Reliance Capital - 2008-2009 - Annual Report

RELIANCE CAPITAL LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

Dear Shareowners,

Your Directors have pleasure in presenting the 23rd Annual Report, together
with the audited statement of accounts of the Company for the year ended
March 31, 2009.

Financial Results:

The performance of the Company for the financial year ended March 31, 2009
is summarised below:

Financial Year ended Financial Year ended

Particulars March 31, 2009 March 31, 2008
(Rs. in (US$ in (Rs. in (US$ in
crore) million*) crore) million**)

Gross Income 3017.29 592.21 2079.79 520.34
Gross Profit 1098.24 215.55 1188.54 297.36
Less: Depreciation 21.22 5.31 17.09 4.28
Profit before Tax 1077.02 211.391 171.45 293.08
Provision for Taxation 109.00 21.39 146.00 36.53
Net Profit 968.02 189.99 1025.45 256.55
Add: Profit brought forward from
the previous year 1429.72 280.61 873.37 218.50
Excess/Short provision
of Income Tax - - (3.41) (0.85)
Profit available for
Appropriation 2 397.74 470.61 1895.40 474.21
Dividend including
Dividend Tax 186.80 36.66 158.04 39.54
Transfer to General Reserve 96.81 19.00 102.55 25.66
Transfer to Statutory
Reserve Fund 193.61 38.00 205.09 51.31
Balance carried forward 1920.52 376.94 1429.72 357.70

*1 US$ = Rs.50.95

**1 US$ = Rs.39.97

Financial Performance

The Company's gross income for the financial year ended March 31, 2009
increased to Rs.3,017.29 crore, from Rs.2,079.79 crore in the previous
year, registering a growth of over 45.08 per cent. The operating profit
(PBDIT) of the Company increased 46.24 per cent to Rs.2,334.99 crore during
the year, up from Rs.1 596.69 crore in the previous year. Interest expenses
for the year increased by 203.02 per cent to Rs.1,236.75 crore, from
Rs.408.15 crore, in the previous year. Depreciation was at Rs.21.22 crore
as against Rs.17.09 crore in the previous year. The provision for taxation
during the year was Rs.109 crore. The net profit for the year decreased by
over 5.60 per cent to Rs.968.02 crore from Rs.1,025.45 crore in the
previous year. An amount of Rs.193.61 crore was transferred to the
Statutory Reserve Fund pursuant to section 45-IC of the Reserve Bank of
India Act, 1934, and an amount of Rs.96.81 crore was transferred to the
General Reserve during the year under review. The Company's Net worth as on
March 31, 2009, stood at Rs.6,697.42 crore, as against Rs.5,927.50 crore
last year.

Dividend

Your Directors have recommended a dividend of Rs.6.50 (65 per cent) per
equity share on 24,56,32,800 equity shares of Rs.10 each aggregating to
Rs.186.80 crore (inclusive of dividend tax) for the financial year ended
March 31, 2009, which, if approved at the ensuing Annual General Meeting,
will be paid to (i) all those equity shareholders whose names appear in the
Register of Members as on July 3, 2009 and (ii) to those whose names as
beneficial owners, are furnished by the National Securities Depository Ltd.
and Central Depository Services (India) Ltd. for the purpose. The dividend
payout as proposed is in accordance with the Company's policy of paying,
sustainable dividend linked to long term performance, keeping in view the
capital needs for the Company's growth plans and the desire to achieve
optimal financing of such plans through internal accruals.

Management Discussion and Analysis Report

The Management Discussion and Analysis Report for the year under review, as
stipulated under clause 49 of the listing agreement with the Stock
Exchanges in India, is presented in a separate section which forms, part of
the Annual Report. The Company has entered into various contracts in the
areas of financial services business. While benefits from such contracts
will accrue in the future years, their progress is periodically reviewed.

Resources and Liquidity

The Company has raised Rs.13,779.53 crore during the financial year 2008-09
by issuance of Commercial Paper, Non Convertible Debentures (NCDs) and
other instruments. The Company's NCDs for an aggregate amount of Rs.350
crore were listed on Bombay Stock Exchange Ltd. on March 20, 2009.

The funds were mainly deployed in providing consumer finance. RCL's debt
equity ratio as on March 31, 2009, stands at a (conservative) level of 2:1.
The Company has not accepted any deposits from the public.

Subsidiaries

During the year, Reliance Consultants (Mauritius) Ltd., Reliance Equities
International Pvt. Ltd., Reliance Home Finance Pvt. Ltd., Reliance Capital
Services Pvt. Ltd., Reliance Capital (Singapore) Pte. Ltd., Reliance
Consumer Finance Pvt. Ltd., Reliance Securities Ltd., Reliance Prime
International Ltd., Reliance Commodities Ltd., Reliance Financial Ltd.,
Reliance Alternative Investments Services Pvt. Ltd. and Reliance Capital
Pension Fund Ltd. became subsidiaries of the Company.

In terms of the approval granted by the Central Government under section
212(8) of the Companies Act, 1956, copies of the Balance Sheet, Profit and
Loss Account and Report of the Board of Directors and Auditors of the
subsisting subsidiaries have not been attached with the Balance Sheet of
the Company. However, these documents will be made available upon request
to any member of the Company interested in obtaining the same. As directed
by the Central Government, the financial data of the subsidiaries has been
furnished under Details of Subsidiaries', which forms part of the Annual
Report. The annual accounts of the Company including that of subsidiaries
will be kept for inspection by any member. Further, pursuant to Accounting
Standard-21 (AS-21) as notified by Companies (Accounting Standard) Rules,
2006, the Consolidated Financial Statements presented by the Company
include the financial information about its subsidiaries.

Fixed Deposits

The Company has neither accepted nor renewed any fixed deposits during the
year. Five deposit accounts, aggregating to Rs.26,000, remained unclaimed
on the due dates as on March 31, 2009. The Company has intimated the
deposit holders individually of their unclaimed amount with a request to
return the Fixed Deposit Receipts duly discharged to enablethe Company to
repay the amount.

Directors

In terms of Article 154 of the Articles of Association of the Company, Shri
C. P. Jain, Director of the Company, retires by rotation and being eligible
offers himself for re-appointment at the ensuing Annual General Meeting.

Shri Anil D. Ambani, Chairman, appointed as a director liable to retire by
rotation is proposed to be appointed as a nonretiring Director.

Shri P.N. Ghatalia, was appointed as an additional director w.e.f.
September 17, 2008 and would hold office till the ensuing Annual General
Meeting. The Company has received notice in writing from a member proposing
his candidature, for the office of Director.

Shri Anand Bhatt, was appointed as an additional director w.e.f. September
17, 2008. He however became an unfortunate and innocent victim of the
terrorist attack at the Hotel Trident, Mumbai, on November 27, 2008. The
Board has condoled the sad demise of Shri Bhatt.

A brief resume of the Director retiring by rotation at the ensuing Annual
General Meeting, nature of his expertise in specific functional areas, and
names of Companies in which he holds directorship and/or
membership/chairmanship of Committees of the Board, as stipulated under
clause 49 of the listing agreement with the Stock Exchanges, is given in
the section on Corporate Governance elsewhere in the Annual Report.

Directors' Responsibility Statement

Pursuant to the requirement under section 217(2AA) of the Companies Act,
1956, with respect to Directors' Responsibility Statement, it is hereby
confirmed that:

(i) in the preparation of the accounts for the financial year ended March
31, 2009, the applicable accounting standards have been followed alongwith
proper explanation relating to material departures;

(ii) the Directors have selected such accounting policies and applied them
consistently and made judgments and estimates that were reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company as at March 31, 2009, and of the profit of the Company for the year
under review;

(iii) the Directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act, 1956, for safeguarding the assets of the
Company and for preventing and detecting fraud and other irregularities;
and

(iv) the Directors have prepared the accounts for the financial year ended
March 31, 2009 on a going concern' basis.

Group

Pursuant to an intimation from the Promoters, the names of the Promoters
and entities comprising group' as defined under the Monopolies and
Restrictive Trade Practices ('MRTP') Act, 1969 are disclosed in the Annual
Report for the purpose of the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997.

Consolidated Financial Statements;

The Audited Consolidated Financial Statements, based on the Financial
Statements received from subsidiaries, associates and partnership firms, as
approved by their respective Board of Directors and Managing Committee,
have been prepared in accordance with Accounting Standard-21 (AS-21) on
Consolidated Financial Statements read with Accounting Standard-23 (AS-23)
on the Accounting for Investments in Associates.

Auditors

M/s. Chaturvedi & Shah, Chartered Accountants and M/s. B S R & Co.,
Chartered Accountants, as Statutory Auditors of the Company, hold office
until the conclusion of the ensuing Annual General Meeting and are eligible
for re-appointment. The Company has received letters from M/s. Chaturvedi &
Shah, Chartered Accountants and M/s. B S R & Co., Chartered Accountants, to
the effect that their appointment, if made, would be within the prescribed
limits under section 224(1B) of the Companies Act, 1956, and that they are
not disqualified for such appointment within the meaning of section 226 of
the Companies Act, 1956.

Particular of Employees;

In terms of the provisions of section 217(2A) of the Companies Act, 1956,
read with the Companies (Particulars of Employees) Rules, 1975, the names
and other particulars of the employees are set out in the Annexure to the
Directors' Report. However, having regard to the provisions of section
219(1)(b)(iv) of the said Act, the Annual Report excluding the aforesaid
information is being sent to all the Members of the Company and others
entitled thereto. Any member interested in obtaining such particulars may
write to the Company Secretary at the Registered Office of the Company.

Energy Conservation, Technology Absorption and Foreign Exchange Earnings
and Outgo:

Particulars required to be furnished under the Companies (Disclosure of
Particulars in the Report of Board of Directors) Rules, 1988, are as under:

(1) Part A and B pertaining to conservation of energy and technology
absorption are not applicable to the Company.

(2) Foreign Exchange earnings and outgo:

Earnings - Rs. 0.24 crore
Outgo - Rs.14.64 crore

Transfer of Unclaimed dividend to IEPF:

Pursuant to the provisions of section 205(A) of the Companies Act, 1956,
the declared dividend which remained unclaimed for a period of 7 years has
been transferred by the Company to the Investor Education and Protection
Fund (IEPF) established by the Central Government pursuant to section 205C
of the said Act.

Corporate Governance;

The Company has adopted the 'Reliance Anil Dhirubhai Ambani Group -
Corporate Governance Policies and Code of Conduct' which has set out the
systems, processes and policies conforming to International Standards. The
report on Corporate Governance as stipulated under clause 49 of the listing
agreement with the Stock Exchanges, forms part of the Annual Report. A
Certificate from the Auditors of the Company M/s. Chaturvedi & Shah,
Chartered Accountants and M/s. B S R & Co., Chartered Accountants,
confirming compliance with conditions of Corporate Governance as stipulated
under the aforesaid clause 49, is annexed to this Report.

Acknowledgements

Your Directors would like to express their sincere appreciation of the co-
operation and assistance received from shareholders, bankers, regulatory
bodies and other business constituents during the year under review. Your
Directors also wish to place on record their deep sense of appreciation for
the commitment displayed by all executives, officers and staff, resulting
in the successful performance of the Company during the year.

For and on behalf of the Board of Directors

Anil D. Ambani
Chairman
Mumbai
April 30, 2009

MANAGEMENT DISCUSSION AND ANALYSIS

Forward looking statements

These financial statements have been prepared in compliance with the
requirements of the Companies Act, 1956 and Generally Accepted Accounting
Principles (GAAP) in India. However, readers are cautioned that this
discussion may contain 'forward-looking statements' by Reliance Capital
Limited ('RCL') that are not historical in nature. These forward looking
statements, which may include statements relating to future results of
operations, financial condition, business prospects, plans and objectives,
are based on the current belief, assumptions, expectations, estimates, and
projections of the directors and management of RCL about the business,
industry and markets in which RCL operates. These statements are not
guarantees of future performance and are subject to known and unknown
risks, uncertainties, and other factors, some of which are beyond RCL's
control and difficult to predict, that could cause actual results,
performance or achievements to differ materially from those in the forward
looking statements. Such statements are not, and should not be construed,
as a representation as to future performance or achievements of RCL. In
particular, such statements should not be regarded as a projection of
future performance of RCL. It should be noted that the actual performance
or achievements of RCL may vary significantly from such statements.

The following discussions on our financial condition and result of
operations should be read together with our audited consolidated financial
statements and the notes to these statements included in the annual report.

Unless otherwise specified or the context otherwise requires, all
references herein to 'we', 'us', 'our', 'the Company', 'Reliance', 'RCL',
'RCL Group or 'Reliance Capital' are to Reliance Capital Limited and its
subsidiaries and associates.

Macroeconomic Overview

Growth slowing, but still healthy: After several quarters of around 9 per
cent GDP growth, the rate moderated to 7.6 per cent and 5.3 per cent in the
last two quarters of 2008, and is expected to average 7 per cent for
Financial Year (FY) 2009. The slowdown has been largely caused by a
deceleration in industrial growth from about 8.5 per cent in FY 2008 to 2.4
per cent in the third quarter of FY 2009. Surprisingly, the agriculture
sector slowed down from 4.5 per cent in FY 2008 to -2.2 per cent in the
third quarter of FY 2009. In contrast, the remarkable service sector
success story remained intact as output grew 9.9 per cent in third quarter,
down only slightly from 10.8 per cent in 2008.

The moderation from previous years was due to several factors. The
financial crisis and global slowdown affected both export growth in goods,
services and hence industrial production as well as corporates' access to
diverse and low cost funding. Moreover, high inflation during the first
half of FY 2009 forced RBI to pursue a tight monetary policy, which further
dampened investment and consumption.

However, the fact that India's growth in the last few years has been fairly
broad based (across sectors and regions) and balanced (with consumption,
investment, savings and exports all rising) bodes well for the structural
transformation of the economy as the business cycle enters a recovery
phase, in the second half of FY 2010.

Inflation abates, RBI cuts rates aggressively: India's Wholesale Price
Index, which was as high as 12.9 per cent in August 2008 fell to 0.3 per
cent by March 2009 resulting in an average inflation of around 8 per cent
for FY09. The sharp fall in inflation was caused by a high base, a
significant fall in commodity prices and various duty cuts announced by the
Government. Inflation is expected to remain low and may even enter the
negative territory for a short time before moving up again towards the end
of 2009.

Falling inflation and slowing growth gave the Central bank enough room and
reason to cut rates aggressively. From September '08 to March '09, the RBI
has cut Repo, Reverse Repo and CRR by 400, 250 and 400 bps respectively.
This easing in monetary policy is likely to translate, with a lag, into a
significant boost for the economy.

India's Trade Deficit widents, widens, due to increasing import growth:

Global demand destruction due to the recent crisis led to a mere 3.4 per
cent growth in exports in FY 2009 while higher commodity prices (including
oil) pegged the imports growth at 14.3 per cent. This resulted in a trade
deficit of US$119 billion in FY09 compared to US$88.5 billion in FY 2008.

For the first three quarters in FY 2009, the higher trade deficit, coupled
with negative capital flows, reduced India's Balance of Payments (BoP)
surplus to a deficit of US$ 20.4 billion. After 10 consecutive quarters of
surpluses, this is the second time in three quarters that BoP has ended in
a deficit. The capital a/c balance too turned negative (-US$ 3.7 billion)
in third quarter FY 2009 mainly due to net outflows under portfolio
investment, banking capital and short-term trade credit. Outflows under
portfolio investment were led by large sales of equities by FIIs and
slowdown in net inflows under ADRs/ GDRs. India's foreign exchange reserves
declined by about US$ 59 billion in FY 2009, but still remained at an
impressive US$250 billion in March 2009. The country's current foreign
exchange reserves far exceed its total official and private sector external
debt - making India's balance of payments position quite comfortable.

Import declines more than export in recent months, thereby improving trade
deficit: Since January 2009, Imports have declined more than exports due to
both lower oil import bills and slowing domestic investment and
consumption. This has helped in narrowing our trade deficit further. The
trade deficit for the month of March narrowed to US$4 billion (4.1 per cent
of GDP, annualized) compared to US$14 billion in August 2008. The year on
year (YoY) monthly trade deficit declined by 36 per cent in March compared
with an average growth of 48.5 per cent in the previous 12 months.

About Reliance Capital

Reliance Capital Limited (RCL) is a part of the Reliance Anil Dhirubhai
Ambani Group and is one of India's leading andfastest growing private
sector financial services companies, and ranks among the top 3 private
sector financial services and banking groups, in terms of net worth. It is
a constituent of S&P CNX Nifty and MSCI India.

Reliance Anil Dhirubhai Ambani Group is amongst India's top 3 business
houses with a market cap of US$ 22 billion, and 150 million customers. It
has a strong presence across a wide array of high growth consumer-facing
businesses such as Telecom, Financial Services, Energy, Power,
Infrastructure and Media and Entertainment.

Reliance Capital has interests in asset management and mutual funds, life
and general insurance, private equity and proprietary investments, stock
broking and depository services, consumer finance, asset reconstruction,
institutional broking and distribution of financial products.

Consolidated financial performance:

* RCL's consolidated income from operations for the financial year ended
March 31, 2009 increased to Rs.5,976 crore (US$ 1.3 billion) from Rs.4,914
crore in the previous year, registering a growth of 22 per cent. This
growth was largely due to the growth of the consumer finance business and
the sale of investments.

* Staff costs for the year were Rs.554.07 crore (US$ 131 million) as
against Rs.408.98 crore in the previous year, an increase of 36 per cent.
This was largely due to the rapid expansion of operations and distribution
networks and entry into three new business streams i.e. institutional
broking, private equity, asset reconstruction and the launch of the cross-
sell initiative, Reliance Capital Services.

* Selling, administrative and other expenses in the year were Rs.1,192
crore (US$ 240 million) as against Rs.1,307 crore, a decrease of 10 per
cent. This decrease, in spite of an increase in the scale of operations,
was achieved as a result of optimization of costs, improvement in
operational efficiency and better utilization of own and third party
distribution reach.

* Interest & finance charges for the year were Rs.1,264 crore (US$ 283
million) as against Rs.414.00 crore in the previous year, an increase of
205 per cent. This was due to both, a rise in the cost of funds as well as
an increase in aggregate borrowings on account of the consumer finance
business. and cost of borrowings.

* Depreciation for the year was Rs.56.71 crore (US$ 123 million) as against
Rs.41.21 crore in the previous year, an increase of 38 per cent. This year-
on-year increase was mainly due to an increase in the fixed assets base.

* Profit before tax for the year was Rs.1,204.15 crore (US$ 262.28 million)
as against Rs.1,215.74 crore in the previous year, a decrease of 1 per
cent.

* Provision for tax for the year was Rs.181.09 crore (US$ 39.44 million) as
against Rs.205.50 crore in the previous year, a decrease of 14 per cent.

* Profit after tax, minority interest and share of profit of associates for
the year was Rs.1,015.67 crore (US$ 221 million) as against Rs.1,009.06
crore in the previous year, an increase of 1 per cent.

Resources and Liquidity

* As on March 31, 2009, the consolidated net worth of the company stood at
Rs.7,340 crore (US$ 1.5 billion) as against Rs.6,508 crore.

* The Company has raised Rs.13,779.53 crore during the financial year 2008-
09 by issuance of Commercial Paper, Non Convertible Debentures (NCDs) and
other instruments.

* As on March 31, 2009, the Company had a debt equity ratio of 2:1. The
company has not raised any fixed deposits from the public.

Credit Rating

RCL's short term debt programme has been assigned a rating of 'A1+' by ICRA
Ltd., the highest credit quality rating assigned by the agency to short-
term debt instruments. Instruments rated in this category carry the lowest
credit risk in the short term. CARE Ltd. assigned the long term debt
programme a rating of 'CARE AAA'. Instruments with this rating are
considered to be of the best credit quality, offering highest safety for
timely servicing of debt obligations. Such instruments carry minimal credit
risk.

Finance & Investments

RCL's investment portfolio as on March 31, 2009 was Rs.8,746.49 crore (US$
1.7 billion) at cost. The Investment portfolio of quoted investments as on
March 31, 2009 amounted to Rs.2,939.53 crore (US$577 million), at cost.
RCL's strategy for its proprietary investment and private equity is to
focus on asset quality and asset mix to achieve superior returns. The
company has increasingly diversified its scope of operations into a variety
of avenues as afforded under the Indian NBFC regulatory framework, through
its interests in asset management and mutual funds, life and general
insurance, stock broking and depositary services, consumer finance and
distribution of financial products.

Reliance Capital Asset Management (RCAM)

Reliance Mutual fund

* Reliance Mutual Fund (RMF) has maintained its leadershipposition in the
country. It had a market share of 16.4 per cent at the end of March 2009.

* The average assets under management (AAUM) for March 2009 was Rs.80,963
crore (US$ 15.9 billion) from Rs.90,938 crore, a decline of 12 per cent -
the shrinkage in the value of the equity AUM component (higher than the
industry average) was primarily due to market action.

The benchmark indices - BSE Sensex and S&P Nifty declined by 38 per cent
and 36 per cent respectively during this period. During the same period,
the AAUM of the Indian mutual fund industry declined by 7 per cent to
Rs.4,93,287 crore for March 2009 from Rs.5,00,973 crore for March 2008.

* During the same period, 5 new asset management companies were given
licenses to commence operations, taking the total number of mutual funds in
India to 38.

The mutual fund industry is highly fragmented and the top 5 players account
for 58 per cent of the AUM. (Source: AMFI website).

* The number of investors in RMF increased to 71.7 lakh as at the end of
March 31, 2009 as against 63.9 lakh investors at the end of March 31, 2008.

* As on March 31, 2009, RMF had a total of 38 schemes - 16 equity-oriented
schemes, 21 debt-oriented schemes and 1 exchange-traded scheme.

* The number of Systematic Investment Plan Investors in RMF has crossed 1.2
million.

* During the year, RMF won several prestigious awards.

* 'Most Trusted Mutual Fund' by AC Nielsen/ORG MARG for the third
consecutive year.

* 'Equity Fund House of the Year 2008' award by Morning Star, global leader
in financial research.

* 'Best Fund House of the Year 2008' - India category' by Asia Asset
Management.

* Lipper award for its performance in Reliance Banking Fund for period of 3
years in the Gulf.

* Certificate of Finalist Recognition in 'Sales category - Best Sales Team'
in the Annual Stevie Sales & Customer Service Awards 2009 & the Stevie
International Business Awards 2008.

* Superbrand status in the 2nd edition of the Business Superbrands for the
year 2008. The Superbrand status is accorded on the basis of a range of
criteria such as Market dominance, Longevity, Goodwill and Customer
Loyalty.

* ICRA Awards 2009- five schemes were winners and overall we have received
6 scheme awards at the ceremony in their respective category.

* 'Reader's Digest Trusted Brands Gold Award' - winner for the Investment
Fund Company category in India in 2008.

During the year, RCAM received approval from Malaysian Authorities to start
operations in Malaysia. RCAM is looking to start a Shariah compliant fund
based on Islamic principles.

During the same period, RCAM also received approval from the Financial
Services Authority in United Kingdom to commence investment advisory
operations in the United Kingdom.

Portfolio Management Services:

* Reliance Portfolio Management Services is a premium financial service for
select investors from the portfolio management division of Reliance Capital
Asset Management Ltd. This division creates customised portfolios for high
net-worth individuals keeping in mind their risk return preferences.

* The AUM of our portfolio management services as on March 31, 2009
increased to Rs.30,480 crore (US$ 7 billion) from Rs.6,901 crore as at
March 31, 2008, registering a growth of 342 per cent.

* This year, RCAM has been appointed as one of the fund managers by the
Employees Provident Fund Organization (EPFO). A hugely prestigious account,
EPFO has entrusted Rs.27,575 crore (US$ 5.4 billion) to RCAM, for
investment management.

* RCAM was also appointed as one of the six asset managers by The Pension
Fund Regulatory and Development Authority (PFRDA) to manage money under the
new pension scheme. The new pension scheme will be a government regulated
pension plan on the lines of the 401K retirement plan' in the US (a
defined contribution plan) and can be availed of by the general public in
India.

* RCAM is the only private sector asset management company which has been
selected to manage funds for both - EPFO and the new pension scheme.
Reliance Asset Management (Singapore) Pte. Ltd.

* Reliance Asset Management (Singapore) Pte. Ltd., a subsidiary of Reliance
Capital Limited (through Reliance Capital Asset Management Ltd.) started
its operations in February 2007. It currently manages 5 India dedicated
funds viz. - India Equity Growth Fund, India Equity Long Term Fund, India
Equity Derivative Fund, India Multi Strategy Fund and Lawrence India
Mauritius Fund.

* Its AUM as on March 31, 2009 stood at US$ 218 million (including an
undrawn amount of US$ 92 million) as against US$ 200 million on March 31,
2008, a growth of 9 per cent.

Reliance Life Insurance:

* Reliance Life Insurance (RLIC) currently offers a total of 35 products
that fulfill the savings and protection needs of customers. Of these, 29
are targeted at individuals and 6 at group businesses. Reliance Life is
committed to emerging as a transnational Life Insurer of international
scale and stature in the next few years.

* During the year, the Indian life insurance industry recorded new business
premium of Rs.87,108 crore (US$ 19 billion) as against Rs.93,989 crore in
the previous year, a decrease of 6.75 per cent. In contrast, Reliance Life
Insurance recorded New Business Premium of Rs.3,514 crore (US$ 547 million)
for the year as against Rs.2,751 crore in the previous year, an increase of
28 per cent.

* During the period from April 2008 to February 2009, 4 new life insurance
companies were given licenses to commence operations, taking the total
number of life insurance companies in India to 22. The industry is highly
fragmented and the top 5 players account for 84 per cent of the new
business premium (April 2008 to February 2009).

* Reliance Life Insurance (RLIC) has maintained its position amongst the
top four (in terms of monthly new business premium) private sector life
insurance companies in India. It is one of the fastest growing life
insurance companies in India with a private sector market share of 10.4 per
cent - up from 8.1 per cent for the previous year.

* The policyholders' funds under management amounted to Rs.5,879 crore (US$
1.2 billion) as on March 31, 2009 against Rs.3,554 crore as on March 31,
2008 - an increase of 65 per cent.

* An additional Rs.1,229 crore worth of capital was infused in the life
insurance business in the year ended March 31, 2009, taking the total
capital invested in the life insurance business till date to Rs.2,743
crore.

* Total numbers of policies in force as on March 31, 2009 stood at
33,03,165 as against 14,48,538 on March 31, 2008 - an increase of 128 per
cent.

* The distribution network has been increased to 1,145 branches at the end
of March 31, 2009, as against 745 branches at the end of March 31, 2008.

* The numbers of agents at the end of March 31, 2009 totalled 1,49,613 as
against 1,84,194 in the corresponding previous period - a decrease of 19
per cent, reflecting the increased organizational emphasis on productivity.

* During FY09, 8 new life insurance policies were launched, viz. Reliance
Super Invest Assure plan, Reliance Super Invest Assure Plus Plan , Reliance
Guaranteed Return Plan Series I Insurance , Reliance Guaranteed Return Plan
Series I Pension , Reliance Group Savings Linked Insurance Plan , Reliance
Group Credit Shield Plan, Reliance Imaan Investment Plan and Reliance
Savings Linked Insurance Plan.

* During the same period, 5 of the top selling existing products were re-
launched viz. Reliance Super Automatic Investment Plan, Reliance Super
Market Return Plan, Reliance Super Golden Years Plan, Reliance Super Golden
Years Plan Plus and Reliance Super Golden Years Plan Value. This was done
to improve profitability and standardize the charge structures.

Reliance Consumer Finance

* Reliance Consumer Finance offers a wide range of products which include
Home loans, Loans against property, Vehicle loans (cars and commercial
vehicles), SME loans and Personal loans.

* The focus in this business is not just on the growth of credit per se but
also on the quality of credit. Backed by our long-standing conservative
approach, we have developed stringent in-house credit risk management
systems to ensure the highest quality of credit.

* We reduced the size of our loan book to Rs.8,576 crore (US$ 2 billion) as
on March 31, 2009, as against Rs.8,902 crore at the end of December 31,
2008. Our loan book is spread across 1,19,759 customers and 23 locations.
The loan book as on March 31, 2008 was Rs.7,120 crore.

* Reliance Consumer Finance generated revenues of Rs.1,200 crore (US$ 261
million) for the year ended March 31, 2009, as against Rs.395 crore for the
corresponding previous period - an increase of 204 per cent.

* For the year ended March 2009, it achieved a profit before tax of Rs.91
crore (US$ 20 million) as against Rs.36 crore - an increase of 152 per
cent.

* Reliance Capital's subsidiaries i.e. Reliance Consumer Finance Pvt. Ltd.
and Reliance Home Finance Pvt. Ltd. have got approvals from RBI as NBFC and
the National Housing Bank for doing the business of retail financing i.e.
consumer finance and homes finance respectively. These subsidiaries,
capitalized with Rs.100 crore (US$ 20 million) each as on March 31, 2009,
have commenced business operations.

Reliance Money

* Reliance Money is the one of the leading brokerages and distributors of
financial products in India, with more than 3 million customers.

* It is a comprehensive financial services and solutions provider, giving
customers access to equities, equity options, commodities futures, wealth
management, portfolio management services, mutual funds, IPOs, life and
general insurance products, offshore investments, credit cards, money
transfer, currency exchange and gold coins.

* Reliance Money generated revenues of Rs.352 crore (US$ 767 million) for
the year March 31, 2009, as against Rs.239 crore of the corresponding
previous period, an increase of 47 per cent. It also achieved a net profit
of Rs.37 crore (US$ 8 million) for the same period, as against a net profit
of Rs.10 lakh for the corresponding previous period.

* As on March 31, 2009, Reliance Money had a distribution network of over
10,000 outlets across 5,165 locations in India.

* Reliance Money has tied up with global partners like Reuters, Vasco,
Valcambi, Webaroo, options Xpress Holdings, Goldride Securities, World Gold
Council, Wincor Nixdorf and DBS Vickers to facilitate better access to
wider world class choices to its customers.

* In addition to the home-grown portfolio of products and services that
Reliance Capital has to offer, Reliance Money also distributes a variety of
third party financial products.

It also assists millions of investors in creating customized individual
portfolios based on their diverse investment needs and risk profiles.

* Reliance Money is amongst the leading Mutual fund distributors of the
country distributing products of 20 AMCs. It is the largest private sector
partner for Western Union Money Transfer in India.

* To further improve its position in the money changing and money transfer
business, Reliance Money has acquired a significant share holding in Wall
Street Finance Ltd., a leading provider of money changing and money
transfer services in the country.

* Reliance Money has tied up with Kuoni India and plans to retail its forex
products/ services through the national network of over 70 Kuoni outlets.

* Reliance Money has tied up with India Post and World Gold Council to sell
gold coins through the post office network across the country.

* Reliance Money is taking its first steps into the Commodities Exchange
business and is in the process of acquiring a 15 per cent stake in Hong
Kong Mercantile Exchange (HKMEx). With this holding, Reliance Money becomes
the second-largest shareholder in the commodity exchange and will have a
Board membership. Reliance Money is the first Indian firm to acquire a
stake in an international exchange.

* It has also obtained approval from the Ministry of Consumer Affairs for
acquiring 10 per cent stake in the National Multi-Commodity Exchange of
India Ltd. (NMCE).

* Reliance Securities Ltd. (RSL), a subsidiary of Reliance Capital has
obtained Category I Merchant Banking License from the Securities and
Exchange Board of India. This new license allows RSL to provide a wide
range of investment banking services such as Issue Management,
Underwriting, Private Equity Advisory/ Syndication and Corporate Finance
services in India.

Reliance General Insurance:

* Reliance General Insurance (RGI) offers property, engineering, auto,
health, travel, marine and commercial insurance. It also offers other
specialty insurance products.

* Reliance General Insurance (RGI) has maintained its position amongst the
top three (in terms of monthly gross written premium) private sector
General insurance companies in India, with a market share of 6.3 per cent.

* During the period from April 2008 to March 2009, the gross written
premium of the entire Indian general insurance fund industry increased by
9.3 per cent from Rs.28,138 crore of the corresponding previous period, to
Rs.30,601 crore (US$ 7 billion). (Source: Insurance Regulatory and
Development Authority of India). During the same period, 2 new general
insurance companies were given licenses to commence operations, taking the
total number of general insurance companies in India to 16.

* Our Gross Written Premium for the year ended March 31, 2009 was virtually
unchanged at Rs.1,915 crore (US$ 416 million) as against Rs.1,946 crore in
the corresponding previous period. This slight decline was caused by the
general economic slowdown coupled with our increased focus on profitability
rather than top-line growth.

* During the year, Rs.160 crore (US$ 35 million) of capital was infused
into the general insurance business, taking the total capital invested till
date to Rs.767 crore (US$ 157 million).

* The distribution network composed of 200 branches and over 7,700
intermediaries at the end of March 31, 2009. Reliance Asset Reconstruction

* Reliance Asset Reconstruction Company Ltd. (Reliance ARC), which is in
the business of acquisition, management and resolution of distressed
debt/assets, formally commenced business operations in the first half of
FY09 by acquiring two non-performing assets (NPAs), from Corporation Bank
and Asset Reconstruction Company (India) Ltd. respectively, at an aggregate
acquisition price of Rs.3 crore (US$ 0.6 million). These have since been
resolved with recovery of our investment in full.

In January 2009, Reliance ARC acquired 2 NPAs from Dena Bank for an
aggregate acquisition price of over Rs.2 crore (US$ 0.4 million).

Reliance Equities International

* Reliance Equities International Private Ltd. (REIPL) is the institutional
stock broking subsidiary of Reliance Capital. REIPL has been set up to
complement current financial services businesses of RCL Group.

* It aims to add value to our clients' decision making on investments by
thematic and differentiated research, access to corporate managements,
lateral inputs and higher servicing standards.

* REIPL commenced operations in October 2008 with over 50 employees. It
currently has 60 companies under research.

* Despite the challenging market environment, it has set up over 50 FII
parent accounts and over 500 sub accounts. Reliance Equity Advisors (India)
Ltd.

* Reliance Equity Advisors (India) Ltd. (REAIL), wholly owned subsidiary of
Reliance Capital Ltd., is the Investment Manager of the Reliance
Alternative Investments Fund (the Trust set up by RCL). The object and
purpose of the Fund is to raise monies through schemes or funds to make
portfolio investments.

* The 'Reliance Alternative Investments Fund - Private Equity Scheme I',
will be an India focused multi sector private equity fund with primary
focus on acquisition, financing, growth and consolidation of capital in
India with an emphasis on fast growing sunrise industries. A team with an
extensive private equity and M&A background with considerable experience in
transactions across diverse sectors is in place.

* With investors reining in their investment appetite, fund raising in
international and domestic markets has become challenging. However, the
outlook for PE asset class remains good especially in the emerging markets.
India in particular is likely to remain a preferred destination, given the
sheer number of promising new opportunities that exist here. Consequently
the team is endeavoring to raise funds in the domestic and international
markets.

Reliance Capital Services

* The Reliance ADA Group offers a diverse range of products and services:
from telecom to financial services, from power and infrastructure to media
and entertainment. This means that we have a huge pool of customers across
our different businesses that are not using all of our products and
services.

* A Reliance mobile user may not have a Reliance Money demat account or a
Reliance Mutual Fund account. Similarly, a Reliance Power shareholder may
not be buying insurance from Reliance Life or General Insurance.

* There is a tremendous opportunity in cross selling Reliance Capital
products across the entire customer universe of the Reliance ADA Group.

* To capitalize on this huge opportunity, Reliance Capital Services was set
up in July 2008 with a view to crossselling Reliance Capital products to
the 150 million strong family of the Reliance ADA Group, comprising
shareholders, customers and other stakeholders.

* Cross selling will lower our cost of customer acquisition and further
improve profitability.

* Currently, Reliance Capital Services has 1,335 employees and associates
across nearly 100 locations in India. It has acquired more than 40,000
customers in less than six months of operations.

* The company today ranks among the top 3 distributors for our general
insurance business and among the top 10 for our life insurance business.

Risks and Concerns:

RCL is exposed to specific risks that are particular to its businesses and
the environment within which it operates, including market risk,
competition risk, interest rate volatility, human resource risk, execution
risk and economic cycle.

Market risk

The Company has significant quoted investments which are exposed to
fluctuations in stock prices. These investments represent a substantial
portion of the Company's business and are vulnerable to fluctuations in the
stock markets. Any decline in the price of the Company's quoted investments
may affect its financial position and results of operations. Even though
RCL is exposed to the systematic risk or beta, it has a well diversified
portfolio of stock to mitigate stock specific risk. RCL continuously
monitors market exposure and, in appropriate cases, also uses various
derivative instruments as a hedging mechanism to limit volatility in its
asset returns.

Competition risk

The financial sector industry is becoming increasingly competitive and the
Company's growth will depend on its ability to compete effectively. The
Company's main competitors are Indian nonbanking financial companies, life
and non-life insurance companies, both in the public and private sector,
mutual funds, depository participants and other financial services
providers. Foreign banks also operate in India through non-banking finance
companies. Further liberalization of the Indian financial sector could lead
to a greater presence or entry of new of foreign banks and financial
services companies offering a wider range of products and services. The
Company's competitors may have greater resources than it does and, in some
cases, may be able to raise debt in a more cost-efficient manner. The
Company's growth will depend on its ability to compete effectively in this
context. The Company's strong brand image, wide distribution network,
diversified product offering and depth of management places it in a strong
position to deal with competition effectively.

Credit risk

Credit risk is the risk of failure by the borrower to meet financial
obligations to the lender. RCL has a standardized framework for evaluating
loan proposals. The proposals are evaluated on various quantitative &
qualitative parameters. The loan portfolios are continuously monitored,
post disbursement, to proactively address credit related issues and take
appropriate measures for recovery. As we have entered the consumer finance
segment, our focus has been on standardizing and institutionalizing the
credit evaluation process to ensure speedy service without compromising on
credit quality.

In our consumer finance business, we address the retail customer segment
extensively. Retail customers typically are less financially resilient than
larger borrowers. Negative developments in India's economy could therefore
affect these customers to a far greater degree than larger borrowers.
Further, although we have compiled extensive research and knowledge on
retail customers and their spending behavior, there is generally less
financial information available about them and we may have difficulty
assessing their credit worthiness.

In addition, we expect that a certain portion of our loan portfolio will be
unsecured, which will subject us to the risk of non-recovery of unpaid
amounts from defaulting or insolvent customers and further increase the
volume of non-performing loans. In addition, since a large portion of our
loan portfolio will have been originated relatively recently and these
loans will not yet have matured, we may have greater difficulty forecasting
the results of our operations and assessing our future credit risk.

Our retail financial services business is relatively new, having commenced
in May 2008, and we may be unable to compete effectively with more
established Indian banks and non-banking finance companies engaged in
retail lending. The Indian banking industry is highly competitive and we
may compete directly with large public and private sector banks, which have
larger retail customer bases, larger branch networks and greater access to
capital than we do. If we are unable to compete with other retail lenders
in the Indian banking sector, by reason of our inexperience in retail
lending or otherwise, our business, results of operations and financial
condition could be affected adversely.

Interest rate risk

The Company may be adversely impacted by volatility in interest rates in
India which could cause its margins to decline and profitability to shrink.
The success of the Company's business depends heavily on interest income
from its operations. It is exposed to interest rate risk, principally, as a
result of lending to its customers at fixed interest rates and in amounts
and for periods which may differ from those of its funding sources.
Interest rates are highly sensitive to many factors beyond the Company's
control, including the monetary policies of the RBI, deregulation of the
financial sector in India, domestic and international economic and
political conditions and, inflation. As a result, interest rates in India
have historically experienced a relatively high degree of volatility. The
Company seeks to match its interest rate positions of assets & liabilities
to minimize interest rate risk. However, there can be no assurance that
significant interest rate movements will not have an adverse effect on its
financial position.

With the growth of the Company's business, it will become increasingly
reliant on funding from the debt capital markets and commercial borrowings.
The market for such funds is competitive and the Company's ability to
obtain funds at competitive rates will depend on various factors including
its credit ratings.

There can be no guarantee that the Company will be able to raise debt on
competitive terms, in the required quantum and in a cost effective manner.
Any failure to do so may adversely impact the Company's business. The
Company's treasury team actively manages Asset Liability positions as well
as interest rate exposure in accordance with the overall guidelines laid
down by the management in the Asset Liability Management (ALM) framework.
The company is also hedged to a certain extent against this risk through
the variable interest clause in its advances portfolio.

Human resource risk

The Company's success depends largely upon the quality and competence of
its management team and key personnel. Attracting and retaining talented
professionals is therefore a key element of the Company's strategy and a
significant source of competitive advantage. While the Company has a salary
and incentive structure designed to encourage employee retention, a failure
to attract and retain talented professionals, or the resignation or loss of
key management personnel, may have an adverse impact on the Company's
business, its future financial performance and the price of its equity
shares.

Operational risk

The Company may encounter operational and control difficulties when
commencing businesses in new markets. The rapid development and
establishment of financial services businesses in new markets may raise
unanticipated operational or control risks. Such risks could have a
materially adverse effect on the Company's financial position and the
results of its operations. An extensive system of internal controls is
practiced by the Company to ensure that all its assets are safeguarded and
protected against loss from unauthorized use or disposition and all its
transactions are authorised, recorded and reported correctly.

The Audit Committee of Directors periodically reviews the adequacy of our
internal controls. The Company has embarked on SAP implementation for HR
and Finance. With this initiative, we believe that our overall control
environment will be enhanced and we will benefit from the inherent checks &
balances that come with SAP.

The Company is relentlessly focused on quality parameters and has a
dedicated quality team to proactively identify and address operational
issues. The mandate of the quality team is also to work closely with
various business teams to bring about operational efficiencies and
effectiveness through Six Sigma initiatives. It is pertinent to note that
RLIC has obtained an ISO 9000 certification, being only the 2nd company in
the life insurance space to do so.

Economic risk

A slowdown in economic growth in India could cause the business of the
Company to suffer. While the Indian economy has shown sustained growth over
the last several years, the growth in industrial production has been
variable. Any slowdown in the Indian economy, and in particular in the
demand for housing and infrastructure, could adversely affect the Company's
business. Similarly, any sustained volatility in global commodity prices,
including a significant increase in the prices of oil and petroleum
products, could once again spark off a new inflationary cycle, thereby
curtailing the purchasing power of the consumers. The Company manages these
risks by maintaining a conservative financial profile and following prudent
business and risk management practices.

Internal Control Systems:

The Company maintains a system of internal controls designed to provide a
high degree of assurance regarding the effectiveness and efficiency of
operations, the adequacy of safeguards for assets, the reliability of
financial controls, and compliance with applicable laws and regulations.

The organization is well structured and the policy guidelines are well
documented with pre-defined authority. The Company has also implemented
suitable controls to ensure that all resources are utilized optimally,
financial transactions are reported with accuracy and there is strict
adherence to applicable laws and regulations.

The Company has put in place adequate systems to ensure that assets are
safeguarded against loss from unauthorized use or disposition and that
transactions are authorized, recorded and reported. The Company also has an
exhaustive budgetary control system to monitor all expenditures against
approved budgets on an ongoing basis.

Recognizing the important role of internal scrutiny, the Company has an
internal audit function which is empowered to examine the adequacy of, and
compliance with, policies, plans and statutory requirements. It is also
responsible for assessing and improving the effectiveness of risk
management, control and governance process.

Continuous audit and verification of the systems enables the various
business groups to plug any shortcomings sooner rather than later. It also
evaluates the Company's strategic risk management system and suggests risk
mitigation measures for all key operations. In addition, the top management
and the Audit committee of the Board periodically review the findings and
take any corrective measures that are required.

Human Resources

Across all its business operations, Reliance Capital had a workforce of
37,302 people as on March 31, 2009. The business wise break up of the
workforce is given below:

Business Operation Number of people

Life Insurance 26,029
General Insurance 3,587
Reliance Money 3,174
Reliance Consumer Finance 1,487
Asset Management 1,405
Reliance Capital Services 1,335
Reliance Capital 218
Reliance Equities International 53
Reliance Equity Advisors 14
Total al 37,302

Our workforce is young, with an average age of 29 years, and highly
qualified. Nearly two-thirds of our workforce are graduates, while 8 per
cent are post-graduates and another 14 per cent management graduates and
chartered accountants.

Opportunities

* Low retail penetration of financial services / products in India

* Tremendous brand strength and extensive distribution reach

* Opportunity to cross sell services

* Increasing per-capita GDP

* Changing demographic profile of the country in favour of the young

Threats:

* Competition from local and multinational players.

* Execution risk.

* Regulatory changes.

* Attraction and retention of human capital.

Corporate Social Responsibility

Reliance Capital is committed to being a socially responsible company. It
works with distressed individuals, disadvantaged groups, and with civil
society at large. Some of its constituent businesses pay for critical
medical support to needy citizens. Other businesses work with self-help
groups to provide them with funding and other advice to function better.
Some other businesses have also worked with educational institutions to
promote financial literacy and financial inclusiveness.

This is in addition to supporting the charitable activities of the Reliance
Anil Dhirubhai Ambani Group, both in healthcare and in caring for older
people - Silvers.

The company also follows an active program of energy abatement and
recycling of paper and water, to lower its carbon footprint. This is not
just in its corporate office, but also in other large offices in big
cities.

Outlook

India has survived one of the worst global crises in history better than
most other economies. The recent recovery in many of the leading macro
indicators of economic activity has led many to believe that the worst is
over for the Indian economy and we are on our way to a higher growth
trajectory.

There has been a resurgence in sales across a variety of sectors - from
automobiles to cement, steel and electricity production. Rail and port
traffic too has seen an up tick. The Purchasing Managers' Index (PMI) has
shown an improvement from a low of 49.5 for March to 53.3 for April 2009,
signifying a renewed trend of growth in manufacturing. India is the second
major economy after China where the PMI has crossed the baseline 50 mark,
indicating the start of an expansionary phase. The growth in first half of
FY 2010 is expected to remain soft, with the economy turning around in the
second half. The drivers of this turnaround include government's fiscal
stimulus measures, the collapse in commodity prices, the coming onstream of
significant domestic oil and gas output, the recent infusion of record
levels of FDI, the improvement in trade deficit and the environment for
external commercial borrowing (ECB) the fall in the real exchange rate, the
RBI's aggressive monetary policy actions and the expected stabilization of
the global economy.

India remained the second fastest growing economy in FY 2009 after China.
In the light of the ongoing global recession, India will, even at a modest
growth of 6 per cent in FY 2010, be one of the fastest growing in the
world.