MANAGEMENT DISCUSSION & ANALYSIS REPORT

ECONOMIC SCENARIO

Indian markets have witnessed a buoyant trend that indicates better profit growth prospects for 2015. This seems to be the start of a golden era. not just for the markets, but also the Indian economy. Many factors have fallen into place for Indian markets and the economy. India is the only major country that is projected to see a pickup in growth moment um. The governments initial estimates for Fiscal Year 2014 (ending 31 March 2015) show that economic growth accelerated to 7.4%. Growth in the gross domestic product is expected to accelerate to 7.8% in FY 2015 on improved performance in both industry and services as policy addresses structural bottlenecks and external demand improves. Growth is expected to edge up further to 8.2% in FY 2016. helped by a supportive monetary policy in 2015, as inflation continues to trend lower and by a pickup in capital expenditure. In this scenario, the Non-Banking Finance Companies (NBFC) sector has scripted a story that is remarkable. It speaks to the truly diverse and entrebrneurial spirit of India. There has been greater recognition of the role of NBFCs in financing India's growth in the recent past, even as global debates on systematic risks arising from non-banks have travelled to Indian shores and led to somewhat fundamental shifts in the policy environment governing NBFCs. Much public discussion and regulatory action later, clarity regarding goals and signposts of public policy have emerged. For the industry, there are some costs associated with greater regulations, but the opportunity of being a well regulated participant in the financial system is likely to outweigh the costs in the long run. We believe that some shadow zones persist in the regulatory landscape, but there is enough clarity for NBFCs to define their way forward.

INDUSTRY OUTLOOK

FY2014-15' has been a tough year for the NBFC sector as the business has greatly suffered in the subdued environment. NBFCs specifically the ones with high exposure in lending against commercial vehicles and construction equipment have recorded high NPA's mainly on account of stagnation on infrastructure development, stunted growth, rash law making, bad political environment and higher level of stressed business.

Additionally. India's Apex Bank also has tightened rules for so-called shadow banks', raising minimum capital requirements and restricting deposits. However, the revised RBI regulations for NBFCs have been formed with the purpose of strengthening the financial system and to bring the norms in line with those of banks. It is to reduce the systematic risk they pose to the financial system and arc aimed to improve NBFCs capacity to endure asset quality shocks.

Nevertheless, the outlook for the sector over next year looks comparatively better on account of positive trend of growth in economy which is expected to boost credit demand. This along with revival of certain infrastructure projects, which have been cleared by the cabinet committee in recent months, pick-up in industrial growth and corporate investments also is expected to benefit most of the commercial assets financed by the NBFCs and is expected to ease the brssure on the cash flows of their borrowers through enhanced utilization of their assets. Last, but not the least, the sector would ulso be looking forward to Budget 15-16 with industry body, CII pitching forgiving NBFCs, bank like tax benefit in its Pre-Budget Memorandum to the Ministry of Finance.

OPPORTUNITIES & THREATS

The Reserve Bank of India (RBI) recently issued a slew of regulatory changes to tighten rules and bring about a level playing field between non-banking finance companies (NBFCs) and banks. In a nutshell, NBFCs will now have to maintain higher capital, recognize bad loans earlier and increase their provision on bad loans.

But despite the more stringent norms, this space continues to offer good opportunities for investors. For one, the new regulations have ended the uncertainty over how the RBI will address the iniquity arising from the regulatory advantage that NBFCs have been enjoying over banks. Two, over the long run. a better regulatory framework to mitigate risk, improve disclosures and strengthen governance standards will also reduce the perceived risks of NBFCs.

Lastly, and more importantly, while most of the changes have been in line with earlier recommendations, the additional time given by the RBI to comply with these norms comes as a relief for the sector.

Newer regulatory updates pose a constant challenge for smooth operations of the Company. With constant updates governing the functional aspects of financial institutions, there lies an unseen challenge in the coming years. Higher cost of funds might lead to reduced bottom-line for the Company. Also, a lesser interest sbrad, or higher cost of lending might lead to customers turning away to cheaper source of funds.

RISKS & CONCERNS

NBFCs have been playing a crucial role in terms of the macroeconomic perspective as well as strengthening the structure of the Indian financial system. Consolidation in the sector and better regulatory framework for NBFCs has helped them become more focused. However, in the real world of competition, NBFCs have to focus more on their core strengths and must constantly endeavor to search for new products and services in order to survive and grow constantly. The risk weights to be applied by banks for capital adequacy purposes also take into account the credit ratingof the borrower. This provision is not available for NBFCs even though banks and NBFCs operate in the same macroeconomic environment. Even in respect of secured lending / investments where the quality of security is similar to that of banks, no differentiation in risk weights is allowed for NBFCs. To add to their difficulties, the draft NBFC guidelines proposed higher risk weights for exposure to capital markets and the commercial real estate sector. The NBFC industry has long been requesting revision in the allocation of risk weights and introduction of norms similar to those brscribed for banks. Restrictions on debentures funding, securitization and loss of Priority Sector status to on-lending through NBFCs will continue to constrain the funding ability of the NBFCs.

INTERNAL CONTROL SYSTEM

The Companies Internal control/supervisory system is established to ensure that board and management are able to achieve their business objectives in a prudent manner, safeguarding the interest of Companies shareholders and other stakeholders whilst minimizing the key risk such as fraud, misleading financial statements, breach of legal and contractual obligation, unauthorized business activity. Further details have been disclosed in Board's report.

HUMAN RESOURCE

Your Company follows a strategy of attracting and retaining the best talent and keep employees engaged, motivated and innovative. The Company continues to have cordial relations with its employees and provide personnel development opportunities for all round exposure to them.

FINANCIAL & OPERATIONAL PERFORMANCE

Financial and Operational performance forms part of the Annual Report and is brsented elsewhere in the report.

CAUTIONARY STATEMENT

Some of the Statements in Management discussion and Analysis describing companies objective may be "forward looking statement" within the meaning of applicable Securities law and Regulations. Actual results may differ substantially or materially from those exbrssed or implied. Important factors that could influence companies operation include various global and domestic economic factors.