performance of banking sector - copy

8/7/2019 Performance of Banking Sector - Copy

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PERFORMANCE OF FINANCIAL INSTITUTIONS

Overview of Banking andFinancial Institutions

The Banking SectorThe banking system in India is significantly different from that of other Asian nations

because of the countrys unique geographic, social, and economic characteristics. India has alarge population and land size, a diverse culture, and extreme disparities in income, which aremarked among its regions. There are high levels of illiteracy among a large percentage of its

population but, at the same time, the country has a large reservoir of managerial andtechnologically advanced talents. Between about 30 and 35 percent of the population resides

in metro and urban cities and the rest is spread in several semi-urban and rural centers. Thecountrys economic policy framework combines socialistic and capitalistic features with aheavy bias towards public sector investment. India has followedthe path of growth-led exports rather than the exportled growth of other Asian economies,with emphasis on self-reliance through import substitution.These features are reflected in the structure, size, and diversity of the countrys banking andfinancialsector. The banking system has had to serve the goals of economic policies enunciated insuccessive five year development plans, particularly concerning equitable incomedistribution, balanced regional economic growth, and the reduction and elimination of privatesector monopolies in trade and industry. In order for the banking industry to serve as aninstrument

of state policy, it was subjected to various nationalization schemes in different phases (1955,1969,and 1980). As a result, banking remained internationally isolated (few Indian banks had

presenceabroad in international financial centers) because of preoccupations with domestic priorities,especially massive branch expansion and attracting more people to the system. Moreover, thesector has been assigned the role of providing support to other economic sectors such asagriculture, small-scale industries, exports, and banking activities in the developedcommercial centers (i.e., metro, urban, and a limited number of semi-urban centers). The

banking systems international isolation wasalso due to strict branch licensing controls on foreign banks already operating in the countryas well asentry restrictions facing new foreign banks. A criterion of reciprocity is required for anyIndian bank to open an office abroad.These features have left the Indian banking sector with weaknesses and strengths. A bigchallengefacing Indian banks is how, under the current ownership structure, to attain operationalefficiency suitable for modern financial intermediation. On the other hand, it has beenrelatively easy for the public sector banks to recapitalize, given the increases in


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nonperforming assets (NPAs), as their Government dominated ownership structure hasreduced the conflicts of interest that private banks would face.

Financial StructureThe Indian financial system comprises the following

institutions:1. Commercial banks

a. Public sectorb. Private sectorc. Foreign banksd. Cooperative institutions(i) Urban cooperative banks(ii) State cooperative banks(iii) Central cooperative banks2. Financial institutionsa. All-India financial institutions (AIFIs)

b. State financial corporations (SFCs)

c. State industrial development corporations(SIDCs)

3. Nonbanking financial companies (NBFCs)4. Capital market intermediaries

About 92 percent of the countrys banking segment is under State control while the balancecomprises

private sector and foreign banks. The public sector commercial banks are divided into threecategories

State bank group (eight banks): This consists of the State Bank of India (SBI) and AssociateBanksof SBI. The Reserve Bank of India (RBI) owns the majority share of SBI and some AssociateBanks of SBI.1 SBI has 13 head offices governed each by a board of directors under thesupervision of a central board. The boards of directors and their committees hold monthlymeetings while the executive committee of each central board meets every week.Nationalized banks (19 banks): In 1969, the Government arranged the nationalization of 14scheduled commercial banks in order to expand the branch network, followed by six more in1980. A merger reduced the number from 20 to 19. Nationalized banks are wholly owned bythe Government, although some of them have made public issues. In contrast to the state

bank group, nationalized banks are centrally governed, i.e., by their respective head offices.Thus, there is only one board for each nationalized bank and meetings are less frequent(generally, once a month).The state bank group and nationalized banks are together referred to as the public sector

banks(PSBs). Tables 1 and 2 provide details of public issues and post-issue shareholdings of these

PSBs.

Regional Rural Banks (RRBs): In 1975, the state bank group and nationalized banks wererequired to sponsor and set up RRBs in partnership with individual states to provide low-costfinancing and credit facilities to the rural masses. Table 3 presents the relative scale of these

public sector commercial banks in terms of total assets. The table clearly shows theimportance of PSBsMore than 40,000 NBFCs exist, 10,000 of which had deposits totalingRs1,539 billion as of March 1996. After public frauds and failure of some NBFCs, RBIssupervisory power over these high-growth and high-risk companies was vastly strengthenedin January 1997. RBI has imposed compulsory registration and maintenance of a specified

percentage of liquid


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reserves on all NBFCs.Reserve Bank of India and Banking

and Financial InstitutionsRBI is the banker to bankswhether commercial, cooperative, or rural. The relationship is

established once the name of a bank is included in the Second Schedule to the Reserve Bankof India Act, 1934.Such bank, called a scheduled bank, is entitled to facilities of refinance

from RBI, subject to fulfilment of the following conditions laid down in Section 42(6) of the Act, as follows: it must have paid-up capital and reserves of an aggregate value ofnot less than an amount specified from time to time; and it must satisfy RBI that its affairs arenot beingconducted in a manner detrimental to the interests of its depositors.The classification of commercial banks into scheduled and nonscheduled categories that wasintroduced at the time of establishment of RBI in 1935 has been extended during the last twoor three decades to include state cooperative banks, primary urban cooperative banks, andRRBs. RBI is authorized to exclude the name of any bank from the Second Schedule if the

bank, having been given suitable opportunity to increase the value of paid-up capital and

improve deficiencies, goes into liquidation or ceases to carry on banking activities.A system of local area banks announced by the Government in power until 1997 has not yet

takenroot. RBI has given in principle clearance to five applicants.

Specialized development financial institutions (DFIs) were established to resolve marketfailures

in developing economies and shortage of long-term investments. The first DFI to beestablished was the Industrial Finance Corporation of India (IFCI) in 1948, and was followed

by SFCs at state level set up under a special statute. In 1955, Industrial Credit and InvestmentCorporation of India (ICICI) was set up in the private sector with foreign equity participation.This was followed in 1964 by Industrial Development Bank of India (IDBI) set up as asubsidiaryof RBI. The same year saw the founding of the first mutual fund in the country, the UnitTrust of India(UTI).A wide variety of financial institutions (FIs) has been established. Examples include the

NationalBank for Agriculture and Rural Development (NABARD), Export Import Bank of India(EximBank), National Housing Bank (NHB), and Small Industries Development Bank of India(SIDBI),which serve as apex banks in their specified areas of responsibility and concern. The threeinstitutionsthat dominate the term-lending market in providing financial assistance to the corporatesector areIDBI, IFCI, and ICICI. The Government owns insurance companies, including Life Insurance

Corporation of India (LIC) and General Insurance Corporation (GIC). Subsidiaries of GICalso provide substantial equity and loan assistance to the industrial sector, while UTI, thougha mutual fund, conducts similar operations. RBI also set up in April 1988 the Discount and

Finance House of India Ltd.(DFHI) in partnership with SBI and other banks to deal with money market instruments andto provide liquidity to money markets by creating a secondary market for each instrument.Major shares of DFHI are held by SBI.Liberalization of economic policy since 1991 has highlighted the urgent need to improveinfrastructure in order to provide services of international standards.


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Infrastructure is woefully inadequate for the efficient handling of the foreign trade sector,power

generation, communication, etc. For meeting specialized financing needs, the InfrastructureDevelopment Finance Company Ltd. (IDFC) was set up in 1997. To nurture growth of

private capital flows,IDFC will seek to unbundle and mitigate the risks that investors face ininfrastructure and to create an efficient financial structure at institutional and project levels.

IDFC will work on commercial orientation,innovations in financial products, rationalizing thelegal and regular framework, creation of a long-term debt market, and best global practiceson governance and risk management in infrastructure projects.

NBFCs undertake a wide spectrum of activities ranging from hire purchase and leasing topure investments. More than 10,000 reporting NBFCs (out of more than 40,000 NBFCsoperating) had deposits of Rs1,539 billion in 1995/96. RBI initially limited their powers,aiming to moderate deposit mobilization in order to provide depositors with indirect

protection.It regulated the NBFCs under the provisions of Chapter IIIB of the RBI Act of 1963, whichwere confined solely to deposit acceptance activities of NBFCs and did not cover their

functionaldiversity and expanding intermediation. This rendered the regulatory framework inadequate

to controlNBFCs. The RBI Working Group on Financial Companies recommended vesting RBI with

morepowers for more effective regulation of NBFCs. A system of registration was introduced in

April 1993 for NBFCs with net owned funds (NOF) of Rs5 million or above.Magnitude and Complexity

of the Banking SectorThe magnitude and complexity of the Indian banking sector can be understood better bylooking at some basic banking data. Table 4 shows classification of banks based on workingfunds.In terms of growth, the number of commercial bank branches rose eightfold from 8,262 inJune 1969(at the time of nationalization of 14 banks) to 64,239 in June 1998. The average population

per bankbranch dropped from 64,000 in June 1969 to 15,000 in June 1997, although in many of therural centers (such as in hill districts of the North), this ratio was only 6,000 people per

branch. This was achieved through the establishment of 46,675 branches in rural and semi-urban areas, accounting for 73.5 percent of the network of branches. As of March 1998,deposits of the banking system stood at Rs6,013.48 billion and net bank credit at Rs3,218.13

billion.The number of deposit accounts stood at 380 million and the number of borrowing accountsat 58.10million. Tables 5, 6, and 7 reflect the diversification of branch network attained by

commercial banks,the regional balance observed since nationalization, and stagnation in branch expansion in thepost-reform period. There has been a net decline in the number of rural branches and a

marginal rise in the number of semi-urban branches.The outreach of cooperative banks and RSBs is shown in Table 8. In an effort to increase theflow of funds through cooperative banks, the resources of the main refinancing agency,

NABARD, were boosted substantially through deposits under the Rural InfrastructureDevelopment Fund placed by commercial banks,as well as through the improvement of


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NABARDs capital base and increase in the general line of credit by RBI. The functioning ofcooperative banking institutions

did not show much improvement during 1996/97 and 1997/98. With deposits and creditindicating

general deceleration, the overdue position of these institutions remained more or lessstagnant.

However, cooperative banks emulated the changing structure and practices of the commercialbankingsector in revamping their internal systems, ensuring in the process timely completion of auditand upgrading of their financial architecture. In various regions, there is a differing pattern ofcooperative banking, determined according to the strength of the cooperative movement.Some cooperatives such as those in the dairy and sugar sectors are as big as corporateentities. In fact, dairy cooperatives compete with multinational corporations such as Nestl.There is also a category in the cooperative sector called primary (urban) cooperative banks(PCBs).As of March 1998, there are 1,416 reporting PCBs catering primarily to the needs of lower-

and middleincome groups. These are mainly commercial in character and located mostly inurban areas. Some have become a competitive force with notably big branch network and

high growths recorded. As of 1998, PCBs have deposits of Rs384.72 billion and advances ofRs264.55 billion, as indicated in Table 9. Table 10 shows the gross NPA ratio of PCBs.

The advances of PCBs fall in the majority of categories of priority sectors prescribed forPSBs and

their recovery performance is better than that of PSBs. The cooperative banks also performbasic functions of banking but differ from commercial banks in the following respects:

commercial banks are joint-stock companies under the Companies Act of 1956, or publicsector

banks under a separate Act of the Parliament.A STUDY OF FINANCIAL MARKETSCooperative banks were established under the Cooperative Societies Acts of different states; cooperative banks have a three-tier setup, with state cooperative bank at the apex,central/districtcooperative banks at district level, and primary cooperative societies at rural level; only someof the sections of the Banking Regulation Act of 1949 (fully applicable to commercial

banks), are applicable to cooperative banks,resulting in only partial control by RBI ofcooperative

banks; and cooperative banks function on the principle of cooperation and not entirely oncommercial parameters .

FINANCIAL PERFORMANCE OF TATA MOTORS

Directors ReportThe Directors present their Sixty-Fifth Annual Report and the Audited

Statement of Accounts for the year ended March 31, 2010.

FINANCIAL PERFORMANCE SUMMARY

(Rs. in crores)

Company Tata Motors Group


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2009-10 2008-09 2009-10 2008-09

A FINANCIAL RESULTS

(i) Gross Revenue 38,364.10 28,568.21 95,567.42 74,093.31

(ii) Net Revenue(excluding excise duty) 35,593.05 25,629.73 92,519.25 70,880.95

(iii) Total Expenditure 31,414.77 23,877.29 83,905.09 68,684.45

(iv) Operating Profit 4,178.28 1,752.44 8,614.16 2,196.50

(v) Other Income 1,853.45 925.97 1,793.12 798.96

(vi) Profit before Interest,Depreciation, Amortization,

Exceptionalitems & Tax 6,031.73 2,678.41 10,407.28 2,995.46

(vii) Interest and

Discounting Charges (Net) 1,103.84 673.68 2,239.71 1,930.90

(viii) Cash Profit 4,927.89 2,004.73 8,167.57 1,064.56

(ix) Depreciation,Amortisation & ProductDevelopment Expenses 1177.90 925.71 4385.33 2854.52

(x) Profit / (Loss) forthe year before Exceptionalitems & Tax 3,749.99 1,079.02 3,782.24 (1,789.96)

(xi) Exceptional items 920.45 65.26 259.60 339.29

(xii) Profit / (Loss)Before Tax 2,829.54 1,013.76 3,522.64 (2,129.25)

(xiii) Tax Expense 589.46 12.50 1,005.75 335.75

(xiv) Profit / (Loss)After Tax 2,240.08 1,001.26 2,516.89 (2,465.00)(xv) Share of Minority

Interest and Share ofProfit/(Loss)in respect of investmentsin associate companies - - 54.17 (40.25)

(xvi) Profit / (Loss)


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for the year 2,240.08 1,001.26 2,571.06 (2,505.25)

(xvii) Balance BroughtForward from Previous

Year 1,685.99 1,383.07 (1,553.66) 1,764.12

(xviii) Credit taken forDividend Distribution Taxfor Previous Year - 15.29 - -

(xix) Amount Availablefor Appropriations 3,926.07 2,399.62 1,017.40 (741.13)

B APPROPRIATIONS

(a) Debenture Redemption

Reserve 500.00 267.80 500.00 267.80

(b) General Reserve 500.00 100.13 520.32 138.20

(c) Other Reserves - - 13.08 41.95

(d) Dividend (including tax) 991.94 345.70 1,001.85 364.58

(e) Balance carried toBalance Sheet 1,934.13 1,685.99 (1,017.85) (1,553.66)

DIVIDEND

Considering the Companys financial performance, the Directors haverecommended a dividend of Rs.15/- per share on the increased capital of506,381,356 Ordinary Shares of Rs.10/- each (previous year- Rs.6/- pershare) and Rs.15.50 per share on 64,176,560 A Ordinary Shares ofRs.10/- each (previous year- Rs 6.50 per share) and any furtherOrdinary Shares and/or A Ordinary Shares that may be allotted by theCompany prior to August 12, 2010 (being the book closure date for the

purpose of the said dividend entitlement) for 2009-10. The saiddividend, if approved by the Members, would involve a cash outflow ofRs.991.94 crores (previous year - Rs.345.70 crores) resulting in a

payout of 44% of the unconsolidated profits of the Company.

OPERATING RESULTS AND PROFITS

After the economic downturn and difficult market conditions in the

automotive sector globally in 2008-09, during the year, economiesacross the world (with a few exceptions) showed signs of recovery andgrowth. The Indian economy bounced back quickly and strongly growing at7.2% in 2009-10. The automotive sector in India started the yearsteadily, gathered momentum in different segments in the second half ofthe year and ended the year with a record growth and performance.


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The Companys turnover, in this background and with a strong portfolio

coupled with successful launch of new products and variants incommercial vehicles and passenger vehicles, was Rs.38,364 crores, a

growth of 34.3% over the previous year. The volume growth coupled withother actions on pricing and cost reduction enabled the Company to

achieve significant improvement in EBIDTA margin to 11.7% (6.8% in2008-09). The Profit Before Tax of Rs.2,830 crores and Profit After Taxof Rs.2,240 crores also grew significantly over the previous year by179.1% and 123.7% respectively.

The Tata Motors Group turnover was Rs.95,567 crores, a growth of 29%over previous year contributed mainly by market recovery, improvedrealization and successful launch of new products. Consolidated ProfitBefore Tax was Rs.3,523 crores (Loss of Rs.2,129 crores in 2008-09) andConsolidated Profit for the year was Rs.2,571 crores (Loss of Rs.2,505

crores in 2008-09).

The performance of the Company and its subsidiaries is elaborated inthe Management Discussion and Analysis Report which forms a part of

this Annual Report. A snapshot is given below.

VEHICLE SALES AND MARKET SHARES

The Company recorded a sale of 633,862 vehicles in 2009-10, a growth of34% over previous year (472,885 vehicles) in the domestic market inIndia, representing a 25.5% share in the industry (improving from 24.4%share in the previous year).

Commercial vehicle sales were highest ever at 373,842 vehiclesachieving a robust growth of 40.9% over previous year and a marketshare of 64.2% (a gain of 0.4%, over previous year). A strong product

portfolio, successful launch of new products and variants, extensiveefforts in marketing and finance enablement for customers andleadership in market research and penetration, contributed to thesignificant improvement in overall performance. Some of the keyhighlights were:- - In M&HCV, growth of 36.5% to 155,161 vehicles and amarket share improvement to 63.3% (from 61.9% in the previous year);launch of the next generation of heavy trucks - Prima range; completionof delivery of 1,625 low entry buses to Delhi Transport Corporation anddelivery of major portion of the orders of over 5,000 buses under

JnNURM Scheme of Government of India for modernizing the publictransport in India.

- The Light Commercial Vehicle (LCV) sales recorded a spectaculargrowth of 45.4% in FY 2009-10. While this was largely aided by thegrowth in the small commercial vehicles, the rest of the segment alsogrew handsomely. The competition in the small commercial vehicle rangeincreased resulting in a 0.5% loss in the domestic market sharereducing it to 64.8%. The Companys sales increased by 44.2% to 218,681


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LCVs. The Company launched new variants on the Ace platform, Ace EX,Super Ace and the 407 Pickup which are expected to help in gaining

volumes.

Passenger vehicle sales were 260,020 vehicles, highest ever, achievinga growth of 25.3% over previous year and a market share of 13.7%

(stable compared to 13.6% in the previous year). The Company continuesto be amongst the top three players in the passenger vehicle marketwhich has over 25 players. The growing sales of the new generationIndica Vista and successful launch and market response for the IndigoManza mainly contributed to the growth. Some of the key highlightswere:

- In the Small Car segment, increase in market share to 13.3% (asagainst 12.7%, in the previous year), with the growing sales of IndicaVista, sales of the Nano and the Fiat Punto;

- Commencement of sales of Nano in July 2009 and completing deliveries

of 30,763 cars to the customers and commencement of trial production inthe Sanand plant.

- The Indigo range sales of 54,551 units, a growth of 10.9% over the

previous year and also the highest ever sales by the Company in thisrange, mainly due to the launch of the Indigo Manza in October 2009.

- Sale of 33,507 Multi-Utility Vehicles (MUVs), a decline of 14.7%against the last year and as a result the market share dropped to12.4%. The Grande Mk II which was launched in December 2009 has beenwell accepted in the market and is expected to help in regaining marketshare in the UV segment.

- Sale of 24,884 Fiat cars which has given Fiat a 1.3% market share asagainst 0.5% in the previous year with Linea sales at 11,102 nos. (asegment share of 10.1%) and the Grande Punto sales at 13,281 (a segmentshare of 3.5%).

- The Company sold 225 Jaguar and Land Rover vehicles through itsexclusive dealerships in India in the first year of the sales of theJaguar Land Rover brands.

The Companys international business remained affected by the economic

downturn in many of the key markets. The Companys commercial vehicleexports grew moderately by 4.7% to 27,878 vehicles and passengervehicles exports declined by 9.9% to 6,231 vehicles. With improved

economic outlook and market recovery and with the new product range,the Company expects significant improvement in its international

business in the future.

Tata Motors Group sales were 880,396 vehicles across its entire rangeof products and markets. The key highlights were:


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- The Company has sold 667,971 vehicles.

- Jaguar Land Rover achieved sale of 193,982 vehicles as compared to

167,348 vehicles in 2008-09 (in 10 months since Tata Motors acquisitionof the business in June 2008). Jaguar Land Rover continued to enhance

its product offerings through an all new XFR, powertrain offerings and2010 model year vehicles. The new Jaguar XJ was unveiled in London inJuly 2009 and had its public debut at the Frankfurt Motor Show inSeptember 2009.

- In South Korea, Tata Daewoo Commercial Vehicle Company Limited (TDCV)successfully launched the new premium truck platform Prima; TDCVsales were stagnant at 9,011 vehicles in Korea and internationalmarkets as compared to 9,137 vehicles in the previous year.

- In Thailand, Tata Motors (Thailand) Limited saw a very good responseto the CNG version of the Tata Pick-up vehicle Xenon. TATA MOTORS

FINANCE LIMITED- CUSTOMER FINANCING INITIATIVES

The vehicle financing activity under the brand Tata MotorFinance(TMF) of Tata Motors Finance Limited, a wholly-owned subsidiary

company, financed a total of 1,44,806 vehicles during the year ascompared to 1,00,611 vehicles in the previous year. Total

disbursements were Rs.6,697 crores as against Rs.4,900 crores in theprevious year. The disbursals for new commercial vehicles were Rs.5,123crores (96,593 units) as compared to Rs.3,319 crores (59,467 units)during the previous year. For passenger cars, total disbursements wereRs.1,454 crores (48,213 units) as compared to Rs.1,288 crores (41,144units) in the previous year. The market share in terms of productsfinanced by the Company increased from 22.4% in commercial vehicles to26% and remained constant at 21% in passenger cars. TMF has shownimprovements in disbursements as well as Net Interest Margins, mainlydriven by the overall economic recovery coupled with a strong focus oncontrolling costs, improving quality of fresh acquisitions, micro-management of collections. TMFs strategy on controlling, managing andreversing non-performing assets (NPAs) and Risk Scored Pricing Modelthrust on customer relations and a branch based re-organised fieldstructure has set a robust platform to enable future growth.

HUMAN RESOURCES & INDUSTRIAL RELATIONS

Industrial Relations were cordial at all locations. In a challengingenvironment and business conditions, the support from the workforce and

unions was positive throughout. The key highlights in the humanresources and industrial relations were:- - The Companys plant atUttarakhand was conferred with the prestigious Golden Peacock Award forSafety & Environment and the National Award for energy conservation bythe Ministry of Power. The Pune plant received the Frost and SullivanGreen leader award for 2009 in the automotive sector. The Jamshedpur


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plant obtained a revised and updated certification under SA 8000 - aglobal social accountability standard for working conditions,

certifying labour practices at the facilities including those ofsuppliers. Towards organizational health and safety, the plants at

Jamshedpur, Pune, Uttarakhand and Lucknow are certified under OHSAS18001. The communication on progress during 2009-10 was submitted to

the United Nations Global Compact. The Company has also submitted GRIreport for 2008-09 based on G3 Guidelines of sustainability reportingframework. The Company also undertook several initiatives, includingon-line tools for performance improvement, employee development andtraining.

- At Jaguar Land Rover, the year under review was dominated by theeconomic downturn and the need to cut costs quickly, which resulted inlarge numbers of non-production shifts in the 3 UK plants (CastleBromwich, Halewood and Solihull). Jaguar Land Rover worked closely

with its Trade Unions and negotiated a Framework Agreement whichsecured 68 million of cost savings. It closed its Defined Benefit

pension scheme to new workers with effect from April 24, 2010, byintroducing a Defined Contribution scheme. All Jaguar Land Rover sites

have been prepared to commence certification process for OHSAS 18001external accreditation for Health and Safety standards, commencing July

2010.

The Company had 482 employees who were in receipt of remuneration ofnot less than Rs.24 lacs during the year or Rs. 2 lacs per month duringany part of the said year. The Information required under Section217(2A) of the Companies Act, 1956 and the Rules made thereunder is

provided in the Annexure forming part of the Report. In terms ofSection 219(1)(b)(iv) of the Act, the Report and Accounts are beingsent to the shareholders excluding the aforesaid Annexure. AnyShareholder interested in obtaining a copy of the same may write to theCompany Secretary.

FINANCE

The borrowings of the Company as on March 31, 2010 stood atRs.16,625.91 crores (previous year Rs.13,165.56 crores). The keyhighlights were:- - In 2009-10, the Company raised Rs.4,200 crores fromthe issue of Secured, Rated, Credit Enhanced, Listed, 2% Coupon

Non-Convertible Debentures (NCDs) with premium on redemption and Rs.200

crores from the issue of 9.95% Secured NCDs.

- In a challenging financial market environment, the Company

successfully rolled over in May 2009, the bridge finance it hadobtained for acquisition of the Jaguar Land Rover business for a periodof 18 months, till December 2010. Subsequently, the Company was able to

prepay this loan facility in October 2009 from certain divestments,improved cash generation from operations and also through fund raised,US$ 375 million from the issue of Global Depository Receipts and US$


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375 million from issue of Foreign Currency Convertible Notes.

- Further, the Company made a limited period enhanced conversion offerto the non-U.S. holders of the 0% JPY 11,760 million and 1% US$ 300

million Convertible Notes. The offer met with great success withbondholders representing 93% of the JPY bonds and 76% of US$ series

bonds, opting to convert their bonds into Ordinary Shares, whichresulted in debt of US$ 345 million being extinguished against theissue of 26.64 million Ordinary Shares.

- The Company also sold 20% stake in Telco Construction EquipmentCompany Limited (Telcon), in favour of Hitachi Construction MachineryCo. Ltd. (Hitachi) for a consideration of Rs.1,152.51 crores (net ofexpenses) resulting in the Companys shareholding being reduced to 40%(on consolidated basis).

Jaguar Land Rover completed guarantee arrangements to facilitate thedrawdown of a 338 million loan from European Investment Bank for its

projects aimed at emission reduction, besides other financingactivities like an inventory financing facility; renewal of a US0

million loan; and repaid short term borrowing totaling 220 million.

Tata Motors Group debt:equity ratio in the operations continues toremain high at 4.3:1, though significantly bought down from 5.9:1 as at

March 31, 2009. The Board is conscious of this, and the need tostrengthen the long-term funding for the business.

The Company will further consider suitable steps to de-leverage andhence de-risk the balance sheet from volatility and has also taken andwill continue to implement suitable steps for raising long termresources to match the Companys fund requirement and to optimize itsloan maturity profile. The Companys rating for foreign currency

borrowings was revised by Standard & Poor to B (Positive Outlook) andby Moodys to B3 (Stable Outlook). For borrowing in local currency therating was revised to A+ (Stable Outlook) by Crisil and to LA+ (StableOutlook) by ICRA.

INFORMATION TECHNOLOGY INITIATIVES

Tata Motors Group continued to reinforce its IT capabilities in allareas of business in design/ engineering, manufacturing, vendor

interface and dealer/customer interface functions. The majorinitiatives undertaken were:- - in Product Development/Engineering, 3Ddesign visualization capability, enriching digital content by adding

behaviour to digital models, Knowledge Based Engineering tools andenhanced digital collaboration with vendors;

- Digital manufacturing solutions and validation was extensivelydeployed for the Nano facilities planning; manufacturing Executionsystems implemented in the high-volume plants at Uttarakhand and


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Sanand;

- Supplier portal, which facilitates close collaboration fromdesign/development stage to production planning and scheduling;

- CRM-DMS program enhancements, which further enrich the on-line common

platform system for the Companys sales, spare parts service activitiesand for all channel partners, giving the Company an on-line real-timemarket and customer interaction and information capability;

- Extension of customer touch points through web, call centre and SMS.

- Jaguar Land Rover completed the process of separating its operationsin markets where it previously operated as a part of the Ford legalentity and the process to separate the IT infrastructure and supportsystems is expected to be completed shortly. Jaguar Land Rover also

rolled out its new SAP solution to many of its existing National SalesCompanies around the world including South Africa, Brazil, North

America, France and China. Jaguar Land Rover has initiated a majorprogramme to re-engineer Product Creation capability, covering every

aspect of Product Lifecycle Management (PLM) from concept to recycling,delivering a system that will provide everyone with immediate access to

all Product Creation information, with simple-to-use,graphically-orientated user interfaces.

Tata Technologies Limited continues to be a key strategic partner inseveral of these technology initiatives.

NEW PRODUCT, TECHNOLOGY AND ENVIRONMENT - FRIENDLY INITIATIVES

Product Development

Tata Motors Group continuously assesses customer needs to develop newand innovative products which deliver better value to its customers. In

pursuance of this strategy, the Company has developed significantin-house capabilities and works with a range of partners to keep its

product profile rich and meet market expectations. Some of the keyinitiatives and projects include :- - The new heavy truck range Primaunveiled in May 2009, will be enriched through several product andapplication variants such as tractor trailers, tippers, rigid trucksover the next few years. TDCV received the Grand Prize of 2009 Good

Design

Selection of Korea for the Prima, and development on a range of light

trucks is underway.

- The new range of buses (based on the Prima platform with bodies beingmade by Tata Marcopolo displayed at the Delhi Auto Expo in January2010) have been launched. Tata Hispano has developed a new IntercityCoach the Xerus and a new Suburban Bus, the Intea and is working on


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developing a range of other buses.

- In small commercial vehicles, the Ace platform is being exploited tointroduce variants to address various market segments. The Ace EX and

Super Ace have been launched and the Company will introduce themulti-purpose vehicle, Venture, the passenger vehicle variant, Magic

Iris and the micro-truck Ace Zip.

- The Aria, Indias first indigenously developed crossover vehicle,showcased at the last Auto Expo is expected to be launched in the firsthalf of 2010-11.

- Variants of the Nano, to suit specific needs of the domestic andinternational markets are being developed. Increased thrust is beingmade to explore opportunities for launch of the Indica Vista and theIndigo Manza in various international markets.

- In July 2009, Jaguar Land Rover launched to the world, the beginnings

of its response to Environmental and C02 challenges with more compactand efficient vehicles. The New XJ launched in early 2010-11, features

the next generation Jaguars aerospace-inspired aluminum bodyarchitecture enhanced power train with ultra efficient petrol and

diesel engine variants, highest standards of personal luxury andspecifications, amongst which is its instrument cluster with a 12 thin

film transistor (TFT) screen. The Range Rover Evoque, a new morecompact product, with class leading C02 performance and technology isunder development. The product will showcase technology featuresincluding Park-for-you and Magna-ride to deliver outstandingChassis dynamics, whilst also showcasing increased use of Aluminium andcomposites for exterior body panels to reduce weight.

Development of Environment-friendly Technologies

As a responsible automobile manufacturer, Tata Motors Group aims todevelop vehicles and technologies to reduce the carbon footprint bydeveloping vehicles running on alternative fuels and hybrids such as:

Development of a complete range of CNG vehicles including Ace, Magic,Xenon, Winger, Indigo and also trucks and buses. Over 2200 CNG fuelled

buses were supplied to Delhi Transport Corporation. Tata Motors(Thailand) Limited was the first OEM to offer a factory fitted CNG

variant of the Xenon pickup in the Thai market. Tata Daewoo CommercialVehicle Co. Ltd. (TDCV) pioneered the development and introduction ofthe first Liquefied Natural Gas (LNG) tractor trailer and the LPG MCV

truck in the South Korean market.

Hybrid technologies offer perfect solutions for certain commercialvehicle applications. The Company is working on developing Diesel andCNG hybrid solutions for city bus applications in India and also inSpain through its subsidiary Tata Hispano. Tata Hispano received a


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grant from the Spanish Government for the development of a Hybrid LowFloor City Bus. The Company is working on both, series and parallel

hybrid solutions and plans to display the vehicles during the DelhiCommonwealth Games in October 2010. A mild-hybrid on the Ace platform -

Ace Ex with a start-stop arrangement which delivers a saving in fuelconsumption in heavy traffic conditions was launched in the previous

year.

On the electric vehicle range, the Company has secured its position inresearch and development of electric vehicle technology Ace EV,displayed at Zaragosa exhibition in 2008 and Vista EV displayed atGeneva Motor show in 2009, are in advanced stages of development. Thesevehicles will be launched in the European markets, especially thenorthern European market where there are strong fiscal incentives forsuch vehicles in the urban city centers.

The Company is simultaneously working to introduce a range oftechnologies, which will help in reducing fuel consumption on its

petrol and diesel powered vehicles such as improved fuel injectionsystems, electric power steering, radial tyres for commercial vehicles,

low resistance tyres, automatic transmissions and weight reduction ofcomponents.

Despite the severe financial conditions of the last 12 months, Jaguar

Land Rover has continued to invest heavily in process and productresearch. During the past 12 months, 120 technology projects have been

progressed toward implementation on future programmes. The 10 modelyear programmes delivered a range of advanced technologies includingDual View Screen (world first), Continuously Variable Damping, AutoHeadlamp Dipping and Advanced All-Round Camera features. All of thesewere well received by the press and customers alike and served to raisethe technology image of Jaguar Land Rover products.

Further, an extensive range of new technologies are under developmentfor future programmes including Series and Parallel hybrid vehicles,with the first generation of full parallel hybrids moving towardsapplication readiness later this year. Other projects includeLimo-green (series Hybrid), Power train downsizing, EV transmissions,etc; some of which have been successful in securing government funding.

SUBSIDIARY/ASSOCIATE COMPANIES AND CONSOLIDATED FINANCIAL STATEMENTS

a. During the year, the following changes have taken place insubsidiary companies: Subsidiary companies formed/acquired:

- Tata Hispano Motors Carrocera S.A., (Hispano) became a subsidiaryconsequent upon the Company exercising its put option and increasingits stake from 21% to 100%. Consequently its wholly owned subsidiaryCarrosseries Hispano Maghreb, Morocco also became the Company ssubsidiary.


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- JaguarLandRover Limited, the Companys subsidiary formed the following

subsidiaries, viz. Jaguar Land Rover Brazil LLC, Limited LiabilityCompany Jaguar Land Rover (Russia), Land Rover Parts Limited and Land

Rover Parts US LLC.

Companies ceasing to be subsidiary companies:

- The Company partially divested 20% stake in Telco ConstructionEquipment Company Limited (Telcon) in favour of Hitachi ConstructionMachinery Co. Ltd (Hitachi). Consequently, its stake in Telcon wasreduced to 40% (on consolidated basis), resulting in Telcon and its 5subsidiaries, viz. Serviplem S. A., Baryval Assistencia Tecnica S.L.,Comoplesa Lebrero S.A., Inner Mongolia North Baryval EngineeringSpecial Vehicle Corporation Ltd and Eurl Lebrero France, ceasing to besubsidiaries of the Company in March 2010 and have become associate

companies.

- INCAT Holdings BV, INCAT KK and Lemmerpoort BV, subsidairies of TataTechnologies Limited and Jaguar & Land Rover Asia Pacific Company

Limited, a subsidairy of JaguarLandRover Limited were liquidated.

- Miljo Innovasjon AS was merged with Miljobil Grenland AS.

Name changes:

- Tata Technologies Inc. from INCAT Systems Inc.

- Tata Technologies (Canada) Inc. from INCAT Solutions of Canada Inc.

- Tata Technologies de Mexico, S.A. de C.V from Integrated Systems deMexico, S.A. de C.V.

- Jaguar Land Rover Nederland BV from Land Rover Nederland BV.

- Tata Hispano Motors Carrocera S.A. from Hispano Carrocera S.A.

b. As required under the Listing agreement with the Stock Exchanges,Consolidated Financial Statements of the Company is attached. Inaccordance with the Statement of Accounting Standard on ConsolidatedFinancial Statements (AS 21) and the Accounting Standard on Accounting

for Investments in Associates (AS 23) and Accounting Standard onAccounting for Joint Ventures (AS 27), issued by the Institute ofChartered Accountants of India, the subsidiaries, associates and joint

venture have been considered in the Consolidated Financial Statementsof the Company. On an application made by the Company under Section212(8) of the Companies Act, 1956, the Central Government exempted theCompany from attaching a copy of the Balance Sheet and the Profit andLoss Account of the subsidiary companies and other documents to theAnnual Report of the Company. Accordingly, the said documents are not


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being attached with the Balance Sheet of the Company. The gist offinancial performance of the subsidiary companies for FY 2009-10 are

provided under Subsidiary Companies: Financial Highlights - 2009-10 inthe Annual Report. The Company will make available these documents/

details upon request by any member of the Company or its subsidiarycompanies who may be interested in obtaining the same and will also be

kept open for inspection by them at the Registered Office of theCompany and at the Head Offices of the subsidiary company concerned.The same would also be posted on the website of the Company.

c. Associate companies

As on March 31, 2010, the Company had the following associatecompanies:

Tata Cummins Limited (TCL), in which the Company has a 50%

shareholding, with Cummins Engine Co. Inc., USA holding the balance.TCL is engaged in the manufacture and sale of high horse power engines

used in the Company s range of M&HCVs.

Tata AutoComp Systems Limited (TACO) is a holding company for promotingdomestic and foreign Joint Ventures in auto components and systems and

is also engaged in engineering services, supply chain management andafter market operations for the auto industry. The Companys

shareholding in TACO is 26%.

Tata Precision Industries Pte. Ltd., Singapore, in which the Companyhas a 49.99% shareholding, is engaged in the manufacture and sale ofhigh precision tooling and equipment for the computer and electronicsindustry.

Nita Co. Ltd., Bangladesh, in which the Company holds 40% equity, isengaged in the assembly of TATA vehicles for the Bangladesh market.

Telco Construction Equipment Co. Ltd. (TELCON), in which the Companydivested a further 20% stake during the year in favour of Hitachi, isengaged in the business of development, manufacture and sale ofconstruction equipment and allied services. Consequently Telcon isowned 60% by Hitachi and 40% (on consolidated basis) by Tata Motors.

Fiat India Automobiles Limited, a 50:50 joint venture company between

Tata Motors Limited and Fiat Company located in Ranjangaon, Maharashtrais engaged in the manufacture of Tata and Fiat branded products as wellas engines and transmissions for use by both the partners.

Automobile Corporation of Goa Ltd. (ACGL), a Company in which TataMotors Limited has a 42.37% shareholding, was incorporated in 1980,

jointly with EDC Limited (a Goa government enterprise). ACGL is alisted company engaged in manufacturing sheet metal components,assemblies and bus coaches and is the largest supplier of buses (mainly


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for exports) to the Company.

FIXED DEPOSITS

In December 2008, the Company launched a public fixed deposit scheme tomeet a part of the funding requirements of the Company. The scheme has

received an overwhelming response and the management of the Company isthankful to all the investors for participating in the scheme and thefaith reposed in the Company. The aggregate amount collected underfixed deposit scheme as on March 31, 2010 was Rs. 3,173.45 crores from2,87,343 depositors. The Company has no overdue deposits other thanunclaimed deposits. The Company has discontinued the acceptance andrenewal of deposits w.e.f. May 28, 2010.

ENERGY, TECHNOLOGY & FOREIGN EXCHANGE

Details of energy conservation and research and development activitiesundertaken by the Company along with the information in accordance with

the provisions of Section 217(1)(e) of the Companies Act, 1956, readwith the Companies (Disclosure of Particulars in the Report of Board of

Directors) Rules, 1988, are given as an Annexure to the DirectorsReport.

DIRECTORS

Mr N A Soonawala who had been on the Board of the Company since May1989, stepped down from the Board of Directors w.e.f. March 31, 2010in accordance with the Policy for Retirement Age of Non-ExecutiveDirectors adopted by the Company. His contributions particularly inareas of capital raising, recent acquisitions and itsfinancing/refinancing, financial management and accounting and capitalmarket matters, have helped the Company in meeting its aspirations to

become a truly global Company; particularly in times of difficultiessuch as the global meltdown, market swings, Nano relocation. MrSoonawala was on the Board for more than 20 years and was a Member ofthe Executive Committee of the Board, Remuneration Committee and the

Nomination Committee. Mr Soonawala had by his counsel and guidancetremendously contributed to the Company over the years in its strategicdirection and in its financial structure. The Directors place on recordthe debt the Company owes to Mr Soonawala in contributing to theCompanys growth and premier position in the automobile industry.

Mr R Gopalakrishnan, a Director of the Company since December 1998, whoretires by rotation at the ensuing Annual General Meeting has conveyed

his decision not to offer himself for re-appointment. Mr Gopalakrishnanwas also a Member of the Executive Committee of the Board, InvestorsGrievance Committee and Ethics and Compliance Committee and has addedvalue to deliberations at Board/Committee Meetings. The Directors placeon record their appreciation of the contribution made by MrGopalakrishnan during his tenure as Director of the Company.


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The Board at its meeting held on May 27, 2010, appointed Mr Ranendra

Sen as an Additional Director, w.e.f. June 1, 2010 in accordance withSection 260 of the Companies Act, 1956 and Article 132 of the Articles

of Association of the Company.

Mr Carl-Peter Forster was appointed as Chief Executive Officer andManaging Director of the Company w.e.f. April 1, 2010. An abstract andmemorandum of interest under Section 302 of the Companies Act, 1956 has

been sent to the members of the Company.

In accordance with the provisions of the Companies Act, 1956 and theArticles of Association of the Company, M/s Ratan N Tata and R AMashelkar are liable to retire by rotation and are eligible forre-appointment.

Attention of the Members is invited to the relevant items in the Noticeof the Annual General Meeting and the Explanatory Statement thereto.

CORPORATE GOVERNANCE

A separate section on Corporate Governance forming part of the

Directors Report and the certificate from the Practicing CompanySecretary confirming compliance of Corporate Governance norms as

stipulated in Clause 49 of the Listing Agreement with the Indian StockExchanges is included in the Annual Report.

AUDIT

M/s Deloitte Haskins & Sells (DHS), Registration No. 117366W, who arethe Statutory Auditors of the Company hold office until the conclusionof the ensuing Annual General Meeting. It is proposed to re-appointthem to examine and audit the accounts of the Company for the FinancialYear 2010-11. DHS have, under Section 224(1) of the Companies Act,1956, furnished a certificate of their eligibility for re-appointment.

Cost Audit

As per the requirement of the Central Government and pursuant toSection 233B of the Companies Act, 1956, the Company carries out anaudit of cost accounts relating to motor vehicles every year. Subject

to the approval of the Central Government, the Company has appointedM/s Mani & Co. to audit the cost accounts relating to motor vehiclesfor the Financial Year 2010-11.

DIRECTORS RESPONSIBILITY STATEMENT:

Pursuant to Section 217 (2AA) of the Companies Act, 1956, theDirectors, based on the representation received from the OperatingManagement, confirm that:


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- in the preparation of the annual accounts, the applicable accounting

standards have been followed and that there are no material departures;

- they have, in the selection of the accounting policies, consulted theStatutory Auditors and have applied them consistently and made

judgments and estimates that are reasonable and prudent so as to give atrue and fair view of the state of affairs of the Company at the end ofthe financial year and of the profit of the Company for that period;

- they have taken proper and sufficient care, to the best of theirknowledge and ability, for the maintenance of adequate accountingrecords in accordance with the provisions of the Companies Act, 1956,for safeguarding the assets of the Company and for preventing anddetecting fraud and other irregularities;

- they have prepared the annual accounts on a going concern basis.

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