Indian banking scenario and RBIs new avatar

To an activist like me, the greatest loss is the fall in the quality of banking services to the smaller customers, more particularly the elders, disabled, home maker-women, widows and pensioners Any right thinking Indian will certainly question the wisdom of the Raghuram Rajan, the newly appointed governor of Reserve Bank of India (RBI) mooting a proposal to allow foreign banks to take over our over century old domestic banks. The situation is so bad overseas that our veteran bankers can do well to manage over the badly performing foreign banks. The statement in Washington on unveiling major banking reforms that will entail allowing foreign banks to take over domestic banks has rightly raised heckles across the country. Bharatiya Janata Party (BJP), the main opposition party, has come out with a strong statement to say that this goes contrary to the Centres stand that its policy of nationalisation of banks will not be reversed. Are we importing a financial crisis? The decade-old experience of foreign banks in India is that they only compete with Indianbanks in the creamy business segment. Their contribution as far as financial inclusion is concerned is very minimal and below expectations. Even on the concept of new private banks the issue needs to be debated. The All-India Bank Employees Association states that they strongly oppose proposals aimed at take overs as they are against our countrys interest. At present 80% of the banking sector in India is under the public sector, 15% under private sector and only 5% are foreign banks. The foreign banks have never contributed to Indias economic growth and development they are only interested in profits Some of these have been involved in various scams in the past and their licences ought to have been cancelled. The experience of the US and other countries shows that liberalised banking has led to crises and

collapse of banks. In the US alone hundreds of banks have shut down and the US Government had to bale out the bigger banks. Over the years, our banking has been robust enough to withstand the Great Depression, the Far East crisis, the Mexican crisis, and the 2008 sub-prime meltdown. How much the nationalisation of major banks contributed to this is still a matter of debate, not many are willing to concede that the great state bailout of the US, British and Irish banks is indeedBackdoor Nationalisation, giving rise to the lesson that governments will not let banks die and tax payers monies will be used to rescue them from their greed. Comforted by this, banks all over continue to innovate financially the ways to transform themselves from traditional deposit-taking retail undertaking, solely guided by their responsibility to their main stakeholders, the depositors and as facilitators of credit for trade and industry and underprivileged through inclusive growth, into universal banks. In the US, Lehman Brothers aggressive loans to sub-prime borrowers became stressed assets and required a massive bailout by the state. JP Morgan agreed to pay the UK and US regulators $920m for the $6.2b London Whale trading fraud. HSBC, Britains biggest bank, was accused by the US Senate for abetting money laundering by drug cartels and gun runners running into billions. In 2012, Barclays was fined for LIBOR manipulation and the Swiss UBS was hauled up for tax evasion. The big banks in the UK and Switzerland are mired in major scandals with the US Treasury and regulators imposing massive penalties running into billions and jail terms for violations for offences as bad as cross border money laundering. In the latest money laundering sting operations in India the foreign banks were also caught with their pants down. A Deutsche Bank staff e-mail in 2007, that is cited in Unitechs court documents filed in the London court on the first day of appeal hearing where the Indian property firm Unitech Ltd is seeking invalidation of the interestrate swap manipulation of the benchmark interest rates with Deutsche Bank

because of alleged rigging of the LIBOR is quite explosive. A similar case is being heard between Guardian Care Homes filed against Barclays Plc. Both Unitech and Guardian state that would not have signed the swap deals with the banks had they been aware of the LIBOR-related misconduct that became a scandal when the London-based Barclays was fined by the UK and US regulators last year. The global probes are on into the banks attempts at manipulation of the benchmark for profit that resulted into fines and settlements totalling $2.6bn for Barclays, Royal Bank of Scotland Group Plc, UBS AG and ICAP Plc. The current Indian scenario Indians, traditionally have inherited a conservative philosophy that is at odds with that propounded by global conglomerates fired by the self-serving urge of super-profits as defining their reasons for existence untouched by the real economic niceties. Basic regulation is a must to ensure that the system doesnt collapsethere is fiduciary responsibility. The economic media carries lively debates on the issue in their editorial pages. Ashoak Upadhyay writing on In banking, dont ape the West points out In its urge to liberate the banking sector from government control and throw it to private players, India seems to have forgotten the lessons of 2008 financial met down in the West. To an activist like me, the greatest loss presently is the fall in the quality of banking services to the smaller customers, more particularly the elders, disabled, home maker-women, widows and pensioners. In the name of computerisation there are delays in dispensing cash, updating pass books, issuing new cheque books, deleting of names of deceased customers, issuing of certificates and statements of accounts; centralised clearance of cheques in bouncing without the dealing branch being aware are blamed on the back office activities. The personal touch of the extremely friendly next door neighbourhood banker is lost for ever with the arrival of these customer un-

friendly e-banking processes. Indians, traditionally, have inherited a conservative philosophy that is at odds with that propounded by global conglomerates fired by the self-serving urge of super-profits as defining their reasons for existence untouched by the real economic niceties. Basic regulation is a must to ensure that the system doesnt collapse - there is fiduciary responsibility. Increasing the role for the private sector in contemporary bankingpros and cons Over the years, Indian banking sector has seen Morarjibhais Social Control to Indiras two phases of outright nationalisation of 14+8 banks, later on Narashima Raos post-liberalisation partial disinvestment and now the invite into mainstream banking of private players and NBFCs (non-banking finance companies), who are the new kids in the bloc. Our financial mandrins do not seem to be at a loss on in how they really want to go about major banking sector reforms. At one point in time, P Chidambaram, the finance minister, was seen to be gaga to strongly campaign for the merger of , big and small, to make them global competitive because our biggest banking behemoth SBI still does not stand high in the pecking order of the worlds TOP 25 commercial banks. Our public sector banks (PSBs), as a group, continue to enjoy a dominant market share of 72%. The finance minister backed by the prime minister have suddenly started ardently espousing with great gusto plans to set up more private banks by business houses. He has got a very reluctant then RBI Governor to draw up the Guidelines. This move has not found favour with 30 member multi-party Parliamentary Committee on Finance headed by Yashwant Sinha, a former union finance minister. The panelunanimously adopted the report on September 27, 2013. It now emerges that Rahul Gandhi and six other Congress MPs (Members of

Parliament) in the committee have alsolent their weight to reverse the government proposal, though in fact they have not appended any note of their dissent. This happened on a day Rahul Gandhi stunned the government by condemning the Ordinance to protect convicted lawmakers from disqualification by coming out with a strong statement - I tell you my opinion on the Ordinance is: That is complete nonsense. It needs to be torn out and thrown away. It is my opinion. Perhaps hell say the same of the finance ministers move too! This Parliamentary Report very rightly urges the government to avoid a recurrence of the pre-nationalisation situation of managements of private banks extending undue favours to their own industry owners Given such a background, the committee is apprehensive that industrial/business houses may not be geared to achieve the national objective of financial inclusion and priority sector lending. It also rightly suggests that industry and banking be kept at arms lengths because banking is a highly leveraged business involving public money and public welfare. It also questioned the RBI criteria of sound credentials and integrity as being highly subjective, ambiguous and openended. The numbers put out by committee are extremely revealing Out of the 12 new banks set up after the 1993 and 2001 RBI guidelines one with serious erosion of net worth had to compulsorily merged with a PSB, two with poor governance amalgamated with other private banks and one started by an individual has survived, albeit with muted growth. This it ought to raise eyebrows. It is said that only 2,699 or just 17% of the 15,630 of their branches are located in rural areas whereas they are competing cheekby-jowl with each other in Mumbai, in some cases with more than one branch of the same private within one kilometre radius. Union Finance Minister P Chidambaram, speaking at a function at Bengaluru on 5 October 2013 said, Banks are meant to serve largely the poor and middle class individuals who need banks more than the corporates...For long we have harboured the myth that banks are meant to provide money to rich people and to corporates. Nowhere in the world, other than India, do corporates come to

banks for working capitalEach of the new banks should aim to serve the people differently and not try to become clones of existing banks. When we are aping all kinds of Western practices the finance minister should instruct the RBI to instruct banks not to extend working facilities. Banks cringe on offering higher rate for the hard earned savings of the elders, disabled, widows and charitable trusts; but in trying to woo rich and corporates offer higher rates for what they term as Bulk deposits that now Rs1+ crore which was Rs15+ lakh earlier. Will the Ministry of Finance insist that the new banks go by what the finance minister says? Not to outdone, the RBI has fielded its executive director, B Mahapatra to argue its stand on allowing private sector operators. He says that the corporates with NBFCs, insurance companies and mutual funds, are already competing with the banks both on the assets and liabilities side. He claims that they have a long history of building and nurturing new businesses in highly regulated sectors like telcom, power, airports, highways, dams and ports. RBI feels that it may not lead to undue concentration of control of banking activities as Indian banking is largely dominated by the PSBs and believes that financial inclusion being the overall objective of the present bank licensing policy that business houses with deep pockets can possibly fill in the gap because financial inclusion is an extremely highly capital and technology project. RBI further envisages that the new banks will usher newer business models, products, processes, and technologies, higher levels of productivity, efficiency and better customer services. It is expected that the existing banks will re-orient their businesses to withstand competition or risk customers moving over to the new banks. Bakhtiar Dadabhoy, in his recently published Barons of Banking (Random House), traces the history of banking in India to the indigenous bankers who created in 1860 the practice of hundis that exist even today. Proper banking began with the Bank of Bombay (1840), Bank of Madras (1843) and Bank of Calcutta (1860) that were amalgamated to become the Imperial Bank of India

in 1921; post-independence it became the State bank of India (SBI). Though joint stock banks were first permitted in 1860, many of todays big banks arrived during 1906-13. The present day Canara Bank and Corporation Bank were incorporated in Mangalore and Udupi respectively, in 1906. I am indeed privileged to hail from the district of South Kanara, at the southern most tip of the state of Karnataka, which was once considered the most banked district in the country, if not all over the world. This district has been the cradle of four of Indias largest banks in the public sector viz Corporation Bank, Canara Bank, Vijaya Bank and Syndicate Bank; besides at one time also of a plethora of twenty two smaller banks that ultimately merged with their big brothers over a period of time. All told they made for a high network of brick and mortar branches in every hamlet dotting the district spreading banking literacy down the line. None of the founding fathers of these banks were any finance or banking wizardsone was a trader, another a lawyer and the third a medical doctor, all making for very successful bankers. Bankers hailing from this district have also made it from the bottom rising to the very top echelons as chief managing directors (CMDs) of banking hierarchy both in the public and private sectors and the RBI too, even to this day. Benegal Narshing Rao was a RBI governor, Kishori Udeshi and Leedhar were deputy governors. More are CMDs of PSBs today. Banking then In the good old days, when times were good, banking then was a cakewalk. Both the householders and businessmen wanted someone known to them to take care of their monies and it was a friendly neighbourhood banker who was considered trustworthy to discharge this sacred duty. The hallmark remained the inbuilt safety and security on the credibility of the founders. The banks began with small capital and collected deposits small and large. Syndicate Bank were pioneers in pygmy deposits collected by highly mobile deposit collectors roaming from door to door of individuals and cash counters

of Udupi hotels to collect amounts as small as an anna each day. It continues to date! The hallmark remained the inbuilt safety and security on the credibility of the founders. In those days, funds were available very cheap as the depositors were paid minimal interest at fixed rock bottom rates, because they had nowhere else to go; there was no competition, besides there were no alternative investment opportunities and above all it was convenient for the depositor as the staff attending to them at the branches were invariably friendly neighbourhood faces. The bankers have now started to take retail depositors for granted and are cold shouldering them by preferring to target the big high net worth individuals the NRIs and businesses for bulk deposits. The recent electronic media string operations on tape have shown how banks across the both in the public and private sectors, have thrown caution to the winds in trying to mobilise deposits including carrying electronic note counters to depositors homes to cart high denomination currency notes for deposits. The RBI has levied massive penalties that each bank coughed up without demur! Now the depositors have woken up to the fact that they are being taken for a jolly good ride for the perceived safety realizing that deposits dont offer interest rates that manage to beat inflation. The wise from among the depositing turned to seek better real rates of return by switching to other investment destinations in the form of investments in shares, debentures, bonds, gold, real estate, chit funds and even Ponzischemes. Banking today The banks that initially advanced the monies to individuals at much higher market rates, initially to trade and business later graduated to lending to corporates for industrial finance against tangible collaterals. They then moved into higher interest lendings for housing, automobile, education and personal

loans. While the personal loans are generally small in numbers and values, it is the larger trade and industrial borrowers who call the shots when they encounter serious erosion in their debt-servicing capabilities due to down slide in sales, rising input costs, sluggish profits, delayed recoveries, build up of inventories and hiccups in delayed project start-upsin trying to cut back on debt end up in taking on more loans just to keep going and this result in greater borrowings and interest burdens forcing the lending bankers to jump through the loop just to recover their advances. It is rightly said that if you borrow a few thousands from the bank and fail to repay you are in serious trouble, but if you borrow in crores, the bank comes in trouble, it will then keep chasing you to implore you to settle by agreeing to reschedule your instalments, by deferring payments, waive interest and the like, adopting the choice between devil and the deep sea. A Business Line 2012-13 analysis of 500 leading corporates with leverage, reports that their debts increased by 17% when their net worth grew only by 9% with half seeing their leverage worsening with many sporting debt to Equity ratio of eight as against the accepted/ideal of two. Large borrowers thrive in borrowing more and more believing they are too big to fail a la Kingfisher Airlines which has got its debts restructured on its own terms including forcing the banks to convert its debts into equity at absurd valuations at high premium even though the company has been in the red from day one! The promoters go on with their high profile life despite defaulting in their dues to employees, vendors, suppliers, bankers and tax authorities. Our banks today are estimated to be sitting on Rs2.50 lakh crore of restructured loans on top of Rs1,60,000 crore non-performing assets. Distressed accounts are conservatively put at 10% of their advances portfolio.

With the worsening conditions in the West, like the sub-prime crisis and the bankruptcy up of big name banks making it difficult to lend to their domestic borrowers banks there have turned to lending abroad at lower rates. Indians now find it cheaper to raise funds overseas by way of external commercial borrowings (ECBs). But there is the inherent exchange fluctuation risk involved. RBIs new Avatar as the banking regulator In the good old days the RBI played the role of a sombre silent Big Daddy, as a supervisor maintaining monetary oversight by acting as Banker to the Banks. It is rightly now said: If collecting deposits and loaning it to the credit-worthy has become a tricky endeavour, the RBI as regulator has not been making bankers lives easier either, it has co-opted the banking system as its unwilling partner in trying to fix everything that is wrong with the Indian economy. The RBI ought not to have permitted the commercial banks to hawk third party products like marketing insurance and mutual fund products as well as gold that the banks are simply not sufficiently geared for that and staff are not qualified to do. RBI by allowing them to move away from their core banking activity of collecting deposits and making advances has compounded the issue. This has brought about a serious fall in monitoring of advances leading to mounting stressed borrowings. Today, it is noticed that there is a shoddy mix up of RBIs role with that of the central government in drawing lines as to what is fiscal and what is monetary and who has to do what! In an attempt, to arrest the depreciation of the rupee, believing bank money is fuelling currency fluctuations, RBI sought to squeeze every drop of perceived excess liquidity from the banking system bringing about a sudden spurt in overnight rates to escalate their costs and aggravate the bad loans.

n and Mission At dM we work diligently on Exploring. Identifying. Creating. Researching. Innovating. Inspiring. Informing. Educating. Training. Refining. Improvising. Transforming. Nurturing. Strengthening. Mapping. Branding. Customizing. Remodeling. Serving. Delivering. Revolutionizing. Perfecting. Gratifying. Tracking. Reflecting. Reinventing. Developing. Reforming. Evolving. Excelling for Companies, Institutions, Individuals, Industry and Academia. Thus, undoubtedly we uniquely specialize in catering to the talent-demand-supply-chain across the domestic and global geographies. We are the frontrunners in identifying and addressing the dynamic needs and demands in the Industry. Our researchoriented-practically-executable solutions clubbed with our out-of-the-box strategies, technical expertise and strong commitment to deliver make us the fastest growing and most trusted brand in our domain. We are on the threshold of creating the next generation of talent creation - talent acquisition model, to minimize the industryacademia gap as suggested by the dM Curved Tube Theory. We offer solutions that will script innovative trends and build an intellectual knowledge bank. Because at dM, Winning is the Only Option

Annexure - "B" AN OVERVIEW The Company has a long standing reputation as a consistent sectoral leader amongst thepublic sector construction companies in the Country with specialization in execution ofRailway Projects on turnkey basis and otherwise. It has been earning profits every yearright from the second year of its incorporation. It has been one of the few constructioncompanies in the public sectorto have earned substantial foreign exchange for the Countryand paid dividend without fail every year to the Government. After commencing business asa railway construction company it diversified progressively since 1985 to roads,buildings, electrical substation and distribution, airport construction, commercialcomplexes, as well as to metro works. The Company has executed many land mark construction projects in the last 36 years bothin the Country and abroad. In India, in particular, it has also been undertaking projectseven in difficult terrains and disturbed regions. The Company is an ISO certified Company, a Schedule A public sector company, and a MiniRatna-category I.

LEGAL STATUS AND AUTONOMY The Company, a legal entity separate from the Government, is legally, functionally, andfinancially autonomous, operates under the corporate laws as an independent commercialenterprise, does not receive any budgetary or financial support from the Government, noris it a dependent agency of the Government. However the Government of India through theRailway Ministry and the Department of Public Enterprises underthe Ministry of HeavyIndustries, monitors its performance through a system of Memorandum of Understanding (MoU)as regards targets to be achieved every year as part of accountability to the Parliamentin respect of all government companies. Government can issue and does issue guidelinestoregulate and bring about some uniform pattern in the functioning of the Company. However,no Government Department has any supervisory authority or ability to exercise influence orcontrol over the Company which is managed and run underthe superintendence, control, anddirection of its Board of Directors as perthe Companies Act. BUSINESS ENVIRONMENT Gross Domestic Product (GDP) of India is estimated to have grown at 6.9% in 2011-12,after having grown at the rate of 8.4% in each of the two preceding years. The slowdown isattributed to many global and domestic factors, like crisis in Eurozone, near-recessionaryconditions prevailing in Europe, stagnation in Japan, hardening of international prices ofcrude oil, tightening of monetary policy in India resulting in slowing down of investmentand growth particularly in the industrial sector, etc. The economic growth forecast forIndia by International Monetary Fund's World Economic Outlook (July 2012) is 6.1%. Financing infrastructure will be a big challenge in the coming years and will requireinnovative ideas and new models of financing. The Planning Commission has projected aninvestment requirement of over Rs. 45 lakh crores (USD 1 trillion approx.) during the 12thFive year Plan (2012-17), out of which 50% is anticipated from private sector. The success of 11th Five year Plan in garnering private sector investment ininfrastructure through the public private partnership (PPP) route has laid foundation fora substantial step in private sector funding in coming years. PPPs are expected to augmentresource availability as well as improve the efficiency of infrastructure servicedelivery. Opportunities for the Company i n creation of physical infrastructure lies i n thefollowi ng areas: Railways -"Indian Railways Vision 2020" envisages laying of 25000 km ofnew lines, quadrupling 6000 Km network with segregation of passenger and freight lines,electrification of 14000 km, completion of guage conversion, construction of 2000 km ofhigh-speed corridors. Dedicated Freight Corridor (DFC) project involving Western corridorfrom Mumbai to Rewari and Eastern corridor from Ludhiana to Dankuni is also beingimplemented through a mix of bilateral/ multilateral debt, budgetary support, and PPP. Thecorridors are targeted for completion in the terminal year of the 12th plan i.e. 2016-17.Upgradation of passenger amenities and development of Railway Stations are the othertwoareas where opportunities exist for the Company. Roads - Focus in road sector continues to be on development of the entire NationalHighway network to minimum acceptable two-lane standards, special accelerated roaddevelopment programme in the Northeastern region, development of roads in Left WingExtremism affected areas, Prime Minister's Reconstruction Plan (PMRP) for construction/reconstruction of roads in the State of Jammu and Kashmir, road connectivity in ruralareas underongoing Pradhan Mantri Gram SadakYojna (PMGSY), etc. Electrical projects - Electrical projects under BOT/ BOOT/ BOLT may provideopportunity for the Company directly or as a member of joint venture/ consortium. Theother areas of interest are Railway electrification and extra high voltage (at 765 kv)sub-stations. Signaling & Telecommunication projects - There are opportunities for theCompany in securing international projects in Signaling & Telecommunication (S&T). YourCompany is already executing projects under Pradhan Mantri Gram SadakYojna (PMGSY)and Rashtriya Sam Vikas Yojana (RSVY), construction of road over bridges (ROBs) for IndianRailways and National Highways Authority of India, port connectivity project, electricalsub-stations, railway electrification, power supply distribution networkand industrialelectrification projects, S&T Projects, etc. The Company is also executing projects in Malaysia, Sri Lanka, Algeria, Ethiopia, andAfghanistan. Opportunities are coming up in Bangladesh, Myanmar, Vietnam, other MiddleEast Countries, and African Countries. OUTLOOK The Vision, Mission, and Objectives of the Company as stated in its Memorandum ofUnderstanding with the Ministry of Railways for 2012-13 are:Vision To be recognized nationally and internationally as a specialised constructionorganisation comparable with the best in the field covering the entire spectrum ofconstruction activities and services in the infrastructure sector. Mission

i) To effectively position the Company so as to meet the construction needs ofinfrastructure development of the changing economic scene in India and abroad. ii) To earn global recognition by providing high quality products and services in timeand in conformity with the best engineering practices. Objectives i) To enhance the size and value of business activities of the Company so as to achievea turnover of Rs. 5500 crores bytheyear2016-17. ii) To achieve reasonable returns on the capital employed. FINANCIAL PERFORMANCE In the year 2011-12, the Company has registered an all time high total income of Rs. 3782 crores, as compared to the total income of Rs. 3254 crores achieved in 2010-11.Nearly 95% of the total income (amounting to Rs. 3601 crores) has arisen fromconstruction, out of which 51% ( Rs.1850 crores) has been contributed by foreignprojects. In absolute terms operating income from foreign projects has increased by nearly17% in the last one year. Profit before tax increased by 50% from Rs. 401 crores in2010-11 to Rs. 602 crores in 2011-12, and Profit after Tax has nearly doubled. Net Worthhas increased by 26% and Gross Margin has increased by 52% during the year. Earning pershare has increased by 95% from Rs. 242.99 in 2010-11 to Rs. 474.76 in 2011-12. The Board of Directors has recommended a dividend @ Rs. 65 per share (650% on thepaid-up share capital) for consideration and declaration by the shareholders. The Companyhas already paid an interim dividend @ Rs. 30 per share (300%) in December 2011. Thedividend of Rs. 64.34 crores payable after declaration at the Annual General Meetingtogether with the interim dividend already paid ( Rs. 29.69 crores) would take the totaldividend pay-out for the year 2011-12 to Rs.94.03 crores, which is 950% of the paid-upshare capital of the Company. OPERATIONAL PERFORMANCE Sectoral Performance Railways and Highways continued to be the primary sectors of interest. During 2011-12,Railways accounted for 81% of operating income, Highways accounted for 14%, and thebalance 5% resulted from buildings, electrical sub-stations etc. A sector-wise comparativeposition is given below. The table below shows that proportion of railway works vis-a-vishighway works has progressively increased in the last three years. The proportion ofoperating income from railway construction works has increased from 64% in 2010-11 to 81%in 2011-12, whereas the proportion of income from highway sector has gone down from 29% in2010-11 to 14% in 2011-12. The share of income from electrical projects and sub-stations (which form part of"Others") has also decreased by about 1% as compared to last year. (Rs. in crores) 2009-10 Operating Income Railways Highways Buildings Others* Total 1801 1004 27 321 3153 % 57 32 1 10 2010-11 Operating Income 2033 935 61 146 3175 % 64 29 2 5 2011-12 Operating Income 2907 489 76 129 3601 % 81 14 2 3

*Includes income from Electrical Projects 285 crores during 2009-10, Rs. 128 croresduring 2010-11, and Rs. 124 crores during 2011-12). Segment-wise Performance Foreign projects contributed 49% to total income during 2011-12 and 2010-11 as comparedto 38% in 2009-10. A comparative position for the last three years is given below: (Rs. in crores) 2009-10 Total Income Foreign Domestic Unallocated 1217 1967 33 % 38 61 1 2010-11 Total Income 1587 1613 54 % 49 50 1 2011-12 Total Income 1865 1764 153 % 49 47 4

Total

3217

3254

3782

STRENGTHS The Company has rich experience of timely execution of a large number of internationalprojects, especially in developing countries. Its key strengths continue to be impressivefinancials (reflected in the consistent profitability and a healthy balance sheet of theCompany), established credentials, and competent manpower. The Company has a track recordof quality performance in time to the satisfaction of customers. OPPORTUNITIES A revival of interest in the development of infrastructure sector in the last two yearsin India as well as abroad, particularly in Railway sector, has opened up severalopportunities for securing more business. The Company is gearing itself to benefit fromthe opportunity presented by BOT projects both in Railway and real estate to leveragefinancial strength of the Company. CONSTRAINTS Although every organization has to work within a certain legal framework, the Companyas a public sector company faces more constraints (not applicable to private sectorcompanies) which put it at a disadvantage in a competitive market. Availability of softcredit with overseas competitors and flexibility in procurement and operations withprivate competitors are some of the other factors. STRATEGY The Company is focussed towards strategic business development to sustain and improveits order book position by giving a thrust to its areas of core competence andinternational business. Core competence of the Company namely, Railways, electricsub-stations, Railway Electrification, and Commercial Complexes is being furtherconsolidated. RISKS AND CONCERNS A. Project Risk Management A formal Risk Management framework is in place from August 2007. The Company has a RiskManagement Committee of whole-time directors and a Rapid Action Group at General Manager /Executive Director (below board) level to ensure its implementation. Risk ManagementPolicy, Risk Management Processes, and MIS reports formats including MIS reports on RiskManagement have been evolved in accordance with the Framework. Reports from Rapid ActionGroup for managing and mitigating risks are submitted to the Audit Committee through theRisk Management Committee. In India, a major concern in execution of projects is non availability of encumbrancefree land due to which there is a risk of time and cost overruns which are seldomcompensated by the client. Some of the NHAI projects being executed by the Company aredelayed considerably due to continued non-availability of encumbrance free land. However,the Company has not withdrawn from such projects despite heavy losses. The Company's employees and projects have been and are exposed to risks and threats tolife, liberty, and property while operating in risky geographical areas. It however takespride in executing prestigious works in the nation building task. The Company has takenmeasures with the help of the Government to provide adequate security, facilities, andalso insurance coverage in such places. Policies and procedures are in place for ensuringhealth and safety. B. Treasury Risk Management Your company was assigned a 'CARE AAA' rating by Credit Analysis & Research Limited(CARE) for long-term non-fund based credit facilities and an A1+' rating (earlier denotedas 'PR1+', and has now been standardized in accordance with circular dated 15th June 2011issued by SEBI) for short-term non-fund based credit facilities in 2008-09 based on BASELII norms of the Reserve Bank of India (RBI). These rating have been reaffirmed in anannual surveillance review by CAREin December 2011. In order to mitigate foreign currency risk, foreign exchange movements are constantlymonitored and surplus funds are repatriated to India in accordance with the applicablelaws. Efforts are made to maximize the overall return considering the interest rates indomestic market and by keeping funds in foreign currency for providing a natural hedgebased on projected inflows and outflows. Investment guidelines for foreign projects are inplace to ensure placement of funds with foreign banks in a transparent and systematicmanner. INTERNAL CONTROL SYSTEM The Company has adequate Internal control and Internal Audit System commensurate withits size and nature of business. To make the internal control system more effective andproject specific, a comprehensive internal audit manual isin placewithguidelinesforinternal auditors. Key projects are closely monitored through online reporting formats to control the keyperformance indices. A system of technical and financial audit and control monitors theperformance of projects working below margin. The Company has in place a structuredOrganizational Chart and a system of delegation of Powers. This coupled with robustinternal MIS systems

(online reporting format), ensures appropriate information flow tofacilitate effective monitoring. Adherence to these processes is monitored throughInternal Audits in two phases during every financial year. The company has an InternalAudit System that requires the Internal Audit firms to give comments on the existence ofadequate internal control systems and compliance therewith in addition to the opinion onexistence of proper risk assessment and mitigation mechanism. The Internal Auditors areChartered Accountants firms directly reporting to the Management which also ensures theirindependence. Reports of the Internal Auditors are reviewed, compliances are ensured, anda synopsis of Audit Reports along with the compliance are put up by Internal AuditDepartment for consideration by the Audit Committee. The internal control and audit systemare being reviewed periodically by the Management as well as the Audit Committee, followedup by corrective action. During the year a structured Fraud Prevention, Detection, andControl Policy (FPDC Policy) along with a Whistle Blower Policy was finalized and approvedby the Board of Directors. HUMAN RESOURCE The Company aims to achieve the right size and right mix of human resource/ employeesfor the organization. Since your Company is a project based company, manpower requirementsare temporary in nature. Therefore recruiting employees on deputation, contract, andservice contract are preferred modes. Recruitment strategies have been re-engineered tomake them more in line with the overall strategy of the Company. There has been asignificant increase in number of employees hired on contract/ service contract basisduring the last year. This ensures availability of technically qualified staff as and whenrequired at various projects without putting pressure on the regular stream of theCompany. Training programmes are designed so as to enhance both technical and managerial skillsof employees. Employees are also provided training before promotion to make them capableof getting through the promotion processes and to ensure that they have a betterunderstanding of working processes and responsibilities at higher levels. A Performance Management System based on the 2nd Pay Revision Committee recommendationsis in place which focuses on Key Result Areas for all projects and functions in line withthe goals, objectives, and targets for the Company underthe Memorandum of Understandingsigned with the Ministry of Railways. The Company has evolved, based on the 2nd Pay Revision Committee recommendations, aPension Scheme as part of superannuation benefits which is under the process of gettingthe necessary approvals from the Ministry of Railways. The Company offers the benefits ofContributory Provident Fund, Gratuity, and Post retirement Indoor Medical benefits througha Medical Trust.

The India Infoline (IIFL) group, comprising the holding company, India Infoline and its subsidiaries, is one of the leading players in the Indian financial services space. IIFL offers advice and execution platform for the entire range of financial services covering products ranging from Equities and derivatives, Commodities, Wealth management, Asset management, Insurance, Fixed deposits, Loans, Investment Banking, Gold bonds and other small savings instruments. IIFL recently received an in-principle approval for Securities Trading and Clearing memberships from Singapore Exchange (SGX) paving the way for IIFL to become the first Indian brokerage to get a membership of the SGX. IIFL also received membership of the Colombo Stock Exchange becoming the first foreign broker to enter Sri Lanka. IIFL owns and manages the website, www.indiainfoline.com, which is one of India?s leading online destinations for personal finance, stock markets, economy and business. The company has been awarded the ??Best Broker, India? by FinanceAsia and the ??Most improved brokerage, India? in the AsiaMoney polls. India Infoline was also adjudged as ??Fastest Growing Equity Broking House - Large firms? by Dun & Bradstreet. A network of over 2,500 business locations spread over more than 500 cities and towns across India facilitates the smooth acquisition and servicing of a large customer base. All our offices are connected with the corporate office in Mumbai with cutting edge networking technology. The group caters to a customer base of about a million customers, over a variety of mediums viz. online, over the phone and at our branches. Products and Services India Infoline provides a gamut of financial products and services. The company offers broking services in the Cash and Derivatives segments of the NSE and BSE. India Infoline Media and Research Services- This company offers content support to India Infoline in area of broking, commodities, mutual fund and portfolio management services. India Infoline Commodities- This company is engaged in broking services for commodities segment.

India Infoline Marketing & Services- This is holding company of India Infoline Insurance Services and India Infoline Insurance Brokers. The company is the largest Corporate Agent for ICICI Prudential Life Insurance Company. It is also engaged in insurance broking. India Infoline Investment Services- This subsidiary is engaged in business such as loans against securities, SME financing, distribution of retail loan products, consumer finance business and housing finance business. IIFL (Asia) Pte- This subsidiary is engaged in carrying out financial sector activities in other Asian markets. Awards India Infoline has been awarded the ??Best Broker in India? by Finance Asia. Company?s Rs. 5 billion short-term debt programme has received an A1+ rating from ICRA. This reflects highest -credit-quality of short-term debt instruments. Milestones

1995: Commenced operations as an Equity Research firm 1997: Launched research products of leading Indian companies, key sectors and the economy Client included leading FIIs, banks and companies. 1999: Launched www.indiainfoline.com 2000: Launched online trading through www.5paisa.com Started distribution of life insurance and mutual fund 2003: Launched proprietary trading platform Trader Terminal for retail customers 2004: Acquired commodities broking license 2004: Launched Portfolio Management Service 2005: Maiden IPO and listed on NSE, BSE 2006: Acquired membership of DGCX 2006: Commenced the lending business 2007: Commenced institutional equities business under IIFL 2007: Formed Singapore subsidiary, IIFL (Asia) Pte Ltd 2008: Launched IIFL Wealth 2008: Transitioned to insurance broking model 2009: Acquired registration for Housing Finance 2009: SEBI in-principle approval for Mutual Fund 2009: Obtained Venture Capital license 2010: Received in-principle approval for membership of the Singapore Stock Exchange 2010: Received membership of the Colombo Stock Exchange 2011: Carlyle Group increased its stake in India Infoline Group to 9 percent through secondary-market purchases 2012: India Infoline Finance, the NBFC arm of India Infoline Group, India?s leading financial services provider, received registration from Pension Fund Regulatory and Development Authority (PFRDA) to act as Aggregator under National Pension System (NPS).