Annual Report - Indiabulls Financial Services - 2009-2010

INDIABULLS FINANCIAL SERVICES LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

Dear Shareholders,

Your Directors have pleasure in presenting the 11th Annual Report together
with the audited statement of accounts of the Company for the financial
year ended March 31, 2010.



FINANCIAL RESULTS:

The highlights of the financial results of the Company for the financial
year ended March 31, 2010.

Amount (in Rs.)
Particulars Year ended Year ended
March 31, 2010 March 31, 2009

Profit before Depreciation 4,016,193,840 2,537,049,076

Less: Depreciation/Amortisation 73,708,770 68,088,503

Profit before Tax 3,942,485,070 2,468,960,573

Less: Provision for Tax 1,300,882,293 567,239,705

Profit after Tax 2,641,602,777 1,901,720,868

Add Balance of Profit brought forward 1,234,774,798 812,187,831

Amount available for appropriation 3,876,377,575 2,713,908,699

Appropriation :

Dividend paid on Preference Shares 78,217,802 118,186,239

Proposed dividend on Preference Shares - 38,679,133

Proposed Final Dividend on Equity Shares 1,549,472,605 507,259,53

Dividend on Equity Shares Issued
after the year end pursuant to QIP Issue - 112,280,700

Dividend on Equity Shares issued after 396,450 221,362
the year end pursuant to ESOPS Allotment

Corporate Dividend Tax on:

- Dividend paid on Preference Shares 13,293,116 20,085,752

- Proposed Dividend on Preference Shares - 6,573,519

- Proposed Final Dividend on Equity Shares 257,348,031 86,208,758

Dividend on Equity Shares Issued after
the year end pursuant to QIP Issue - 19,082,106

Dividend on Equity Shares issued after
the year end pursuant to ESOPS Allotment 65,845 37,620

Transfer to General Reserve 264,200,000 190,175,000

Transfer to Reserve Fund
(U/S 451C of RBI Act, 1934) 528,320,556 380,344,174

Balance of Profit Carried forward 1,185,063,170 1,234,774,798

REVIEW OF OPERATIONS FY2010- Key Financial Highlights:

* The Total Revenue of the Company are Rs. 1,429.41 crore in Financial Year
2009-10 as compared to Rs 1,783.51 crore in Financial Year 2008-09.

* The Profit before Tax of the Company is at Rs. 394.25 crore in Financial
Year 2009-10 as compared to Rs. 246.90 crore in Financial Year 2008-09.

* The Profit after Tax (PAT) has increased substantially during the
Financial Year 2009-10. PAT is Rs. 264.16 crore in Financial Year 2009-10
as compared to Rs. 190.17 crore in FY 2008-09.

* Earning Per share (basic) is Rs. 8.72 per share in Financial Year 2009-10
as compared to Rs. 6.78 per share in Financial Year 2008-09.

* The Company has recommended 250% dividend amounting to Rs. 5 for every
share of Face Value of Rs. 2 as compared to Rs. 2 for every share in FY
2008-09.

* The Company is well capitalized with 32.42% CRAR.

Strong Loan Asset Growth

* The Loan Assets have grown 29.23% from Rs. 7,672.9 crore on March 31,
2009 to Rs. 9,915.5 crore as of March 31, 2010.

* Cumulative Loan Disbursements of Rs. 29,591 crore (from inception to
March 2010).

CRISIL expands borrowing capacity:

CRISIL revised rating outlook on IBFSL to 'Positive'

* CRISIL has revised its rating outlook on the long-term debt instruments
and bank facilities of IBFSL to 'Positive' from 'Stable'

* CRISIL has expanded the total borrowing capacity of IBFSL from Rs. 9,040
crore to Rs. 14,040 crore

SIGNIFICANT DEVELOPMENTS DURING THE YEAR:

Life Insurance Business

During the third quarter, the Company and Sogecap, the life insurance
subsidiary of Societe Generale of France, has mutually agreed not to pursue
the life insurance joint venture in India, for which they had entered into
a Joint Venture Agreement in April 2008.

The Company intends to pursue its insurance venture and is looking for a
new insurance JV Partner.

Multi commodity Exchange:

Indian Commodity Exchange Ltd (ICEX), a nationwide multi-commodity
Exchange, set up by the Company in partnership with MMTC Ltd., has gone
live effective November 27, 2009.

Redemption of Non-Convertible Preference Shares:

The Company has on September 30, 2009, redeemed 9,966,667 outstanding Non-
Convertible Preference Shares of face value Rs. 157.39 per share, held by
Oberon Ltd. in the Company. Consequently, the paid-up preference share
capital in the Company stands fully redeemed.

Revision in Crisil Ratings:

CRISIL has revised its rating outlook on the long-term debt instruments and
bank facilities of Indiabulls Financial Services Ltd. (IBFSL)
to 'Positive' from 'Stable'; the rating has been reaffirmed at 'AA-'.
CRISIL has also reaffirmed its rating on the Company's short-term debt at
'P1+'. The revision in the rating outlook reflects CRISIL's belief that
IBFSL's business risk profile will improve over the medium term, driven by
an intrinsic improvement in its asset quality and a continued improvement
in its resource profile.

DIVIDEND:

During the financial year 2009-2010 the Company has paid preference
dividend @10%, upto September 30, 2009 aggregating Rs. 78,217,802 to Oberon
Limited, a foreign entity.

In keeping with the Company's policy to reward its shareholders, the Board
of Directors of the Company has recommended a 250% i.e. Rs 5 per share on
the face value of Rs. 2 per share, as dividend for the financial year 2009-
2010, which if approved at the ensuing Annual General Meeting, would be
paid to those members whose names appear in the Company's Register of
Members as on the book closure date appearing in the notice convening the
Annual General Meeting which forms a part of the Annual Report and to all
those members whose names appear as beneficial owners in the records of the
Depositories i.e. National Securities Depository Limited and Central
Depository Services (India) Limited, as on the said date.

EMPLOYEES STOCK OPTIONS:

The disclosures required to be made in the Directors Report in respect of
the stock options granted under various employee stock option schemes i.e.
(i) IBFSL-ICSL Employees Stock Option Plan-2006 (ii) IBFSL-ICSL Employees
Stock Option Plan II-2006 and (iii) Employees Stock Option Plan -2008 in
force in the Company, in terms of the format prescribed under SEBI
(Employee Stock Option Scheme and Stock Purchase Scheme) Guidelines, 1999,
are set out in the Annexure forming a part of this report.

Subsequent to Financial Year 2009-2010, the IBFSL has allotted an aggregate
79,290 (Seventy Nine Thousand Two Hundred And Ninety) Equity shares of face
value Rs. 2/- each under various stock option schemes on April 09, 2010 and
April 27, 2010, as a result of which the equity capital of IBFSL stands
increased from Rs. 61.97,89,042/- divided into 30,98,94,521 Equity shares
of face value Rs. 2/- each to Rs. 61,99,47,622/- divided into 30,99,73,811
Equity shares of face value Rs. 2/- each.

FIXED DEPOSITS:

The Company has not accepted any deposits from the public during the year
under review.

SUBSIDIARIES:

The statement pursuant to Section 212(1) (e) of the Companies Act, 1956
relating to subsidiary companies forms a part of the financial statements.
In terms of approval granted by the Ministry of Corporate Affairs,
Government of India vide letter No. 47/400/2010-CL-III dated 07.05.2010
under Section 212(8) of the Companies Act, 1956, copies of the Balance
Sheet, Profit and Loss Account, Reports of the Board of Directors and
Auditors of the subsidiaries of the Company as of March 31, 2010 have not
been attached with the Balance Sheet of the Company. These documents will
be made available upon request by any Member of the Company and its
subsidiaries interested in obtaining the same. The annual accounts of the
Subsidiary Companies are also kept at the registered office of the Company
and that of its subsidiaries for inspection by any member. The details of
Subsidiary Companies account are also put up on the website of the Company.
However, as directed by the Ministry of Corporate Affairs, Government of
India the financial data of the subsidiaries have been furnished under
'Details of Subsidiaries' forming part of the Annual Report. Further,
pursuant to Accounting Standard AS-21 issued by The Institute of Chartered
Accountants of India, Consolidated Financial Statements presented by the
Company includes financial information of its subsidiaries.

DIRECTORS:

In accordance with the provisions of Section 255 and 256 of the Companies
Act, 1956 and the Article 129 of the Articles of Association of the Company
Mr. Gagan Banga and Mr. Karan Singh, retire by rotation at the ensuing
Annual General Meeting of the Company and being eligible offer themselves
for reappointment.

Brief resume of the Directors seeking reappointment, nature of their
expertise in specific functional areas and names of companies in which they
hold directorships and memberships/chairmanships of Board Committees, as
stipulated under Clause 49 of Listing Agreement with the Stock Exchanges in
India, are provided in the Report on Corporate Governance forming part of
the Annual Report.

LISTING WITH STOCK EXCHANGES:

The equity shares of the Company continue to remain listed with the Bombay
Stock Exchange Limited (BSE) and the National Stock Exchange of India
Limited (NSE). The listing fees payable to both the exchanges for the
financial year 2010-2011 have been paid. The Global Depository Receipts
issued by the Company continue to be listed on the Luxembourg Stock
Exchange.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT:

Management's Discussion and Analysis Report for the year under review, as
stipulated under clause 49 of the Listing Agreement with the Stock
Exchanges in India, is presented in a separate section forming part of the
Annual Report.

CORPORATE GOVERNANCE REPORT:

Pursuant to clause 49 of the Listing Agreements with the Stock Exchanges, a
detailed report on Corporate Governance is included in the Annual Report. A
Practicing Company Secretary's Certificate certifying the Company's
compliance with the requirements of Corporate Governance stipulated under
clause 49 of the Listing Agreement is attached with the Corporate
Governance Report.

AUDITORS AND AUDITORS' REPORT:

M/s Deloitte Haskins & Sells, Chartered Accountants, Auditors of the
Company will retire at the conclusion of the ensuing Annual General Meeting
and being eligible offer themselves for reappointment. The Company has
received a certificate from the Auditors to the effect that their
reappointment, if made would be in accordance with Section 224(1 B) of the
Companies Act, 1956. The Board recommends their re-appointment.

The Notes to the Accounts referred to in the Auditors' Report are self -
explanatory and therefore do not call for any further explanation.

INFORMATION PURSUANT TO SECTION 217 OF THE COMPANIES ACT, 1956:

The information required to be disclosed under Section 217 (1) (e) of the
Companies Act, 1956, read with the Companies (Disclosure of Particulars in
the Report of the Board of Directors) Rules, 1988 with respect to
conservation of Energy, Technology Absorption and Foreign Exchange Earnings
and Outgo, is given in the Annexure and forms a part of this Report.

In terms of the provisions of Section 217 (2A) of the Companies Act, 1956
read with the Companies (Particulars of Employees) Rules, 1975 as amended,
the names and other particulars of the employees are required to be 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 who is interested in
obtaining such particulars may write to the Company Secretary at the
Registered Office of the Company.

DIRECTORS' RESPONSIBILITY STATEMENT:

As required under Section 217 (2AA) of the Companies Act, 1956 your
Directors confirm that;

1. in the preparation of the annual accounts, the applicable accounting
standards have been followed and that there are no material departures from
the same;

2. the Directors have selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company as at 31st March, 2010 and the profit of the Company for the year
ended on that date;

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

4. the Directors have prepared the Annual Accounts of the Company on a
'going concern' basis.

ACKNOWLEDGEMENT:

Your Directors wish to express their gratitude for the continuous
assistance and support received from the investors, clients, bankers,
regulatory and government authorities, during the year. Your Directors also
wish to place on record their deep sense of appreciation for the
contributions made and committed services rendered by the employees of the
Company at various levels, to the growth & success of the Company.

For and on behalf of the Board of Directors

Sameer Gehlaut
Chairman

Date : May 17, 2010
Place : New Delhi

Information pursuant to section 217(1)(e) of the Companies Act, 1956, read
with the Companies (Disclosure of Particulars in the Report of the Board of
Directors) Rules, 1988, in respect of conservation of energy, technology
absorption and foreign exchange earnings and outgo.

A. CONSERVATION OF ENERGY

The Company uses energy for its equipment such as electric equipment,
computers, lighting and utilities in the work premises. As an ongoing
process the following measures are undertaken to conserve energy:

a) Implementation of viable energy saving proposals.

b) Installation of automatic power controllers to save maximum charges and
energy.

c) Training front end operational personnel on opportunities of energy
conservation.

d) Awareness and training sessions for maintenance personnel, conducted by
experts.

B. TECHNOLOGY ABSORPTION:

The Company believes that technological obsolescence is a practical realty
and therefore

Constantly endeavors to carry out continuous research and innovations with
the basic objective of providing maximum benefits to the clients and other
end users by working proactively.

The basic idea is to carry out applied research in the areas that are
closely related to realization of the business objectives of the Company
and seek to encash available business opportunities.

C. FOREIGN EXCHANGE EARNINGS AND OUTGO:

While there were no earnings in foreign exchange during the year under
review, the foreign exchange outgo on account of various heads is depicted
in the table given below:

a. Expenditure in Foreign Currency:

Particulars For the year ended For the year ended
March 31, 2010 (Rs.) March 31, 2009 (Rs.)

Professional Expenses - 1,112,873

GDRs listing / Issue
related expense 778,200 160,912

Travelling Expense 3,696,076 915,033

Others - 228,221

b. Remittances during the year in foreign currency on account of dividends:
Final Dividend (Year End March 31, 2009)

Number of Shareholders (Bodies Corporate): 2

Equity Shares held on which dividend is remitted: -17,151,479 Equity Shares

Amount Remitted- Rs. 34,302,958

Preference Dividend (From April 1, 2009 to September 30, 2009)

Number of Shareholders (Body Corporate): 1

Preference Shares held on which dividend is remitted: -9,966,667 Preference
Shares

Amount Remitted - Rs. 78,217,802

Note: The Company does not have information as to the extent to which
remittances, if any, in foreign currencies on account of dividends have
been made by non- resident shareholders.

c. Remittances during the year in foreign currency on account of redemption
of Preference Share capital:

Number of Shareholders: 1
Preference Shares which are redeemed: - 9,966,667 Preference Shares

Amount Remitted- Rs. 1,568,653,719

IBFSL - ICSL EMPLOYEES STOCK OPTION PLAN - 2006 - As on March 31, 2010

Particulars

a. Options Granted 114,40,000

b. Exercise price Rs.41.67

c. Options vested 16,19,200

d. Options exercised 2,87,884

e. The total number of Shares arising as a
result of exercise of option 2,87,884

f. Options lapsed NIL

g. Variation in terms of options Not applicable

h. Money realized by exercise of options 1,19,96,126.28

i. Total number of options in force 11,52,116

j. Employee wise details of options granted to;

i. Senior Management personnel Mr. Gagan Banga -3,95,000

ii. any other employee who received a grant in NIL
any one year of option amounting to 5% or more
of option granted during that year

iii. identified employees who were granted
option, during any one year, equal to or
exceeding 1% of the issued capital NIL

k. Diluted Earnings Per Share (EPS) pursuant to Rs. 8.64
issue of shares on exercise of option calculated
in accordance with [Accounting Standard (AS) 20
'Earnings Per Share']

l. Where the Company has calculated the The employee compensation
employee compensation cost using the intrinsic cost using the intrinsic
value of the stock options, the difference value of the stock
between the employee compensation cost so options is nil. Had the
computed and the employee compensation cost that Company followed the fair
shall have been recognized if it had used value method, the
the fair value of the options, shall be employee compensation
disclosed. The impact of this difference on cost would have also been
profits and on EPS of the Company shall also be nil. Hence there is no
disclosed difference in employee
compensation cost
computed under intrinsic
value and fair value
method and hence no
impact on profits and on
EPS of the Company.

m. Weighted - average exercise prices and Rs. 41.67
weighted - average fair values of options shall
be disclosed separately for options whose
exercise price either equals or exceeds or is
less than the market price of the stock.

n. A description of the method and significant Refer Note B - 7 of
assumptions used during the year to estimate the schedule 18 - Notes to
fair values of options, including the following Account forming part of
weighted - average information: the Financial Statements.

i. risk free interest rate

ii. expected life

iii. expected volatility

iv. expected dividends, and

v. the price of the underlying share in
market at the time of option grant

IBFSL - ICSL EMPLOYEES STOCK OPTION PLAN II - 2006 - As on March 31, 2010

Particulars

a. Options Granted 7,20,000

b. Exercise price Rs.100

c. Options vested 1,58,400

d. Options exercised 37,205

e. The total number of Shares arising as a
result of exercise of option 37,205

f. Options lapsed NIL

g. Variation in terms of options Not applicable

h. Money realized by exercise of options 37,20,500

i. Total number of options in force 6,82,795

j. Employee wise details of options granted to;

i. Senior Management personnel Mr. Gagan Banga -2,99,160

ii. any other employee who received a grant in
any one year of option amounting to 5% or
more of option granted during that year NIL

iii. identified employees who were granted
option, during any one year, equal to or
exceeding 1% of the issued capital NIL

k. Diluted Earnings Per Share (EPS) pursuant to Rs. 8.64
Issue of shares on exercise of option calculated
in accordance with [Accounting Standard (AS) 20
'Earnings Per Share']

l. Where the Company has calculated the employee The employee compensation
compensation cost using the intrinsic value of cost using the intrinsic
the stock options, the difference between value of the stock. Had
the employee compensation cost so computed and the Company followed the
the employee compensation cost that shall have fair value method, the
been recognized if it had used the fair value of employee compensation
the options, shall be disclosed. The impact of cost would have also
this difference on profits and on EPS of the been nil. Hence there is
Company shall also be disclosed no difference in employee
compensation cost
computed under intrinsic
value and fair value
method and hence no
impact on profits and on
EPS of the Company.

m. Weighted - average exercise prices and Rs. 100/-
weighted - average fair values of options shall
be disclosed separately for options whose
exercise price either equals or exceeds or is
less than the market price of the stock.

n. A description of the method and significant Refer Note B-7 of
assumptions used during the year to estimate the schedule 18 - Notes to
fair values of options, including the following Account forming part of
weighted - average information: the Financial Statements.

i. risk free interest rate

ii. expected life

iii. expected volatility

iv. expected dividends, and

v. the price of the underlying share in
market at the time of option grant

EMPLOYEES STOCK OPTION - 2008 - As on March 31, 2010

Particulars

a. Options Granted 75,00,000

b. Exercise price 71,32,650 options at
Rs.95.95 per option
3,67,350 options at
Rs.125.90 per option

c. Options vested 11,25,000

d. Options exercised 2,093

e. The total number of Shares arising as
a result of exercise of option 2,093

f. Options lapsed NIL

g. Variation in terms of options Not applicable

h. Money realized by exercise of options 2,00,823.35

i. Total number of options in force 174,97,907

j. Employee wise details of options granted to;

i. Senior Management personnel Mr. Gagan Banga -7,86,000

ii. any other employee who received a grant in
any one year of option amounting to 5% or more
of option granted during that year

iii. identified employees who were granted
option, during any one year, equal to or
exceeding 1% of the issued capital

k. Diluted Earnings Per Share (EPS) pursuant Rs. 8.64
to issue of shares on exercise of option
calculated in accordance with [Accounting
Standard (AS) 20 'Earnings Per Share']

l. Where the Company has calculated the employee Refer Note B-7 of
compensation cost using the intrinsic value of schedule 18 - Notes to
the stock options, the difference between Account forming part of
the employee compensation cost so computed and the Financial Statements.
the employee compensation cost that shall have
been recognized if it had used the fair value of
the options, shall be disclosed. The impact of
this difference on profits and on EPS of the
Company shall also be disclosed

m. Weighted -average exercise prices and Rs. 97.42
weighted - average fair values of options shall
be disclosed separately for options whose
exercise price either equals or exceeds or is
less than the market price of the stock.

n. A description of the method and significant Refer Note B-7 of
assumptions used during the year to estimate the schedule 18- Notes to
fair values of options, including the following Account forming part of
weighted - average information: the Financial Statements.

i. risk free interest rate

iii. expected life

iii. expected volatility

iv. expected dividends, and

v. the price of the underlying share in market
at the time of option grant

MANAGEMENT DISCUSSION AND ANALYSIS

ECONOMIC SCENARIO:

India managed the global economic downturn effectively through a
combination of fiscal and monetary policies. The effectiveness of these
policy measures became evident with fast paced recovery. The economy
stabilised in the first quarter of 2009-10 itself clocking a GDP growth of
6.1%, as against 5.8% in the fourth quarter of the preceding year. It
registered a strong rebound in the second quarter with growth rising to
7.9%.

The stabilisation of GDP growth pattern and a healthy trend visible in the
vital parameters of the economy bodes well for the overall growth and
development of the country.

However, even as the economy appears to have weathered the crisis and
reversed the effects of slow down and picked up speed, the macro
environment continues to be challenging. This is reflected in issues such
as inflationary trends and as well as ensuring inclusive growth for all
sections of the Indian society. It is here, we feel that Indiabulls
Financial Services Limited (IBFSL) can play a small part in contributing to
the overall growth of the Indian economy. The stability in our existing
businesses as well our reduced costs of funding provide us the confidence
and ability to offer home loans to the growing Indian middle-class. Our
major thrust for the coming year is to grow our home loan business in size
and scale. Home loans grew at 25% annually over the past five years. As per
industry estimates, this rate is expected to be sustained over the coming
years. We believe that the home loan market is in an early stage and we
want to position ourselves to capture this growth.

INDUSTRY OVERVIEW:

The global credit crisis of Fall 2008 has been a blessing in disguise for
us. Firstly, we are proud that we weathered the storm and came out
unscathed.

Second, it has helped us focus on our operations and strategy. Third, we
have emerged as a recognized leader with both our customers and our
financial partners, allowing the Company to pursue growth more
aggressively.

Today, the Government realises the need for increased geographical reach of
banks and improving access to the financial services through the length and
breadth of the country. The government is considering the grant of banking
licenses to Non Banking Financial Companies which meet the RBI criteria in
this regard. We welcome such a move by the RBI.

BUSINESS REVIEW:

IBFSL is one of India's largest non-banking financial companies, with total
consolidated loan assets on a managed basis of Rs. 110,232.4 mn as at March
31, 2010. It offers a broad suite of lending and other financial products
to target the client base of middle and upper-middle income individuals and
small and medium-sized enterprises or SMEs. The lending and other financial
products of IBFSL include individual home mortgages and other housing
loans; secured and unsecured commercial loans to SMEs, loans to commercial
vehicles, construction equipment and infrastructure projects. It has a
presence in 140 locations in India, spread across 18 states and union
territories. Over the past several years, IBFSL has expanded its presence
into markets that are of greater relevance to the products it offers.
Portfolio performance and profitability are the factors that drive the
branch network.

IBFSL generates its revenues through the following activities:

Financing activities: Which involves offering various lending products
including individual home mortgages and other housing loans; secured and
unsecured commercial loans to SMEs; margin loans, or 'loans against
shares,' secured by marketable, liquid securities; secured commercial
vehicle and tractor loans. The financing activity generates revenues from
interest payments made by our borrowers, loan processing fees and the sale
of loans receivables to banks and other NBFCs.

Investment activities: A portion of IBFSL cash holdings is invested in debt
mutual funds, debt securities and other investments, and as at March 31,
2010, the value of IBFSL consolidated investments was Rs. 11,683.4 mn.
Investment activity generates revenues from dividends and interest payments
made upon such securities.

Fee-based activities: Such activities involve selling life insurance
policies, pension plans and other financial products by IBFSL in its
capacity as corporate agent for insurance companies such as Max New York
Life. Fee based activities generate revenues from fees and commissions paid
on each such policy or product sold by IBFSL.

IBFSL recorded a total income on a consolidated basis of Rs. 16,350.4 mn
for the fiscal year ended March 31, 2010, vs Rs. 20,057.9 mn for the prior
fiscal year.

The profitability of the Company on a consolidated basis increased by
190.2% with a net profit of Rs. 3,074.8 mn being recorded for the fiscal
year ended March 31, 2010 as against Rs. 1059.6 mn for the previous
financial year. The increase was primarily attributable to lower borrowing
costs due to the easing of the global credit crisis.

BUSINESS STRENGTHS:

The Company believes that its success in becoming one of India's leading
financial services companies has been driven by the following:

Strong financial position and equity capital base:

The Company believes that its strong financial position in addition to a
healthy equity capital base and access to large credit lines, bank
facilities and the commercial paper market, allows it to acquire customers
and provide financing at attractive terms by presenting the Company as a
credible and trustworthy counterpart for consumers to do business with.

CRISIL expands borrowing capacity:

CRISIL reaffirmed its AA- rating on the Company and revised its rating
outlook on IBFSL's long-term debt instruments and bank facilities from
'Stable' to 'Positive'. CRISIL has expanded the total borrowing capacity of
IBFSL from Rs. 90,400 mn to Rs. 205,400 mn.

'CRISIL believes that IBSFL's business risk profile will improve over the
medium term, on the back of expected improvement in the Company's asset
quality and resource profile.'

'The rating may be upgraded if IBFSL scales up its. mortgage business
without compromising on its asset quality and maintaining its earnings
profile.' (Source: CRISIL)

Strong relationships with banks:

The Company has strong banking relationship with bankers, including with 18
public sector banks in India which represent approximately 66.67% of the
public sector banks in India. This is in addition to its strong
relationships with mutual funds and other NBFCs.

Cost of Funding has come down materially

IBFSL's cost of funding as of March 31, 2010 came down significantly as
compared to March 31, 2009. This reduced cost was a function of securing
cheaper long-term funding from the banks. Additionally, IBFSL relies on
NCDs and short-term borrowing from mutual funds. Cost of funding from these
sources had also comedown over the year. IBFSL's reduced cost of funding
makes it competitive on offering home loans to customers.

Broad offering of lending products designed to address our clients' needs:

The broad offering of lending products by the Company has enabled it to
gain new clients and increase revenues, thereby, helping to differentiate
it from other single product offering NBFCs in lending business. The broad
array of products, such as home loans, loans against properties, business
loans and commercial vehicle financing allow the Company to cross-sell
multiple products to its clients and, in turn, capture a greater share of
our clients' total financial products borrowing.

Strong brand recognition:

The Company is one of India's leading NBFCs and has strong brand
recognition within India, which helps attract new, potential clients. The
Company has established a network of easily-accessible branches across 140
locations throughout India, and the wide presence of these branches further
enhances its brand recognition with prospective clients.

Experienced senior management team:

IBFSL management team has a continued and strong focus on identifying
quality growth areas that are capable of providing high returns. It has
demonstrated strong growth with a focus on minimising the risk profile of
the Company. Under the leadership of the management team, the Company has
diversified into various profitable business segments. In addition, the
management promotes a result-oriented culture that rewards employees on the
basis of merit. In order to strengthen the credit appraisal and risk
management systems, the Company has hired a number of senior managers who
have extensive experience in the Indian banking sector and specialised
lending finance firms providing loans to retail customers, to develop and
implement the credit policies of the Company.

BUSINESS STRATEGY:

The Company's strategy is to grow IBFSL into a stable, secure and
sustainable business that is focused on maximising growth opportunities
within the financial services industry. It is our objective to make a
sustainable business whose foundations are built on providing financial
products and services to a diverse client base rather than focus on one
particular segment.

It is our intention to grow IBFSL that can grow the business into a
sustainable and steady business rather than maximising short term earnings
and growth. Our business strategy is guided by the following principles:

IBFSL to be one of India's leading home loan providers:

There is a genuine demand to cater to the growing population looking to
purchase homes in India driven by rapid urbanisation and rise in the Indian
middle class. Due to our high cost of funding in the past it was difficult
for IBFSL to be competitive in the home loan segment. ' However, this has
changed as the cost of funding has come down significantly. As such, we are
able to offer home loans at competitive and attractive rates to our
customers. With the objective of growing the home loan business, we have
ramped up our direct selling team to close to 1,000 people. We are
leveraging IBFSL's existing extensive branch network as well as open new
locations strategically so that we are closer to our customers. IBFSL has
been one of the most widely recognised success stories of India in the past
decade. Expanding our home loans business successfully and profitably not
only helps in meeting the genuine demand from millions of aspiring home
owners but also allows us to positively contribute back to the Indian
growth story.

Continue to grow our client base while maintaining a high-quality loan
portfolio:

The Company started its consumer finance business by issuing small-ticket
unsecured loans, which generally earn higher yields and profit margins.
Over the past three years, however, it has moved towards more secured
lending such as mortgage-backed loans and commercial vehicle refinancing.
As the Company continues to grow its client base, it shall maintain its
focus on secured lending to lower risk segments in order to maintain a
high-quality loan portfolio and minimise client delinquencies and defaults.

Continue to diversify sources of funding:

Because the Company is a non-deposit taking NBFC, it relies on short, mid
and long-term funding from banks, NBFCs and NCD and Commercial Paper
market. While it presently has sufficient funds to meet the short-term
funding needs, the Company shall continue to identify various alternative
sources of funding to maintain a low cost of funds and shall continue to
assign its loan receivables to banks and other NBFCs, to enhance liquidity.

Maintain strict risk management policies for our loan portfolios:

The Company is focussed on building a large loan portfolio with minimum
delinquency risk. Therefore, it will continue to maintain strict risk
management standards to reduce delinquency risks and promote a robust
recovery process.

Multi commodity exchange:

We are extremely happy and proud that Indian Commodity Exchange Limited
(ICEX) promoted by your Company as a Joint Venture with MMTC, has gone live
on November 27, 2009. ICEX is the 4th national level commodity exchange in
the country recognised by the Government of India, and the first exchange
that has been set up as a public-private partnership with an initial paid
up capital of Rs. 100 crore. Government run Indian Potash Limited (IPL),
KRIBHCO, and leading infra-finance institution IDFC are among other leading
shareholders in the exchange.

ICEX has got good response from amongst the commodity brokers and physical
market participants as evident from the fact that in a short span of 5
months, exchange has got more than 400 members across the commodity value
chain spread all over the country. It has been achieving an average daily
turnover of Rs. 2500 crore to Rs. 3000 crore. Most recently, on April 28,
2010, the exchange entered into a strategic tie-up with The Bombay Bullion
Association (BBA), which is the largest body of physical market players in
Gold and Silver comprising about 500 members. Through this association,
exchange will provide membership to all the BBA members and jointly try to
deepen the markets and encourage wider participation by providing multiple
delivery centers across the country.

PERCEIVED BUSINESS RISKS:

The Company's business activities expose it to a variety of risks including
liquidity risk and interest rate risk. identification and management of
these risks are essential to its success and financial soundness.

HUMAN RESOURCES:

IBFSL firmly believes that its employees are the key to driving performance
and developing competitive advantage. The emphasis has been on proper
recruitment of talent and empowerment while devoting resources for their
continuous development.

The structured recruitment process, which the Company employs, focuses on
recruiting people who have the right mindset for working at IBFSL,
supported by structured training programmes and internal growth
opportunities.

The basic objective has been to unlock the people potential and further
developing their functional operational and behavioural competencies so as
to build a team of dedicated employees who work with passion, zeal and a
sense of belongingness and play a defining role in significantly
accelerating the growth and transformation of the Company thereby
consolidating its position in the market as one of the top corporate
brokerage houses in the country.

It is in continuation of this process that the Company has in place,
Employee Stock Option Schemes which aim at rewarding and nurturing talent
so that the Company gets to retain what is best in the industry

INTERNAL CONTROL SYSTEMS:

The Company has adequate system of internal controls for business
processes, with regard to operations, financial reporting, compliance with
applicable laws and regulations etc. Regular internal audits and checks
ensure that responsibilities are executed effectively. The Audit Committee
of the Board of Directors actively reviews the adequacy and effectiveness
of internal control systems and suggests improvement for strengthening the
existing control system in view of changing business needs from time to
time.

CAUTIONARY STATEMENT:

Statements in this Management Discussion and Analysis Report describing the
Company's objectives, projections, estimates and expectations may be
forward looking statements within the meaning of applicable laws and
regulations. Actual results might differ materially from those either
expressed or implied.

The Company is not under any obligation to publicly amend, modify or revise
any forward looking statements on the basis of any subsequent developments,
information or events.