3 265,228,783,753 235,330,387,891 333,459,918,801 295,622,333,914 APPLICATION OF FUNDS Fixed Assets 4 Gross Block 4,332,599,865 4,377,128,101 Less : Depreciation and Amortisation 754,441,687 511,934,143 3,578,158,178 3,865,193,958 Add : Capital Work-in-Progress 46,340,563 40,050,137 3,624,498,741 3,905,244,095 Investments 5 57,788,376,398 75,783,913,385 Infrastructure Loans 6 250,269,967,319 205,918,021,449 Deferred Tax Asset (See Schedule 18 Note 23) 1,743,000,000 1,393,000,000

Current Assets, Loans and Advances Income accrued on Investments 493,219,164 654,391,953 Interest accrued on Infrastructure Loans 3,598,209,916 2,497,595,875 Sundry Debtors 7 459,308,243 123,235,899 Cash and Bank Balances 8 320,298,097 6,561,444,709 Loans and Advances 9 25,107,783,663 6,805,540,189 29,978,819,083 16,642,208,625 Less : Current Liabilities and Provisions Current Liabilities 10 7,742,264,013 6,236,022,451 Provisions 11 2,202,478,727 1,784,031,189 9,944,742,740 8,020,053,640 Net Current Assets 20,034,076,343 8,622,154,985 333,459,918,801 295,622,333,914 Notes to the Accounts 18 Schedules 1 to 18 form an integral part of the Accounts

IN TERMS OF OUR REPORT ATTACHED

FOR DELOITTE HASKINS & SELLS FOR AND ON BEHALF OF THE BOARD Chartered Accountants

NALIN M. SHAH DEEPAK S. PAREKH RAJIV B. LALL Partner Chairman Managing Director & CEO

L. K. NARAYAN MAHENDRA N. SHAH Mumbai | April 27, 2010 Chief Financial Officer Company Secretary

8 8 I D F C A N N U A L R E P O R T 09 –10 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED MARCH 31, 2010

RUPEES RUPEES RUPEES

APRIL 1, 2009 TO APRIL 1, 2008 TO SCHEDULE ÿ MARCH 31, 2010 MARCH 31, 2009 INCOME Operating and Other Income 12 35,971,062,777 33,227,031,739 EXPENDITURE Interest & Other Charges 13 19,502,308,368 20,795,440,281 Staff Expenses 14 1,038,701,379 652,155,599 Establishment Expenses 15 171,907,831 138,132,670 Other Expenses 16 454,752,615 295,655,327 Provisions and Contingencies 17 1,303,628,179 1,494,512,459 Depreciation & Amortisation 328,390,687 201,950,369 22,799,689,059 23,577,846,705 PROFIT BEFORE TAXATION 13,171,373,718 9,649,185,034 Less : Provision for Taxation Current Tax 3,393,000,000 2,720,000,000 Less: Deferred Tax (See Schedule 18 Note 23) 350,000,000 440,000,000 Add: Fringe Benefit Tax (See Schedule 18 Note 3) – 10,000,000 3,043,000,000 2,290,000,000 PROFIT AFTER TAXATION 10,128,373,718 7,359,185,034 Add: Balance as per last Balance Sheet 9,552,716,004 7,069,329,713 AVAILABLE FOR APPROPRIATION 19,681,089,722 14,428,514,747 Appropriations: Special Reserve u/s 36(1) (viii) of Income-tax Act, 1961 2,340,000,000 1,450,000,000 (See Schedule 18 Note 31) Special Reserve u/s 45-IC of RBI Act, 1934 2,030,000,000 1,490,000,000 General Reserve 506,500,000 184,000,000 Proposed Dividend 1,951,251,394 1,555,432,918 [Re. 1.50 per equity share (Previous Year Re. 1.20 per equity share)] (See Schedule 18 Note 17) Tax on Dividend 222,109,474 196,365,825 (See Schedule 18 Notes 9 & 17) Balance carried forward 12,631,228,854 9,552,716,004 19,681,089,722 14,428,514,747

Earnings per share (Face Value Rs. 10) (See Schedule 18 Notes 2 & 25) Basic 7.82 5.68 Diluted 7.74 5.67 Notes to the Accounts 18 Schedules 1 to 18 form an integral part of the Accounts

IN TERMS OF OUR REPORT ATTACHED

FOR DELOITTE HASKINS & SELLS FOR AND ON BEHALF OF THE BOARD Chartered Accountants

NALIN M. SHAH DEEPAK S. PAREKH RAJIV B. LALL Partner Chairman Managing Director & CEO

L. K. NARAYAN MAHENDRA N. SHAH Mumbai | April 27, 2010 Chief Financial Officer Company Secretary

STANDALONE ACCOUNTS 8 9 CASH FLOW STATEMENT FOR THE YEAR ENDED MARCH 31, 2010

RUPEES RUPEES RUPEES FOR THE YEAR ENDED FOR THE YEAR ENDED MARCH 31, 2010 MARCH 31, 2009 A. CASH FLOW FROM OPERATING ACTIVITIES Profit before Taxation 13,171,373,718 9,649,185,034 Adjustments for: Depreciation and Amortisation 328,390,687 201,950,369 Provision for Employee Benefits (3,884,909) 6,806,001 ESOP compensation cost 53,382,037 123,132,742 Provision for Contingencies 1,026,200,000 1,563,500,000 Provision for Doubtful Loans, Debtors and Restructured Loans 48,926,711 (201,786,078) Provision for Diminution in value of Investments 228,501,468 (69,159,203) Loss on Foreign Currency Revaluation 358,406,574 33,249,308 Profit on sale of Investments (4,252,624,857) (3,134,689,804) Amortisation of Premium on Investments 13,147,575 6,981,713 Profit on sale of Fixed Assets (127,400,931) (18,516,722) (2,326,955,645) (1,488,531,674) CASH GENERATED FROM OPERATIONS 10,844,418,073 8,160,653,360 Infrastructure Loans disbursed (net of repayments) (44,940,426,583) (7,285,981,901) Changes in: Current Assets, Loans and Advances 2,085,666,342 (12,949,667) Current Liabilities 673,997,943 (147,097,834) 2,759,664,285 (160,047,501) Direct Taxes paid (2,683,546,285) (1,919,315,045) NET CASH USED IN OPERATING ACTIVITIES (34,019,890,510) (1,204,691,087) B. CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets (including Capital Work-in-Progress) (156,969,641) (764,215,639) Sale of Fixed Assets 236,725,239 34,714,158 Investments in Subsidiaries (1,409,999,990) (8,402,316,683) Other Investments (1,011,977,494,002) (950,865,618,666) Sale proceeds of Investments in Subsidiaries 80,000,000 - Sale proceeds of other Investments 1,013,804,006,793 944,562,428,646 NET CASH FROM / (USED IN) INVESTING ACTIVITIES 576,268,399 (15,435,008,184) C. CASH FLOW FROM FINANCING ACTIVITIES Proceeds from fresh issue of shares 207,455,365 17,604,074 Proceeds from Borrowings (net of repayments) 28,744,128,128 8,946,225,982 Dividend paid (including dividend tax) (1,750,815,221) (1,818,406,956) NET CASH FROM FINANCING ACTIVITIES 27,200,768,272 7,145,423,100 Net decrease in cash and cash equivalents (A+B+C) (6,242,853,839) (9,494,276,171) Cash and cash equivalents as at the beginning of the year [See Schedule 18 Note 10(b)] 6,555,527,941 16,049,804,112 Cash and cash equivalents as at the end of the year [See Schedule 18 Note 10(b)] 312,674,102 6,555,527,941 6,242,853,839 9,494,276,171

IN TERMS OF OUR REPORT ATTACHED

FOR DELOITTE HASKINS & SELLS FOR AND ON BEHALF OF THE BOARD Chartered Accountants

NALIN M. SHAH DEEPAK S. PAREKH RAJIV B. LALL Partner Chairman Managing Director & CEO

L. K. NARAYAN MAHENDRA N. SHAH Mumbai | April 27, 2010 Chief Financial Officer Company Secretary

9 0 I D F C A N N U A L R E P O R T 09 –10 SCHEDULES ANNEXED TO AND FORMING PART OF THE ACCOUNTS

SCHEDULE 1 Capital RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 AUTHORISED: 4,000,000,000 Equity Shares of Rs.10 each 40,000,000,000 40,000,000,000 100,000,000 Preference Shares of Rs.100 each 10,000,000,000 10,000,000,000 50,000,000,000 50,000,000,000 ISSUED, SUBSCRIBED AND PAID-UP: 1,300,612,393 (Previous Year 1,295,276,061) Equity Shares of Rs.10 each, fully paid-up 13,006,123,930 12,952,760,610 13,006,123,930 12,952,760,610

SCHEDULE 2 Reserves and Surplus RUPEES RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 SPECIAL RESERVE U/S 36(1)(viii) OF INCOME-TAX ACT, 1961 (See Schedule 18 Note 31) Opening Balance 6,802,500,000 5,352,500,000 Add: Transfer from Profit & Loss Account 2,340,000,000 1,450,000,000 9,142,500,000 6,802,500,000 SPECIAL RESERVE U/S 45-IC OF RBI ACT, 1934 Opening Balance 7,345,000,000 5,855,000,000 Add: Transfer from Profit & Loss Account 2,030,000,000 1,490,000,000 9,375,000,000 7,345,000,000 SECURITIES PREMIUM ACCOUNT Opening Balance 22,037,481,915 22,027,261,830 Add: Received during the year 152,052,448 7,308,694 Add: Options exercised 1,397,289 2,911,391 Less: Utilised during the year (See Schedule 18 Note 4) 276,661,227 – 21,914,270,425 22,037,481,915 EMPLOYEES’ STOCK OPTIONS OUTSTANDING (See Schedule 18 Note 2) Opening Balance 151,663,094 31,441,743 Add: Net charge for the year 53,382,037 123,132,742 Less: Options exercised 1,397,289 2,911,391 203,647,842 151,663,094 GENERAL RESERVE Opening Balance 1,449,300,000 1,265,300,000 Add: Transfer from Profit & Loss Account 506,500,000 184,000,000 1,955,800,000 1,449,300,000 PROFIT AND LOSS ACCOUNT 12,631,228,854 9,552,716,004 55,222,447,121 47,338,661,013

STANDALONE ACCOUNTS 9 1 SCHEDULE 3 Loan Funds (Unsecured) RUPEES RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 LONG TERM SUBORDINATED DEBT FROM GOVERNMENT OF INDIA 6,500,000,000 6,500,000,000 (Repayable from March 17, 2047 to September 29, 2047) DEBENTURES (NON-CONVERTIBLE) [REFER NOTE (i)] 162,866,000,000 115,530,000,000 Less: Unexpired discount on zero percent debentures [Refer Note (iv)] 4,092,546,142 1,719,420,008 158,773,453,858 113,810,579,992 [Redeemable from April 6, 2010 to January 17, 2026 (Previous Year Redeemable from April 28, 2009 to January 17, 2026)] TERM LOANS [REFER NOTE (ii)] From Banks 50,455,497,768 61,991,260,953 From Others 11,656,312,500 16,977,812,500 62,111,810,268 78,969,073,453 227,385,264,126 199,279,653,445 SHORT TERM DEBENTURES (NON-CONVERTIBLE) 7,500,000,000 4,400,000,000 Less: Unexpired discount on zero percent debentures [Refer Note (iv)] 187,928,402 – 7,312,071,598 4,400,000,000 [Redeemable from June 21, 2010 to September 29, 2010 (Previous Year Redeemable from July 10, 2009 to October 26, 2009)] COMMERCIAL PAPER 17,500,000,000 15,010,000,000 Less: Unexpired discount on commercial papers [Refer Note (iv)] 268,551,971 883,897,554 [Maximum amount outstanding during the year Rs. 21,760,000,000 17,231,448,029 14,126,102,446 (Previous Year Rs. 15,010,000,000)] TERM LOANS From Banks 11,300,000,000 17,524,632,000 From Others 2,000,000,000 – 13,300,000,000 17,524,632,000 37,843,519,627 36,050,734,446 265,228,783,753 235,330,387,891 NOTES: (i) Debentures of Rs. 162,866,000,000 (Previous Year Rs. 115,530,000,000 ) are secured by a mortgage on certain immovable properties up to a value of Rs. 1,000,000 and include Rs. 48,580,000,000 (Previous Year Rs.26,860,000,000) repayable within a year. (ii) Term Loans from Banks include Rs. 13,162,285,085 (Previous Year Rs. 13,693,747,798) and from Others include Rs. 922,874,743 (Previous Year Rs. 2,317,125,000) repayable within a year. (iii) In terms of the Reserve Bank of India circular (Ref. No. DNBS (PD) CC No. 145 / 03.02.001 / 2009-10 dated July 1, 2009) no loans remained overdue as on March 31, 2010 and March 31, 2009. (iv) Unexpired discount is net of Rs. 1,631,380,732 (Previous Year Rs. 821,774,134) towards interest accrued but not due.

SCHEDULE 4 Fixed Assets RUPEES DESCRIPTION GROSS BLOCK DEPRECIATION AND AMORTISATION NET BLOCK

AS AT APRIL 1, AT AS 2009 ADDITIONS DELETIONS AT AS 31, 2010 MARCH AT AS APRIL 1, 2009 FOR CHARGE THE YEAR DELETIONS AT AS 31, 2010 MARCH AT AS 31, 2010 MARCH AT AS 31, 2009 MARCH Tangible Buildings Own Use 2,935,173,628 – 161,937,205 2,773,236,423 138,705,154 139,680,379 58,080,550 220,304,983 2,552,931,440 2,796,468,474 Under Operating Lease 188,120,350 – – 188,120,350 81,557,215 5,328,157 – 86,885,372 101,234,978 106,563,135 Leasehold Improvements – 34,410,436 – 34,410,436 – 10,022,544 – 10,022,544 24,387,892 – Computer Hardware 65,465,569 23,048,559 6,087,800 82,426,328 44,661,961 13,029,329 5,437,146 52,254,144 30,172,184 20,803,608 Furniture, Fittings and Office Equipments Owned 123,584,715 57,187,904 25,663,409 155,109,210 62,645,030 16,216,616 21,685,096 57,176,550 97,932,660 60,939,685 Under Operating Lease 3,583,324 760,981 – 4,344,305 872,981 175,765 – 1,048,746 3,295,559 2,710,343 Windmills 1,012,500,000 – – 1,012,500,000 150,168,472 132,195,423 – 282,363,895 730,136,105 862,331,528 Vehicles 8,819,357 2,281,506 1,519,037 9,581,826 5,003,450 1,186,212 680,351 5,509,311 4,072,515 3,815,907 Intangible Computer Software 39,881,158 32,989,829 – 72,870,987 28,319,880 10,556,262 – 38,876,142 33,994,845 11,561,278 Total 4,377,128,101 150,679,215 195,207,451 4,332,599,865 511,934,143 328,390,687 85,883,143 754,441,687 3,578,158,178 3,865,193,958 Previous Year 769,397,398 3,637,738,176 30,007,473 4,377,128,101 323,793,811 201,950,369 13,810,037 511,934,143 3,865,193,958 NOTE: Buildings include Rs. 1,000 (Previous Year Rs. 1,250) being the cost of shares in co-operative housing societies.

9 2 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 5 Investments RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 [See Schedule 18 Note 32(e)] I. LONG TERM A. EQUITY SHARES (FULLY PAID) [See Schedule 18 Note 5(A)] NUMBER OF FACE VALUE SHARES RUPEES QUOTED (NON-TRADE) Andhra Cements Limited 8,740,000 10 249,964,000 249,964,000 Bharti Airtel Limited 622,400 5 14,004,000 16,029,000 (45,000 shares sold during the year) (Face value changed from Rs. 10 to Rs. 5 per share during the year) Brigade Enterprises Limited – 168,153,960 (431,164 shares sold during the year) Container Corporation of India Limited – 147,340,235 (155,200 shares sold during the year) DQ Entertainment Limited 258,097 10 17,578,988 – Gateway Distriparks Limited – 42,661,630 (2,477,656 shares sold during the year) Godrej Properties Limited 423,791 10 207,657,590 – Great Offshore Limited – 24,024,411 (100,000 shares sold during the year) GTL Infrastructure Limited – 160,000,000 (16,000,000 shares sold during the year) Gujarat State Petronet Limited 840,000 10 16,800,000 222,320,000 (10,276,000 shares sold during the year) Jet Airways (India) Limited – 71,667,200 (65,152 shares sold during the year) JSW Energy Limited 2,394,595 10 239,459,500 – KSK Energy Ventures Limited 3,125,000 10 750,000,000 750,000,000 Mundra Port and Special Economic Zone Limited 335,000 10 143,578,712 305,283,200 (404,182 shares sold during the year) Sarda Energy and Minerals Limited 1,842,105 10 349,999,950 349,999,950 SICAL Logistics Limited – 52,944,463 (452,737 shares sold during the year) Sicagen India Limited – 38,256,276 (452,737 shares sold during the year) Tata Consultancy Services Limited 82,740 1 582,250 582,250 Tech Mahindra Limited – 21,966,430 (60,182 shares sold during the year) Torrent Power Limited 3,900,000 10 280,800,000 669,600,000 (5,400,000 shares sold during the year) Trent Limited – 79,560,502 (140,000 shares sold during the year) UNQUOTED SUBSIDIARIES (TRADE) IDFC Finance Limited 21,000,200 10 210,002,000 210,002,000 IDFC Asset Management Company Limited 2,610,002 10 8,141,717,338 8,141,717,338 IDFC AMC Trustee Company Limited 50,000 10 662,351 662,351 IDFC Capital Company Limited 50,000 10 500,000 500,000 IDFC Investment Advisors Limited – 80,000,000 (8,000,000 shares transferred to a wholly owned subsidiary during the year) IDFC Pension Fund Management Company Limited 5,999,999 10 59,999,990 – (5,999,999 shares subscribed during the year) (Subsidiary of a Subsidiary Company) Continued...

STANDALONE ACCOUNTS 9 3 SCHEDULE 5 Investments (Continued) RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 NUMBER OF FACE VALUE SHARES RUPEES IDFC PPP Trusteeship Company Limited 50,000 10 500,000 500,000 IDFC Private Equity Company Limited 50,000 10 500,000 500,000 IDFC Project Equity Company Limited 50,000 10 500,000 500,000 IDFC Projects Limited 25,000,100 10 250,001,000 1,000 (25,000,000 shares subscribed during the year) IDFC Securities Limited 14,137,200 10 4,400,973,117 3,300,973,117 (Formerly IDFC – SSKI Securities Limited) (2,827,757 shares purchased during the year) IDFC Trustee Company Limited 50,000 10 500,000 500,000 OTHERS (NON-TRADE) Asset Reconstruction Company (India) Limited 27,197,743 10 1,137,708,410 1,137,708,410 Ashoka Highways (Bhandara) Limited – 19,911,100 (1,991,110 shares sold during the year) Ashoka Marg Nirman (Durg) Limited – 17,827,800 (1,782,780 shares sold during the year) Asia Bio Energy (India) Limited 2,500,000 10 25,000,000 25,000,000 Athena Energy Ventures Private Limited 42,000,000 10 420,000,000 420,000,000 Avantika Gas Limited 3,500 10 35,000 35,000 BSCPL Infrastructure Limited 218,150 10 249,999,900 249,999,900 [Formerly B. Seenaiah & Company (Projects) Limited] Delhi Integrated Multi-Modal Transit System Limited 73,045 1,000 73,045,000 73,039,000 (6 shares subscribed during the year) Delhi-Mumbai Industrial Corridor Development 1,000,000 10 10,000,000 1,990,000 Corporation Limited (801,000 shares allotted during the year) Ennore SEZ Company Limited 25,000 10 250,000 250,000 Feedback Ventures Private Limited 4,026,689 10 200,870,985 200,870,985 GMR Kamalanga Energy Limited 17,730,000 10 177,300,000 – (17,730,000 shares subscribed during the year) Green Gas Limited 10,000 10 100,000 100,000 Indian Commodity Exchange Limited 10,000,000 5 50,000,000 – (10,000,000 shares subscribed during the year) Indian Energy Exchange Limited 1,250,000 10 12,500,000 12,500,000 Indu Projects Limited 2,053,480 10 266,952,400 266,952,400 Infrastructure Development Corporation (Karnataka) Limited 4,949,996 10 49,499,960 49,499,960 KMC Constructions Limited 542,977 10 238,997,884 100 (542,967 shares acquired on conversion of compulsorily convertible preference shares during the year) L & T Infrastructure Development Projects Limited 5,400,000 10 540,000,000 540,000,000 MVR Infrastructure and Tollways Private Limited 1,200,000 100 120,000,000 120,000,000 National Stock Exchange of India Limited 3,547,990 10 889,161,443 925,018,550 (142,857 shares sold during the year) Petronet CCK Limited 19,973,332 10 199,733,320 199,733,320 Quickjet Cargo Airlines Private Limited 90,909 10 999,999 999,999 Rohan Rajdeep Toll Roads Limited 4,070,000 10 40,700,000 1,000,000 (3,970,000 shares subscribed during the year) Securities Trading Corporation of India Limited 3,530,136 10 540,428,382 583,526,632 (316,155 shares sold during the year) SSIPL Retail Private Limited 304,599 10 50,002,890 50,002,890 Uttarakhand Infrastructure Development Company Limited 239,517 10 2,395,170 2,395,170 (A) 20,631,961,529 20,004,570,529

Continued...

9 4 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 5 Investments (Continued) RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 B. PREFERENCE SHARES (FULLY PAID – UNQUOTED) NUMBER OF FACE VALUE SHARES RUPEES SUBSIDIARIES (TRADE) IDFC Asset Management Company Limited 19,792,500 10 197,925,000 197,925,000 OTHERS (NON-TRADE) 1% Asian Hotels Limited 5,000,000 10 450,000,000 675,000,000 (2,500,000 shares redeemed during the year) 0% D. S. Constructions Limited (convertible) – 400,000,250 (615,385 shares redeemed during the year) 0% Human Value Developers Private Limited (convertible) 23,749,200 10 237,492,000 237,492,000 0% KMC Constructions Limited (convertible) – 249,999,900 (2,389,999 shares converted into equity shares during the year) 0% P. V. Technologies India Limited (optionally convertible) 61,290,000 10 612,900,000 612,900,000 0% Quickjet Cargo Airlines Private Limited (convertible) 15,181,818 11 167,000,000 167,000,000 0.10% SMMS Investments Private Limited 215,000 10 2,150,000,000 3,000,000,000 (85,000 shares redeemed during the year) 0% TRIL Infopark Limited (optionally convertible) 15,000,000 100 1,500,000,000 – 0% Wireless – TT Info Services Limited (optionally partially 250,000,000 10 2,500,000,000 – convertible) 0.02% Ziqitza Healthcare Limited (convertible) 2,209 10 4,700,000 – (B) 7,820,017,000 5,540,317,150 C. VENTURE CAPITAL UNITS (UNQUOTED) NUMBER OF FACE VALUE UNITS RUPEES India Development Fund – Class A (Rs. 99.79 paid) 10,000,000 100 1,000,000 3,400,000 (Rs. 2,400,000 repaid during the year) India Development Fund – Class B (fully paid) 700 100 70,000 70,000 IDFC Project Equity Domestic Investors Trust I (fully paid) 14,182,000 100 1,418,200,000 987,600,000 (4,592,000 units subscribed during the year) (286,000 units redemeed during the year) IDFC Private Equity Fund II – Class A (Rs. 8.5735 paid) 135,000,000 10 1,050,042,150 1,125,900,000 (Rs. 107,380,350 repaid during the year) IDFC Private Equity Fund II – Class C (Rs. 10 paid) 6,621 10 66,210 66,210 IDFC Private Equity Fund III – Class A (Rs. 3.715 paid) 280,000,000 10 1,040,200,000 592,200,000 Urban Infrastructure Opportunities Fund – Class A (fully paid) 2,700 100,000 274,000,000 250,000,000 (200 units converted from partly paid to fully paid during the year) Urban Infrastructure Opportunities Fund – Class A – 24,000,000 (C) 3,783,578,360 2,983,236,210 D. BONDS (FULLY PAID – UNQUOTED) [See Schedule 18 Note 5(C)] NUMBER OF FACE VALUE BONDS RUPEES 10.05% Axis Bank Limited 250 1,000,000 249,950,000 249,950,000 8.25% Corporation Bank Limited 250 1,000,000 249,721,250 – Floating Rate Bond Citicorp Finance (India) Limited – 10,000,000 Floating Rate Bond Citicorp Finance (India) Limited – 49,000,000 Floating Rate Bond DSP Merrill Lynch Capital Limited – 20,000,000 Floating Rate Bond DSP Merrill Lynch Capital Limited – 250,000,000 9.50% Delhi Transco Limited 5,000 100,000 500,050,000 – 9.92% HDFC Bank Limited 59 1,000,000 59,000,000 59,000,000 9.98% ICICI Bank Limited 200 1,000,000 200,000,000 200,000,000 6.25% ING Vysya Bank Limited 500 100,000 43,864,450 43,864,450 Floating Rate Bond LIC Housing Finance Limited 200 1,000,000 200,000,000 200,000,000

Continued...

STANDALONE ACCOUNTS 9 5 SCHEDULE 5 Investments (Continued) RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 7% Power Finance Corporation Limited 250 1,000,000 252,932,500 – 8.49% Power Finance Corporation Limited 300 1,000,000 309,440,100 – 8.60% Power Finance Corporation Limited 250 1,000,000 250,000,000 – 8.80% Power Finance Corporation Limited 400 1,000,000 400,000,000 – 11% Power Finance Corporation Limited 700 1,000,000 785,913,800 785,913,800 11.15% Power Finance Corporation Limited 25 1,000,000 26,475,750 – 8.84% Power Grid Corporation Limited 3,360 1,250,000 4,200,000,000 – 10.90% Power Grid Corporation Limited 90 600,000 56,753,568 – 10.90% Reliance Gas Transportation Infrastructure Limited 350 1,000,000 372,677,950 265,226,250 (100 bonds purchased during the year) 10.95% Reliance Gas Transportation Infrastructure Limited 1,324 1,000,000 1,475,125,856 – 7.15% Rural Electrification Corporation Limited 500 1,000,000 500,000,000 – 7.90% Rural Electrification Corporation Limited 650 1,000,000 654,725,950 – 0% Sharekhan Limited (convertible) 3,435,527 145.35 499,353,849 499,353,849 0% Sharekhan Limited (convertible) 567,601 264.27 149,999,916 149,999,916 10.10% State Bank of India 100 1,000,000 100,496,200 100,496,200 9.90% State Bank of Patiala 100 1,000,000 99,349,600 99,349,600 8.32% Tamilnadu Electricity Board 234 1,000,000 234,023,400 – (D) 11,869,854,139 2,982,154,065 E. GOVERNMENT SECURITIES Tamilnadu State Development Loan (E) 256,262,500 – F. PASS THROUGH CERTIFICATES Standard Chartered Bank Series A1 (F) – 429,868,551 G. SECURITY RECEIPTS Issued by Asset Reconstruction Company (India) Limited (G) 220,031,677 220,787,023 H. TRUST UNITS NUMBER OF FACE VALUE UNITS RUPEES India Infrastructure Initiative (fully paid) 60,000 1,000 60,000,000 60,000,000 India PPP Capacity Building Trust (Rs. 200 paid) 250,000 1,000 50,000,000 50,000,000 (H) 110,000,000 110,000,000 TOTAL LONG TERM INVESTMENTS (A + B + C + D + E + F + G + H) 44,691,705,205 32,270,933,528

II. CURRENT (NON-TRADE) A. EQUITY SHARES (FULLY PAID) NUMBER OF FACE VALUE SHARES RUPEES QUOTED Hathway Cable & Datacom Limited 416,650 10 99,996,000 – Indiabulls Power Limited 3,423,184 10 154,043,280 – NHPC Limited 10,555,729 10 380,006,244 – Oil India Limited 90,581 10 95,110,050 – Vascon Engineers Limited 864,225 10 142,597,125 – (A) 871,752,699 – B. BONDS (FULLY PAID – UNQUOTED) [See Schedule 18 Note 5(C)] NUMBER OF FACE VALUE BONDS RUPEES 10.10% Deutsche Post Bank Home Finance Limited 150 1,000,000 150,000,000 – 5.60% Export Import Bank of India (Series M–01) 250 1,000,000 250,000,000 – 11.10% Export Import Bank of India – 200,000,000 9.35% Great Eastern Shipping Company Limted 315 1,000,000 315,000,000 – 9.60% Great Eastern Shipping Company Limted 100 1,000,000 100,928,600 – 9.85% HDFC Bank Limited – Upper Tier II – 500,000,000 10.85% HDFC Bank Limited – 750,000,000 6.84% Housing Development Finance Corporation Limited 450 1,000,000 453,795,600 – Continued...

9 6 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 5 Investments (Continued) RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 8.40% Housing Development Finance Corporation Limited 250 1,000,000 250,000,000 – 11.95% Housing Development Finance Corporation Limited – 100,000,000 9.29% ICICI Home Finance Limited 88 1,000,000 88,000,000 – 8.75% Indian Railway Finance Corporation Limited – 187,342,800 13.15% Infrastructure Leasing & Financial Services Limited – 500,000,000 10.24% L&T Finance Limited 821,491 1,000 821,491,000 – 0% LIC Housing Finance Limited 200 1,000,000 188,679,800 – 0% National Bank for Agricultural and Rural Development – 61,938,361 6.55% National Housing Bank 500 1,000,000 500,000,000 – 8.49% Power Finance Corporation Limited – 281,616,000 9.22% Power Finance Corporation Limited – 330,789,200 11.10% Power Finance Corporation Limited – 250,000,000 11.15% Power Finance Corporation Limited – 124,687,500 10.90% Power Grid Corporation Limited – 63,000,000 9.22% Reliance Capital Limited 250 1,000,000 252,810,000 – 9.25% Reliance Capital Limited 600 1,000,000 606,093,900 – 10.95% Reliance Gas Transportation Infrastructure Limited – 250,000,000 8.65% Rural Electrification Corporation Limited – 96,147,100 9.05% State Bank of India 500 1,000,000 500,000,000 – 8.95% State Bank of Mysore – 135,288,000 10% Sundardam Finance Limited 250 1,000,000 250,000,000 – 10.30% Tata Sons Limited 500 1,000,000 500,000,000 – (B) 5,226,798,900 3,830,808,961 C. PASS THROUGH CERTIFICATES (UNQUOTED) India MBS 2002 Certificates Series I D 12,969,693 15,190,296 NOVO IV Trust – Locomotive Series D 617,866,749 175,730,334 NOVO IV Trust – Locomotive Series E – 627,269,421 Loan Securitisation Trust (Series XVII) 9,584,310 20,509,317 Standard Chartered Bank Series A2 462,211,352 476,371,239 (C) 1,102,632,104 1,315,070,607 D. CERTIFICATE OF DEPOSITS WITH SCHEDULED BANKS (UNQUOTED) (D) 3,709,793,000 38,719,210,500

E. COMMERCIAL PAPERS (UNQUOTED) (E) 1,403,517,500 –

F. MUTUAL FUNDS (UNQUOTED) NUMBER OF FACE VALUE UNITS RUPEES IDFC Money Manager Fund – Treasury – Daily Dividend 5,301,889.208 10 53,389,494 – Religare Liquid Fund Super Institutional Plan Growth 104,655,487.588 10 1,322,500,000 – (F) 1,375,889,494 –

STANDALONE ACCOUNTS 9 7 SCHEDULE 5 Investments (Continued) RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009

G. CONVERTIBLE WARRANTS (QUOTED) [See Schedule 18 Note 5(B)] NUMBER OF FACE VALUE WARRANTS RUPEES Housing Development Finance Corporation Limited 170 – 46,750 – (G) 46,750 – TOTAL CURRENT INVESTMENTS (A + B + C + D + E + F + G) 13,690,430,447 43,865,090,068 GRAND TOTAL (I + II) 58,382,135,652 76,136,023,596 Less : Provision for Diminution in Value of Investments 593,759,254 352,110,211 57,788,376,398 75,783,913,385 NOTE: (1) Aggregate amount of quoted investments Cost 3,142,224,439 3,370,353,507 Market Value 4,144,842,552 3,301,986,340 (2) Aggregate amount of investments in Unquoted Mutual Funds Cost 1,375,889,494 – Market Value 1,376,078,404 – Market value of Investments in Unquoted Mutual Funds represents the repurchase price of the units issued by the Mutual Funds. (3) Aggregate amount of unquoted investments – Cost 53,864,021,719 72,765,670,089 (4) Investments include Rs. 17,578,988 (Previous Year Rs. 910,000,000) in respect of equity shares which are subject to a lock-in-period. (5) Investments include Rs. 540,000,000 (Previous Year Rs. 540,000,000) in respect of equity shares which are subject to restrictive covenants. (6) Investments exclude equity shares held by the Company having face value Rs.135,556,040 (Previous Year Rs. 53,148,010), where the Company has no beneficial interest.

9 8 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 6 Infrastructure Loans RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 [See Schedule 18 Notes 7, 32(d) & 32(f)] A. LOANS 248,837,290,803 201,314,990,205 B. DEBENTURES [See Schedule 18 Notes 5(D), 6(A) & 6(B)] 6,516,784,194 6,942,443,220 C. PASS THROUGH CERTIFICATES [See Schedule 18 Note 6(c)] - 1,688,668,991 255,354,074,997 209,946,102,416 Less : Provision for Doubtful Infrastructure Loans 368,707,678 325,580,967 Provision against Restructured Loans 14,200,000 27,500,000 Provision for Contingencies 4,701,200,000 3,675,000,000 250,269,967,319 205,918,021,449 Whereof: (i) Considered good 254,985,367,319 209,620,521,449 (ii) Considered doubtful 368,707,678 325,580,967

SCHEDULE 7 Sundry Debtors (Unsecured) RUPEES RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 CONSIDERED GOOD - Less than six months 459,308,243 123,235,899 CONSIDERED DOUBTFUL Over six months 34,970,024 15,169,505 Others 229,976 930,495 35,200,000 16,100,000 Debtors 494,508,243 139,335,899 Less: Provision for Doubtful Debts 35,200,000 16,100,000 459,308,243 123,235,899

SCHEDULE 8 Cash and Bank Balances RUPEES RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 Cash and Cheques on Hand 40,486,167 4,886,188 [includes Cheques on Hand Rs. 40,404,901 (Previous Year Rs. 4,736,572)] With Scheduled Banks Current Accounts 279,796,405 351,041,099 Deposit Accounts - 6,205,500,000 279,796,405 6,556,541,099 With Non-Scheduled Bank in Current Account 15,525 17,422 [See Schedule 18 Note 10(c)] 320,298,097 6,561,444,709

SCHEDULE 9 Loans and Advances (Unsecured,considered good) RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 Interest accrued on Deposits & Loan to Financial Institution 24,123,288 209,766,506 Advances recoverable in cash or in kind or for value to be received [See Schedule 18 Note 10(a)] 414,383,140 2,976,041,283 Loan to Financial Institution 300,000,000 300,000,000 Inter Corporate Deposits 22,200,000,000 690,000,000 Advance against Investments 440,000,000 114,871,100 Other Deposits 174,479,948 250,397,098 Advance payment of Income Tax (Net of provision) 1,554,797,287 2,264,464,202 25,107,783,663 6,805,540,189

STANDALONE ACCOUNTS 9 9 SCHEDULE 10 Current Liabilities RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 Sundry Creditors - Other than Micro and Small Enterprises 1,321,113,644 347,722,468 [See Schedule 18 Notes 11(a) & 26] Interest Accrued but not due on Loan Funds [See Schedule 3 Note (iv)] 5,501,554,146 4,909,368,947 Fees / Other Amounts Received in Advance 683,270,694 910,373,348 Other Liabilities [See Schedule 18 Note 11(b)] 236,325,529 68,557,688 7,742,264,013 6,236,022,451

SCHEDULE 11 Provisions RUPEES RUPEES AS AT MARCH 31, 2010 AS AT MARCH 31, 2009 Proposed Dividend 1,950,990,402 1,554,331,273 Tax on Proposed Dividend (See Schedule 18 Note 9) 222,065,118 196,178,600 Provision for Employee Benefits (See Schedule 18 Note 18) 23,140,863 27,025,772 Provision for Wealth Tax (Net of advance payment of tax) 2,380,377 2,593,577 Provision for Fringe Benefit Tax (Net of advance payment of tax) 3,901,967 3,901,967 2,202,478,727 1,784,031,189

SCHEDULE 12 Operating and Other Income RUPEES RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO MARCH 31, 2010 MARCH 31, 2009 OPERATING INCOME Interest on Infrastructure Loans [See Schedule 18 Notes 6 (d) & (e)] 25,669,043,288 24,176,526,976 Interest on Deposits and Loan to Financial Institution and Others 571,487,905 1,169,036,441 Interest on Investments (See Schedule 18 Note 8) 2,548,186,542 2,959,357,973 Dividend on Investments (See Schedule 18 Notes 8 & 9) 1,321,465,273 541,569,861 Fees 1,183,980,768 1,032,139,905 Profit on assignment / sale of Loans 26,838,299 24,030,827 Profit on sale / redemption of Investments (See Schedule 18 Note 8) 4,252,624,857 3,134,689,804 Sale of Power (See Schedule 18 Note 19) 126,121,060 95,165,402 [Tax deducted at sources Rs. 511,586,650 (Previous Year Rs. 1,044,123,352)] 35,699,747,992 33,132,517,189 OTHER INCOME Interest on Income Tax Refund 127,881,567 65,442,696 Other Interest 618,168 6,925,194 Profit on Sale of Fixed Assets (net) 127,400,931 18,516,722 Miscellaneous Income [See Schedule 18 Note 22(iii)] 15,414,119 3,629,938 [including exchange gain Rs. Nil (Previous Year Rs. 198,711)] 271,314,785 94,514,550 35,971,062,777 33,227,031,739

SCHEDULE 13 Interest & Other Charges RUPEES RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO MARCH 31, 2010 MARCH 31, 2009 INTEREST On Fixed Loans 19,346,754,351 20,479,895,659 On Others 2,553,700 2,245,258 19,349,308,051 20,482,140,917 OTHER CHARGES 153,000,317 313,299,364 [including exchange loss Rs. 61,320,748 (Previous Year Rs. 525,871,088)] 19,502,308,368 20,795,440,281

1 0 0 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 14 Staff Expenses RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO MARCH 31, 2010 MARCH 31, 2009 Salaries (See Schedule 18 Notes 2 & 29) 911,239,407 565,646,031 Contribution to Provident and Other Funds (See Schedule 18 Note 18) 36,957,430 62,534,863 Staff Welfare Expenses 90,504,542 23,974,705 1,038,701,379 652,155,599

SCHEDULE 15 Establishment Expenses RUPEES RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO MARCH 31, 2010 MARCH 31, 2009 Rent [See Schedule 18 Note 22(ii)] 84,947,544 110,408,077 Rates & Taxes 15,467,167 10,108,228 Electricity 17,939,286 8,839,695 Repairs and Maintenance Buildings 31,844,438 1,432,898 Equipments 18,787,030 1,834,409 Others 351,996 132,355 50,983,464 3,399,662 Insurance Charges 2,570,370 5,377,008 171,907,831 138,132,670

SCHEDULE 16 Other Expenses RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO MARCH 31, 2010 MARCH 31, 2009 Travelling and Conveyance 52,514,885 41,984,945 Printing and Stationery 12,423,581 20,437,176 Postage, Telephone and Fax 34,786,284 32,054,477 Advertising and Publicity 14,508,196 16,623,538 Professional Fees 182,667,303 108,850,147 Loss on Foreign Exchange Fluctuation (Net) 27,916 - Directors’ Fees 1,920,000 1,960,000 Commission to Directors [See Schedule 18 Note 12(b)] 5,626,786 11,485,714 Miscellaneous Expenses [See Schedule 18 Notes 22(i) & 30] 140,091,162 53,751,075 Auditors’ Remuneration (See Schedule 18 Note 13) 10,186,502 8,508,255 454,752,615 295,655,327

SCHEDULE 17 Provisions and Contingencies RUPEES RUPEES APRIL 1, 2009 TO APRIL 1, 2008 TO MARCH 31, 2010 MARCH 31, 2009 Provision for Contingencies 1,026,200,000 1,563,500,000 [including provision u/s. 36(1)(viia) of Income-tax Act, 1961] Provision for Doubtful Loans, Debtors and Restructured Loans 48,926,711 171,662 Provision for Diminution in Value of Investments (Net) 228,501,468 (69,159,203) 1,303,628,179 1,494,512,459

STANDALONE ACCOUNTS 1 0 1 SCHEDULE 18 Notes Forming Part of the Accounts

1 Significant Accounting Policies A. Accounting Convention These accounts have been prepared in accordance with historical cost convention, applicable Accounting Standards notified by the Companies (Accounting Standards) Rules, 2006, relevant provisions of the Companies Act, 1956 and the applicable guidelines issued by the Reserve Bank of India (RBI). B. System of Accounting The Company adopts the accrual concept in the preparation of the accounts. The preparation of financial statements requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. The Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. C. Inflation Assets and liabilities are recorded at historical cost to the Company. These costs are not adjusted to reflect the changing value in the purchasing power of money. D. Investments The Company is regulated as a Non-Banking Financial Company (NBFC) by the RBI. Accordingly, Investments are classified under two categories i.e. Current and Long Term and are valued in accordance with the RBI guidelines and Accounting Standard 13 on ‘Accounting for Investments’ as notified by the Companies (Accounting Standards) Rules, 2006.

¬¬ ‘Long Term Investments’ are carried at acquisition cost. A provision is made for diminution other than temporary on an individual basis.

¬¬ ‘Current Investments’ are carried at the lower of cost and fair value on an individual basis. E. Infrastructure Loans and Advances In accordance with the RBI guidelines, all loans and advances are classified under any of four categories i.e. (i) Standard Assets, (ii) Sub-standard Assets, (iii) Doubtful Assets and (iv) Loss Assets. F. Fixed Assets Fixed assets are stated at cost of acquisition, including any cost attributable for bringing the asset to its working condition, less accumulated depreciation. G. Intangible Assets Intangible Assets comprising of system software are stated at cost of acquisition, including any cost attributable for bringing the asset to its working condition, less accumulated amortisation. Any technology support cost or annual maintenance cost for such software is charged annually to the Profit and Loss Account. H. Provisions and Contingencies ¬¬ Adequate provision for diminution is made as per the regulatory guidelines applicable to Non-Performing Advances and the provisioning policy of the Company in respect of Loans, Debentures and Pass Through Certificates in the nature of advances.

¬¬ Provision on restructured advances is computed in accordance with the RBI guidelines.

¬¬ Provision for Contingencies is made as per the provisioning policy of the Company, which includes provision under Section 36(1)(viia) of the Income - tax Act, 1961. I. Depreciation and Amortisation ¬¬ Tangible Assets Depreciation on Fixed Assets, excluding certain electronic items, is provided on the written down value method, at the rates prescribed by Schedule XIV of the Companies Act, 1956. Certain electronic items are depreciated over a period of two years on straight line method based on the Management’s estimate of the useful life of assets. Depreciation on additions during the year is provided on a pro-rata basis. Assets costing less than Rs 5,000 each are written off in the year of capitalisation. Depreciation in respect of Leasehold Improvements is provided on the straight line method over the primary period of lease.

¬¬ Intangible Assets Intangible assets consisting of computer software are being amortised over a period of three years on straight line method.

1 0 2 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

J. Operating Leases Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the Profit and Loss Account, on a straight line basis over the lease term. Lease rental income is recognised in accordance with the Accounting Standard 19 on ‘Leases’ as notified by the Companies (Accounting Standards) Rules, 2006. Initial direct costs incurred specifically for operating lease are recognised as expenses in the year in which they are incurred. K. Employee Benefits Defined Contribution Plan ¬¬ The Company’s contribution to Provident Fund is deposited with Regional Provident Fund Commissioner and is charged to the Profit and Loss Account. ¬¬ The Company has taken a superannuation policy, for future payment of superannuation and the Company’s contribution paid / payable during the year is charged to the Profit and Loss Account. Defined Benefit Plan ¬¬ The net present value of the Company’s obligation towards Gratuity to employees is funded and actuarially determined as at the Balance Sheet date based on the projected unit credit method. Actuarial gains and losses are recognised in the Profit and Loss Account. Other Long Term Employee Benefit ¬¬ Liability for compensated absences in respect of sick leave which is of a long term nature is actuarially determined as at the Balance Sheet date based on the projected unit credit method. L. Income-Tax The accounting treatment for income-tax in respect of the Company’s income is based on Accounting Standard 22 on ‘Accounting for Taxes on Income’ as notified by the Companies (Accounting Standards) Rules, 2006. The provision made for income-tax in the accounts comprises both, the current tax and the deferred tax. The deferred tax assets and liabilities for the year, arising on account of timing differences, are recognised in the Profit and Loss Account and the cumulative effect thereof is reflected in the Balance Sheet.

Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax asset is recognised only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax asset can be realised. In situations where the Company has unabsorbed depreciation or carried forward losses, deferred tax assets are recognised only if there is virtual certainty supported by convincing evidence that the same can be realised against future taxable profits. M. Revenue Recognition (a) Interest and other dues are accounted on accrual basis except in the case of non-performing assets (“NPAs”) where they are recognised upon realisation, as per the income recognition and asset classification norms prescribed by the RBI.

(b) Income on discounted instruments is recognised over the tenure of the instrument on straight line method.

(c) Dividend is accounted on accrual basis when the right to receive is established.

(d) Front end fees on processing of loans are recognised upfront as income.

(e) All fees are recognised when reasonable right of recovery is established, revenue can be reliably measured and as and when they become due except commission income on guarantees, is recognised pro-rata over the period of the guarantee.

(f) Premium on interest rate reduction is accounted on accrual basis over the residual life of the loan.

(g) Profit on securitisation is recognised over the residual life of the loan in terms of the RBI guidelines. Profit on sale of loan assets through direct assignment, without any recourse obligation, is recognised at the time of sale. Net loss arising on account of securitisation and direct assignment of loan assets is recognised at the time of sale.

(h) Revenue from Power Supply is accounted on accrual basis.

(i) Grants are recognised on accrual basis. N. Foreign Currency Transactions Foreign currency transactions are accounted at the exchange rates prevailing on the dates of the transactions. Foreign currency monetary items outstanding as at the Balance Sheet date are reported using the closing rates of exchange. Gains and losses resulting from the settlement of such transactions and translation of monetary assets and liabilities denominated in foreign currencies are recognised in the Profit and Loss Account. Premium in respect of forward contracts is accounted over the period of the contract. Forward contracts outstanding as at the Balance Sheet date are revalued at the closing rate.

STANDALONE ACCOUNTS 1 0 3 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

O. Derivatives ¬¬ Interest Rate Swaps Interest rate swaps in the nature of hedge are recorded on an accrual basis and these transactions are not marked to market. Any resultant gain or loss on termination of hedge swaps is amortised over the life of swap or underlying asset / liability whichever is shorter.

¬¬ Currency Interest Rate Swaps Currency interest rate swaps in the nature of hedge are recorded on an accrual basis and these transactions are not marked to market. Any resultant gain or loss on termination of hedge swaps is amortised over the life of swap or underlying asset / liability whichever is shorter. The foreign currency balances on account of principal of cross currency swaps outstanding as at the Balance Sheet date is revalued using the closing rate. P. Employee Stock Option Scheme The Company has formulated Employee Stock Option Schemes (ESOS) in accordance with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Schemes provide for grant of options to employees (including employees of the subsidiaries) to acquire equity shares of the Company that vest in a graded manner and that are to be exercised within a specified period. In accordance with the SEBI Guidelines, the excess, if any, of the closing market price on the day prior to the grant of the options under ESOS over the exercise price is amortised on a straight line basis over the vesting period.

2 During the year, the Company granted to eligible employees 603,000 options (Previous Year 17,073,250) under the Employee Stock Option Schemes. The details of outstanding options are as under:

PARTICULARS CURRENT YEAR PREVIOUS YEAR Options outstanding as at the beginning of the year 21,766,956 6,276,139 Add: Options granted during the year 603,000 17,073,250 Less: Options exercised during the year 5,336,332 977,098 Less: Options lapsed during the year 485,356 605,335 Options outstanding as at the end of the year 16,548,268 21,766,956

The net charge towards ESOP Compensation included under Salaries is Rs. 53,382,037 (Previous Year Rs. 123,132,742).

3 Fringe Benefit Tax is net of amount recovered from employees ofRs. Nil (Previous Year Rs. 46,912,247) on exercise of Employee Stock Options.

4 The Company has utilised Securities Premium Account under Section 78 of the Companies Act, 1956, towards discount on zero percent bonds issued after October 1, 2009. As a result, Profit after taxation for the year is higher by Rs. 276,661,227 (net of tax of Rs. 93,000,000).

5 During the year, the following investments were purchased and sold / redeemed:

(A) EQUITY SHARES NUMBER OF SHARES FACE VALUE COST RUPEES RUPEES Adani Power Limited 475,940 10 47,594,000

(B) WARRANTS NUMBER OF WARRANTS FACE VALUE COST RUPEES RUPEES Housing Development Finance Corporation Limited 2,527,100 – 694,952,500

1 0 4 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

(C) BONDS NUMBER OF BONDS FACE VALUE COST RUPEES RUPEES Allahabad Bank Limited 370 1,000,000 370,000,000 Andhra Bank Limited 300 1,000,000 338,595,000 Bajaj Auto Finance Limited 30 10,000,000 300,872,300 Bank of Baroda 250 1,000,000 250,000,000 Bank of India 1,250 1,000,000 1,248,136,950 Bank of Maharashtra 300 1,000,000 300,000,000 Corporation Bank 250 1,000,000 252,420,000 Damodar Valley Corporation Limited 500 1,000,000 499,950,000 Deccan Chronicle Holding Limited 2,400 1,000,000 2,405,152,250 Deutsche Post Bank Housing Finance Limited 250 1,000,000 250,000,000 DLF Limited 250 1,000,000 250,000,000 ECL Finance Limited 3,000 500,000 1,500,000,000 ECL Finance Limited 500 1,000,000 500,175,000 ETHL Communications Holdings Limited 3,740 1,000,000 3,280,095,520 Export Import Bank of India 400 1,000,000 410,152,750 Fullerton India Credit Company Limited 500 1,000,000 501,760,000 Great Eastern Shipping Company Limited 2,385 1,000,000 2,426,325,000 Hindustan Petroleum Corporation Limited 1,400 1,000,000 1,382,640,000 Housing Development Finance Corporation Limited 14,900 1,000,000 14,616,691,550 ICICI Bank Limited 3,000 1,000,000 3,000,000,000 ICICI Home Finance Company Limited 512 1,000,000 512,000,000 India Infoline Investment Services Limited 500 1,000,000 500,000,000 Indian Oil Corporation Limited 850 1,000,000 834,790,100 Indian Overseas Bank 400 1,000,000 412,773,200 Indian Railway Finance Corporation Limited 2,000 100,000 200,000,000 Indian Railway Finance Corporation Limited 3,290 1,000,000 3,311,897,300 Indus Towers Limited 5,000 1,000,000 5,000,000,000 Industrial Development Bank of India Limited 1,000,000 100 101,455,500 Industrial Development Bank of India Limited 3,000 1,000,000 3,013,826,000 Infrastructure Leasing & Financial Services Limited 50,000 1,000 51,238,450 Kotak Mahindra Prime Limited 900 1,000,000 900,000,000 L & T Finance Limited 4,500 1,000 4,500,000 L & T Finance Limited 250 1,000,000 261,625,000 LIC Housing Finance Limited 2,100 1,000,000 2,099,900,300 National Bank for Agriculture and Rural Development 500 1,000,000 522,029,400 National Housing Bank 65,000 10,000 312,879,450 ONGC Videsh Nigam Limited 550 1,000,000 550,000,000 Oriental Bank of Commerce 70 1,000,000 70,840,000 Power Finance Corporation Limited 9,463 1,000,000 9,730,484,800 Power Grid Corporation Limited 2,000 1,250,000 2,521,639,700 Punjab National Bank 950 1,000,000 950,000,000 Reliance Capital Limited 1,700 1,000,000 1,704,769,350 Reliance Gas Transportation Infrastructure Limited 1,224 1,000,000 1,344,478,350 Reliance Industries Limited 800 1,000,000 863,188,000 Religare Finance Limited 200 1,000,000 203,200,000 Rural Electrification Corporation of India Limited 5,550 1,000,000 5,572,543,000 State Bank of India 50 1,000,000 51,636,400 State Bank of Mysore 150 1,000,000 151,055,550 State Bank of Patiala 227 1,000,000 233,629,007 Steel Authority of India Limited 250 1,000,000 250,000,000 Tata Motors Limited 800 1,000,000 800,000,000 Tata Sons Limited 4,100 1,000,000 4,100,000,000

STANDALONE ACCOUNTS 1 0 5 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

(D) DEBENTURES NUMBER OF FACE VALUE COST DEBENTURES RUPEES RUPEES Venturbay Consultants Private Limited 40,000,000 100 4,000,000,000

6 Infrastructure Loans:

(A) DEBENTURES (REDEEMABLE) CURRENT YEAR PREVIOUS YEAR NAME OF COMPANY NUMBER OF FACE VALUE COST COST DEBENTURES RUPEES RUPEES RUPEES Arkay Energy (Rameswarm) Limited 99,622,885 10 569,277,681 711,592,037 Asianet Satellite Communications Limited 1,027 1,000,000 552,506,513 685,093,204 Tata Power Company Limited – 200,757,979

(B) DEBENTURES (CONVERTIBLE) CURRENT YEAR PREVIOUS YEAR NAME OF COMPANY NUMBER OF FACE VALUE COST COST DEBENTURES RUPEES RUPEES RUPEES Simpson Unitech Wireless Private Limited 534,500,000 10 5,345,000,000 5,345,000,000 Andhra Cements Limited 500,000 100 50,000,000 – (A+B) 6,516,784,194 6,942,443,220

(C) PASS THROUGH CERTIFICATE CURRENT YEAR PREVIOUS YEAR NAME COST COST RUPEES RUPEES BHPC Auto Securitisation Trust Nil 1,327,106,876 Tata Motors Finance Securitisation Trust Nil 361,562,115 Nil 1,688,668,991

(D) Interest on Infrastructure Loans include Rs. 1,201,675,537 (Previous Year Rs. 227,471,557) from Infrastructure Loans – Debentures and Rs. 205,077,279 (Previous Year Rs. 305,625,955) from Infrastructure Loans – Pass Through Certificates.

(E) Interest on Infrastructure Loans includes exchange gain of Rs. 56,879,384 (Previous Year Rs. 266,580,000).

7 Infrastructure loans to the extent of Rs. 247,614,074,997 (Previous Year Rs. 207,946,102,416) are secured by: i. Hypothecation of assets and / or

ii. Mortgage of property and / or

iii. Trust and Retention Account and / or

iv. Bank guarantees, company guarantee, sponsor guarantee or personal guarantee and / or

v. Assignment of receivables or rights and / or

vi. Pledge of shares and / or

vii. Negative lien and / or

viii. Undertaking to create a security.

8 Interest on Investments, Dividend on Investments and Profit on Sale of Investments includeRs. 2,298,776,294 (Previous Year Rs. 2,688,509,051), Rs. 624,157,388 (Previous Year Rs. Nil) and Rs. 1,026,308,223 (Previous Year Rs. 1,402,670,504) respectively, in respect of Current Investments. Provision for diminution in value of Investments include amortised premium of Rs. 13,487,870 (Previous Year Rs. 340,294) on purchase of Long Term Investments.

9 Dividend on Investments include Rs. 600,000,000 (Previous Year Rs. 400,000,000) from a Subsidiary Company. Tax on proposed dividend for the year 2009-10 is net of dividend distribution tax of Rs. 101,970,000 (Previous Year Rs. 67,980,000) paid by the Subsidiary Company under Section 115-O of the Income tax Act, 1961.

1 0 6 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

10 (a) Advances recoverable in cash or in kind include amount due from Subsidiaries Rs. 121,511,872 (Previous Year Rs. 4,279,882). (b) Cash and cash equivalents represent:

PARTICULARS CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Cash and Bank Balances (As per Schedule 8) 320,298,097 6,561,444,709 Current Accounts held for Unclaimed Dividends 7,623,995 5,916,768 Cash and cash equivalents as at the end of the year 312,674,102 6,555,527,941

(c) Bank Balance with Non-Scheduled Banks:

NAME OF BANK CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Bank of America 15,525 17,422 [Maximum amount outstanding during the year Rs. 17,350 (Previous Year Rs. 17,875)] 11 (a) Sundry Creditors includes amount due to a Subsidiary Rs. Nil (Previous Year Rs. 16,913,771).

(b) Other liabilities include Rs. 7,623,995 (Previous Year Rs. 5,916,768) towards Unclaimed Dividend of which no amount was due for transfer to the Investor Education and Protection Fund under Section 205C of the Companies Act, 1956 on March 31, 2010 (Previous Year Rs. Nil). 12 (a) Managerial Remuneration:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES (i) Salary # 28,368,225 29,302,777 (ii) Contribution to Provident and Other Funds 2,829,355 2,151,100 (iii) Perquisites 2,591,263 1,738,364 33,788,843 33,192,241

# Includes Bonus on cash basis and ESOP Compensation Cost on allotment Managerial Remuneration amounting to Rs. Nil (Previous Year Rs. 8,144,600) is subject to shareholder’s approval at the ensuing Annual General Meeting. (b) Commission to Non Whole-Time Directors:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Commission to Non Whole-Time Directors 5,626,786 11,485,714 [net of excess provision of Rs. 3,523,214 (Previous Year Rs. Nil)] Computation of net profits in accordance with Section 198 read with Section 309(5) of the Companies Act, 1956

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES PROFIT BEFORE TAXATION AS PER PROFIT AND LOSS ACCOUNT 13,171,373,718 9,649,185,034 ADD: Managerial Remuneration 33,788,843 33,192,241 Directors’ Fees 1,920,000 1,960,000 Directors’ Commission 5,626,786 11,485,714 Provisions and Contingencies 1,303,628,179 1,494,512,459 LESS: Profit on Sale of Fixed Assets 41,517,788 4,706,685 Profit on Sale of Investments 4,266,724,857 3,134,689,804 NET PROFITS AS PER SECTION 198 10,208,094,881 8,050,938,959 COMMISSION @ 1% OF NET PROFITS 102,080,949 80,509,390 COMMISSION TO NON WHOLE-TIME DIRECTORS 9,150,000 11,485,714

STANDALONE ACCOUNTS 1 0 7 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

13 Auditors’ Remuneration:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Audit Fees 3,000,000 3,000,000 Tax Audit Fees 900,000 900,000 Other Services 5,475,500 4,362,000 Taxation Matters 740,000 221,500 Out of Pocket Expenses 71,002 24,755 Service Tax 1,086,520 890,167 11,273,022 9,398,422 Less: Service tax set off claimed 1,086,520 890,167 10,186,502 8,508,255

The above amounts exclude professional fees of Rs. 615,000 (Previous Year Rs. 415,000) and Service tax of Rs. 63,345 (Previous Year Rs. 51,294) debited to other accounts. 14 Expenditure in foreign currencies:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Interest - Other Charges 3,956,862 6,868,682 Travelling expenses 1,556,974 1,128,970 Professional Fees 1,431,303 6,000,082 Others 69,854,122 21,135,940 15 Earnings in foreign currencies:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Fees Nil 1,508,073 Others Nil 913,062 16 Remittance in foreign currencies for dividends

The Company has not remitted any amount in foreign currencies on account of dividends during the year and does not have information as to the extent to which remittance, if any, in foreign currencies on account of dividends have been made by / on behalf of non resident shareholders. The particulars of dividends payable to non-resident shareholders which were declared during the year, are as under:

CURRENT YEAR PREVIOUS YEAR Number of Non-Resident Shareholders 3,975 3,614 Number of Ordinary Shares held by them 599,867,184 564,370,493 Gross Amount of Dividend (Rs.) 719,840,562 677,244,512 Dividend relating to the year 2008-2009 2007-2008 17 In respect of equity shares issued pursuant to Employee Stock Option Scheme, the Company paid dividend of Rs. 260,992 for the year 2008-09 and tax on dividend of Rs. 44,356 as approved by the shareholders at the Annual General Meeting held on July 20, 2009.

18 In accordance with Accounting Standard 15 on ‘Employee Benefits’ as notified by the Companies (Accounting Standards) Rules, 2006 the following disclosures have been made: i. The Company has recognised the following amounts in the Profit and Loss Account towards contribution to defined contribution plans which are included under Contribution to Provident and Other Funds:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Provident Fund 17,891,000 15,710,676 Superannuation Fund 21,458,837 19,090,321

1 0 8 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes Forming Part of the Accounts (Continued) ii. The details of the Company’s post – retirement benefit plans for gratuity for its employees are given below which is certified by the actuary and relied upon by the auditors:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES CHANGE IN THE DEFINED BENEFIT OBLIGATIONS: Liability at the beginning of the year 58,324,352 38,490,873 Current Service Cost 11,847,352 9,061,037 Interest Cost 5,426,886 3,559,888 Liabilities Extinguished on Settlement 5,426,826 Nil Benefits Paid 3,699,590 5,679,935 Actuarial Loss 687,323 12,892,489 Liability at the end of the year 67,159,497 58,324,352 FAIR VALUE OF PLAN ASSETS: Fair Value of Plan Assets at the beginning of the year 58,543,569 30,970,208 Expected Return on Plan Assets 4,496,635 2,648,187 Contributions Nil 38,000,000 Benefits paid 3,699,590 5,679,935 Actuarial Loss / (Gain) on Plan Assets (12,911,487) 7,394,891 Fair Value of Plan Assets at the end of the year 72,252,101 58,543,569 Total Actuarial Loss / (Gain) to be recognised (12,224,164) 20,287,380 ACTUAL RETURN ON PLAN ASSETS: Expected Return on Plan Assets 4,496,635 2,648,187 Actuarial Loss / (Gain) on Plan Assets (12,911,487) 7,394,891 Actual Return on Plan Assets 17,408,122 (4,746,704) AMOUNT RECOGNISED IN THE BALANCE SHEET: Liability at the end of the year 67,159,497 58,324,352 Fair Value of Plan Assets at the end of the year 72,252,101 58,543,569 Amount recognised in the Balance Sheet under “Provision for Employee Benefits” Nil Nil EXPENSE RECOGNISED IN THE PROFIT AND LOSS ACCOUNT: Current Service Cost 11,847,352 9,061,037 Interest Cost 5,426,886 3,559,888 Expected Return on Plan Assets 4,496,635 2,648,187 Net Actuarial Loss / (Gain) to be recognised (12,224,164) 20,287,380 Expense recognised in the Profit and Loss Account under staff expenses 553,439 30,260,118 RECONCILIATION OF THE LIABILITY RECOGNISED IN THE BALANCE SHEET: Opening Net Liability 219,217 7,520,665 Expense recognised 553,439 30,260,118 Contribution by the Company Nil 38,000,000 Amount recognised in the Balance Sheet under “Provision for Employee Benefits” Nil Nil Expected Employer’s Contribution Next Year 10,000,000 7,500,000

EXPERIENCE ADJUSTMENTS: CURRENT YEAR PREVIOUS YEAR MARCH 31, 2008 MARCH 31, 2007 RUPEES RUPEES RUPEES RUPEES Defined Benefit Obligation 67,159,497 58,324,352 38,490,873 20,577,193 Plan Assets 72,252,101 58,543,569 30,970,208 18,416,688 Surplus / (Deficit) 5,092,604 219,217 (7,520,665) (2,160,505) Experience Adjustments on Plan Liabilities (5,352,411) 14,503,430 8,037,218 (171,688) Experience Adjustments on Plan Assets 12,911,487 (7,394,891) (182,483) (311,306)

INVESTMENT PATTERN: CURRENT YEAR PREVIOUS YEAR (%) (%) INSURER MANAGED FUNDS 100.00 100.00 Government Securities 7.74 10.11 Deposit and Money Market Securities 16.81 38.17 Debentures / Bonds 53.08 28.35 Equity Shares 22.37 23.37

STANDALONE ACCOUNTS 1 0 9 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

PRINCIPAL ASSUMPTIONS: (%) (%) Discount Rate (p.a.) 8.10 8.00 Expected Rate of Return on Assets (p.a.) 8.00 8.00 Salary Escalation Rate (p.a.) 8.00 7.00

The estimate of future salary increase, considered in the actuarial valuation takes account of inflation, seniority, promotion and other relevant factors.

19 Total number of electricity units generated during the year – 34,975,283 KWH (Previous Year 26,571,684 KWH) and sold during the year – 34,939,405 KWH (Previous Year 26,522,388 KWH).

20 The Company’s main business is to provide finance for infrastructure projects including through ownership of infrastructure assets. All other activities revolve around the main business. The Company does not have any geographic segments. As such, there are no separate reportable segments as per Accounting Standard 17 on ‘Segment Reporting’ as notified by the Companies (Accounting Standards) Rules, 2006.

21 As per the Accounting Standard 18 on ‘Related Party Disclosures’ as notified by the Companies (Accounting Standards) Rules, 2006, the related parties of the Company are as follows:

I. SUBSIDIARIES: (a) Direct IDFC AMC Trustee Company Limited IDFC Asset Management Company Limited IDFC Capital Company Limited IDFC Finance Limited IDFC Investment Advisors Limited IDFC Pension Fund Management Company Limited IDFC PPP Trusteeship Company Limited IDFC Private Equity Company Limited IDFC Project Equity Company Limited IDFC Projects Limited IDFC Securities Limited (formerly IDFC – SSKI Securities Limited) IDFC Trustee Company Limited (b) Through Subsidiaries Dheeru Powergen Private Limited (with effect from February 5, 2010) IDFC Capital Limited (formerly IDFC – SSKI Limited) IDFC Capital (Singapore) Pte. Ltd. IDFC Fund of Funds Limited (with effect from October 28, 2009) IDFC General Partners Limited (with effect from November 30, 2009) IDFC – SSKI Stock Broking Limited II. JOINTLY CONTROLLED ENTITIES: Delhi Integrated Multi-Modal Transit System Limited Infrastructure Development Corporation (Karnataka) Limited Uttarakhand Infrastructure Development Company Limited III. ASSOCIATES: Athena Energy Ventures Private Limited (upto July 23, 2009) Feedback Ventures Private Limited Gayatri Jhansi Roadways Limited (upto September 18, 2008) Gayatri Lalitpur Roadways Limited (upto September 18, 2008) Jas Toll Road Company Limited (upto September 18, 2008) SMS Shivnath Infrastructure Limited (upto September 18, 2008) IV. ENTITIES OVER WHICH CONTROL IS EXERCISED: Emerging Markets Private Equity Fund LP (with effect from October 28, 2009) (Controlled by IDFC Fund of Funds Limited) India Infrastructure Initiative Trust (with effect from April 1, 2009) India PPP Capacity Building Trust (with effect from April 1, 2009) V. KEY MANAGEMENT PERSONNEL: Dr. Rajiv B. Lall – Managing Director and CEO Mr. Vikram Limaye – Whole-time Director (with effect from September 15, 2008)

1 1 0 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

The nature and volume of transactions carried out with the above related parties in the ordinary course of business are as follows: NAME OF RELATED PARTY AND PARTICULARS CURRENT YEAR PREVIOUS YEAR NATURE OF RELATIONSHIP RUPEES RUPEES (A) SUBSIDIARIES: IDFC AMC Trustee Company Limited Subscription of Equity Shares Nil 400,000 IDFC Asset Management Company Limited Sale of Fixed Assets Nil 2,749,702 Sale of Investments 80,000,000 Nil Advance given and recovered Nil 7,500,000 Purchase of Fixed Assets Nil 696,794 Sundry Creditors – Balance outstanding Nil 528,359 IDFC Capital Company Limited Advances Recoverable – Balance outstanding 835,910 835,910 IDFC Capital Limited Fees Shared 58,136,373 79,076,033 Professional Fees paid 65,884,396 22,964,129 Interest – Other Charges Nil 155,057 Sundry Creditors – Balance outstanding Nil 14,881,797 IDFC Finance Limited Advance given & recovered 20,000 Nil IDFC Investment Advisors Limited Subscription of Equity Shares Nil 50,000,000 Management Fees paid 7,835,000 Nil Advances Recoverable – Balance outstanding 4,137,462 3,207,727 IDFC Pension Fund Management Company Subscription of Equity Shares 49,999,990 Nil Limited IDFC Private Equity Company Limited Dividend received 600,000,000 400,000,000 Rent recovered Nil 120,000 IDFC Projects Limited Subscription of Equity Shares 250,000,000 Nil Fees received 4,103,677 Nil Advance given 116,538,500 20,000,000 Advance recovered Nil 20,000,000 Advances Recoverable – Balance outstanding 116,538,500 Nil Sundry Creditors – Balance outstanding Nil 1,503,615 IDFC Project Equity Company Limited Advance given and recovered Nil 11,150,000 Fees Received 1,770,836 Nil Sale of Fixed Assets 489,261 822,045 Rent recovered 407,399 Nil Advances Recoverable – Balance outstanding Nil 236,245 IDFC Securities Limited Brokerage paid 5,672,744 2,523,450 Inter Corporate Deposits placed & repaid 5,819,000,000 1,940,000,000 Interest received on Inter Corporate Deposits 2,224,889 1,804,932 IDFC Trustee Company Limited Advance given and recovered 50,000 Nil

(B) JOINTLY CONTROLLED ENTITIES: Delhi Integrated Multi-Modal Transit System Subscription of Equity Shares 6,000 Nil Limited Fees received Nil 8,427,000 Sponsorship Fees paid 500,000 Nil Miscellaneous Income 60,000 Nil Infrastructure Development Corporation Fees paid 1,055,571 3,102,657 (Karnataka) Limited Fees received Nil 53,856 Rent paid 136,992 139,306 Sundry Creditors – Balance outstanding 776,543 316,059 Uttarakhand Infrastructure Development Fees paid Nil 1,507,590 Company Limited Sundry Creditors – Balance outstanding Nil 1,336,781

STANDALONE ACCOUNTS 1 1 1 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

NAME OF RELATED PARTY AND PARTICULARS CURRENT YEAR PREVIOUS YEAR NATURE OF RELATIONSHIP RUPEES RUPEES (C) ASSOCIATES: Athena Energy Ventures Private Limited Subscription of Equity Shares Nil Nil Miscellaneous Income 39,000 120,000 Debtors – Balance outstanding Nil 61,305 Feedback Ventures Private Limited Fees paid Nil 1,179,780 Dividend received 3,699,036 Nil Miscellaneous Income 70,000 77,500 Debtors – Balance outstanding 109,959 Nil Creditors – Balance outstanding Nil 44,557 Gayatri Jhansi Roadways Limited Interest received Nil 18,620,047 Fees received Nil 5,568,768 Gayatri Lalitpur Roadways Limited Interest received Nil 12,708,730 Infrastructure Loans disbursed Nil 99,996,430 Fees received Nil 3,031,837 Jas Toll Road Company Limited Dividend received Nil 23,327,754 Interest received Nil 16,825,724 SMS Shivnath Infrastructure Limited Purchase of Equity Shares Nil 61,138,575 (D) ENTITIES OVER WHICH CONTROL IS EX- ERCISED: India PPP Capacity Building Trust Fees paid 32,569,672 67,991,193 Sundry Creditors – Balance outstanding 22,941,289 23,442,994 India Infrastructure Initiative Trust Subscription of Trust Units Nil 19,500,000 (E) KEY MANAGEMENT PERSONNEL: Dr. Rajiv B. Lall Remuneration paid 16,757,312 25,047,641 Mr. Vikram Limaye Remuneration paid 17,031,531 8,144,600 22 In accordance with the Accounting Standard 19 on ‘Leases’ as notified by the Companies (Accounting Standards) Rules, 2006, the following disclosure in respect of Operating Leases is made: i. The Company has taken vehicles for certain employees under Operating Leases, which expire between June 2010 to November 2013 (Previous Year September 2009 to June 2013). Miscellaneous expenses include gross rental expenses of Rs. 3,357,564 (Previous Year Rs. 3,556,265). The committed lease rentals in the future are:

PARTICULARS CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Not later than one year 5,396,538 7,242,501 Later than one year and not later than five years 5,205,440 7,175,605 ii. The Company has taken office premises under Operating Leases, which expire betweenOctober 2016 to September 2018 (Previous Year October 2016). Rent includes gross rental expenses of Rs. 67,319,687 (Previous Year Rs. 70,031,220). The committed lease rentals in the future are:

PARTICULARS CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Not later than one year 68,289,480 53,778,240 Later than one year and not later than five years 320,410,927 257,239,249 Later than five years 167,325,350 200,055,059 iii. The Company has given an office premise under non-cancellable operating Lease, which expires on October 31, 2012. Miscellaneous Income includes income from such leases of Rs. 8,160,750 (Previous Year Rs. Nil). The future minimum lease payments are as follows:

PARTICULARS CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Not later than one year 19,585,800 Nil Later than one year and not later than five years 31,010,850 Nil

1 1 2 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

23 In compliance with the Accounting Standard 22 relating to ‘Accounting for Taxes on Income’ as notified by the Companies (Accounting Standards) Rules, 2006, the Company has taken credit of Rs. 350,000,000 (Previous Year Rs. 440,000,000) in the Profit and Loss Account towards deferred tax asset (net) on account of timing differences. The major components of deferred tax assets and liabilities arising on account of timing differences are:

CURRENT YEAR PREVIOUS YEAR CURRENT YEAR PREVIOUS YEAR

RUPEES RUPEES RUPEES RUPEES ASSETS LIABILITIES (a) Depreciation Nil Nil 200,300,000 132,000,000 (b) Provisions 1,932,000,000 1,525,000,000 Nil Nil (c) Others 11,300,000 Nil Nil Nil 1,943,300,000 1,525,000,000 200,300,000 132,000,000 Net Deferred Tax Asset 1,743,000,000 1,393,000,000 24 In compliance with the Accounting Standard 27 on ‘Financial Reporting of Interests in Joint Ventures’ as notified by the Companies (Accounting Standards) Rules, 2006, the Company has interests in the following jointly controlled entities, which are incorporated in India:

(RUPEES IN CRORE)

NAME OF COMPANIES PERCENTAGE OF AMOUNT OF INTEREST BASED ON ACCOUNTS SHAREHOLDING FOR THE YEAR ENDED MARCH 31, 2010 ASSETS LIABILITIES INCOME EXPENDITURE CONTINGENT LIABILITY Infrastructure Development Corporation 49.50 34.07 18.62 8.82 4.34 0.25 (Karnataka) Limited (Audited) (49.50) (28.30) (16.27) (5.77) (3.36) (0.28) Uttarakhand Infrastructure 49.90 0.82 0.36 0.30 0.41 Nil Development Company Limited (Audited) (49.90) (0.99) (0.40) (0.54) (0.58) (Nil) Delhi Integrated Multi-Modal Transit 50.00 50.05 37.42 18.05 15.00 Nil System Limited (Unaudited) (50.00) (47.53) (37.13) (16.21) (11.16) (Nil)

Figures in bracket pertain to Previous Year.

25 In accordance with the Accounting Standard 20 on ‘Earnings Per Share’ as notified by the Companies (Accounting Standards) Rules, 2006: i. The Basic Earnings Per Share has been calculated based on the Net Profit After Tax of Rs.10,128,373,718 (Previous Year Rs.7,359,185,034) and weighted average number of shares during the year of 1,295,934,260 (Previous Year 1,295,043,809). ii. The reconciliation between the Basic and the Diluted Earnings Per Share is as follows:

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES Basic Earnings Per Share 7.82 5.68 Effect of outstanding Stock Options (0.08) (0.01) Diluted Earnings Per Share 7.74 5.67 iii. The Basic Earnings Per Share has been computed by dividing the Net Profit After Tax by the weighted average number of equity shares for the respective years; whereas the Diluted Earnings Per Share has been computed by dividing the Net Profit After Tax by the weighted average number of equity shares, after giving dilutive effect of the outstanding Stock Options for the respective periods. The relevant details as described above are as follows:

CURRENT YEAR PREVIOUS YEAR Weighted average number of shares for computation of Basic Earnings Per Share 1,295,934,260 1,295,043,809 Dilutive effect of outstanding Stock Options 12,596,753 2,581,411 Weighted average number of shares for computation of Diluted Earnings Per Share 1,308,531,013 1,297,625,220 26 No interest has been paid / payable by the Company during the year to the “suppliers” covered under the Micro, Small and Medium Enterprises Development Act, 2006. The above information takes into account only those suppliers who have responded to inquries made by the Company for this purpose.

STANDALONE ACCOUNTS 1 1 3 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

27 Contingent liabilities not provided for in respect of :

CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES (a) Capital Commitments 6,259,327,510 8,292,400,000 (b) Estimated amount of contracts remaining to be executed on capital account (net of advances) 38,070,155 17,017,080 (c) Claims not acknowledged as debts in respect of : Income-tax demands disputed by the Company (net of amounts provided). The matters in dispute are under appeal. The demands have been paid / adjusted and will be received as refund if the matters are decided in favour of the Company 639,221,887 382,308,444 (RUPEES IN CRORE) (RUPEES IN CRORE) (d) Guarantees issued: As a part of project assistance, the Company has also provided the following guarantees: 1. Financial Guarantees 221.18 298.96 2. Performance Guarantees 40.30 19.50 3. Risk Participation Facility 29.39 72.00 28 The Company has entered into Interest Rate Swaps in the nature of “fixed / floating” or “floating / fixed” for notional principal of Rs. 1,660 crore outstanding as on March 31, 2010 (Previous Year Rs. 1,860 crore) for varying maturities linked to various benchmarks for asset liability management and hedging.

The Company has foreign currency borrowings of USD 48.83 crore (Previous Year USD 51.79 crore), against which the Company has undertaken currency interest rate swaps and forward contracts of USD 38.32 crore (Previous Year USD 40.59 crore) to hedge foreign currency risk.

29 Expenditure on account of Salaries is after adjusting Rs. 32,185,896 (Previous Year Rs. 118,490,705) recovered from Subsidiary Companies and a Jointly Controlled Entity.

30 Miscellaneous expenses include Provision for Wealth Tax amounting to Rs. 1,002,000 (Previous Year Rs. 1,225,000) and Securities Transaction Tax amounting to Rs. 4,656,083 (Previous Year Rs. 2,736,277).

31 Special Reserve has been created in terms of Section 36(1)(viii) of the Income-tax Act, 1961 out of the distributable profits of the Company.

32 The following additional information is disclosed in terms of RBI circular (Ref. No. DNBS (PD). CC. No. 145 /03.02. 001 /2009-10 dated July 1, 2009):

(a) Capital to Risk Assets Ratio (CRAR):

ITEMS CURRENT YEAR PREVIOUS YEAR CRAR (%) 20.51 23.75 CRAR – Tier I Capital (%) 17.36 20.04 CRAR – Tier II Capital (%) 3.15 3.71

(b) Exposures to Real Estate Sector*:

RUPEES IN CRORE CATEGORY CURRENT YEAR PREVIOUS YEAR (a) Direct exposure (i) Commercial Real Estate 3,937.40 4,577.20 Lending fully secured by mortgage (including securities in the process of being created) on commercial real estates (office building, retail space, multipurpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction, etc.) Exposure would also include non-fund based (NFB) limits. (ii) Investments in Mortgage Backed Securities (MBS) and other securitised exposures a. Residential 1.30 1.52 b. Commercial Real Estate Nil Nil (b) Indirect exposure Fund based and non-fund based exposures on National Housing Bank (NHB) and Housing Finance 250.20 30.00 Companies (HFCs). * Based on amounts sanctioned.

1 1 4 I D F C A N N U A L R E P O R T 09 –10 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

(c) Maturity pattern of certain items of assets and liabilities:

CURRENT YEAR

RUPEES IN CRORE 1 DAY TO OVER ONE OVER TWO OVER OVER SIX OVER ONE OVER OVER FIVE TOTAL 30/31 MONTH MONTHS THREE MONTHS YEAR TO THREE YEARS DAYS (ONE TO TWO TO THREE MONTHS TO ONE THREE YEARS TO MONTH) MONTHS MONTHS TO SIX YEAR YEARS FIVE MONTHS YEARS LIABILITIES Borrowing from Banks Nil 612.35 1,401.54 735.00 2,549.40 621.52 Nil 255.74 6,175.55 Market Borrowing 599.04 1,547.60 592.19 1,735.07 2,848.03 6,573.47 1,826.66 4,625.27 20,347.33 ASSETS (GROSS) Advances 225.72 292.68 183.91 2,343.80 1,819.52 7,066.44 4,949.80 8,616.67 25,498.54 Investments 503.23 46.96 0.25 90.25 175.80 358.49 189.26 4,473.96 5,838.21

PREVIOUS YEAR

RUPEES IN CRORE 1 DAY TO OVER ONE OVER TWO OVER OVER SIX OVER ONE OVER OVER FIVE TOTAL 30/31 MONTH MONTHS THREE MONTHS YEAR TO THREE YEARS DAYS (ONE TO TWO TO THREE MONTHS TO ONE THREE YEARS TO MONTH) MONTHS MONTHS TO SIX YEAR YEARS FIVE MONTHS YEARS LIABILITIES Borrowing from Banks Nil 639.52 1,728.70 798.38 3,795.00 734.25 Nil 255.74 7,951.59 Market Borrowing 259.37 235.00 250.00 1,857.00 2,137.22 4,270.04 3,079.02 3,493.80 15,581.45 ASSETS (GROSS) Advances 495.50 245.83 297.50 696.37 1,603.61 6,509.64 4,495.43 6,618.17 20,962.05 Investments 3,875.71 1.09 0.90 73.29 70.51 195.55 111.81 3,284.74 7,613.60

(d) Borrower group-wise classification of assets financed:

CATEGORY CURRENT YEAR PREVIOUS YEAR AMOUNT NET OF AMOUNT NET OF PROVISION * PROVISION * RUPEES RUPEES 1. Related Parties (a) Subsidiaries Nil Nil (b) Companies in the same Group Nil Nil (c ) Other Related Parties Nil Nil 2. Other than Related Parties 254,971,167,319 209,593,021,449 Total 254,971,167,319 209,593,021,449

* Excludes Provision for Contingencies.

STANDALONE ACCOUNTS 1 1 5 SCHEDULE 18 Notes Forming Part of the Accounts (Continued)

(e) Investor group wise classification of all investments (Current and Long Term) in shares and securities (both Quoted and Unquoted):

CATEGORY CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES MARKET VALUE / BOOK VALUE MARKET VALUE / BOOK VALUE BREAK UP VALUE / NET OF PROVISION BREAK UP VALUE / NET OF PROVISION FAIR VALUE / NAV FAIR VALUE / NAV 1. Related Parties (a) Subsidiaries 893,750,831 13,263,780,796 4,529,876,038 11,933,780,806 (b) Companies in the same group Nil Nil Nil Nil (c) Other Related Parties 600,968,735 435,811,115 833,548,615 745,805,115 2. Other than Related Parties 46,749,340,723 44,088,784,487 63,762,267,020 63,104,327,464 Total 48,244,060,289 57,788,376,398 69,125,691,673 75,783,913,385

(f) Other information:

PARTICULARS CURRENT YEAR PREVIOUS YEAR RUPEES RUPEES 1. Gross Non-Performing Assets (a) Related Parties Nil Nil (b) Other than Related parties 797,343,115 780,809,671 2. Net Non-Performing Assets (a) Related Parties Nil Nil (b) Other than Related parties 428,635,437 455,228,704 3. Assets acquired in satisfaction of debt Nil Nil

33 Previous year’s figures have been regrouped / rearranged wherever necessary to conform to the current year’s classification.

FOR AND ON BEHALF OF THE BOARD

DEEPAK S. PAREKH RAJIV B. LALL Chairman Managing Director & CEO

L. K. NARAYAN MAHENDRA N. SHAH Mumbai | April 27, 2010 Chief Financial Officer Company Secretary

1 1 6 I D F C A N N U A L R E P O R T 09 –10 BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE

(Submitted in terms of Part IV of the Companies Act, 1956) I. REGISTRATION DETAILS

Registration No. 3 7 4 1 5

State Code 1 8

Balance Sheet Date 3 1 0 3 2 0 1 0

II. CAPITAL RAISED DURING THE YEAR (AMOUNT IN RS. ‘000)

Public Issue Right Issue N I L N I L Bonus Issue Stock Options N I L 5 3 3 6 3 III. POSITION OF MOBILISATION AND DEPLOYMENT OF FUNDS (AMOUNT IN RS. ‘000) Total Liabilities Total Assets 3 4 3 4 0 4 6 6 2 3 4 3 4 0 4 6 6 2 SOURCES OF FUNDS Paid-up Capital Share Application Money 1 3 0 0 6 1 2 4 2 5 6 4 Reserves and Surplus Secured Loans 5 5 2 2 2 4 4 7 N I L Unsecured Loans 2 6 5 2 2 8 7 8 4 APPLICATION OF FUNDS Net Fixed Assets Investments 3 6 2 4 4 9 9 5 7 7 8 8 3 7 6 Infrastructure Loans Net Current Assets 2 5 0 2 6 9 9 6 7 2 0 0 3 4 0 7 7 Deferred Tax Asset Miscellaneous Expenditure 1 7 4 3 0 0 0 N I L

IV. PERFORMANCE OF THE COMPANY (AMOUNT IN RS. ‘000) Total Income Total Expenditure 3 5 9 7 1 0 6 3 2 2 7 9 9 6 8 9 Profit Before Tax Profit After Tax 1 3 1 7 1 3 7 4 1 0 1 2 8 3 7 4 Earnings per Share (in Rs.) Dividend % 7 . 8 2 1 5

V. GENERIC NAMES OF PRINCIPAL SERVICES OF THE COMPANY (AS PER MONETARY TERMS)

Item Code No. (ITC Code) N I L

Product Description I N F R A S T R U C T U R E F I N A N C E

Item Code No. (ITC Code) N I L

Product Description F I N A N C I A L S E R V I C E S

STANDALONE ACCOUNTS 1 1 7 STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956

RELATING TO SUBSIDIARY COMPANIES

NAME OF SUBSIDIARY IDFC ASSET IDFC AMC IDFC IDFC PENSION IDFC CAPITAL IDFC IDFC - SSKI IDFC PRIVATE IDFC IDFC CAPITAL COMPANIES MANAGEMENT TRUSTEE INVESTMENT FUND LIMITED SECURITIES STOCK EQUITY PROJECT (SINGAPORE) PTE. LTD. COMPANY COMPANY ADVISORS MANAGEMENT LIMITED BROKING COMPANY EQUITY LIMITED LIMITED LIMITED COMPANY LIMITED LIMITED COMPANY LIMITED LIMITED US$# RUPEES The financial year March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31, March 31, 2010 of the Subsidiary 2010 2010 2010 2010 2010 2010 2010 2010 2010 Companies ended on Number of shares 2,610,002 50,000 10,000,000 12,000,000 6,035,220 14,137,200 1,500,000 50,000 50,000 6,655,000 in the Subsidiary shares of shares of Rs. shares of shares of shares of shares of shares of shares of shares of shares of Companies held by Rs. 10 each 10 each Rs. 10 each Rs. 10 each Rs. 10 each Rs. 10 each Rs. 10 each Rs. 10 each Rs. 10 each SD1 each the Company and its subsidiaries at the above date. Holding Company’s 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% interest in percentage The net aggregate of profits of the Subsidiary Companies so far as these concern the member of the Company (i) dealt with in the accounts of the Company amounted to: (a) for subsidiaries’ financial year ended on March 31, 2010 – – – – – – – 600,000,000 – – – (b) for previous financial years of the subsidiaries since these became subsidiaries of the Company – – – – – 942,579 – 400,000,000 – – – (ii) not dealt with in the accounts of the Company amounted to: (a) for subsidiaries’ financial year ended on March 31, 2010 27,931,046 150,647 69,469,803 (1,276,073) 246,551,749 190,360,692 721,336 468,223,006 230,085,020 (2,147,499) (101,531,599) (b) for previous financial years of the subsidiaries since these became subsidiaries of the Company 10,150,513 44,854 (60,548,694) – 267,380,666 389,495,068 1,030,068 721,899,207 (106,659,173) (1,727,441) (79,617,764) Capital 224,025,020 500,000 100,000,000 120,000,000 60,352,200 141,372,000 15,000,000 500,000 500,000 4,690,742 216,718,695 Reserves 339,144,927 522,230 8,921,109 – 777,321,619 1,165,743,145 1,780,201 539,750,213 123,425,847 – – Total Assets 1,054,936,258 1,408,317 191,449,467 120,886,407 1,134,704,962 1,705,363,841 17,163,253 886,681,408 579,202,373 655,976 29,479,553 Total Liabilities 1,054,936,258 1,408,317 191,449,467 120,886,407 1,134,704,962 1,705,363,841 17,163,253 886,681,408 579,202,373 655,976 29,479,553 Details of investment (except in case of investment in subsidiaries) 499,483,872 – 40,043,030 119,027,255 66,660,521 964,444,605 6,820,300 1,840 – – – Turnover 1,069,714,808 500,000 272,062,246 3,937,255 847,838,496 1,047,298,141 1,432,017 990,547,242 643,462,028 759,974 35,930,827 Profit before taxation 32,411,700 218,647 74,500,907 (1,728,486) 440,020,668 358,887,853 1,126,662 705,165,006 287,947,451 (2,343,596) (110,802,874) Provision for taxation 4,480,654 68,000 5,031,104 (452,413) 158,833,437 122,226,067 350,000 236,942,000 57,862,431 – – Profit after taxation 27,931,046 150,647 69,469,803 (1,276,073) 281,187,231 236,661,786 776,662 468,223,006 230,085,020 (2,343,596) (110,802,874) Proposed/Paid Dividend – – – – – – – 600,000,000 – – –

#Exchange rate considered for Balance Sheet items is 1 US$ = Rs. 44.94 and for Profit and Loss items is 1 US $ = Rs. 47.28

1 1 8 I D F C A N N U A L R E P O R T 09 –10 STATEMENT PURSUANT TO SECTION 212 OF THE COMPANIES ACT, 1956

RELATING TO SUBSIDIARY COMPANIES

NAME OF SUBSIDIARY IDFC FUND OF FUNDS LIMITED IDFC GENERAL IDFC IDFC PPP IDFC IDFC IDFC DHEERU COMPANIES PARTNERS LIMITED TRUSTEE TRUSTEESHIP FINANCE CAPITAL PROJECTS POWERGEN COMPANY COMPANY LIMITED COMPANY LIMITED PRIVATE LIMITED LIMITED LIMITED LIMITED US$# RUPEES US$# RUPEES The financial year March 31, 2010 March 31, 2010 March 31, March 31, March 31, March 31, March 31, March 31, of the Subsidiary 2010 2010 2010 2010 2010 2010 Companies ended on Number of shares 6,505,504 10,000 50,000 50,000 21,000,200 50,000 34,050,000 5,100 in the Subsidiary shares of shares of shares of shares of shares of shares of shares of shares of Companies held by USD 1 each USD 1.65 each Rs. 10 each Rs. 10 each Rs. 10 each Rs. 10 each Rs. 10 each Rs. 10 each the Company and its subsidiaries at the above date. Holding Company’s 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 51.00% interest in percentage The net aggregate of profits of the Subsidiary Companies so far as these concern the member of the Company (i) dealt with in the accounts of the Company amounted to: (a) for subsidiaries’ financial year ended on March 31, 2010 – – – – – – – – – – (b) for previous financial years of the subsidiaries since these became subsidiaries of the Company – – – – – – – – – – (ii) not dealt with in the accounts of the Company amounted to: (a) for subsidiaries’ financial year ended on March 31, 2010 (24,395) (1,153,369) – – 3,975,553 (135,234) 7,112,908 (144,275) (83,798,069) (1,147,679) (b) for previous financial years of the subsidiaries since these became subsidiaries of the Company – – – – 5,717,351 (283,072) 62,908,373 (1,062,544) (95,300,178) – Capital 6,505,504 303,648,301 16,500 741,510 500,000 500,000 210,002,000 500,000 340,500,000 19,729,000 Reserves – – – – 9,692,904 – 65,012,138 – – – Total Assets 4,642,381 303,695,711 16,500 741,510 10,266,178 136,844 275,230,925 184,241 320,406,396 280,350,005 Total Liabilities 4,642,381 303,695,711 16,500 741,510 10,266,178 136,844 275,230,925 184,241 320,406,396 280,350,005 Details of investment (except in case of investment in subsidiaries) – – – – 9,755,556 – 184,062,068 – – – Turnover – – – – 5,869,823 9,041 7,585,014 – 10,465,733 9,511,633 Profit before taxation (24,395) (1,153,369) – – 5,638,553 (135,234) 7,254,040 (144,275) (83,798,069) (12,428,177) Provision for taxation – – – – 1,663,000 – 141,132 – – 2,505,975 Profit after taxation (24,395) (1,153,369) – – 3,975,553 (135,234) 7,112,908 (144,275) (83,798,069) (14,934,152) Proposed/Paid Dividend – – – – – – – – – –

FOR AND ON BEHALF OF THE BOARD

DEEPAK S. PAREKH RAJIV B. LALL Chairman Managing Director & CEO

L. K. NARAYAN MAHENDRA N. SHAH Mumbai | April 27, 2010 Chief Financial Officer Company Secretary

STATEMENT PURSUANT TO SECTION 212 1 1 9 NOTES

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