MANAGEMENT DISCUSSION & ANALYSIS - FY2014-15

1. Industry Overview and Macro-economic Developments Summary

The Indian economy seems to be getting reenergised, having recorded more than 7% growth in FY2014-15. This has been on account of improved industrial and services sector performance, along with improvement witnessed on other key parameters such as reduction in inflation and trade deficit. Some of it is also on account of overall improvement in business sentiment since the formation of the new government at the centre that has been working on improving the overall business environment in the country along with strengthening bilateral relations. The overall positive sentiment was also reflected in the improved performance of the equity market that witnessed one of the highest returns in the recent past, as also in most other segments of the financial services industry. Over time, the monetary policy has also been easing with the containment of inflation, in order to provide a further impetus to growth. All these factors have contributed to an expectation of a further improvement in the growth trajectory, with the growth rate likely to cross 8% if enabling structural reforms are implemented.

Markets sailed on political euphoria

According to Bloomberg data, FY2014-15 marked the highest return for the Sensex in the past five years. This was on account of the expected turnaround in India's economic growth after a decisive outcome in the General Elections that sent the markets rallying.

This euphoria continued throughout FY2014-15, when the Sensex remained above the 22,000 mark in every single month of the year. This is unlike FY2013-14, where the Sensex remained below this level in 11 out of 12 months2.

Growth on an improving trajectory

The pulse of the Indian economy seems to be improving, with the GDP growth rate (based on the new series) gradually and consistently rising from an anaemic 5.1% in FY2012-13 to 6.9% in FY2013-14 and reaching a healthy level of 7.3% in FY2014-15.

The recovery in FY2014-15 was driven by industrial and services sector performance: industrial growth rebounded to 6.1% from 4.5% in the earlier year, driven by improvement in manufacturing and utilities (electricity, gas, water supply), while services sector growth recorded double digit growth, driven by financial services and real estate5. Overall GDP growth in FY2014-15 would have been more robust had it not been held back by dismal performance recorded in the agriculture sector. Nonetheless, there has been steady improvement over the last two years and the economy is firmly placed on an improving trajectory.

Note: Earlier in 2015, the Central Statistical Organisation (CSO) revised the methodology of computing Indian National Accounts, by resetting the constant base year to 2011-12 against 2008-09 used earlier - thereby impacting growth numbers. In addition, it has also changed the basis of measurement of GDP to Gross Value Added (GVA) as against factor cost used earlier.

Inflation eased significantly

India's inflation, both wholesale (WPI) and retail (CPI), eased significantly during the year. While WPI inflation reduced to 2% in FY2014-15 from 6% in the brvious year, CPI inflation eased to 5.9 percent from 9.5 percent in FY2013-14. This was on account of a host of factors such as:

• Correction in food prices domestically

• Decline in global price of crude, coal and edible oils

• Moderation in growth rate of wages, which exerted lower brssure on protein-based items

• Tight monetary policy that kept demand under check6

Though these lower numbers have provided some respite, the upside risks to the same necessitate maintaining a strict vigil on the inflation rate. The still uncertain and volatile external environment, firming crude prices and erratic monsoon all exert upward brssure on inflation.

External conditions witnessed improvement

India's current account deficit (CAD) recorded a seven year low of 1.3% of GDP (USD 27.5 billion) against 1.7% (USD 32.4 billion) in FY2013-14. This was due to lower trade deficit brought about by reduced crude price and lesser gold import. This, accompanied by higher inflows on capital account, led to a favourable balance of payments of USD 61.4 billion - the highest since FY20 07-087.

The rupee also remained debrciated beginning the year with "60.0 per USD and closing it with ~62.5 per USD in FY201 4-158. The RBI continued to play a balancing act for maintaining rupee value juggling between being buyer and seller of the greenback.

Fiscal deficit remained under control

A host of government measures to contain subsidies enabled containment of fiscal deficit within the target of 4.1%, the actual being 3.99%. Some of the measures undertaken by the government included deregulation of diesel prices, approval of domestic gas pricing policy, and launch of direct benefit transfer scheme. To continue on its path of fiscal consolidation, the government has set itself a target of 3.9% for FY2015-16, 3.5% for FY2016-17, and 3% for FY201 7-189.

Performance of the financial services sector

Banking and Credit

Credit/Deposit Growth: Despite improved manufacturing and industrial growth, bank credit recorded dismal performance having grown by a mere 9.5% in FY2014-15, compared to 13.9% in the brvious year. This was partially due to substitution of bank credit by commercial paper that grew by more than 80% to Rs. 1,932.7 billion as of March 201510. Improved industrial and infrastructure sector performance accompanied by auctioning of coal blocks and telecom spectrum are expected to increase bank credit that may grow between 14-16%.

Bank deposits too witnessed reduced growth: 11.4% against 14.1% in FY2013-14 on account of higher inflation translating into increased outgo for disposable expenditure and lower savings. Easing inflation is expected to result in higher growth in bank deposits in FY2015-1611. The Pradhan Mantri Jan-Dhan Yojna (PMJDY) launched by the Government of India is gaining traction with more than 147 million new accounts opened under the scheme until the end of FY2014-15, mobilising over Rs. 159 billion in deposits12. As the banking habits of the formerly unbanked population improve, the deposit growth rate is expected to be further bolstered.

Assets: At the end of FY2013-14, assets of scheduled commercial banks stood at Rs. 109.6 trillion, and are estimated to have grown by 10-12% during FY2014-15, reflecting the subdued growth in credit and deposits13.

Equity Market

During the year, overall equity market volumes (NSE and BSE combined) increased by 59% to Rs. 807 trillion as against Rs. 507 trillion in the earlier year. Market volumes in FY2014-15 were on an increasing trajectory for the first nine months, with a marginal quarter-on-quarter decrease in the fourth quarter. Institutional investors' participation increased significantly during the first leg of the market rally, which was followed by participation from retail investors. Retail investors overall equity volumes increased to Rs. 25.9 trillion as compared to Rs. 15.6 trillion in the brvious year14.

Insurance

The aggregate new business brmium for the life insurance industry recorded de-growth during the year, with total new business brmium decreasing 6.2% year-on-year to Rs. 1,131.4 billion in FY2014-15 against Rs. 1,201.6 billion in the earlier year15. On the other hand, the general insurance business recorded reasonable growth, with gross written brmium rising by 9.3% to Rs. 847.3 billion in FY2014-15 against Rs. 775.4 billion in the earlier year16. Within the general insurance industry, brmium income in the health insurance segment grew faster than the industry overall, recording 16% year-on-year growth to reach Rs. 204.4 billion in FY2014-15 against Rs. 176.2 billion in FY2013-1417.

Asset management

The asset base of the Indian mutual fund industry (of 44 mutual fund houses) grew by 31% (or nearly Rs. 3 trillion) in FY2014-15 to Rs. 11.88 trillion on account of improved sentiment in the equity market, which surged by 25%18. Further, the number of investors grew substantially in the past fiscal, confirming the broad-based nature of growth.

Outlook

The resurgence of growth witnessed in the recent past holds out the promise of further acceleration if some structural improvements can be made within the country and the external environment, even if not outright supportive, does not cause any major disruption. Going forward, the economy is expected to record even higher growth rates of 7.8% and 8.1% in FY2015-16 and FY2016-17 respectively, as per forecasts by Fitch19. Even the OECD20 is of the view that the Indian economy remains strong and stable and will record more than 7% growth in FY2015-16. The growth rate may edge over to 8% if structural reforms such as land acquisition and greater flexibility in labour laws are approved and implemented. Goods & Services Tax (GST), if implemented in FY2016-17, is likely to boost growth further.

The financial services industry is highly correlated to overall economic growth, and as seen from the sectoral split of India's GDP growth, it has in fact been a large driver of this growth. The improving GDP growth trajectory is therefore expected to further propel the financial services industry. While segment-specific conditions and regulatory measures will affect the prospects for individual segments within the industry, firms with a diversified business model and a cohesive strategy are most likely to gain from the improving prospects of the industry.

2. Overview of our Business

Strategy and Business Model

India has made significant strides on its path of economic reform over the last two decades, and cyclical fluctuations aside, the economy is structurally on a high-growth path. This growth, on the one hand, requires large amounts of financing, and on the other hand, will generate enormous wealth, in the process creating sustained growth opportunities for the financial services industry over a long period of time. The Religare platform has been designed to capitalise on this multi-decade growth opportunity.

Religare Enterprises Limited (REL) seeds and builds businesses across the financial services spectrum with the objective of generating sustained profitability in the portfolio and creating equity value for REL. Our integrated financial services platform spans four key verticals of the financial services industry in India - Lending, Capital Markets, Asset Management and Insurance - and offers a virtually seamless suite of products and services to clients. With a nationwide brsence - through more than 1,650 business locations in over 500 cities and towns - and serving more than 1.1 million clients, Religare enjoys a prominent brsence in the Indian financial services space. Outside India, Religare operates in select strategically important markets, offering institutional equities and investment banking services through the Capital Markets arm and alternative asset management products through the Asset Management arm.

Religare Structure

REL is a Core Investment Company registered with the Reserve Bank of India (RBI)*. The operating businesses are housed in subsidiaries and joint ventures and have independent management teams to conduct their day-to-day operations. REL's role primarily consists of providing capital to the operating companies, providing stewardship of the brand and group ethos, ensuring that appropriate governance structures and risk management mechanisms are in place, and monitoring performance of the operating companies.

Risk Monitoring and Mitigation

REL has designed its portfolio such that it is brsent across the key verticals within the financial services industry (lending, capital markets, asset management and insurance), serves the entire spectrum of customers (institutional, corporate, SME, HNI, mass affluent, retail and social/rural) and operates on multiple revenue models (fee-based, balance sheet-led and fiduciary). This diversification in the portfolio provides balance, reduces volatility and helps minimise risk from excessive concentration in a single product or segment. The common brand and the integrated nature of our offerings across the platform, supported by the philosophy of putting the customer first, enables us to withstand the threats from competition and commoditisation of offerings in the industry.

REL has devised a combrhensive framework for risk management and controls for the operating entities. The implementation of the risk management framework is overseen by the Boards of the respective entities, which have rebrsentation from REL. The risk management framework has been designed to identify, measure, report, monitor and mitigate various risks inherent in the financial services business and mandates the Risk Management Committee of the respective Boards to monitor such risks. REL has a centralised Internal Audit function to review and evaluate the efficacy and adequacy of internal control systems, compliance with operating systems, accounting procedures and policies. The Internal Audit function is carried out by a reputed external firm and the findings and recommendations are brsented to the respective Audit Committees.

Lending

Our lending business is operated by RFL and its 87.50%-owned subsidiary, RHDFC. RFL is registered with Reserve Bank of India (RBI) as a non-deposit taking, systemically important Non-Banking Financial Company (NBFC-ND-SI). RFL is focused on providing debt capital to Small & Medium Enterprises (SMEs) to enable them to enhance their productive capacity and throughput - it is amongst the first NBFCs in India to focus on this segment, having started the business in 2008. India's SME sector accounts for nearly 45% of its manufacturing output and approximately 40% of its exports, contributes close to 17% to the nation's GDP and employs about 73 million people, according to the "Trends in SME Financing" study by CRISIL. Yet, the sector is woefully under-funded, giving RFL, which has an early-mover advantage in this segment, tremendous headroom for growth.

Offerings

Given its focus on the SME sector, RFL's offerings have been tailor-made to suit the unique requirements of this sector and comprise:

SME-Secured: RFL's SME-Secured product enables its customers to obtain loans against their residential or commercial property. Loans offered under this product may be utilized towards different purposes including business expansion and purchase of plant and machinery.

SME-Unsecured: This product caters to working capital and other financial requirements of SMEs, self-employed businessmen and professionals. Loans are granted after an in-depth and detailed financial analysis and credit underwriting of the clients.

In addition to its primary focus on lending to SMEs, RFL provides financing against shares and securities, both to retail customers and to promoters of listed companies against their holdings in their own companies, collectively referred to as Capital Market Lending. Specifically, RFL offers Loans Against Securities (to retail customers, secured by marketable securities held by them); IPO Financing (providing liquidity to high net-worth individuals to enable them to subscribe to public offerings of shares); ESOP Financing (granting loans to salaried individuals against vested stock options and shares allotted on exercise of such options, which is typically facilitated by the employer); and Promoter Financing (lending to promoters of reputed mid-sized and large corporates against shares held by them in their companies, as well as other collateral, in order to augment the resources at the disposal of the promoters).

In the past, RFL offered SME Commercial Asset funding for commercial vehicles (new or used) and construction equipment (heavy or light) segments to priority sector small operators as well as high end strategic operators. This line of business has been discontinued.

Presence in SME clusters

SME units tend to be concentrated in clusters in or around large cities to take advantage of the infrastructure and ancillary services that are available in such centres. Nearly 80% of the SME financing opportunity in India is concentrated in 25 such clusters and RFL has systematically built its branch network to cover all these locations - as at March 31, 2015, RFL's network comprised 28 branches across 13 states and one Union Territory. In addition, RFL conducts business in clusters that are in proximity of those where it has a branch using the hub-and-spoke model and in this manner services markets where it does not have a branch brsence. RFL has developed robust and combrhensive infrastructure to ensure that all critical processes - including credit assessment, risk management, collections and recoveries - are performed in-house and has made substantial investments towards building best-in-class infrastructure to support its business operations.

Operational Performance

After holding the balance sheet flat two years in a row, during the year, RFL increased disbursement significantly to Rs.71.56 billion, taking the total loans and advances (net of repayments and assignments) to Rs.144.30 billion as at March 31, 2015 from Rs.114.85 billion at the end of the earlier year.

A majority of the total disbursements were accounted for by SME-Secured and SME-Unsecured, which saw disbursements of Rs.53.48 billion and Rs.8.94 billion respectively. RFL's approach of picking credit selectively after a rigorous assessment process has stood it in good stead: gross non-performing assets (90-day basis) as at March 31, 2015 stood at 2.24% and net non-performing assets (NPAs) stood at 1.69% - levels that compare very favourably versus the industry. RFL recognises customer accounts as NPAs at 90 days past due, in a manner similar to banks, which is more stringent than the norm of 180 days past due required of NBFCs by RBI.

Balance Sheet Strength and Credit Ratings

RFL is extremely well-capitalised and has a strong balance sheet: shareholders' funds as at March 31, 2015 (including retained earnings) amounted to Rs.23.77 billion and balance sheet size stood at Rs.171.30 billion. As a testament to the strength of RFL's balance sheet, short-term debt issued by RFL has received the highest credit rating while RFL's long-term debt is rated at the equivalent of 'AA-'. The following table lists the ratings on RFL's debt as at March 31, 2015:

Affordable Housing Finance

RFL's subsidiary RHDFC is licenced by National Housing Bank (NHB) as a Housing Finance Company (HFC) and has reoriented its focus to providing loans for acquisition, construction and repair of dwelling units in the affordable housing segment. The "Report on Trend and Progress of Housing in India, 2013" by NHB estimates a total deficit of 43.9 million dwelling units in rural India and 18.8 million dwelling units in urban India with 95% of the deficit in the urban areas being in the affordable housing segment. This gap between the demand and supply needs to be closed rapidly if the aspirations of a fast-growing nation are to be met, and has created an enormous opportunity for funding of affordable housing. The ability to assess the credit-worthiness of potential borrowers is crucial for succeeding in this segment; robust credit assessment processes position RHDFC extremely well to capitalise on this opportunity.

Adding to its existing distribution network in Delhi NCR and Rajasthan, during the year RHDFC has expanded into three more states - Maharashtra, Gujarat and Madhya Pradesh - geographically contiguous with its existing markets and operates through 14 branches as at March 31, 2015.

During FY2014-15, RHDFC disbursed loans totalling 72.90 billion in the affordable housing segment, and the corresponding total loans outstanding as at March 31, 2015 stood at 74.26 billion. While the absolute size of the affordable housing loan book is modest, RHDFC is gaining critical scale and is set to make a meaningful impact in its target segment.

Capital Markets & Wealth Management

The Capital Markets & Wealth Management vertical comprises the Retail Broking (equity, commodity and currency), Institutional Equity Broking & Investment Banking, and Wealth Management businesses.

Retail Broking

The Retail Broking business facilitates trading and investment in equities and equity derivatives, currencies and commodities for its clients and is operated by RSL and its subsidiaries.

Retail Equity Broking: The retail equity broking business is operated by RSL, our wholly owned subsidiary. RSL is a member of the National Stock Exchange of India Limited (NSE), BSE Limited (BSE, formerly the Bombay Stock Exchange) and Metropolitan Stock Exchange of India Limited (MSEI) in cash equities, futures & options and currency derivatives segments. In addition, RSL is a Depository Participant with the National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL) which facilitates smooth settlement of clients' delivery-based transactions.

Retail Currency Broking: Trading in currency futures and options allows clients to hedge their capital and trading exposures in currencies other than the Indian rupee. These products are offered by RSL as a member of the currency segment on NSE, BSE and MSEI. Currently, the exchanges permit futures trading in four currency pairs, viz. US dollar-Indian rupee, Euro-Indian rupee, Pound Sterling-Indian rupee and Japanese yen-Indian rupee, and options trading in the US dollar-Indian rupee pair.

Retail Commodity Broking: RCL, a wholly owned subsidiary of RSL, is registered with the Forward Markets Commission (FMC) and is a member of the two major electronic commodities futures exchanges in India, viz., Multi-Commodity Exchange of India Limited (MCX) and the National Commodities & Derivatives Exchange Limited (NCDEX). Exchange-based trading of futures in various agricultural products, bullion, metals and oil & gas provides producers, end-users and intermediaries who are exposed to price risks in these commodities, a platform for locking-in future prices and thereby hedging their exposures. Furthermore, commodities have emerged as an alternative investment avenue to investors who are willing to deploy their capital in such commodities. RCL has established a brsence in various agricultural markets ('mandis') and centres where physical trading in other commodities takes place in addition to financial centres where investors are concentrated to facilitate hedging of price risks and to provide a convenient means of investing in an emerging asset class.

Commodities Trading: Religare Comtrade Limited (RCTL, formerly known as Religare Bullion Limited), a wholly-owned subsidiary of RCL, is engaged in trading of various commodities, both in physical form as well as by way of exchange-traded contracts. RCTL typically takes offsetting positions in the physical and exchange-traded markets to benefit from differences in prices in the two prices; operating on a hedged basis, RCTL does not assume price risk.

Ancillary Services: RSL is also a TIN (Tax Information Network) and PAN (Income Tax Permanent Account Number) facilitation partner of NSDL and offers services relating to PAN, TAN, and filing of TDS/TCS (Tax Deduction at Source/Tax Collection at Source) returns at select branches, to help its customers fulfil their major financial services needs under a single roof. RSL is also empanelled with Unique Identification Authority of India as an Enrolment Agency for generation of AADHAR, with E-mudra as Registering Authority/ Agent for issuance of Digital Signature Certificate and is an AMFI registered mutual fund distributor. In addition, RSL distributes life insurance and health insurance products as a corporate agent for AEGON Religare Life Insurance Co. Ltd. and Religare Health Insurance Co. Ltd. Respectively.

The services of the Retail Broking business are targeted at various categories of non-institutional investors, including high net worth individuals and family offices, high-volume traders and arbitrageurs, savvy mass affluent investors and occasional investors. To meet the trading and investing needs of such a diverse set of clients, the business has developed product propositions for every type of client, ranging from personalised full-service offerings for high net worth individuals to execution-only services that operate without any face-to-face contact for occasional investors. Religare is the pioneer of building a nation-wide network of branches to reach out to investors and this continues to remain a major strength: as at March 31, 2015, the physical brsence of the Retail Broking business comprised 1,494 branches, of which 192 are owned branches and 1,302 are Business Partner locations.

Religare has always been at the cutting edge of trading technology. In addition to the "brick-and-mortar" branch channel, the Retail Broking business provides its clients the ability to trade over the phone ("Call-N-Trade"), on the internet (through its portal www. religareonline.com) and using feature-rich apps on the leading mobile phone platforms. RSL has entered into tie-ups with various banks - known as the 'Bancinvest' channel - whereby RSL provides online trading facilities to the banks' customers by integrating RSL's trading platform with the banks' internet banking platform. RSL's partner banks currently include Andhra Bank, Bank of Maharashtra, Corporation Bank, Dhanlaxmi Bank Limited, IndusInd Bank Limited, Karur Vysya Bank Limited, South Indian Bank Limited, Tamilnadu Mercantile Bank Limited, UCO Bank and Union Bank of India, and RSL continues to expand its Bancinvest partnerships.

Operational Performance

The equity market was largely on an upswing during FY2014-15 with trading volumes dipping only in the last quarter of the financial year. The share of the lower-yielding Futures & Options segment within overall market turnover continued to be high at 89% and the share of the better-yielding cash equities segment stood at 11%, with adverse implications for blended yields. RSL's market share moved in a narrow band during the year and was approximately 1.44% for the year.

The commodities market continued to reel under the impact of the regulatory actions taken earlier and the crisis in one segment of the market which had affected investor confidence. During FY2014-15, the commodities market turnover was largely flat. However, RCL continued to focus on providing exceptional services to its clients and maintained its market share at around 3.2% by the last quarter of the financial year.

Over the last few years, the industry has undergone structural changes and in response to the changing structure of the industry, our Retail Broking business has altered its operating model to become an asset-light, flexible and brdictable business. During the year, we continued to carry out incremental consolidation of our branches and also re-evaluated a large number of our Business Partner relationships. Consequently, the number of our owned branches was further reduced to 192 as at March 31, 2015, as against 201 at the end of the earlier year, and the number of Business Partners stood at 1,302 and 1,391 respectively. However, the distribution footprint has not been compromised and our Retail Broking business continues to be brsent in 474 cities and towns, and services over 950,000 unique customers. As a result of moving to a more flexible operating model and the focus on diligent execution of our strategy, our Retail Broking business has attained structural profitability.

RSL continues to have a strong balance sheet and enjoys the highest short term credit rating of [ICRA] 'A1+' for an amount of 79 billion which denotes very strong degree of safety regarding timely payment of financial obligations which carry lowest credit risk. RCL and RCTL also enjoy the highest short term credit rating of [ICRA]'A1+' for an amount of 70.25 billion and 73 billion respectively.

Wealth Management

Our wealth management business is operated by RWML, a 100% subsidiary of RSL. RWML is an open-architecture, advisory-led wealth management platform: it seeks to keep clients' interest first by not exclusively distributing the products of a specific provider but identifying products that suit the client the best by assessing the client's needs on an ongoing basis. Right in its formative days, RWML created a new niche in the wealth management space - between the top-end and the mass market - and continues to focus on servicing this growing segment

Operational Performance

FY2014-15 was the first full year of RWML after having been fully integrated with the rest of Religare. During the year, RWML leveraged the capabilities offered by companies across the group, notably institutional equity research, which has helped provide timely and meaningful inputs to clients. RWML also launched a new offering during the year - 'RPW Select', a brmium offering consisting of enhanced services and senior management attention for clients committing assets under management above a certain level.

The capital markets were buoyant through most of the financial year resulting in strong momentum in equity products with significant mobilization across equity mutual funds and portfolio management schemes. However, change in tax guidelines on debt mutual funds mid-year dampened fresh allocation to the category. RWML continued to focus on building a concept driven approach in positioning products to clients, resulting in RWML being able to maintain momentum on both deepening relationships with existing clients and on-boarding new relationships. The business has increased share of client wallet through holistic portfolio approach and enhanced engagement through innovative product offerings/ideas. RWML had 4,549 clients and total AUM of 744.0 billion as at March 31, 2015.

Institutional Brokerage & Investment Banking

Our institutional brokerage and investment banking business is operated in India by RCML and overseas by RCML's subsidiaries registered in various jurisdictions. RCML has brsence in 8 countries in Asia including through partnerships with regional securities and advisory firms. In India, RCML is registered with NSE as a multiple member in the cash segment and as a 'Self Clearing and Trading Member' in the derivatives segment, and with the BSE as a member in the cash segment. RCML is also registered as a Category I Merchant Banker with SEBI. RCML's subsidiaries are registered with or licenced by the local regulators in the jurisdictions they operate.

RCML provides research and sales & trading services to asset management companies, pension funds, insurance companies, endowments and hedge funds around the world. RCML's institutional broking business is empanelled with over 490 clients globally as at March 31, 2015. RCML's institutional research team possesses rich experience and provides combrhensive research for institutional investors in the Indian and Asian markets, covering more than 160 companies in India and Asia. In addition to stock-specific research, RCML publishes research on investment strategy and economics and also produces thematic reports for its clients. RCML has lately gained recognition for providing high-level corporate access to its institutional clients and for organising themed events that help clients gain insight into the functioning of Indian businesses and the Indian economy.

On the investment banking side, RCML has developed strengths in advisory as well as equity/debt capital markets services. RCML's capabilities extend to areas such as mergers and acquisitions advisory services, corporate restructuring advisory services, public equity offerings, convertible bond offerings, institutional placements and private placements. RCML's investment banking professionals maintain relationships with businesses, private equity firms, other financial institutions and high net worth individuals and provide them with corporate finance and investment banking advice.

Operational Performance

RCML was instrumental in concluding a few noteworthy transactions during the year. RCML was the Book Running Lead Manager on 73.5 billion IPO of Monte Carlo Fashions Limited - which was among the first few IPOs to hit the market during the upswing. This was an extension of the private equity investment into Monte Carlo Fashions originally arranged by RCML in 2012. In addition, RCML successfully completed the QIP program of 72 billion for Ashiana Housing Limited and of 74 billion for Sequent Scientific Limited.

Outside India, RCML executed a number of equity capital markets (ECM) and Advisory mandates in the ASEAN region through cutting edge idea generation, strong global distribution and seamless execution despite challenging markets. RCML completed the SGD 90 million accelerated book-build placement for Soilbuild Business Space REIT, as Joint Placement Agent, which was the first S-REIT placement on the Singapore Exchange for the year. RCML acted as financial advisor to two stake sales in the ASEAN region: 60% stake sale of StreetSine Technology Group to Singapore Press Holdings and TPG's sale of its 17.5% stake in PT BTPN, Indonesia.

Asset Management

The Asset Management vertical comprises India asset management and global asset management services.

India Asset Management

Religare Invesco Asset Management Company Pvt. Ltd. (RIAMC), 51% owned by Religare, is the investment manager for the Religare Invesco Mutual Fund, offering various debt-oriented, equity-oriented, hybrid and fund-of-fund schemes, and exchange-traded funds, as also discretionary and non-discretionary (advisory) portfolio management services (PMS). During FY2012-13, Religare inducted Invesco Limited, a leading global investment management firm headquartered in the US as a partner in RIAMC with 49% equity. Invesco has operations in over 20 countries, provides a wide range of investment strategies and vehicles to retail, institutional and high net worth clients sbrad across more than 150 countries and had assets of USD 798.3 billion under management globally as at March 31, 2015.

Operational Performance

RIAMC closed FY2014-15 with domestic mutual fund assets of 7210 billion (average for the fourth quarter of the financial year), growth of 45% year-on-year. In addition, RIAMC managed 73.52 billion in Domestic PMS and advised 730.7 billion of offshore funds invested in India. As at March 31, 2015, RIAMC had a total of 202,974 active investor folios. Two schemes from Religare Invesco Mutual Fund - the Religare Invesco Credit Opportunities Fund and the Religare Invesco Infrastructure Fund - have 5 Star rating from Value Research while another five schemes were 4 Star rated.

Global Asset Management

We have established a multi-boutique asset management business that provides investors investment avenues in various alternative asset classes. We made our initial foray in the alternative asset management space by acquiring two leading alternative asset managers in the US, subsequently seeded a Business Trust in Singapore and are now in the process of establishing multiple alternative asset managers in India.

Our wholly-owned step-down subsidiary, Religare Global Asset Management Inc. (RGAM Inc.) is the holding company for asset managers acquired by Religare in the US and is registered with the United States Securities and Exchange Commission as an investment advisor. RGAM Inc. has been founded on the strong belief that that several factors are key to success in the alternative asset management business, including: (a) the ability to offer proven investment capabilities and services of the highest institutional quality; (b) the alignment of investment strategies and products with macro trends in the industry; (c) a senior management team of committed professionals with a shared strategic vision and a strong desire to build the franchise; and (d) sufficient equity ownership and alignment among management to operate as principals and partners of the business, and not as "agents" of the equity owners. RGAM Inc.'s philosophy as a majority owner of an asset management firm is to be passive with respect to the day-to-day execution of the investment strategy. RGAM Inc.'s limited involvement in the governance structure for its affiliates is designed to brserve the autonomous operating nature and unique culture of each affiliate. RGAM Inc. has acquired controlling interests in two US-based alternative asset managers, viz., Northgate Capital and Landmark Partners.

Northgate Capital: Northgate Capital is a leading provider of 'customizable' fund-of-fund investment solutions that allocates investor capital among a range of high-quality underlying venture capital and private equity funds. In addition to fund-of-fund structures, Northgate also offers direct investment funds. Founded in 2000, the firm has successfully raised and deployed 22 funds across developed and emerging markets. Northgate provides its investors with access to those managers and direct company investments that can be difficult to access or even identify. Northgate capitalizes on its proprietary due diligence process and industry relationships that have been developed by its senior management team over the past decade. It has offices in San Francisco, London, Hong Kong, Mexico City and New Delhi. Northgate manages approximately USD 4.4 billion of committed assets on behalf of institutional and high net worth investors.

Landmark Partners: Landmark Partners is a leading global alternative investment management firm specializing in the acquisition of private equity and real estate limited partnership interests in the secondary market. Founded in 1989, Landmark has formed 29 funds focused on venture capital, buyout, mezzanine and real estate limited partnership interests. These funds have been deployed across 1,700 partnership interests that comprise 16,000 underlying company and property interests. The partners have an average of 15 years at the firm, a cumulative 183 years working together. Landmark was recognized by Private Equity International as the North American Secondary Firm of the Year five years running - from 2009 to 2013. In addition, Landmark was recognized by PERE as the North American Real Estate Fund-of-Funds/Secondary Firm of the Year for 2011. The firm is headquartered in Simsbury, Connecticut with offices in Boston, Massachusetts and London. Landmark manages approximately USD 15.1 billion of committed assets primarily on behalf of institutional investors

During the year, Landmark Capital concluded the process of raising its next set of funds which has met with great success and added substantially to the quantum of assets under management.

In addition to majority ownership of Northgate and Landmark, RGAM Inc. holds a strategic 40% equity stake in Investment Professionals Limited (IPRO), Mauritius. Established in 1992, IPRO is regulated by the Financial Services Commission (Mauritius) and is today a leading investment and portfolio manager on the island with over USD 340 million in AUM. IPRO has significant investment interests in Sub-Saharan Africa which have been augmented through its office in Botswana.

We promoted Religare Health Trust Trustee Manager Pte Limited (RHTTM), which is the Trustee Manager of the Religare Health Trust (RHT), a Business Trust that was listed on Singapore Stock Exchange in October 2012 through an IPO. RHT is mandated to invest in medical and healthcare infrastructure assets and services in Asia, Australia and emerging markets in the rest of the world and as at March 31, 2015, had total assets of approx. SGD 766 million (USD 558 million) as against SGD 705 million at the end of the earlier year.

With a view to establishing a brsence in the alternative assets space domestically in India, we are promoting new asset managers that will develop various categories of alternative investment products. The first of such products was the Religare Credit Opportunities Fund, a SEBI-registered Category-II Alternative Investment Fund (AIF), which was launched for subscription around the end of last financial year. This fund is managed by Religare Credit Advisors LLP, a wholly-owned step-down subsidiary of REL. We are in the process of developing more such products for the Indian market. To that end, during the last quarter of the financial year, we acquired 26% stake in YourNest Capital Advisors Pvt. Ltd., which manages the YourNest Angel Fund, an early stage venture capital fund.

Insurance

Health Insurance

Religare Health Insurance Company Limited (RHICL) is our subsidiary that is licenced by the Insurance Regulatory and Development Authority of India (IRDA) to offer health insurance and related products. Two leading public sector banks, viz., Corporation Bank and Union Bank of India, are co-promoters in this venture holding 5% equity each. RHICL has been formed to capitalise on the vast opportunity in the health insurance space in India, stemming from low insurance penetration (high proportion of out-of-pocket expenditure by patients) coupled with the fast rising cost of medical treatment.

RHICL launched its products in July 2012 and totally has 8 approved products spanning retail health, group health, excess of loss, maternity, travel insurance, personal accident and critical illness policies and various riders. RHICL is developing a multi-channel distribution model with a view to building a balanced revenue contribution from the direct, agency, bank and alternate channels. Designing innovative products to address unmet customer needs and providing superior customer service experience have been the key tenets of doing business for RHICL: besides enabling this through a state-of-the-art technology platform that RHICL has developed, RHICL has since inception managed claims for all retail policies in-house as the claims experience is the chief determinant of the customer's perception of the insurer.

Operational Performance

FY2014-15 was the second full year of operations for RHICL and it garnered Gross Written Premium of Rs.2,758 million during the year as against Rs.1,523 million in FY2013-14, rebrsenting growth of 81%. RHICL crossed the Rs.1 billion GWP mark in the last quarter of the financial year. As at March 31, 2015, RHICL covered around 2.7 million lives through its individual and group health products, and mass insurance schemes. Over 4,400 hospitals have been enrolled for providing cashless treatment to the insured. RHICL has established a pan-India distribution network of 46 offices. RHICL's operational processes have stabilised, and despite the recent vintage of the business, the ratio of claims on earned brmium for FY2014-15 stood at around 61%, indicating that even at the current scale, the business being underwritten is of good quality. During the year, RHICL launched three new products, including 'Explore' (overseas travel insurance), 'Secure' (individual personal accident insurance) and 'Joy', one of its kind maternity and new born cover.

Life Insurance

We operate our life insurance business through AEGON Religare Life Insurance Company Limited (ARLIC), a joint venture with AEGON N.V. REL and AEGON own 44% and 26% equity respectively in ARLIC and Bennett, Coleman & Company Limited (BCCL) is also an investor in the venture.

ARLIC is a provider of insurance and pension products licensed by IRDA and offers a variety of traditional products (including non-participating individual plans, participating individual plans, participating pension plan, health plans and group plans) and unit-linked products (including unit-linked life plans and unit-linked group gratuity plan). ARLIC operates through multiple distribution channels - agency, alternate, and direct - and has been a pioneer of direct online distribution in India, an area in which it has gained much recognition.

During the year, we undertook a strategic review of the joint venture and found that changes in regulations have altered the expected return profile of the business in its current form such that they no longer meet our return expectations. Based on this assessment, we have exbrssed our desire to exit the venture. On May 8, 2015, we entered into a definitive agreement with BCCL to acquire our entire stake in the joint venture. The proposed transaction is subject to regulatory approvals.

Operational Performance

ARLIC crossed total brmium income of 75 billion and sold over 65,000 new policies during FY2014-15, taking the cumulative number of lives covered since inception to around 383,000. As at March 31, 2015, ARLIC has a pan-India distribution network with brsence in 54 locations across 22 states of India. During the year, ARLIC launched several innovative products, including the 'AEGON Religare iMaximize' plan, an online unit linked product with zero allocation charges, and 'AEGON Religare Premier Endowment Insurance' plan, a traditional participating plan which guarantees annual increase in sum assured.

Note: REL, RCML and RHC Holding Pvt. Ltd. (a Promoter Group company) have entered into a tripartite agreement that places severe long term restrictions on RCML, significantly impairing its ability to transfer funds to REL. Owing to this restriction RCML's consolidated financial statements have been excluded from REL's consolidated financial statements since October 1, 2011.

Our income from operations was Rs.41,045.82 million for the FY2014-15, as compared to Rs.33,438.01 million for the FY2013-14, rebrsenting an increase of 22.75%. We recorded 'Profit before Exceptional Items & Tax' of Rs.4,852.06 million for FY2014-15 as compared to 'Profit before Exceptional Items & Tax' of Rs.2,631.04 million for FY2013-14. Profit for FY2014-15 was Rs.1,537.94 million as compared to Loss for FY2013-14 of 7692.94 million. Consequently, we reported basic profit per share of Rs.8.56 in FY2014-15 as against basic loss per share of 75.20 in FY2013-14. The growth in income from operations and improvement in profitability have been contributed by the underlying performance of the various segments and have been analysed below.

Segment-wise Performance

Our income from operations largely comprises of income from our SME lending activities and capital market financing facilities, management fees received under our asset management services, income from insurance brmium, commissions from securities and commodities trading, income from depository operations, recovery of transaction fees from clients, distribution of financial products such as insurance, mutual funds, bonds and retail subscriptions for IPOs, income from arbitrage and trading of securities and derivatives, interest on fixed deposits with banks, profit on sale or redemption of investments and dividend income

Income from Lending Activities

Our subsidiary RFL, being an NBFC, offers lending products. The interest income from our financing operations increased by 10.33% to 720,609.70 million for FY2014-15, constituting 49.22% of our total income from Rs.18,679.73 million for FY2013-14, constituting 53.81% of our total income. Below is a comparison of the constituents of income from financing activity in Fiscal 2015 and Fiscal 2014:

SME Lending

SME-Secured: Interest income from SME-Secured portfolio increased by 26.27% to Rs.11,905.85 million for FY2014-15 as compared to Rs.9,428.55 million for FY2013-14 primarily due to increase in average book size. Total Book Size (net of repayments & assignments) as at March 31, 2015 was 7102.50 billion as compared to 770.12 billion as at March 31, 2014. SME-Secured is a well-diversified portfolio covering customers from over 70+ different industries. The product is well secured with asset coverage of around 2x.

SME-Unsecured: The revenue generated through this activity increased to 71,646.07 million constituting 3.93% of our total income for FY2014-15 from 71,515.55 million constituting 4.37% of our total income for FY2013-14 primarily due to increase in average book size. Total book size (net of repayments & assignments) as at March 31, 2015 was 711.12 billion.

Others: 'Others' rebrsents the erstwhile SME-Commercial Assets business line which has been discontinued. Interest income from 'Others' was Rs.325.32 million for FY2014-15 as compared to Rs.755.79 million for FY2013-14. Interest income decreased in FY2014-15 as the product has been discontinued and book size (net of repayments & assignments) decreased from Rs.4.11 billion as at March 31, 2014 to 71.50 billion as at March 31, 2015.

Capital Market Financing: Interest income from our capital markets financing activities was Rs.2,491.43 million for FY2014-15 as compared to Rs.2,675.91 million for FY2013-14 primarily due to decrease in the average book size.

Income from Investment Management & Advisory Fees

Income from Investment Management and Advisory Fees increased from 76,569.73 million for FY2013-14 to 78,980.14 million for FY2014-15 primarily due to an increase in RGAM Inc. on account of higher catch up fees on periodic closure of certain funds in one of the affiliates.

Income from Insurance Premium

Income from Insurance Business increased by 44.52% to Rs.3,839.83 million for FY2014-15 from Rs.2,656.89 million for FY2013-14 primarily on account increase in scale of operations. RHICL's Net Earned Premium was Rs.1,537.23 million during FY2014-15 as compared to 7816.44 million during FY2013-14 and Religare's share of ARLI's brmium income was Rs.2,343.68 million during FY2014-15 as compared to Rs.1,891.64 million during FY2013-14.

Broking Related Operations

Our brokerage business receives commissions for equities, derivatives and commodities traded on the exchanges on behalf of clients; earns fees from distribution of third party products such as mutual funds and insurance; generates income from depository operations; and recovers transactions fees from clients.

The income arising out of our broking activities increased by 26.93% to 72,999.44 million for FY2014-15 constituting 7.16% of our total income from Rs.2,363.12 million for FY2013-14, constituting 6.81% of our total income. Tabulated below are the details of constituents of our broking income.

Equities & Currencies: Our income from equity & currency broking operations increased by 33.42% to Rs.1,803.50 million for FY2014-15 from Rs.1,351.75 million for FY2013-14 as the overall market conditions improved during the year.

Commodities: The revenue from our commodities broking activities has decreased from 7357.82 million for FY2013-14 to Rs.260.62 million for FY2014-15 primarily due to a 7% decrease in average daily turnover.

Income from Non-Current and Current Investments

Income from Non-Current and Current Investments increased to Rs.2,330.14 million for FY2014-15 as compared to Rs.1,321.44 million for FY2013-14 primarily due to increase in profit on sale/redemption of investments and interest income on investments.

Other Income

Other income primarily includes balances written back/bad debts and loans written off recovered, transfer/gain on revaluation/change in fair value, rental income etc. Our other income decreased to Rs.828.14 million during FY2014-15 constituting 1.98% of our total income for such period as compared to Rs.1,279.00 million for FY2013-14 constituting 3.68% of our total income for such period. Below is a comparison of the components of our Other Income during FY2014-15 with that in FY2013-14

4. Human Resources - Contribution to Business Success

Over the years, the Human Resource function has focused on building a meritocratic culture where high performance is suitably rewarded and our strong belief in people being key differentiators has helped us in achieving business objectives with a stable middle and top management team. This year we focused on creating synergies within the organisation at all levels. Group wide employee engagement activities, strong and robust performance management system, reward and recognition programs to boost employee morale, celebrate successes and retain employees have been the key delivery areas. Governance across management levels including the Boards of our subsidiaries has also been an area of unwavering focus.

Your company has been successful in attracting high quality talent through multiple channels (employee referrals, recruitment agencies, job portal, social networking sites, train and hire model and brmier campuses) and a rigorous selection process is followed for hiring, especially at the leadership level. As at March 31, 2015, we had a team of 5,824 dedicated professionals across our operating subsidiaries and joint ventures. The organisation has a robust performance management system to facilitate goal setting and mid-term as well as annual appraisal process for each and every employee based on the Balance Scorecard approach on the online HR system. We have also created a strong bench for leadership roles in the organisation through mentoring, job rotation and challenging assignments and are thus able to fulfil leadership positions from within the group by elevating high performers to take up new roles. Adherence to various HR policies, alignment to organizational culture and values and efficacy of organisation structure across businesses are monitored and supported by the group HR leadership for superior business performance and higher employee engagement and satisfaction levels. Our continuous attempt has been to provide employees with challenging roles, opportunities for learning and growth, an enabling work environment, relevant training and performance support through various existing and new HR initiatives.

During the year, we further invested in our HR technology platform and upgraded the system to make it more robust and flexible to cater to different business needs. We have been able to provide differentiated technology solutions to businesses as per their needs.

The Human Resource function has been a strategic enabler for the business and is committed to protect the interest of all stakeholders in our journey to build a profitable and world class business.