BOARD OF DIRECTORS OF THE COMPANY (AS ON 01.02.2006)
Mr. A. K. Shukla Chairman
Mr. G. M. Ramamurthy Director
Mr. Y. B. Desai Director
Mr. Dhananjay Mungale Director
Mr. K. Narasimha Murthy Director
Mr. S. Ravi Director
Mr. B. N. Shukla Director
Mr. S. K. Mitter Director & Chief Executive

SENIOR EXECUTIVES OF THE COMPANY (AS ON 01.02.2006)
Mr. Sharad Shrivastva General Manager (Credit Appraisal)
Mr. P. K. Rath General Manager (Marketing)
Mr. K. Ramesh General Manager (F&A & IT)
Mr. Nitin K. Jage General Manager (Taxation) & Company Secretary
Mr. M. K. Rout General Manager (HR & Legal)
Mr. K. Sankaran Kutty Deputy General Manager (Defaults & Recoveries)
Mr. D. Y. Oke Deputy General Manager (Audit)
Mr. D. S. Bhanushali Deputy General Manager (HR & Legal)

I have great pleasure in extending a hearty welcome to you all to the Sixteenth Annual General Meeting (AGM) of the Company.

Housing Scenario:

The housing finance market has recorded robust growth in the last five years, clocking an annual growth rate of about 40% between 1998-99 and 2003-04 to reach Rs.569 billion in 2003-04 from about Rs.107 billion in 1998-99. The disbursals for the industry during 2004-05 stood at over Rs. 720 billion, it is expected that housing finance market would scale double-digit growth, recording an annual growth rate of 18.8% to reach Rs.1,347 billion by 2008-09. During the year under review, the Indian economy continued on its high growth trajectory. With the growth rate expected to be around 7% the Indian economy continued to record one of the fastest growth rates in the world. The growth drivers were the services sector and a buoyant manufacturing sector. Due to erratic monsoon the agricultural sector recorded low growth. The housing finance industry is highly fragmented, with the unorganized sector, comprising small builders and contractors, accounting for over 70% of the housing units constructed and the organized sector accounting for the rest. The organized sector comprises large builders and government or government-affiliated entities. The Tenth Five Year Plan document on urban development has estimated an additional requirement of about 4.5 million houses each year during the Plan period (2002-07). Investment in housing has grown from Rs.11.5 million in the First Five Year Plan to approximately Rs.1510 billion in the Ninth Five Year Plan. The estimated investment in housing for the Tenth Five Year Plan is Rs.7,263 billion. The demand for housing loans would further improve mainly on account of stable property prices, tax incentives, increased urbanization, evolution of nuclear family system, an increasing per capita income, a desire for independent home ownership, increase in the percentage of population in the age group of 25 to 44 years, declining proportion of cash component in sale transactions, increase in loan tenures and the availability of finance at a lower interest rate. Positive regulatory measures like regularization of land records would further propel housing finance industry.

Though the above developments bode good for the growth of the industry, much is expected of the housing industry sector to improve poverty alleviation programme and social conditions of human settlements. This is primarily because there is still a wide gap between supply and demand of houses in India. As per the current estimates, India faces a shortage of about 30 million dwelling units and this backlog is growing. However, I am highly optimistic that trends mentioned above would translate into an increased demand for housing finance as urbanization is being increasingly driven by the socio-demographic changes and developments in the housing finance market.

Major developments in the industry in 2004-05:

Introduction of section 80C in the Income-tax Act, 1961 enables the borrower of housing loans to claim upto Rs.1,00,000 as eligible deduction from taxable income in respect of principal repayment of housing loans. This is in addition to the tax incentives already available to the extent of Rs.1, 50, 000 on interest repayments.
The emergence of new players in the mortgage and housing finance business such as commercial banks has created a dynamic scenario in retail lending thus benefiting the customers with more options and competitive rates.
Landowners and property owners are being encouraged by government to regularize their land records, thereby increasing the scope for development and financing of those properties.
Earlier bank loans for housing up to Rs. 1.0 million only in the rural and semi-urban areas were eligible for being considered as priority status lending. However, the Reserve Bank of India, in its mid-term credit policy for the year 2004-05, raised the priority sector limit of housing finance to Rs.1.5 million from Rs.1.0 million, without any restrictions on the geographical area.
At the individual level, a scale-down in tax incentives for savings has induced more people to purchase real estate. Lowering of interest rates on small rates on small savings schemes is expected to divert savings investment funds from Public Provident Fund, relief and savings bonds to attractive real estate investment.
Achievements:

A few major achievements influencing the performance of your Company during the year are worth mentioning here:

During the year under review, the total sanctions and disbursements of loans were Rs.52.09 billion and Rs.46.50 billion respectively as against Rs.46.93 billion and Rs.41.04 billion in the previous year registering a growth in sanctions of 10.98% and in disbursements of 13.31%. The total loan portfolio increased to Rs.122.45 billion as against Rs.97.90 billion in the previous year.
The Company prepaid its high cost loans and replaced the same with new loan that helped to reduce overall cost of borrowing. Efforts were made to re-price the existing borrowings either through negotiation or entering into Interest Rate Swap.
In a dynamic interest rate scenario when the threat of customers shifting to other housing finance companies was imminent, your Company swiftly entered into an active renegotiation process with financing institutions and rewrote the existing loans at lower interest costs and passed on this benefit to our customers. As a result it not only delighted the existing customers but also helped the Company in attracting good number of new clients, neutralizing the risk of a large-scale prepayment.
During the year, the Company successfully concluded its maiden offering of Global Depository Shares (GDS). It issued five million GDSs representing 11.77% of the post offer equity capital of the Company aggregating US$ 29.85 million through this offering. The GDSs are listed on the Luxembourg Stock Exchange.
With pride I state that the Company has been consistently rated with 'AAA' rating and armed with 'AAA' rating, the company raised Rs.850 crores through issuance of Non-Convertible Debentures from the market in two tranches at costs ranging from 5.8% to 6.24%.
The Company established a sound and effective distribution network in the form of Direct Sales Agents (DSA), Home Loan Agents (HLA) and increased their strength from 2700 to more than 4300, formed tie-ups with the corporates / multinational companies for employee loan schemes and strengthened its relationship with builders and developers.
During the year the Company introduced a new product - "Flexi Scheme" for the home loan borrowers wherein the borrowers will pay a fixed rate of interest for the first five years. At the end of five years the borrowers will have the option to exercise either to continue with fixed rate loans or convert it to floating rate loans at the then prevailing rate of interest.
In our resolve to weed out Non Performing Assets (NPA), the Company through professional debt recovery agents has substantially reduced NPAs. As a result during the year net NPAs declined from 2.37% to 1.65% as per the old norms. However, as per revised norms net NPA level has increased to 2.79%.
The Company successfully implemented uniform Application Scoring System, a mechanism for strengthening the credit appraisal.
The Company restructured its operations through hub-and-spoke model. The routine, repetitive administrative, credit underwriting and accounting functions of a set of offices have now been centralized at one hub. The spokes or offices connected to the hub concentrate on the marketing activities. Connectivity between the hub and the spokes has been established using Wide Area Network. The benefits the Company reaps from above model are noteworthy such as:
Resources are pooled at the centralized locations enabling to build up specialized teams.
Manpower is deployed in a more rational and optimal manner. Focus is on marketing activities as a result of efficient administrative controls. Underwriting practices have been standardized. Above all funds are been effectively utilized.
In view of the increased and aggressive competition in the market, the main concern of the Company was to protect the interest of the shareholders and also strengthen its brand image of being a professionally managed and leading housing finance company. Your Company, therefore, addressed all the thrust areas, such as efficient treasury management, aggressive marketing of loans, effective recovery system, scientific training of front-end officials in sales and servicing areas, upgradation of information technology and simplification of procedures. It explored all possible avenues for raising resources at competitive rates, reduced the cost of existing liabilities through well-thought out and prudent strategies. As a result of which the Company has been able to show an excellent performance in business growth and maintained its market share despite aggressive marketing by commercial banks.

Performance:

On the financial side, the Company generated a total Income of Rs.10.48 billion in 2004-05, out of which, Income from housing operations comprised Rs.10.23 billion.
The Profit before Tax amounted to Rs.2.04 billion registering an increase of 8.5% over the previous year and the Profit after Tax was at Rs.1.44 billion indicating a fall of 14.18% over last year.
The Board of Directors recommends Dividend for the year under review at the rate of 50 per cent i.e., Rs.5.00 per share of the face value of Rs.10/-. The Net Worth of your Company stands at Rs.11.95 billion, showing a growth of 29.35% over the preceding year. The Book Value of your Share as on 31st March, 2005 has gone up to Rs.146.40 from Rs.128.35 while the Earning Per Share has decreased from Rs.22.35 to Rs.17.84.
Market Capitalization of the Company's share as on 31st March, 2005 has increased to Rs.20.03 billion (closing share price of BSE - Rs.235.85) from Rs.13.68 billion (closing share price of BSE - Rs.182.60) as on 31st March, 2004 recording an increase of 46.40% over the last year. Despite high volatility in overall secondary market the price of your Company's share was stable between Rs.201 to Rs.221.
During the year 2004-05, 129 employees / officers of the Company were promoted in different cadres.
Outlook for the year:

One of the heartening features of the Budget 2005 was the fact that the government retained the existing tax incentives for the housing and construction industry, which in turn significantly strengthened the prospects of India's housing finance sector. The principal provisions were:

The maximum amount deductible under section 24(1) of the Income-tax Act, 1961 on account of interest payments on borrowings for the construction or purchase of a house to stay at Rs.1,50,000/- per annum. Since majority of the borrowers in India fall in this slab, this tax benefit continues to be the biggest driver of housing finance.
The amount paid on account of the principal re-payment for the loan taken for the purchase or construction of a house continues to be eligible for deduction under section 80C up to a maximum limit of Rs.1,00,000/-.
The capital gains arising out of the sale of a house continue to be exempt under section 54 if invested in purchase or construction of another house within a specified period.
Clearance under section 230(A) of the Income-tax Act, 1961 is no longer required.
The National Housing Bank (NHB) also has taken / initiated a number of steps aimed at promoting healthy growth of Housing Finance business, a few of which are listed below:

In the NHB (Amendment) Act, 2000, a new chapter VA has been introduced, which simplifies the foreclosure norms by permitting summary proceedings through the Recovery Officer, and creates an Appellate Tribunal on the lines of Debt Recovery Tribunal in case of banks, to help in recovery of dues.
As an industry observer, it is my belief that the healthy growth that the industry has witnessed during the last two years is likely to continue in the current year also. As Chairman of your Company let me assure you that your Company is in good hands and will continue to capitalize on the growing opportunities in the market place and will continue to deliver superior value to all its stakeholders.

Being in the business of lending, we have adopted observance of rules and financial discipline as one of our avowed objectives. Your Company has also been adhering to the tenets of good Corporate Governance since its very inception. It has also strictly complied with the various guidelines issued by different statutory authorities.

To meet the challenge of growing competition and to cash in on the opportunities, your Company will continue to implement the strategies adopted during last year and also explore and identify new areas for growth both in retail and non-retail segment. It will also continue to explore all possible avenues for raising cheaper funds in order to reduce its overall cost.

Shri S. K. Mitter has taken over the reins of the Company as Director & Chief Executive and under his stewardship the Company would not only be consolidating the gains achieved in the last year but also ensuring further growth and increased profitability.

I am confident that the present management of the Company is capable of delivering enhanced value to all the stakeholders in general and those who own this company in particular. I am also confident that with prudent strategies and concrete action plan, involvement of all staff and marketing personnel, timely and effective managerial interventions, guidance of the Members of Board and the patronage of our valued Customers and Shareholders, the Company will be in a position to scale greater heights in its all round performance both quantitatively and qualitatively.

Place : Mumbai
Date : 11.08.2005 A. K. Shukla
CHAIRMAN

Today as we stand at the threshold of a new world of possibilities, we re-dedicate ourselves to serve our stakeholders better - by continuously upgrading our product offerings, by setting standards in our servicing commitments, by giving the customers more value-for-money, by improving returns to our shareholders, and by offering the employees an environment comparable to the best in the industry.

I invite you all to join in this memorable journey together.

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