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The Muthoot Finance Private Limited 9th Annual Report

DirectorsMr. M.G.George MuthootMr. George Thomas MuthootMr. George Jacob MuthootMrs. Sara GeorgeMrs. Anna AlexanderMr. George M Alexander

Managing DirectorMr. George Alexander Muthoot

Statutory AuditorsM/s. Rangamani & Co.Chartered Accountants, Card Bank Premises,Vadaikanal, South Bank Road, Alleppey-688 011

Registered Office2nd FloorMuthoot ChambersOpp. Saritha Theatre ComplexBanerji RoadKochi - 18

Founder Late Mr. M. George Muthoot

The MuThooT Finance PrivaTe LiMiTed

powering lives At Muthoot, we believe life is about living dreams. And

acquiring the power to make dreams reality.

The Muthoot group has been

striving over a century to do just that.

To power lives. Of our customers, associates and our

people. Through our operations as diverse as your

aspirations, we have brought in new ideas and set new

standards in every area of our operations,

to give you the extra power to actualise your dreams.

That’s been our dream. Year after year we relive

this dream with renewed vigour, renewed focus and

renewed commitment.

contents

7 Notice to the shareholders

10 Directors’ report

16 Auditors’ report

22 Financial statements

25 Schedules to accounts

28 Notes on accounts & accounting policies

31 Cash flow statement

32 Balance sheet abstract

9th Annual Report 2005 - 06

directorsPromoter

The MuThooT Finance PrivaTe LiMiTed

Mr. George Alexander MuthootManaging Director

Mr. M.G. George MuthootChairman

Mr.George Jacob Muthoot Whole time Director

Mr. George Thomas Muthoot Whole time Director

notice to the shareholders

The MuThooT Finance PrivaTe LiMiTed �

NOTICE

Notice is hereby given that the Ninth Annual General Meeting of the members of The Muthoot Finance Private Limited will be held at 2nd Floor, Muthoot Chambers, Opposite Saritha Theatre Complex, Banerji Road, Ernakulam– 18 on Monday , 21st August, 2006 at 10 a.m. to conduct the following business.

ORDINARY BUSINESS

1. To receive, consider and adopt the Audited Balance Sheet of the Company as at 31.03.2006 and the Profit and Loss Account for the financial year ended on that date and the Reports of the Directors & Auditors thereon.

2. To appoint a Director in the place of Mrs. Anna Alexander who retires by rotation and being eligible offers herself for re-appointment.

3. To appoint Auditors and fix their remuneration.

NOTES

A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and vote instead of himself and a proxy need not be a member of the Company.

The instrument appointing the proxy in order to be effective, should be duly stamped, completed and signed and deposited at the Registered Office of the Company not less than 48 hours before the commencement of the meeting.

For and on behalf of the Board

Sd/-M.G. George MuthootChairman

Kochi-1829/06/2006

directors’report

The MuThooT Finance PrivaTe LiMiTed11

Director’s report 2005-2006To the members,Your Directors have pleasure in presenting the ninth annual report of the Company together with the audited financial statements for the year ended 31st March 2006

Financial results.

The financial results for the year ended 31st March 2006 are summarized below

(Amount in Rs Lacs)

Particulars Yr ended 31.03.06

Yr ended31.03.05

Income from operations 14806 11680

Total expenditure 10330 8615

Profit before depreciation 4476 3065

Depreciation and other non cash charges 342 312

Profit before tax 4134 2753

Provision for taxes/deferred taxes 1421 985

Profit after tax 2713 1768

Share Capital & Reserves 9087 6374

Subordinate Debt (Tier II Capital) 4000 4000

Secured Nonconvertible Debentures 61802 59300

Bank Borrowings 10707 4691

Retail loans 78034 66766

Economic Scenario

Indian economy’s robust growth story is expected to continue in the current fiscal and overall GDP growth ratio is expected to better the rate achieved in 2005-06. Worrisome portents are high crude prices and pass through effect of higher fuel price on the inflation front, and concomitant rise in interest rates.

Broadly, the corporate earning growth is expected to be in the vicinity of 20% and this together with a moderate monsoon and increased growth in agriculture is expected to spur consumer demand. On the agriculture and retail front the credit growth is expected to substantially raise the country’s credit to GDP ratio and this augurs well for loan companies like yours.

Business environment and prospects

In the Company’s core business of lending against pledge of gold ornaments the contours of business has got redrawn substantially due to entry of more players and changing perceptions about role of gold as a resource for raising liquidity. Thus a number of new generation private sector banks are in the fray along with all the public sector banks and old generation private sector banks giving loans against gold under tailor made schemes to suit the requirement of various class of borrowers. The resultant competitive environment has vastly changed the stigma once associated with pledge of gold ornaments and a larger section of middle class and high net worth individuals are using their stock of gold for meeting their personal and business related needs for finance. We are seeing distinct signals of gold loan being perceived as a lifestyle product as opposed to a stigma ridden crisis related desperation product. Your Company captured the need for such a perception change early on and during the year initiated a number of moves through visual and print media to reposition the product. To signify the power of gold in drawing liquidity, your Company branded the gold loan as “Gold Power” and the marketing efforts primarily focused on loan against jewels being availed for starting enterprises, meeting housing loan installments, going on holiday trips etc., all associated with enhancement of quality of life. This perception change is central to the future business strategy of your Company and being the largest Company in this line of business in the country, your Company has taken the pioneering role in bringing about the change. Going by the results achieved, your Company’s efforts have started yielding beneficial results.

The MuThooT Finance PrivaTe LiMiTed 12

International gold prices registered an year over year increase of 33 % last fiscal and the concomitant high price for gold in India has also helped the perception change. The price increase has led a large number of overdue loans getting closed and your Company also had launched a one-time settlement scheme for enabling closure of overdue gold loans. Understanding the varying needs of the customer and as dictated by the competition in the market, your Company has been revisiting its bouquet of products consistently and launching new products with features suited to the various categories of borrowers. We expect the business growth for fiscal 2006-2007 to ride on these initiatives.

RESOURCES

Secured Non- Convertible Debentures

The term funds raised through secured non-convertible debentures continued to be a substantial resource base of the company. During the year under report, your company raised additionally Rs.317.09 crores through this route and net of repayments the outstanding balance as at 31.03.06 stood at Rs.618.02 crores against the base of Rs.593 crores. The outstanding under this portfolio registered a 4.2% increase year over year. The customer base under debentures was 1.2 lacs as against 1.11 lacs in the earlier year.

Bank Borrowings

In line with your company’s objective of increasing the share of bank finance in the liability side, additional borrowing limits were got sanctioned during the year under review. The bank borrowing limits stand as below:

(Amount in Rs Lacs)

SL NO: BANKS LIMIT

1 HDFC BANK 1,200.00

2 ABNAMRO BANK 1,500.00

3 DHANALAKSHMI BANK 1,000.00

4 INDUSIND BANK 2,000.00

5 INDUSTRIAL DEVELOPMENT BANK OF INDIA 2,500.00

6 UTI BANK 2,000.00

7 STATE BANK OF TRAVANCORE 2,000.00

12,200.00

Commercial Paper

Your Company was rated by Fitch Ratings India P Ltd., an international rating agency for short-term instruments and was awarded “F1” rating, which indicates ‘highest credit quality which indicates strongest capacity for timely payment of financial commitment’. This rating issued for the commercial paper issue programme for Rs.200 million has been revised to Rs.400 million in June 2005 with the same high rating “F1”. Commercial paper is an unsecured instrument issued by the Company, and this excellent rating gives leverage to raise resources in times of need from corporates having surplus funds.

OPERATIONS

The year under review saw all round progress in the operations of the company. The retail loan portfolio increased to Rs.780.34 crores as at 31.03.06 with the customer base of around 3million. While the interest income grew by 24.4% year over year, non-interest income registered 169% increase year over year mainly due to increase in money transfer business.

Thanks to the one time settlement offered and intensive recovery drive done at the branches the share of overdue loans falling into the non-performing asset category was a healthy 0.19%.

The Company could raise additional bank limit at competitive rates and this has enabled the Company to reduce the average


cost of funds to 8.78% as at 31.03.06 as against 10.02% as at 31.03.05.

During the year under report the company fine tuned its product bouquet and launched new gold loan products tailor-made to meet the requirements of specific class of borrowers. Marketing of gold loan products through marketing executives, participation in local exhibitions, telemarketing, renewing contacts with borrowers who ceased to be our customers etc. were the highlights of the intensive efforts taken during the year to increase the range and depth of the business. They have enabled your Company to achieve higher rates of growth all around.

The profit before tax rose to 50.1% in 2005-06 as compared to 2004-05, thanks not only to higher income but also due to better interest realization from overdue accounts

Net Worth

Your Board of Directors have decided to plough back the entire profit of the year further strengthening your Company’s net owned funds position. The net worth registered 42.6% increase year over year. The subordinate debt constituting Tier II Capital remains at Rs.40 crores.

Human Resource Department

In the firm belief that an organization is as good as its workforce, your company has taken series of initiatives to train, equip and nurture the skills of the employees. Practical training in gold appraisal is being imparted to the staff on a recurring basis together with courses on customer relationship management, know your customer norms, behavioral science, job enrichment etc. Your company follows a very humane placement and transfer policy and the endeavor to instill in them commitment and loyalty receives the company’s unremitting attention

Internal Control

The system of Audit and Inspection of branches was further strengthened during the year by fine-tuning the system as also induction of more audit staff. Through a system of surprise verification and monthly gold verification the quality of assets pledged and the risk exposure thereto are regularly analyzed and evaluated. The level of adherence to laid down instruction is being monitored constantly.

The Vigilance Department of your company effectively tackles the cases arising from pledge of spurious gold. Our loss exposure under this category is small and due to the constant training of staff the incidence of such pledges is also coming down.

A full-fledged Credit department has been created to drive the business growth under gold, follow-up of overdue accounts and recovery of NPA accounts.

The road ahead

Your company’s strength essentially lies in the wide distribution of its loan portfolio and the concomitant large customer base it has acquired. While the heat of competition in the field will intensify, your company is positioned to enjoy continually the niche market strengths it currently enjoys, thanks to the bouquet of products, flexibility of schemes to suit to the needs of the customers, the deep penetration in the retail market and market savvy approach to the business. Going forward, your Company foresee the share of credit to GDP ratio increasing relentlessly riding on robust economic growth and the share of gold loans in the credit side is bound to increase. We see a larger segment of middleclass and high net worth individuals seeing gold as a convenient option to raise liquidity casting aside sentiments. Your Company is well poised to meet this expected resurgence in credit demand.

ISO 9001- 2000

During the year under report, International Certifications Ltd, Auckland, New Zealand renewed its ISO 9001-2000 certification for a further period of 3 years, for our Quality Management systems in providing loans against security of gold ornaments.

Public relations

In order to make our Gold Loans more unique and differentiated from other ordinary loans we have branded our Gold Loan as “Gold Power”. Through our advertisement campaigns we have positioned it as a lifestyle product giving the customer the power


to realize his dreams. Through this campaign we have succeeded in attracting more high value customers to our branches. To further the customer delight, we have introduced a toll free number giving access to our customers to contact us free of cost from BSNL lines from anywhere in India. Composite boards are placed in all our branches giving information to our clients on the various services like Money Transfer, Forex, Gold Power etc. available in our branches.

Information as per Section 217 of the Companies Act, 1956

Particulars of employees drawing remuneration beyond the monetary ceiling prescribed under section 217(2A) of the Companies Act, 1956

SLNo:

Name of Employee

Age(yrs)

Designation Date ofCommencementof employment

Grossremuneration

Qualification TotalExperience

Lastemployment

1 Mr. M G GeorgeMuthoot

55 Chairman 06.11.2002 Rs.60,00,000 Engineer 30 years None

2 Mr. George Alexander Muthoot

50 Managing Director

20.11.2001 Rs.60,00,000 Chartered Accountant

25 years None

Particulars regarding Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Expenditure

Since the Company does not carry on manufacturing activities, the disclosure requirements as to the conservation of energy and technology absorption as per the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules 1988 are not applicable to the Company

Total Foreign Exchange used: NILTotal Foreign Exchange earned: NIL

Auditors

M/s Rangamani & Co., Chartered Accountants, the Statutory Auditors of the Company, retires at the forthcoming Annual General Meeting and are eligible for reappointment.

Directors

In accordance with the provisions of the Companies Act, 1956, Mrs. Anna Alexander retires by rotation at the ensuing Annual General Meeting and she is eligible for reappointment

Directors Responsibility Statement

As required under section 217(2AA) of the Companies Act, 1956 with respect to Directors Responsibility Statement, your Directors state that:

(i) In the preparation of the annual accounts, the applicable accounting standards has been followed along with proper explanation relating to any material departures.

(ii) Accounting policies selected were applied consistently. Reasonable and prudent judgments and estimates were made so as to give a true and fair view of the state of affairs of the Company as at 31st March 2006 and of the profit of the Company for the year ended on that date

(iii) Proper and sufficient care has been taken for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities.

(iv) The annual accounts of the Company have been prepared on a going concern basis.

Acknowledgement

Your Directors would like to express their sincere appreciation to all valued customers, clients, banks, rating agency and all well-wishers for their support and continued patronage.


The Board sincerely expresses its gratitude to Reserve Bank of India for guidance and support received from them time to time.

The Board also records its heartfelt gratitude to all the employees for rendering good quality service to every constituent of the Company’s business activities. Your Directors wish to place on record their appreciation to all employees for their hard and effective work, team spirit, dedication and loyalty to the Company. This has helped to ensure sustained and stable growth and excellent overall performance.

On behalf of the Board of Directors

Sd/-Kochi – 18 M G George Muthoot29/06/2006 Chairman

auditors’report


TO THE SHARE HOLDERS OF THE MUTHOOT FINANCE PVT. LTD.1. We have audited the attached Balance Sheet of The Muthoot Finance Private Limited, Cochin as at 31st March 2006, and the

annexed Profit and Loss Account for the year ended on that date. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

2. We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

3. As required by the Companies (Auditor’s Report) Order, 2003 issued by the Central Government of India in terms of Section 227 (4A) of the Companies Act, 1956, we give in Annexure- I a statement on the matters specified in paragraphs 4 and 5 of the said Order.

4. As required by the Non- Banking Financial Companies Auditor’s Report (Reserve Bank) Directions, 1998, we give in Annexure - II a statement on the matters specified in the paragraph 3 and 4 of the said directions.

5. Further to our comments referred to in paragraphs above, we report that:

a) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit.

b) In our opinion, proper books of accounts as required by law have been kept by the company so far as it appears from our examination of those books and proper returns adequate for the purpose of the audit have been received from branches not visited by us.

c) Balance Sheet and Profit and Loss Account dealt with by this report are in agreement with the books of account.

d) In our opinion, the Balance Sheet and Profit and Loss Account are in compliance with the Accounting Standards referred to in sub-section (3C) of Section 211 of the Companies Act 1956.

e) To the best of our information no directors of the company are disqualified from being appointed as director under Section 274(1)(g) of The Companies Act 1956.

f) In our opinion and to the best of our information and according to the explanations given to us, the said accounts give the information required by the Companies Act, 1956, in the manner so required and give a true and fair view in conformity with the accounting principles generally accepted in India.

i. In the case of the Balance Sheet , of the state of affairs of the Company as at 31st March 2006 ,

ii. In the case of the Profit and Loss Account, of the Profit of the Company for the year ended on that date.

Place : Alleppey Date : 29.06.2006

For RANGAMANI & Co. CHARTERED ACCOUNTANTS Sd/ R.SREENIVASAN Proprietor

The MuThooT Finance PrivaTe LiMiTed 1�

Annexure - I to the Auditors’ Report

(Referred to in para 3 of our report of even date)

As required by the Companies (Auditor’s Report) Order, 2003 issued by the Central Government, we state that:

1. Fixed Assets

The Company has maintained proper records showing full particulars including quantitative details and situation of fixed assets on the basis of information available. According to the information and explanation given to us, the fixed assets have been physically verified by the management during the year in a phased periodical manner which, in our opinion, is reasonable, having regard to the size of the company and nature of the assets. No material discrepancies have been noticed on such verification. No substantial part of fixed assets have been disposed off during the year to affect the going concern assumption.

2. Inventories

Since the company has not dealt with any goods and has not held stock at any time during the year, the requirements of clause (ii) of paragraph 4 of the Order relating to inventories are not applicable.

3. Loans and Advances

The Company has not granted any loans, secured or unsecured, to any parties covered in the register maintained u/s 301 of the Companies Act, 1956.

The Company has not taken any loans, secured or unsecured, from parties covered in the register maintained u/s 301 of the Companies Act, 1956.

4. Internal Control Procedures

In our opinion, and according to the information and explanations given to us, there are adequate internal control procedures commensurate with size of the company and the nature of its business for the purchase and sale of fixed assets. In our opinion and according to the information and explanation given to us, there is no continuing failure to correct major weaknesses in internal control.

5. Interested Transactions

The transactions that need to be entered into the register maintained under Section 301 of the Companies Act, 1956 have been entered.

During the year the company has received back the advance given to Muthoot Hospitals Pvt. Ltd.

6. Fixed Deposits

According to the information and explanations given to us, the company has not accepted any public deposit, hence the requirement of clause (vi) of paragraph 4 of the Order is not applicable.

7. Internal Audit

The Internal Audit functions are carried out by the Internal Audit Department of of the company and reported to the management. In our opinion, the internal audit system is commensurate with the size of the company and the nature of its business.

8. Cost Records

To the best of our information and according to the explanations given to us, the maintenance of cost records prescribed by Central Government under section 209 (1) (d) of the Companies Act, 1956 is not applicable to the Company.


9. Statutory Dues

According to the information and explanations given to us, there are no undisputed statutory dues payable in respect of Provident Fund, Investor Education and Protection Fund, Employees State Insurance, Income tax, Wealth tax, Sales tax, Customs Duty, Excise duty, Cess which are outstanding as at 31st March 2006, for a period of more than six months from the date they became payable.

10. Accumulated Losses

The Company does not have any accumulated Loss as at 31.03.2006 and it has not incurred cash losses during the financial year covered by our audit and the immediately preceding financial year.

11. Repayment of Loans

According to the information and explanations given to us, the company has not defaulted in repayment of dues to financial institutions or banks or debenture holders.

12. Others

i. The company has granted loans and advances on the basis of securities by way of pledge of shares, debentures and other securities, and in our opinion adequate documents and records are maintained.

ii. The Company is not a Chit Fund, Nidhi or Mutual Benefit Society. Hence the requirement of clause (xiii) of paragraph 4 of the Order is not applicable to the company.

iii. The company has kept adequate records of its transactions and contracts in shares, securities, debentures and other investments and timely entries have been made therein. The shares, securities, debentures and other investments are held in the name of the company.

iv. According to the information and explanations given to us, the company has not given any guarantee for loans taken by others from banks or financial institutions.

v. As per the information and explanations given to us, term loans were applied for the purpose for which they were obtained.

vi. According to the information and explanations given to us, no funds raised on short-term basis have been used for long term investment. Similarly no funds raised on long term basis have been used for short-term investments.

vii. According to the information and explanations given to us, no preferential allotment of shares has been made by the company to companies, firms or other parties listed in the register maintained under section 301 of the Companies Act, 1956.

viii. According to the information and explanations given to us, the Company has created securities in respect of Non-convertible Secured Debentures issued.

ix. Since the company has not made any public issue, the requirement of clause (xx) of paragraph 4 of the Order is not applicable to the company.

x. According to the information and explanations given to us, a fraud on or by the company has not been noticed or reported during the year.

Place:Alleppey Date: 29.06.2006



Annexure - II to the Auditors’ Report

(Referred to in para 4 of our report of even date)

As required by the Non-Banking Financial Companies Auditor’s Report (Reserve Bank) Directions, 1998 we state that:

i. The Company has obtained the Certificate of Registration dated 13.11.2001 from the Reserve Bank of India.

ii. The Board of Directors has passed a resolution for the non-acceptance of any public deposits.

iii. According to the information and explanations given to us, the company has not accepted any public deposits during the year ended 31.03.2006.

iv. According to the information and explanations given to us, the Company has complied with the prudential norms relating to income recognition, accounting standards, asset classification and provisioning for bad and doubtful debts as applicable to it.

Place : Alleppey Date : 29.06.2006


financialstatements


THE MUTHOOT FINANCE PRIVATE LIMITED BALANCE SHEET AS AT 31.03.2006 Sch.No. As on 31.03.06 As on 31.03.05

SOURCES OF FUNDS Share holders funds Share Capital 1 39,972,300 39,972,300 Reserves & Surplus 2 868,728,519 597,460,975 Secured Loans 3 7,370,409,183 6,399,126,146 Unsecured Loan 4 688,365,000 420,476,500

Total 8,967,475,002 7,457,035,921 APPLICATION OF FUNDS FIXED ASSETS Gross Block 582,343,116 349,165,479 Less:Depreciation 78,510,467 44,647,769 Net Block 503,832,649 304,517,710 Current Assets, Loans and Advances Cash & Bank Balances 5 369,277,964 194,093,122 Current Assets 6 614,647,765 415,361,564 Loans and Advances 7 7,951,461,173 6,936,557,936 Total 8,935,386,901 7,546,012,623 Less:Current Liabilities and Provisions 8 471,744,548 393,494,412 Net Current Assets 8,463,642,353 7,152,518,211

Total 8,967,475,002 7,457,035,921

Accounting policies, Notes on This is the Balance Sheet accounts and schedules form referred to in our report of part of accounts even date. Sd/-M.G.GEORGE MUTHOOT For RANGAMANI & Co. Chairman CHARTERED ACCOUNTANTS Sd/- R.SREENIVASAN Proprietor.

Sd/-GEORGE ALEXANDER MUTHOOT Managing Director

Amount in Rs.


THE MUTHOOT FINANCE PRIVATE LIMITED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2006 Sch.No. As on 31.03.06 As on 31.03.05

INCOME Interest Income 1,428,276,702 1,148,550,548 Other income 52,347,896 19,483,614 1,480,624,598 1,168,034,162 EXPENDITURE Interest Expenses 9 648,165,016 591,845,400 Administrative expenses 10 406,201,580 298,512,065 Directors Remuneration 12,900,000 1,980,000 Preliminary Expenses 369,450

1,067,266,595 892,706,915

Profit before tax 413,358,003 275,327,247 Less: Provision for Income Tax 114,600,000 Provision for Fringe Benefit Tax 3,050,000 Deferred tax Liability 24,440,459 142,090,459 98,561,132

Profit after tax 271,267,544 176,766,115 Statutory Reserve 54,253,509 35,353,223 Add:Balance carried forward from previous year 488,784,845 153,349,427 Balance carried to Balance sheet 705,798,880 294,762,319 Basic and diluted Earnings per share (Face value Rs.10/-) 54.29 35.38

This is the Profit and Loss Account referred to in our report of even date.

Sd/-M.G.GEORGE MUTHOOT Chairman For RANGAMANI & Co. CHARTERED ACCOUNTANTS Sd/- R.SREENIVASAN Sd/-GEORGE ALEXANDER MUTHOOT Proprietor Managing Director

Amount in Rs.


THE MUTHOOT FINANCE PRIVATE LIMITED SCHEDULES SCHEDULE - 1 Share Capital Authorised Capital Rs. 86,000,000 divided into 86,00,000 shares of Rs.10 each 86,000,000 86,000,000 Issued ,subscribed and paid-up capital 3997230 Equity shares of Rs.10 each (3,997,230 equity shares of Rs.10 each) 39,972,300 39,972,300 SCHEDULE - 2 Reserves & Surplus Share Premium 35,000,000 35,000,000 Statutory Reserve 127,929,639 73,676,130 Profit and loss account 705,798,880 488,784,845

868,728,519 597,460,975 SCHEDULE - 3 Secured loans Non Convertible Secured Debentures 6,180,203,000 5,929,993,000 (Secured by mortgage of immovable property and floating charge on current assets, book debts and Loans & advances) Bank Borrowings - Loan against Deposits 6,406,000 Overdraft against Deposit with Banks 45,226,177 14,654,737 Cash Credit 1,025,522,937 448,072,409 (Secured by floating charge on current assets, book debts and Loans & advances)

Collaterised Borrowing & Lending Obligation 119,457,069

7,370,409,183 6,399,126,146 SCHEDULE - 4 Unsecured loans -(including Tier II Capital) Share holder’s Deposits 288,365,000 20,066,000 Loan from Director 410,500 Subordinated debt(Tier II Capital) 400,000,000 400,000,000

688,365,000 420,476,500 SCHEDULE - 5 Cash & Bank Balances Cash in hand 132,803,517 58,736,613 Balances with Banks In current accounts 103,643,811 44,356,967 In Deposit accounts 132,830,636 90,999,542

369,277,964 194,093,122 SCHEDULE - 6 Current Assets Interest receivable 353,869,257 311,086,795 Tax Deducted at Source 2,351,782 2,720,501 Current Investments 122,908,240 Sundry Debtors 16,303,274 3,488,726 Advance Income tax 116,555,212 98,065,542 Advance - Fringe Benefit Tax 2,660,000 -

614,647,765 415,361,564 SCHEDULE - 7 Loans and Advances Retail Loans 7,803,426,300 6,676,588,226 Other Deposits & Advances 148,034,872 259,969,710

7,951,461,173 6,936,557,936


SCHEDULE - 8 Current Liabilities and Provisions a) Current liabilities Audit fee payable 100,000 65,000 Interest payable 301,530,410 266,780,691 T.D.S.Payable 8,993,252 Other Creditors& Expenses Payable 12,264,442 21,617,789 322,888,103 288,463,480 b) provisions Deferred tax 29,613,022 5,172,563 Provision for NPA 1,593,423 1,158,369 Provision for Income tax 114,600,000 98,700,000 Provision for Fringe Benefit Tax 3,050,000 Total 471,744,548 393,494,412 SCHEDULE - 9 Interest Expenses Interest on Secured Debentures 547,472,427 517,314,644 Interest on Others 100,692,589 74,530,755 648,165,016 591,845,400 SCHEDULE - 10 Administrative and other expenses Payment to Employees 148,862,071 85,207,818 Provident fund 2,334,053 1,569,876 Group gratuity premium 2,048,299 2,154,772 Postage telegram and telephone 24,603,990 19,437,349 Rent 32,383,612 25,054,049 Travelling and conveyance 13,382,209 10,227,720 Printing and stationary 13,588,068 9,883,099 Bank charges 6,450,705 2,297,569 Electricity charges 11,839,794 8,931,636 Repairs and maintanance 27,211,248 24,133,896 Water Charges 233,021 141,086 Taxes and licence fee 2,658,171 2,799,421 Staff welfare account 3,695,349 3,254,847 Legal & Professional Charges 3,928,151 1,959,249 Insurance charges 28,394,590 17,010,549 Hire charges 144,096 331,519 Lease Rent Paid 2,570 Investment Deficit 3,541,700 Newspaper and Periodicals 64,681 46,493 Business Promotion expense 10,367,373 11,816,087 Business Canvasing Expenses 17,441,226 Advertisement 29,121,292 18,481,873 Vehicle Maintanence 3,095,524 2,845,573 Audit and Inspection expenses 3,855,833 2,237,151 Depreciation 33,862,698 30,754,662 Audit fee: - for audit 75,000 45,000 -for taxation 25,000 20,000 Provision for NPA 435,054 426,975 406,201,580 298,512,065

Sd/-M.G.GEORGE MUTHOOT Chairman For RANGAMANI & Co. CHARTERED ACCOUNTANTS

Sd/-GEORGE ALEXANDER MUTHOOT Sd/-Managing Director R.SREENIVASAN Proprietor


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The MuThooT Finance PrivaTe LiMiTed 2�

NOTES FORMING PART OF ACCOUNTS1. BACKGROUND The Muthoot Finance Private Ltd. was incorporated on 14th March 1997. The company is promoted by The Muthoot Group

which has diversified interests in Finance, Health Care, Education, Plantations, Real Estate, Foreign Exchange, Information Technology, Insurance, Hotels etc. The Company obtained permission from the Reserve bank of India for carrying on the business of Non-banking financial institutions on 13.11.2001 vide Regn No. N 16.00167.

2. NEW VENTURES The company has installed and commissioned 3 nos. 1.25 MW. Wind turbine power generators at Keelveernam, Thirunelveli

District, Tamil Nadu State.

The company has obtained licence from Government of India for establishing and operating FM Radio Channnel in the city of Chennai, Tamil Nadu State.

3. SIGNIFICANT ACCOUNTING POLICIES

ACCOUNTING CONCEPT The financial statements are prepared on historical cost convention complying with the relevant provisions of the Com-

panies Act,1956 and the Accounting Standards issued by the Institute of Chartered Accountants of India, as applicable. The company follows prudential norms for income recognition and provisions for non-performing assets as prescribed by Reserve Bank of India for Non_Banking Finance Companies.

REVENUE RECOGNITION Revenues are recognised and expenses are accounted on accrual basis with necessary provisions for all known liabilities

and losses. Income on Non- Performing Assets accrues, and is recognised only when it is realised.

TREATMENT OF RETIREMENT BENEFITS a) Contributions are made to Provident Fund, Pension Fund and Employees Deposit Linked Insurance Scheme at the

prescribed rates and are charged to Profit & Loss Account at actuals.

b) The Company makes annual contribution to a Gratuity Fund administered by Trustees and managed by ICICI Prudential Life Insurance Co. Ltd. The Company accounts for its liability for future gratuity benefits based on actuarial valuation determined every year by the Insurance Company.

FIXED ASSETS The fixed assets are stated at historical cost less accumulated depreciation. Depreciation is charged at the rates specified

in Schedule XIV of the Companies Act, 1956 on Written down value method. Assets costing Rs. 5,000/- or less, acquired during the year, have been depreciated at the rate of 100 %.

TAXES ON INCOME Income Tax expenses comprises of current tax and deferred tax (charge or credit). Current tax is the amount of tax payable

on the taxable income for the year and determined in accordance with the provisions of the Income Tax Act 1961. Deferred tax is recognized, on timing differences, being the difference between taxable income and accounting income that originate in one period and are capable of reversal in one or more subsequent periods.

INVESTMENTS Current investments are valued at lower of cost and fair value.

DEBENTURE REDEMPTION RESERVE As per the Circular dated 18.04.2002 of Department of Company Affairs, no Debenture Redemption Reserve is to be created

for privately placed debentures of Non-Banking Finance Companies and hence no reserve is created.


4. Cash Credit under Secured Loans include working capital loans availed from the following Banks. Dhanalakshmi Bank Rs. 976,98,863.02 IndusInd Bank Rs.1769,55,584.17 ABN Amro Bank. N.V. Rs. 96536.76 State Bank of Travancore Rs 1999,99,994.00 Industrial Development Bank of India Rs 2489,21,777.00 HDFC Bank Rs 1041,13,127.37 UTI Bank Rs 1977,37,054.68

5. Subordinate Debt of Rs.4000 Lacs represent the amount raised from Directors and Share holders.

6. The Company had issued Secured Redeemable Non-Convertible Debentures under Non-cumulative scheme for a maturity period upto 5 years with an outstanding of Rs. 552.33 Crores and under Cumulative scheme for a maturity period ranging from 36months to 90months with an outstanding of Rs.65.69 Crores

7. In the opinion of the Board of Directors, Current Assets, Loans and Advances has a value as stated in the Balance Sheet, if realised in its ordinary course of business.

8. Current investments consists of : -

10.25 % Govt. of India 2021 (Face value Rs.1000 lakhs) Rs.122858300.00 Union Bank of India – 454 nos. Equity shares of Rs.10 each

fully paidup Rs. 49940.00

TOTAL Rs.122908240.00

9. LOANS AND ADVANCES (Rs. In lakhs) 31.03.2006 31.3.2005

Loans considered good in respect of which Company is fully secured 77633 66347

Loans and advances considered good and unsecured 242 303

Loans and advances considered bad and doubtful 159 116

Loans and advances due by Director or officers or any of them either severally or jointly with others Nil Nil

Loans and advances due by firms or private companies in which any Director is a partner or a Director or a member. Nil 2000

Loans and Advances due by companies under the same management within the meaning of section 370(1) (B) of the Companies Act. Nil Nil

Maximum amount due by directors or officers at any time during the year Nil Nil

Estimated Amount of Contracts remaining to be executed on capital accounts and not provided for Nil Nil

10. Contingent liabilities not provided for Nil Nil

11. Claims against the company not acknowledged as Debt Nil Nil

12. Earnings in foreign currency Nil Nil

13. Deposits from Shareholders including Directors 2883.65 200.66

14. Expenditure in foreign currency Nil Nil


15. Auditors’ Remuneration Statutory Audit 0.75 0.45 Tax Audit 0.25 0.20

16. Related Party Disclosures Key Management Personnel i. : M.G. George ii. : George Thomas iii. : George Jacob iv. : George Alexander v. : Alexander M George

Transactions with Related Parties Remuneration 140.84 29.85 Interest Paid 718.51 496.87

17. Deferred Tax @ 33.66% Deferred tax assets Provision for NPA 3.02 1.56 Deferred tax liabilities 299.15 53.29 Deferred tax (net) 296.13 51.73

18. Earnings Per Share Net Profit After Tax 2713 1768 Less: Statutory Reserve 543 353 Net profit attributable to E.P.S. 2170 1415 Weighted average number of equity shares outstanding 3997230 3997230

Earning Per Share (Basic and Diluted) 54.29 35.38

19. Managerial remuneration Managing Director 60.00 Nil Whole Time Directors 69.00 19.80

20. Segment Reporting The Company is primarily engaged in the business of financing. This, in the context of Accounting Standard 17 on Segment Reporting, issued by the Institute of Chartered Accountants of India, is considered to constitute one single primary segment.

21. Previous Year’s figures have been regrouped/ rearranged, where necessary.

For and on behalf of the board

Sd/-M.G. George Muthoot - Chairman

Sd/-George Alexander Muthoot - Managing Director

Place: Kochi – 18Date: 29.06.2006


THE MUTHOOT FINANCE PRIVATE LIMITED

CASH FLOW STATEMENT

A CASH FLOW FROM OPERATING ACTIVITIES

Net Profit 271,267,544 Adjustments for:- Provision for taxation 142,090,459 Provision for non-performing assets 435,054 Finance Expenses 648,165,015 Depreciation 33,862,698 OPERATING PROFIT BEFORE WORKING CAPITAL CHANGES 1,095,820,770 Adjustments for:- (Increase) Decrease in Loans and Advances (1,014,903,236) (Increase) Decrease in other Current Assets (178,136,530) Increase (decrease) in Current liabilities 34,424,623 CASH USED IN OPERATIONS (62,794,374) Finance Expenses (648,165,015) Direct tax paid (119,849,670) NET CASH USED IN OPERATING ACTIVITIES (830,809,059) B. CASH FLOW FROM INVESTING ACTIVITIES Purchase of Fixed Assets (233,817,578) Sale of Fixed Assets 639,941 NET CASH USED IN INVESTING ACTIVITIES (233,177,637) C CASH FLOW FROM FINANCING ACTIVITIES Increase (Decrease) in Debentures 250,210,000 Increase (Decrease) in Shareholders Deposits 267,888,500 Increase (Decrease) in Bank Borrowings 721,073,037 NET CASH FROM FINANCING ACTIVITIES 1,239,171,537 NET INCREASE IN CASH AND CASH EQUIVALENTS (A) + (B) + ( C ) 175,184,841 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 194,093,122 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 369,277,963 COMPONENTS OF CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR AS PER BALANCE SHEET Current Account with Banks 103,643,810 Deposit with Banks 132,830,636 Cash on Hand 132,803,517

TOTAL 369,277,963

Amount in Rs.


THE MUTHOOT FINANCE PRIVATE LTD. BALANCE SHEET ABSTRACT AND COMPANY’S GENERAL BUSINESS PROFILE INFORMATION AS REQUIRED UNDER PART IV OF THE SCHEDULE VI OF THE COMPANIES ACT, 1956

I Registration Details Registration No. 11300 State Code 0 9

Balance Sheet Date 31.03.06 Date Month Year

II Capital Raised during the year Public Issue Right Issue (Amounts in Rs. Thousands) NIL NIL

Bonus Issue Private Placement NIL NIL

III Position of Mobilisation and Deployment of Funds (Amount in Rs. Thousands) Total Liabilities Total Assets

Sources of funds 9439220 9439220

Paid up Capital Reserves & Surplus 39972 868729

Secured Loans Unsecured Loans 7370409 688365

Application of Funds Net Fixed Assets Investments 503833 122908

Net Current Assets Misc. Expenditure 8463642 NIL

Accumulated Loss NIL

IV Performance of Company

(Amount in Rs. Thousands) Turnover Total Expenditure 1480625 1067267

Profit / Loss Before Tax Profit / Loss After Tax + - 413358 + - 271268

(Please tick Appropriate box + for Profit, - Loss) Earnings per share

Rs. Ps. Dividend Rate % 54.29 0

V Generic Names of Principal Product / Services of the Company (as per monetary terms) Not Applicable Item Code No. (ITC Code)

Service Description LOAN COMPANY

Sd/- Sd/-M.G. George Muthoot George Alexander MuthootChairman Managing Director

√ √

MEMBERS ARE REQUESTED TO QUOTE THEIR FOLIO NO. HERE: FOLIO NO…

THE MUTHOOT FINANCE PRIVATE LTD.

Regd. Office: Muthoot Chambers, Opp. Saritha theatre complex, Banerji Road, Kochi-18

PROXY FORM

I/We ........................................................................................................... of ................................................ in the district of .....................Being a member(s) (folio) of the above named Company hereby appoint Mr/Ms. ..............................................................................................

of ................................. in the district of ................................. or failing him Mr/Ms .................................................................. of .................................................................. in the district of .................................................................. as my/our proxy to attend and vote for me/us on my/our behalf at the Ninth Annual General Meeting of the Company to be held at Muthoot Chambers, opp. Saritha Theatre Complex, Banerji Road, Kochi-18, at 10 a.m on Monday, 21st August 2006.

Signed this ........................................................ day of ................................ 2006

Full Name: ...............................................................................................................................................................................................................

Note:1. The proxy to be valid should be deposited at the Regd. Office of the Company at Muthoot Chambers, opp. Saritha Theatre

Complex, Banerji Road, Kochi-18, not less than 48 hours before the time for holding the meeting.

2. The proxy should be executed on Re 1 revenue stamp.

For Office use only

No. of Shares

Proxy No.

THE MUTHOOT FINANCE PRIVATE LTD.

Regd. Office: Muthoot Chambers, Opp. Saritha theatre complex, Banerji Road, Kochi-18

Attendance Slip

Please complete this attendance slip and hand it over at the entrance of the meeting hall.

Name of the member : .........................................................................................................................................................................................Folio No. :

I hereby record my presence at the at the Eighth Annual General Meeting of the Company to be held at Muthoot Chambers, opp. Saritha Theatre Complex, Banerji Road, Kochi-18, at 10 a.m on Monday , 21st August 2006.

Signature of the member or proxy:

Affix Re 1

revenue stamp

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